UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-03290
Name of Fund: BlackRock Variable Series Funds, Inc.
BlackRock Basic Value V.I. Fund
BlackRock Capital Appreciation V.I. Fund
BlackRock Equity Dividend V.I. Fund
BlackRock Global Allocation V.I. Fund
BlackRock Global Opportunities V.I. Fund
BlackRock High Yield V.I. Fund
BlackRock International V.I. Fund
BlackRock iShares Alternative Strategies V.I. Fund
BlackRock iShares Dynamic Allocation V.I Fund
BlackRock iShares Dynamic Fixed Income V.I. Fund
BlackRock iShares Equity Appreciation V.I. Fund
BlackRock Large Cap Core V.I. Fund
BlackRock Large Cap Growth V.I. Fund
BlackRock Large Cap Value V.I. Fund
BlackRock Managed Volatility V.I. Fund
BlackRock Money Market V.I. Fund
BlackRock S&P 500 Index V.I. Fund
BlackRock Total Return V.I. Fund
BlackRock U.S. Government Bond V.I. Fund
BlackRock Value Opportunities V.I. Fund
Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809
Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock Variable Series
Funds, Inc., 55 East 52nd Street, New York, NY 10055 |
Registrant’s telephone number, including area code: (800) 441-7762
Date of fiscal year end: 12/31/2015
Date of reporting period: 06/30/2015
Item 1 – Report to Stockholders
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
|
BLACKROCK®
|
BlackRock Variable Series Funds, Inc.
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee
|
The Markets in Review |
Dear Shareholder,
During the 12-month period ended June 30, 2015, market volatility increased from the remarkably low levels seen in recent years, although it remained below the historical average. In the middle of 2014, geopolitical tensions intensified in Ukraine and the Middle East and oil prices became highly volatile, stoking worries about economic growth outside the United States. The U.S. economy, however, was showing improvement, which made investors concerned that the U.S. Federal Reserve (the “Fed”) would raise short-term rates sooner than previously anticipated. The U.S. dollar appreciated and global credit markets tightened, ultimately putting a strain on investor flows.
In the fourth quarter, U.S. growth picked up considerably while the broader global economy showed more signs of slowing. This, combined with rising global risks, drove investors to the relative stability of U.S. assets. International markets continued to struggle even as the European Central Bank (“ECB”) and the Bank of Japan eased monetary policy. Oil prices plummeted due to a global supply-and-demand imbalance, sparking a selloff in energy-related assets and putting stress on emerging markets. Fixed income investors piled into U.S. Treasuries despite their persistently low yields, which had become attractive as compared to the even lower yields on international sovereign debt.
Equity markets reversed in early 2015, with international markets outperforming the United States as global risks abated. Investors had held high expectations for the U.S. economy, but a harsh winter and west coast port strike brought disappointing first-quarter data and high valuations took their toll on U.S. stocks, while bond yields fell to extreme lows. (Bond prices rise as yields fall.) In contrast, economic reports in Europe and Asia easily beat investors’ very low expectations, and accommodative policies from central banks in those regions helped international equities rebound. Oil prices stabilized, providing some relief for emerging market stocks, although a stronger U.S. dollar continued to be a headwind for the asset class.
U.S. economic data regained momentum in the second quarter, helping U.S. stocks resume an upward path. However, meaningful strength in the labor market underscored the likelihood that the Fed would raise short-term rates before the end of 2015 and bond yields moved swiftly higher. The period ended on a downbeat, but temporary, note as Greece’s long-brewing debt troubles came to an impasse. As the drama unfolded around the tumultuous negotiations between Greece and its creditors, investors feared the possibility of Greece leaving the euro zone and the impact such an event might have on global markets. Most asset classes broadly sold off, especially in Europe, even while macroeconomic and company fundamentals continued to improve.
At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to move freely as market conditions change over time. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.
Sincerely,
Rob Kapito
President, BlackRock Advisors, LLC
Rob Kapito
President, BlackRock Advisors, LLC
Total Returns as of June 30, 2015 | ||||
6-month |
12-month | |||
U.S. large cap equities |
1.23% |
7.42% | ||
U.S. small cap equities |
4.75 |
6.49 | ||
International equities |
5.52 |
(4.22) | ||
Emerging market equities |
2.95 |
(5.12) | ||
3-month Treasury bill |
0.01 |
0.02 | ||
U.S. Treasury securities |
(0.51) |
3.79 | ||
U.S. investment-grade bonds |
(0.10) |
1.86 | ||
Tax-exempt municipal bonds |
0.01 |
3.00 | ||
U.S. high yield bonds |
2.53 |
(0.39) | ||
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. |
THIS PAGE NOT PART OF YOUR FUND REPORT |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Basic Value V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Basic Value V.I. Fund |
Investment Objective |
BlackRock Basic Value V.I. Fund’s (the “Fund”) investment objective is to seek capital appreciation and, secondarily, income.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund outperformed its benchmark, the Russell 1000® Value Index. |
What factors influenced performance?
• | Stock selection in the energy sector was the largest positive contributor to relative performance. Significant positions in refiners Valero Energy Corporation and Marathon Petroleum Corporation each generated strong positive returns. At the same time, avoidance of large integrated oil companies Chevron Corporation and Exxon Mobil Corporation added to relative performance, as each declined significantly amid a weak oil price environment. |
• | Sector allocation also added value, in particular a substantial overweight to the top-performing health care sector and underweight to the poor-performing utilities sector. |
• | Within consumer staples, top holding Kroger Co. continued its upward momentum, prompting a reduction in the Fund’s position. In addition, a lack of exposure to large benchmark constituent Procter & Gamble Inc. added value, as strength in the dollar and lackluster growth in emerging markets challenged the company’s substantial international business. |
• | Positive contributions within health care were led by the Fund’s exposure to the pharmaceuticals industry. In particular, a position in Hospira, Inc. rose significantly on news of an acquisition by Pfizer, Inc. Pfizer was one of the Fund’s largest positions, and its shares reacted positively as well to the deal, as Hospira’s position in generic versions of biologic drugs |
was seen as a valuable addition. The deal is expected to add to Pfizer’s earnings per share and increase the company’s growth rate. |
• | An overweight in information technology (“IT”) negatively impacted performance, driven largely by above-benchmark exposure to the communications equipment industry. Specifically, a position in QUALCOMM Inc. declined amid concerns over its business in China, while Ericsson fell after reporting lower-than-expected quarterly earnings in April. |
• | Stock selection in the telecommunication services (“telecom”) sector detracted modestly from relative performance. Not owning large benchmark holding AT&T Inc. hurt results, as the company received investor attention in advance of its imminent acquisition of DirecTV. We continue to view Verizon Communications Inc. as the likely winner among wireless providers, with the most differentiated and highest quality network, and it trades at a discount to AT&T. |
Describe recent portfolio activity.
• | During the period, the investment advisor increased the Fund’s investments in the consumer discretionary, telecom services and energy sectors, while reducing exposure to IT, consumer staples and health care. |
Describe portfolio positioning at period end.
• | Relative to the Russell 1000® Value Index, the Fund ended the period with the largest sector overweight positions in consumer discretionary and health care, while the most significant underweights were industrials, consumer staples and utilities. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Sector Allocation | Percent of Long-Term Investments |
Financials | 31 | % | ||
Health Care | 17 | |||
Energy | 13 | |||
Consumer Discretionary | 13 | |||
Information Technology | 10 | |||
Telecommunication Services | 5 | |||
Industrials | 4 | |||
Utilities | 3 | |||
Materials | 2 | |||
Consumer Staples | 2 |
For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Basic Value V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. |
2 | The Fund invests primarily in equity securities that Fund management believes are undervalued, which means that their prices are less than Fund management believes they are worth. |
3 | An unmanaged index that is a subset of the Russell 1000® Index that consists of those Russell 1000® securities with lower price-to-book ratios and lower expected growth values. |
Performance Summary for the Period Ended June 30, 2015 | ||||||||||||||||
Average Annual Total Returns | ||||||||||||||||
6-Month Total Returns5 | 1 Year5 | 5 Years5 | 10 Years5 | |||||||||||||
Class I4 | 3.23 | % | 5.55 | % | 16.43 | % | 7.94 | % | ||||||||
Class II4 | 3.11 | 5.36 | 16.23 | 7.78 | ||||||||||||
Class III4 | 3.07 | 5.22 | 16.10 | 7.67 | ||||||||||||
Russell 1000® Value Index | (0.61 | ) | 4.13 | 16.50 | 7.05 |
4 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
5 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example | ||||||||||||||
Actual | Hypothetical7 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value | Expenses Paid During the Period6 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period6 | Annualized Ratio | ||||||||
Class I | $1,000.00 | $1,032.30 | $3.63 | $1,000.00 | $1,012.22 | $3.61 | 0.72% | |||||||
Class II | $1,000.00 | $1,031.10 | $4.48 | $1,000.00 | $1,020.38 | $4.46 | 0.89% | |||||||
Class III | $1,000.00 | $1,030.70 | $5.04 | $1,000.00 | $1,019.84 | $5.01 | 1.00% |
6 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
7 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Basic Value V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Basic Value V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Aerospace & Defense — 1.7% | ||||||||
Honeywell International, Inc. | 15,140 | $ | 1,543,826 | |||||
Northrop Grumman Corp. | 5,160 | 818,531 | ||||||
Raytheon Co. | 58,930 | 5,638,422 | ||||||
Spirit AeroSystems Holdings, Inc., Class A (a) | 14,830 | 817,281 | ||||||
|
| |||||||
8,818,060 | ||||||||
Airlines — 0.4% | ||||||||
American Airlines Group, Inc. | 54,060 | 2,158,886 | ||||||
Auto Components — 1.3% | ||||||||
Lear Corp. | 59,340 | 6,661,508 | ||||||
Automobiles — 1.4% | ||||||||
General Motors Co. | 189,800 | 6,326,034 | ||||||
Thor Industries, Inc. | 14,439 | 812,627 | ||||||
|
| |||||||
7,138,661 | ||||||||
Banks — 13.8% | ||||||||
Citigroup, Inc. | 451,520 | 24,941,965 | ||||||
JPMorgan Chase & Co. | 382,366 | 25,909,120 | ||||||
KeyCorp | 214,320 | 3,219,086 | ||||||
Regions Financial Corp. | 402,680 | 4,171,765 | ||||||
Wells Fargo & Co. | 222,840 | 12,532,522 | ||||||
|
| |||||||
70,774,458 | ||||||||
Capital Markets — 1.5% | ||||||||
Ameriprise Financial, Inc. | 9,840 | 1,229,311 | ||||||
KKR & Co. LP (a) | 57,354 | 1,310,539 | ||||||
Morgan Stanley | 118,770 | 4,607,088 | ||||||
State Street Corp. | 4,180 | 321,860 | ||||||
|
| |||||||
7,468,798 | ||||||||
Chemicals — 2.2% | ||||||||
Akzo Nobel NV — ADR | 258,420 | 6,284,774 | ||||||
Celanese Corp., Series A | 9,640 | 692,923 | ||||||
LyondellBasell Industries NV, Class A | 43,550 | 4,508,296 | ||||||
|
| |||||||
11,485,993 | ||||||||
Communications Equipment — 8.5% | ||||||||
Cisco Systems, Inc. | 795,790 | 21,852,393 | ||||||
Motorola Solutions, Inc. | 16,100 | 923,174 | ||||||
QUALCOMM, Inc. | 238,050 | 14,909,071 | ||||||
Telefonaktiebolaget LM Ericsson — ADR | 572,800 | 5,980,032 | ||||||
|
| |||||||
43,664,670 | ||||||||
Construction & Engineering — 0.8% | ||||||||
AECOM (a) | 55,200 | 1,826,016 | ||||||
Jacobs Engineering Group, Inc. (a) | 52,610 | 2,137,018 | ||||||
|
| |||||||
3,963,034 | ||||||||
Consumer Finance — 5.8% | ||||||||
Capital One Financial Corp. (b) | 157,300 | 13,837,681 |
Common Stocks | Shares | Value | ||||||
Consumer Finance (concluded) | ||||||||
Discover Financial Services | 229,710 | $ | 13,235,890 | |||||
SLM Corp. (a) | 277,280 | 2,736,754 | ||||||
|
| |||||||
29,810,325 | ||||||||
Containers & Packaging — 0.1% | ||||||||
Crown Holdings, Inc. (a) | 10,180 | 538,624 | ||||||
Diversified Financial Services — 2.0% | ||||||||
The NASDAQ OMX Group, Inc. | 207,120 | 10,109,527 | ||||||
Diversified Telecommunication Services — 2.9% | ||||||||
Verizon Communications, Inc. | 315,740 | 14,716,641 | ||||||
Electric Utilities — 0.7% | ||||||||
Exelon Corp. | 120,020 | 3,771,028 | ||||||
FirstEnergy Corp. | 1,570 | 51,104 | ||||||
|
| |||||||
3,822,132 | ||||||||
Electronic Equipment, Instruments & Components — 0.2% |
| |||||||
Avnet, Inc. | 25,670 | 1,055,294 | ||||||
Energy Equipment & Services — 1.0% | ||||||||
Baker Hughes, Inc. | 17,500 | 1,079,750 | ||||||
Halliburton Co. | 8,510 | 366,526 | ||||||
Superior Energy Services, Inc. | 166,720 | 3,507,789 | ||||||
|
| |||||||
4,954,065 | ||||||||
Food & Staples Retailing — 1.4% | ||||||||
CVS Health Corp. | 11,680 | 1,224,998 | ||||||
The Kroger Co. | 85,191 | 6,177,199 | ||||||
|
| |||||||
7,402,197 | ||||||||
Food Products — 0.3% | ||||||||
Kellogg Co. | 3,120 | 195,624 | ||||||
Tyson Foods, Inc., Class A | 34,840 | 1,485,229 | ||||||
|
| |||||||
1,680,853 | ||||||||
Gas Utilities — 0.0% | ||||||||
UGI Corp. | 2,985 | 102,833 | ||||||
Health Care Equipment & Supplies — 5.4% | ||||||||
Baxter International, Inc. | 160,590 | 11,230,059 | ||||||
Hologic, Inc. (a)(b) | 170,930 | 6,505,596 | ||||||
Medtronic PLC | 88,828 | 6,582,155 | ||||||
Zimmer Holdings, Inc. | 28,210 | 3,081,378 | ||||||
|
| |||||||
27,399,188 | ||||||||
Health Care Providers & Services — 4.7% | ||||||||
Community Health Systems, Inc. (a) | 110,770 | 6,975,187 | ||||||
Laboratory Corp. of America Holdings (a) | 73,480 | 8,907,246 | ||||||
Quest Diagnostics, Inc. | 110,860 | 8,039,567 | ||||||
|
| |||||||
23,922,000 |
Portfolio Abbreviation |
ADR American Depositary Receipts |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock Basic Value V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Hotels, Restaurants & Leisure — 0.0% | ||||||||
Wyndham Worldwide Corp. | 2,310 | $ | 189,212 | |||||
Household Durables — 2.0% | ||||||||
Newell Rubbermaid, Inc. | 218,770 | 8,993,635 | ||||||
Tupperware Brands Corp. (b) | 15,160 | 978,426 | ||||||
|
| |||||||
9,972,061 | ||||||||
Independent Power and Renewable Electricity Producers — 2.2% |
| |||||||
AES Corp. | 588,030 | 7,797,278 | ||||||
Dynegy, Inc. (a) | 111,910 | 3,273,368 | ||||||
|
| |||||||
11,070,646 | ||||||||
Insurance — 6.1% | ||||||||
ACE Ltd. | 9,580 | 974,094 | ||||||
Genworth Financial, Inc., Class A (a) | 471,050 | 3,565,849 | ||||||
The Hartford Financial Services Group, Inc. | 158,481 | 6,588,055 | ||||||
Lincoln National Corp. | 132,837 | 7,866,607 | ||||||
MetLife, Inc. | 38,101 | 2,133,275 | ||||||
Prudential Financial, Inc. | 55,060 | 4,818,851 | ||||||
XL Group PLC | 138,810 | 5,163,732 | ||||||
|
| |||||||
31,110,463 | ||||||||
IT Services — 0.5% | ||||||||
Total System Services, Inc. | 35,680 | 1,490,354 | ||||||
The Western Union Co. | 17,590 | 357,605 | ||||||
Xerox Corp. | 61,980 | 659,467 | ||||||
|
| |||||||
2,507,426 | ||||||||
Media — 4.0% | ||||||||
Cablevision Systems Corp., Class A (b) | 34,100 | 816,354 | ||||||
The Interpublic Group of Cos., Inc. | 83,530 | 1,609,623 | ||||||
Scripps Networks Interactive, Inc., Class A (b) | 31,500 | 2,059,155 | ||||||
Starz, Class A (a) | 23,858 | 1,066,930 | ||||||
Time Warner Cable, Inc. (a) | 15,540 | 2,768,762 | ||||||
Viacom, Inc., Class B | 186,810 | 12,075,398 | ||||||
|
| |||||||
20,396,222 | ||||||||
Multiline Retail — 1.5% | ||||||||
Macy’s, Inc. | 116,860 | 7,884,544 | ||||||
Multi-Utilities — 0.0% | ||||||||
PG&E Corp. | 1,050 | 51,555 | ||||||
Oil, Gas & Consumable Fuels — 12.0% | ||||||||
Apache Corp. | 179,670 | 10,354,382 | ||||||
Gulfport Energy Corp. (a) | 170,830 | 6,875,908 | ||||||
Marathon Oil Corp. | 645,592 | 17,134,012 | ||||||
Marathon Petroleum Corp. | 111,420 | 5,828,380 | ||||||
Suncor Energy, Inc. | 226,020 | 6,220,070 | ||||||
Valero Energy Corp. | 240,320 | 15,044,032 | ||||||
|
| |||||||
61,456,784 | ||||||||
Pharmaceuticals — 6.8% | ||||||||
Johnson & Johnson | 29,760 | 2,900,410 | ||||||
Pfizer, Inc. | 752,940 | 25,246,078 | ||||||
Teva Pharmaceutical Industries Ltd. — ADR | 115,590 | 6,831,369 | ||||||
|
| |||||||
34,977,857 | ||||||||
Professional Services — 1.4% | ||||||||
ManpowerGroup, Inc. | 6,660 | 595,271 | ||||||
Nielsen Holdings NV | 144,300 | 6,460,311 | ||||||
|
| |||||||
7,055,582 |
Common Stocks | Shares | Value | ||||||
Real Estate Investment Trusts (REITs) — 1.8% | ||||||||
Brixmor Property Group, Inc. | 42,240 | $ | 977,011 | |||||
Outfront Media, Inc. | 185,356 | 4,678,385 | ||||||
Starwood Property Trust, Inc. | 164,950 | 3,557,972 | ||||||
|
| |||||||
9,213,368 | ||||||||
Semiconductors & Semiconductor Equipment — 0.9% |
| |||||||
Teradyne, Inc. | 230,150 | 4,439,594 | ||||||
Software — 0.2% | ||||||||
Microsoft Corp. | 6,900 | 304,635 | ||||||
Oracle Corp. | 20,370 | 820,911 | ||||||
|
| |||||||
1,125,546 | ||||||||
Specialty Retail — 2.3% | ||||||||
The Gap, Inc. (b) | 104,150 | 3,975,406 | ||||||
GNC Holdings, Inc., Class A | 170,360 | 7,577,613 | ||||||
|
| |||||||
11,553,019 | ||||||||
Wireless Telecommunication Services — 1.7% | ||||||||
Telephone & Data Systems, Inc. | 234,714 | 6,900,592 | ||||||
United States Cellular Corp. (a) | 47,561 | 1,791,623 | ||||||
|
| |||||||
8,692,215 | ||||||||
Total Common Stocks — 99.5% | 509,343,841 | |||||||
Preferred Stocks | ||||||||
Food Products — 0.3% | ||||||||
Tyson Foods, Inc., 4.75% (c) | 28,099 | 1,447,379 | ||||||
Machinery — 0.1% | ||||||||
Stanley Black & Decker, Inc., 6.25% (c) | 3,270 | 389,948 | ||||||
Total Preferred Stocks — 0.4% | 1,837,327 | |||||||
Total Long-Term Investments (Cost — $434,366,210) — 99.9% | 511,181,168 | |||||||
Short-Term Securities | ||||||||
BlackRock Liquidity Funds, TempFund, | 698,586 | 698,586 | ||||||
Beneficial Interest (000) | ||||||||
BlackRock Liquidity Series, LLC, Money Market | $ | 18,928 | 18,927,979 | |||||
Total Short-Term Securities (Cost — $19,626,565) — 3.8% | 19,626,565 | |||||||
Total Investments (Cost — $453,992,775) — 103.7% |
| 530,807,733 | ||||||
Liabilities in Excess of Other Assets — (3.7)% | (19,033,918 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 511,773,815 | ||||||
|
|
Notes to Schedule of Investments |
(a) | Non-income producing security. |
(b) | Security, or a portion of security, is on loan. |
(c) | Convertible security. |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (concluded) | BlackRock Basic Value V.I. Fund |
(d) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/Beneficial Interest Held at December 31, 2014 | Net Activity | Shares/Beneficial Interest Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 2,354,761 | (1,656,175 | ) | 698,586 | $ | 1,625 | ||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $ | 1,050,868 | $ | 17,877,111 | $ | 18,927,979 | $ | 7,065 | 1 |
1 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(e) | Represents the current yield as of report date. |
(f) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following tables summarize the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Long-Term Investments1 | $ | 511,181,168 | — | — | $ | 511,181,168 | ||||||||||
Short-Term Securities | 698,586 | $ | 18,927,979 | — | 19,626,565 | |||||||||||
|
| |||||||||||||||
Total | $ | 511,879,754 | $ | 18,927,979 | — | $ | 530,807,733 | |||||||||
|
| |||||||||||||||
1 See above Schedule of Investments for values in each industry. | ||||||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 246,422 | — | — | $ | 246,422 | ||||||||||
Liabilities: | ||||||||||||||||
Collateral on securities loaned at value | — | $ | (18,927,979 | ) | — | (18,927,979 | ) | |||||||||
|
| |||||||||||||||
Total | $ | 246,422 | $ | (18,927,979 | ) | — | $ | (18,681,557 | ) | |||||||
|
|
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Basic Value V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $18,627,663) (cost — $434,366,210) | $ | 511,181,168 | ||
Investments at value — affiliated (cost — $19,626,565) | 19,626,565 | |||
Cash | 246,422 | |||
Receviables: | ||||
Investments sold | 5,040,708 | |||
Securities lending — affiliated | 1,803 | |||
Capital shares sold | 51,042 | |||
Dividends — affiliated | 125 | |||
Dividends — unaffiliated | 485,318 | |||
From the Manager | 92,015 | |||
Prepaid expenses | 1,148 | |||
|
| |||
Total assets | 536,726,314 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 18,927,979 | |||
Payables: | ||||
Investments purchased | 4,881,820 | |||
Capital shares redeemed | 608,987 | |||
Distribution fees | 11,843 | |||
Investment advisory fees | 258,140 | |||
Officer’s and Directors’ fees | 2,501 | |||
Other affiliates | 2,558 | |||
Other accrued expenses payable | 258,671 | |||
|
| |||
Total liabilities | 24,952,499 | |||
|
| |||
Net Assets | $ | 511,773,815 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 391,175,521 | ||
Undistributed net investment income | 3,700,485 | |||
Undistributed net realized gain | 40,082,851 | |||
Net unrealized appreciation (depreciation) | 76,814,958 | |||
|
| |||
Net Assets | $ | 511,773,815 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $452,773,741 and 26,717,250 shares outstanding, 300 million shares authorized, $0.10 par value | $ | 16.95 | ||
|
| |||
Class II — Based on net assets of $6,261,397 and 370,733 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 16.89 | ||
|
| |||
Class III — Based on net assets of $52,738,677 and 3,135,164 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 16.82 | ||
|
|
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Basic Value V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 5,665,536 | ||
Securities lending — affiliated — net | 7,065 | |||
Dividends — affiliated | 1,625 | |||
Foreign taxes withheld | (77,959 | ) | ||
|
| |||
Total income | 5,596,267 | |||
|
| |||
Expenses | ||||
Investment advisory | 1,565,759 | |||
Transfer agent | 258 | |||
Transfer agent — Class I | 390,011 | |||
Transfer agent — Class II | 6,209 | |||
Transfer agent — Class III | 52,999 | |||
Distribution — Class II | 4,698 | |||
Distribution — Class III | 66,549 | |||
Accounting services | 59,215 | |||
Professional | 36,385 | |||
Custodian | 29,429 | |||
Officer and Directors | 11,891 | |||
Miscellaneous | 19,928 | |||
|
| |||
Total expenses | 2,243,331 | |||
Less fees waived by the Manager | (1,536 | ) | ||
Less transfer agent fees reimbursed — Class I | (251,286 | ) | ||
Less transfer agent fees reimbursed — Class II | (3,704 | ) | ||
Less transfer agent fees reimbursed — Class III | (29,041 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 1,957,764 | |||
|
| |||
Net investment income | 3,638,503 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain from investments | 38,784,509 | |||
Net change in unrealized appreciation (depreciation) on investments | (25,574,209 | ) | ||
|
| |||
Total realized and unrealized gain | 13,210,300 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 16,848,803 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Statements of Changes in Net Assets | BlackRock Basic Value V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 3,638,503 | $ | 6,810,296 | ||||
Net realized gain | 38,784,509 | 66,520,534 | ||||||
Net change in unrealized appreciation (depreciation) | (25,574,209 | ) | (26,442,513 | ) | ||||
|
| |||||||
Net increase in net assets resulting from operations | 16,848,803 | 46,888,317 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | — | (6,196,076 | ) | |||||
Class II | — | (77,358 | ) | |||||
Class III | — | (628,706 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (57,468,228 | ) | |||||
Class II | — | (824,074 | ) | |||||
Class III | — | (7,203,225 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (72,397,667 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets derived from capital share transactions | (34,577,939 | ) | 52,815,040 | |||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | (17,729,136 | ) | 27,305,690 | |||||
Beginning of period | 529,502,951 | 502,197,261 | ||||||
|
| |||||||
End of period | $ | 511,773,815 | $ | 529,502,951 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 3,700,485 | $ | 61,982 | ||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights | BlackRock Basic Value V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.42 | $ | 17.44 | $ | 12.80 | $ | 11.43 | $ | 11.94 | $ | 10.75 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.12 | 0.25 | 0.22 | 0.22 | 0.19 | 0.17 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.41 | 1.51 | 4.65 | 1.38 | (0.48 | ) | 1.20 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.53 | 1.76 | 4.87 | 1.60 | (0.29 | ) | 1.37 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.27 | ) | (0.23 | ) | (0.23 | ) | (0.22 | ) | (0.18 | ) | |||||||||||||
Net realized gain | — | (2.51 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (2.78 | ) | (0.23 | ) | (0.23 | ) | (0.22 | ) | (0.18 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 16.95 | $ | 16.42 | $ | 17.44 | $ | 12.80 | $ | 11.43 | $ | 11.94 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 3.23 | %4 | 9.93 | % | 38.07 | % | 14.05 | % | (2.45 | )% | 12.80 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.83 | %5 | 0.85 | % | 0.84 | % | 0.79 | % | 0.67 | % | 0.67 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.72 | %5 | 0.72 | % | 0.72 | % | 0.71 | % | 0.67 | % | 0.67 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.42 | %5 | 1.40 | % | 1.41 | % | 1.79 | % | 1.58 | % | 1.57 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 452,774 | $ | 468,876 | $ | 448,299 | $ | 363,954 | $ | 366,990 | $ | 433,249 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 39 | % | 47 | % | 42 | % | 58 | % | 56 | % | ||||||||||||
|
| |||||||||||||||||||||||
Class II | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.38 | $ | 17.40 | $ | 12.77 | $ | 11.40 | $ | 11.91 | $ | 10.72 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.10 | 0.22 | 0.19 | 0.20 | 0.17 | 0.15 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.41 | 1.51 | 4.64 | 1.38 | (0.48 | ) | 1.21 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.51 | 1.73 | 4.83 | 1.58 | (0.31 | ) | 1.36 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.24 | ) | (0.20 | ) | (0.21 | ) | (0.20 | ) | (0.17 | ) | |||||||||||||
Net realized gain | — | (2.51 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (2.75 | ) | (0.20 | ) | (0.21 | ) | (0.20 | ) | (0.17 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 16.89 | $ | 16.38 | $ | 17.40 | $ | 12.77 | $ | 11.40 | $ | 11.91 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 3.11 | %4 | 9.75 | % | 37.85 | % | 13.89 | % | (2.64 | )% | 12.67 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.01 | %5 | 1.02 | % | 1.01 | % | 0.95 | % | 0.82 | % | 0.82 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.89 | %5 | 0.89 | % | 0.89 | % | 0.87 | % | 0.82 | % | 0.82 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.25 | %5 | 1.23 | % | 1.24 | % | 1.63 | % | 1.41 | % | 1.42 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 6,261 | $ | 6,233 | $ | 6,715 | $ | 6,058 | $ | 6,462 | $ | 8,948 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 39 | % | 47 | % | 42 | % | 58 | % | 56 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Financial Highlights (concluded) | BlackRock Basic Value V.I. Fund |
Class III | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.32 | $ | 17.35 | $ | 12.74 | $ | 11.37 | $ | 11.89 | $ | 10.71 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.10 | 0.20 | 0.17 | 0.19 | 0.16 | 0.14 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.40 | 1.50 | 4.62 | 1.38 | (0.49 | ) | 1.20 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.50 | 1.70 | 4.79 | 1.57 | (0.33 | ) | 1.34 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.22 | ) | (0.18 | ) | (0.20 | ) | (0.19 | ) | (0.16 | ) | |||||||||||||
Net realized gain | — | (2.51 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (2.73 | ) | (0.18 | ) | (0.20 | ) | (0.19 | ) | (0.16 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 16.82 | $ | 16.32 | $ | 17.35 | $ | 12.74 | $ | 11.37 | $ | 11.89 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 3.07 | %4 | 9.63 | % | 37.65 | % | 13.81 | % | (2.78 | )% | 12.51 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.11 | %5 | 1.11 | % | 1.12 | % | 1.05 | % | 0.92 | % | 0.92 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 1.00 | %5 | 1.00 | % | 1.00 | % | 0.98 | % | 0.92 | % | 0.92 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.14 | %5 | 1.11 | % | 1.14 | % | 1.52 | % | 1.37 | % | 1.33 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 52,739 | $ | 54,394 | $ | 47,184 | $ | 38,758 | $ | 35,132 | $ | 28,818 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 39 | % | 47 | % | 42 | % | 58 | % | 56 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (Unaudited) | BlackRock Basic Value V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Basic Value V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I, Class II and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class II and Class III Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value each business day.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (continued) | BlackRock Basic Value V.I. Fund |
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Preferred Stock: The Fund may invest in preferred stock. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value1 | Cash Collateral Received2 | Net Amount | |||||||
BNP Paribas S.A. | $ | 968,100 | $ | (968,100 | ) | |||||
JP Morgan Securities LLC | 2,939,090 | (2,939,090 | ) | — | ||||||
UBS AG | 14,720,473 | (14,720,473 | ) | — | ||||||
|
| |||||||||
Total | $ | 18,627,663 | $ | (18,627,663 | ) | — | ||||
|
|
1 | Securities loaned with a value of $137,583 have been sold and are pending settlement as of June 30, 2015. |
2 | Collateral with a value of $18,927,979 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Basic Value V.I. Fund |
the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | ||||
First $1 Billion | 0.60 | % | |||
$1 Billion - $3 Billion | 0.56 | % | |||
$3 Billion - $5 Billion | 0.54 | % | |||
$5 Billion - $10 Billion | 0.52 | % | |||
Greater than $10 Billion | 0.51 | % |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $2,564 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at annual rates of 0.15% and 0.25% based upon the average daily net assets attributable to Class II and Class III, respectively.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
Class I | 0.06 | % | ||
Class II | 0.08 | % | ||
Class III | 0.09 | % |
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I, 1.40% for Class II and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (continued) | BlackRock Basic Value V.I. Fund |
lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 71.5% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 75% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $1,928 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $152,323,267 and $148,585,951, respectively.
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 455,659,746 | ||
|
| |||
Gross unrealized appreciation | $ | 92,895,890 | ||
Gross unrealized depreciation | (17,747,903 | ) | ||
|
| |||
Net unrealized appreciation | $ | 75,147,987 | ||
|
|
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (concluded) | BlackRock Basic Value V.I. Fund |
8. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
As of June 30, 2015, the Fund invested a significant portion of its assets in securities in the financials sector. Changes in economic conditions affecting such sector would have a greater impact on the Fund and could affect the value, income and/or liquidity of positions in such securities.
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class I | ||||||||||||||||||
Shares sold | 334,024 | $ | 5,618,625 | 2,527,803 | $ | 42,399,921 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 3,822,932 | 63,664,304 | ||||||||||||||
Shares redeemed | (2,176,987 | ) | (36,746,818 | ) | (3,498,473 | ) | (63,489,519 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase (decrease) | (1,842,963 | ) | $ | (31,128,193 | ) | 2,852,262 | $ | 42,574,706 | ||||||||||
|
|
|
| |||||||||||||||
Class II | ||||||||||||||||||
Shares sold | 1,062 | $ | 18,184 | 361 | $ | 6,563 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 54,258 | 901,432 | ||||||||||||||
Shares redeemed | (10,947 | ) | (184,485 | ) | (59,950 | ) | (1,082,618 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net decrease | (9,885 | ) | $ | (166,301 | ) | (5,331 | ) | $ | (174,623 | ) | ||||||||
|
|
|
| |||||||||||||||
Class III | ||||||||||||||||||
Shares sold | 310,301 | $ | 5,190,953 | 921,717 | $ | 16,530,075 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 473,183 | 7,831,931 | ||||||||||||||
Shares redeemed | (508,550 | ) | (8,474,398 | ) | (781,006 | ) | (13,947,049 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase (decrease) | (198,249 | ) | $ | (3,283,445 | ) | 613,894 | $ | 10,414,957 | ||||||||||
|
|
|
| |||||||||||||||
Total Net Increase (Decrease) | (2,051,097 | ) | $ | (34,577,939 | ) | 3,460,825 | $ | 52,815,040 | ||||||||||
|
|
|
|
10. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income and a long-term capital gain distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015:
Net Investment Income | Long-Term Capital Gain | |||||
Class I | $0.002054 | $0.098674 | ||||
Class II | $0.002054 | $0.098674 | ||||
Class III | $0.002054 | $0.098674 |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Capital Appreciation V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Capital Appreciation V.I. Fund |
Investment Objective |
BlackRock Capital Appreciation V.I. Fund’s (the “Fund”) investment objective is to seek long-term growth of capital.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund outperformed the benchmark Russell 1000® Growth Index and the broad-market Standard and Poor’s (“S&P”) 500® Index. The following discussion of relative performance pertains to the Russell 1000® Growth Index. |
What factors influenced performance?
• | Relative to the Russell 1000® Growth Index, the Fund’s holdings in the health care and consumer discretionary sectors were the largest contributors to performance. Pharmaceuticals and biotechnology were the primary sources of relative outperformance in health care, while internet & catalog retail had the greatest positive impact within consumer discretionary. |
• | In stock specifics, Netflix, Inc. was the top portfolio contributor. Netflix outperformed as global subscriber growth came in materially above expectations, with total customers topping 62 million. Momentum in the shares continued through the period as investors began to price in the inherent profitability and value creation of the company’s business model, driven by its technology and content scale. |
• | Health care holdings Valeant Pharmaceuticals International, Inc. and United Therapeutics Corp. also lifted returns. Valeant’s shares rose early in the period on news it was acquiring Salix Pharmaceuticals, a move that established its presence in the gastrointestinal therapeutics market. Shares got a further boost following strong first-quarter results (company beat expectations and lifted full-year guidance), as well as FDA approval of drug Xifaxan to treat irritable bowel syndrome, which the company acquired with the purchase of Salix. United Therapeutics benefited amid greater investor appreciation for principal drivers of the company’s revenue and earnings, which have much longer life spans than the market assumes. Disappointing results for competing pulmonary arterial hypertension drug Selexipag and the ongoing merger and acquisition trend among biotechnology and pharmaceutical firms also supported the shares. |
• | The Fund’s positions in managed care firm Humana, Inc. and online travel company TripAdvisor LLC added value as well. |
• | Conversely, stock selection in the information technology (“IT”) sector was the prime detractor from performance due to weakness among internet software & services holdings, particularly Yahoo! Inc. (along with Alibaba Group Holding Ltd.) and Baidu, Inc. |
• | Yahoo and Alibaba underperformed after Alibaba’s December quarterly earnings disappointed investors. While users, gross sales and profitability continued to show healthy, and in some cases accelerating, growth, revenue margin (a measure of the percentage of gross merchandise sales that Alibaba turns into revenues) disappointed. In the investment advisor’s view, the temporary adjustment in revenue margin will ultimately result in healthy long-term growth. The investment advisor remains positive on Alibaba’s growth opportunities and competitive positioning. In addition, Yahoo announced a value-enhancing, tax-free spinoff of its Alibaba stake into a separately traded company, which is accretive to the investment advisor’s valuation assumptions. Meanwhile, Baidu reported strong revenue growth, but the stock underperformed following its forecast of lower-than-expected revenue growth for the first quarter, as well as higher spending for the year. |
• | Elsewhere, the Fund’s overweight position in media company Twenty-First Century Fox, Inc. hindered relative returns. The stock underperformed as investors worried about the impact of foreign exchange on the company’s guidance for fiscal years 2015 and 2016. In addition, ratings remained weak at its Fox broadcast network. While these concerns are valid, the investment advisor believes them to be temporary and continues to like Fox’s industry-leading growth profile and the stock’s reasonable valuation. Moreover, the investment advisor believes key strategic assets such as StarTV (India’s dominant TV channel network), Hulu, Sky, and others are underappreciated. |
• | Industrial holdings also weighed on returns, especially road & rail and aerospace & defense. |
Describe recent portfolio activity.
• | Due to a combination of portfolio trading activity and market movement during the six-month period, the Fund’s weighting in the financials and IT sectors increased. The allocation to health care also increased. The Fund’s weighting in the industrials and consumer discretionary sectors decreased, with declines in energy as well. |
Describe portfolio positioning at period end.
• | As of period end, the Fund’s largest sector overweight positions relative to the Russell 1000® Growth Index were in IT, particularly the internet software & services industry, and health care, with an emphasis on the pharmaceuticals and biotechnology industries. Consumer staples and industrials were the largest underweights. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Fund Summary as of June 30, 2015 | BlackRock Capital Appreciation V.I. Fund |
Portfolio Information |
Sector Allocation | Percent of Long-Term Investments |
Information Technology | 38 | % | ||||
Health Care | 24 | |||||
Consumer Discretionary | 21 | |||||
Financials | 8 | |||||
Industrials | 4 | |||||
Consumer Staples | 2 | |||||
Energy | 2 | |||||
Materials | 1 |
For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
BlackRock Capital Appreciation V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. The returns for Class III Shares prior to June 15, 2010, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares, as adjusted to reflect the distribution and/or service (12b-1) fees applicable to the Class III Shares. |
2 | The Fund invests primarily in a diversified portfolio consisting primarily of common stock of U.S. companies that the investment advisor believes have exhibited above-average growth rates in earnings over the long-term. |
3 | An unmanaged index that measures the performance of the large cap growth segment of the U.S. equity universe and consists of those Russell 1000® securities with higher price-to-book ratios and higher forecasted growth values. |
4 | An unmanaged index that covers 500 leading companies and captures approximately 80% coverage of available market capitalization. |
Performance Summary for the Period Ended June 30, 2015 | ||||||||
Average Annual Total Returns | ||||||||
6-Month Total Returns6 | 1 Year6 | 5 Years6 | 10 Years6 | |||||
Class I5 | 6.33% | 14.85% | 15.82% | 7.96% | ||||
Class III5 | 6.14 | 14.51 | 15.547 | 7.697 | ||||
Russell 1000® Growth Index | 3.96 | 10.56 | 18.59 | 9.11 | ||||
S&P 500® Index | 1.23 | 7.42 | 17.34 | 7.90 |
5 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
6 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
7 | The returns for Class III Shares prior to June 15, 2010, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares, as adjusted to reflect the distribution (12b-1) fees applicable to Class III Shares. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example | ||||||||||||||
Actual | Hypothetical9 | |||||||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During the Period8 | Beginning Account Value | Ending Account Value | Expenses Paid During the Period8 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,063.30 | $3.99 | $1,000.00 | $1,020.93 | $3.91 | 0.78% | |||||||
Class III | $1,000.00 | $1,061.40 | $5.32 | $1,000.00 | $1,019.64 | $5.21 | 1.04% |
8 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
9 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 5 for further information on how expenses were calculated. |
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Disclosure of Expenses | BlackRock Capital Appreciation V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Capital Appreciation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Airlines — 1.6% | ||||||||
Delta Air Lines, Inc. | 45,932 | $ | 1,886,887 | |||||
Spirit Airlines, Inc. (a) | 70,374 | 4,370,225 | ||||||
|
| |||||||
6,257,112 | ||||||||
Auto Components — 0.9% | ||||||||
Delphi Automotive PLC | 42,334 | 3,602,200 | ||||||
Banks — 1.9% | ||||||||
JPMorgan Chase & Co. | 110,151 | 7,463,832 | ||||||
Beverages — 1.5% | ||||||||
Constellation Brands, Inc., Class A | 51,122 | 5,931,174 | ||||||
Biotechnology — 6.8% | ||||||||
United Therapeutics Corp. (a) | 80,130 | 13,938,613 | ||||||
Vertex Pharmaceuticals, Inc. (a) | 105,643 | 13,044,798 | ||||||
|
| |||||||
26,983,411 | ||||||||
Chemicals — 0.9% | ||||||||
Ecolab, Inc. | 31,356 | 3,545,423 | ||||||
Consumer Finance — 1.2% | ||||||||
Discover Financial Services | 86,278 | 4,971,338 | ||||||
Diversified Financial Services — 3.4% | ||||||||
Berkshire Hathaway, Inc., Class B (a) | 58,259 | 7,929,632 | ||||||
Moody’s Corp. | 52,483 | 5,666,065 | ||||||
|
| |||||||
13,595,697 | ||||||||
Food & Staples Retailing — 1.1% | ||||||||
CVS Health Corp. | 39,957 | 4,190,690 | ||||||
Health Care Providers & Services — 4.7% | ||||||||
Humana, Inc. | 38,851 | 7,431,419 | ||||||
UnitedHealth Group, Inc. | 91,339 | 11,143,358 | ||||||
|
| |||||||
18,574,777 | ||||||||
Internet & Catalog Retail — 6.6% | ||||||||
Amazon.com, Inc. (a) | 13,762 | 5,973,947 | ||||||
Netflix, Inc. (a) | 15,002 | 9,855,414 | ||||||
TripAdvisor, Inc. (a) | 118,176 | 10,297,857 | ||||||
|
| |||||||
26,127,218 | ||||||||
Internet Software & Services — 17.2% | ||||||||
Alibaba Group Holding Ltd. — ADR (a)(b) | 93,025 | 7,653,167 | ||||||
Baidu, Inc. — ADR (a) | 26,279 | 5,231,623 | ||||||
Facebook, Inc., Class A (a) | 228,436 | 19,591,814 | ||||||
Google, Inc., Class A (a) | 33,529 | 18,107,001 | ||||||
LinkedIn Corp., Class A (a) | 26,525 | 5,480,861 | ||||||
Tencent Holdings Ltd. | 351,000 | 7,018,783 | ||||||
Yahoo!, Inc. (a) | 123,871 | 4,866,892 | ||||||
|
| |||||||
67,950,141 | ||||||||
IT Services — 7.5% | ||||||||
Alliance Data Systems Corp. (a) | 31,495 | 9,194,650 | ||||||
MasterCard, Inc., Class A | 58,122 | 5,433,245 | ||||||
Visa, Inc., Class A | 223,228 | 14,989,760 | ||||||
|
| |||||||
29,617,655 |
Common Stocks | Shares | Value | ||||||
Media — 6.1% | ||||||||
Liberty Global PLC, Series A (a) | 184,848 | $ | 9,994,731 | |||||
Twenty-First Century Fox, Inc., Class A | 264,427 | 8,605,777 | ||||||
The Walt Disney Co. | 47,773 | 5,452,810 | ||||||
|
| |||||||
24,053,318 | ||||||||
Multiline Retail — 2.8% | ||||||||
Dollar General Corp. | 140,644 | 10,933,665 | ||||||
Oil, Gas & Consumable Fuels — 1.8% | ||||||||
Concho Resources, Inc. (a) | 61,523 | 7,005,009 | ||||||
Pharmaceuticals — 12.5% | ||||||||
AbbVie, Inc. | 275,506 | 18,511,248 | ||||||
Allergan PLC (a) | 27,215 | 8,258,664 | ||||||
Mallinckrodt PLC (a) | 36,250 | 4,267,350 | ||||||
Perrigo Co. PLC | 56,830 | 10,503,889 | ||||||
Valeant Pharmaceuticals International, Inc. (a) | 35,130 | 7,804,130 | ||||||
|
| |||||||
49,345,281 | ||||||||
Real Estate Investment Trusts (REITs) — 1.0% | ||||||||
Crown Castle International Corp. | 48,546 | 3,898,244 | ||||||
Road & Rail — 2.2% | ||||||||
Union Pacific Corp. | 93,185 | 8,887,053 | ||||||
Software — 6.8% | ||||||||
Mobileye NV (a) | 52,729 | 2,803,601 | ||||||
Oracle Corp. | 185,476 | 7,474,683 | ||||||
Salesforce.com, Inc. (a) | 169,375 | 11,793,581 | ||||||
Splunk, Inc. (a) | 36,273 | 2,525,326 | ||||||
Workday, Inc., Class A (a) | 29,432 | 2,248,310 | ||||||
|
| |||||||
26,845,501 | ||||||||
Specialty Retail — 2.7% | ||||||||
The Home Depot, Inc. | 63,317 | 7,036,418 | ||||||
Restoration Hardware Holdings, Inc. (a) | 39,155 | 3,822,703 | ||||||
|
| |||||||
10,859,121 | ||||||||
Technology Hardware, Storage & Peripherals — 5.1% | ||||||||
Apple Inc. | 159,971 | 20,064,363 | ||||||
Textiles, Apparel & Luxury Goods — 2.2% | ||||||||
lululemon athletica, inc. (a) | 53,923 | 3,521,172 | ||||||
NIKE, Inc., Class B | 47,509 | 5,131,922 | ||||||
|
| |||||||
8,653,094 | ||||||||
Total Common Stocks — 98.5% | 389,355,317 | |||||||
Portfolio Abbreviation | ||||||||||
ADR | American Depositary Receipts |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Capital Appreciation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Preferred Stock | Shares | Value | ||||||
Software — 1.0% | ||||||||
Palantir Technologies, Inc., Series I (Acquired 2/07/14, cost $2,858,021) (a)(c) | 466,235 | $ | 4,144,829 | |||||
Total Long-Term Investments (Cost — $330,668,458) — 99.5% | 393,500,146 | |||||||
Short-Term Securities | ||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.07% (d)(e) | 3,581,515 | 3,581,515 |
Short-Term Securities | Beneficial Interest (000) | Value | ||||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (d)(e)(f) | $ | 5,740 | $ | 5,739,948 | ||||
Total Short-Term Securities (Cost — $9,321,463) — 2.4% | 9,321,463 | |||||||
Total Investments (Cost — $339,989,921) — 101.9% |
| 402,821,609 | ||||||
Liabilities in Excess of Other Assets — (1.9)% |
| (7,561,506 | ) | |||||
|
| |||||||
Net Assets — 100.0% |
| $ | 395,260,103 | |||||
|
|
Notes to Schedule of Investments |
(a) | Non-income producing security. |
(b) | Security, or a portion of security, is on loan. |
(c) | Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $4,144,829 and an original cost of $2,858,021 which was 1.0% of its net assets. |
(d) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/Beneficial Interest Held at December 31, 2014 | Net Activity | Shares/Beneficial Interest Held at June 30, 2015 | Income | ||||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 1,669,942 | 1,911,573 | 3,581,515 | $ | 950 | |||||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $ | 16,360,294 | $ | (10,620,346 | ) | $ | 5,739,948 | $ | 6,441 | 1 |
1 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(e) | Represents the current yield as of report date. |
(f) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Schedule of Investments (continued) | BlackRock Capital Appreciation V.I. Fund |
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Long-Term Investments: | ||||||||||||||||||||
Common Stocks: | ||||||||||||||||||||
Airlines | $ | 6,257,112 | — | — | $ | 6,257,112 | ||||||||||||||
Auto Components | 3,602,200 | — | — | 3,602,200 | ||||||||||||||||
Banks | 7,463,832 | — | — | 7,463,832 | ||||||||||||||||
Beverages | 5,931,174 | — | — | 5,931,174 | ||||||||||||||||
Biotechnology | 26,983,411 | — | — | 26,983,411 | ||||||||||||||||
Chemicals | 3,545,423 | — | — | 3,545,423 | ||||||||||||||||
Consumer Finance | 4,971,338 | — | — | 4,971,338 | ||||||||||||||||
Diversified Financial Services | 13,595,697 | — | — | 13,595,697 | ||||||||||||||||
Food & Staples Retailing | 4,190,690 | — | — | 4,190,690 | ||||||||||||||||
Health Care Providers & Services | 18,574,777 | — | — | 18,574,777 | ||||||||||||||||
Internet & Catalog Retail | 26,127,218 | — | — | 26,127,218 | ||||||||||||||||
Internet Software & Services | 60,931,358 | $ | 7,018,783 | — | 67,950,141 | |||||||||||||||
IT Services | 29,617,655 | — | — | 29,617,655 | ||||||||||||||||
Media | 24,053,318 | — | — | 24,053,318 | ||||||||||||||||
Multiline Retail | 10,933,665 | — | — | 10,933,665 | ||||||||||||||||
Oil, Gas & Consumable Fuels | 7,005,009 | — | — | 7,005,009 | ||||||||||||||||
Pharmaceuticals | 49,345,281 | — | — | 49,345,281 | ||||||||||||||||
Real Estate Investment Trusts (REITs) | 3,898,244 | — | — | 3,898,244 | ||||||||||||||||
Road & Rail | 8,887,053 | — | — | 8,887,053 | ||||||||||||||||
Software | 26,845,501 | — | — | 26,845,501 | ||||||||||||||||
Specialty Retail | 10,859,121 | — | — | 10,859,121 | ||||||||||||||||
Technology Hardware, Storage & Peripherals | 20,064,363 | — | — | 20,064,363 | ||||||||||||||||
Textiles, Apparel & Luxury Goods | 8,653,094 | — | — | 8,653,094 | ||||||||||||||||
Preferred Stock: | ||||||||||||||||||||
Software | — | — | $ | 4,144,829 | 4,144,829 | |||||||||||||||
Short-Term Securities | 3,581,515 | 5,739,948 | — | 9,321,463 | ||||||||||||||||
|
| |||||||||||||||||||
Total | $ | 385,918,049 | $ | 12,758,731 | $ | 4,144,829 | $ | 402,821,609 | ||||||||||||
|
| |||||||||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:
|
| |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Cash | $ | 1,739,201 | — | — | $ | 1,739,201 | ||||||||||||||
Liabilities: | ||||||||||||||||||||
Collateral on securities loaned at value | — | $ | (5,739,948 | ) | — | (5,739,948 | ) | |||||||||||||
|
| |||||||||||||||||||
Total | $ | 1,739,201 | $ | (5,739,948 | ) | — | $ | (4,000,747 | ) | |||||||||||
|
|
During the six months ended June 30, 2015, there were no transfers between Level 1 and Level 2.
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (concluded) | BlackRock Capital Appreciation V.I. Fund |
A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:
Preferred Securities | ||||
Assets: | ||||
Opening balance, as of December 31, 2014 | $ | 3,529,399 | ||
Transfers into Level 3 | — | |||
Transfers out of Level 3 | — | |||
Accrued discounts/premiums | — | |||
Net realized gain (loss) | — | |||
Net change in unrealized appreciation (depreciation)1,2 | 615,430 | |||
Purchases | — | |||
Sales | — | |||
Closing Balance, as of June 30, 2015 | $ | 4,144,829 | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments still held at June 30, 20151 | $ | 615,430 | ||
|
|
1 | Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at June 30, 2015 is generally due to investments no longer held or categorized as Level 3 at period end. |
2 | Included in the related net change in unrealized appreciation (depreciation) in the Statement of Operations. |
The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of June 30, 2015.
Value | Valuation Techniques | Unobservable Inputs | Range of Unobservable Inputs Utilized | |||||||||
Assets: | ||||||||||||
Preferred Stocks3 | $ | 4,144,829 | Market Comparable Companies | Next Fiscal Year Revenue Multiple4 | 17.50x | |||||||
Compounded Annual Net Revenue Growth Rate4 | 84.50% |
3 | For the period ended June 30, 2015, the valuation technique for certain investments classified as preferred stocks changed to a Market Comparable Companies technique. The investments were previously valued utilizing a Probability-Weighted Expected Return Model. Market approach information is the primary measure of fair value for these investments. |
4 | Increase in unobservable input may result in a significant increase to value, while a decrease in unobservable input may result in a significant decrease to value. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Capital Appreciation V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $5,689,464) (cost — $330,668,458) | $ | 393,500,146 | ||
Investments at value — affiliated (cost — $9,321,463) | 9,321,463 | |||
Cash | 1,739,201 | |||
Receivables: | ||||
Investments sold | 823,241 | |||
From the Manager | 84,360 | |||
Dividends — unaffiliated | 62,754 | |||
Capital shares sold | 44,758 | |||
Securities lending income — affiliated | 622 | |||
Dividends — affiliated | 121 | |||
Prepaid expenses | 934 | |||
|
| |||
Total assets | 405,577,600 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 5,739,948 | |||
Payables: | ||||
Investments purchased | 2,970,903 | |||
Capital shares redeemed | 1,080,582 | |||
Investment advisory fees | 215,756 | |||
Distribution fees | 51,157 | |||
Officer’s and Directors’ fees | 1,954 | |||
Other affiliates | 1,834 | |||
Other accrued expenses payable | 255,363 | |||
|
| |||
Total liabilities | 10,317,497 | |||
|
| |||
Net Assets | $ | 395,260,103 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 305,454,963 | ||
Accumulated net investment loss | (717,130 | ) | ||
Accumulated net realized gain | 27,690,582 | |||
Net unrealized appreciation (depreciation) | 62,831,688 | |||
|
| |||
Net Assets | $ | 395,260,103 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $149,828,957 and 15,652,204 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 9.57 | ||
|
| |||
Class III — Based on net assets of $245,431,146 and 25,799,498 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 9.51 | ||
|
|
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Capital Appreciation V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 1,152,085 | ||
Securities lending — affiliated — net | 6,441 | |||
Dividends — affiliated | 950 | |||
|
| |||
Total income | 1,159,476 | |||
|
| |||
Expenses | ||||
Investment advisory | 1,303,389 | |||
Transfer agent — Class I | 164,366 | |||
Transfer agent — Class III | 228,102 | |||
Distribution — Class III | 302,427 | |||
Accounting services | 45,703 | |||
Professional | 27,078 | |||
Custodian | 18,296 | |||
Printing | 18,291 | |||
Officer and Directors | 11,223 | |||
Registration | 513 | |||
Miscellaneous | 6,268 | |||
|
| |||
Total expenses | 2,125,656 | |||
Less fees waived by the Manager | (1,223 | ) | ||
Less transfer agent fees reimbursed — Class I | (108,681 | ) | ||
Less transfer agent fees reimbursed — Class III | (131,325 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 1,884,427 | |||
|
| |||
Net investment loss | (724,951 | ) | ||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments | 20,619,015 | |||
Foreign currency transactions | (224 | ) | ||
|
| |||
20,618,791 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 4,090,116 | |||
|
| |||
Net realized and unrealized gain | 24,708,907 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 23,983,956 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Statements of Changes in Net Assets | BlackRock Capital Appreciation V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended | ||||||
Operations | ||||||||
Net investment loss | $ | (724,951 | ) | $ | (929,461 | ) | ||
Net realized gain | 20,618,791 | 61,360,757 | ||||||
Net change in unrealized appreciation (depreciation) | 4,090,116 | (26,863,947 | ) | |||||
|
| |||||||
Net increase in net assets resulting from operations | 23,983,956 | 33,567,349 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net realized gain: | ||||||||
Class I | — | (26,918,708 | ) | |||||
Class III | — | (36,643,159 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (63,561,867 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets derived from capital share transactions | (29,032,786 | ) | 42,140,872 | |||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | (5,048,830 | ) | 12,146,354 | |||||
Beginning of period | 400,308,933 | 388,162,579 | ||||||
|
| |||||||
End of period | $ | 395,260,103 | $ | 400,308,933 | ||||
|
| |||||||
Undistributed (accumulated) net investment income (loss), end of period | $ | (717,130 | ) | $ | 7,821 | |||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights | BlackRock Capital Appreciation V.I. Fund |
Class I | ||||||||||||||||||||||||||||||
Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.02 | $ | 9.80 | $ | 8.50 | $ | 7.62 | $ | 8.59 | $ | 7.20 | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Net investment income (loss)1 | (0.01 | ) | (0.01 | ) | (0.00 | )2 | 0.07 | 0.03 | 0.02 | |||||||||||||||||||||
Net realized and unrealized gain (loss) | 0.56 | 0.87 | 2.86 | 0.99 | (0.77 | ) | 1.39 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.55 | 0.86 | 2.86 | 1.06 | (0.74 | ) | 1.41 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Distributions from:3 | ||||||||||||||||||||||||||||||
Net investment income | — | — | (0.00 | )2 | (0.07 | ) | (0.05 | ) | (0.02 | ) | ||||||||||||||||||||
Net realized capital gains | — | (1.64 | ) | (1.56 | ) | (0.11 | ) | (0.18 | ) | — | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Total distributions | — | (1.64 | ) | (1.56 | ) | (0.18 | ) | (0.23 | ) | (0.02 | ) | |||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Net asset value, end of period | $ | 9.57 | $ | 9.02 | $ | 9.80 | $ | 8.50 | $ | 7.62 | $ | 8.59 | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Total Return4 | ||||||||||||||||||||||||||||||
Based on net asset value | 6.33 | %5 | 9.02 | % | 33.82 | % | 13.84 | % | (8.88 | )% | 19.53 | % | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||||||||
Total expenses | 0.92 | %6 | 0.91 | % | 0.93 | % | 0.86 | % | 0.72 | % | 0.74 | % | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 0.78 | %6 | 0.79 | % | 0.80 | % | 0.77 | % | 0.72 | % | 0.74 | % | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Net investment income (loss) | (0.21 | )%6 | (0.10 | )% | (0.00 | )%2 | 0.81 | % | 0.34 | % | 0.22 | % | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000) | $ | 149,829 | $ | 166,586 | $ | 180,580 | $ | 191,093 | $ | 203,706 | $ | 248,090 | ||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Portfolio turnover rate | 33 | % | 102 | % | 158 | % | 63 | % | 84 | % | 76 | % | ||||||||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Amount is greater than $(0.005) per share. |
3 | Distributions for annual periods determined in accordance with federal income tax regulations. |
4 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
5 | Aggregate total return. |
6 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Financial Highlights (concluded) | BlackRock Capital Appreciation V.I. Fund |
Class III | ||||||||||||||||||||||||
Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, | Period June 15, 20101 to December 31, 2010 | ||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 8.97 | $ | 9.76 | $ | 8.48 | $ | 7.61 | $ | 8.59 | $ | 7.11 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income (loss)2 | (0.02 | ) | (0.03 | ) | (0.03 | ) | 0.06 | 0.02 | (0.00 | )3 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.56 | 0.86 | 2.84 | 0.97 | (0.80 | ) | 1.49 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.54 | 0.83 | 2.81 | 1.03 | (0.78 | ) | 1.49 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:4 | ||||||||||||||||||||||||
Net investment income | — | — | (0.00 | )3 | (0.05 | ) | (0.02 | ) | (0.01 | ) | ||||||||||||||
Net realized capital gains | — | (1.62 | ) | (1.53 | ) | (0.11 | ) | (0.18 | ) | — | ||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (1.62 | ) | (1.53 | ) | (0.16 | ) | (0.20 | ) | (0.01 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 9.51 | $ | 8.97 | $ | 9.76 | $ | 8.48 | $ | 7.61 | $ | 8.59 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return5 | ||||||||||||||||||||||||
Based on net asset value | 6.14 | %6 | 8.68 | % | 33.40 | % | 13.57 | % | (9.08 | )% | 20.98 | %6 | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.15 | %7 | 1.18 | % | 1.19 | % | 1.11 | % | 0.97 | % | 0.99 | %7 | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 1.04 | %7 | 1.05 | % | 1.06 | % | 1.02 | % | 0.97 | % | 0.99 | %7 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income (loss) | (0.46 | )%7 | (0.35 | )% | (0.27 | )% | 0.72 | % | 0.21 | % | (0.06 | )%7 | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 245,431 | $ | 233,723 | $ | 207,582 | $ | 134,612 | $ | 38,791 | $ | 480 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 33 | % | 102 | % | 158 | % | 63 | % | 84 | % | 76 | % | ||||||||||||
|
|
1 | Recommencement of operations. |
2 | Based on average shares outstanding. |
3 | Amount is greater than $(0.005) per share. |
4 | Distributions for annual periods determined in accordance with federal income tax regulations. |
5 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
6 | Aggregate total return. |
7 | Annualized. |
See Notes to Financial Statements.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (Unaudited) | BlackRock Capital Appreciation V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Capital Appreciation V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares. Class III Shares were redeemed on December 31, 2007 and sales of Class III Shares recommenced on June 15, 2010.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”)(generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at NAV each business day.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Fund’s pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (continued) | BlackRock Capital Appreciation V.I. Fund |
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Preferred Stock: The Fund may invest in preferred stock. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Capital Appreciation V.I. Fund |
the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common or preferred stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | |||
JP Morgan Securities LLC | $5,689,464 | $(5,689,464) | — |
1 | Collateral with a value of $5,739,948 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |
First $1 Billion | 0.65% | |
$1 Billion — $3 Billion | 0.61% | |
$3 Billion — $5 Billion | 0.59% | |
$5 Billion — $10 Billion | 0.57% | |
Greater than $10 Billion | 0.55% |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (continued) | BlackRock Capital Appreciation V.I. Fund |
For the six months ended June 30, 2015, the Fund reimbursed the Manager $1,983 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at the annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
Class I | 0.07% | |
Class III | 0.08% |
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 71.5% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 75% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $1,762 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $130,697,254 and $163,029,661, respectively.
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Capital Appreciation V.I. Fund |
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 340,565,594 | ||
|
| |||
Gross unrealized appreciation | $ | 64,363,063 | ||
Gross unrealized depreciation | (2,107,048 | ) | ||
|
| |||
Net unrealized appreciation | $ | 62,256,015 | ||
|
|
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal, and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
8. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
As of June 30, 2015, the Fund invested a significant portion of its assets in securities in the information technology, health care, & consumer discretionary sectors. Changes in economic conditions affecting such sectors would have a greater impact on the Fund and could affect the value, income and/or liquidity of positions in such securities.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
Notes to Financial Statements (concluded) | BlackRock Capital Appreciation V.I. Fund |
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30 2015 | Year Ended December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class I | ||||||||||||||||||
Shares sold | 318,631 | $ | 3,010,690 | 1,126,780 | $ | 11,019,148 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 2,946,825 | 26,918,708 | ||||||||||||||
Shares redeemed | (3,141,929 | ) | (29,591,091 | ) | (4,026,419 | ) | (39,206,102 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase (decrease) | (2,823,298 | ) | $ | (26,580,401 | ) | 47,186 | $ | (1,268,246 | ) | |||||||||
|
|
|
| |||||||||||||||
Class III | ||||||||||||||||||
Shares sold | 1,211,928 | $ | 11,266,747 | 3,933,777 | $ | 37,874,174 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 4,031,417 | 36,643,159 | ||||||||||||||
Shares redeemed | (1,462,244 | ) | (13,719,132 | ) | (3,180,373 | ) | (31,108,215 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase (decrease) | (250,316 | ) | $ | (2,452,385 | ) | 4,784,821 | $ | 43,409,118 | ||||||||||
|
|
|
| |||||||||||||||
Total Net Increase (Decrease) | (3,073,614 | ) | $ | (29,032,786 | ) | 4,832,007 | $ | 42,140,872 | ||||||||||
|
|
|
|
10. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a long-term capital gain distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015:
Long-Term Capital Gain | ||||
Class I | $0.185218 | |||
Class III | $0.185218 |
20 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Equity Dividend V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015
|
| BlackRock Equity Dividend V.I. Fund
|
|
Investment Objective |
BlackRock Equity Dividend V.I. Fund’s (the “Fund”) investment objective is to seek long-term total return and current income.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund underperformed its benchmark, the Russell 1000® Value Index, and the broad-market S&P 500® Index. The following discussion of relative performance pertains to the Russell 1000® Value Index. |
What factors influenced performance?
• | The largest detractors from relative performance were a combination of stock selection and an underweight position in the health care sector. Notably, an underweight to the health care providers & services industry proved costly as benchmark companies Cigna Corporation, Aetna Inc. and Humana, Inc. — none of which were held in the portfolio — benefited from speculation over merger and acquisition activity. Stock selection in industrials also weighed on relative returns as an overweight position to aerospace & defense contractor Raytheon Co. and selection within the road & rail and air freight & logistics industries all detracted from performance. Lastly, stock selection in materials and telecommunication services subtracted from relative returns. |
• | The largest contributor to relative performance was stock selection in energy. Notable contributors within the sector included an overweight position to refiner Marathon Oil Corp. and an underweight to integrated oil & gas operators Exxon Mobil Corp. and Chevron Corp. Positioning within consumer staples proved additive as an overweight to Kroger Co. |
and an underweight to Wal-Mart Stores, Inc. benefited performance. Stock selection in consumer discretionary also contributed as non-benchmark holding The Home Depot, Inc. outperformed after exceeding quarterly earnings expectations. A combination of stock selection and an underweight position in the utilities sector also boosted relative returns, as did an underweight to information technology (“IT”). |
Describe recent portfolio activity.
• | During the six-month period, the Fund’s exposure to the health care and IT sectors was increased. Notable transactions within health care included initiating positions in the managed care providers UnitedHealth Group, Inc. and Anthem, Inc. Within IT, the Fund purchased shares of Oracle Corp. and increased its allocation in QUALCOMM, Inc. Conversely, exposure to the consumer discretionary sector was reduced through the elimination of positions in VF Corporation and Johnson Controls, Inc., as well as a reduction of the Fund’s position in Comcast Corp. |
Describe portfolio positioning at period end.
• | At period end, the Fund’s largest allocations were in the financials, health care and industrials sectors. The Fund maintained more selective exposure to the higher-yielding segments of the equity market, including consumer staples, real estate investment trusts and utilities, given the current level of their valuations and payout ratios. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Sector Allocation | Percent of Long-Term Investments |
Financials | 27 | % | ||
Health Care | 14 | |||
Industrials | 14 | |||
Energy | 9 | |||
Information Technology | 8 | |||
Consumer Discretionary | 8 | |||
Consumer Staples | 8 | |||
Utilities | 5 | |||
Materials | 4 | |||
Telecommunication Services | 3 |
For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub classifications for reporting ease.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Equity Dividend V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. The returns for Class III Shares prior to July 1, 2011, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares, as adjusted to reflect the distribution (12b-1) fees applicable to Class III Shares. |
2 | The Fund seeks to achieve its objective by investing primarily in a diversified portfolio of equity securities. Under normal circumstances, the Fund will invest in at least 80% of its assets in equity securities and at least 80% of its assets in dividend paying securities. The Fund’s total returns prior to October 1, 2010 are the returns of the Fund when it followed a different objective and different investment strategies under the name BlackRock Utilities & Telecommunications V.I. Fund. |
3 | An unmanaged index that is a subset of the Russell 1000® Index that consists of those Russell 1000® securities with lower price-to-book ratios and lower expected growth values. |
4 | An unmanaged index that covers 500 leading companies and captures approximately 80% coverage of available market capitalization. |
Performance Summary for the Period Ended June 30, 2015 | ||||||||||||||||
Average Annual Total Returns | ||||||||||||||||
| 6-Month Total Returns6 |
| 1 Year6 | 5 Years6 | 10 Years6 | |||||||||||
Class I5 | (0.94 | )% | 3.48 | % | 14.06 | % | 8.28 | % | ||||||||
Class III5 | (1.09 | ) | 3.21 | 13.78 | 7 | 8.02 | 7 | |||||||||
Russell 1000® Value Index | (0.61 | ) | 4.13 | 16.50 | 7.05 | |||||||||||
S&P 500® Index | 1.23 | 7.42 | 17.34 | 7.90 |
5 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. The Fund’s total returns prior to October 1, 2010 are the returns of the Fund when it followed a different objective and different investment strategies under the name BlackRock Utilities & Telecommunications V.I. Fund. |
6 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
7 | The returns for Class III Shares prior to July 1, 2011, the recommencement of operations of Class III Shares, are based upon the performance for the Fund’s Class I Shares, as adjusted to reflect the distribution (12b-1) fees applicable to Class III Shares. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example | ||||||||||||||
Actual | Hypothetical9 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period8 | Beginning Account Value January 1, 2015 | Ending June 30, 2015 | Expenses Paid During the Period8 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $990.60 | $4.00 | $1,000.00 | $1,020.78 | $4.06 | 0.81% | |||||||
Class III | $1,000.00 | $989.10 | $5.23 | $1,000.00 | $1,019.54 | $5.31 | 1.06% |
8 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
9 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Equity Dividend V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Equity Dividend V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Aerospace & Defense — 7.2% | ||||||||
Honeywell International, Inc. | 8,320 | $ | 848,390 | |||||
Lockheed Martin Corp. | 4,140 | 769,626 | ||||||
Northrop Grumman Corp. | 5,280 | 837,566 | ||||||
Raytheon Co. | 11,326 | 1,083,672 | ||||||
United Technologies Corp. | 5,860 | 650,050 | ||||||
|
| |||||||
4,189,304 | ||||||||
Air Freight & Logistics — 1.0% | ||||||||
United Parcel Service, Inc., Class B | 6,250 | 605,688 | ||||||
Banks — 15.7% | ||||||||
Bank of America Corp. | 41,630 | 708,543 | ||||||
Citigroup, Inc. | 33,200 | 1,833,968 | ||||||
JPMorgan Chase & Co. | 35,570 | 2,410,223 | ||||||
SunTrust Banks, Inc. | 24,657 | 1,060,744 | ||||||
U.S. Bancorp | 21,790 | 945,686 | ||||||
Wells Fargo & Co. | 38,945 | 2,190,267 | ||||||
|
| |||||||
9,149,431 | ||||||||
Beverages — 1.8% | ||||||||
The Coca-Cola Co. | 14,395 | 564,716 | ||||||
Diageo PLC | 15,680 | 454,087 | ||||||
|
| |||||||
1,018,803 | ||||||||
Capital Markets — 2.3% | ||||||||
The Goldman Sachs Group, Inc. | 3,060 | 638,897 | ||||||
Morgan Stanley | 17,210 | 667,576 | ||||||
|
| |||||||
1,306,473 | ||||||||
Chemicals — 2.8% | ||||||||
The Dow Chemical Co. | 8,395 | 429,572 | ||||||
EI du Pont de Nemours & Co. | 12,605 | 806,090 | ||||||
Praxair, Inc. | 3,145 | 375,985 | ||||||
|
| |||||||
1,611,647 | ||||||||
Commercial Services & Supplies — 0.4% | ||||||||
Tyco International PLC | 6,490 | 249,735 | ||||||
Communications Equipment — 2.0% | ||||||||
Motorola Solutions, Inc. | 6,780 | 388,765 | ||||||
QUALCOMM, Inc. | 12,560 | 786,633 | ||||||
|
| |||||||
1,175,398 | ||||||||
Consumer Finance — 0.6% | ||||||||
American Express Co. | 4,556 | 354,092 | ||||||
Diversified Financial Services — 0.9% | ||||||||
CME Group, Inc. | 5,530 | 514,622 | ||||||
Diversified Telecommunication Services — 1.9% | ||||||||
BCE, Inc. | 3,855 | 163,838 | ||||||
Verizon Communications, Inc. | 20,490 | 955,039 | ||||||
|
| |||||||
1,118,877 | ||||||||
Electric Utilities — 1.8% | ||||||||
Eversource Energy | 5,125 | 232,726 | ||||||
ITC Holdings Corp. | 4,450 | 143,201 | ||||||
NextEra Energy, Inc. | 6,545 | 641,606 | ||||||
|
| |||||||
1,017,533 | ||||||||
Electrical Equipment — 0.4% | ||||||||
Rockwell Automation, Inc. | 1,955 | 243,671 |
Common Stocks | Shares | Value | ||||||
Energy Equipment & Services — 0.5% | ||||||||
Schlumberger Ltd. | 3,475 | $ | 299,510 | |||||
Food & Staples Retailing — 1.3% | ||||||||
The Kroger Co. | 10,120 | 733,801 | ||||||
Food Products — 0.5% | ||||||||
Mondelez International, Inc., Class A | 7,430 | 305,670 | ||||||
Health Care Equipment & Supplies — 1.0% | ||||||||
Abbott Laboratories | 5,040 | 247,363 | ||||||
Becton Dickinson & Co. | 2,480 | 351,292 | ||||||
|
| |||||||
598,655 | ||||||||
Health Care Providers & Services — 4.1% | ||||||||
Anthem, Inc. | 3,101 | 508,998 | ||||||
Quest Diagnostics, Inc. | 7,935 | 575,446 | ||||||
UnitedHealth Group, Inc. | 10,452 | 1,275,144 | ||||||
|
| |||||||
2,359,588 | ||||||||
Hotels, Restaurants & Leisure — 0.7% | ||||||||
McDonald’s Corp. | 4,533 | 430,952 | ||||||
Household Products — 2.0% | ||||||||
The Procter & Gamble Co. | 13,435 | 1,051,154 | ||||||
Unilever NV - NY Shares | 2,815 | 117,780 | ||||||
|
| |||||||
1,168,934 | ||||||||
Industrial Conglomerates — 3.3% | ||||||||
3M Co. | 2,695 | 415,839 | ||||||
General Electric Co. | 56,585 | 1,503,463 | ||||||
|
| |||||||
1,919,302 | ||||||||
Insurance — 6.0% | ||||||||
ACE Ltd. | 5,295 | 538,396 | ||||||
American International Group, Inc. | 12,530 | 774,605 | ||||||
MetLife, Inc. | 13,510 | 756,425 | ||||||
Prudential Financial, Inc. | 8,170 | 715,038 | ||||||
The Travelers Cos., Inc. | 7,385 | 713,834 | ||||||
|
| |||||||
3,498,298 | ||||||||
IT Services — 0.6% | ||||||||
International Business Machines Corp. | 2,205 | 358,665 | ||||||
Media — 1.6% | ||||||||
Comcast Corp., Special Class A | 15,755 | 944,355 | ||||||
Metals & Mining — 0.4% | ||||||||
BHP Billiton Ltd. | 11,090 | 226,223 | ||||||
Multiline Retail — 1.6% | ||||||||
Dollar General Corp. | 11,760 | 914,222 | ||||||
Multi-Utilities — 2.4% | ||||||||
CMS Energy Corp. | 7,300 | 232,432 | ||||||
Dominion Resources, Inc. | 8,740 | 584,444 | ||||||
Sempra Energy | 3,115 | 308,198 | ||||||
WEC Energy Group, Inc. (a) | 5,300 | 238,341 | ||||||
|
| |||||||
1,363,415 | ||||||||
Oil, Gas & Consumable Fuels — 8.3% | ||||||||
Chevron Corp. | 5,593 | 539,557 | ||||||
ConocoPhillips | 4,310 | 264,677 | ||||||
Exxon Mobil Corp. | 11,105 | 923,936 |
Portfolio Abbreviations |
ADR | American Depositary Receipts | |
GDR | Global Depositary Receipts |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock Equity Dividend V.I. Fund | |
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Oil, Gas & Consumable Fuels (concluded) | ||||||||
Marathon Oil Corp. | 12,710 | $ | 337,323 | |||||
Marathon Petroleum Corp. | 16,310 | 853,176 | ||||||
Occidental Petroleum Corp. | 10,950 | 851,582 | ||||||
Spectra Energy Corp. | 7,186 | 234,264 | ||||||
TOTAL SA — ADR | 17,008 | 836,283 | ||||||
|
| |||||||
4,840,798 | ||||||||
Paper & Forest Products — 1.0% | ||||||||
International Paper Co. | 11,820 | 562,514 | ||||||
Pharmaceuticals — 8.7% | ||||||||
AbbVie, Inc. | 5,040 | 338,638 | ||||||
Bristol-Myers Squibb Co. | 16,635 | 1,106,893 | ||||||
Johnson & Johnson | 9,715 | 946,824 | ||||||
Merck & Co., Inc. | 21,600 | 1,229,688 | ||||||
Pfizer, Inc. | 42,670 | 1,430,725 | ||||||
|
| |||||||
5,052,768 | ||||||||
Professional Services — 0.4% | ||||||||
Nielsen Holdings NV | 4,920 | 220,268 | ||||||
Real Estate Investment Trusts (REITs) — 0.5% | ||||||||
Weyerhaeuser Co. | 8,200 | 258,300 | ||||||
Road & Rail — 0.8% | ||||||||
Union Pacific Corp. | 5,085 | 484,956 | ||||||
Semiconductors & Semiconductor Equipment — 1.7% | ||||||||
Intel Corp. | 32,900 | 1,000,654 | ||||||
Software — 2.6% | ||||||||
Microsoft Corp. | 26,795 | 1,182,999 | ||||||
Oracle Corp. | 8,540 | 344,162 | ||||||
|
| |||||||
1,527,161 | ||||||||
Specialty Retail — 3.4% | ||||||||
The Gap, Inc. | 11,500 | 438,955 | ||||||
The Home Depot, Inc. | 13,795 | 1,533,038 | ||||||
|
| |||||||
1,971,993 |
Common Stocks | Shares | Value | ||||||
Technology Hardware, Storage & Peripherals — 0.8% |
| |||||||
Samsung Electronics Co. Ltd. — GDR | 780 | $ | 443,337 | |||||
Tobacco — 1.6% | ||||||||
Altria Group, Inc. | 6,845 | 334,789 | ||||||
Philip Morris International, Inc. | 3,255 | 260,953 | ||||||
Reynolds American, Inc. | 4,507 | 336,493 | ||||||
|
| |||||||
932,235 | ||||||||
Water Utilities — 0.7% | ||||||||
American Water Works Co., Inc. | 8,525 | 414,571 | ||||||
Wireless Telecommunication Services — 0.5% | ||||||||
SK Telecom Co. Ltd — ADR | 11,630 | 288,308 | ||||||
Total Long-Term Investments (Cost — $43,907,870) — 95.8% |
| 55,674,727 | ||||||
Short-Term Securities | ||||||||
BlackRock Liquidity Funds, TempFund, | 2,269,667 | 2,269,667 | ||||||
Beneficial Interest (000) | ||||||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (b)(c)(d) | $ | 175 | 174,673 | |||||
Total Short-Term Securities (Cost — $2,444,340) — 4.2% |
| 2,444,340 | ||||||
Total Investments (Cost — $46,352,210) — 100.0% |
| 58,119,067 | ||||||
Liabilities in Excess of Other Assets — 0.0% |
| (2,055 | ) | |||||
|
| |||||||
Net Assets — 100.0% | $ | 58,117,012 | ||||||
|
|
Notes to Schedule of Investments |
(a) | Security, or a portion of security, is on loan. |
(b) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares Held at December 31, 2014 | Net Activity | Shares/Beneficial Interest Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 720,854 | 1,548,813 | 2,269,667 | $ | 581 | |||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | — | 174,673 | 174,673 | $ | 789 | 1 |
1 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(c) | Represents the current yield as of report date. |
(d) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Equity Dividend V.I. Fund |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Aerospace & Defense | $ | 4,189,304 | — | — | $ | 4,189,304 | ||||||||||
Air Freight & Logistics | 605,688 | — | — | 605,688 | ||||||||||||
Banks | 9,149,431 | — | — | 9,149,431 | ||||||||||||
Beverages | 564,716 | $ | 454,087 | — | 1,018,803 | |||||||||||
Capital Markets | 1,306,473 | — | — | 1,306,473 | ||||||||||||
Chemicals | 1,611,647 | — | — | 1,611,647 | ||||||||||||
Commercial Services & Supplies | 249,735 | — | — | 249,735 | ||||||||||||
Communications Equipment | 1,175,398 | — | — | 1,175,398 | ||||||||||||
Consumer Finance | 354,092 | — | — | 354,092 | ||||||||||||
Diversified Financial Services | 514,622 | — | — | 514,622 | ||||||||||||
Diversified Telecommunication Services | 1,118,877 | — | — | 1,118,877 | ||||||||||||
Electric Utilities | 1,017,533 | — | — | 1,017,533 | ||||||||||||
Electrical Equipment | 243,671 | — | — | 243,671 | ||||||||||||
Energy Equipment & Services | 299,510 | — | — | 299,510 | ||||||||||||
Food & Staples Retailing | 733,801 | — | — | 733,801 | ||||||||||||
Food Products | 305,670 | — | — | 305,670 | ||||||||||||
Health Care Equipment & Supplies | 598,655 | — | — | 598,655 | ||||||||||||
Health Care Providers & Services | 2,359,588 | — | — | 2,359,588 | ||||||||||||
Hotels, Restaurants & Leisure | 430,952 | — | — | 430,952 | ||||||||||||
Household Products | 1,168,934 | — | — | 1,168,934 | ||||||||||||
Industrial Conglomerates | 1,919,302 | — | — | 1,919,302 | ||||||||||||
Insurance | 3,498,298 | — | — | 3,498,298 | ||||||||||||
IT Services | 358,665 | — | — | 358,665 | ||||||||||||
Media | 944,355 | — | — | 944,355 | ||||||||||||
Metals & Mining | — | 226,223 | — | 226,223 | ||||||||||||
Multiline Retail | 914,222 | — | — | 914,222 | ||||||||||||
Multi-Utilities | 1,363,415 | — | — | 1,363,415 | ||||||||||||
Oil, Gas & Consumable Fuels | 4,840,798 | — | — | 4,840,798 | ||||||||||||
Paper & Forest Products | 562,514 | — | — | 562,514 | ||||||||||||
Pharmaceuticals | 5,052,768 | — | — | 5,052,768 | ||||||||||||
Professional Services | 220,268 | — | — | 220,268 | ||||||||||||
Real Estate Investment Trusts (REITs) | 258,300 | — | — | 258,300 | ||||||||||||
Road & Rail | 484,956 | — | — | 484,956 | ||||||||||||
Semiconductors & Semiconductor Equipment | 1,000,654 | — | — | 1,000,654 | ||||||||||||
Software | 1,527,161 | — | — | 1,527,161 | ||||||||||||
Specialty Retail | 1,971,993 | — | — | 1,971,993 | ||||||||||||
Technology Hardware, Storage & Peripherals | 443,337 | — | — | 443,337 | ||||||||||||
Tobacco | 932,235 | — | — | 932,235 | ||||||||||||
Water Utilities | 414,571 | — | — | 414,571 | ||||||||||||
Wireless Telecommunication Services | 288,308 | — | — | 288,308 | ||||||||||||
Short-Term Securities | 2,269,667 | 174,673 | — | 2,444,340 | ||||||||||||
|
| |||||||||||||||
Total | $ | 57,264,084 | $ | 854,983 | — | $ | 58,119,067 | |||||||||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Schedule of Investments (concluded) | BlackRock Equity Dividend V.I. Fund |
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 2,291 | — | — | $ | 2,291 | ||||||||||
Foreign currency at value | 2,190 | — | — | 2,190 | ||||||||||||
Liabilities: | ||||||||||||||||
Collateral on securities loaned at value | — | $ | (174,673 | ) | — | (174,673 | ) | |||||||||
|
| |||||||||||||||
Total | $ | 4,481 | $ | (174,673 | ) | — | $ | (170,192 | ) | |||||||
|
|
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Equity Dividend V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $170,391)(cost — $43,907,870) | $ | 55,674,727 | ||
Investments at value — affiliated (cost — $2,444,340) | 2,444,340 | |||
Cash | 2,291 | |||
Foreign currency at value (cost — $2,183) | 2,190 | |||
Receivables: | ||||
Investments sold | 200,093 | |||
Capital shares sold | 122,727 | |||
Dividends — unaffiliated | 91,112 | |||
From the Manager | 19,362 | |||
Dividends — affiliated | 164 | |||
Securities lending income — affiliated | 62 | |||
Prepaid expenses | 133 | |||
|
| |||
Total assets | 58,557,201 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 174,673 | |||
Payables: | ||||
Investments purchased | 148,043 | |||
Transfer agent fees | 29,248 | |||
Investment advisory fees | 28,663 | |||
Capital shares redeemed | 21,793 | |||
Professional fees | 12,857 | |||
Distribution fees | 5,161 | |||
Custodian fees | 4,513 | |||
Officer’s and Directors’ fees | 1,229 | |||
Other affiliates | 283 | |||
Other accrued expenses payable | 13,726 | |||
|
| |||
Total liabilities | 440,189 | |||
|
| |||
Net Assets | $ | 58,117,012 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 42,183,938 | ||
Undistributed net investment income | 239,922 | |||
Accumulated net realized gain | 3,926,367 | |||
Net unrealized appreciation (depreciation) | 11,766,785 | |||
|
| |||
Net Assets | $ | 58,117,012 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $32,498,746 and 3,024,527 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.75 | ||
|
| |||
Class III — Based on net assets of $25,618,266 and 2,387,656 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.73 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Equity Dividend V.I. | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 738,492 | ||
Securities lending — affiliated — net | 789 | |||
Dividends — affiliated | 581 | |||
Foreign taxes withheld | (5,099 | ) | ||
|
| |||
Total income | 734,763 | |||
|
| |||
Expenses | ||||
Investment advisory | 171,430 | |||
Transfer agent | 2,451 | |||
Transfer agent — Class I | 35,476 | |||
Transfer agent — Class III | 21,051 | |||
Distribution — Class III | 28,957 | |||
Professional | 19,485 | |||
Accounting services | 9,842 | |||
Officer and Directors | 8,963 | |||
Custodian | 8,161 | |||
Printing | 6,428 | |||
Miscellaneous | 4,038 | |||
|
| |||
Total expenses | 316,282 | |||
Less fees waived by the Manager | (564 | ) | ||
Less transfer agent fees reimbursed — Class I | (35,476 | ) | ||
Less transfer agent fees reimbursed — Class III | (21,051 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 259,191 | |||
|
| |||
Net investment income | 475,572 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments | 3,366,546 | |||
Foreign currency transactions | (2,633 | ) | ||
|
| |||
3,363,913 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (4,460,760 | ) | ||
Foreign currency translations | 86 | |||
|
| |||
(4,460,674 | ) | |||
|
| |||
Net realized and unrealized loss | (1,096,761 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting from Operations | $ | (621,189 | ) | |
|
|
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statements of Changes in Net Assets | BlackRock Equity Dividend V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 475,572 | $ | 971,202 | ||||
Net realized gain | 3,363,913 | 3,365,578 | ||||||
Net change in unrealized appreciation (depreciation) | (4,460,674 | ) | 579,318 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | (621,189 | ) | 4,916,098 | |||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | (151,199 | ) | (631,688 | ) | ||||
Class III | (88,801 | ) | (333,328 | ) | ||||
Net realized gain: | ||||||||
Class I | — | (2,112,966 | ) | |||||
Class III | — | (1,340,581 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | (240,000 | ) | (4,418,563 | ) | ||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase in net assets derived from capital share transactions | 664,649 | 591,156 | ||||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | (196,540 | ) | 1,088,691 | |||||
Beginning of period | 58,313,552 | 57,224,861 | ||||||
|
| |||||||
End of period | $ | 58,117,012 | $ | 58,313,552 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 239,922 | $ | 4,350 | ||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Financial Highlights | BlackRock Equity Dividend V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.90 | $ | 10.78 | $ | 8.95 | $ | 8.17 | $ | 7.92 | $ | 8.49 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.09 | 0.20 | 0.19 | 0.21 | 0.17 | 0.22 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.19 | ) | 0.80 | 1.99 | 0.78 | 0.30 | 0.64 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | (0.10 | ) | 1.00 | 2.18 | 0.99 | 0.47 | 0.86 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | (0.05 | ) | (0.20 | ) | (0.20 | ) | (0.20 | ) | (0.17 | ) | (0.24 | ) | ||||||||||||
Net realized gain | — | (0.68 | ) | (0.15 | ) | (0.01 | ) | (0.05 | ) | (1.19 | ) | |||||||||||||
Return of capital | — | — | — | — | (0.00 | )3 | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | (0.05 | ) | (0.88 | ) | (0.35 | ) | (0.21 | ) | (0.22 | ) | (1.43 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.75 | $ | 10.90 | $ | 10.78 | $ | 8.95 | $ | 8.17 | $ | 7.92 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return4 | ||||||||||||||||||||||||
Based on net asset value | (0.94 | )%5 | 9.34 | % | 24.52 | % | 12.12 | % | 5.96 | % | 10.33 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.02 | %6 | 0.99 | % | 1.04 | % | 0.96 | % | 1.02 | % | 1.07 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 0.81 | %6 | 0.78 | % | 0.84 | % | 0.83 | % | 1.02 | % | 1.03 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.76 | %6 | 1.81 | % | 1.95 | % | 2.35 | % | 2.09 | % | 2.73 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 32,499 | $ | 35,694 | $ | 36,658 | $ | 34,558 | $ | 30,925 | $ | 28,803 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 17 | % | 18 | % | 18 | % | 4 | % | 12 | % | 103 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Amount is greater than $(0.005) per share. |
4 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
5 | Aggregate total return. |
6 | Annualized. |
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights (concluded) | BlackRock Equity Dividend V.I. Fund |
Class III | ||||||||||||||||||||
Six Months Ended June 30, 2015 | Year Ended December 31, | Period July 1, 20111 to December 31, | ||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||
Net asset value, beginning of period | $ | 10.89 | $ | 10.77 | $ | 8.95 | $ | 8.17 | $ | 8.60 | ||||||||||
|
| |||||||||||||||||||
Net investment income2 | 0.08 | 0.17 | 0.17 | 0.20 | 0.06 | |||||||||||||||
Net realized and unrealized gain (loss) | (0.20 | ) | 0.80 | 1.97 | 0.77 | (0.31 | ) | |||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) from investment operations | (0.12 | ) | 0.97 | 2.14 | 0.97 | (0.25 | ) | |||||||||||||
|
| |||||||||||||||||||
Distributions from:3 | ||||||||||||||||||||
Net investment income | (0.04 | ) | (0.17 | ) | (0.17 | ) | (0.18 | ) | (0.13 | ) | ||||||||||
Net realized gain | — | (0.68 | ) | (0.15 | ) | (0.01 | ) | (0.05 | ) | |||||||||||
Return of capital | — | — | — | — | (0.00 | )4 | ||||||||||||||
|
| |||||||||||||||||||
Total distributions | (0.04 | ) | (0.85 | ) | (0.32 | ) | (0.19 | ) | (0.18 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ | 10.73 | $ | 10.89 | $ | 10.77 | $ | 8.95 | $ | 8.17 | ||||||||||
|
| |||||||||||||||||||
Total Return5 | ||||||||||||||||||||
Based on net asset value | (1.09 | )%6 | 9.07 | % | 24.12 | % | 11.90 | % | (2.94 | )%6 | ||||||||||
|
| |||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||
Total expenses | 1.24 | %7 | 1.24 | % | 1.28 | % | 1.21 | % | 1.26 | %7 | ||||||||||
|
| |||||||||||||||||||
Total expenses after fees waived and reimbursed | 1.06 | %7 | 1.03 | % | 1.09 | % | 1.06 | % | 1.26 | %7 | ||||||||||
|
| |||||||||||||||||||
Net investment income | 1.52 | %7 | 1.56 | % | 1.71 | % | 2.24 | % | 1.99 | %7 | ||||||||||
|
| |||||||||||||||||||
Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000) | $ | 25,618 | $ | 22,619 | $ | 20,567 | $ | 12,379 | $ | 2,347 | ||||||||||
|
| |||||||||||||||||||
Portfolio turnover rate | 17 | % | 18 | % | 18 | % | 4 | % | 12 | % | ||||||||||
|
|
1 | Recommencement of operations. |
2 | Based on average shares outstanding. |
3 | Distributions for annual periods determined in accordance with federal income tax regulations. |
4 | Amount is greater than $(0.005) per share. |
5 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
6 | Aggregate total return. |
7 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (Unaudited) | BlackRock Equity Dividend V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Equity Dividend V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares. Class III Shares were redeemed on December 31, 2007 and sales of Class III Shares recommenced on July 1, 2011.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value (“NAV”) each business day.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Equity Dividend V.I. Fund |
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value – unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (continued) | BlackRock Equity Dividend V.I. Fund |
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities at Value | Cash Collateral Received1 | Net Amount | |||
UBS Securities LLC | $170,391 | $(170,391) | — |
1 | Collateral with a value of $174,673 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |||
First $1 Billion | 0.60% | |||
$1 Billion - $3 Billion | 0.56% | |||
$3 Billion - $5 Billion | 0.54% | |||
$5 Billion - $10 Billion | 0.52% | |||
Greater than $10 Billion | 0.51% |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $292 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at an annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse all such fees for Class I and Class III.
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed – class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Equity Dividend V.I. Fund |
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 71.5% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 75% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending – affiliated – net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $203 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment adviser, common officers, or common directors. For the six months ended June 30, 2015, the purchase transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were $107,683.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $9,840,980 and $9,666,718, respectively.
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (continued) | BlackRock Equity Dividend V.I. Fund |
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 46,359,305 | ||
|
| |||
Gross unrealized appreciation | $ | 12,469,869 | ||
Gross unrealized depreciation | (710,107 | ) | ||
|
| |||
Net unrealized appreciation | $ | 11,759,762 | ||
|
|
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
8. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
As of June 30, 2015, the Fund invested a significant portion of its assets in securities in the financials sector. Changes in economic conditions affecting such sector would have a greater impact on the Fund and could affect the value, income and/or liquidity of positions in such securities.
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class I | ||||||||||||||||
Shares sold | 99,932 | $ | 1,084,764 | 317,806 | $ | 3,481,608 | ||||||||||
Shares issued in reinvestment of distributions | 13,821 | 151,200 | 250,368 | 2,744,654 | ||||||||||||
Shares redeemed | (364,152 | ) | (3,958,015 | ) | (694,061 | ) | (7,520,813 | ) | ||||||||
|
|
|
| |||||||||||||
Net decrease | (250,399 | ) | $ | (2,722,051 | ) | (125,887 | ) | $ | (1,294,551 | ) | ||||||
|
|
|
| |||||||||||||
Class III | ||||||||||||||||
Shares sold | 498,860 | $ | 5,427,897 | 666,129 | $ | 7,306,757 | ||||||||||
Shares issued in reinvestment of distributions | 8,125 | 88,801 | 152,731 | 1,673,909 | ||||||||||||
Shares redeemed | (196,287 | ) | (2,129,998 | ) | (651,430 | ) | (7,094,959 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase | 310,698 | $ | 3,386,700 | 167,430 | $ | 1,885,707 | ||||||||||
|
|
|
| |||||||||||||
Total Net Increase | 60,299 | $ | 664,649 | 41,543 | $ | 591,156 | ||||||||||
|
|
|
|
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (concluded) | BlackRock Equity Dividend V.I. Fund |
10. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income and a long-term capital gain distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015:
Net Investment Income | Long-Term Capital Gain | |||
Class I | $0.044593 | $0.103672 | ||
Class III | $0.038547 | $0.103672 |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Global Allocation V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Global Allocation V.I. Fund |
Investment Objective |
BlackRock Global Allocation V.I. Fund’s (the “Fund”) investment objective is to seek high total investment return.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund outperformed its reference benchmark, which is comprised of the S&P 500® Index (36%), FTSE World (ex U.S.) Index (24%), BofA Merrill Lynch Current 5-Year U.S. Treasury Index (24%) and Citigroup Non-U.S. Dollar World Government Bond Index (16%) (the “Reference Benchmark”). For the same period, with respect to the broad-based all-equity benchmark, the FTSE World Index, the Fund’s Class I and II Shares performed in line with the benchmark while the Class III Shares underperformed the benchmark. The Fund invests in both equities and bonds; therefore, the Reference Benchmark provides a truer representation of the Fund’s composition and a more comparable means for measurement. The following discussion of relative performance pertains to the Reference Benchmark. The commentary (and referenced allocation percentages) are based on the economic exposures of the Fund, which reflect adjustments for futures, swaps, options and convertible bonds, and may vary relative to the market value. |
What factors influenced performance?
• | Within equities, an overweight in Japan as well as an underweight and stock selection in the United States contributed to performance. In addition, an overweight to Europe, notably in France, was additive. From a sector perspective, stock selection in information technology (“IT”), industrials, financials and consumer discretionary added to returns. An underweight position to fixed income (relative to the Reference Benchmark) contributed positively to performance. From a currency perspective, an overweight in the U.S. dollar positively impacted performance. |
• | Within equities, stock selection in Canada and the United Kingdom detracted from performance. From a sector perspective, stock selection in consumer staples weighed on returns. Exposure to cash equivalents also negatively impacted performance. |
Describe recent portfolio activity.
• | During the period, the Fund’s overall equity allocation decreased from 62% to 60% of net assets. Within equities, the Fund decreased its U.S. exposure and increased its weighting in Europe and Asia, notably Japan. On a sector basis, |
the Fund decreased its equity weightings in consumer discretionary, energy, healthcare and utilities, and increased its exposure to financials, consumer staples, IT, telecommunication services (“telecom”), materials and industrials. The Fund’s allocation to fixed income was reduced from 22% to 20% of net assets. Within fixed income, the Fund reduced exposure to government bonds, notably in the United States and Australia, and increased exposure to corporates and bank loans. The Fund’s allocation to commodity-related securities remained at 1%. |
• | Reflecting the above changes, the allocation to cash and cash equivalents was 19% of net assets. Over the six months, cash helped mitigate portfolio volatility and served as a source of funds for new investments. The Fund has overweighted cash equivalents relative to the Reference Benchmark in part to keep overall portfolio duration (and corresponding interest rate sensitivity) low. |
Describe portfolio positioning at period end.
• | Relative to its Reference Benchmark, the Fund ended the period with a neutral allocation to equities, slightly overweight commodity-related assets, significantly underweight fixed income and overweight cash equivalents. Within the equity segment, the Fund was overweight Japan and Europe, and underweight the United States. Within Europe, the Fund was overweight France, Germany and the Netherlands, and underweight the United Kingdom. On a sector basis, the Fund was overweight healthcare, materials, industrials, energy and telecom, and underweight consumer staples, consumer discretionary, financials and IT. Within fixed income, the Fund was underweight U.S. Treasuries, European sovereign debt and Japanese government bonds, and overweight government bonds in Mexico, Brazil and Argentina. In addition, the portfolio was overweight corporate and convertible bonds. |
• | With respect to currency exposure, relative to its Reference Benchmark, the Fund was overweight the U.S. dollar, Indian rupee, Hong Kong dollar and Singapore dollar, and had smaller overweights in select Latin American currencies. The Fund was underweight the euro, Japanese yen, Australian dollar, Canadian dollar, Korean won, British pound, Swiss franc and Taiwan dollar, along with select European currencies. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Overall Asset Exposure |
Reference Benchmark3 Percentage | ||||||||||||||||||||
Percent of Fund’s Net Assets1 | ||||||||||||||||||||
Portfolio Composition | 6/30/15 | 12/31/142 | ||||||||||||||||||
U.S. Equities | 24 | % | 28 | % | 35 | % | ||||||||||||||
European Equities | 15 | 14 | 13 | |||||||||||||||||
Asia Pacific Equities | 17 | 16 | 9 | |||||||||||||||||
Other Equities | 4 | 4 | 3 | |||||||||||||||||
Total Equities | 60 | 62 | 60 | |||||||||||||||||
U.S. Dollar Denominated Fixed Income Securities | 14 | 14 | 24 | |||||||||||||||||
U.S. Issuers | 9 | 11 | — | |||||||||||||||||
Non-U.S. Issuers | 5 | 3 | — | |||||||||||||||||
Non-U.S. Dollar Denominated Fixed Income Securities | 6 | 8 | 16 | |||||||||||||||||
Total Fixed Income Securities | 20 | 22 | 40 | |||||||||||||||||
Commodity-Related | 1 | 1 | — | |||||||||||||||||
Cash & Short-Term Securities | 19 | 15 | — |
1 | Exposure based on market value and adjusted for the economic value of futures, swaps, options and convertible bonds. |
2 | Prior period data is updated to reflect the economic value of options and convertible bonds and to present commodity-related exposure separately. |
3 | The Reference Benchmark is an unmanaged weighted index comprised as follows: 36% of the S&P 500 Index®; 24% FTSE World (ex U.S.) Index; 24% BofA Merrill Lynch Current 5-Year U.S. Treasury Index; and 16% Citigroup Non-U.S. Dollar World Government Bond Index. Descriptions of these indexes are found on page 5 of this report to shareholders in the “Performance Summary” section. |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Global Allocation V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. |
2 | The Fund invests in a portfolio of U.S. and foreign equity securities, debt and money market securities, the combination of which will be varied from time to time with respect to types of securities and markets in response to changing markets and economic trends. |
3 | An unmanaged capitalization-weighted index is comprised of 2,545 equities from 35 countries in 4 regions, including the United States. |
4 | An unmanaged weighted index comprised as follows: 36% S&P 500® Index; 24% FTSE World (ex U.S.) Index; 24% BofA Merrill Lynch Current 5-Year U.S. Treasury Index; and 16% Citigroup Non-U.S. Dollar World Government Bond Index. |
Performance Summary for the Period Ended June 30, 2015 |
6-Month Total Returns6 | Average Annual Total Returns | |||||||||||||||||||
1 Year6 | 5 Years6 | 10 Years6 | ||||||||||||||||||
Class I5 | 2.83 | % | 1.45 | % | 8.18 | % | 7.49% | |||||||||||||
Class II5 | 2.78 | 1.36 | 8.02 | 7.33 | ||||||||||||||||
Class III5 | 2.68 | 1.17 | 7.91 | 7.24 | ||||||||||||||||
FTSE World Index | 2.80 | 1.05 | 12.88 | 7.05 | ||||||||||||||||
Reference Benchmark | 0.87 | (0.36 | ) | 9.11 | 6.15 | |||||||||||||||
U.S. Stocks: S&P 500® Index7 | 1.23 | 7.42 | 17.34 | 7.90 | ||||||||||||||||
Non-U.S. Stocks: FTSE World (ex U.S.) Index8 | 4.27 | (5.27 | ) | 8.75 | 6.07 | |||||||||||||||
U.S. Bonds: BofA Merrill Lynch Current 5-Year U.S. Treasury Index9 | 1.12 | 2.12 | 2.65 | 4.25 | ||||||||||||||||
Non-U.S. Bonds: Citigroup Non-U.S. Dollar World Government Bond Index10 | (5.83 | ) | (13.49 | ) | 0.32 | 2.63 |
5 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
6 | For a portion of the period, the Fund’s investment advisor waived a portion of its fees. Without such waiver, the Fund’s performance would have been lower. |
7 | This unmanaged index covers 500 leading companies and captures approximately 80% coverage of available market capitalization. |
8 | An unmanaged capitalization-weighted index is comprised of 1,888 equities from 34 countries, excluding the United States. |
9 | An unmanaged index is designed to track the total return of the current coupon five-year U.S. Treasury bond. |
10 | This unmanaged market capitalization-weighted index tracks 22 government bond indexes, excluding the United States. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example | ||||||||||||||
Actual | Hypothetical12 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period11 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period11 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,028.30 | $3.67 | $1,000.00 | $1,021.17 | $3.66 | 0.73% | |||||||
Class II | $1,000.00 | $1,027.80 | $4.42 | $1,000.00 | $1,020.43 | $4.41 | 0.88% | |||||||
Class III | $1,000.00 | $1,026.80 | $4.92 | $1,000.00 | $1,019.93 | $4.91 | 0.98% |
11 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
12 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Global Allocation V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative
financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Consolidated Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Australia — 0.2% | ||||||||
Australia & New Zealand Banking Group Ltd. | 32,292 | $ | 801,397 | |||||
Commonwealth Bank of Australia | 18,844 | 1,235,733 | ||||||
Healthscope Ltd. | 5,566,964 | 11,657,013 | ||||||
Mesoblast Ltd. (a)(b) | 958,768 | 2,777,010 | ||||||
National Australia Bank Ltd. | 27,711 | 711,732 | ||||||
Wesfarmers Ltd. | 11,599 | 348,819 | ||||||
Westpac Banking Corp. | 36,079 | 892,669 | ||||||
|
| |||||||
18,424,373 | ||||||||
Belgium — 0.0% | ||||||||
Anheuser-Busch InBev NV | 8,274 | 995,699 | ||||||
BHF Kleinwort Benson Group (a) | 590,970 | 2,892,326 | ||||||
BHF Kleinwort Benson Group SA | 36,463 | 178,355 | ||||||
|
| |||||||
4,066,380 | ||||||||
Brazil — 0.3% | ||||||||
BR Malls Participacoes SA | 1,130,998 | 5,347,422 | ||||||
Cia Brasileira de Distribuicao, Preference Shares | 165,473 | 3,907,038 | ||||||
Cosan Ltd., Class A | 693,225 | 4,270,266 | ||||||
Cyrela Brazil Realty SA Empreendimentos e Participacoes | 489,998 | 1,566,556 | ||||||
Gerdau SA — ADR | 1,717,001 | 4,137,972 | ||||||
Itau Unibanco Holding SA, Class S Preference Shares | 578,925 | 6,377,467 | ||||||
MRV Engenharia e Participacoes SA | 29,138 | 73,100 | ||||||
Petroleo Brasileiro SA — ADR (a)(b) | 1,065,089 | 9,639,055 | ||||||
Qualicorp SA | 39,274 | 247,460 | ||||||
SLC Agricola SA | 421,762 | 2,333,250 | ||||||
|
| |||||||
37,899,586 | ||||||||
Canada — 1.4% | ||||||||
Athabasca Oil Corp. (a)(b) | 1,746,414 | 2,852,430 | ||||||
Bank of Montreal | 7,619 | 451,467 | ||||||
The Bank of Nova Scotia | 14,173 | 731,572 | ||||||
Barrick Gold Corp. | 954,306 | 10,172,902 | ||||||
Cameco Corp. (b) | 900,289 | 12,856,127 | ||||||
Canadian National Railway Co. (b) | 107,052 | 6,182,253 | ||||||
Eldorado Gold Corp. | 1,347,626 | 5,589,033 | ||||||
Enbridge, Inc. | 30,679 | 1,434,716 | ||||||
First Quantum Minerals Ltd. (b) | 3,347,651 | 43,768,728 | ||||||
Goldcorp, Inc. (b) | 1,151,277 | 18,650,687 | ||||||
Manulife Financial Corp. | 21,894 | 406,853 | ||||||
Platinum Group Metals Ltd. (a) | 5,360,633 | 2,103,051 | ||||||
Platinum Group Metals Ltd. (a)(b) | 3,220,099 | 1,288,040 | ||||||
Potash Corp. of Saskatchewan, Inc. | 138,447 | 4,287,534 | ||||||
Royal Bank of Canada | 16,849 | 1,030,366 | ||||||
Suncor Energy, Inc. | 53,555 | 1,475,014 | ||||||
Suncor Energy, Inc. — NY Shares (b) | 67,903 | 1,868,691 | ||||||
The Toronto-Dominion Bank | 411,492 | 17,474,408 | ||||||
TransCanada Corp. (b) | 706,396 | 28,708,295 | ||||||
|
| |||||||
161,332,167 |
Common Stocks | Shares | Value | ||||||
China — 0.7% | ||||||||
Alibaba Group Holding Ltd. — ADR (a)(b) | 146,149 | $ | 12,023,678 | |||||
Beijing Enterprises Holdings Ltd. | 2,205,042 | 16,569,673 | ||||||
CAR, Inc. (a)(b) | 2,812,540 | 5,977,264 | ||||||
China Overseas Land & Investment Ltd. | 3,008,000 | 10,588,516 | ||||||
China Resources Land Ltd. | 2,894,000 | 9,365,999 | ||||||
Dalian Wanda Commercial Properties Co. Ltd. (c) | 972,700 | 7,823,964 | ||||||
Dongfeng Motor Group Co. Ltd., Class H | 1,630,800 | 2,184,758 | ||||||
Haitian International Holdings Ltd. | 2,541,800 | 5,966,966 | ||||||
SINA Corp. (a) | 166,167 | 8,900,735 | ||||||
Zhongsheng Group Holdings Ltd. (b) | 3,441,706 | 2,417,154 | ||||||
|
| |||||||
81,818,707 | ||||||||
Cyprus — 0.0% | ||||||||
Ocean Rig UDW, Inc. (b) | 365,852 | 1,876,821 | ||||||
Denmark — 0.1% | ||||||||
Novo Nordisk A/S, Class B | 76,149 | 4,178,667 | ||||||
TDC A/S | 351,167 | 2,574,176 | ||||||
|
| |||||||
6,752,843 | ||||||||
Egypt — 0.0% | ||||||||
Integrated Diagnostics Holdings PLC (a) | 393,265 | 2,300,600 | ||||||
France — 2.4% | ||||||||
Air Liquide SA (b) | 34,047 | 4,320,251 | ||||||
Airbus Group SE | 380,096 | 24,758,497 | ||||||
Alcatel-Lucent (a)(b) | 311,338 | 1,135,525 | ||||||
Arkema SA | 92,062 | 6,654,952 | ||||||
Atos SE | 127,165 | 9,502,207 | ||||||
AXA SA | 693,663 | 17,585,673 | ||||||
BNP Paribas SA | 207,937 | 12,618,211 | ||||||
Cie de Saint-Gobain | 224,803 | 10,147,939 | ||||||
Danone SA | 5,777 | 374,203 | ||||||
Dassault Aviation SA | 11,126 | 14,323,227 | ||||||
GDF Suez | 485,836 | 9,045,483 | ||||||
L’Oreal SA | 2,463 | 440,683 | ||||||
Orange SA | 309,015 | 4,775,637 | ||||||
Renault SA | 61,929 | 6,493,109 | ||||||
Safran SA | 507,563 | 34,493,747 | ||||||
Sanofi | 337,435 | 33,382,494 | ||||||
Schneider Electric SE | 135,638 | 9,391,461 | ||||||
Société Générale SA | 245,429 | 11,516,484 | ||||||
TOTAL SA | 377,413 | 18,512,509 | ||||||
TOTAL SA — ADR (b) | 434,654 | 21,371,937 | ||||||
UBISOFT Entertainment (a) | 495,034 | 8,850,584 | ||||||
Unibail-Rodamco SE | 32,185 | 8,175,163 | ||||||
Worldline SA (a) | 487,288 | 9,995,874 | ||||||
|
| |||||||
277,865,850 | ||||||||
Germany — 1.1% | ||||||||
Allianz SE | 5,329 | 831,065 | ||||||
BASF SE | 123,906 | 10,902,876 |
Portfolio Abbreviations | ||||||||||
ADR | American Depositary Receipts | GDR | Global Depositary Receipts | PCL | Public Company Limited | |||||
AUD | Australian Dollar | IDR | Indonesian Rupiah | PLN | Polish Zloty | |||||
BRL | Brazilian Real | INR | Indian Rupee | REIT | Real Estate Investment Trust | |||||
CAD | Canadian Dollar | JPY | Japanese Yen | SGD | Singapore Dollar | |||||
CHF | Swiss Franc | JSC | Joint Stock Company | S&P | Standard & Poor’s | |||||
CLP | Chilean Peso | KRW | South Korean Won | SPDR | Standard & Poor’s Depositary Receipts | |||||
CNH | Chinese Yuan | LIBOR | London Interbank Offered Rate | TBA | To-Be-Announced | |||||
EUR | Euro | MXN | Mexican Peso | TWD | Taiwan Dollar | |||||
FTSE | Financial Times Stock Exchange | NYSE | New York Stock Exchange | USD | U.S. Dollar | |||||
GBP | British Pound | NZD | New Zealand Dollar | WIBOR | Warsaw Interbank Offered Rate |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Germany (concluded) | ||||||||
Bayer AG, Registered Shares | 172,613 | $ | 24,172,794 | |||||
Bayerische Motoren Werke AG (b) | 80,962 | 8,866,530 | ||||||
Deutsche Annington Immobilien SE (a) | 474,289 | 13,383,501 | ||||||
Deutsche Bank AG, Registered Shares | 420,532 | 12,644,039 | ||||||
Deutsche Post AG, Registered Shares | 183,230 | 5,353,865 | ||||||
Deutsche Telekom AG, Registered Shares | 623,412 | 10,747,828 | ||||||
Linde AG | 32,209 | 6,104,054 | ||||||
RTL Group SA (b) | 12,267 | 1,108,939 | ||||||
SAP SE | 98,380 | 6,894,120 | ||||||
Volkswagen AG | 4,512 | 1,044,740 | ||||||
Volkswagen AG, Preference Shares | 123,808 | 28,733,263 | ||||||
|
| |||||||
130,787,614 | ||||||||
Hong Kong — 0.7% | ||||||||
AIA Group Ltd. | 2,004,800 | 13,108,702 | ||||||
Chaoda Modern Agriculture Holdings Ltd. (a)(b) | 19,748,798 | 1,323,881 | ||||||
Haier Electronics Group Co. Ltd. | 2,460,000 | 6,623,534 | ||||||
Sino Biopharmaceutical Ltd. | 4,144,000 | 4,804,436 | ||||||
Sun Hung Kai Properties Ltd. | 2,044,083 | 33,078,950 | ||||||
The Wharf Holdings Ltd. | 3,803,000 | 25,273,006 | ||||||
|
| |||||||
84,212,509 | ||||||||
India — 0.3% | ||||||||
Coal India Ltd. | 903,162 | 5,966,465 | ||||||
Cummins India Ltd. | 12,411 | 174,636 | ||||||
Maruti Suzuki India Ltd. | 137,753 | 9,082,967 | ||||||
Oil & Natural Gas Corp. Ltd. (a) | 2,307,306 | 11,200,587 | ||||||
Reliance Industries Ltd. | 449,887 | 7,059,034 | ||||||
|
| |||||||
33,483,689 | ||||||||
Indonesia — 0.1% | ||||||||
Siloam International Hospitals Tbk PT | 5,764,508 | 6,226,058 | ||||||
Ireland — 0.3% | ||||||||
King Digital Entertainment PLC | 621,691 | 8,859,097 | ||||||
Shire PLC | 279,937 | 22,492,673 | ||||||
XL Group PLC | 235,934 | 8,776,745 | ||||||
|
| |||||||
40,128,515 | ||||||||
Israel — 0.8% | ||||||||
Check Point Software Technologies Ltd. (a) | 31,350 | 2,493,893 | ||||||
Mobileye NV (b)(d) | 1,006,312 | 53,505,609 | ||||||
Teva Pharmaceutical Industries Ltd. — ADR (d) | 748,440 | 44,232,804 | ||||||
|
| |||||||
100,232,306 | ||||||||
Italy — 0.6% | ||||||||
Banco Popolare SC (a) | 55,458 | 913,151 | ||||||
EI Towers SpA | 285,401 | 17,197,623 | ||||||
Enel SpA | 1,990,400 | 9,021,100 | ||||||
Eni SpA | 91,505 | 1,625,280 | ||||||
Intesa Sanpaolo SpA | 5,548,922 | 20,150,868 | ||||||
Rai Way SpA (c) | 1,590,809 | 7,626,122 | ||||||
Telecom Italia SpA (a)(b) | 2,023,803 | 2,571,878 | ||||||
Telecom Italia SpA | 895,768 | 913,472 | ||||||
UniCredit SpA | 900,408 | 6,051,544 | ||||||
Unione di Banche Italiane ScpA | 130,545 | 1,047,517 | ||||||
|
| |||||||
67,118,555 | ||||||||
Japan — 9.6% | ||||||||
Aisin Seiki Co. Ltd. | 325,739 | 13,850,183 | ||||||
Ajinomoto Co., Inc. | 115,000 | 2,486,905 | ||||||
Alpine Electronics, Inc. | 63,800 | 1,228,853 | ||||||
Asahi Group Holdings Ltd. | 188,500 | 5,986,418 | ||||||
Asahi Kasei Corp. | 1,220,100 | 10,007,971 | ||||||
ASKUL Corp. | 2,400 | 75,720 | ||||||
Astellas Pharma, Inc. | 471,465 | 6,716,417 | ||||||
Autobacs Seven Co. Ltd. | 38,800 | 648,856 |
Common Stocks | Shares | Value | ||||||
Japan (continued) | ||||||||
Bandai Namco Holdings, Inc. | 91,500 | $ | 1,768,197 | |||||
The Bank of Yokohama Ltd. | 361,000 | 2,210,755 | ||||||
Benesse Holdings, Inc. | 13,900 | 348,465 | ||||||
Bridgestone Corp. | 638,732 | 23,609,189 | ||||||
Canon Marketing Japan, Inc. | 45,200 | 768,667 | ||||||
The Chiba Bank Ltd. | 307,000 | 2,337,743 | ||||||
Chiyoda Corp. | 80,000 | 708,072 | ||||||
Chubu Electric Power Co., Inc. | 764,400 | 11,392,732 | ||||||
COMSYS Holdings Corp. | 27,900 | 415,023 | ||||||
Daikin Industries Ltd. | 196,000 | 14,090,122 | ||||||
Daikyo, Inc. | 611,000 | 982,524 | ||||||
Daito Trust Construction Co. Ltd. | 72,200 | 7,472,360 | ||||||
Dena Co. Ltd. | 269,900 | 5,304,275 | ||||||
Denso Corp. | 683,320 | 33,997,297 | ||||||
East Japan Railway Co. | 380,251 | 34,184,272 | ||||||
Eisai Co. Ltd. | 71,900 | 4,820,509 | ||||||
Electric Power Development Co. Ltd. | 112,300 | 3,967,101 | ||||||
Exedy Corp. | 30,300 | 756,541 | ||||||
FamilyMart Co. Ltd. (b) | 156,700 | 7,205,874 | ||||||
FANUC Corp. | 54,818 | 11,216,618 | ||||||
Fuji Heavy Industries Ltd. | 1,503,964 | 55,301,938 | ||||||
Futaba Industrial Co. Ltd. | 383,921 | 1,864,904 | ||||||
Gree, Inc. (b) | 1,097,400 | 6,408,490 | ||||||
GS Yuasa Corp. | 1,234,000 | 4,845,600 | ||||||
GungHo Online Entertainment, Inc. (b) | 1,345,100 | 5,234,557 | ||||||
Hitachi Chemical Co. Ltd. | 503,500 | 9,068,550 | ||||||
Hitachi High-Technologies Corp. | 70,900 | 1,993,126 | ||||||
Hitachi Kokusai Electric, Inc. | 48,000 | 729,174 | ||||||
Hitachi Ltd. | 2,625,700 | 17,296,929 | ||||||
Honda Motor Co. Ltd. | 482,183 | 15,584,083 | ||||||
Hoya Corp. | 207,274 | 8,301,269 | ||||||
IHI Corp. | 1,607,000 | 7,482,470 | ||||||
Inpex Corp. | 2,219,039 | 25,188,207 | ||||||
Isuzu Motors Ltd. | 895,700 | 11,751,193 | ||||||
Japan Airlines Co. Ltd. | 934,200 | 32,556,329 | ||||||
Japan Tobacco, Inc. | 183,100 | 6,509,073 | ||||||
JGC Corp. | 271,302 | 5,121,413 | ||||||
JSR Corp. | 554,900 | 9,795,820 | ||||||
JX Holdings, Inc. | 817,300 | 3,523,668 | ||||||
Kamigumi Co. Ltd. | 92,000 | 863,591 | ||||||
The Kansai Electric Power Co., Inc. (a) | 128,300 | 1,420,350 | ||||||
KDDI Corp. | 508,500 | 12,271,098 | ||||||
Keyence Corp. | 7,200 | 3,880,634 | ||||||
Kinden Corp. | 101,000 | 1,335,565 | ||||||
Kirin Holdings Co. Ltd. | 353,000 | 4,862,283 | ||||||
Koito Manufacturing Co. Ltd. | 166,200 | 6,471,359 | ||||||
Komatsu Ltd. | 332,300 | 6,667,040 | ||||||
Kubota Corp. | 466,296 | 7,393,767 | ||||||
Kuraray Co. Ltd. | 550,270 | 6,721,746 | ||||||
Kyocera Corp. | 229,100 | 11,911,473 | ||||||
Kyushu Electric Power Co, Inc. (a) | 372,800 | 4,322,213 | ||||||
Mabuchi Motor Co. Ltd. | 47,800 | 3,023,466 | ||||||
Maeda Road Construction Co. Ltd. | 47,000 | 864,774 | ||||||
Medipal Holdings Corp. | 19,500 | 317,608 | ||||||
Mitsubishi Corp. | 1,106,747 | 24,330,736 | ||||||
Mitsubishi Electric Corp. | 1,758,000 | 22,700,532 | ||||||
Mitsubishi Estate Co. Ltd. | 613,000 | 13,202,851 | ||||||
Mitsubishi Heavy Industries Ltd. | 2,521,000 | 15,325,049 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 3,774,000 | 27,151,916 | ||||||
Mitsui & Co. Ltd. | 2,291,478 | 31,132,313 | ||||||
Mizuho Financial Group, Inc. | 4,319,700 | 9,346,675 | ||||||
MS&AD Insurance Group Holdings, Inc. | 188,814 | 5,877,458 | ||||||
Murata Manufacturing Co. Ltd. | 36,528 | 6,374,700 | ||||||
Nabtesco Corp. | 120,500 | 3,022,590 | ||||||
NEC Corp. | 3,427,000 | 10,370,621 |
See Notes to Consolidated Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Japan (concluded) | ||||||||
Nexon Co. Ltd. | 135,500 | $ | 1,865,497 | |||||
Nikon Corp. (b) | 796,100 | 9,200,286 | ||||||
Nintendo Co. Ltd. | 116,000 | 19,351,996 | ||||||
Nippo Corp. | 20,000 | 342,859 | ||||||
Nippon Express Co. Ltd. | 530,000 | 2,604,116 | ||||||
Nippon Steel & Sumitomo Metal Corp. | 2,901,000 | 7,521,871 | ||||||
Nippon Telegraph & Telephone Corp. | 325,660 | 11,794,023 | ||||||
Nitto Denko Corp. | 379,900 | 31,198,280 | ||||||
Nomura Holdings, Inc. | 909,800 | 6,142,831 | ||||||
NS Solutions Corp. | 4,800 | 158,717 | ||||||
NTT DOCOMO, Inc. | 169,100 | 3,246,477 | ||||||
Okumura Corp. | 1,280,751 | 6,533,920 | ||||||
Omron Corp. | 97,400 | 4,230,889 | ||||||
Otsuka Holdings Co. Ltd. | 190,000 | 6,054,007 | ||||||
Rinnai Corp. | 106,223 | 8,364,542 | ||||||
Rohm Co. Ltd. | 307,453 | 20,599,077 | ||||||
Ryohin Keikaku Co. Ltd. | 37,900 | 7,349,512 | ||||||
Sanrio Co. Ltd. (b) | 333,300 | 9,055,914 | ||||||
Sawai Pharmaceutical Co. Ltd. | 33,400 | 1,943,881 | ||||||
SCSK Corp. | 11,500 | 350,686 | ||||||
Secom Co. Ltd. | 26,500 | 1,721,588 | ||||||
Sega Sammy Holdings, Inc. | 479,900 | 6,274,837 | ||||||
Seino Holdings Co. Ltd. | 140,700 | 1,575,155 | ||||||
Shimamura Co. Ltd. | 12,900 | 1,354,361 | ||||||
Shin-Etsu Chemical Co. Ltd. | 434,134 | 26,921,043 | ||||||
Ship Healthcare Holdings, Inc. | 161,800 | 3,343,611 | ||||||
The Shizuoka Bank Ltd. | 207,000 | 2,160,815 | ||||||
SHO-BOND Holdings Co Ltd. | 4,300 | 179,478 | ||||||
SMC Corp. | 16,400 | 4,935,074 | ||||||
Sohgo Security Services Co. Ltd. | 68,800 | 2,717,148 | ||||||
Sompo Japan Nipponkoa Holdings, Inc. | 169,500 | 6,206,452 | ||||||
Sony Corp. (a) | 200,300 | 5,687,892 | ||||||
Sony Financial Holdings, Inc. | 442,600 | 7,749,396 | ||||||
Stanley Electric Co. Ltd. | 50,700 | 1,055,920 | ||||||
Sumco Corp. | 380,500 | 4,758,919 | ||||||
Sumitomo Corp. | 1,100,400 | 12,808,018 | ||||||
Sumitomo Electric Industries Ltd. | 641,248 | 9,924,819 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 550,647 | 24,514,366 | ||||||
Suntory Beverage & Food Ltd. | 98,800 | 3,933,324 | ||||||
Suzuki Motor Corp. | 557,189 | 18,804,835 | ||||||
Takeda Pharmaceutical Co. Ltd. | 30,100 | 1,452,886 | ||||||
THK Co. Ltd. | 51,400 | 1,109,223 | ||||||
Toda Corp. | 1,491,896 | 6,846,966 | ||||||
Tokio Marine Holdings, Inc. | 358,823 | 14,923,126 | ||||||
Tokyo Electric Power Co., Inc. (a) | 223,100 | 1,215,427 | ||||||
Tokyo Gas Co. Ltd. | 4,370,070 | 23,199,306 | ||||||
Toyota Industries Corp. | 576,177 | 32,811,208 | ||||||
Toyota Motor Corp. | 438,500 | 29,343,229 | ||||||
Toyota Tsusho Corp. | 185,600 | 4,980,233 | ||||||
Trend Micro, Inc. | 90,400 | 3,092,285 | ||||||
TV Asahi Holdings Corp. | 44,700 | 750,405 | ||||||
Ube Industries Ltd. | 4,016,346 | 7,576,320 | ||||||
Yahoo Japan Corp. | 1,115,200 | 4,501,000 | ||||||
Yamada Denki Co. Ltd. (b) | 2,335,400 | 9,342,256 | ||||||
Yamaha Corp. | 125,400 | 2,527,387 | ||||||
Yamato Kogyo Co. Ltd. | 5,500 | 128,470 | ||||||
|
| |||||||
1,126,613,019 | ||||||||
Kazakhstan — 0.0% | ||||||||
KazMunaiGas Exploration Production JSC — GDR (b) | 422,982 | 4,193,367 | ||||||
Malaysia — 0.2% | ||||||||
Axiata Group Bhd | 4,638,986 | 7,865,840 | ||||||
IHH Healthcare Bhd | 8,292,800 | 12,431,909 |
Common Stocks | Shares | Value | ||||||
Malaysia (concluded) | ||||||||
Telekom Malaysia Bhd | 2,081,746 | $ | 3,601,555 | |||||
|
| |||||||
23,899,304 | ||||||||
Mexico — 0.3% | ||||||||
America Movil SAB de CV | 5,462,693 | 5,838,921 | ||||||
America Movil SAB de CV, Class L — ADR | 441,787 | 9,414,481 | ||||||
Fibra Uno Administracion SA de CV (b) | 6,479,597 | 15,410,042 | ||||||
PLA Administradora Industrial S de RL de CV (b) | 1,350,382 | 2,641,912 | ||||||
|
| |||||||
33,305,356 | ||||||||
Netherlands — 1.1% | ||||||||
Akzo Nobel NV | 288,447 | 21,059,289 | ||||||
Constellium NV, Class A (a) | 802,719 | 9,496,166 | ||||||
ING Groep NV — CVA (b) | 944,711 | 15,687,314 | ||||||
Koninklijke DSM NV | 141,768 | 8,231,099 | ||||||
Koninklijke Philips NV (b) | 320,650 | 8,183,799 | ||||||
Royal Dutch Shell PLC, A Shares | 439,224 | 12,467,507 | ||||||
Royal Dutch Shell PLC, A Shares — ADR | 354,650 | 20,218,597 | ||||||
Royal Dutch Shell PLC, B Shares | 90,095 | 2,565,035 | ||||||
SBM Offshore NV (a)(b) | 2,213,050 | 26,379,231 | ||||||
|
| |||||||
124,288,037 | ||||||||
Norway — 0.3% | ||||||||
Statoil ASA (b) | 2,235,920 | 39,984,980 | ||||||
Portugal — 0.1% | ||||||||
NOS SGPS | 852,141 | 6,830,116 | ||||||
Singapore — 0.7% | ||||||||
Avago Technologies Ltd. (b) | 11,905 | 1,582,532 | ||||||
CapitaLand Ltd. (b) | 9,374,250 | 24,342,718 | ||||||
Global Logistic Properties Ltd. (b) | 11,334,600 | 21,278,104 | ||||||
Keppel Corp. Ltd. (b) | 2,926,900 | 17,839,823 | ||||||
Raffles Medical Group Ltd. (b) | 1,427,800 | 4,876,475 | ||||||
Singapore Telecommunications Ltd. | 3,463,030 | 10,807,145 | ||||||
|
| |||||||
80,726,797 | ||||||||
South Africa — 0.0% | ||||||||
Life Healthcare Group Holdings Ltd. | 1,190,884 | 3,670,453 | ||||||
South Korea — 0.5% | ||||||||
Hyundai Motor Co. (b) | 98,095 | 11,941,742 | ||||||
Hyundai Wia Corp. | 30,726 | 2,831,423 | ||||||
Samsung Electronics Co. Ltd. (b) | 25,807 | 29,280,266 | ||||||
Samsung Electronics Co. Ltd., Preference Shares | 8,742 | 7,769,196 | ||||||
Samsung SDI Co. Ltd. (b) | 23,387 | 2,319,522 | ||||||
SK Hynix, Inc. | 199,456 | 7,559,686 | ||||||
|
| |||||||
61,701,835 | ||||||||
Spain — 0.2% | ||||||||
Banco Bilbao Vizcaya Argentaria SA | 72,962 | 718,966 | ||||||
Banco Santander SA | 164,836 | 1,159,462 | ||||||
Cellnex Telecom SAU (a) | 1,173,668 | 19,855,974 | ||||||
|
| |||||||
21,734,402 | ||||||||
Sweden — 0.2% | ||||||||
Lundin Petroleum AB (a)(b) | 1,137,412 | 19,514,060 | ||||||
Nordea Bank AB | 37,201 | 463,962 | ||||||
Svenska Handelsbanken AB | 356,979 | 5,211,270 | ||||||
Telefonaktiebolaget LM Ericsson | 102,129 | 1,063,687 | ||||||
|
| |||||||
26,252,979 | ||||||||
Switzerland — 1.5% | ||||||||
Credit Suisse Group AG | 277,292 | 7,649,791 | ||||||
Glencore PLC | 1,061,614 | 4,257,262 | ||||||
Nestle SA, Registered Shares (b) | 730,704 | 52,720,754 |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Switzerland (concluded) | ||||||||
Novartis AG, Registered Shares | 324,748 | $ | 31,942,364 | |||||
Roche Holding AG | 80,846 | 22,668,532 | ||||||
Syngenta AG, Registered Shares | 71,891 | 29,333,104 | ||||||
TE Connectivity Ltd. | 19,174 | 1,232,888 | ||||||
UBS Group AG, Registered Shares | 1,156,322 | 24,533,080 | ||||||
Zurich Insurance Group AG | 20,968 | 6,383,281 | ||||||
|
| |||||||
180,721,056 | ||||||||
Taiwan — 0.2% | ||||||||
Cheng Shin Rubber Industry Co. Ltd. | 2,028,323 | 4,490,783 | ||||||
Far EasTone Telecommunications Co. Ltd. | 1,563,988 | 3,780,515 | ||||||
Hon Hai Precision Industry Co. Ltd. | 434,000 | 1,363,795 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 3,122,000 | 14,200,790 | ||||||
Yulon Motor Co. Ltd. | 2,505,000 | 2,906,179 | ||||||
|
| |||||||
26,742,062 | ||||||||
Thailand — 0.1% | ||||||||
Bangkok Dusit Medical Services PCL | 13,863,600 | 8,086,125 | ||||||
Bumrungrad Hospital PCL | 998,700 | 5,529,360 | ||||||
|
| |||||||
13,615,485 | ||||||||
United Arab Emirates — 0.2% | ||||||||
Al Noor Hospitals Group PLC (b) | 536,045 | 7,959,313 | ||||||
NMC Health PLC | 908,647 | 11,350,235 | ||||||
|
| |||||||
19,309,548 | ||||||||
United Kingdom — 3.1% | ||||||||
Antofagasta PLC (b) | 2,986,446 | 32,324,599 | ||||||
Aon PLC | 4,592 | 457,731 | ||||||
AstraZeneca PLC | 520,066 | 32,914,900 | ||||||
AstraZeneca PLC — ADR | 82,717 | 5,269,900 | ||||||
Barclays PLC | 2,230,634 | 9,142,529 | ||||||
BG Group PLC | 125,036 | 2,082,438 | ||||||
BP PLC | 670,021 | 4,446,687 | ||||||
British American Tobacco PLC | 19,328 | 1,040,661 | ||||||
BT Group PLC | 1,704,665 | 12,071,243 | ||||||
CNH Industrial NV — NYSE | 134,320 | 1,246,490 | ||||||
Coats Group PLC (a) | 1,865,979 | 714,835 | ||||||
Delphi Automotive PLC | 187,872 | 15,986,028 | ||||||
Delta Topco Ltd. (Acquired 5/02/12, cost $8,295,346) (e) | 13,440,990 | 7,701,687 | ||||||
Diageo PLC | 26,067 | 754,890 | ||||||
Diageo PLC — ADR (b)(d) | 126,278 | 14,653,299 | ||||||
GlaxoSmithKline PLC | 137,307 | 2,854,862 | ||||||
HSBC Holdings PLC | 4,682,961 | 41,932,904 | ||||||
Imperial Tobacco Group PLC | 9,987 | 480,993 | ||||||
Legal & General Group PLC | 1,826,837 | 7,143,003 | ||||||
Lloyds Banking Group PLC | 5,069,221 | 6,803,862 | ||||||
National Grid PLC | 896,896 | 11,543,722 | ||||||
Ophir Energy PLC (a) | 4,187,026 | 7,456,096 | ||||||
Prudential PLC | 811,864 | 19,565,439 | ||||||
Reckitt Benckiser Group PLC | 6,685 | 576,473 | ||||||
Rio Tinto PLC | 953,856 | 39,234,697 | ||||||
SABMiller PLC | 816,157 | 42,317,808 | ||||||
Spire Healthcare Group PLC (c) | 3,659,065 | 19,145,067 | ||||||
Standard Chartered PLC | 330,906 | 5,299,230 | ||||||
Unilever NV | 28,903 | 1,208,412 | ||||||
Vodafone Group PLC | 2,273,132 | 8,292,096 | ||||||
Vodafone Group PLC — ADR | 322,453 | 11,753,412 | ||||||
|
| |||||||
366,415,993 | ||||||||
United States — 28.6% | ||||||||
3M Co. | 15,101 | 2,330,084 | ||||||
Abbott Laboratories (d) | 192,537 | 9,449,716 | ||||||
AbbVie, Inc. | 665,419 | 44,709,503 |
Common Stocks | Shares | Value | ||||||
United States (continued) | ||||||||
Acadia Healthcare Co., Inc. (a) | 85,507 | $ | 6,697,763 | |||||
Accenture PLC, Class A | 54,777 | 5,301,318 | ||||||
ACE Ltd. | 21,835 | 2,220,183 | ||||||
Activision Blizzard, Inc. (d) | 1,010,127 | 24,455,175 | ||||||
Adobe Systems, Inc. (a) | 56,296 | 4,560,539 | ||||||
AES Corp. | 613,606 | 8,136,416 | ||||||
Aetna, Inc. (d) | 223,570 | 28,496,232 | ||||||
Aflac, Inc. | 7,257 | 451,385 | ||||||
Agilent Technologies, Inc. | 171,657 | 6,622,527 | ||||||
Air Products & Chemicals, Inc. | 26,310 | 3,599,997 | ||||||
Alexion Pharmaceuticals, Inc. (a) | 86,446 | 15,626,843 | ||||||
Alkermes PLC (a) | 23,470 | 1,510,060 | ||||||
Allergan PLC (a) | 140,116 | 42,519,601 | ||||||
Alliance Data Systems Corp. (a) | 8,171 | 2,385,442 | ||||||
The Allstate Corp. | 214,702 | 13,927,719 | ||||||
Altria Group, Inc. | 28,191 | 1,378,822 | ||||||
Amdocs Ltd. | 46,270 | 2,525,879 | ||||||
American Capital Agency Corp. | 151,156 | 2,776,736 | ||||||
American Electric Power Co, Inc. | 267,951 | 14,193,364 | ||||||
American Express Co. | 14,332 | 1,113,883 | ||||||
American International Group, Inc. | 405,114 | 25,044,147 | ||||||
American Tower Corp. | 6,762 | 630,827 | ||||||
American Water Works Co., Inc. | 213,538 | 10,384,353 | ||||||
Ameriprise Financial, Inc. | 19,025 | 2,376,793 | ||||||
AmerisourceBergen Corp. | 28,258 | 3,004,956 | ||||||
Amgen, Inc. | 200,028 | 30,708,299 | ||||||
Anadarko Petroleum Corp. | 888,397 | 69,348,270 | ||||||
Anthem, Inc. | 35,587 | 5,841,250 | ||||||
Apple Inc. (d) | 389,513 | 48,854,670 | ||||||
Applied Materials, Inc. | 57,426 | 1,103,728 | ||||||
Archer-Daniels-Midland Co. | 70,219 | 3,385,960 | ||||||
AT&T Inc. | 975,575 | 34,652,424 | ||||||
Automatic Data Processing, Inc. | 22,721 | 1,822,906 | ||||||
AXIS Capital Holdings Ltd. | 45,083 | 2,406,080 | ||||||
Baker Hughes, Inc. | 21,936 | 1,353,451 | ||||||
Bank of America Corp. (d) | 4,046,542 | 68,872,145 | ||||||
The Bank of New York Mellon Corp. (d) | 313,575 | 13,160,743 | ||||||
Baxter International, Inc. (d) | 80,216 | 5,609,505 | ||||||
BB&T Corp. | 11,599 | 467,556 | ||||||
Becton Dickinson & Co. | 29,392 | 4,163,377 | ||||||
Berkshire Hathaway, Inc., Class A (a) | 121 | 24,786,850 | ||||||
Berkshire Hathaway, Inc., Class B (a) | 272,940 | 37,149,863 | ||||||
Biogen, Inc. (a) | 67,933 | 27,440,856 | ||||||
The Boeing Co. | 15,321 | 2,125,329 | ||||||
BorgWarner, Inc. | 209,050 | 11,882,402 | ||||||
Boulder Brands, Inc. (a)(b) | 133,515 | 926,594 | ||||||
Bristol-Myers Squibb Co. | 356,067 | 23,692,698 | ||||||
Broadcom Corp., Class A | 25,730 | 1,324,838 | ||||||
Calpine Corp. (a) | 646,271 | 11,626,415 | ||||||
Cameron International Corp. (a) | 20,429 | 1,069,867 | ||||||
Capital One Financial Corp. | 166,412 | 14,639,264 | ||||||
Cardinal Health, Inc. | 51,273 | 4,288,986 | ||||||
Catalent, Inc. (a) | 526,056 | 15,429,222 | ||||||
Celgene Corp. (a) | 114,869 | 13,294,364 | ||||||
CenterPoint Energy, Inc. | 351,154 | 6,682,461 | ||||||
CF Industries Holdings, Inc. (b) | 40,345 | 2,593,377 | ||||||
The Charles Schwab Corp. | 402,117 | 13,129,120 | ||||||
Chevron Corp. | 139,784 | 13,484,962 | ||||||
The Chubb Corp. | 18,541 | 1,763,991 | ||||||
Cigna Corp. | 13,977 | 2,264,274 | ||||||
Cintas Corp. | 30,892 | 2,613,154 | ||||||
Cisco Systems, Inc. | 1,370,138 | 37,623,989 | ||||||
Citigroup, Inc. (d) | 841,088 | 46,461,701 | ||||||
Citizens Financial Group, Inc. | 45,651 | 1,246,729 | ||||||
CME Group, Inc. | 114,424 | 10,648,297 |
See Notes to Consolidated Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
United States (continued) | ||||||||
CNA Financial Corp. | 50,074 | $ | 1,913,328 | |||||
Coach, Inc. | 292,953 | 10,139,103 | ||||||
The Coca-Cola Co. | 962,550 | 37,760,837 | ||||||
Cognizant Technology Solutions Corp., Class A (a) | 28,713 | 1,754,077 | ||||||
Colfax Corp. (a)(b) | 442,804 | 20,435,405 | ||||||
Colgate-Palmolive Co. | 235,653 | 15,414,063 | ||||||
Computer Sciences Corp. | 43,256 | 2,839,324 | ||||||
ConocoPhillips | 62,424 | 3,833,458 | ||||||
CONSOL Energy, Inc. | 918,391 | 19,965,820 | ||||||
Constellation Brands, Inc., Class A | 28,375 | 3,292,067 | ||||||
Corning, Inc. | 60,422 | 1,192,126 | ||||||
Costco Wholesale Corp. | 6,242 | 843,045 | ||||||
Crown Castle International Corp. | 161,827 | 12,994,708 | ||||||
Crown Holdings, Inc. (a) | 110,165 | 5,828,830 | ||||||
CSX Corp. | 306,862 | 10,019,044 | ||||||
CVS Health Corp. | 46,730 | 4,901,042 | ||||||
Danaher Corp. | 119,895 | 10,261,813 | ||||||
Diamondback Energy, Inc. (a) | 139,040 | 10,480,835 | ||||||
Discover Financial Services | 81,041 | 4,669,582 | ||||||
DISH Network Corp., Class A (a)(d) | 184,923 | 12,521,136 | ||||||
Dominion Resources, Inc. | 220,317 | 14,732,598 | ||||||
Dover Corp. | 29,555 | 2,074,170 | ||||||
The Dow Chemical Co. | 153,138 | 7,836,071 | ||||||
Eaton Corp. PLC | 410,430 | 27,699,921 | ||||||
eBay, Inc. (a)(d) | 477,202 | 28,746,648 | ||||||
Eclipse Resources Corp. (a)(b) | 113,624 | 597,662 | ||||||
Ecolab, Inc. | 36,940 | 4,176,806 | ||||||
EI du Pont de Nemours & Co. | 123,916 | 7,924,428 | ||||||
Electronic Arts, Inc. (a) | 43,116 | 2,867,214 | ||||||
Eli Lilly & Co. | 98,766 | 8,245,973 | ||||||
EMC Corp. | 95,943 | 2,531,936 | ||||||
Emerson Electric Co. | 279,424 | 15,488,472 | ||||||
EOG Resources, Inc. | 27,796 | 2,433,540 | ||||||
EQT Corp. | 71,848 | 5,844,116 | ||||||
Equity Residential | 5,839 | 409,723 | ||||||
Evolent Health, Inc. (a) | 75,800 | 1,478,100 | ||||||
Expedia, Inc. | 26,982 | 2,950,482 | ||||||
Express Scripts Holding Co. (a) | 19,428 | 1,727,926 | ||||||
Exxon Mobil Corp. | 213,049 | 17,725,677 | ||||||
Facebook, Inc., Class A (a) | 326,204 | 27,976,886 | ||||||
FedEx Corp. (b) | 277,176 | 47,230,790 | ||||||
Fidelity National Information Services, Inc. | 46,189 | 2,854,480 | ||||||
Fifth Third Bancorp | 58,873 | 1,225,736 | ||||||
FMC Corp. | 212,595 | 11,171,867 | ||||||
Ford Motor Co. | 1,962,442 | 29,456,254 | ||||||
Freeport-McMoRan, Inc. | 2,419,653 | 45,053,939 | ||||||
The Fresh Market, Inc. (a)(b) | 31,410 | 1,009,517 | ||||||
General Dynamics Corp. | 21,562 | 3,055,120 | ||||||
General Electric Co. (d) | 1,370,340 | 36,409,934 | ||||||
General Mills, Inc. | 8,614 | 479,972 | ||||||
Gilead Sciences, Inc. | 137,549 | 16,104,237 | ||||||
GoDaddy, Inc. (a) | 169,000 | 4,764,110 | ||||||
The Goldman Sachs Group, Inc. (d) | 79,469 | 16,592,332 | ||||||
The Goodyear Tire & Rubber Co. | 15,282 | 460,752 | ||||||
Google, Inc., Class A (a) | 77,064 | 41,617,643 | ||||||
Google, Inc., Class C (a) | 125,697 | 65,426,545 | ||||||
Gulfport Energy Corp. (a) | 56,832 | 2,287,488 | ||||||
Halliburton Co. | 42,963 | 1,850,416 | ||||||
Harris Corp. | 28,303 | 2,176,784 | ||||||
HCA Holdings, Inc. (a) | 317,313 | 28,786,635 | ||||||
Health Care REIT, Inc. | 5,612 | 368,316 | ||||||
Helmerich & Payne, Inc. (b) | 25,837 | 1,819,442 | ||||||
Hewlett-Packard Co. | 353,343 | 10,603,823 | ||||||
The Home Depot, Inc. | 19,622 | 2,180,593 |
Common Stocks | Shares | Value | ||||||
United States (continued) | ||||||||
Horizon Pharma PLC (a) | 83,661 | $ | 2,906,383 | |||||
HTG Molecular Diagnostics, Inc. (a)(b) | 82,100 | 915,415 | ||||||
Humana, Inc. | 207,651 | 39,719,483 | ||||||
Intel Corp. | 280,676 | 8,536,761 | ||||||
Intercontinental Exchange, Inc. | 1,814 | 405,629 | ||||||
International Business Machines Corp. | 62,974 | 10,243,351 | ||||||
International Paper Co. | 46,724 | 2,223,595 | ||||||
Intuit, Inc. | 39,414 | 3,971,749 | ||||||
InVitae Corp. (Acquired 10/08/14, cost $5,793,266) (e) | 482,772 | 6,824,465 | ||||||
JB Hunt Transport Services, Inc. | 57,337 | 4,706,794 | ||||||
Johnson & Johnson (d) | 146,625 | 14,290,073 | ||||||
JPMorgan Chase & Co. (d) | 1,201,425 | 81,408,558 | ||||||
Kansas City Southern | 102,973 | 9,391,138 | ||||||
Kimberly-Clark Corp. | 136,405 | 14,454,838 | ||||||
Kinder Morgan, Inc. | 86,146 | 3,307,145 | ||||||
KLA-Tencor Corp. | 85,970 | 4,832,374 | ||||||
Kohl’s Corp. | 32,848 | 2,056,613 | ||||||
Kraft Foods Group, Inc. | 8,398 | 715,006 | ||||||
The Kroger Co. | 55,376 | 4,015,314 | ||||||
Las Vegas Sands Corp. | 104,389 | 5,487,730 | ||||||
Lear Corp. | 31,333 | 3,517,443 | ||||||
Liberty Broadband Corp., Class A (a) | 105,446 | 5,374,583 | ||||||
Liberty Broadband Corp., Class C (a) | 280,776 | 14,364,500 | ||||||
Liberty Media Corp., Class A (a) | 307,864 | 11,095,419 | ||||||
Liberty Media Corp., Class C (a) | 684,942 | 24,589,418 | ||||||
Lincoln National Corp. | 62,330 | 3,691,183 | ||||||
Lookout, Inc. (Acquired 3/04/15, cost $936,169) (e) | 81,954 | 955,944 | ||||||
Lowe’s Cos., Inc. | 31,032 | 2,078,213 | ||||||
LyondellBasell Industries NV, Class A | 107,181 | 11,095,377 | ||||||
Macy’s, Inc. | 32,060 | 2,163,088 | ||||||
Marathon Petroleum Corp. | 547,466 | 28,637,946 | ||||||
Marsh & McLennan Cos., Inc. | 254,259 | 14,416,485 | ||||||
MasterCard, Inc., Class A | 266,379 | 24,901,109 | ||||||
McDonald’s Corp. | 282,381 | 26,845,962 | ||||||
McGraw Hill Financial, Inc. | 4,377 | 439,670 | ||||||
McKesson Corp. | 99,895 | 22,457,395 | ||||||
Medtronic PLC | 107,997 | 8,002,578 | ||||||
Merck & Co., Inc. (d) | 173,317 | 9,866,937 | ||||||
MetLife, Inc. (d) | 247,804 | 13,874,546 | ||||||
Micron Technology, Inc. (a) | 333,129 | 6,276,150 | ||||||
Microsoft Corp. | 827,627 | 36,539,732 | ||||||
Molson Coors Brewing Co., Class B | 126,152 | 8,806,671 | ||||||
Mondelez International, Inc., Class A | 23,969 | 986,085 | ||||||
Monsanto Co. | 92,606 | 9,870,874 | ||||||
Morgan Stanley (d) | 438,050 | 16,991,959 | ||||||
Mylan NV (a) | 296,126 | 20,095,110 | ||||||
NextEra Energy Partners LP (a) | 89,230 | 3,535,293 | ||||||
NextEra Energy Partners LP | 78,433 | 3,107,515 | ||||||
NextEra Energy, Inc. | 167,205 | 16,391,106 | ||||||
Northrop Grumman Corp. | 22,496 | 3,568,540 | ||||||
NRG Energy, Inc. | 485,646 | 11,111,580 | ||||||
NRG Yield, Inc., Class A (b) | 83,131 | 1,828,051 | ||||||
NRG Yield, Inc., Class C (b) | 83,131 | 1,819,738 | ||||||
Nuance Communications, Inc. (a) | 301,819 | 5,284,851 | ||||||
Occidental Petroleum Corp. | 39,328 | 3,058,539 | ||||||
Oceaneering International, Inc. | 456,777 | 21,281,240 | ||||||
Oracle Corp. | 893,715 | 36,016,715 | ||||||
PACCAR, Inc. | 172,788 | 11,025,602 | ||||||
Parker-Hannifin Corp. | 16,509 | 1,920,492 | ||||||
PepsiCo, Inc. | 21,330 | 1,990,942 | ||||||
Perrigo Co. PLC | 55,709 | 10,296,694 | ||||||
Pfizer, Inc. (d) | 933,955 | 31,315,511 | ||||||
Philip Morris International, Inc. (d) | 380,179 | 30,478,950 |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||||
United States (continued) | ||||||||||
Phillips 66 | 381,394 | $ | 30,725,101 | |||||||
Pioneer Natural Resources Co. | 149,994 | 20,802,668 | ||||||||
PPG Industries, Inc. | 51,138 | 5,866,551 | ||||||||
PPL Corp. | 133,718 | 3,940,669 | ||||||||
Praxair, Inc. | 39,850 | 4,764,067 | ||||||||
Precision Castparts Corp. | 112,910 | 22,567,322 | ||||||||
The Procter & Gamble Co. | 995,612 | 77,896,683 | ||||||||
Prologis, Inc. | 253,796 | 9,415,832 | ||||||||
Prudential Financial, Inc. (d) | 101,159 | 8,853,436 | ||||||||
Public Storage | 2,336 | 430,688 | ||||||||
Puma Biotechnology, Inc. (a) | 16,242 | 1,896,253 | ||||||||
QUALCOMM, Inc. | 411,253 | 25,756,775 | ||||||||
Raytheon Co. | 22,640 | 2,166,195 | ||||||||
Receptos, Inc. (a) | 17,828 | 3,388,211 | ||||||||
Regeneron Pharmaceuticals, Inc. (a) | 10,494 | 5,353,304 | ||||||||
Regions Financial Corp. | 1,418,807 | 14,698,841 | ||||||||
Reinsurance Group of America, Inc. | 26,440 | 2,508,363 | ||||||||
Reynolds American, Inc. | 1,467 | 109,526 | ||||||||
Rockwell Automation, Inc. | 162,793 | 20,290,520 | ||||||||
Salesforce.com, Inc. (a) | 27,663 | 1,926,175 | ||||||||
SanDisk Corp. | 35,514 | 2,067,625 | ||||||||
Schlumberger Ltd. | 65,244 | 5,623,380 | ||||||||
Seagate Technology PLC | 38,638 | 1,835,305 | ||||||||
Sealed Air Corp. | 125,629 | 6,454,818 | ||||||||
SeaWorld Entertainment, Inc. (b) | 183,054 | 3,375,516 | ||||||||
Sempra Energy | 174,909 | 17,305,496 | ||||||||
Simon Property Group, Inc. | 91,398 | 15,813,682 | ||||||||
Southern Copper Corp. (b) | 994,799 | 29,257,039 | ||||||||
The St. Joe Co. (a) | 1,707,228 | 26,513,251 | ||||||||
Stanley Black & Decker, Inc. | 179,357 | 18,875,531 | ||||||||
State Street Corp. | 6,724 | 517,748 | ||||||||
Stone Energy Corp. (a) | 227,183 | 2,860,234 | ||||||||
Stryker Corp. | 15,970 | 1,526,253 | ||||||||
SunTrust Banks, Inc. (d) | 144,131 | 6,200,516 | ||||||||
Sysco Corp. | 156,932 | 5,665,245 | ||||||||
Tahoe Resources, Inc. | 847,798 | 10,276,751 | ||||||||
Talen Energy Corp. (a) | 16,702 | 286,606 | ||||||||
Teladoc, Inc. (a) | 21,200 | 402,800 | ||||||||
Tenet Healthcare Corp. (a)(d) | 298,891 | 17,299,811 | ||||||||
TerraForm Power, Inc., Class A | 239,762 | 9,106,161 | ||||||||
TESARO, Inc. (a) | 45,434 | 2,671,065 | ||||||||
Texas Instruments, Inc. | 95,664 | 4,927,653 | ||||||||
Thermo Fisher Scientific, Inc. | 209,307 | 27,159,676 | ||||||||
Tiffany & Co. (d) | 67,338 | 6,181,628 | ||||||||
The Travelers Cos., Inc. | 5,340 | 516,164 | ||||||||
Twitter, Inc. (a) | 1,112,762 | 40,304,240 | ||||||||
Tyco International PLC | 586,490 | 22,568,135 | ||||||||
U.S. Bancorp | 473,719 | 20,559,405 | ||||||||
Union Pacific Corp. | 280,796 | 26,779,515 | ||||||||
United Continental Holdings, Inc. (a)(d) | 491,390 | 26,048,584 | ||||||||
United Parcel Service, Inc., Class B | 363,165 | 35,194,320 | ||||||||
United Technologies Corp. | 214,456 | 23,789,604 | ||||||||
UnitedHealth Group, Inc. | 51,233 | 6,250,426 | ||||||||
Univar, Inc. (a) | 467,600 | 12,171,628 | ||||||||
Valeant Pharmaceuticals International, Inc. (a)(d) | 35,779 | 7,948,305 | ||||||||
Valero Energy Corp. | 78,651 | 4,923,553 | ||||||||
Veeva Systems, Inc. (a)(b) | 714,422 | 20,025,249 | ||||||||
VeriSign, Inc. (a) | 37,552 | 2,317,709 | ||||||||
Verizon Communications, Inc. | 1,118,228 | 52,134,353 | ||||||||
Vertex Pharmaceuticals, Inc. (a) | 114,408 | 14,127,100 | ||||||||
Visa, Inc., Class A | 605,144 | 40,635,420 | ||||||||
WABCO Holdings, Inc. (a) | 94,035 | 11,634,010 | ||||||||
Walgreens Boots Alliance, Inc. | 12,439 | 1,050,349 |
Common Stocks | Shares | Value | ||||||||||
United States (concluded) | ||||||||||||
Wal-Mart Stores, Inc. | 427,850 | $ | 30,347,401 | |||||||||
Wells Fargo & Co. (d) | 1,156,014 | 65,014,227 | ||||||||||
Western Digital Corp. | 24,650 | 1,933,053 | ||||||||||
Whirlpool Corp. | 33,526 | 5,801,674 | ||||||||||
The Williams Cos., Inc. | 34,095 | 1,956,712 | ||||||||||
Wyndham Worldwide Corp. | 28,925 | 2,369,247 | ||||||||||
Yahoo!, Inc. (a) | 41,552 | 1,632,578 | ||||||||||
|
| |||||||||||
3,359,857,028 | ||||||||||||
Total Common Stocks — 55.9% | 6,574,388,390 | |||||||||||
Corporate Bonds | Par (000) | |||||||||||
Argentina — 0.0% | ||||||||||||
Empresa Distribuidora Y Comercializadora Norte, 9.75%, 10/25/22 (c) | USD | 1,273 | 1,073,775 | |||||||||
Australia — 0.1% | ||||||||||||
TFS Corp. Ltd., 11.00%, 7/15/18 (c) | 14,717 | 15,520,298 | ||||||||||
Brazil — 0.1% | ||||||||||||
Itau Unibanco Holding SA, 2.85%, 5/26/18 (c) | 10,158 | 10,076,736 | ||||||||||
Odebrecht Finance Ltd., 4.38%, 4/25/25 (c) | 6,347 | 4,853,551 | ||||||||||
|
| |||||||||||
14,930,287 | ||||||||||||
Canada — 0.1% | ||||||||||||
Viterra, Inc., 5.95%, 8/01/20 (c) | 6,515 | 7,162,526 | ||||||||||
Chile — 0.1% | ||||||||||||
Banco Santander Chile, 2.15%, 6/07/18 (c)(f) | 8,041 | 8,161,615 | ||||||||||
Inversiones Alsacia SA, 8.00%, 12/31/18 (c) | 7,848 | 4,630,538 | ||||||||||
Inversiones Alsacia SA Escrow Bonds, | 5,252 | �� | 1 | |||||||||
|
| |||||||||||
12,792,154 | ||||||||||||
China — 0.2% | ||||||||||||
Alibaba Group Holding Ltd.: | ||||||||||||
3.13%, 11/28/21 (c) | 9,854 | 9,732,441 | ||||||||||
3.60%, 11/28/24 (c) | 4,601 | 4,436,408 | ||||||||||
Celestial Nutrifoods Ltd., | SGD | 11,400 | 84,642 | |||||||||
China Milk Products Group Ltd., | USD | 4,800 | 48,000 | |||||||||
SINA Corp., 1.00%, 12/01/18 (h) | 5,846 | 5,564,661 | ||||||||||
19,866,152 | ||||||||||||
Colombia — 0.0% | ||||||||||||
Colombia Telecomunicaciones SA ESP, | 1,094 | 1,084,427 | ||||||||||
France — 0.1% | ||||||||||||
BNP Paribas SA, 2.40%, 12/12/18 | 17,710 | 17,916,764 | ||||||||||
Germany — 0.2% | ||||||||||||
Deutsche Bank AG, 1.88%, 2/13/18 | 6,965 | 6,943,687 | ||||||||||
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH, | 2,662 | 2,713,576 | ||||||||||
Volkswagen International Finance NV, | EUR | 12,700 | 17,504,303 | |||||||||
|
| |||||||||||
27,161,566 | ||||||||||||
Hong Kong — 0.1% | ||||||||||||
Hutchison Whampoa International 11 Ltd., | USD | 5,783 | 5,959,960 | |||||||||
Sun Hung Kai Properties Capital Market Ltd., | 4,186 | 4,446,080 | ||||||||||
|
| |||||||||||
10,406,040 |
See Notes to Consolidated Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
India — 0.2% | ||||||||||||
REI Agro Ltd.: | ||||||||||||
5.50%, 11/13/14 (a)(g)(h) | USD | 2,291 | $ | 114,550 | ||||||||
5.50%, 11/13/14 (a)(c)(g)(h) | 6,148 | 307,400 | ||||||||||
Suzlon Energy Ltd., 3.25%, 7/16/19 (c)(h)(i) | 17,936 | 24,953,460 | ||||||||||
|
| |||||||||||
25,375,410 | ||||||||||||
Italy — 0.3% | ||||||||||||
Intesa Sanpaolo SpA: | ||||||||||||
3.88%, 1/16/18 | 3,226 | 3,330,306 | ||||||||||
3.88%, 1/15/19 | 13,973 | 14,375,870 | ||||||||||
Telecom Italia Finance SA: | ||||||||||||
6.13%, 11/15/16 (c)(h) | EUR | 8,100 | 13,134,574 | |||||||||
6.13%, 11/15/16 (h) | 500 | 810,776 | ||||||||||
Telecom Italia SpA, 5.30%, 5/30/24 (c) | USD | 8,517 | 8,485,061 | |||||||||
|
| |||||||||||
40,136,587 | ||||||||||||
Japan — 0.1% | ||||||||||||
Sumitomo Mitsui Banking Corp., 2.45%, 1/10/19 | 7,634 | 7,717,081 | ||||||||||
Luxembourg — 0.1% | ||||||||||||
Intelsat Jackson Holdings SA, 7.50%, 4/01/21 | 7,628 | 7,542,185 | ||||||||||
Mexico — 0.0% | ||||||||||||
Trust F/1401, 5.25%, 12/15/24 (c) | 4,282 | 4,453,280 | ||||||||||
Netherlands — 0.2% | ||||||||||||
Bio City Development Co. BV, | 21,400 | 9,824,740 | ||||||||||
Constellium NV: | ||||||||||||
7.00%, 1/15/23 (c) | EUR | 4,437 | 4,946,599 | |||||||||
8.00%, 1/15/23 (c) | USD | 1,180 | 1,209,500 | |||||||||
Cooperatieve Centrale Raiffeisen- Boerenleenbank BA, 3.95%, 11/09/22 | 3,115 | 3,114,583 | ||||||||||
|
| |||||||||||
19,095,422 | ||||||||||||
Singapore — 0.4% | ||||||||||||
CapitaLand Ltd.: | ||||||||||||
2.10%, 11/15/16 (h) | SGD | 12,250 | 9,083,927 | |||||||||
1.95%, 10/17/23 (c)(h) | 10,000 | 7,738,427 | ||||||||||
Global Logistic Prop Ltd. Private, | USD | 17,844 | 17,465,279 | |||||||||
Olam International Ltd., 6.00%, 10/15/16 (h) | 9,100 | 9,316,125 | ||||||||||
|
| |||||||||||
43,603,758 | ||||||||||||
South Korea — 0.0% | ||||||||||||
Hyundai Capital America, 2.00%, 3/19/18 (c) | 3,735 | 3,736,333 | ||||||||||
Spain — 0.2% | ||||||||||||
Telefonica Participaciones SAU, 4.90%, 9/25/17 (h) | EUR | 13,300 | 16,124,941 | |||||||||
Telefonica SA, 6.00%, 7/24/17 (h) | 4,100 | 5,525,067 | ||||||||||
|
| |||||||||||
21,650,008 | ||||||||||||
Switzerland — 0.1% | ||||||||||||
Glencore Funding LLC, 2.13%, 4/16/18 (c) | USD | 1,440 | 1,429,171 | |||||||||
UBS AG, 2.38%, 8/14/19 | 5,782 | 5,781,543 | ||||||||||
|
| |||||||||||
7,210,714 | ||||||||||||
United Arab Emirates — 0.1% | ||||||||||||
Dana Gas Sukuk Ltd., 7.00%, 10/31/17 (c)(h) | 17,922 | 14,427,089 | ||||||||||
United Kingdom — 0.1% | ||||||||||||
Delta Topco Ltd. (Acquired 5/02/12-1/02/15, cost $12,615,387), 10.00%, 11/24/60 (e) | 12,399 | 12,407,645 | ||||||||||
Lloyds Bank PLC, 2.30%, 11/27/18 | 2,241 | 2,264,690 | ||||||||||
|
| |||||||||||
14,672,335 |
Corporate Bonds | Par (000) | Value | ||||||||||
United States — 3.5% | ||||||||||||
AbbVie, Inc., 2.50%, 5/14/20 | USD | 12,279 | $ | 12,153,030 | ||||||||
Actavis Funding SCS, 3.00%, 3/12/20 | 9,950 | 9,972,567 | ||||||||||
AliphCom (Acquired 4/27/15, cost $36,243,000), 0.00%, 4/01/20 (e)(f)(h) | 36,243 | 36,243,000 | ||||||||||
Ally Financial, Inc.: | ||||||||||||
2.75%, 1/30/17 | 8,839 | 8,799,225 | ||||||||||
3.50%, 1/27/19 | 6,094 | 6,048,295 | ||||||||||
American Tower Corp., 3.40%, 2/15/19 | 2,448 | 2,505,082 | ||||||||||
AT&T Inc.: | ||||||||||||
2.38%, 11/27/18 | 15,386 | 15,520,674 | ||||||||||
3.00%, 6/30/22 | 23,535 | 22,724,549 | ||||||||||
Bank of America Corp.: | ||||||||||||
2.00%, 1/11/18 | 8,022 | 8,048,288 | ||||||||||
1.33%, 3/22/18 (f) | 4,536 | 4,577,287 | ||||||||||
6.88%, 4/25/18 | 5,686 | 6,423,366 | ||||||||||
2.60%, 1/15/19 | 5,626 | 5,687,267 | ||||||||||
BioMarin Pharmaceutical, Inc.: | ||||||||||||
0.75%, 10/15/18 (h) | 2,660 | 4,099,725 | ||||||||||
1.50%, 10/15/20 (h) | 2,584 | 4,115,020 | ||||||||||
Cablevision Systems Corp., 5.88%, 9/15/22 | 3,424 | 3,321,280 | ||||||||||
Capital One Bank USA NA, 2.15%, 11/21/18 | 6,399 | 6,391,488 | ||||||||||
Chesapeake Energy Corp., 3.53%, 4/15/19 (f) | 5,705 | 5,220,075 | ||||||||||
Citigroup, Inc., 1.80%, 2/05/18 | 16,955 | 16,914,138 | ||||||||||
Cobalt International Energy, Inc.: | ||||||||||||
2.63%, 12/01/19 (h) | 13,810 | 10,193,506 | ||||||||||
3.13%, 5/15/24 (h) | 17,017 | 12,347,961 | ||||||||||
Crown Cork & Seal Co., Inc., 7.50%, 12/15/96 | 337 | 324,363 | ||||||||||
Discover Bank, 2.00%, 2/21/18 | 1,199 | 1,196,066 | ||||||||||
Ford Motor Credit Co. LLC: | ||||||||||||
1.72%, 12/06/17 | 9,490 | 9,440,728 | ||||||||||
2.38%, 1/16/18 | 6,116 | 6,172,854 | ||||||||||
5.00%, 5/15/18 | 7,797 | 8,382,461 | ||||||||||
Forest City Enterprises, Inc., 4.25%, 8/15/18 (h) | 6,174 | 7,242,874 | ||||||||||
Forest Laboratories LLC: | ||||||||||||
4.38%, 2/01/19 (c) | 7,328 | 7,755,567 | ||||||||||
5.00%, 12/15/21 (c) | 5,139 | 5,576,493 | ||||||||||
General Electric Capital Corp., 5.55%, 5/04/20 | 4,519 | 5,152,998 | ||||||||||
General Motors Financial Co., Inc., 3.50%, 7/10/19 | 8,658 | 8,841,273 | ||||||||||
Gilead Sciences, Inc., Series D, 1.63%, 5/01/16 (h) | 4,253 | 21,929,531 | ||||||||||
HSBC USA, Inc., 1.63%, 1/16/18 | 6,065 | 6,048,424 | ||||||||||
Hughes Satellite Systems Corp., 7.63%, 6/15/21 | 1,700 | 1,870,340 | ||||||||||
JPMorgan Chase & Co., 4.35%, 8/15/21 | 4,760 | 5,095,061 | ||||||||||
Medtronic, Inc., 3.15%, 3/15/22 (c) | 12,930 | 12,987,926 | ||||||||||
Morgan Stanley, 7.30%, 5/13/19 | 3,911 | 4,601,205 | ||||||||||
Mylan, Inc.: | ||||||||||||
3.75%, 9/15/15 (h) | 4,869 | 24,743,649 | ||||||||||
2.55%, 3/28/19 | 7,871 | 7,802,562 | ||||||||||
QUALCOMM, Inc., 3.00%, 5/20/22 | 19,885 | 19,750,219 | ||||||||||
Sabine Pass Liquefaction LLC, 5.63%, 4/15/23 | 4,106 | 4,091,875 | ||||||||||
SanDisk Corp.: | ||||||||||||
1.50%, 8/15/17 (h) | 5,948 | 7,691,507 | ||||||||||
0.50%, 10/15/20 (h) | 5,948 | 5,765,843 | ||||||||||
SunGard Data Systems, Inc., 7.38%, 11/15/18 | 2,309 | 2,390,969 | ||||||||||
Synchrony Financial, 3.75%, 8/15/21 | 4,518 | 4,552,373 | ||||||||||
Take-Two Interactive Software, Inc., | 5,016 | 7,455,030 | ||||||||||
Twitter, Inc., 1.00%, 9/15/21 (c)(h) | 5,253 | 4,599,658 |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
United States (concluded) | ||||||||||||
Xerox Corp., 6.35%, 5/15/18 | USD | 3,707 | $ | 4,131,248 | ||||||||
|
| |||||||||||
406,898,920 | ||||||||||||
Total Corporate Bonds — 6.3% |
| 744,433,111 | ||||||||||
Credit Linked Notes | ||||||||||||
India — 0.3% | ||||||||||||
Credit Suisse AG, (Housing Development Finance Corporation Ltd., Not Rated), | 37,200 | 36,999,604 | ||||||||||
Floating Rate Loan Interests (f) | ||||||||||||
Cyprus — 0.0% | ||||||||||||
Drillships Ocean Ventures, Inc., Term Loan, 5.50%, 7/25/21 | 6,437 | 5,463,174 | ||||||||||
Germany — 0.1% | ||||||||||||
Deutsche Raststatten Gruppe IV GmbH: | ||||||||||||
Facility A - 2nd Amended,, | EUR | 5,177 | 5,749,050 | |||||||||
Facility B - 2nd Amended,, | 2,120 | 2,360,324 | ||||||||||
|
| |||||||||||
8,109,374 | ||||||||||||
Netherlands — 0.2% | ||||||||||||
Promontoria Blue Holding 2 BV, Mezzanine Loan, 7.00%, 4/17/20 | 15,532 | 17,315,882 | ||||||||||
United States — 1.2% | ||||||||||||
AP One Channel Center Mezz LLC, Mezzanine Term Loan, 6.43%, 7/14/19 | USD | 4,667 | 4,667,000 | |||||||||
Calpine Corp., Term Loan, 3.50%, 5/27/22 | 8,905 | 8,818,176 | ||||||||||
Drillships Financing Holding, Inc. (Ocean Rig), Tranche B-1 Term Loan, 6.00%, 3/31/21 | 5,613 | 4,565,539 | ||||||||||
Endo Luxembourg Finance Co. I S.à r.l.: | ||||||||||||
Bridge Loan,, 2.75%, 6/24/16 | 9,680 | 9,667,900 | ||||||||||
Term Loan B,, 3.00%, 6/24/22 | 8,795 | 8,811,535 | ||||||||||
Fieldwood Energy LLC, Closing Date Loan (Second Lien), 8.38%, 9/30/20 | 7,938 | 6,062,281 | ||||||||||
Grifols Worldwide Operations Ltd., U.S. Tranche B Term Loan, 3.19%, 2/27/21 | 22,329 | 22,303,404 | ||||||||||
Hilton Worldwide Finance LLC, Initial Term Loan, 3.50%, 10/26/20 | 23,994 | 23,998,289 | ||||||||||
Mallinckrodt International Finance SA, Initial Term B Loan, 3.25%, 3/19/21 | 2,856 | 2,840,977 | ||||||||||
Novelis, Inc., Initial Term Loan, 4.00%, 6/02/22 | 5,125 | 5,096,966 | ||||||||||
Obsidian Natural Gas Trust, Loan, | 1,244 | 1,243,895 | ||||||||||
Seadrill Operating LP (Seadrill Partners Finco LLC), Initial Term Loan, 4.00%, 2/21/21 | 14,349 | 10,806,913 | ||||||||||
Sheridan Investment Partners II LP, Senior Secured Term Loan, 4.25%, 12/16/20 | 11,892 | 10,465,086 | ||||||||||
Sheridan Production Partners II-A LP, Senior Secured Term Loan, 4.25%, 12/16/20 | 1,654 | 1,455,857 | ||||||||||
Sheridan Production Partners II-M LP, Senior Secured Term Loan, 4.25%, 12/16/20 | 617 | 542,997 | ||||||||||
Univar USA, Inc., Term Loan B, 3.25%, 6/24/22 | 8,560 | 8,546,646 |
Floating Rate Loan Interests (f) | Par (000) | Value | ||||||||||
United States (concluded) | ||||||||||||
Univision Communications, Inc., Replacement First-Lien Term Loan, 4.00%, 3/01/20 | USD | 11,116 | $ | 11,017,116 | ||||||||
|
| |||||||||||
140,910,577 | ||||||||||||
Total Floating Rate Loan Interests — 1.5% |
| 171,799,007 | ||||||||||
Foreign Agency Obligations | ||||||||||||
Argentina — 0.3% | ||||||||||||
YPF SA: | ||||||||||||
8.88%, 12/19/18 (c) | 6,986 | 7,422,625 | ||||||||||
8.50%, 7/28/25 (c) | 23,834 | 23,595,660 | ||||||||||
|
| |||||||||||
31,018,285 | ||||||||||||
Brazil — 0.2% | ||||||||||||
Petrobras Global Finance BV: | ||||||||||||
2.42%, 1/15/19 (f) | 16,221 | 14,996,315 | ||||||||||
5.38%, 1/27/21 | 3,484 | 3,350,911 | ||||||||||
6.25%, 3/17/24 | 2,052 | 1,981,144 | ||||||||||
|
| |||||||||||
20,328,370 | ||||||||||||
India — 0.0% | ||||||||||||
State Bank of India, 3.62%, 4/17/19 (c) | 900 | 919,623 | ||||||||||
Malaysia — 0.1% | ||||||||||||
Petronas Capital Ltd., 3.50%, 3/18/25 (c) | 11,851 | 11,724,135 | ||||||||||
Mexico — 0.2% | ||||||||||||
Petroleos Mexicanos: | ||||||||||||
5.75%, 3/01/18 | 8,333 | 9,064,887 | ||||||||||
3.50%, 7/23/20 (c) | 11,259 | 11,382,624 | ||||||||||
|
| |||||||||||
20,447,511 | ||||||||||||
South Korea — 0.1% | ||||||||||||
Export-Import Bank of Korea: | ||||||||||||
2.88%, 9/17/18 | 3,691 | 3,797,559 | ||||||||||
2.63%, 12/30/20 | 11,860 | 11,876,070 | ||||||||||
|
| |||||||||||
15,673,629 | ||||||||||||
Total Foreign Agency Obligations — 0.9% |
| 100,111,553 | ||||||||||
Foreign Government Obligations | ||||||||||||
Argentina — 0.3% | ||||||||||||
City of Buenos Aires, Argentina, 8.95%, 2/19/21 (c) | 5,926 | 6,044,520 | ||||||||||
Provincia de Buenos Aires, 10.88%, 1/26/21 | 1,722 | 1,730,610 | ||||||||||
Republic of Argentina: | ||||||||||||
Series X, 7.00%, 4/17/17 | 5,424 | 5,293,603 | ||||||||||
8.75%, 5/07/24 | 20,450 | 19,754,893 | ||||||||||
|
| |||||||||||
32,823,626 | ||||||||||||
Brazil — 0.9% | ||||||||||||
Brazil Notas do Tesouro Nacional: | ||||||||||||
Series F, 10.00%, 1/01/17 | BRL | 89 | 27,175,120 | |||||||||
Series F, 10.00%, 1/01/21 | 97 | 28,017,037 | ||||||||||
Series F, 10.00%, 1/01/25 | 117 | 32,673,615 | ||||||||||
Federative Republic of Brazil: | ||||||||||||
6.00%, 1/17/17 | USD | 7,430 | 7,931,525 | |||||||||
4.88%, 1/22/21 | 4,426 | 4,625,170 | ||||||||||
|
| |||||||||||
100,422,467 | ||||||||||||
Colombia — 0.1% | ||||||||||||
Republic of Colombia, 7.38%, 1/27/17 | 11,711 | 12,741,568 |
See Notes to Consolidated Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Foreign Government Obligations | Par (000) | Value | ||||||||||
Hungary — 0.1% | ||||||||||||
Republic of Hungary, 4.13%, 2/19/18 | USD | 12,526 | $ | 13,036,435 | ||||||||
Indonesia — 0.3% | ||||||||||||
Republic of Indonesia: | ||||||||||||
6.88%, 1/17/18 (c) | 7,115 | 7,963,321 | ||||||||||
7.88%, 4/15/19 | IDR | 366,647,000 | 27,259,892 | |||||||||
8.38%, 3/15/24 | 42,737,000 | 3,206,790 | ||||||||||
|
| |||||||||||
38,430,003 | ||||||||||||
Italy — 0.8% | ||||||||||||
Buoni Poliennali Del Tesoro: | ||||||||||||
2.50%, 12/01/24 | EUR | 14,888 | 16,926,224 | |||||||||
1.50%, 6/01/25 | 75,975 | 78,734,047 | ||||||||||
|
| |||||||||||
95,660,271 | ||||||||||||
Japan — 0.2% | ||||||||||||
Japan Government (2 Year Issue), | JPY | 2,383,000 | 19,504,714 | |||||||||
Mexico — 1.3% | ||||||||||||
United Mexican States: | ||||||||||||
8.00%, 12/07/23 | MXN | 5,661 | 40,697,155 | |||||||||
10.00%, 12/05/24 | 14,154 | 115,308,468 | ||||||||||
|
| |||||||||||
156,005,623 | ||||||||||||
Poland — 0.4% | ||||||||||||
Republic of Poland: | ||||||||||||
5.25%, 10/25/20 | PLN | 110,238 | 32,907,216 | |||||||||
5.75%, 10/25/21 | 54,168 | 16,699,879 | ||||||||||
|
| |||||||||||
49,607,095 | ||||||||||||
Turkey — 0.1% | ||||||||||||
Republic of Turkey, 6.75%, 4/03/18 | USD | 11,246 | 12,401,347 | |||||||||
United Kingdom — 1.2% | ||||||||||||
United Kingdom Gilt, 2.25%, 9/07/23 | GBP | 89,334 | 143,649,046 | |||||||||
Total Foreign Government Obligations — 5.7% |
| 674,282,195 | ||||||||||
Investment Companies | Shares | |||||||||||
ETFS Physical Palladium Shares (a)(j) | 83,164 | 5,418,135 | ||||||||||
ETFS Physical Platinum Shares (a)(j) | 70,210 | 7,315,882 | ||||||||||
ETFS Physical Swiss Gold Shares (a)(j) | 230,215 | 26,380,337 | ||||||||||
iShares Gold Trust (a)(j)(k) | 2,098,037 | 23,791,739 | ||||||||||
SPDR Gold Shares (a)(j) | 256,879 | 28,865,493 | ||||||||||
Total Investment Companies — 0.8% |
| 91,771,586 | ||||||||||
Preferred Securities | ||||||||||||
Capital Trusts | Par (000) | |||||||||||
Germany — 0.0% | ||||||||||||
Deutsche Bank Capital Funding Trust VII, 5.63% (c)(f)(l) | USD | 1,315 | 1,321,575 | |||||||||
Netherlands — 0.0% | ||||||||||||
ING Groep NV, 6.00% (f)(l) | 4,790 | 4,727,131 | ||||||||||
Switzerland — 0.1% | ||||||||||||
Credit Suisse Group Guernsey I Ltd., | 5,934 | 6,204,306 |
Capital Trusts | Par (000) | Value | ||||||||||
United Kingdom — 0.5% | ||||||||||||
HSBC Holdings PLC, 6.38% (f)(l) | USD | 18,775 | $ | 18,821,937 | ||||||||
Lloyds Bank PLC, 13.00% (f)(l) | GBP | 10,485 | 28,533,980 | |||||||||
Standard Chartered PLC, 6.50% (c)(f)(l) | USD | 6,810 | 6,868,750 | |||||||||
|
| |||||||||||
54,224,667 | ||||||||||||
United States — 0.9% | ||||||||||||
American Express Co.Series C, 4.90% (f)(l) | 6,331 | 6,133,473 | ||||||||||
Citigroup, Inc.: | ||||||||||||
Series O, 5.88% (f)(l) | 11,765 | 11,790,883 | ||||||||||
5.95% (f)(l) | 4,354 | 4,288,690 | ||||||||||
General Electric Capital Corp.: | ||||||||||||
Series B, 6.25% (f)(l) | 8,700 | 9,515,625 | ||||||||||
6.38%, 11/15/67 (f) | 6,627 | 7,124,025 | ||||||||||
The Goldman Sachs Group, Inc.: | ||||||||||||
5.38% (f)(l) | 10,195 | 10,071,641 | ||||||||||
Series L, 5.70% (f)(l) | 9,702 | 9,736,927 | ||||||||||
Intel Corp., 3.25%, 8/01/39 (h) | 3,408 | 5,184,420 | ||||||||||
JPMorgan Chase & Co.: | ||||||||||||
Series Q, 5.15% (f)(l) | 11,200 | 10,657,920 | ||||||||||
Series X, 6.10% (f)(l) | 22,351 | 22,429,229 | ||||||||||
Morgan Stanley, Series H, 5.45% (f)(l) | 7,208 | 7,153,940 | ||||||||||
USB Capital IX, 3.50% (f)(l) | 8,452 | 6,977,126 | ||||||||||
|
| |||||||||||
111,063,899 | ||||||||||||
Total Capital Trusts — 1.5% |
| 177,541,578 | ||||||||||
Preferred Stocks | Shares | |||||||||||
United Kingdom — 0.1% | ||||||||||||
HSBC Holdings PLC, Series 2, 8.00% | 237,516 | 6,149,289 | ||||||||||
Royal Bank of Scotland Group PLC: | ||||||||||||
Series M, 6.40% | 186,725 | 4,651,320 | ||||||||||
Series Q, 6.75% (b) | 151,967 | 3,844,765 | ||||||||||
Series T, 7.25% | 221,045 | 5,607,912 | ||||||||||
|
| |||||||||||
20,253,286 | ||||||||||||
United States — 1.9% | ||||||||||||
Allergan PLC, Series A, 5.50% | 20,474 | 21,345,783 | ||||||||||
American Tower Corp., Series A, 5.25% (h) | 45,686 | 4,570,884 | ||||||||||
Anthem, Inc., 5.25% (h) | 281,355 | 14,349,105 | ||||||||||
Cliffs Natural Resources, Inc., 7.00% (b)(h) | 176,589 | 785,821 | ||||||||||
Crown Castle International Corp., Series A, 4.50% (h) | 130,354 | 13,452,533 | ||||||||||
Dominion Resources, Inc., 6.38% (h) | 107,750 | 5,031,925 | ||||||||||
Domo, Inc., Series E (Acquired 4/01/15, cost $14,831,454) (a)(e) | 1,759,032 | 14,831,454 | ||||||||||
Dropbox, Inc., Series C (Acquired 1/28/14, cost $28,835,783) (a)(e) | 1,509,632 | 22,206,687 | ||||||||||
Fannie Mae, Series S, 8.25% (b)(f) | 584,253 | 2,190,949 | ||||||||||
Forestar Group, Inc., 6.00% (h) | 225,450 | 4,207,461 | ||||||||||
Grand Rounds, Inc., Series C (Acquired 3/31/15, cost $5,939,231) (a)(e) | 2,139,107 | 6,009,393 | ||||||||||
Health Care REIT, Inc., Series I, 6.50% (h) | 191,466 | 11,380,739 | ||||||||||
Lookout, Inc., Series F (Acquired 9/19/14- 10/22/14, cost $10,936,522) (a)(e) | 957,404 | 11,167,543 | ||||||||||
NBCUniversal Enterprise, Inc., 5.25% (c)(l) | 5,389,000 | 5,732,549 | ||||||||||
Palantir Technologies, Inc., Series I (Acquired 3/27/14, cost $11,447,321) (a)(e) | 1,867,426 | 16,601,417 | ||||||||||
Stanley Black & Decker, Inc., 6.25% (b)(h) | 29,775 | 3,550,669 |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets |
Preferred Stocks | Shares | Value | ||||||||||
Uber Technologies, Inc., Series D (Acquired 6/10/14, cost $17,574,548) (a)(e) | 1,132,888 | $ | 45,341,237 | |||||||||
United Technologies Corp., 7.50% (h) | 73,452 | 4,208,800 | ||||||||||
US Bancorp: | ||||||||||||
Series F, 6.50% (f) | 212,574 | 5,998,838 | ||||||||||
Series G, 6.00% (f) | 112,682 | 3,000,722 | ||||||||||
Wells Fargo & Co., Series L, 7.50% (h) | 3,988 | 4,685,900 | ||||||||||
|
| |||||||||||
220,650,409 | ||||||||||||
Total Preferred Stocks — 2.0% | 240,903,695 | |||||||||||
Trust Preferreds | ||||||||||||
Netherlands — 0.2% | ||||||||||||
RBS Capital Funding Trust V, Series E, | 327,673 | 7,939,517 | ||||||||||
RBS Capital Funding Trust VII, Series G, | 405,927 | 9,916,797 | ||||||||||
|
| |||||||||||
17,856,314 | ||||||||||||
United States — 0.2% | ||||||||||||
Citigroup Capital XIII, 7.88%, 10/30/40 (f) | 389,054 | 10,099,842 | ||||||||||
GMAC Capital Trust I, Series 2, | 521,563 | 13,550,207 | ||||||||||
|
| |||||||||||
23,650,049 | ||||||||||||
Total Trust Preferreds — 0.4% | 41,506,363 | |||||||||||
Total Preferred Securities — 3.9% | 459,951,636 | |||||||||||
U.S. Government Sponsored Agency Securities | Par (000) | |||||||||||
Mortgage-Backed Securities — 0.4% | ||||||||||||
Fannie Mae Mortgage-Backed Securities, 3.00%, 7/01/45 (m) | USD | 41,627 | 41,471,710 | |||||||||
U.S. Treasury Obligations | ||||||||||||
U.S. Treasury Inflation Indexed Notes: | ||||||||||||
0.25%, 1/15/25 | 4,761 | 4,669,445 | ||||||||||
U.S. Treasury Notes: | ||||||||||||
0.25%, 7/31/15 (j) | 35,577 | 35,579,475 | ||||||||||
1.38%, 3/31/20 (d) | 130,496 | 129,211,496 | ||||||||||
1.75%, 3/31/22 (d) | 47,468 | 46,608,035 | ||||||||||
2.25%, 11/15/24 (n) | 136,147 | 135,316,823 | ||||||||||
2.00%, 2/15/25 | 35,716 | 34,700,114 | ||||||||||
2.13%, 5/15/25 | 35,320 | 34,679,825 | ||||||||||
Total U.S. Treasury Obligations — 3.6% | 420,765,213 | |||||||||||
Warrants (o) | Shares | |||||||||||
Australia — 0.0% | ||||||||||||
TFS Corp. Ltd. (Issued/exercisable 8/01/11, 1 share for 1 warrant, Expires 7/15/18, Strike Price AUD 1.28) | 3,244,408 | 1,309,388 | ||||||||||
TFS Corp. Ltd. (Issued/exercisable 8/01/11, 1 share for 1 warrant, Expires 7/15/18, Strike Price AUD 1.28) | 523,292 | 211,192 | ||||||||||
Total Warrants — 0.0% | 1,520,580 | |||||||||||
Total Long-Term Investments (Cost — $8,979,463,139) — 79.3% | 9,317,494,585 | |||||||||||
Short-Term Securities | ||||||||||||
Foreign Agency Obligations (p) | Par (000) | Value | ||||||||||
Japan Treasury Discount Bill: | ||||||||||||
0.02%, 7/10/15-12/10/15 | JPY | 10,670,000 | $ | 87,183,634 | ||||||||
0.01%, 7/13/15-10/13/15 | 6,480,000 | 52,947,150 | ||||||||||
0.00%, 8/03/15-8/31/15 | 10,110,000 | 82,607,915 | ||||||||||
Mexico Cetes: | ||||||||||||
2.93%, 7/09/15 | MXN | 47,506 | 30,207,276 | |||||||||
2.97%, 7/23/15 | 41,932 | 26,628,016 | ||||||||||
3.03%, 8/06/15 | 47,663 | 30,236,353 | ||||||||||
3.09%, 8/20/15 | 41,954 | 26,581,524 | ||||||||||
3.45%, 9/03/15 | 17,873 | 11,310,338 | ||||||||||
3.22%, 9/17/15 | 47,580 | 30,066,624 | ||||||||||
3.19%, 10/01/15 | 47,672 | 30,088,737 | ||||||||||
4.94%, 10/15/15 | 35,766 | 22,545,157 | ||||||||||
3.20%, 10/29/15 | 23,767 | 14,965,406 | ||||||||||
3.21%, 11/12/15 | 48,321 | 30,378,925 | ||||||||||
3.26%, 11/26/15 | 11,883 | 7,462,838 | ||||||||||
Total Foreign Agency Obligations — 4.1% | 483,209,893 | |||||||||||
Beneficial Interest (000) | ||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (k)(q)(r) | USD | 376,445 | 376,445,470 | |||||||||
Total Money Market Funds — 3.2% | 376,445,470 | |||||||||||
Time Deposits | Par (000) | |||||||||||
Europe — 0.0% | ||||||||||||
Brown Brothers Harriman & Co., | EUR | 365 | 406,884 | |||||||||
Japan — 0.0% | ||||||||||||
Brown Brothers Harriman & Co., 0.01%, 7/01/15 | JPY | 334,660 | 2,734,489 | |||||||||
Norway — 0.0% | ||||||||||||
Brown Brothers Harriman & Co., 0.10%, 7/01/15 | NOK | 2,988 | 381,139 | |||||||||
Singapore — 0.2% | ||||||||||||
Wells Fargo Securities, LLC, 0.10%, 7/01/15 | SGD | 24,070 | 17,871,619 | |||||||||
United Kingdom — 0.0% | ||||||||||||
Brown Brothers Harriman & Co., 0.08%, 7/01/15 | GBP | 36 | 57,159 | |||||||||
Total Time Deposits — 0.2% | 21,451,290 | |||||||||||
See Notes to Consolidated Financial Statements.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets |
U.S. Treasury Obligations | Par (000) | Value | ||||||||||
U.S. Treasury Bills (p): | ||||||||||||
0.03%, 7/02/15-11/27/15 | USD | 1,035,000 | $ | 1,034,998,050 | ||||||||
0.02%, 7/09/15-10/22/15 | 442,000 | 441,988,347 | ||||||||||
0.04%, 7/16/15-11/12/15 | 71,000 | 70,995,025 | ||||||||||
0.05%, 7/23/15-11/19/15 | 320,540 | 320,520,575 | ||||||||||
0.01%, 9/17/15-9/24/15 | 224,000 | 223,998,368 | ||||||||||
0.07%, 12/03/15 | 24,000 | 23,995,608 | ||||||||||
Total U.S. Treasury Obligations — 18.0% | 2,116,495,973 | |||||||||||
Total Short-Term Securities (Cost — $3,011,112,089) — 25.5% | 2,997,602,626 | |||||||||||
Options Purchased | ||||||||||||
(Cost — $136,864,503) — 1.1% | 133,842,310 | |||||||||||
Total Investments Before Investments Sold Short and Options Written (Cost — $12,127,439,731) — 105.9% |
| 12,448,939,521 | ||||||||||
| ||||||||||||
Investments Sold Short | Shares | Value | ||||||||
United States — (0.0)% | ||||||||||
Gentex Corp. | 230,820 | $ | (3,790,064 | ) | ||||||
Mead Johnson Nutrition Co. | 10,590 | (955,430 | ) | |||||||
Total Investments Sold Short (Proceeds — $5,224,167) — (0.0)% | (4,745,494 | ) | ||||||||
Options Written | ||||||||||
(Premiums Received — $50,017,392) — (0.4)% | (41,114,547 | ) | ||||||||
Total Investments Net of Investments Sold Short and Options Written — 105.5% |
| 12,403,079,480 | ||||||||
Liabilities in Excess of Other Assets — (5.5)% |
| (651,529,166 | ) | |||||||
|
| |||||||||
Net Assets — 100.0% | $ | 11,751,550,314 | ||||||||
|
|
Notes to Consolidated Schedule of Investments |
(a) | Non-income producing security. |
(b) | Security, or a portion of security, is on loan. |
(c) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors. |
(d) | All or a portion of security has been pledged and/or segregated as collateral in connection with outstanding options written. |
(e) | Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $180,290,472 and an original cost of $153,448,027 which was 1.5% of its net assets. |
(f) | Variable rate security. Rate shown is as of report date. |
(g) | Issuer filed for bankruptcy and/or is in default of interest payments. |
(h) | Convertible security. |
(i) | Represents a step-up bond that pays an initial coupon rate for the first period and then a higher coupon rate for the following periods. Rate shown is as of report date. |
(j) | All or a portion of security is held by a wholly owned subsidiary. See Note 1 of the Consolidated Notes to Financial Statements for details on the wholly owned subsidiary. |
(k) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/Beneficial Held at | Shares/Beneficial Interest Purchased | Shares Sold | Shares/Beneficial Held at June 30, 2015 | Value at June 30, 2015 | Income | ||||||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 878,636 | — | (878,636 | )1 | — | — | $ 3,395 | |||||||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $68,946,761 | $307,498,709 | 2 | — | $376,445,470 | $376,445,470 | $1,160,415 | 3 | ||||||||||||||||
iShares Gold Trust | 2,098,037 | — | — | 2,098,037 | $ 23,791,739 | — |
1 | Represents net shares sold. |
2 | Represents net beneficial interest purchased. |
3 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(l) | Security is perpetual in nature and has no stated maturity date. |
(m) | Represents or includes a TBA transaction. As of June 30, 2015, unsettled TBA transactions were as follows: |
Counterparty | Value | Unrealized Depreciation | ||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | $41,471,710 | $(493,509 | ) |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
(n) | All or a portion of security has been pledged as collateral in connection with outstanding TBA commitments. |
(o) | Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date of the warrants, if any. |
(p) | Rates shown are discount rates or a range of discount rates at the time of purchase. |
(q) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
(r) | Represents the current yield as of report date. |
• | As of June 30, 2015, financial futures contracts outstanding were as follows: |
Contracts Long (Short) | Issue | Exchange | Expiration | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
(20) | CAC 40 10 Euro Future Index | Paris | July 2015 | USD | 1,067,248 | $ (2,601 | ) | |||||||||||||
261 | DAX Index Futures | Eurex | September 2015 | USD | 80,029,418 | (1,002,406 | ) | |||||||||||||
E-Mini MSCI Emerging Markets | ||||||||||||||||||||
(613) | Index Futures | InterContinental Exchange | September 2015 | USD | 29,405,610 | 209,319 | ||||||||||||||
(6,621) | E-Mini S&P 500 Futures | Chicago Mercantile | September 2015 | USD | 680,109,120 | 11,571,505 | ||||||||||||||
2,401 | Euro STOXX 50 Index | Eurex | September 2015 | USD | 91,973,467 | (4,666,049 | ) | |||||||||||||
(71) | FTSE 100 Index | ICE Futures Europe | September 2015 | USD | 7,244,579 | 163,283 | ||||||||||||||
(92) | Nikkei 225 Index | Chicago Mercantile | September 2015 | USD | 7,596,192 | 138,803 | ||||||||||||||
(412) | Russell 2000 Mini Index Futures | InterContinental Exchange | September 2015 | USD | 51,516,480 | 291,083 | ||||||||||||||
134 | TOPIX Index | Tokyo | September 2015 | USD | 17,852,433 | (327,165 | ) | |||||||||||||
Total | $ 6,375,772 | |||||||||||||||||||
|
|
• | As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: |
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||
JPY | 1,449,585,750 | USD | 12,095,000 | Deutsche Bank AG | 7/02/15 | $ (250,228 | ) | |||||||||||||
JPY | 1,918,209,538 | USD | 15,699,994 | Deutsche Bank AG | 7/02/15 | (26,426 | ) | |||||||||||||
JPY | 3,719,169,712 | USD | 30,042,972 | Deutsche Bank AG | 7/02/15 | 346,895 | ||||||||||||||
JPY | 3,371,125,228 | USD | 27,319,013 | JPMorgan Chase Bank N.A. | 7/02/15 | 226,933 | ||||||||||||||
JPY | 3,722,271,000 | USD | 29,942,733 | JPMorgan Chase Bank N.A. | 7/02/15 | 472,475 | ||||||||||||||
USD | 59,185,290 | JPY | 7,086,965,000 | Deutsche Bank AG | 7/02/15 | 1,276,686 | ||||||||||||||
USD | 59,228,859 | JPY | 7,093,396,228 | JPMorgan Chase Bank N.A. | 7/02/15 | 1,267,704 | ||||||||||||||
EUR | 10,580,000 | USD | 11,756,390 | Deutsche Bank AG | 7/09/15 | 40,200 | ||||||||||||||
JPY | 3,740,970,000 | USD | 29,927,880 | BNP Paribas S.A. | 7/09/15 | 642,831 | ||||||||||||||
JPY | 1,440,582,000 | USD | 12,041,476 | UBS AG | 7/09/15 | (269,231 | ) | |||||||||||||
USD | 11,999,731 | EUR | 10,580,000 | Deutsche Bank AG | 7/09/15 | 203,141 | ||||||||||||||
USD | 59,423,175 | JPY | 7,069,070,000 | BNP Paribas S.A. | 7/09/15 | 1,655,672 | ||||||||||||||
USD | 12,103,595 | JPY | 1,440,582,000 | UBS AG | 7/09/15 | 331,350 | ||||||||||||||
USD | 32,352,522 | MXN | 475,057,960 | UBS AG | 7/09/15 | 2,148,332 | ||||||||||||||
CAD | 14,622,907 | USD | 11,864,620 | BNP Paribas S.A. | 7/10/15 | (158,581 | ) | |||||||||||||
USD | 11,936,726 | CAD | 14,622,907 | BNP Paribas S.A. | 7/10/15 | 230,686 | ||||||||||||||
USD | 19,966,302 | JPY | 2,370,000,000 | Credit Suisse International | 7/10/15 | 598,730 | ||||||||||||||
USD | 22,343,390 | JPY | 2,692,937,130 | Credit Suisse International | 7/10/15 | 336,786 | ||||||||||||||
USD | 22,373,317 | JPY | 2,695,447,740 | Deutsche Bank AG | 7/10/15 | 346,196 | ||||||||||||||
BRL | 36,831,000 | USD | 11,777,252 | Deutsche Bank AG | 7/13/15 | 11,354 | ||||||||||||||
USD | 25,056,186 | BRL | 77,168,042 | BNP Paribas S.A. | 7/13/15 | 356,784 | ||||||||||||||
USD | 6,998,606 | BRL | 21,690,081 | Deutsche Bank AG | 7/13/15 | 56,199 | ||||||||||||||
USD | 11,975,628 | BRL | 36,803,500 | Deutsche Bank AG | 7/13/15 | 195,824 | ||||||||||||||
USD | 23,283,645 | BRL | 71,529,685 | Morgan Stanley Capital Services LLC | 7/13/15 | 388,928 | ||||||||||||||
USD | 19,812,035 | JPY | 2,380,000,000 | Deutsche Bank AG | 7/13/15 | 362,005 | ||||||||||||||
USD | 12,668,712 | GBP | 8,264,000 | Deutsche Bank AG | 7/16/15 | (314,548 | ) | |||||||||||||
EUR | 27,147,000 | USD | 30,291,439 | Credit Suisse International | 7/17/15 | (19,493 | ) | |||||||||||||
USD | 16,047,785 | MXN | 237,566,590 | Credit Suisse International | 7/23/15 | 959,277 |
See Notes to Consolidated Financial Statements.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: (continued)
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||
USD | 12,024,476 | MXN | 181,755,970 | Deutsche Bank AG | 7/23/15 | $ 480,655 | ||||||||||||||
USD | 29,846,289 | GBP | 19,116,000 | BNP Paribas S.A. | 7/30/15 | (183,166 | ) | |||||||||||||
USD | 7,290,333 | AUD | 9,523,000 | Morgan Stanley Capital Services LLC | 7/31/15 | (43,527 | ) | |||||||||||||
USD | 31,312,509 | CHF | 28,991,000 | BNP Paribas S.A. | 7/31/15 | 266,370 | ||||||||||||||
USD | 11,810,161 | IDR | 157,760,135,000 | Credit Suisse International | 7/31/15 | 53,657 | ||||||||||||||
USD | 20,893,988 | JPY | 2,595,096,000 | BNP Paribas S.A. | 7/31/15 | (318,665 | ) | |||||||||||||
USD | 25,101,078 | JPY | 2,980,000,000 | JPMorgan Chase Bank N.A. | 8/03/15 | 741,377 | ||||||||||||||
INR | 770,234,200 | USD | 11,890,000 | Credit Suisse International | 8/05/15 | 116,207 | ||||||||||||||
USD | 5,939,698 | JPY | 735,198,000 | Credit Suisse International | 8/06/15 | (70,297 | ) | |||||||||||||
USD | 34,817,452 | JPY | 4,314,979,000 | Morgan Stanley Capital Services LLC | 8/06/15 | (456,044 | ) | |||||||||||||
USD | 31,940,090 | MXN | 476,626,000 | Credit Suisse International | 8/06/15 | 1,699,118 | ||||||||||||||
USD | 12,079,222 | SGD | 16,205,000 | Morgan Stanley Capital Services LLC | 8/06/15 | 54,555 | ||||||||||||||
USD | 11,754,000 | CNH | 75,083,377 | Morgan Stanley Capital Services LLC | 8/07/15 | (321,207 | ) | |||||||||||||
USD | 24,765,540 | JPY | 3,078,790,000 | BNP Paribas S.A. | 8/07/15 | (402,801 | ) | |||||||||||||
USD | 19,443,955 | JPY | 2,407,848,000 | HSBC Bank USA N.A. | 8/07/15 | (239,603 | ) | |||||||||||||
USD | 38,020,914 | JPY | 4,704,974,000 | JPMorgan Chase Bank N.A. | 8/07/15 | (441,077 | ) | |||||||||||||
USD | 11,132,473 | MXN | 173,425,000 | Credit Suisse International | 8/07/15 | 129,773 | ||||||||||||||
USD | 11,253,089 | MXN | 175,304,000 | Credit Suisse International | 8/07/15 | 131,179 | ||||||||||||||
USD | 25,063,291 | JPY | 2,970,000,000 | Deutsche Bank AG | 8/10/15 | 783,491 | ||||||||||||||
USD | 18,916,718 | JPY | 2,345,673,000 | Credit Suisse International | 8/13/15 | (259,823 | ) | |||||||||||||
USD | 45,393,547 | JPY | 5,629,912,000 | JPMorgan Chase Bank N.A. | 8/13/15 | (632,576 | ) | |||||||||||||
USD | 11,023,606 | MXN | 171,147,000 | BNP Paribas S.A. | 8/13/15 | 169,996 | ||||||||||||||
USD | 11,023,606 | MXN | 171,147,000 | Deutsche Bank AG | 8/13/15 | 169,996 | ||||||||||||||
USD | 6,044,196 | AUD | 7,859,813 | Credit Suisse International | 8/14/15 | (4,397 | ) | |||||||||||||
USD | 49,252,910 | JPY | 6,108,863,000 | Morgan Stanley Capital Services LLC | 8/14/15 | (689,315 | ) | |||||||||||||
EUR | 26,826,000 | USD | 30,050,756 | Deutsche Bank AG | 8/20/15 | (122,140 | ) | |||||||||||||
USD | 12,010,236 | MXN | 181,795,340 | BNP Paribas S.A. | 8/20/15 | 486,994 | ||||||||||||||
USD | 15,565,886 | MXN | 237,745,560 | Deutsche Bank AG | 8/20/15 | 496,194 | ||||||||||||||
EUR | 4,931,000 | USD | 5,529,495 | Credit Suisse International | 8/21/15 | (28,110 | ) | |||||||||||||
EUR | 26,823,000 | USD | 30,016,736 | Credit Suisse International | 8/21/15 | (91,026 | ) | |||||||||||||
EUR | 21,904,000 | USD | 24,543,193 | JPMorgan Chase Bank N.A. | 8/21/15 | (105,482 | ) | |||||||||||||
CLP | 7,212,357,740 | USD | 11,943,362 | Morgan Stanley Capital Services LLC | 8/24/15 | (720,494 | ) | |||||||||||||
USD | 11,998,000 | CLP | 7,212,357,740 | Morgan Stanley Capital Services LLC | 8/24/15 | 775,131 | ||||||||||||||
CLP | 3,575,750,395 | USD | 5,608,580 | UBS AG | 8/26/15 | (45,557 | ) | |||||||||||||
CLP | 3,657,107,000 | USD | 5,960,569 | UBS AG | 8/26/15 | (270,973 | ) | |||||||||||||
USD | 12,027,000 | CLP | 7,232,857,395 | UBS AG | 8/26/15 | 774,381 | ||||||||||||||
EUR | 18,816,529 | USD | 20,984,250 | Deutsche Bank AG | 8/27/15 | 10,707 | ||||||||||||||
USD | 17,417,880 | CNH | 108,543,000 | JPMorgan Chase Bank N.A. | 8/28/15 | (15,962 | ) | |||||||||||||
USD | 33,508,393 | JPY | 4,160,000,000 | Morgan Stanley Capital Services LLC | 8/31/15 | (508,018 | ) | |||||||||||||
USD | 11,287,509 | MXN | 178,726,420 | BNP Paribas S.A. | 9/03/15 | (30,217 | ) | |||||||||||||
USD | 28,789,817 | KRW | 32,322,328,000 | Morgan Stanley Capital Services LLC | 9/11/15 | (137,763 | ) | |||||||||||||
CLP | 7,320,951,000 | USD | 11,719,578 | JPMorgan Chase Bank N.A. | 9/15/15 | (351,401 | ) | |||||||||||||
USD | 12,045,000 | CLP | 7,320,951,000 | JPMorgan Chase Bank N.A. | 9/15/15 | 676,822 | ||||||||||||||
USD | 15,384,141 | MXN | 238,346,500 | Morgan Stanley Capital Services LLC | 9/17/15 | 305,385 | ||||||||||||||
USD | 15,527,830 | MXN | 237,451,570 | Morgan Stanley Capital Services LLC | 9/17/15 | 505,691 | ||||||||||||||
USD | 15,483,206 | MXN | 238,686,000 | Deutsche Bank AG | 10/01/15 | 397,689 | ||||||||||||||
USD | 15,601,060 | MXN | 238,033,170 | JPMorgan Chase Bank N.A. | 10/01/15 | 556,804 | ||||||||||||||
USD | 34,170,084 | JPY | 4,100,000,000 | JPMorgan Chase Bank N.A. | 10/13/15 | 614,710 | ||||||||||||||
USD | 22,959,927 | MXN | 357,658,270 | Deutsche Bank AG | 10/15/15 | 379,037 |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: (concluded)
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||
USD | 23,998,363 | KRW | 25,774,242,000 | Credit Suisse International | 10/27/15 | $ 946,633 | ||||||||||||||
USD | 29,097,281 | KRW | 31,323,223,000 | Deutsche Bank AG | 10/27/15 | 1,082,704 | ||||||||||||||
USD | 14,987,261 | MXN | 237,667,980 | Credit Suisse International | 10/29/15 | (2,115 | ) | |||||||||||||
USD | 29,818,583 | JPY | 3,570,000,000 | BNP Paribas S.A. | 11/10/15 | 582,628 | ||||||||||||||
USD | 31,334,333 | MXN | 483,206,750 | Deutsche Bank AG | 11/12/15 | 891,407 | ||||||||||||||
USD | 7,476,659 | MXN | 118,825,040 | Credit Suisse International | 11/27/15 | (1,069 | ) | |||||||||||||
USD | 38,610,984 | JPY | 4,730,000,000 | Credit Suisse International | 12/10/15 | (150,516 | ) | |||||||||||||
INR | 1,295,111,028 | USD | 19,784,770 | Credit Suisse International | 12/18/15 | (126,878 | ) | |||||||||||||
Total | $18,925,553 | |||||||||||||||||||
|
|
• | As of June 30, 2015, exchange-traded options purchased were as follows: |
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Value | |||||||||||||||
Apple Inc. | Call | USD | 135.00 | 8/21/15 | 171 | $ | 22,145 | |||||||||||||
The Goodyear Tire & Rubber Co. | Call | USD | 31.00 | 10/16/15 | 274 | 36,168 | ||||||||||||||
Total | $ | 58,313 | ||||||||||||||||||
|
|
• | As of June 30, 2015, OTC options purchased were as follows: |
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Value | ||||||||||||||||
Johnson & Johnson | Deutsche Bank AG | Call | USD | 110.00 | 7/17/15 | 1,147,200 | $ | 22,944 | ||||||||||||||
S&P 500 Index | Credit Suisse International | Call | USD | 2,350.00 | 8/21/15 | 123,948 | 55,777 | |||||||||||||||
TOPIX Index | Bank of America N.A. | Call | JPY | 1,615.00 | 9/11/15 | 2,929,000 | 1,466,588 | |||||||||||||||
TOPIX Index | BNP Paribas S.A. | Call | JPY | 1,600.00 | 9/11/15 | 1,887,687 | 1,087,940 | |||||||||||||||
TOPIX Index | UBS AG | Call | JPY | 1,675.00 | 9/11/15 | 2,038,300 | 632,883 | |||||||||||||||
Delta Air Lines Inc. | Morgan Stanley & Co. International PLC | Call | USD | 43.00 | 9/18/15 | 53,866 | 99,113 | |||||||||||||||
SPDR Gold Shares1 | JPMorgan Chase Bank N.A. | Call | USD | 120.00 | 9/18/15 | 255,400 | 183,888 | |||||||||||||||
STOXX Europe 600 Index | Bank of America N.A. | Call | EUR | 404.13 | 9/18/15 | 79,826 | 570,562 | |||||||||||||||
BlackRock MSJNJPTL Index | Morgan Stanley & Co. International PLC | Call | JPY | 131.28 | 12/11/15 | 20,706,138 | 4,170,032 | |||||||||||||||
BlackRock MSJNJPTL Index | Morgan Stanley & Co. International PLC | Call | JPY | 139.99 | 12/11/15 | 5,339,563 | 1,027,589 | |||||||||||||||
TOPIX Index | Bank of America N.A. | Call | JPY | 1,525.00 | 12/11/15 | 3,954,704 | 4,449,967 | |||||||||||||||
TOPIX Index | Citibank N.A. | Call | JPY | 1,585.00 | 12/11/15 | 4,151,800 | 3,323,471 | |||||||||||||||
EURO STOXX 50 Index | JPMorgan Chase Bank N.A. | Call | EUR | 3,675.00 | 12/18/15 | 17,751 | 2,097,712 | |||||||||||||||
Abbott Laboratories | Citibank N.A. | Call | USD | 49.00 | 1/15/16 | 585,600 | 1,665,446 | |||||||||||||||
Activision Blizzard, Inc. | Deutsche Bank AG | Call | USD | 19.00 | 1/15/16 | 590,042 | 3,326,161 | |||||||||||||||
Bank of America Corp. | Goldman Sachs International | Call | USD | 16.50 | 1/15/16 | 1,638,400 | 2,380,153 | |||||||||||||||
Citigroup, Inc. | Goldman Sachs International | Call | USD | 50.50 | 1/15/16 | 760,900 | 5,125,643 | |||||||||||||||
General Electric Co. | Deutsche Bank AG | Call | USD | 28.50 | 1/15/16 | 1,172,095 | 565,524 | |||||||||||||||
Gilead Sciences, Inc. | Citibank N.A. | Call | USD | 95.00 | 1/15/16 | 116,600 | 2,836,295 | |||||||||||||||
The Goldman Sachs Group, Inc. | Deutsche Bank AG | Call | USD | 220.00 | 1/15/16 | 85,800 | 679,965 | |||||||||||||||
International Business Machines Corp. | Barclays Bank PLC | Call | USD | 182.00 | 1/15/16 | 115,089 | 257,400 | |||||||||||||||
International Business Machines Corp. | Deutsche Bank AG | Call | USD | 182.00 | 1/15/16 | 115,087 | 257,396 | |||||||||||||||
JPMorgan Chase & Co. | Goldman Sachs International | Call | USD | 59.00 | 1/15/16 | 585,400 | 5,543,978 | |||||||||||||||
Merck & Co., Inc. | Goldman Sachs International | Call | USD | 59.00 | 1/15/16 | 1,172,827 | 2,308,358 | |||||||||||||||
MetLife, Inc. | Goldman Sachs International | Call | USD | 57.50 | 1/15/16 | 922,643 | 2,421,938 | |||||||||||||||
Pfizer, Inc. | Citibank N.A. | Call | USD | 33.00 | 1/15/16 | 2,303,800 | 3,818,203 | |||||||||||||||
Prudential Financial, Inc. | Citibank N.A. | Call | USD | 90.00 | 1/15/16 | 715,410 | 3,165,689 |
See Notes to Consolidated Financial Statements.
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
As of June 30, 2015, OTC options purchased were as follows: (concluded)
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Value | ||||||||||||||||
Wells Fargo & Co. | Goldman Sachs International | Call | USD | 60.00 | 1/15/16 | 286,100 | $ | 363,347 | ||||||||||||||
TOPIX Index | Citibank N.A. | Call | JPY | 1,585.00 | 3/11/16 | 5,873,500 | 5,559,882 | |||||||||||||||
Baxter International, Inc. | Goldman Sachs International | Call | USD | 72.75 | 3/18/16 | 234,419 | 503,506 | |||||||||||||||
Johnson & Johnson | Goldman Sachs International | Call | USD | 103.00 | 4/15/16 | 1,174,076 | 3,079,155 | |||||||||||||||
The Bank of New York Mellon Corp. | Deutsche Bank AG | Call | USD | 46.00 | 5/20/16 | 878,771 | 1,142,930 | |||||||||||||||
The Goldman Sachs Group, Inc. | Deutsche Bank AG | Call | USD | 220.00 | 5/20/16 | 210,900 | 2,388,611 | |||||||||||||||
KeyCorp | Deutsche Bank AG | Call | USD | 15.75 | 5/20/16 | 1,171,694 | 1,098,416 | |||||||||||||||
Morgan Stanley | Deutsche Bank AG | Call | USD | 40.75 | 5/20/16 | 878,771 | 2,111,827 | |||||||||||||||
SunTrust Banks, Inc. | Deutsche Bank AG | Call | USD | 45.50 | 5/20/16 | 878,800 | 1,861,747 | |||||||||||||||
Teva Pharmaceutical Industries Ltd. | Deutsche Bank AG | Call | USD | 63.50 | 5/20/16 | 234,400 | 831,253 | |||||||||||||||
Wells Fargo & Co. | Deutsche Bank AG | Call | USD | 59.00 | 5/20/16 | 878,771 | 1,866,914 | |||||||||||||||
TOPIX Index | Citibank N.A. | Call | JPY | 1,675.00 | 6/10/16 | 3,755,902 | 2,512,774 | |||||||||||||||
TOPIX Index | Morgan Stanley & Co. International PLC | Call | JPY | 1,675.00 | 6/10/16 | 1,994,633 | 1,334,449 | |||||||||||||||
STOXX Europe 600 Index | JPMorgan Chase Bank N.A. | Call | EUR | 348.12 | 9/16/16 | 74,227 | 3,834,299 | |||||||||||||||
TAIEX Index | Citibank N.A. | Call | TWD | 9,000.77 | 9/21/16 | 101,800 | 1,351,769 | |||||||||||||||
TAIEX Index | Citibank N.A. | Call | TWD | 9,483.14 | 9/21/16 | 93,402 | 830,501 | |||||||||||||||
EURO STOXX 50 Index | Goldman Sachs International | Call | EUR | 3,293.01 | 12/16/16 | 19,657 | 7,054,819 | |||||||||||||||
STOXX Europe 600 Index | Credit Suisse International | Call | EUR | 400.00 | 12/16/16 | 126,482 | 4,357,169 | |||||||||||||||
TAIEX Index | Goldman Sachs International | Call | TWD | 9,677.00 | 12/21/16 | 95,100 | 786,191 | |||||||||||||||
EURO STOXX 50 Index | Morgan Stanley & Co. International PLC | Call | EUR | 3,450.00 | 3/17/17 | 7,782 | 2,303,651 | |||||||||||||||
STOXX Europe 600 Index | Credit Suisse International | Call | EUR | 355.61 | 3/17/17 | 69,976 | 3,551,129 | |||||||||||||||
EURO STOXX 50 Index | Citibank N.A. | Call | EUR | 3,500.00 | 6/16/17 | 7,230 | 2,063,122 | |||||||||||||||
EURO STOXX 50 Index | Bank of America N.A. | Call | EUR | 3,600.00 | 9/15/17 | 7,747 | 2,222,327 | |||||||||||||||
STOXX Europe 600 Index | JPMorgan Chase Bank N.A. | Call | EUR | 372.06 | 9/15/17 | 47,705 | 1,949,495 | |||||||||||||||
EURO STOXX 50 Index | Barclays Bank PLC | Call | EUR | 3,500.00 | 12/15/17 | 7,935 | 2,647,493 | |||||||||||||||
Nikkei 225 Index | Goldman Sachs International | Call | JPY | 21,968.28 | 3/09/18 | 247,564 | 3,120,419 | |||||||||||||||
EURO STOXX 50 Index | Goldman Sachs International | Call | EUR | 3,500.00 | 3/16/18 | 6,612 | 2,239,591 | |||||||||||||||
EURO STOXX 50 Index | UBS AG | Call | EUR | 3,600.00 | 6/15/18 | 3,205 | 1,033,221 | |||||||||||||||
EURO STOXX 50 Index | Deutsche Bank AG | Call | EUR | 3,426.55 | 9/21/18 | 3,336 | 1,290,054 | |||||||||||||||
S&P 500 Index | Morgan Stanley & Co. International PLC | Put | USD | 2,065.00 | 7/17/15 | 58,563 | 1,818,381 | |||||||||||||||
Ibovespa Brasil Sao Paulo Stock Exchange Index | Bank of America N.A. | Put | BRL | 47,604.37 | 8/12/15 | 1,976 | 101,681 | |||||||||||||||
Russell 2000 Index | Bank of America N.A. | Put | USD | 1,215.00 | 8/21/15 | 48,629 | 1,025,625 | |||||||||||||||
Russell 2000 Index | UBS AG | Put | USD | 1,250.00 | 8/21/15 | 51,755 | 1,694,976 | |||||||||||||||
S&P 500 Index | Credit Suisse International | Put | USD | 2,100.00 | 8/31/15 | 15,516 | 1,036,469 | |||||||||||||||
Russell 2000 Index | Morgan Stanley & Co. International PLC | Put | USD | 1,270.00 | 9/18/15 | 25,694 | 1,329,665 | |||||||||||||||
S&P 500 Index | Credit Suisse International | Put | USD | 2,050.00 | 9/18/15 | 29,302 | 1,705,376 | |||||||||||||||
Total | $ | 127,542,849 | ||||||||||||||||||||
|
|
1 | All or a portion of security is held by a wholly owned subsidiary. See Note 1 of the Notes to Consolidated Financial Statements for details on the wholly owned subsidiary. |
• | As of June 30, 2015, OTC interest rate swaptions purchased were as follows: |
Description | Counterparty | Put/ Call | Exercise Rate | Pay/Receive Exercise Rate | Floating Rate Index | Expiration Date | Notional Amount (000) | Value | ||||||||||||||
5-Year Interest Rate Swap | Deutsche Bank AG | Call | 1.53% | Receive | 3-month LIBOR | 8/12/15 | USD | 952,750 | $ | 1,039,126 | ||||||||||||
5-Year Interest Rate Swap | Goldman Sachs International | Call | 1.90% | Receive | 3-month LIBOR | 9/18/15 | USD | 593,710 | 4,730,491 | |||||||||||||
10-Year Interest Rate Swap | Goldman Sachs International | Put | 1.35% | Pay | 6-month JPY LIBOR | 1/25/16 | JPY | 4,660,748 | 109,441 |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
As of June 30, 2015, OTC interest rate swaptions purchased were as follows: (concluded)
Description | Counterparty | Put/ Call | Exercise Rate | Pay/Receive Exercise Rate | Floating Rate Index | Expiration Date | Notional (000) | Value | ||||||||||||||
10-Year Interest Rate Swap | Goldman Sachs International | Put | 1.35% | Pay | 6-month JPY LIBOR | 1/25/16 | JPY | 2,322,553 | $ | 54,537 | ||||||||||||
10-Year Interest Rate Swap | Deutsche Bank AG | Put | 1.25% | Pay | 6-month JPY LIBOR | 7/29/16 | JPY | 2,831,410 | 168,102 | |||||||||||||
5-Year Interest Rate Swap | Deutsche Bank AG | Put | 1.07% | Pay | 6-month JPY LIBOR | 4/04/18 | JPY | 2,370,178 | 139,451 | |||||||||||||
Total | $ | 6,241,148 | ||||||||||||||||||||
|
|
• | As of June 30, 2015, exchange-traded options written were as follows: |
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Market Value | |||||||||||||||
Apple Inc. | Call | USD | 150.00 | 8/21/15 | 171 | $(2,223 | ) | |||||||||||||
DISH Network Corp., Class A | Call | USD | 80.00 | 9/18/15 | 236 | (14,160 | ) | |||||||||||||
Aetna, Inc. | Call | USD | 130.00 | 10/16/15 | 117 | (85,703 | ) | |||||||||||||
Diageo PLC | Call | USD | 125.00 | 10/16/15 | 543 | (96,383 | ) | |||||||||||||
Philip Morris International, Inc. | Call | USD | 85.00 | 12/18/15 | 725 | (110,925 | ) | |||||||||||||
Apple Inc. | Put | USD | 120.00 | 8/21/15 | 171 | (43,947 | ) | |||||||||||||
The Goodyear Tire & Rubber Co. | Put | USD | 28.00 | 10/16/15 | 274 | (26,304 | ) | |||||||||||||
Molson Coors Brewing Company, Class B | Put | USD | 65.00 | 1/15/16 | 350 | (129,500 | ) | |||||||||||||
Total | $ | (509,145 | ) | |||||||||||||||||
|
|
• | As of June 30, 2015, OTC barrier options written were as follows: |
Description | Counterparty | Strike Price | Barrier Price | Expiration Date | Contracts | Value | ||||||||||||||
Russell 2000 Index | UBS AG | USD 1,200.00 | USD | 1,130.00 | 08/21/15 | 51,755 | $ | (921,239 | ) | |||||||||||
Nikkei 225 Index | Goldman Sachs International | JPY17,974.04 | JPY | 14,978.37 | 03/09/18 | 247,564 | (3,232,321 | ) | ||||||||||||
EURO STOXX 50 Index | Deutsche Bank AG | EUR 2,586.07 | EUR | 2,165.83 | 09/21/18 | 3,336 | (551,745 | ) | ||||||||||||
Total | $ | (4,705,305 | ) | |||||||||||||||||
|
|
• | As of June 30, 2015, OTC options written were as follows: |
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Value | ||||||||||||||||
Ibovespa Brasil Sao Paulo Stock Exchange Index | Bank of America N.A. | Call | BRL | 55,416.37 | 8/12/15 | 1,976 | $ | (510,109 | ) | |||||||||||||
eBay, Inc. | Citibank N.A. | Call | USD | 60.00 | 8/21/15 | 196,300 | (480,935 | ) | ||||||||||||||
Mobileye NV | Citibank N.A. | Call | USD | 60.00 | 8/21/15 | 46,669 | (49,002 | ) | ||||||||||||||
Mobileye NV | Citibank N.A. | Call | USD | 55.00 | 8/21/15 | 116,677 | (285,859 | ) | ||||||||||||||
Russell 2000 Index | Bank of America N.A. | Call | USD | 1,315.00 | 8/21/15 | 48,629 | (285,970 | ) | ||||||||||||||
Russell 2000 Index | UBS AG | Call | USD | 1,350.00 | 8/21/15 | 51,755 | (67,282 | ) | ||||||||||||||
Tenet Healthcare Corp. | Goldman Sachs International | Call | USD | 49.00 | 8/21/15 | 140,057 | (1,372,559 | ) | ||||||||||||||
Tiffany & Co. | Goldman Sachs International | Call | USD | 97.50 | 8/21/15 | 67,338 | (59,257 | ) | ||||||||||||||
TOPIX Index | UBS AG | Call | JPY | 1,825.00 | 9/11/15 | 2,038,300 | (116,584 | ) | ||||||||||||||
Delta Air Lines Inc. | Morgan Stanley & Co. International PLC | Call | USD | 50.00 | 9/18/15 | 53,866 | (19,930 | ) | ||||||||||||||
Russell 2000 Index | Morgan Stanley & Co. International PLC | Call | USD | 1,360.00 | 9/18/15 | 25,694 | (88,644 | ) | ||||||||||||||
S&P 500 Index | Credit Suisse International | Call | USD | 2,185.00 | 9/18/15 | 29,302 | (181,673 | ) | ||||||||||||||
TOPIX Index | Citibank N.A. | Call | JPY | 1,800.00 | 12/11/15 | 4,151,800 | (626,932 | ) | ||||||||||||||
Abbott Laboratories | Citibank N.A. | Call | USD | 55.00 | 1/15/16 | 585,600 | (532,896 | ) | ||||||||||||||
Activision Blizzard, Inc. | Deutsche Bank AG | Call | USD | 24.00 | 1/15/16 | 590,042 | (1,161,451 | ) | ||||||||||||||
Bank of America Corp. | Goldman Sachs International | Call | USD | 19.00 | 1/15/16 | 1,638,400 | (690,094 | ) | ||||||||||||||
Citigroup, Inc. | Goldman Sachs International | Call | USD | 57.50 | 1/15/16 | 760,900 | (1,985,949 | ) | ||||||||||||||
General Electric Co. | Deutsche Bank AG | Call | USD | 32.00 | 1/15/16 | 1,172,095 | (99,628 | ) | ||||||||||||||
JPMorgan Chase & Co. | Goldman Sachs International | Call | USD | 66.00 | 1/15/16 | 585,400 | (2,650,656 | ) | ||||||||||||||
Merck & Co., Inc. | Goldman Sachs International | Call | USD | 65.00 | 1/15/16 | 1,172,827 | (674,376 | ) | ||||||||||||||
MetLife, Inc. | Goldman Sachs International | Call | USD | 67.50 | 1/15/16 | 922,643 | (503,477 | ) |
See Notes to Consolidated Financial Statements.
20 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
As of June 30, 2015, OTC options written were as follows: (concluded)
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Value | ||||||||||||||||
Pfizer, Inc. | Citibank N.A. | Call | USD | 37.50 | 1/15/16 | 2,303,800 | $ | (735,488 | ) | |||||||||||||
Prudential Financial, Inc. | Citibank N.A. | Call | USD | 105.00 | 1/15/16 | 715,410 | (715,410 | ) | ||||||||||||||
United Continental Holdings, Inc. | Citibank N.A. | Call | USD | 60.00 | 1/15/16 | 103,520 | (372,672 | ) | ||||||||||||||
Valeant Pharmaceuticals International, Inc. | Barclays Bank PLC | Call | USD | 240.00 | 1/15/16 | 17,500 | (283,500 | ) | ||||||||||||||
Baxter International, Inc. | Goldman Sachs International | Call | USD | 82.00 | 3/18/16 | 234,419 | (142,794 | ) | ||||||||||||||
Johnson & Johnson | Goldman Sachs International | Call | USD | 113.00 | 4/15/16 | 1,174,076 | (919,642 | ) | ||||||||||||||
The Bank of New York Mellon Corp. | Deutsche Bank AG | Call | USD | 51.25 | 5/20/16 | 878,771 | (395,324 | ) | ||||||||||||||
The Goldman Sachs Group, Inc. | Deutsche Bank AG | Call | USD | 245.00 | 5/20/16 | 210,900 | (882,906 | ) | ||||||||||||||
KeyCorp | Deutsche Bank AG | Call | USD | 17.90 | 5/20/16 | 1,171,694 | (413,819 | ) | ||||||||||||||
Morgan Stanley | Deutsche Bank AG | Call | USD | 46.00 | 5/20/16 | 878,771 | (796,632 | ) | ||||||||||||||
SunTrust Banks, Inc. | Deutsche Bank AG | Call | USD | 51.75 | 5/20/16 | 878,800 | (538,467 | ) | ||||||||||||||
Teva Pharmaceutical Industries Ltd. | Deutsche Bank AG | Call | USD | 73.00 | 5/20/16 | 234,400 | (279,906 | ) | ||||||||||||||
Wells Fargo & Co. | Deutsche Bank AG | Call | USD | 66.00 | 5/20/16 | 878,771 | (488,500 | ) | ||||||||||||||
Russell 2000 Index | Bank of America N.A. | Put | USD | 1,115.00 | 8/21/15 | 48,629 | (281,764 | ) | ||||||||||||||
S&P 500 Index | Credit Suisse International | Put | USD | 1,900.00 | 8/31/15 | 15,516 | (221,103 | ) | ||||||||||||||
TOPIX Index | Bank of America N.A. | Put | JPY | 1,435.00 | 9/11/15 | 2,929,000 | (189,451 | ) | ||||||||||||||
Delta Air Lines Inc. | Morgan Stanley & Co. International PLC | Put | USD | 39.00 | 9/18/15 | 53,866 | (95,343 | ) | ||||||||||||||
Russell 2000 Index | Morgan Stanley & Co. International PLC | Put | USD | 1,170.00 | 9/18/15 | 25,694 | (517,734 | ) | ||||||||||||||
S&P 500 Index | Credit Suisse International | Put | USD | 1,900.00 | 9/18/15 | 29,302 | (676,876 | ) | ||||||||||||||
STOXX Europe 600 Index | Bank of America N.A. | Put | EUR | 368.48 | 9/18/15 | 79,826 | (825,353 | ) | ||||||||||||||
BlackRock MSJNJPTL Index | Morgan Stanley & Co. International PLC | Put | JPY | 137.22 | 12/11/15 | 5,339,563 | (173,840 | ) | ||||||||||||||
BlackRock MSJNJPTL Index | Morgan Stanley & Co. International PLC | Put | JPY | 128.68 | 12/11/15 | 20,706,138 | (508,257 | ) | ||||||||||||||
TOPIX Index | Bank of America N.A. | Put | JPY | 1,425.00 | 12/11/15 | 3,954,704 | (635,884 | ) | ||||||||||||||
TOPIX Index | Citibank N.A. | Put | JPY | 1,400.00 | 12/11/15 | 4,151,800 | (553,810 | ) | ||||||||||||||
TOPIX Index | Citibank N.A. | Put | JPY | 1,435.00 | 3/11/16 | 5,873,500 | (1,575,978 | ) | ||||||||||||||
Teva Pharmaceutical Industries Ltd. | Deutsche Bank AG | Put | USD | 55.00 | 5/20/16 | 234,400 | (844,398 | ) | ||||||||||||||
TOPIX Index | Citibank N.A. | Put | JPY | 1,475.00 | 6/10/16 | 1,877,951 | (874,383 | ) | ||||||||||||||
TOPIX Index | Citibank N.A. | Put | JPY | 1,500.00 | 6/10/16 | 1,877,951 | �� | (1,097,140 | ) | |||||||||||||
TOPIX Index | Morgan Stanley & Co. International PLC | Put | JPY | 1,450.00 | 6/10/16 | 1,994,633 | (812,071 | ) | ||||||||||||||
TAIEX Index | Citibank N.A. | Put | TWD | 8,691.29 | 9/21/16 | 93,402 | (1,579,423 | ) | ||||||||||||||
TAIEX Index | Citibank N.A. | Put | TWD | 8,100.70 | 9/21/16 | 101,800 | (1,026,317 | ) | ||||||||||||||
TAIEX Index | Goldman Sachs International | Put | TWD | 8,868.97 | 12/21/16 | 95,100 | (2,166,690 | ) | ||||||||||||||
Total | $ | (34,064,138 | ) | |||||||||||||||||||
|
|
• | As of June 30, 2015, OTC interest rate swaptions written were as follows: |
Description | Counterparty | Put/ Call | Exercise Rate | Pay/Receive Exercise Rate | Floating Rate Index | Expiration Date | Notional (000) | Value | ||||||||||||||||||||
5-Year Interest Rate Swap | Goldman Sachs International | Call | 1.65% | Pay | 3-month LIBOR | 9/14/15 | USD | 593,710 | $(1,835,959 | ) |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 21 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
• | As of June 30, 2015, centrally cleared credit default swaps — buy protection outstanding were as follows: |
Index | Pay Rate | Clearinghouse | Expiration Date | Notional Amount (000) | Unrealized Appreciation | |||||||||||
CDX.NA.HY Series 24 Version 2 | 5.00% | Chicago Mercantile | 6/20/20 | USD 10,357 | $32,833 |
• | As of June 30, 2015, centrally cleared credit default swaps — sold protection outstanding were as follows: |
Index | Receive Rate | Clearinghouse | Expiration Date | Credit Rating1 | Notional Amount (000)2 | Unrealized Depreciation | ||||||||||||||||
CDX.NA.IG Series 24 Version 1 | 1.00% | Chicago Mercantile | 6/20/20 | BBB+ | USD | 3,000 | $ (12,335 | ) | ||||||||||||||
iTraxx Crossover Series 23 Version 1 | 5.00% | InterContinental Exchange | 6/20/20 | B+ | EUR | 17,425 | (580,063 | ) | ||||||||||||||
Total | $(592,398 | ) | ||||||||||||||||||||
|
|
1 | Using S&P’s rating of the issuer or the underlying securities of the index, as applicable. |
2 | The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement. |
• | As of June 30, 2015, centrally cleared interest rate swaps outstanding were as follows: |
Fixed Rate | Floating Rate | Clearinghouse | Effective Date | Expiration Date | Notional Amount (000) | Unrealized Appreciation (Depreciation) | ||||||||||||
1.03%1 | 3-month LIBOR | Chicago Mercantile | N/A | 3/11/17 | USD | 286,410 | $(2,079,886 | ) | ||||||||||
1.08%1 | 3-month LIBOR | Chicago Mercantile | N/A | 4/07/17 | USD | 599,090 | (4,061,704 | ) | ||||||||||
3.48%2 | 3-month NZD Bank Bill Rate | Chicago Mercantile | N/A | 2/05/20 | NZD | 17,779 | 65,897 | |||||||||||
3.60%2 | 3-month NZD Bank Bill Rate | Chicago Mercantile | N/A | 2/09/20 | NZD | 35,657 | 411,345 | |||||||||||
3.59%2 | 3-month NZD Bank Bill Rate | Chicago Mercantile | N/A | 2/09/20 | NZD | 30,421 | 381,926 | |||||||||||
1.88%2 | 3-month LIBOR | Chicago Mercantile | N/A | 3/11/20 | USD | 117,910 | 1,652,394 | |||||||||||
2.89%2 | 6-month Australian Bank Bill Rate | Chicago Mercantile | N/A | 6/11/20 | AUD | 14,677 | 78,313 | |||||||||||
2.22%2 | 3-month LIBOR | Chicago Mercantile | N/A | 4/07/25 | USD | 129,900 | (1,762,624 | ) | ||||||||||
3.12%2 | 3-month LIBOR | Chicago Mercantile | 6/05/203 | 6/05/25 | USD | 118,880 | (417,327 | ) | ||||||||||
Total | $(5,731,666 | ) | ||||||||||||||||
|
|
1 | Fund pays the fixed rate and receives the floating rate. |
2 | Fund pays the floating rate and receives the fixed rate. |
3 | Forward swap. |
• | As of June 30, 2015, OTC interest rate swaps outstanding were as follows: |
Fixed Rate | Floating Rate | Counterparty | Expiration Date |
| Notional Amount (000) |
| Value | | Premiums Paid (Received) | | | Unrealized Depreciation | | |||||||||||||
2.06%1 | 6-month WIBOR | Deutsche Bank AG | 3/17/20 | PLN | 36,129 | $(167,831 | ) | — | $(167,831 | ) | ||||||||||||||||
2.05%1 | 6-month WIBOR | Deutsche Bank AG | 3/19/20 | PLN | 12,043 | (57,144 | ) | — | (57,144 | ) | ||||||||||||||||
Total | $(224,975 | ) | — | $(224,975 | ) | |||||||||||||||||||||
|
|
1 | Fund pays the floating rate and receives the fixed rate. |
• | As of June 30, 2015, OTC cross-currency swaps outstanding were as follows: |
Notional Amount (000) | ||||||||||||||||||||||
Fund Pays | Fund Receives | Fund Pays | Fund Receives | Counterparty | Expiration Date | Value | | Premiums Paid (Received) | | | Unrealized Appreciation | | ||||||||||
0.10% | 1.23% | JPY 2,383,000 | USD 19,803 | Bank of America N.A. | 3/15/2017 | $687,174 | — | $687,174 |
See Notes to Consolidated Financial Statements.
22 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
• | As of June 30, 2015, OTC total return swaps outstanding were as follows: |
Reference Entity | Fixed Amount/ Floating Rate | Counterparty | Expiration Date | Contract Amount | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||||
Siloam International Hospitals | 1-month LIBOR plus 0.50%1 | Credit Suisse International | 2/08/16 | USD 2,973,400 | $ 104,721 | — | $ 104,721 | |||||||||||||
SGX Nikkei Stock Average Dividend Point Index Future December 2015 | JPY 503,285,0002 | BNP Paribas S.A. | 3/31/16 | JPY 191 | 1,051,877 | — | 1,051,877 | |||||||||||||
SGX Nikkei Stock Average Dividend Point Index Future December 2015 | JPY 517,240,0002 | BNP Paribas S.A. | 3/31/16 | JPY 193 | 991,927 | — | 991,927 | |||||||||||||
SGX Nikkei Stock Average Dividend Point Index Future December 2016 | JPY 506,870,0002 | BNP Paribas S.A. | 3/31/17 | JPY 182 | 1,670,025 | — | 1,670,025 | |||||||||||||
SGX Nikkei Stock Average Dividend Point Index Future December 2016 | JPY 515,970,0002 | BNP Paribas S.A. | 3/31/17 | JPY 182 | 1,595,669 | — | 1,595,669 | |||||||||||||
EURO STOXX 50 Dividend Futures December 2017 | EUR 5,355,9802 | BNP Paribas S.A. | 12/15/17 | EUR 469 | (47,058 | ) | — | (47,058 | ) | |||||||||||
EURO STOXX 50 Dividend Futures December 2017 | EUR 5,360,1902 | BNP Paribas S.A. | 12/15/17 | EUR 465 | (102,276 | ) | — | (102,276 | ) | |||||||||||
EURO STOXX 50 Dividend Futures December 2018 | EUR 2,618,4602 | BNP Paribas S.A. | 12/21/18 | EUR 234 | (54,784 | ) | — | (54,784 | ) | |||||||||||
EURO STOXX 50 Dividend Futures December 2018 | EUR 2,892,8002 | BNP Paribas S.A. | 12/21/18 | EUR 256 | (91,329 | ) | — | (91,329 | ) | |||||||||||
EURO STOXX 50 Dividend Futures December 2018 | EUR 5,310,6302 | BNP Paribas S.A. | 12/21/18 | EUR 468 | (191,743 | ) | — | (191,743 | ) | |||||||||||
Total | $4,927,029 | — | $4,927,029 | |||||||||||||||||
|
|
1 | Fund receives the total return of the reference entity and pays the floating rate. |
2 | Fund receives the total return of the reference entity and pays the fixed amount. Net payment made at termination. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 23 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
As of June 30, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Long-Term Investments: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Australia | — | $ | 18,424,373 | — | $ | 18,424,373 | ||||||||||
Belgium | $ | 3,070,681 | 995,699 | — | 4,066,380 | |||||||||||
Brazil | 37,899,586 | — | — | 37,899,586 | ||||||||||||
Canada | 161,332,167 | — | — | 161,332,167 | ||||||||||||
China | 28,748,377 | 53,070,330 | — | 81,818,707 | ||||||||||||
Cyprus | 1,876,821 | — | — | 1,876,821 | ||||||||||||
Denmark | — | 6,752,843 | — | 6,752,843 | ||||||||||||
Egypt | 2,300,600 | — | — | 2,300,600 | ||||||||||||
France | 31,367,811 | 246,498,039 | — | 277,865,850 | ||||||||||||
Germany | — | 130,787,614 | — | 130,787,614 | ||||||||||||
Hong Kong | — | 84,212,509 | — | 84,212,509 | ||||||||||||
India | — | 33,483,689 | — | 33,483,689 | ||||||||||||
Indonesia | 6,226,058 | — | — | 6,226,058 | ||||||||||||
Ireland | 17,635,842 | 22,492,673 | — | 40,128,515 | ||||||||||||
Israel | 100,232,306 | — | — | 100,232,306 | ||||||||||||
Italy | 24,823,745 | 42,294,810 | — | 67,118,555 | ||||||||||||
Japan | — | 1,126,613,019 | — | 1,126,613,019 | ||||||||||||
Kazakhstan | 4,193,367 | — | — | 4,193,367 | ||||||||||||
Malaysia | — | 23,899,304 | — | 23,899,304 | ||||||||||||
Mexico | 33,305,356 | — | — | 33,305,356 | ||||||||||||
Netherlands | 29,714,763 | 94,573,274 | — | 124,288,037 | ||||||||||||
Norway | — | 39,984,980 | — | 39,984,980 | ||||||||||||
Portugal | — | 6,830,116 | — | 6,830,116 | ||||||||||||
Singapore | 6,459,007 | 74,267,790 | — | 80,726,797 | ||||||||||||
South Africa | — | 3,670,453 | — | 3,670,453 | ||||||||||||
South Korea | — | 61,701,835 | — | 61,701,835 | ||||||||||||
Spain | 19,855,974 | 1,878,428 | — | 21,734,402 | ||||||||||||
Sweden | — | 26,252,979 | — | 26,252,979 | ||||||||||||
Switzerland | 1,232,888 | 179,488,168 | — | 180,721,056 | ||||||||||||
Taiwan | — | 26,742,062 | — | 26,742,062 | ||||||||||||
Thailand | 13,615,485 | — | — | 13,615,485 | ||||||||||||
United Arab Emirates | 19,309,548 | — | — | 19,309,548 | ||||||||||||
United Kingdom | 67,265,437 | 290,202,379 | $ | 8,948,177 | 366,415,993 | |||||||||||
United States | 3,348,541,326 | 10,359,758 | 955,944 | 3,359,857,028 | ||||||||||||
Corporate Bonds | — | 680,772,595 | 63,660,516 | 744,433,111 | ||||||||||||
Credit Linked Notes | — | 36,999,604 | — | 36,999,604 | ||||||||||||
Floating Rate Loan Interests | — | 138,904,330 | 32,894,677 | 171,799,007 | ||||||||||||
Foreign Agency Obligations | — | 100,111,553 | — | 100,111,553 | ||||||||||||
Foreign Government Obligations | — | 674,282,195 | — | 674,282,195 | ||||||||||||
Investment Companies | 91,771,586 | — | — | 91,771,586 | ||||||||||||
Preferred Securities | 156,312,317 | 187,481,588 | 116,157,731 | 459,951,636 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 41,471,710 | — | 41,471,710 | ||||||||||||
U.S. Treasury Obligations | — | 420,765,213 | — | 420,765,213 | ||||||||||||
Warrants | — | 1,309,388 | 211,192 | 1,520,580 | ||||||||||||
Short-Term Securities: | ||||||||||||||||
Foreign Agency Obligations | — | 483,209,893 | — | 483,209,893 | ||||||||||||
Money Market Funds | — | 376,445,470 | — | 376,445,470 | ||||||||||||
Time Deposits | — | 21,451,290 | — | 21,451,290 | ||||||||||||
U.S. Treasury Obligations | — | 2,116,495,973 | — | 2,116,495,973 | ||||||||||||
Options Purchased: | ||||||||||||||||
Equity Contracts | 58,313 | 127,542,849 | — | 127,601,162 | ||||||||||||
Interest Rate Contracts | — | 6,241,148 | — | 6,241,148 |
See Notes to Consolidated Financial Statements.
24 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (continued) | BlackRock Global Allocation V.I. Fund |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: | ||||||||||||||||
Investments: | ||||||||||||||||
Investments Sold Short | $ | (4,745,494 | ) | — | — | $ | (4,745,494 | ) | ||||||||
|
| |||||||||||||||
Total | $ | 4,202,403,867 | $ | 8,018,961,923 | $ | 222,828,237 | $ | 12,444,194,027 | ||||||||
|
| |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Derivative Financial Instruments1 | ||||||||||||||||
Assets: | ||||||||||||||||
Credit contracts | — | $ | 32,833 | — | $ | 32,833 | ||||||||||
Equity contracts | $ | 12,373,993 | 5,414,219 | — | 17,788,212 | |||||||||||
Foreign currency exchange contracts | — | 26,734,279 | — | 26,734,279 | ||||||||||||
Interest rate contracts | — | 3,277,049 | — | 3,277,049 | ||||||||||||
Liabilities: | ||||||||||||||||
Credit contracts | — | (592,398 | ) | — | (592,398 | ) | ||||||||||
Equity contracts | (6,507,366 | ) | (39,256,633 | ) | — | (45,763,999 | ) | |||||||||
Foreign currency exchange contracts | — | (7,808,726 | ) | — | (7,808,726 | ) | ||||||||||
Interest rate contracts | — | (10,382,475 | ) | — | (10,382,475 | ) | ||||||||||
|
| |||||||||||||||
Total | $ | 5,866,627 | $ | (22,581,852 | ) | — | $ | (16,715,225 | ) | |||||||
|
| |||||||||||||||
1 Derivative financial instruments are swaps, financial futures contracts, forward foreign currency exchange contracts and options written. Swaps, financial futures contracts and forward foreign currency exchange contracts are valued at the unrealized appreciation (depreciation) on the instrument and options written are shown at value. |
| |||||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:
|
| |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash held for securities sold short | $ | 5,106,381 | — | — | $ | 5,106,381 | ||||||||||
Foreign currency at value | 1,264,574 | — | — | 1,264,574 | ||||||||||||
Cash pledged for centrally cleared swaps | 10,152,510 | — | — | 10,152,510 | ||||||||||||
Liabilities: | ||||||||||||||||
Bank overdraft | — | $ | (8,401,955 | ) | — | (8,401,955 | ) | |||||||||
Cash received as collateral for OTC derivatives | — | (105,031,000 | ) | — | (105,031,000 | ) | ||||||||||
Collateral on securities loaned at value | — | (376,445,470 | ) | — | (376,445,470 | ) | ||||||||||
|
| |||||||||||||||
Total | $ | 16,523,465 | $ | (489,878,425 | ) | — | $ | (473,354,960 | ) | |||||||
|
| |||||||||||||||
During the six months ended June 30, 2015, there were no transfers between Level 1 and Level 2. | ||||||||||||||||
A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value: |
Common Stocks | Corporate Bonds | Floating Rate Loan Interests | Preferred Securities | Warrants | Total | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Opening balance, as of December 31, 2014 | $ | 7,700,343 | $ | 34,639,181 | $ | 18,662,752 | $ | 96,297,850 | — | $ | 157,300,126 | |||||||||||||
Transfers into Level 3 | 1,082,619 | 4,893,556 | — | — | $ | 388,408 | 6,364,583 | |||||||||||||||||
Transfers out of Level 3 | — | (10,895,810 | ) | (11,303,394 | ) | (5,793,266 | ) | — | (27,992,470 | ) | ||||||||||||||
Accrued discounts/premiums | — | 57,706 | 6,460 | — | — | 64,166 | ||||||||||||||||||
Net realized gain (loss) | — | 3,088 | 1,834 | — | 54,391 | 59,313 | ||||||||||||||||||
Net change in unrealized appreciation (depreciation)1,2 | 184,990 | (3,272,654 | ) | 829,133 | 4,882,463 | (177,216 | ) | 2,446,716 | ||||||||||||||||
Purchases | 936,169 | 38,290,579 | 26,187,355 | 20,770,684 | — | 86,184,787 | ||||||||||||||||||
Sales | — | (55,130 | ) | (1,489,463 | ) | — | (54,391 | ) | (1,598,984 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Closing balance, as of June 30, 2015 | $ | 9,904,121 | $ | 63,660,516 | $ | 32,894,677 | $ | 116,157,731 | $ | 211,192 | $ | 222,828,237 | ||||||||||||
|
| |||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) on investments still held at June 30, 20152 | $ | 184,990 | $ | (3,272,654 | ) | $ | 829,133 | $ | 4,882,463 | $ | (177,216 | ) | $ | 2,446,716 | ||||||||||
|
|
1 | Included in the related net change in unrealized appreciation (depreciation) in the Consolidated Statement of Operations. |
2 | Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at June 30, 2015 is generally due to investments no longer held or categorized as Level 3 at period end. |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 25 |
Consolidated Schedule of Investments (concluded) | BlackRock Global Allocation V.I. Fund |
The Fund’s investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value of such Level 3 investments.
The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (“Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of June 30, 2015. The table does not include Level 3 investments with values based upon unadjusted third party pricing information in the amount of $39,404,848.
Value | Valuation Techniques | Unobservable Inputs | Range of Unobservable Inputs Utilized | |||||||||
Assets: | ||||||||||||
Common Stocks | $ | 7,701,687 | Market Comparable Companies | Run Rate EBITDA Multiple1 | 21.50x | |||||||
955,944 | Probability-Weighted Expected Return Model | Revenue Growth Rate2 | 74.70% | |||||||||
Discount Rate2 | 20.00% | |||||||||||
IPO Exit Probability1 | 65% | |||||||||||
Projected Revenue Multiple2 | 12.50x-22.50x | |||||||||||
Years to IPO2 | 0-2 | |||||||||||
Preferred Stocks3 | 61,942,654 | Market Comparable Companies | Compounded Annual Net Revenue Growth Rate1 | 84.50% | ||||||||
Current Year Revenue Multiple1 | 26.05x | |||||||||||
Net Revenue Growth Rate1 | 372.80% | |||||||||||
Next Fiscal Year Revenue Multiple1 | 17.50x | |||||||||||
22,206,687 | Market Comparable Companies | Revenue Multiple1 | 7.5x | |||||||||
Compounded Annual Net Revenue Growth Rate1 | 51.86% | |||||||||||
6,009,393 | Probability-Weighted Expected Return Model | Revenue Growth Rate2 | 55.77% | |||||||||
Discount Rate2 | 25.00% | |||||||||||
IPO Exit Probability1 | 75.00% | |||||||||||
Revenue Multiple1 | 17.0x-27.0x | |||||||||||
Years to IPO2 | 1-2 | |||||||||||
25,998,997 | Probability-Weighted Expected Return Model | Discount Rate2 | 20.00% | |||||||||
IPO Exit Probability1 | 65.00% - 85.00%4 | |||||||||||
Projected Revenue Multiple1 | 7.85x - 22.50x4 | |||||||||||
Revenue Growth Rate2 | 74.70% - 159.16%4 | |||||||||||
Years to IPO2 | 0-2 | |||||||||||
Corporate Bonds | 9,824,740 | Discounted Cash Flow | Discount Rate2 | 15.00% | ||||||||
48,000 | Last Dealer Mark - Stale | N/A | — | |||||||||
12,407,645 | Market Comparable Companies | Run Rate EBITDA Multiple1 | 21.50x | |||||||||
36,243,000 | Market Comparable Companies | Current Fiscal Year Revenue Multiple1 | 1.82x | |||||||||
Option Pricing Model | Risk Free Rate2 | 0.64% | ||||||||||
Volatility1 | 51.00% | |||||||||||
Years to IPO2 | 1-2 | |||||||||||
84,642 | Recovery Value | Recovery Rate1 | — | |||||||||
|
| |||||||||||
Total | $ | 183,423,389 | ||||||||||
|
|
1 | Increase in unobservable input may result in a significant increase to value, while a decrease in unobservable input may result in a significant decrease to value. |
2 | Decrease in unobservable input may result in a significant increase to value, while an increase in unobservable input may result in a significant decrease to value. |
3 | For the period ended June 30, 2015, the valuation technique for certain investments classified as preferred stocks changed to a market comparable companies technique. The investments were previously valued utilizing a Probability-Weighted Expected Return Model. Market approach information is the primary measure of fair value for these investments. |
4 | The weighted average of unobservable inputs are as follows: 76.41% for IPO Exit Probability, 14.32x for Projected Revenue Multiple, and 122.88% for Revenue Growth Rate. |
See Notes to Consolidated Financial Statements.
26 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Global Allocation V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $352,405,586) (cost — $11,721,990,812) | $ | 12,048,702,312 | ||
Investments at value — affiliated (cost — $405,448,919) | 400,237,209 | |||
Cash held for investments sold short | 5,106,381 | |||
Cash pledged: | ||||
Centrally cleared swaps | 10,152,510 | |||
Foreign currency at value (cost — $1,234,444) | 1,264,574 | |||
Receivables: | ||||
Investments sold | 36,875,045 | |||
Options written | 142,013 | |||
Securities lending income — affiliated | 197,100 | |||
Capital shares sold | 3,219,942 | |||
Dividends — affiliated | 354 | |||
Dividends — unaffiliated | 10,804,301 | |||
Interest | 21,849,845 | |||
From the Manager | 2,173,705 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 26,734,279 | |||
Unrealized appreciation on OTC swaps | 6,101,393 | |||
Variation margin receivable on financial futures contracts | 182,826 | |||
Prepaid expenses | 46,413 | |||
|
| |||
Total assets | 12,573,790,202 | |||
|
| |||
Liabilities | ||||
Investments sold short at value (proceeds — $5,224,167) | 4,745,494 | |||
Bank overdraft | 8,401,955 | |||
Cash received: collateral — OTC derivatives | 105,031,000 | |||
Collateral on securities loaned at value | 376,445,470 | |||
Options written at value (premiums received — $50,017,392) | 41,114,547 | |||
Payables: | ||||
Investments purchased | 246,089,709 | |||
Capital shares redeemed | 8,342,596 | |||
Deferred foreign capital gain tax | 342,319 | |||
Distribution fees | 2,030,052 | |||
Dividends on short sales | 16,530 | |||
Investment advisory fees | 6,077,746 | |||
Officer’s and Directors’ fees | 31,401 | |||
Other affiliates payable | 63,253 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 7,808,726 | |||
Unrealized depreciation on OTC swaps | 712,165 | |||
Variation margin payable on financial futures contracts | 3,952,921 | |||
Variation margin payable on centrally cleared swaps | 2,678,469 | |||
Other accrued expenses payable | 8,355,535 | |||
|
| |||
Total liabilities | 822,239,888 | |||
|
| |||
Net Assets | $ | 11,751,550,314 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 10,881,640,056 | ||
Undistributed net investment income | 38,602,430 | |||
Undistributed net realized gain | 474,713,411 | |||
Net unrealized appreciation (depreciation) | 356,594,417 | |||
|
| |||
Net Assets | $ | 11,751,550,314 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $1,933,923,450 and 115,660,888 shares outstanding, 200 million shares authorized, $0.10 par value | $ | 16.72 | ||
|
| |||
Class II — Based on net assets of $269,868,937 and 16,201,988 shares outstanding, 200 million shares authorized, $0.10 par value | $ | 16.66 | ||
|
| |||
Class III — Based on net assets of $9,547,757,927 and 655,115,157 shares outstanding, 1.5 billion shares authorized, $0.10 par value | $ | 14.57 | ||
|
|
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 27 |
Consolidated Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Global Allocation V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 82,281,799 | ||
Dividends — affiliated | 3,395 | |||
Interest | 50,599,269 | |||
Securities lending — affiliated — net | 1,160,415 | |||
Foreign taxes withheld | (4,924,554 | ) | ||
|
| |||
Total income | 129,120,324 | |||
|
| |||
Expenses | ||||
Investment advisory | 36,509,964 | |||
Distribution — Class II | 197,614 | |||
Distribution — Class III | 12,089,560 | |||
Transfer agent — Class I | 766,701 | |||
Transfer agent — Class II | 255,511 | |||
Transfer agent — Class III | 9,867,225 | |||
Custodian | 818,476 | |||
Printing | 313,793 | |||
Accounting services | 313,242 | |||
Professional | 250,842 | |||
Officer and Directors | 86,790 | |||
Miscellaneous | 151,596 | |||
|
| |||
Total expenses excluding dividend expense | 61,621,314 | |||
Dividend expense | 248,661 | |||
|
| |||
Total expenses | 61,869,975 | |||
Less fees waived by the Manager | (3,028 | ) | ||
Less transfer agent fees reimbursed — Class I | (125,711 | ) | ||
Less transfer agent fees reimbursed — Class II | (163,291 | ) | ||
Less transfer agent fees reimbursed — Class III | (6,482,148 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 55,095,797 | |||
|
| |||
Net investment income | 74,024,527 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments — unaffiliated | 278,292,181 | |||
Financial futures contracts | (4,115,611 | ) | ||
Foreign currency transactions | 101,666,991 | |||
Options written | 12,363,923 | |||
Short sales | (2,489,129 | ) | ||
Swaps | 5,514,907 | |||
|
| |||
391,233,262 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments — unaffiliated (net of $342,319 foreign capital gain tax) | (142,550,803 | ) | ||
Investments — affiliated | (209,804 | ) | ||
Financial futures contracts | 9,753,396 | |||
Foreign currency translations | (38,222,882 | ) | ||
Options written | 28,621,837 | |||
Short sales | 764,745 | |||
Swaps | (10,528,408 | ) | ||
|
| |||
(152,371,919 | ) | |||
|
| |||
Net realized and unrealized gain | 238,861,343 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 312,885,870 | ||
|
|
See Notes to Consolidated Financial Statements.
28 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Statements of Changes in Net Assets | BlackRock Global Allocation V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 74,024,527 | $ | 165,797,545 | ||||
Net realized gain | 391,233,262 | 1,348,289,098 | ||||||
Net change in unrealized appreciation (depreciation) | (152,371,919 | ) | (1,258,443,524 | ) | ||||
|
| |||||||
Net increase in net assets resulting from operations | 312,885,870 | 255,643,119 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | — | (37,672,306 | ) | |||||
Class II | — | (5,395,555 | ) | |||||
Class III | — | (219,960,131 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (128,974,122 | ) | |||||
Class II | — | (19,995,761 | ) | |||||
Class III | — | (851,312,279 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (1,263,310,154 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets derived from capital share transactions | (310,556,501 | ) | 100,037,722 | |||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | 2,329,369 | (907,629,313 | ) | |||||
Beginning of period | 11,749,220,945 | 12,656,850,258 | ||||||
|
| |||||||
End of period | $ | 11,751,550,314 | $ | 11,749,220,945 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income, end of period | $ | 38,602,430 | $ | (35,422,097 | ) | |||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 29 |
Consolidated Financial Highlights | BlackRock Global Allocation V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.26 | $ | 17.61 | $ | 16.10 | $ | 14.87 | $ | 16.15 | $ | 14.92 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.12 | 0.29 | 0.22 | 0.26 | 0.28 | 0.26 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.34 | 0.12 | 2.14 | 1.27 | (0.84 | ) | 1.24 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.46 | 0.41 | 2.36 | 1.53 | (0.56 | ) | 1.50 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.39 | ) | (0.20 | ) | (0.25 | ) | (0.36 | ) | (0.19 | ) | |||||||||||||
Net realized gain | — | (1.37 | ) | (0.65 | ) | (0.05 | ) | (0.36 | ) | (0.08 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (1.76 | ) | (0.85 | ) | (0.30 | ) | (0.72 | ) | (0.27 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 16.72 | $ | 16.26 | $ | 17.61 | $ | 16.10 | $ | 14.87 | $ | 16.15 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 2.83 | %4 | 2.30 | % | 14.76 | % | 10.28 | % | (3.49 | )% | 10.05 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.74 | %5 | 0.74 | % | 0.72 | % | 0.74 | % | 0.69 | % | 0.71 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.73 | %5 | 0.72 | % | 0.72 | % | 0.74 | % | 0.69 | % | 0.71 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed and excluding dividend expense, interest expense and stock loan fees | 0.72 | %5 | 0.72 | % | 0.72 | % | 0.74 | % | 0.69 | % | 0.71 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.47 | %5 | 1.64 | % | 1.26 | % | 1.66 | % | 1.75 | % | 1.75 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 1,933,923 | $ | 1,708,903 | $ | 2,426,154 | $ | 1,868,059 | $ | 1,737,294 | $ | 1,403,484 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate6 | 47 | % | 72 | % | 53 | % | 49 | % | 31 | % | 28 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
6 | Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover is as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Portfolio turnover rate (excluding MDRs) | 45 | % | 72 | % | 53 | % | 49 | % | 31 | % | 28 | % |
See Notes to Consolidated Financial Statements.
30 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Financial Highlights (continued) | BlackRock Global Allocation V.I. Fund |
Class II | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.21 | $ | 17.56 | $ | 16.07 | $ | 14.85 | $ | 16.13 | $ | 14.91 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.11 | 0.25 | 0.19 | 0.23 | 0.26 | 0.24 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.34 | 0.14 | 2.14 | 1.28 | (0.84 | ) | 1.23 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.45 | 0.39 | 2.33 | 1.51 | (0.58 | ) | 1.47 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.37 | ) | (0.19 | ) | (0.24 | ) | (0.34 | ) | (0.17 | ) | |||||||||||||
Net realized gain | — | (1.37 | ) | (0.65 | ) | (0.05 | ) | (0.36 | ) | (0.08 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (1.74 | ) | (0.84 | ) | (0.29 | ) | (0.70 | ) | (0.25 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 16.66 | $ | 16.21 | $ | 17.56 | $ | 16.07 | $ | 14.85 | $ | 16.13 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 2.78 | %4 | 2.16 | % | 14.55 | % | 10.14 | % | (3.63 | )% | 9.88 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.00 | %5 | 1.01 | % | 1.00 | % | 0.98 | % | 0.84 | % | 0.86 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.88 | %5 | 0.88 | % | 0.87 | % | 0.90 | % | 0.84 | % | 0.86 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed and excluding dividend expense, interest expense and stock loan fees | 0.87 | %5 | 0.87 | % | 0.87 | % | 0.90 | % | 0.84 | % | 0.86 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.32 | %5 | 1.39 | % | 1.07 | % | 1.43 | % | 1.60 | % | 1.60 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 269,869 | $ | 260,312 | $ | 216,395 | $ | 80,236 | $ | 25,768 | $ | 19,019 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate6 | 47 | % | 72 | % | 53 | % | 49 | % | 31 | % | 28 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
6 | Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover is as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Portfolio turnover rate (excluding MDRs) | 45 | % | 72 | % | 53 | % | 49 | % | 31 | % | 28 | % |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 31 |
Consolidated Financial Highlights (concluded) | BlackRock Global Allocation V.I. Fund |
Class III | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.19 | $ | 15.58 | $ | 14.34 | $ | 13.28 | $ | 14.49 | $ | 13.42 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.09 | 0.21 | 0.16 | 0.20 | 0.22 | 0.20 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.29 | 0.12 | 1.89 | 1.12 | (0.74 | ) | 1.10 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.38 | 0.33 | 2.05 | 1.32 | (0.52 | ) | 1.30 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.35 | ) | (0.16 | ) | (0.21 | ) | (0.33 | ) | (0.15 | ) | |||||||||||||
Net realized gain | — | (1.37 | ) | (0.65 | ) | (0.05 | ) | (0.36 | ) | (0.08 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (1.72 | ) | (0.81 | ) | (0.26 | ) | (0.69 | ) | (0.23 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 14.57 | $ | 14.19 | $ | 15.58 | $ | 14.34 | $ | 13.28 | $ | 14.49 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 2.68 | %4 | 2.08 | % | 14.42 | % | 9.97 | % | (3.64 | )% | 9.76 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.11 | %5 | 1.11 | % | 1.11 | % | 1.07 | % | 0.94 | % | 0.96 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.98 | %5 | 0.98 | % | 0.97 | % | 0.99 | % | 0.94 | % | 0.96 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed and excluding dividend expense, interest expense and stock loan fees | 0.97 | %5 | 0.97 | % | 0.97 | % | 0.99 | % | 0.94 | % | 0.96 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.22 | %5 | 1.32 | % | 1.02 | % | 1.41 | % | 1.50 | % | 1.50 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 9,547,758 | $ | 9,780,007 | $ | 10,014,301 | $ | 8,702,140 | $ | 7,704,593 | $ | 6,483,920 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate6 | 47 | % | 72 | % | 53 | % | 49 | % | 31 | % | 28 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
6 | Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover is as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Portfolio turnover rate (excluding MDRs) | 45 | % | 72 | % | 53 | % | 49 | % | 31 | % | 28 | % |
See Notes to Consolidated Financial Statements.
32 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (Unaudited) | BlackRock Global Allocation V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The consolidated financial statements presented are for BlackRock Global Allocation V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I, Class II and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class II and Class III Shares bear certain expenses related to the distribution of such shares.
Basis of Consolidation: The accompanying consolidated financial statements of the Fund include the accounts of BlackRock Cayman Global Allocation V.I. Fund I, Ltd. (the “Subsidiary”), which is a wholly owned subsidiary of the Fund and primarily invests in commodity-related instruments. The Subsidiary enables the Fund to hold these commodity-related instruments and satisfy regulated investment company tax requirements. The Fund may invest up to 25% of its total assets in the Subsidiary. The net assets of the Subsidiary at June 30, 2015 were $126,971,257 and 1.1% of the Fund’s consolidated net assets. Intercompany accounts and transactions, if any, have been eliminated. The Subsidiary is subject to the same investment policies and restrictions that apply to the Fund, except that the Subsidiary may invest without limitation in commodity-related instruments.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Bond investments are valued on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. Financial futures contracts traded on exchanges are valued at their last sale price. To-be-announced (“TBA”) commitments are valued on the basis of last available bid prices or current market quotations provided by pricing services. Credit-Linked Notes are valued utilizing quotes received daily by the Fund’s pricing service or through brokers. The Fund’s pricing service utilizes daily credit curves and valuation models that incorporate a number of market data factors, such as the performance of reference entities, trades and price of the underlying reference instruments. Swap agreements are valued utilizing quotes received daily by the Fund’s pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Certain centrally cleared swaps are valued at the price determined by the relevant exchange or clearinghouse. Investments in open-end registered investment companies are valued at net asset value each business day.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 33 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options and options on swaps (“swaptions”) are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.
The Fund values its investments in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Fund’s pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and OTC options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Consolidated Statement of Operations from the effects of changes in market prices of those investments but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., financial futures contracts, forward foreign currency exchange contracts, options written, swaps and short sales), that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
34 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
In-Kind Redemptions: The Fund transferred securities and cash to shareholders in connection with a in-kind redemption transaction. For purposes of U.S. GAAP, these transactions were treated as a sale of securities and the resulting gains and losses were recognized based on the market value of the securities on the date of the transfer. For the year ended December 31, 2014, the Fund had in-kind redemptions of $1,316,304,749. For tax purposes, no gains or losses were recognized. Gains and losses resulting from such in-kind redemptions, which are included in the Consolidated Statement of Operations, were as follows:
Investments — unaffiliated | $263,409,296 | |||
Options written | 1,269,179 | |||
Short Sales | (68,595 | ) | ||
|
| |||
Total | $264,609,880 | |||
|
|
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Net income and realized gains from investments held by the Subsidiary are treated as ordinary income for tax purposes. Accordingly, the net investment income (loss) and realized gains (losses) reported in the Fund’s financial statements presented under U.S. GAAP for such investments held by the Subsidiary may differ significantly from distributions. As such, any net gain will pass through to the Fund as ordinary income for federal income tax purposes. If a net loss is realized by the Subsidiary in any taxable year, the loss will generally not be available to offset the Fund’s ordinary income and/or capital gains for that year.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Consolidated Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Asset-Backed and Mortgage-Backed Securities: The Fund may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. In addition, the Fund may subsequently have to reinvest the proceeds at lower interest rates. If the Fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 35 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
The Fund may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury.
Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Multiple Class Pass-Through Securities: The Fund may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities. These multiple class securities may be issued by Ginnie Mae, U.S. Government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated pre-payments of principal, the Fund may not fully recoup its initial investment in IOs.
Zero-Coupon Bonds: The Fund may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.
Capital Trusts and Trust Preferred Securities: The Fund may invest in capital trusts and/or trust preferred securities. These securities are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. For trust preferred securities, the issuing bank or corporation will pay interest to the trust, which will then be distributed to holders of the trust preferred securities as a dividend. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for federal income tax purposes. These securities generally are rated below that of the issuing company’s senior debt securities and are freely callable at the issuer’s option.
Preferred Stock: The Fund may invest in preferred stock. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
36 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
Floating Rate Loan Interests: The Fund may invest in floating rate loan interests. The floating rate loan interests held by the Fund are typically issued to companies (the “borrower”) by banks, other financial institutions, and privately and publicly offered corporations (the ��lender”). Floating rate loan interests are generally non-investment grade, often involve borrowers whose financial condition is troubled or uncertain and companies that are highly leveraged. The Fund may invest in obligations of borrowers who are in bankruptcy proceedings. Floating rate loan interests may include fully funded term loans or revolving lines of credit. Floating rate loan interests are typically senior in the corporate capital structure of the borrower. Floating rate loan interests generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally the lending rate offered by one or more European banks, such as the London Interbank Offered Rate (“LIBOR”), the prime rate offered by one or more U.S. banks or the certificate of deposit rate. Floating rate loan interests may involve foreign borrowers, and investments may be denominated in foreign currencies. The Fund considers these investments to be investments in debt securities for purposes of its investment policies.
When the Fund purchases a floating rate loan interest it may receive a facility fee and when it sells a floating rate loan interest it may pay a facility fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit amount of a floating rate loan interest. Facility and commitment fees are typically amortized to income over the term of the loan or term of the commitment, respectively. Consent and amendment fees are recorded to income as earned. Prepayment penalty fees, which may be received by the Fund upon the prepayment of a floating rate loan interest by a borrower, are recorded as realized gains. The Fund may invest in multiple series or tranches of a loan. A different series or tranche may have varying terms and carry different associated risks.
Floating rate loan interests are usually freely callable at the borrower’s option. The Fund may invest in such loans in the form of participations in loans (“Participations”) or assignments (“Assignments”) of all or a portion of loans from third parties. Participations typically will result in the Fund having a contractual relationship only with the lender, not with the borrower. The Fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the Participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of offset against the borrower, and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the Participation. As a result, the Fund will assume the credit risk of both the borrower and the lender that is selling the Participation. The Fund’s investment in loan participation interests involves the risk of insolvency of the financial intermediaries who are parties to the transactions. In the event of the insolvency of the lender selling the Participation, the Fund may be treated as a general creditor of the lender and may not benefit from any offset between the lender and the borrower. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement.
Mortgage Dollar Roll Transactions: The Fund may sell TBA mortgage-backed securities and simultaneously contract to repurchase substantially similar (i.e., same type, coupon and maturity) securities on a specific future date at an agreed upon price. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. The Fund accounts for mortgage dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions may increase the Fund’s portfolio turnover rate. Mortgage dollar rolls involve the risk that the market value of the securities that the Fund is required to purchase may decline below the agreed upon repurchase price of those securities.
Short Sales: The Fund may enter into short sale transactions in which the Fund sells a security it does not hold in anticipation of a decline in the market price of that security. When the Fund makes a short sale, it will borrow the security sold short from a broker/counterparty and deliver the security to the purchaser. To close out a short position, the Funds delivers the same security to the broker and records a liability to reflect the obligation to return the security to the broker. The amount of the liability is subsequently marked-to-market to reflect the market value of the short sale. The Fund maintains a segregated account of securities or deposits cash with the broker-dealer as collateral for the short sales. Cash deposited with the broker is recorded as an asset in the Consolidated Statements of Assets and Liabilities. Securities segregated as collateral are denoted in the Consolidated Schedules of Investments. The Fund may pay a financing fee for the difference between the market value of the short position and the cash collateral deposited with the broker which would be recorded as interest expense. The Fund is required to repay the counterparty any dividends received on the security sold short, which is shown as dividend expense in the Consolidated Statement of Operations. The Fund may pay a fee on the assets borrowed from the counterparty, which is shown as stock loan fees in the Consolidated Statement of Operations. The Fund is exposed to market risk based on the amount, if any, that the market value of the security increases beyond the market value at which the position was sold. Thus, a short sale of a security involves the risk that instead of declining, the price of the security sold short will rise. The short sale of securities involves the possibility of a theoretically unlimited loss since there is a theoretically unlimited potential for the market price of the security sold short to increase. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited as to the dollar amount, will be recognized upon the termination of a short sale if the market price is either less than or greater than the proceeds originally received. There is no assurance the Fund will be able to close out a short position at a particular time or at an acceptable price.
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 37 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common or preferred stocks in the Fund’s Consolidated Schedule of Investments, and the value of the related collateral are shown separately in the Consolidated Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Consolidated Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”), which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | ||||||||||||
Barclays Capital, Inc. | $ | 10,000 | $ | (10,000 | ) | — | |||||||||
BNP Paribas S.A. | 8,156,936 | (8,156,936 | ) | — | |||||||||||
Citigroup Global Markets, Inc. | 26,791,405 | (26,791,405 | ) | — | |||||||||||
Credit Suisse Securities (USA) LLC | 37,734,685 | (37,734,685 | ) | — | |||||||||||
Deutsche Bank Securities Inc. | 3,503,822 | (3,503,822 | ) | — | |||||||||||
Goldman Sachs & Co. | 36,653,226 | (36,653,226 | ) | — | |||||||||||
JP Morgan Securities LLC | 75,419,088 | (75,419,088 | ) | — | |||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | 20,474,329 | (20,474,329 | ) | — | |||||||||||
Morgan Stanley | 75,790,413 | (75,790,413 | ) | — | |||||||||||
National Financial Services LLC | 50,929 | (50,929 | ) | — | |||||||||||
UBS AG | 67,820,753 | (67,820,753 | ) | — | |||||||||||
Total | $ | 352,405,586 | $ | (352,405,586 | ) | — |
1 | Collateral with a value of $376,445,470 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk or commodity risk. These contracts may be transacted on an exchange or OTC.
Financial Futures Contracts: The Fund invests in long and/or short positions in financial futures contracts and options on financial futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date.
38 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.
Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Consolidated Schedule of Investments and cash deposited, if any, is recorded on the Consolidated Statement of Assets and Liabilities as cash pledged for financial futures contracts. 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. Variation margin is recorded by the Fund as unrealized appreciation (depreciation) and, if applicable, as a receivable or payable for variation margin in the Consolidated Statement of Assets and Liabilities.
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. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
Options: The Fund purchases and writes call and put options to increase or decrease its exposure to underlying instruments (including equity risk and/or interest rate risk) and/or, in the case of options written, to generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. When the Fund purchases (writes) an option, an amount equal to the premium paid (received) by the Fund is reflected as an asset (liability). The amount of the asset (liability) is subsequently marked-to-market to reflect the current market value of the option purchased (written). When an instrument 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 instrument acquired or deducted from (or added to) the proceeds of the instrument 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 premiums received or paid). When the Fund writes a call option, such option is “covered,” meaning that the Fund holds the underlying instrument subject to being called by the option counterparty. When the Fund writes a put option, such option is covered by cash in an amount sufficient to cover the obligation.
Swaptions are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swaptions is granting or buying the right to enter into a previously agreed upon interest rate or credit default swap agreement (interest rate risk and/or credit risk) at any time before the expiration of the option.
The Fund also purchases or sells listed or OTC foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates or to gain exposure to foreign currencies (foreign currency exchange rate risk). When foreign currency is purchased or sold through an exercise of a foreign currency option, the related premium paid (or received) is added to (or deducted from) the basis of the foreign currency acquired or deducted from (or added to) the proceeds of the foreign currency sold (receipts from the foreign currency purchased). Such transactions may be effected with respect to hedges on non-U.S. dollar denominated instruments owned by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund.
The Fund may also purchase and write a variety of options with non-standard payout structures or other features (“barrier options”). Barrier options are generally traded OTC. The Fund may invest in various types of barrier options including down-and-in options. Down-and-in options expire worthless to the purchaser of the option unless the price of the underlying instrument falls below a specific barrier price level prior to the option’s expiration date. Barrier options may also be referred to as knockout options. In a reverse knockout option, the option expires worthless if the price of the underlying instrument decreases beyond a predetermined barrier price level prior to the option’s expiration date.
In purchasing and writing options, the Fund bears the risk of an unfavorable change in the value of the underlying instrument or the risk that the Fund may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Fund purchasing or selling a security when it otherwise would not, or at a price different from the current market value.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 39 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
For the six months ended June 30, 2015, transactions in options written, including swaptions and currency options were as follows:
Calls | Puts | |||||||||||||||||||||||
Contracts | Notional (000)1 | Premiums Received | Contracts | Notional (000)1 | Premiums Received | |||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Outstanding options, beginning of period | 22,949,843 | 471,862 | $ | 18,740,303 | 50,622,510 | — | $ | 27,667,293 | ||||||||||||||||
Options written | 25,379,779 | 1,961,239 | 26,466,295 | 38,779,896 | 118,710 | 33,285,345 | ||||||||||||||||||
Options exercised | (2,475,834 | ) | — | (5,669,170 | ) | (1,774,493 | ) | — | (5,052,137 | ) | ||||||||||||||
Options expired | (906,876 | ) | — | (2,023,584 | ) | (144,600 | ) | — | (1,193,774 | ) | ||||||||||||||
Options closed | (20,868,018 | ) | (1,839,391 | ) | (16,469,549 | ) | (37,697,088 | ) | (118,710 | ) | (25,733,630 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||
Outstanding options, end of period | 24,078,894 | 593,710 | $ | 21,044,295 | 49,786,225 | — | $ | 28,973,097 | ||||||||||||||||
|
|
|
|
1 | Amount shown is in the currency in which the transaction was denominated. |
As of June 30, 2015, the value of portfolio securities subject to covered call options written was $426,013,132.
Swaps: The Fund enters into swap agreements in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation).
For OTC swaps, any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, in the Consolidated Statement of Assets and Liabilities and amortized over the term of the OTC swap. Payments received or made by the Fund for OTC swaps are recorded in the Consolidated Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.
In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated on the Consolidated Schedule of Investments and cash deposited is recorded on the Consolidated Statement of Assets and Liabilities as cash pledged for centrally cleared swaps. The daily change in valuation of centrally cleared swaps is recorded as a receivable or payable for variation margin in the Consolidated Statement of Assets and Liabilities. Payments received from (paid to) the counterparty, including at termination, are recorded as realized gain (loss) in the Consolidated Statement of Operations.
Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.
• | Credit default swaps — The Fund enters into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which it is not otherwise exposed (credit risk). The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occurs. As a buyer, if an underlying credit event occurs, the Fund will either (i) receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. |
• | Total return swaps — The Fund enters into total return swaps to obtain exposure to a security or market without owning such security or investing directly in that market or to transfer the risk/return of one market (e.g., fixed income) to another market (e.g., equity or commodity prices) (equity risk, commodity price risk and/or interest rate risk). Total return swaps are agreements in which there is an exchange of cash flows whereby one |
40 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
party commits to make payments based on the total return (coupons plus capital gains/losses) of an underlying instrument in exchange for fixed or floating rate interest payments. To the extent the total return of the instrument or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty. |
• | Interest rate swaps — The Fund enters into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds, which may decrease when interest rates rise (interest rate risk). Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. In more complex swaps, the notional principal amount may decline (or amortize) over time. |
• | Currency swaps — The Fund enters into currency swaps to gain or reduce exposure to foreign currencies or as an economic hedge against either specific transactions or portfolio instruments (foreign currency exchange rate and/or interest rate risk). Currency swaps are interest rate swaps in which one party pays a stream of interest payments, either fixed or floating, in exchange for another party’s stream of interest payments, either fixed or floating, based on the notional amounts of two different currencies. The notional amounts are typically determined based on the spot exchange rates at the inception of the trade. Currency swaps may also involve an exchange of notional amounts at the start, during and/or at expiration of the contract, either at the current spot rate or another specified rate. |
• | Forward interest rate swaps — The Fund may enter into forward interest rate swaps and forward total return swaps. In a forward swap, the Fund and the counterparty agree to make either periodic net payments beginning on a specified future effective date or a net payment at termination, unless terminated earlier. |
The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:
Fair Values of Derivative Financial Instruments as of June 30, 2015 | ||||||||||||
Value | ||||||||||||
Consolidated Statement of Assets and Liabilities Location | Derivative Assets | Derivative Liabilities | ||||||||||
Unrealized appreciation (depreciation) on | ||||||||||||
OTC swaps; Swap premiums | ||||||||||||
Credit contracts | paid/received | $ | 32,833 | $ | 592,398 | |||||||
Net unrealized appreciation (depreciation)2; | ||||||||||||
Unrealized appreciation (depreciation) on OTC swaps; Investments at value - | ||||||||||||
Equity contracts | unaffiliated1 | 145,389,374 | 45,763,999 | |||||||||
Investments at value — unaffiliated1; | ||||||||||||
Foreign currency exchange contracts | Unrealized appreciation (depreciation) on | |||||||||||
forward foreign currency exchange contracts | 26,734,279 | 7,808,726 | ||||||||||
Interest rate contracts | Investments at value — unaffiliated1 | 9,518,197 | 10,382,475 | |||||||||
Total | $ | 181,674,683 | $ | 64,547,598 |
1 | Includes options purchased at value as reported in the Consolidated Schedule of Investments. |
2 | Includes cumulative appreciation (depreciation) on financial futures contracts and centrally cleared swaps, if any, as reported in the Consolidated Schedule of Investments. Only current day’s variation margin is reported within the Consolidated Statement of Assets and Liabilities. |
The Effect of Derivative Financial Instruments in the Consolidated Statement of Operations Six Months Ended June 30, 2015 | ||||||||||
Net Realized Gain (Loss) from | Net Change in Unrealized Appreciation (Depreciation) on | |||||||||
Interest rate contracts: | ||||||||||
Swaps | 770,671 | $ | (8,636,130 | ) | ||||||
Options3 | 1,651,224 | (3,418,672 | ) | |||||||
Foreign currency exchange contracts: | ||||||||||
Foreign currency transactions/translations | 102,308,005 | (38,495,106 | ) | |||||||
Options3 | (4,390,751 | ) | 3,863,429 | |||||||
Credit contracts: | ||||||||||
Swaps | 4,772,109 | (4,381,159 | ) | |||||||
Equity contracts: | ||||||||||
Financial futures contracts | (4,115,611 | ) | 9,753,396 | |||||||
Swaps | (27,873 | ) | 2,488,881 | |||||||
Options3 | 22,541,899 | 1,224,340 | ||||||||
Total | $ | 123,509,673 | $ | (37,601,021 | ) |
3 | Options purchased are included in the net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 41 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
For the six months ended June 30, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:
Financial futures contracts: | ||||
Average notional value of contracts - long | $ | 186,791,072 | ||
Average notional value of contracts - short | $ | 579,268,965 | ||
Forward foreign currency exchange contracts: | ||||
Average amounts purchased - in USD | $ | 1,494,261,185 | ||
Average amounts sold - in USD | $ | 292,012,783 | ||
Options: | ||||
Average value of option contracts purchased | $ | 146,163,310 | ||
Average value of option contracts written | $ | 48,131,959 | ||
Average notional value of swaption contracts purchased | $ | 1,766,190,360 | ||
Average notional value of swaption contracts written | $ | 742,796,500 | ||
Credit default swaps: | ||||
Average notional value - buy protection | $ | 15,085,000 | ||
Average notional value - sell protection | $ | 23,930,617 | ||
Interest rate swaps: | ||||
Average notional value - pays fixed rate | $ | 1,256,400,000 | ||
Average notional value - receives fixed rate | $ | 472,616,859 | ||
Currency swaps: | ||||
Average notional value - pays | $ | 19,670,218 | ||
Average notional value - receives | $ | 19,803,000 | ||
Total return swaps: | ||||
Average notional value | $ | 36,394,591 |
Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund. For OTC options purchased, the Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by such Fund should the counterparty fail to perform under the contracts. Options written by the Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty, to perform.
With exchange-traded options purchased and futures and centrally cleared swaps, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange-traded futures and centrally cleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Consolidated Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Consolidated Schedule of Investments. Generally, the amount of collateral due from or to a party has to
42 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund and its counterparties are not permitted to sell, repledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Consolidated Statement of Assets and Liabilities.
As of June 30, 2015, the Fund’s derivative assets and liabilities (by type) are as follows:
Assets | Liabilities | |||||||
Derivative Financial Instruments: | ||||||||
Financial futures contracts | $ | 182,826 | $ | 3,952,921 | ||||
Forward foreign currency exchange contracts | 26,734,279 | 7,808,726 | ||||||
Options | 133,842,310 | 1 | 41,114,547 | |||||
Swaps - Centrally cleared | — | 2,678,469 | ||||||
Swaps - OTC2 | 6,101,393 | 712,165 | ||||||
|
| |||||||
Total derivative assets and liabilities in the Consolidated Statement of Assets and Liabilities | $ | 166,860,808 | $ | 56,266,828 | ||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | (241,139 | ) | (7,140,535 | ) | ||||
|
| |||||||
Total derivative assets and liabilities subject to an MNA | $ | 166,619,669 | $ | 49,126,293 | ||||
|
|
1 | Includes options purchased at value which is included in Investments at value — unaffiliated in the Consolidated Statement of Assets and Liabilities and reported in the Consolidated Schedule of Investments. |
2 | Includes unrealized appreciation (depreciation) on OTC swaps and swap premiums paid/received in the Consolidated Statement of Assets and Liabilities. |
As of June 30, 2015, the following tables present the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:
Counterparty | Derivative Assets Subject to an MNA by Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Received | Cash Collateral Received2 | Net Amount of Derivative Assets3 | |||||||||||||||||
Bank of America N.A. | $ | 10,523,924 | $ | (2,728,531 | ) | — | $ | (7,710,000 | ) | $ 85,393 | ||||||||||||
Barclays Bank PLC | 2,904,893 | (283,500 | ) | — | (2,621,393 | ) | — | |||||||||||||||
BNP Paribas S.A. | 10,789,399 | (1,580,620 | ) | — | (6,010,000 | ) | 3,198,779 | |||||||||||||||
Citibank N.A. | 27,127,152 | (10,506,245 | ) | — | (16,620,907 | ) | — | |||||||||||||||
Credit Suisse International | 15,782,001 | (1,833,376 | ) | — | (13,948,625 | ) | — | |||||||||||||||
Deutsche Bank AG | 26,320,801 | (7,391,093 | ) | — | (11,850,000 | ) | 7,079,708 | |||||||||||||||
Goldman Sachs International | 39,821,567 | (16,233,774 | ) | — | (23,587,793 | ) | — | |||||||||||||||
JPMorgan Chase Bank N.A. | 12,622,219 | (1,546,498 | ) | — | (8,900,000 | ) | 2,175,721 | |||||||||||||||
Morgan Stanley & Co. International PLC | 12,082,880 | (2,215,819 | ) | — | (9,867,061 | ) | — | |||||||||||||||
Morgan Stanley Capital Services LLC | 2,029,690 | (2,029,690 | ) | — | — | — | ||||||||||||||||
UBS AG | 6,615,143 | (1,690,866 | ) | $ | (2,341,619 | ) | — | 2,582,658 | ||||||||||||||
Total | $ | 166,619,669 | $ | (48,040,012 | ) | $ | (2,341,619 | ) | $ | (101,115,779 | ) | $15,122,259 |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 43 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
Counterparty | Derivative Liabilities Subject to an MNA by Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities4 | |||||||||||||||||
Bank of America N.A. | $ | 2,728,531 | $ | (2,728,531 | ) | — | — | — | ||||||||||||||
Barclays Bank PLC | 283,500 | (283,500 | ) | — | — | — | ||||||||||||||||
BNP Paribas S.A. | 1,580,620 | (1,580,620 | ) | — | — | — | ||||||||||||||||
Citibank N.A. | 10,506,245 | (10,506,245 | ) | — | — | — | ||||||||||||||||
Credit Suisse International | 1,833,376 | (1,833,376 | ) | — | — | — | ||||||||||||||||
Deutsche Bank AG | 7,391,093 | (7,391,093 | ) | — | — | — | ||||||||||||||||
Goldman Sachs International | 16,233,774 | (16,233,774 | ) | — | — | — | ||||||||||||||||
HSBC Bank USA N.A. | 239,603 | — | — | — | $ 239,603 | |||||||||||||||||
JPMorgan Chase Bank N.A. | 1,546,498 | (1,546,498 | ) | — | — | — | ||||||||||||||||
Morgan Stanley & Co. International PLC | 2,215,819 | (2,215,819 | ) | — | — | — | ||||||||||||||||
Morgan Stanley Capital Services LLC | 2,876,368 | (2,029,690 | ) | — | — | 846,678 | ||||||||||||||||
UBS AG | 1,690,866 | (1,690,866 | ) | — | — | — | ||||||||||||||||
Total | $ | 49,126,293 | $ | (48,040,012 | ) | — | — | $1,086,281 |
1 | The amount of derivatives for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA. |
2 | Excess of collateral received from the individual counterparty is not shown for financial reporting purposes. |
3 | Net amount represents the net amount receivable from the counterparty in the event of default. |
4 | Net amount represents the net amount payable due to the counterparty in the event of default. Net amount may be offset further by the options written receivable/payable on the Consolidated Statement of Assets and Liabilities. |
5. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | ||||
First $6 Billion | 0.65 | % | |||
$6 Billion - $8 Billion | 0.61 | % | |||
$8 Billion - $10 Billion | 0.59 | % | |||
$10 Billion - $15 Billion | 0.57 | % | |||
Greater than $15 Billion | 0.55 | % |
The Manager provides investment management and other services to the Subsidiary. The Manager does not receive separate compensation from the Subsidiary for providing investment management or administrative services. However, the Fund pays the Manager based on the Fund’s net assets, which includes the assets of the Subsidiary.
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Consolidated Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $60,497 for certain accounting services, which is included in accounting services in the Consolidated Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at the annual rate of 0.15% and 0.25%, respectively, based upon the average daily net assets attributable to Class II and Class III, respectively.
44 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
| ||||
Class I | 0.07 | % | ||
Class II | 0.07 | % | ||
Class III | 0.07 | % | ||
|
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Consolidated Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Consolidated Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I, 1.40% for Class II and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 80% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 85% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Consolidated Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $290,104 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Consolidated Statement of Operations.
The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment advisor, common officers, or common directors. For the six months ended June 30, 2015, the purchase and sale transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were $3,282,617 and $6,682,911, respectively.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 45 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
6. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, including paydowns and excluding short-term securities, were as follows:
Purchases | Sales | |||||||
Non-U.S. Government Securities | $ | 3,587,749,807 | $ | 3,607,584,534 | ||||
U.S. Government Securities | 854,462,911 | 1,144,525,610 |
For the six months ended June 30, 2015, purchases and sales related to mortgage dollar rolls were $127,043,866 and $127,326,899, respectively.
7. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 12,173,781,036 | ||
|
| |||
Gross unrealized appreciation | $ | 910,337,985 | ||
Gross unrealized depreciation | (635,179,500 | ) | ||
|
| |||
Net unrealized appreciation | $ | 275,158,485 |
8. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Consolidated Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
9. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Consolidated Statement of Assets and Liabilities, less any collateral held by the Fund.
The Fund invests a significant portion of its assets in fixed-income securities and/or uses derivatives tied to the fixed-income markets. Changes in market interest rates or economic conditions, may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.
As of June 30, 2015, the Fund invested a significant portion of its assets in securities in the Financials sector. Changes in economic conditions affecting such sectors would have a greater impact on the Fund and could affect the value, income and/or liquidity of positions in such securities.
46 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock Global Allocation V.I. Fund |
The Fund invests a substantial amount of its assets in issuers located in a single country or a limited number of countries. When the Fund concentrates its investments in this manner, it assumes the risk that economic, political and social conditions in those countries may have a significant impact on their investment performance. Foreign issuers may not be subject to the same uniform accounting, auditing and financial reporting standards and practices as used in the United States. Foreign securities markets may also be less liquid, more volatile, and less subject to governmental supervision not typically associated with investing in U.S. securities. Investment percentages in specific countries are presented in the Consolidated Schedule of Investments.
As of June 30, 2015, the Fund had the following industry classifications:
Industry | Percent of Long-Term Investments | ||||
Financials | 20 | % | |||
Health Care | 13 | ||||
Information Technology | 12 | ||||
Industrials | 10 | ||||
Consumer Discretionary | 8 | ||||
Energy | 8 | ||||
Foreign Government Obligations | 7 | ||||
Materials | 6 | ||||
Other1 | 16 |
1 | All other industries held were each less than 5% of long-term investments. |
10. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class I | ||||||||||||||||||
Shares sold | 15,395,627 | $ | 258,116,998 | 39,883,107 | $ | 710,452,091 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 9,199,132 | 151,201,405 | ||||||||||||||
Shares redeemed | (4,803,635 | ) | (80,260,129 | ) | (81,813,595 | )1 | (1,455,371,377 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase (decrease) | 10,591,992 | $ | 177,856,869 | (32,731,356 | ) | $ | (593,717,881 | ) | ||||||||||
|
|
|
| |||||||||||||||
1 Including (73,991,274) representing in-kind redemptions. |
| |||||||||||||||||
Class II | ||||||||||||||||||
Shares sold | 982,266 | $ | 16,485,508 | 3,558,258 | $ | 63,073,183 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 1,548,027 | 25,391,316 | ||||||||||||||
Shares redeemed | (834,665 | ) | (13,782,080 | ) | (1,376,338 | ) | (24,313,092 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase | 147,601 | $ | 2,703,428 | 3,729,947 | $ | 64,151,407 | ||||||||||||
|
|
|
| |||||||||||||||
Class III | ||||||||||||||||||
Shares sold | 9,758,659 | $ | 143,165,763 | 30,135,173 | $ | 473,698,549 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 74,469,713 | 1,071,272,409 | ||||||||||||||
Shares redeemed | (43,668,883 | ) | (634,282,561 | ) | (58,261,626 | ) | (915,366,762 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase (decrease) | (33,910,224 | ) | $ | (491,116,798 | ) | 46,343,260 | $ | 629,604,196 | ||||||||||
|
|
|
| |||||||||||||||
Total Net Increase (Decrease) | (23,170,631 | ) | $ | (310,556,501 | ) | 17,341,851 | $ | 100,037,722 | ||||||||||
|
|
|
|
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 47 |
Notes to Consolidated Financial Statements (concluded) | BlackRock Global Allocation V.I. Fund |
11. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s consolidated financial statements was completed through the date the consolidated financial statements were issued and the following item was noted:
The Fund paid a net investment income, a short-term capital gain and a long-term capital gain distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015 as follows:
Net Investment Income | Short-Term Capital Gain | Long-Term Capital Gain | |||||||||||||
Class I | $ | 0.061363 | $ | 0.008506 | $ | 0.141346 | |||||||||
Class II | $ | 0.061363 | $ | 0.008506 | $ | 0.141346 | |||||||||
Class II | $ | 0.061363 | $ | 0.008506 | $ | 0.141346 |
48 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Global Opportunities V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Global Opportunities V.I. Fund |
Investment Objective |
BlackRock Global Opportunities V.I. Fund’s (the “Fund”) investment objective is to seek long-term growth of capital.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund outperformed its benchmark, the MSCI All Country World Index. |
What factors influenced performance?
• | The largest contributor to performance was stock selection in the financials sector, particularly the diversified banks sub-industry. Among diversified banks, Lloyds Banking Group PLC led performance, as the bank reported strong financial results, raising expectations that it would return capital to shareholders. Stock selection in the consumer staples sector also contributed to performance, as the Fund’s position in Nomad Foods Ltd. benefited after announcements of its new listing on the London Stock Exchange and its acquisition of a U.K.-based frozen-food vendor. |
• | Conversely, the largest detractor from performance was stock selection in the information technology sector, specifically within the Internet software & services sub-industry, where Alibaba Group Holding Ltd. and Baidu, Inc. both faced modest selling pressure. Stock selection in the |
energy sector also detracted from performance, with Royal Dutch Shell PLC performing poorly due to weakness in the price of crude oil and concerns about its proposed merger with BG Group PLC. |
Describe recent portfolio activity.
• | During the six-month period, the Fund reduced its exposure to the energy sector on concerns over the price of oil, as well as to health care following a period of notably strong returns. Proceeds were used to increase exposure to the telecommunications services and utilities sectors. Regionally, the Fund reduced its holdings in the developed Americas and emerging Asia, adding exposure to developed Europe and Japan. |
Describe portfolio positioning at period end.
• | Relative to the MSCI All Country World Index, the Fund ended the period overweight in Europe and emerging Asia, and underweight in the Pacific Basin, including Japan, and the developed Americas. From a sector perspective, the Fund was most notably overweight in technology and consumer discretionary, while the most significant underweights were in materials and industrials. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Geographic Allocation | Percent of Long-Term Investments | ||||
United States | 51 | % | |||
United Kingdom | 11 | ||||
Japan | 6 | ||||
France | 4 | ||||
India | 3 | ||||
Spain | 3 | ||||
Germany | 3 | ||||
China | 3 | ||||
Switzerland | 2 | ||||
Netherlands | 2 | ||||
Ireland | 2 | ||||
Other1 | 10 |
1 | Includes holdings within countries that are 1% or less of long-term investments. Please refer to the Schedule of Investments for such countries. |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Global Opportunities V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. The returns for Class III Shares prior to June 23, 2008, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares, as adjusted to reflect the distribution (12b-1) fees applicable to Class III Shares. |
2 | Under normal conditions, the Fund will invest at least 75% of its total assets in global equity securities of any market capitalization, selected for their above-average return potential. The returns prior to October 1, 2011 are the returns of the Fund when it followed different investment strategies. |
3 | A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI All Country World Index consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. |
Performance Summary for the Period Ended June 30, 2015 |
Average Annual Total Returns | ||||||||
6-Month Total Returns5 | 1 Year5 | 5 Years5 | 10 Years5 | |||||
Class I4 | 6.57% | 1.75% | 10.77% | 7.60% | ||||
Class III4 | 6.47 | 1.49 | 10.51 | 7.346 | ||||
MSCI All Country World Index | 2.66 | 0.71 | 11.93 | 6.41 |
4 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. The returns prior to October 1, 2011 are the returns of a Fund that followed different investment strategies. |
5 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
6 | The returns for Class III Shares prior to June 23, 2008, the recommencement of operations of Class III Shares, are based upon performance of the Fund’s Class I Shares, as adjusted to reflect the distribution (12b-1) fees applicable to Class III Shares. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example |
Actual | Hypothetical8 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period7 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period7 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,065.70 | $5.53 | $1,000.00 | $1,019.44 | $5.41 | 1.08% | |||||||
Class III | $1,000.00 | $1,064.70 | $6.81 | $1,000.00 | $1,018.20 | $6.66 | 1.33% |
7 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
8 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Global Opportunities V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative
financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Global Opportunities V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Australia — 0.1% |
| |||||||
Ensogo Ltd. (a) | 376,432 | $ | 47,922 | |||||
Austria — 0.2% | ||||||||
ams AG | 1,938 | 84,760 | ||||||
Belgium — 0.8% |
| |||||||
Anheuser-Busch InBev NV | 3,329 | 400,614 | ||||||
British Virgin Islands — 1.6% |
| |||||||
Nomad Holdings Ltd. (a) | 35,966 | 782,261 | ||||||
Canada — 0.9% |
| |||||||
Encana Corp. | 23,748 | 261,817 | ||||||
MEG Energy Corp. (a) | 11,152 | 182,146 | ||||||
|
| |||||||
443,963 | ||||||||
China — 2.7% |
| |||||||
Alibaba Group Holding Ltd. — ADR (a) | 6,539 | 537,964 | ||||||
China Construction Bank Corp., H Shares | 491,850 | 448,644 | ||||||
CRRC Corp. Ltd., H Shares | 190,000 | 291,497 | ||||||
|
| |||||||
1,278,105 | ||||||||
France — 3.8% |
| |||||||
AXA SA | 12,403 | 314,440 | ||||||
Schneider Electric SE | 3,857 | 267,055 | ||||||
Société Générale SA | 6,346 | 297,779 | ||||||
Unibail-Rodamco SE | 1,827 | 464,068 | ||||||
Vivendi SA | 19,153 | 485,656 | ||||||
|
| |||||||
1,828,998 | ||||||||
Germany — 2.8% |
| |||||||
Daimler AG, Registered Shares | 5,096 | 464,224 | ||||||
Henkel AG & Co. KGaA | 2,194 | 246,203 | ||||||
Infineon Technologies AG | 26,388 | 327,465 | ||||||
Telefonica Deutschland Holding AG | 47,971 | 276,350 | ||||||
|
| |||||||
1,314,242 | ||||||||
Hong Kong — 1.1% |
| |||||||
AIA Group Ltd. | 82,434 | 539,008 | ||||||
India — 2.1% |
| |||||||
Bharti Infratel Ltd. | 45,857 | 321,892 | ||||||
HDFC Bank Ltd. | 21,543 | 420,390 | ||||||
ITC Ltd. | 54,892 | 271,323 | ||||||
|
| |||||||
1,013,605 | ||||||||
Indonesia — 0.6% |
| |||||||
Global Mediacom Tbk PT | 1,029,541 | 90,162 | ||||||
Matahari Department Store Tbk PT | 176,740 | 219,051 | ||||||
|
| |||||||
309,213 | ||||||||
Ireland — 1.6% |
| |||||||
Green REIT PLC | 208,191 | 340,262 | ||||||
Shire PLC — ADR | 1,730 | 417,778 | ||||||
|
| |||||||
758,040 |
Common Stocks | Shares | Value | ||||||
Italy — 0.3% |
| |||||||
Moncler SpA | 8,462 | $ | 156,801 | |||||
Japan — 6.1% |
| |||||||
FANUC Corp. | 1,672 | 342,117 | ||||||
Mitsubishi Estate Co. Ltd. | 18,690 | 402,547 | ||||||
Nabtesco Corp. | 13,182 | 330,654 | ||||||
Nintendo Co. Ltd. | 2,082 | 347,335 | ||||||
Panasonic Corp. | 20,528 | 281,156 | ||||||
SMC Corp. | 1,082 | 325,594 | ||||||
SoftBank Group Corp. | 7,279 | 428,755 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 9,935 | 442,298 | ||||||
|
| |||||||
2,900,456 | ||||||||
Mexico — 0.3% |
| |||||||
Cemex SAB de CV — ADR (a) | 17,262 | 158,120 | ||||||
Netherlands — 1.8% |
| |||||||
Koninklijke Philips NV | 7,308 | 186,519 | ||||||
Royal Dutch Shell PLC, A Shares — ADR | 12,113 | 690,562 | ||||||
|
| |||||||
877,081 | ||||||||
New Zealand — 0.4% |
| |||||||
Xero Ltd. (Acquired 10/15/13, | 14,865 | 181,822 | ||||||
Nigeria — 0.4% |
| |||||||
Lekoil Ltd. (a) | 382,903 | 177,482 | ||||||
Norway — 0.8% |
| |||||||
Statoil ASA | 19,969 | 357,106 | ||||||
Peru — 0.6% |
| |||||||
Credicorp Ltd. | 2,038 | 283,119 | ||||||
South Africa — 1.0% |
| |||||||
Naspers Ltd., N Shares | 2,981 | 463,559 | ||||||
South Korea — 1.3% |
| |||||||
Samsung Electronics Co. Ltd. | 291 | 330,165 | ||||||
SK Hynix, Inc. | 8,076 | 306,093 | ||||||
|
| |||||||
636,258 | ||||||||
Spain — 2.8% |
| |||||||
Cellnex Telecom SAU (a) | 44,154 | 746,992 | ||||||
NH Hotel Group SA (a) | 62,861 | 361,527 | ||||||
Sacyr SA (a) | 58,080 | 221,083 | ||||||
|
| |||||||
1,329,602 | ||||||||
Sweden — 0.8% |
| |||||||
Nordea Bank AB | 29,516 | 368,116 | ||||||
Switzerland — 2.5% |
| |||||||
Novartis AG, Registered Shares | 4,250 | 418,032 | ||||||
Roche Holding AG | �� | 1,433 | 401,801 | |||||
UBS Group AG, Registered Shares | 17,235 | 365,666 | ||||||
|
| |||||||
1,185,499 |
Portfolio Abbreviations | ||||||||||
ADR | American Depositary Receipts | EUR | Euro | NZD | New Zealand Dollar | |||||
AUD | Australian Dollar | GBP | British Pound | REIT | Real Estate Investment Trust | |||||
CAD | Canadian Dollar | HKD | Hong Kong Dollar | SEK | Swedish Krona | |||||
CHF | Swiss Franc | JPY | Japanese Yen | SGD | Singapore Dollar | |||||
DKK | Danish Krone | NOK | Norwegian Krone | USD | U.S. Dollar |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock Global Opportunities V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Taiwan — 1.1% | ||||||||
Hermes Microvision, Inc. | 3,197 | $ | 207,604 | |||||
Largan Precision Co. Ltd. | 2,951 | 336,859 | ||||||
|
| |||||||
544,463 | ||||||||
United Kingdom — 9.2% | ||||||||
AstraZeneca PLC | 8,076 | 511,129 | ||||||
BAE Systems PLC | 29,803 | 211,166 | ||||||
Crest Nicholson Holdings PLC | 40,507 | 357,256 | ||||||
Delphi Automotive PLC | 5,481 | 466,378 | ||||||
Diageo PLC | 16,699 | 483,596 | ||||||
Kennedy Wilson Europe Real Estate PLC | 12,219 | 218,100 | ||||||
Lloyds Banking Group PLC | 418,001 | 561,037 | ||||||
Metro Bank PLC (Acquired 1/15/14, | 12,199 | 253,012 | ||||||
Prudential PLC | 14,037 | 338,283 | ||||||
SABMiller PLC | 6,731 | 349,003 | ||||||
Sophos Group PLC (a) | 42,700 | 156,995 | ||||||
Vodafone Group PLC — ADR | 12,891 | 469,877 | ||||||
|
| |||||||
4,375,832 | ||||||||
United States — 49.6% | ||||||||
Abbott Laboratories | 10,577 | 519,119 | ||||||
AbbVie, Inc. | 5,855 | 393,397 | ||||||
Adobe Systems, Inc. (a) | 3,682 | 298,279 | ||||||
Altria Group, Inc. | 7,218 | 353,032 | ||||||
Amazon.com, Inc. (a) | 769 | 333,815 | ||||||
American Airlines Group, Inc. | 8,173 | 326,389 | ||||||
Apple Inc. | 7,778 | 975,556 | ||||||
Aramark | 11,826 | 366,251 | ||||||
Assured Guaranty Ltd. | 11,922 | 286,009 | ||||||
Autodesk, Inc. (a) | 5,288 | 264,797 | ||||||
BankUnited, Inc. | 14,105 | 506,793 | ||||||
Becton Dickinson & Co. | 1,923 | 272,393 | ||||||
Best Buy Co., Inc. | 7,470 | 243,597 | ||||||
Boston Scientific Corp. (a) | 19,805 | 350,549 | ||||||
Bristol-Myers Squibb Co. | 7,115 | 473,432 | ||||||
Charles River Laboratories International, Inc. (a) | 5,578 | 392,356 | ||||||
Citigroup, Inc. | 23,403 | 1,292,782 | ||||||
Comcast Corp., Class A | 7,884 | 474,144 | ||||||
Concho Resources, Inc. (a) | 3,077 | 350,347 | ||||||
Crown Holdings, Inc. (a) | 7,548 | 399,365 | ||||||
Discover Financial Services | 7,500 | 432,150 | ||||||
Eastman Chemical Co. | 4,250 | 347,735 | ||||||
Eli Lilly & Co. | 4,038 | 337,133 | ||||||
EMC Corp. | 8,846 | 233,446 | ||||||
EOG Resources, Inc. | 5,214 | 456,486 | ||||||
Facebook, Inc., Class A (a) | 5,654 | 484,915 | ||||||
Finisar Corp. (a) | 2,589 | 46,265 | ||||||
FirstEnergy Corp. | 10,526 | 342,621 | ||||||
Google, Inc., Class A (a) | 853 | 460,654 | ||||||
Google, Inc., Class C (a) | 1,020 | 530,920 | ||||||
The Hain Celestial Group, Inc. (a) | 7,834 | 515,947 | ||||||
The Hartford Financial Services Group, Inc. | 11,441 | 475,602 | ||||||
Hortonworks, Inc. (a)(c) | 22,354 | 566,003 | ||||||
JDS Uniphase Corp. (a) | 17,114 | 198,180 | ||||||
Kennedy-Wilson Holdings, Inc. | 19,289 | 474,316 | ||||||
Kinder Morgan, Inc. | 11,441 | 439,220 | ||||||
Las Vegas Sands Corp. | 2,971 | 156,185 | ||||||
LendingClub Corp. (a) | 20,008 | 295,118 | ||||||
Lowe’s Cos., Inc. | 5,163 | 345,766 | ||||||
Macquarie Infrastructure Corp. | 3,558 | 293,998 | ||||||
MasterCard, Inc., Class A | 5,000 | 467,400 | ||||||
McDonald’s Corp. | 3,653 | 347,291 | ||||||
Medtronic PLC | 3,581 | 265,352 | ||||||
Merck & Co., Inc. | 7,115 | 405,057 | ||||||
Mobileye NV (a) | 2,800 | 148,876 |
Common Stocks | Shares | Value | ||||||
United States (concluded) | ||||||||
Mondelez International, Inc., Class A | 10,404 | $ | 428,021 | |||||
New Relic, Inc. (a) | 13,201 | 464,543 | ||||||
Platform Specialty Products Corp. (a) | 21,526 | 550,635 | ||||||
PPL Corp. | 11,903 | 350,781 | ||||||
Public Service Enterprise Group, Inc. | 8,558 | 336,158 | ||||||
Roper Industries, Inc. | 3,500 | 603,610 | ||||||
Samsonite International SA | 74,073 | 256,098 | ||||||
Sensata Technologies Holding NV (a) | 3,269 | 172,407 | ||||||
St. Jude Medical, Inc. | 4,807 | 351,247 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 4,457 | 361,418 | ||||||
Strategic Growth Bancorp (Acquired 3/10/14, | 19,870 | 199,296 | ||||||
TransUnion (a) | 10,000 | 251,000 | ||||||
Union Pacific Corp. | 2,401 | 228,983 | ||||||
United Rentals, Inc. (a) | 1,881 | 164,813 | ||||||
UnitedHealth Group, Inc. | 2,090 | 254,980 | ||||||
Valeant Pharmaceuticals International, Inc. (a) | 2,308 | 512,722 | ||||||
WisdomTree Investments, Inc. | 14,019 | 307,927 | ||||||
|
| |||||||
23,733,677 | ||||||||
Total Common Stocks — 97.3% | 46,529,724 | |||||||
Preferred Stocks | ||||||||
India — 0.7% |
| |||||||
Snapdeal.com, Series F (Acquired 5/07/14, | 12 | 249,466 | ||||||
Snapdeal.com, Series G (Acquired 10/29/14, | 4 | 83,155 | ||||||
|
| |||||||
332,621 | ||||||||
United States — 1.4% | ||||||||
Palantir Technologies, Inc., Series I (Acquired 2/07/14, cost $138,814) (a)(b) | 22,645 | 201,314 | ||||||
Uber Technologies, Inc., Series D (Acquired 6/10/14, cost $172,691) (a)(b) | 11,132 | 445,533 | ||||||
|
| |||||||
646,847 | ||||||||
Total Preferred Stocks — 2.1% | 979,468 | |||||||
Rights | ||||||||
Spain — 0.0% | ||||||||
Sacyr SA (a) | 58,080 | 6,605 | ||||||
Total Long-Term Investments (Cost — $42,916,124) — 99.4% | 47,515,797 | |||||||
Short-Term Securities | ||||||||
BlackRock Liquidity Funds, TempFund, | 238,037 | 238,037 | ||||||
Beneficial | ||||||||
BlackRock Liquidity Series, LLC, Money Market | $ | 133 | 133,099 | |||||
Total Short-Term Securities (Cost — $371,136) — 0.8% |
| 371,136 |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Global Opportunities V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Value | ||||
Total Investments (Cost — $ 43,287,260) — 100.2% | $ | 47,886,933 | ||
Liabilities in Excess of Other Assets — (0.2)% | (76,918 | ) | ||
|
| |||
Net Assets — 100.0% | $ | 47,810,015 | ||
|
|
Notes to Schedule of Investments |
(a) | Non-income producing security. |
(b) | Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $1,613,598 and an original cost of $1,163,405, which was 3.4% of its net assets. |
(c) | Security, or a portion of security, is on loan. |
(d) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/Beneficial Interest Held at December 31, 2014 | Net Activity | Shares/Beneficial Interest Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 249,813 | (11,776 | ) | 238,037 | $ 80 | |||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $540,806 | $(407,707 | ) | $133,099 | $3,512 | 1 |
1 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(e) | Represents the current yield as of report date. |
(f) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: |
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||
AUD | 825,000 | USD | 629,733 | Bank of America N.A. | 7/22/15 | $ 5,955 | ||||||||||||
CAD | 371,000 | USD | 301,270 | Goldman Sachs International | 7/22/15 | (4,325 | ) | |||||||||||
CAD | 22,000 | USD | 17,822 | Goldman Sachs International | 7/22/15 | (213 | ) | |||||||||||
CAD | 24,000 | USD | 19,633 | Standard Chartered Bank | 7/22/15 | (424 | ) | |||||||||||
CHF | 11,065 | USD | 11,829 | BNP Paribas S.A. | 7/22/15 | 17 | ||||||||||||
CHF | 10,273 | USD | 11,042 | Citibank N.A. | 7/22/15 | (44 | ) | |||||||||||
CHF | 19,840 | USD | 21,591 | Goldman Sachs International | 7/22/15 | (352 | ) | |||||||||||
CHF | 111,366 | USD | 117,110 | Goldman Sachs International | 7/22/15 | 2,108 | ||||||||||||
CHF | 202,857 | USD | 210,987 | Goldman Sachs International | 7/22/15 | 6,173 | ||||||||||||
DKK | 1,297,280 | USD | 186,205 | Goldman Sachs International | 7/22/15 | 7,778 | ||||||||||||
EUR | 120,954 | USD | 135,200 | Bank of America N.A. | 7/22/15 | (313 | ) | |||||||||||
EUR | 28,313 | USD | 31,602 | Bank of America N.A. | 7/22/15 | (27 | ) | |||||||||||
EUR | 91,406 | USD | 102,653 | Citibank N.A. | 7/22/15 | (717 | ) | |||||||||||
EUR | 29,157 | USD | 32,744 | Citibank N.A. | 7/22/15 | (229 | ) | |||||||||||
EUR | 5,168 | USD | 5,804 | Citibank N.A. | 7/22/15 | (40 | ) | |||||||||||
EUR | 63,129 | USD | 71,625 | Goldman Sachs International | 7/22/15 | (1,224 | ) | |||||||||||
EUR | 8,743 | USD | 9,920 | Goldman Sachs International | 7/22/15 | (170 | ) | |||||||||||
EUR | 48,389 | USD | 54,018 | Goldman Sachs International | 7/22/15 | (54 | ) | |||||||||||
EUR | 903 | USD | 1,009 | Goldman Sachs International | 7/22/15 | (3 | ) | |||||||||||
EUR | 16,280 | USD | 18,227 | Royal Bank of Canada | 7/22/15 | (72 | ) | |||||||||||
EUR | 6,732 | USD | 7,390 | Royal Bank of Canada | 7/22/15 | 117 | ||||||||||||
EUR | 106,694 | USD | 120,356 | Standard Chartered Bank | 7/22/15 | (1,373 | ) | |||||||||||
EUR | 13,944 | USD | 15,122 | Standard Chartered Bank | 7/22/15 | 429 | ||||||||||||
EUR | 141,338 | USD | 159,202 | State Street Bank and Trust Co. | 7/22/15 | (1,583 | ) | |||||||||||
GBP | 282,000 | USD | 438,489 | Goldman Sachs International | 7/22/15 | 4,532 | ||||||||||||
HKD | 143,000 | USD | 18,446 | Citibank N.A. | 7/22/15 | 1 | ||||||||||||
HKD | 521,000 | USD | 67,197 | Citibank N.A. | 7/22/15 | 14 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Schedule of Investments (continued) | BlackRock Global Opportunities V.I. Fund |
As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: (concluded)
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||
HKD | 415,000 | USD | 53,481 | Goldman Sachs International | 7/22/15 | $ 56 | ||||||||||||||
HKD | 449,000 | USD | 57,902 | HSBC Bank USA N.A. | 7/22/15 | 21 | ||||||||||||||
HKD | 1,292,000 | USD | 166,500 | HSBC Bank USA N.A. | 7/22/15 | 173 | ||||||||||||||
HKD | 667,000 | USD | 86,057 | The Bank of New York Mellon | 7/22/15 | (11 | ) | |||||||||||||
HKD | 648,000 | USD | 83,575 | The Bank of New York Mellon | 7/22/15 | 19 | ||||||||||||||
JPY | 4,398,000 | USD | 35,627 | Goldman Sachs International | 7/22/15 | 319 | ||||||||||||||
JPY | 27,753,000 | USD | 231,470 | State Street Bank and Trust Co. | 7/22/15 | (4,639 | ) | |||||||||||||
JPY | 4,802,000 | USD | 40,359 | State Street Bank and Trust Co. | 7/22/15 | (1,111 | ) | |||||||||||||
NOK | 243,000 | USD | 32,140 | Goldman Sachs International | 7/22/15 | (1,163 | ) | |||||||||||||
SEK | 74,867 | USD | 9,089 | BNP Paribas S.A. | 7/22/15 | (53 | ) | |||||||||||||
SEK | 904,000 | USD | 103,628 | Goldman Sachs International | 7/22/15 | 5,472 | ||||||||||||||
SGD | 322,000 | USD | 236,981 | Barclays Bank PLC | 7/22/15 | 2,010 | ||||||||||||||
USD | 23,040 | AUD | 30,000 | Bank of America N.A. | 7/22/15 | (76 | ) | |||||||||||||
USD | 30,179 | AUD | 39,000 | Bank of America N.A. | 7/22/15 | 128 | ||||||||||||||
USD | 123,382 | CAD | 151,000 | Citibank N.A. | 7/22/15 | 2,523 | ||||||||||||||
USD | 44,849 | CAD | 55,000 | State Street Bank and Trust Co. | 7/22/15 | 828 | ||||||||||||||
USD | 5,716 | CHF | 5,250 | Citibank N.A. | 7/22/15 | 96 | ||||||||||||||
USD | 45,446 | CHF | 41,559 | Citibank N.A. | 7/22/15 | 957 | ||||||||||||||
USD | 15,982 | CHF | 15,168 | Goldman Sachs International | 7/22/15 | (255 | ) | |||||||||||||
USD | 43,441 | CHF | 40,490 | TD Securities, Inc. | 7/22/15 | 96 | ||||||||||||||
USD | 717,752 | EUR | 632,534 | Bank of America N.A. | 7/22/15 | 12,357 | ||||||||||||||
USD | 593,871 | EUR | 555,136 | Goldman Sachs International | 7/22/15 | (25,210 | ) | |||||||||||||
USD | 1,780,341 | GBP | 1,199,667 | Goldman Sachs International | 7/22/15 | (104,331 | ) | |||||||||||||
USD | 68,403 | GBP | 43,000 | Goldman Sachs International | 7/22/15 | 850 | ||||||||||||||
USD | 102,208 | GBP | 65,000 | HSBC Bank USA N.A. | 7/22/15 | 93 | ||||||||||||||
USD | 208,927 | GBP | 136,000 | Standard Chartered Bank | 7/22/15 | (4,729 | ) | |||||||||||||
USD | 153,485 | HKD | 1,190,000 | Goldman Sachs International | 7/22/15 | (30 | ) | |||||||||||||
USD | 127,964 | HKD | 992,000 | State Street Bank and Trust Co. | 7/22/15 | (7 | ) | |||||||||||||
USD | 133,402 | JPY | 16,379,000 | Standard Chartered Bank | 7/22/15 | (467 | ) | |||||||||||||
USD | 93,591 | JPY | 11,123,000 | State Street Bank and Trust Co. | 7/22/15 | 2,680 | ||||||||||||||
USD | 247,385 | JPY | 29,697,000 | State Street Bank and Trust Co. | 7/22/15 | 4,665 | ||||||||||||||
USD | 205,841 | JPY | 24,601,000 | State Street Bank and Trust Co. | 7/22/15 | 4,772 | ||||||||||||||
USD | 207,817 | NOK | 1,631,000 | Deutsche Bank AG | 7/22/15 | (95 | ) | |||||||||||||
USD | 94,448 | NOK | 743,000 | HSBC Bank USA N.A. | 7/22/15 | (266 | ) | |||||||||||||
USD | 182,759 | NZD | 243,000 | JPMorgan Chase Bank N.A. | 7/22/15 | 18,428 | ||||||||||||||
Total |
|
$ (69,939 |
) | |||||||||||||||||
|
|
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments) |
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Global Opportunities V.I. Fund |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Long-Term Investments: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Australia | $ | 47,922 | — | — | $ | 47,922 | ||||||||||
Austria | — | $ | 84,760 | — | 84,760 | |||||||||||
Belgium | — | 400,614 | — | 400,614 | ||||||||||||
British Virgin Islands | 782,261 | — | — | 782,261 | ||||||||||||
Canada | 443,963 | — | — | 443,963 | ||||||||||||
China | 537,964 | 740,141 | — | 1,278,105 | ||||||||||||
France | — | 1,828,998 | — | 1,828,998 | ||||||||||||
Germany | — | 1,314,242 | — | 1,314,242 | ||||||||||||
Hong Kong | — | 539,008 | — | 539,008 | ||||||||||||
India | 321,892 | 691,713 | — | 1,013,605 | ||||||||||||
Indonesia | — | 309,213 | — | 309,213 | ||||||||||||
Ireland | 758,040 | — | — | 758,040 | ||||||||||||
Italy | — | 156,801 | — | 156,801 | ||||||||||||
Japan | — | 2,900,456 | — | 2,900,456 | ||||||||||||
Mexico | 158,120 | — | — | 158,120 | ||||||||||||
Netherlands | 690,562 | 186,519 | — | 877,081 | ||||||||||||
New Zealand | 181,822 | — | — | 181,822 | ||||||||||||
Nigeria | 177,482 | — | — | 177,482 | ||||||||||||
Norway | — | 357,106 | — | 357,106 | ||||||||||||
Peru | 283,119 | — | — | 283,119 | ||||||||||||
South Africa | — | 463,559 | — | 463,559 | ||||||||||||
South Korea | — | 636,258 | — | 636,258 | ||||||||||||
Spain | 746,992 | 582,610 | — | 1,329,602 | ||||||||||||
Sweden | — | 368,116 | — | 368,116 | ||||||||||||
Switzerland | — | 1,185,499 | — | 1,185,499 | ||||||||||||
Taiwan | — | 544,463 | — | 544,463 | ||||||||||||
United Kingdom | 1,311,350 | 2,811,470 | $ | 253,012 | 4,375,832 | |||||||||||
United States | 23,278,283 | 256,098 | 199,296 | 23,733,677 | ||||||||||||
Preferred Stocks: | ||||||||||||||||
India | — | — | 332,621 | 332,621 | ||||||||||||
United States | — | — | 646,847 | 646,847 | ||||||||||||
Rights | 6,605 | — | — | 6,605 | ||||||||||||
Short-Term Securities | 238,037 | 133,099 | — | 371,136 | ||||||||||||
|
| |||||||||||||||
Total | $ | 29,964,414 | $ | 16,490,743 | $ | 1,431,776 | $ | 47,886,933 | ||||||||
|
| |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Derivative Financial Instruments1 | ||||||||||||||||
Assets: | ||||||||||||||||
Foreign currency exchange contracts | — | $ | 83,667 | — | $ | 83,667 | ||||||||||
Liabilities: | ||||||||||||||||
Foreign currency exchange contracts | — | (153,606 | ) | — | (153,606 | ) | ||||||||||
|
| |||||||||||||||
Total | — | $ | (69,939 | ) | — | $ | (69,939 | ) | ||||||||
|
|
1 | Derivative financial instruments are forward foreign currency exchange contracts which are valued at the unrealized appreciation (depreciation) on the instrument. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Schedule of Investments (concluded) | BlackRock Global Opportunities V.I. Fund |
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets: | ||||||||||||||
Cash | $ | 14,523 | — | — | $ | 14,523 | ||||||||
Foreign currency at value | 145,999 | — | — | 145,999 | ||||||||||
Liabilities: | ||||||||||||||
Collateral on securities loaned at value | — | $ | (133,099 | ) | — | (133,099 | ) | |||||||
|
| |||||||||||||
Total | $ | 160,522 | $ | (133,099 | ) | — | $ | 27,423 | ||||||
|
|
Transfers between Level 1 and Level 2 were as follows:
Transfers into Level 11 | Transfers out of Level 1 | Transfers into Level 2 | Transfers out of Level 21 | |||||||||||||
Assets: | ||||||||||||||||
Long-Term Investments: | ||||||||||||||||
United States | $ | 1,217,160 | — | — | $ | (1,217,160 | ) |
1 | Systematic Fair Value Prices were not utilized at period end for these investments. |
A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the year in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:
Common Stocks | Preferred Securities | Total | ||||||||||
Assets: | ||||||||||||
Opening balance, as of December 31, 2014 | $ | 457,779 | $ | 668,723 | $ | 1,126,502 | ||||||
Transfers into Level 3 | — | — | — | |||||||||
Transfers out of Level 3 | — | — | — | |||||||||
Accrued discounts/premiums | — | — | — | |||||||||
Net realized gain (loss) | — | — | — | |||||||||
Net change in unrealized appreciation (depreciation)2,3 | (5,471 | ) | 310,745 | 305,274 | ||||||||
Purchases | — | — | — | |||||||||
Sales | — | — | — | |||||||||
Closing balance, as of June 30, 2015 | $ | 452,308 | $ | 979,468 | $ | 1,431,776 | ||||||
|
| |||||||||||
Net change in unrealized appreciation (depreciation) on investments still held at June 30, 20153 | $ | (5,471 | ) | $ | 310,745 | $ | 305,274 | |||||
|
|
2 | Included in the related net change in unrealized appreciation (depreciation) in the Statement of Operations. |
3 | Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at June 30, 2015 is generally due to investments no longer held or categorized as Level 3 at year end. |
The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (“Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of June 30, 2015.
Value | Valuation Techniques | Unobservable Inputs | Range of Unobservable Inputs Utilized | |||||||||
Assets: | ||||||||||||
Common Stocks | $ | 452,308 | Market Comparable Companies | Price to Tangible Book Value Multiple4 | 1.65x-1.85x | |||||||
Preferred Stocks5 | 332,621 | Probability-Weighted Expected Return Model | Revenue Growth Rate4 | 86.44% | ||||||||
Discount Rate6 | 25.00% | |||||||||||
IPO Exit Probability4 | 65.00% | |||||||||||
Projected Revenue Multiple4 | 1.50x-3.35x | |||||||||||
Years to IPO6 | 1-3 | |||||||||||
646,847 | Market Comparable Companies | Current Year Revenue Multiple4 | 26.05x | |||||||||
Net Revenue Growth Rate4 | 372.80% | |||||||||||
Next Fiscal Year Revenue Multiple4 | 17.50x | |||||||||||
Compounded Annual Net Revenue Growth Rate4 | 84.50% | |||||||||||
Total | $ | 1,431,776 | ||||||||||
|
|
4 | Increase in unobservable input may result in a significant increase to value, while a decrease in unobservable input may result in a significant decrease to value. |
5 | For the period ended June 30, 2015, the valuation technique for certain investments classified as preferred stocks changed to a market comparable companies technique. The investments were previously valued utilizing a Probability-Weighted Expected Return Model. Market approach information is the primary measure of fair value for these investments. |
6 | Decrease in unobservable input may result in a significant increase to value, while an increase in unobservable input may result in a significant decrease to value. |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Global Opportunities V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $78,087) (cost — $42,916,124) | $ | 47,515,797 | ||
Investments at value — affiliated (cost — $371,136) | 371,136 | |||
Cash | 14,523 | |||
Foreign currency at value (cost — $145,900) | 145,999 | |||
Receivables: | ||||
Investments sold | 332,230 | |||
Dividends — unaffiliated | 95,859 | |||
Capital shares sold | 30,098 | |||
From the Manager | 15,250 | |||
Securities lending income — affiliated | 363 | |||
Dividends — affiliated | 29 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 83,667 | |||
Prepaid expenses | 111 | |||
|
| |||
Total assets | 48,605,062 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 133,099 | |||
Payables: | ||||
Investments purchased | 380,116 | |||
Investment advisory fees | 30,013 | |||
Capital shares redeemed | 10,897 | |||
Officer’s and Directors’ fees | 1,233 | |||
Distribution fees | 658 | |||
Other affiliates | 261 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 153,606 | |||
Other accrued expenses payable | 85,164 | |||
|
| |||
Total liabilities | 795,047 | |||
|
| |||
Net Assets | $ | 47,810,015 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 41,784,855 | ||
Undistributed net investment income | 100,188 | |||
Accumulated net realized gain | 1,396,226 | |||
Net unrealized appreciation (depreciation) | 4,528,746 | |||
|
| |||
Net Assets | $ | 47,810,015 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $44,721,229 and 2,577,190 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 17.35 | ||
|
| |||
Class III — Based on net assets of $3,088,786 and 178,859 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 17.27 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Global Opportunities V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 528,744 | ||
Securities lending — affiliated — net | 3,512 | |||
Dividends — affiliated | 80 | |||
Foreign taxes withheld | (40,026 | ) | ||
|
| |||
Total income | 492,310 | |||
|
| |||
Expenses | ||||
Investment advisory | 178,523 | |||
Transfer agent | 2,449 | |||
Transfer agent — Class I | 45,033 | |||
Transfer agent — Class III | 2,879 | |||
Professional | 28,150 | |||
Custodian | 13,834 | |||
Accounting services | 9,934 | |||
Officer and Directors | 8,904 | |||
Printing | 6,891 | |||
Distribution — Class III | 3,805 | |||
Miscellaneous | 8,718 | |||
|
| |||
Total expenses | 309,120 | |||
Less fees waived by the Manager | (209 | ) | ||
Less transfer agent fees reimbursed — Class I | (45,033 | ) | ||
Less transfer agent fees reimbursed — Class III | (2,879 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 260,999 | |||
|
| |||
Net investment income | 231,311 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain from: | ||||
Investments | 1,603,723 | |||
Foreign currency transactions | 136,579 | |||
|
| |||
1,740,302 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 990,368 | |||
Foreign currency translations | (126,697 | ) | ||
|
| |||
863,671 | ||||
|
| |||
Net realized and unrealized gain | 2,603,973 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 2,835,284 | ||
|
|
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statements of Changes in Net Assets | BlackRock Global Opportunities V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months 2015 | Year Ended | ||||||
Operations | ||||||||
Net investment income | $ | 231,311 | $ | 402,119 | ||||
Net realized gain | 1,740,302 | 3,601,586 | ||||||
Net change in unrealized appreciation (depreciation) | 863,671 | (6,018,216 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 2,835,284 | (2,014,511 | ) | |||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | — | (542,468 | ) | |||||
Class III | — | (26,292 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (1,941,800 | ) | |||||
Class III | — | (131,029 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (2,641,589 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net decrease in net assets derived from capital share transactions | (2,132,862 | ) | (1,814,893 | ) | ||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | 702,422 | (6,470,993 | ) | |||||
Beginning of period | 47,107,593 | 53,578,586 | ||||||
|
| |||||||
End of period | $ | 47,810,015 | $ | 47,107,593 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income, end of period | $ | 100,188 | $ | (131,123 | ) | |||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Financial Highlights | BlackRock Global Opportunities V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.35 | $ | 17.98 | $ | 13.89 | $ | 12.26 | $ | 14.17 | $ | 12.84 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.08 | 0.14 | 0.07 | 0.18 | 0.14 | 0.13 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.92 | (0.81 | ) | 4.08 | 1.60 | (1.89 | ) | 1.31 | ||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 1.00 | (0.67 | ) | 4.15 | 1.78 | (1.75 | ) | 1.44 | ||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.20 | ) | (0.06 | ) | (0.15 | ) | (0.16 | ) | (0.11 | ) | |||||||||||||
Net realized gain | — | (0.76 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.96 | ) | (0.06 | ) | (0.15 | ) | (0.16 | ) | (0.11 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 17.35 | $ | 16.35 | $ | 17.98 | $ | 13.89 | $ | 12.26 | $ | 14.17 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 6.57 | %4 | (3.74 | )% | 29.87 | %5 | 14.53 | % | (12.39 | )% | 11.23 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.28 | %6 | 1.33 | % | 1.33 | % | 1.19 | % | 1.09 | % | 1.05 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 1.08 | %6 | 1.12 | % | 1.14 | % | 1.06 | % | 1.09 | % | 1.04 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.99 | %6 | 0.82 | % | 0.44 | % | 1.36 | % | 1.04 | % | 1.05 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 44,721 | $ | 44,136 | $ | 52,175 | $ | 43,102 | $ | 43,381 | $ | 56,934 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 36 | % | 87 | % | 135 | % | 139 | % | 119 | % | 136 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 29.72%. |
6 | Annualized. |
See Notes to Financial Statements.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights (concluded) | BlackRock Global Opportunities V.I. Fund |
Class III | ||||||||||||||||||||||||
Six Months Ended June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.29 | $ | 17.93 | $ | 13.86 | $ | 12.23 | $ | 14.12 | $ | 12.80 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.06 | 0.06 | 0.03 | 0.14 | 0.11 | 0.10 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.92 | (0.77 | ) | 4.06 | 1.60 | (1.88 | ) | 1.30 | ||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.98 | (0.71 | ) | 4.09 | 1.74 | (1.77 | ) | 1.40 | ||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.17 | ) | (0.02 | ) | (0.11 | ) | (0.12 | ) | (0.08 | ) | |||||||||||||
Net realized gain | — | (0.76 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.93 | ) | (0.02 | ) | (0.11 | ) | (0.12 | ) | (0.08 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 17.27 | $ | 16.29 | $ | 17.93 | $ | 13.86 | $ | 12.23 | $ | 14.12 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 6.47 | %4 | (4.00 | )% | 29.51 | %5 | 14.28 | % | (12.53 | )% | 10.93 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.52 | %6 | 1.57 | % | 1.58 | % | 1.43 | % | 1.35 | % | 1.29 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 1.33 | %6 | 1.39 | % | 1.39 | % | 1.31 | % | 1.35 | % | 1.29 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.75 | %6 | 0.32 | % | 0.16 | % | 1.09 | % | 0.78 | % | 0.80 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 3,089 | $ | 2,972 | $ | 1,404 | $ | 1,051 | $ | 1,070 | $ | 1,072 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 36 | % | 87 | % | 135 | % | 139 | % | 119 | % | 136 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 29.37%. |
6 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (Unaudited) | BlackRock Global Opportunities V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Global Opportunities V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares also bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”)(generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at NAV each business day.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Fund’s pricing vendors, regular reviews of key inputs and
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Global Opportunities V.I. Fund |
assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., forward foreign currency exchange contracts), that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Preferred Stock: The Fund may invest in preferred stock. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (continued) | BlackRock Global Opportunities V.I. Fund |
stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”), which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | |||
Morgan Stanley | $78,087 | $(78,087) | — |
1 | Collateral with a value of $133,099 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities lent if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Global Opportunities V.I. Fund |
The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:
Fair Values of Derivative Financial Instruments as of June 30, 2015 | ||||||
Value | ||||||
Statement of Assets and Liabilities Location | Derivative Assets | Derivative Liabilities | ||||
Foreign currency exchange contracts | Unrealized appreciation (depreciation) on forward foreign currency exchange contracts | $83,667 | $(153,606) | |||
The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2015 | ||||||
Net Realized Gain From | Net Change in Unrealized Appreciation (Depreciation) On | |||||
Foreign currency exchange contracts: | ||||||
Foreign currency transactions/translations | $145,223 | $(134,653) |
For the six months ended June 30, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:
Forward foreign currency exchange contracts: | ||||||||
Average amounts purchased — in USD | $ | 4,920,129 | ||||||
Average amounts sold — in USD | $ | 3,746,997 |
Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund.
In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund and its counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
Notes to Financial Statements (continued) | BlackRock Global Opportunities V.I. Fund |
As of June 30, 2015, the Fund’s derivative assets and liabilities (by type) are as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Forward foreign currency exchange contracts | $ | 83,667 | $ | (153,606 | ) | |||||
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | 83,667 | (153,606 | ) | |||||||
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | — | — | ||||||||
|
| |||||||||
Total derivative assets and liabilities subject to an MNA | $ | 83,667 | $ | (153,606 | ) | |||||
|
|
As of June 30, 2015, the following tables present the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:
Counterparty | Derivative Assets Subject to an MNA by Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Received | Cash Collateral Received | Net Amount of Derivative Assets2 | |||||||||||||||
Bank of America N.A. | $ | 18,440 | $ | (416 | ) | — | — | $ | 18,024 | |||||||||||
The Bank of New York Mellon | 19 | (11 | ) | — | — | 8 | ||||||||||||||
Barclays Bank PLC | 2,010 | — | — | — | 2,010 | |||||||||||||||
BNP Paribas S.A. | 17 | (17 | ) | — | — | — | ||||||||||||||
Citibank N.A. | 3,591 | (1,030 | ) | — | — | 2,561 | ||||||||||||||
Goldman Sachs International | 27,288 | (27,288 | ) | — | — | — | ||||||||||||||
HSBC Bank USA N.A. | 287 | (266 | ) | — | — | 21 | ||||||||||||||
JPMorgan Chase Bank N.A. | 18,428 | — | — | — | 18,428 | |||||||||||||||
Royal Bank of Canada | 117 | (72 | ) | — | — | 45 | ||||||||||||||
Standard Chartered Bank | 429 | (429 | ) | — | — | — | ||||||||||||||
State Street Bank and Trust Co. | 12,945 | (7,340 | ) | — | — | 5,605 | ||||||||||||||
TD Securities, Inc. | 96 | — | — | — | 96 | |||||||||||||||
|
| |||||||||||||||||||
Total | $ | 83,667 | $ | (36,869 | ) | — | — | $ | 46,798 | |||||||||||
|
| |||||||||||||||||||
Counterparty | Derivative Liabilities Subject to an MNA | Derivatives Offset1 | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities3 | |||||||||||||||
Bank of America N.A. | $ | 416 | $ | (416 | ) | — | — | — | ||||||||||||
The Bank of New York Mellon | 11 | (11 | ) | — | — | — | ||||||||||||||
BNP Paribas S.A. | 53 | (17 | ) | — | — | 36 | ||||||||||||||
Citibank N.A. | 1,030 | (1,030 | ) | — | — | — | ||||||||||||||
Deutsche Bank AG | 95 | — | — | — | 95 | |||||||||||||||
Goldman Sachs International | 137,330 | (27,288 | ) | — | — | 110,042 | ||||||||||||||
HSBC Bank USA N.A. | 266 | (266 | ) | — | — | — | ||||||||||||||
Royal Bank of Canada | 72 | (72 | ) | — | — | — | ||||||||||||||
Standard Chartered Bank | 6,993 | (429 | ) | — | — | 6,564 | ||||||||||||||
State Street Bank and Trust Co. | 7,340 | (7,340 | ) | — | — | — | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | 153,606 | $ | (36,869 | ) | — | — | $ | 116,737 | |||||||||||
|
|
1 | The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA. |
2 | Net amount represents the net amount receivable from the counterparty in the event of default. |
3 | Net amount represents the net amount payable due to the counterparty in the event of default. |
5. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | ||||
First $1 Billion | 0.75 | % | |||
$1 Billion — $3 Billion | 0.71 | % | |||
$3 Billion — $5 Billion | 0.68 | % | |||
$5 Billion — $10 Billion | 0.65 | % | |||
Greater than $10 Billion | 0.64 | % |
20 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Global Opportunities V.I. Fund |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is included in fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investments in other affiliated investment companies, if any. For the six months ended, June 30, 2015, the amount waived was $109.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $251 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at the annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse all such fees for Class I and Class III.
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 0.97% for Class I and 1.22% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors. Prior to June 1, 2015, the expense limitation as a percentage of average daily net assets was 1.25% for Class I and 1.50% for Class III.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 80% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 85% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $871 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 21 |
Notes to Financial Statements (continued) | BlackRock Global Opportunities V.I. Fund |
The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment advisor, common officers, or common directors. For the six months ended June 30, 2015, the sale transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were $318,672.
6. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $16,957,655 and $18,676,168, respectively.
7. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 43,472,714 | ||
|
| |||
Gross unrealized appreciation | $ | 6,191,018 | ||
Gross unrealized depreciation | (1,776,799 | ) | ||
|
| |||
Net unrealized appreciation | $ | 4,414,219 | ||
|
|
8. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
9. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
The Fund invests a substantial amount of its assets in issuers located in a single country or a limited number of countries. When the Fund concentrates its investments in this manner, it assumes the risk that economic, political and social conditions in those countries may have a significant impact on their investment performance. Foreign issuers may not be subject to the same uniform accounting, auditing and financial reporting standards and practices as used in the United States. Foreign securities markets may also be less liquid, more volatile, and less subject to governmental supervision not typically associated with investing in U.S. securities. Investment percentages in specific countries are presented in the Schedule of Investments.
22 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (concluded) | BlackRock Global Opportunities V.I. Fund |
The Fund invests a significant portion of its assets in securities of issuers located in Europe or with significant exposure to European issuers or countries. The European financial markets have recently experienced volatility and adverse trends due to concerns about economic downturns in, or rising government debt levels of, several European countries. These events may spread to other countries in Europe and may affect the value and liquidity of certain of the Fund’s investments.
As of June 30, 2015, the Fund had the following industry classifications:
Industry | Percent of Long-Term Investments | ||||
Banks | 10 | % | |||
Pharmaceuticals | 8 | % | |||
Internet Software & Services | 8 | % | |||
Oil, Gas & Consumerable Fuels | 6 | % | |||
Other1 | 68 | % |
1 | All other industries held were each less than 5% of long-term investments. |
10. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||
Class I | ||||||||||||||||||||||
Shares sold | 76,223 | $ | 1,326,660 | 76,855 | $ | 1,362,634 | ||||||||||||||||
Shares issued in reinvestment of distributions | — | — | 150,390 | 2,484,268 | ||||||||||||||||||
Shares redeemed | (198,976 | ) | (3,403,439 | ) | (428,645 | ) | (7,481,126 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||||
Net decrease | (122,753 | ) | $ | (2,076,779 | ) | (201,400 | ) | $ | (3,634,224 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||
| ||||||||||||||||||||||
Class III | ||||||||||||||||||||||
Shares sold | 19,770 | $ | 338,325 | 117,065 | $ | 2,050,386 | ||||||||||||||||
Shares issued in reinvestment of distributions | — | — | 9,572 | 157,321 | ||||||||||||||||||
Shares redeemed | (23,369 | ) | (394,408 | ) | (22,470 | ) | (388,376 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||||
Net increase (decrease) | (3,599 | ) | $ | (56,083 | ) | 104,167 | $ | 1,819,331 | ||||||||||||||
|
|
|
| |||||||||||||||||||
Total Net Decrease | (126,352 | ) | $ | (2,132,862 | ) | (97,233 | ) | $ | (1,814,893 | ) | ||||||||||||
|
|
|
|
11. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015:
Net Investment Income | ||||
Class I | $ | 0.005442 | ||
Class III | $ | 0.005442 |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 23 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock High Yield V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock High Yield V.I. Fund |
Investment Objective |
BlackRock High Yield V.I. Fund’s (the “Fund”) investment objective is to seek to maximize total return, consistent with income generation and prudent investment management.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund underperformed its benchmark, the Barclays U.S. Corporate High Yield 2% Issuer Capped Index. |
What factors influenced performance?
• | The Fund, which has the ability to invest anywhere in an issuer’s capital structure, had an allocation to the equities of select high yield companies during the period. This position detracted from Fund returns, largely due to the underperformance of Ally Financial, Inc., The Goodyear Tire & Rubber Company and American Capital Ltd. The Fund also uses equity futures to offset the risk of its equity positions and the overall portfolio. At a time of modest gains for equities, this strategy detracted from performance. |
• | The Fund’s underweight position in BB-rated high yield bonds helped performance, as this market segment lagged the middle and lower quality tiers. The Fund’s out-of-index allocation to senior loans, which outperformed both BB-rated bonds and the high yield market in general, also had a positive impact on returns. The Fund’s higher-quality bias within the energy sector was an additional positive. Among individual companies, the Fund added value through its investments in Amaya, Inc., HD Supply Holdings, Inc., American International Group, Inc. and First Data Corp. |
• | The Fund may utilize credit default swaps (CDS) and currency forward contracts from time to time. Currency forwards are intermittently employed in the portfolio to manage the currency risk of non-dollar denominated bonds. On occasion, the Fund will utilize S&P futures as an |
additional mechanism to manage portfolio beta and offset general market volatility, and it will use U.S. Treasury futures to manage interest rate risk. The Fund’s exposure to derivatives had a positive impact on performance. |
Describe recent portfolio activity.
• | The Fund made a modest reduction to overall portfolio risk, mostly by lowering its equity allocation and taking down its position in convertible and preferred securities. The Fund reduced the extent of its underweight position in energy, mostly by adding to higher quality companies in the independent energy sector. However, it maintained an underweight position in oil field services. The Fund added to its position in Valeant Pharmaceuticals International Inc., which is now one of the top three holdings, while reducing its exposure to Caesars Entertainment Corp., Ally Financial, Inc., and The Goodyear Tire & Rubber Company. |
Describe portfolio positioning at period end.
• | Relative to the Barclays U.S. Corporate High Yield 2% Issuer Capped Index, the Fund ended the period underweight in BB-rated debt. As a partial offset to this position, which has an above-average degree of interest-rate sensitivity, the Fund maintained its out-of-index position in floating rate loans. Although the Fund was approximately market weight in CCC-rated debt, it held an underweight to higher beta (higher risk) CCC companies. Instead, it owned the equity of selected high yield companies, mostly higher quality issuers that the investment advisor believes offer a better risk/return profile than higher beta CCC-rated bonds. On a sector basis, the Fund was slightly underweight in both energy and metals & mining. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Credit Quality Allocations1 | Percent of Long-Term Investments |
BBB/Baa | 5 | % | ||
BB/Ba | 36 | |||
B | 41 | |||
CCC/Caa. | 10 | |||
N/R | 8 |
1 | For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s or Moody’s Investors Service if ratings differ. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change. |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock High Yield V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. The Fund’s total returns prior to October 1, 2011 are the returns of the Fund that followed different investment objectives and investment strategies under the name “BlackRock High Income V.I. Fund”. The returns for Class III Shares, prior to February 15, 2012, the recommencement of Class III Shares, are based upon performance of the Fund’s Class I Shares, as adjusted to reflect the distribution and/or service (12b-1) fees applicable to Class III Shares. |
2 | The Fund invests primarily in non-investment grade bonds with maturities of ten years or less. |
3 | An unmanaged index comprised of issues that meet the following criteria: at least $150 million par value outstanding; maximum credit rating of Ba1; at least one year to maturity; and no issuer represents more than 2% of the index. |
Performance Summary for the Period Ended June 30, 2015 | ||||||||||||||||||||||||
Average Annual Total Returns | ||||||||||||||||||||||||
Standardized 30-Day Yields5 | Unsubsidized 30-Day Yields5 | 6-Month Total Returns6 | 1 Year6 | 5 Years6 | 10 Years6 | |||||||||||||||||||
Class I4 | 5.10 | % | 4.97 | % | 2.36 | % | (0.02 | )% | 8.79 | % | 7.21 | % | ||||||||||||
Class III4 | 4.86 | 4.79 | 2.24 | (0.39 | ) | 8.49 | 7 | 6.93 | 7 | |||||||||||||||
Barclays U.S. Corporate High Yield 2% Issuer Capped Index. | — | — | 2.53 | (0.39 | ) | 8.58 | 7.90 |
4 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value (“NAV”) on the ex-dividend/payable date. Insurance-related fees and expenses are not reflected in these returns. |
5 | The standardized 30-day yield includes the effects of any waivers and/or reimbursements. The unsubsidized 30-day yield excludes the effects of any waivers and/or reimbursements. |
6 | For a portion of the period, the Fund’s investment advisor waived a portion of its fees. Without such waiver, the Fund’s performance would have been lower. |
7 | The returns for Class III Shares, prior to February 15, 2012, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares, as adjusted to reflect the distribution and/or service (12b-1) fees applicable to Class III Shares. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example | ||||||||||||||||||||||||||||
Actual | Hypothetical9 | |||||||||||||||||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period8 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period8 | Annualized Expense Ratio | ||||||||||||||||||||||
Class I | $1,000.00 | $1,023.60 | $3.51 | $1,000.00 | $1,021.32 | $3.51 | 0.70 | % | ||||||||||||||||||||
Class III | $1,000.00 | $1,022.40 | $4.71 | $1,000.00 | $1,020.13 | $4.71 | 0.94 | % |
8 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
9 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock High Yield V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical example is useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative financial
instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks |
Shares | Value | ||||||||||
Air Freight & Logistics — 0.1% | ||||||||||||
XPO Logistics, Inc. (a) | 2,910 | $ | 131,474 | |||||||||
Capital Markets — 0.8% | ||||||||||||
American Capital Ltd. (a) | 137,958 | 1,869,331 | ||||||||||
Chemicals — 0.3% | ||||||||||||
Advanced Emissions Solutions, Inc. (a) | 1,644 | 21,372 | ||||||||||
Huntsman Corp. | 25,038 | 552,589 | ||||||||||
|
| |||||||||||
573,961 | ||||||||||||
Consumer Finance — 1.4% | ||||||||||||
Ally Financial, Inc. (a) | 60,914 | 1,366,312 | ||||||||||
Ally Financial, Inc. (a) | 51,770 | 1,161,190 | ||||||||||
Ally Financial, Inc. (a) | 29,273 | 656,593 | ||||||||||
|
| |||||||||||
3,184,095 | ||||||||||||
Diversified Financial Services — 0.0% | ||||||||||||
Concrete Investment II SCA — Stapled (a)(b) | 623 | — | ||||||||||
Diversified Telecommunication Services — 0.0% | ||||||||||||
Broadview Networks Holdings, Inc. (a) | 13,812 | 21,409 | ||||||||||
Hotels, Restaurants & Leisure — 0.5% | ||||||||||||
Amaya, Inc. (a) | 30,619 | 838,897 | ||||||||||
Amaya, Inc. (a) | 9,024 | 247,239 | ||||||||||
|
| |||||||||||
1,086,136 | ||||||||||||
Insurance — 0.6% | ||||||||||||
American International Group, Inc. | 20,659 | 1,277,139 | ||||||||||
Media — 0.2% | ||||||||||||
Cengage Learning Acquisitions, Inc. (Thomson Learning) (a) | 4,279 | 117,138 | ||||||||||
Time Warner Cable, Inc. | 2,550 | 454,334 | ||||||||||
|
| |||||||||||
571,472 | ||||||||||||
Metals & Mining — 0.0% | ||||||||||||
Constellium NV, Class A (a) | 5,392 | 63,787 | ||||||||||
Paper & Forest Products — 0.2% | ||||||||||||
Norbord, Inc. | 17,473 | 368,150 | ||||||||||
Technology Hardware, Storage & Peripherals — 0.1% |
| |||||||||||
Nokia OYJ — ADR | 34,519 | 236,455 | ||||||||||
Wireless Telecommunication Services — 0.1% | ||||||||||||
T-Mobile U.S., Inc. (a) | 6,800 | 263,636 | ||||||||||
Total Common Stocks — 4.3% | 9,647,045 | |||||||||||
Corporate Bonds | Par (000) | |||||||||||
Aerospace & Defense — 1.2% | ||||||||||||
Bombardier, Inc., 7.50%, 3/15/25 (c) | USD | 149 | 135,217 | |||||||||
Huntington Ingalls Industries, Inc., 5.00%, | 109 | 110,907 | ||||||||||
LMI Aerospace, Inc., 7.38%, 7/15/19 | 34 | 33,915 | ||||||||||
Spirit Aerosystems, Inc., 5.25%, 3/15/22 | 315 | 325,237 |
Corporate Bonds | Par (000) | Value | ||||||||||
Aerospace & Defense (concluded) | ||||||||||||
TransDigm, Inc.: | ||||||||||||
5.50%, 10/15/20 | USD | 155 | $ | 154,031 | ||||||||
6.00%, 7/15/22 | 1,235 | 1,219,563 | ||||||||||
6.50%, 7/15/24 | 708 | 699,150 | ||||||||||
|
| |||||||||||
2,678,020 | ||||||||||||
Air Freight & Logistics — 0.6% | ||||||||||||
CEVA Group PLC, 7.00%, 3/01/21 (c) | 80 | 77,200 | ||||||||||
WFS Global Holding SAS, 9.50%, 7/15/22 | EUR | 100 | 114,127 | |||||||||
XPO Logistics, Inc.: | ||||||||||||
7.88%, 9/01/19 (c) | USD | 458 | 489,419 | |||||||||
6.50%, 6/15/22 (c) | 586 | 573,547 | ||||||||||
|
| |||||||||||
1,254,293 | ||||||||||||
Airlines — 0.9% | ||||||||||||
Air Medical Merger Sub Corp., 6.38%, 5/15/23 (c) | 147 | 138,180 | ||||||||||
American Airlines Group, Inc.: | ||||||||||||
5.50%, 10/01/19 (c) | 65 | 65,488 | ||||||||||
4.63%, 3/01/20 (c) | 244 | 236,070 | ||||||||||
American Airlines Pass-Through Trust, Series 2013-2, Class C, 6.00%, 1/15/17 (c) | 660 | 674,850 | ||||||||||
Continental Airlines Pass-Through Certificates, Series 2012-3, Class C, 6.13%, 4/29/18 | 365 | 380,513 | ||||||||||
National Air Cargo Group, Inc.: | ||||||||||||
12.38%, 9/02/15 (d) | 111 | 111,417 | ||||||||||
12.38%, 10/08/15 (d) | 114 | 113,556 | ||||||||||
Virgin Australia Trust, Series 2013-1C, 7.13%, | 335 | 341,194 | ||||||||||
|
| |||||||||||
2,061,268 | ||||||||||||
Auto Components — 1.5% | ||||||||||||
AA Bond Co. Ltd.: | ||||||||||||
5.50%, 7/31/43 | GBP | 125 | 195,227 | |||||||||
9.50%, 7/31/43 | 100 | 171,265 | ||||||||||
Affinia Group, Inc., 7.75%, 5/01/21 | USD | 75 | 78,375 | |||||||||
The Goodyear Tire & Rubber Company: | ||||||||||||
6.50%, 3/01/21 | 575 | 608,781 | ||||||||||
7.00%, 5/15/22 | 100 | 108,725 | ||||||||||
Icahn Enterprises LP/Icahn Enterprises Finance Corp.: | ||||||||||||
6.00%, 8/01/20 | 590 | 609,175 | ||||||||||
5.88%, 2/01/22 | 435 | 443,156 | ||||||||||
Schaeffler Finance BV, 4.75%, 5/15/23 (c) | 200 | 195,000 | ||||||||||
ZF North America Capital, Inc.: | ||||||||||||
2.25%, 4/26/19 | EUR | 100 | 110,649 | |||||||||
4.00%, 4/29/20 (c) | USD | 161 | 160,799 | |||||||||
4.50%, 4/29/22 (c) | 150 | 146,933 | ||||||||||
2.75%, 4/27/23 | EUR | 200 | 210,484 | |||||||||
4.75%, 4/29/25 (c) | USD | 387 | 374,666 | |||||||||
|
| |||||||||||
3,413,235 | ||||||||||||
Automobiles — 0.2% | ||||||||||||
Jaguar Land Rover Automotive PLC: | ||||||||||||
5.00%, 2/15/22 | GBP | 145 | 234,177 | |||||||||
5.63%, 2/01/23 (c) | USD | 150 | 155,250 | |||||||||
|
| |||||||||||
389,427 | ||||||||||||
Banks — 0.8% | ||||||||||||
Bankia SA, 4.00%, 5/22/24 (d) | EUR | 200 | 216,511 |
Portfolio Abbreviations | ||||||||||
ADR | American Depositary Receipt | EUR | Euro | PIK | Payment-in-kind | |||||
AKA | Also Know As | FKA | Formerly Known As | USD | US Dollar | |||||
CAD | Canadian Dollar | GBP | British Pound |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Banks (concluded) | ||||||||||||
CIT Group, Inc.: | ||||||||||||
6.63%, 4/01/18 (c) | USD | 155 | $ | 164,494 | ||||||||
5.00%, 8/01/23 | 1,151 | 1,133,735 | ||||||||||
Novo Banco SA: | ||||||||||||
2.63%, 5/08/17 | EUR | 100 | 108,419 | |||||||||
4.75%, 1/15/18 | 100 | 113,079 | ||||||||||
4.00%, 1/21/19 | 100 | 110,934 | ||||||||||
|
| |||||||||||
1,847,172 | ||||||||||||
Beverages — 0.1% | ||||||||||||
Constellation Brands, Inc.: | ||||||||||||
3.88%, 11/15/19 | USD | 99 | 100,485 | |||||||||
4.25%, 5/01/23 | 43 | 42,355 | ||||||||||
Hydra Dutch Holdings 2 BV, 5.51%, | EUR | 130 | 134,902 | |||||||||
|
| |||||||||||
277,742 | ||||||||||||
Building Products — 0.9% | ||||||||||||
Builders FirstSource, Inc., 7.63%, 6/01/21 (c) | USD | 154 | 159,390 | |||||||||
CPG Merger Sub LLC, 8.00%, 10/01/21 (c) | 409 | 422,701 | ||||||||||
The Hillman Group, Inc., 6.38%, 7/15/22 (c) | 106 | 100,170 | ||||||||||
Masonite International Corp., 5.63%, | 165 | 167,681 | ||||||||||
Pfleiderer GmbH, 7.88%, 8/01/19 | EUR | 100 | 114,969 | |||||||||
Ply Gem Industries, Inc., 6.50%, 2/01/22 | USD | 545 | 538,187 | |||||||||
The Ryland Group, Inc., 6.63%, 5/01/20 | 255 | 283,050 | ||||||||||
USG Corp.: | ||||||||||||
5.88%, 11/01/21 (c) | 220 | 231,550 | ||||||||||
5.50%, 3/01/25 (c) | 54 | 53,798 | ||||||||||
|
| |||||||||||
2,071,496 | ||||||||||||
Capital Markets — 0.4% | ||||||||||||
E*TRADE Financial Corp.: | ||||||||||||
0.00%, 8/31/19 (c)(e)(f) | 172 | 497,037 | ||||||||||
5.38%, 11/15/22 | 273 | 279,825 | ||||||||||
Series A, 0.00%, 8/31/19 (e)(f) | 3 | 8,669 | ||||||||||
|
| |||||||||||
785,531 | ||||||||||||
Chemicals — 1.2% | ||||||||||||
Axalta Coating Systems U.S. Holdings, | 193 | 206,751 | ||||||||||
Axiall Corp., 4.88%, 5/15/23 | 37 | 35,705 | ||||||||||
Celanese U.S. Holdings LLC, 4.63%, 11/15/22 | 85 | 84,150 | ||||||||||
The Chemours Co.: | ||||||||||||
6.63%, 5/15/23 (c) | 134 | 129,813 | ||||||||||
7.00%, 5/15/25 (c) | 162 | 157,140 | ||||||||||
Chemtura Corp., 5.75%, 7/15/21 | 91 | 92,365 | ||||||||||
Huntsman International LLC: | ||||||||||||
4.88%, 11/15/20 | 113 | 112,717 | ||||||||||
8.63%, 3/15/21 | 72 | 75,774 | ||||||||||
5.13%, 4/15/21 | EUR | 246 | 282,481 | |||||||||
INEOS Group Holdings SA, 6.50%, 8/15/18 | 100 | 113,826 | ||||||||||
Momentive Performance Materials, Inc.: | ||||||||||||
3.88%, 10/24/21 | USD | 334 | 299,765 | |||||||||
Escrow, 0.00%, 10/15/20 (a)(g) | 334 | — | ||||||||||
Nexeo Solutions LLC/Nexeo Solutions Finance | 25 | 23,125 | ||||||||||
Platform Specialty Products Corp., 6.50%, | 855 | 882,787 | ||||||||||
WR Grace & Co-Conn, 5.13%, 10/01/21 (c) | 221 | 222,657 | ||||||||||
|
| |||||||||||
2,719,056 | ||||||||||||
Commercial Services & Supplies — 1.5% | ||||||||||||
Acosta, Inc., 7.75%, 10/01/22 (c) | 425 | 428,187 | ||||||||||
ADS Waste Holdings, Inc., 8.25%, 10/01/20 | 92 | 95,220 | ||||||||||
Avis Budget Car Rental LLC/Avis Budget | 188 | 185,650 |
Corporate Bonds | Par (000) | Value | ||||||||||
Commercial Services & Supplies (concluded) | ||||||||||||
Bilbao Luxembourg SA, 10.69% (10.50% Cash | EUR | 107 | $ | 127,681 | ||||||||
Ceridian HCM Holding, Inc., 11.00%, | USD | 239 | 252,743 | |||||||||
Constellis Holdings LLC/Constellis Finance | 64 | 61,760 | ||||||||||
Covanta Holding Corp.: | ||||||||||||
6.38%, 10/01/22 | 185 | 193,556 | ||||||||||
5.88%, 3/01/24 | 117 | 116,707 | ||||||||||
The Hertz Corp., 7.38%, 1/15/21 | 210 | 218,663 | ||||||||||
Igloo Holdings Corp., 8.25% (8.25% Cash or | 87 | 88,087 | ||||||||||
Laureate Education, Inc., 10.00%, 9/01/19 (c) | 213 | 198,623 | ||||||||||
Safway Group Holding LLC/Safway Finance | 600 | 613,374 | ||||||||||
Verisure Holding AB: | ||||||||||||
8.75%, 9/01/18 | EUR | 100 | 117,617 | |||||||||
Series B, 8.75%, 12/01/18 | 100 | 118,063 | ||||||||||
WaveDivision Escrow LLC/WaveDivision | USD | 537 | 558,480 | |||||||||
|
| |||||||||||
3,374,411 | ||||||||||||
Communications Equipment — 1.3% | ||||||||||||
Alcatel-Lucent USA, Inc.: | ||||||||||||
6.75%, 11/15/20 (c) | 785 | 830,137 | ||||||||||
6.45%, 3/15/29 | 912 | 941,640 | ||||||||||
Blue Coat Holdings, Inc., 8.38%, 6/01/23 (c) | 232 | 236,060 | ||||||||||
CommScope Technologies Finance LLC, 6.00%, | 253 | 252,051 | ||||||||||
CommScope, Inc.: | ||||||||||||
4.38%, 6/15/20 (c) | 260 | 262,600 | ||||||||||
5.50%, 6/15/24 (c) | 48 | 46,680 | ||||||||||
Project Homestake Merger Corp., 8.88%, | 382 | 370,540 | ||||||||||
|
| |||||||||||
2,939,708 | ||||||||||||
Computer Services — 0.1% | ||||||||||||
SunGard Data Systems, Inc., 6.63%, | 190 | 196,175 | ||||||||||
Construction & Engineering — 1.1% | ||||||||||||
Abengoa Finance SAU, 7.00%, 4/15/20 | EUR | 100 | 105,632 | |||||||||
Abengoa Greenfield SA, 6.50%, 10/01/19 (c) | USD | 315 | 292,950 | |||||||||
AECOM, 5.88%, 10/15/24 (c) | 348 | 352,785 | ||||||||||
Aguila 3 SA, 7.88%, 1/31/18 (c) | 400 | 396,000 | ||||||||||
Aldesa Financial Services SA, 7.25%, 4/01/21 | EUR | 100 | 101,061 | |||||||||
Astaldi SpA, 7.13%, 12/01/20 | 200 | 234,146 | ||||||||||
Brand Energy & Infrastructure Services, Inc., | USD | 139 | 129,270 | |||||||||
Modular Space Corp., 10.25%, 1/31/19 (c) | 837 | 724,005 | ||||||||||
|
| |||||||||||
2,335,849 | ||||||||||||
Construction Materials — 0.1% | ||||||||||||
Cemex SAB de CV: | ||||||||||||
4.38%, 3/05/23 | EUR | 100 | 107,165 | |||||||||
5.70%, 1/11/25 (c) | USD | 200 | 190,740 | |||||||||
|
| |||||||||||
297,905 | ||||||||||||
Consumer Finance — 1.2% | ||||||||||||
Ally Financial, Inc.: | ||||||||||||
5.13%, 9/30/24 | 358 | 358,895 | ||||||||||
4.63%, 3/30/25 | 300 | 285,750 | ||||||||||
8.00%, 11/01/31 | 1,458 | 1,745,955 | ||||||||||
DFC Finance Corp., 10.50%, 6/15/20 (c) | 210 | 159,075 | ||||||||||
|
| |||||||||||
2,549,675 |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Containers & Packaging — 1.3% | ||||||||||||
Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc.: | ||||||||||||
6.25%, 1/31/19 (c) | USD | 200 | $ | 203,500 | ||||||||
6.00%, 6/30/21 (c) | 200 | 199,500 | ||||||||||
4.25%, 1/15/22 | EUR | 110 | 121,716 | |||||||||
Ball Corp., 5.00%, 3/15/22 | USD | 215 | 215,537 | |||||||||
Berry Plastics Corp., 5.50%, 5/15/22 | 433 | 434,624 | ||||||||||
Beverage Packaging Holdings Luxembourg II SA, 5.63%, 12/15/16 (c) | 26 | 25,951 | ||||||||||
Crown Americas LLC/Crown Americas Capital Corp. III, 6.25%, 2/01/21 | 183 | 190,777 | ||||||||||
Crown Americas LLC/Crown Americas Capital Corp. IV, 4.50%, 1/15/23 | 90 | 84,994 | ||||||||||
Greif, Inc., 7.75%, 8/01/19 | 69 | 76,763 | ||||||||||
Pactiv LLC, 7.95%, 12/15/25 | 310 | 306,900 | ||||||||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Luxembourg SA, 5.75%, 10/15/20 | 220 | 225,500 | ||||||||||
Sealed Air Corp.: | ||||||||||||
4.88%, 12/01/22 (c) | 64 | 63,040 | ||||||||||
4.50%, 9/15/23 | EUR | 150 | 169,276 | |||||||||
5.13%, 12/01/24 (c) | USD | 414 | 408,307 | |||||||||
6.88%, 7/15/33 (c) | 63 | 63,630 | ||||||||||
|
| |||||||||||
2,790,015 | ||||||||||||
Distributors — 0.3% | ||||||||||||
American Tire Distributors, Inc., 10.25%, 3/01/22 (c) | 473 | 504,927 | ||||||||||
Rhino Bondco SpA, 7.25%, 11/15/20 | EUR | 100 | 118,698 | |||||||||
|
| |||||||||||
623,625 | ||||||||||||
Diversified Consumer Services — 0.1% | ||||||||||||
Service Corp. International U.S., 4.50%, 11/15/20 | USD | 300 | 307,125 | |||||||||
Diversified Financial Services — 0.5% | ||||||||||||
Altice Financing SA: | ||||||||||||
6.50%, 1/15/22 (c) | 360 | 360,000 | ||||||||||
5.25%, 2/15/23 | EUR | 100 | 112,043 | |||||||||
6.63%, 2/15/23 (c) | USD | 245 | 243,236 | |||||||||
Altice U.S. Finance SA, 7.75%, 7/15/25 (c) | 395 | 379,200 | ||||||||||
|
| |||||||||||
1,094,479 | ||||||||||||
Diversified Telecommunication Services — 5.0% | ||||||||||||
Altice Finco SA, 8.13%, 1/15/24 (c) | 300 | 303,000 | ||||||||||
Avaya, Inc.: | ||||||||||||
7.00%, 4/01/19 (c) | 370 | 361,675 | ||||||||||
10.50%, 3/01/21 (c) | 521 | 429,825 | ||||||||||
CenturyLink, Inc., 6.45%, 6/15/21 | 30 | 30,225 | ||||||||||
Columbus International, Inc., 7.38%, 3/30/21 (c) | 370 | 397,750 | ||||||||||
Consolidated Communications, Inc., 6.50%, | 155 | 149,381 | ||||||||||
Frontier Communications Corp.: | ||||||||||||
6.25%, 9/15/21 | 190 | 172,900 | ||||||||||
7.13%, 1/15/23 | 140 | 124,250 | ||||||||||
7.63%, 4/15/24 | 242 | 213,565 | ||||||||||
6.88%, 1/15/25 | 90 | 75,263 | ||||||||||
Intelsat Jackson Holdings SA: | ||||||||||||
6.63%, 12/15/22 | 246 | 223,860 | ||||||||||
5.50%, 8/01/23 | 873 | 773,041 | ||||||||||
Level 3 Financing, Inc.: | ||||||||||||
7.00%, 6/01/20 | 221 | 234,536 | ||||||||||
6.13%, 1/15/21 | 45 | 47,192 | ||||||||||
5.38%, 8/15/22 | 358 | 361,580 | ||||||||||
5.63%, 2/01/23 (c) | 662 | 668,620 | ||||||||||
5.13%, 5/01/23 (c) | 336 | 327,600 | ||||||||||
5.38%, 5/01/25 (c) | 403 | 388,391 |
Corporate Bonds | Par (000) | Value | ||||||||||
Diversified Telecommunication Services (concluded) | ||||||||||||
Telecom Italia Capital SA, 6.00%, 9/30/34 | USD | 570 | $ | 554,673 | ||||||||
Telecom Italia SpA: | ||||||||||||
6.38%, 6/24/19 | GBP | 150 | 255,307 | |||||||||
5.88%, 5/19/23 | 200 | 330,490 | ||||||||||
Telenet Finance V Luxembourg SCA: | ||||||||||||
6.25%, 8/15/22 | EUR | 200 | 239,972 | |||||||||
6.75%, 8/15/24 | 210 | 256,032 | ||||||||||
Virgin Media Secured Finance PLC, 6.00%, 4/15/21 | GBP | 486 | 794,168 | |||||||||
Wind Acquisition Finance SA: | ||||||||||||
6.50%, 4/30/20 (c) | USD | 200 | 209,000 | |||||||||
4.00%, 7/15/20 | EUR | 305 | 339,180 | |||||||||
Zayo Group LLC/Zayo Capital, Inc.: | ||||||||||||
10.13%, 7/01/20 | USD | 639 | 713,610 | |||||||||
6.00%, 4/01/23 (c) | 1,146 | 1,131,904 | ||||||||||
6.38%, 5/15/25 (c) | 320 | 310,400 | ||||||||||
Ziggo Bond Finance BV: | ||||||||||||
4.63%, 1/15/25 | EUR | 100 | 110,370 | |||||||||
5.88%, 1/15/25 (c) | USD | 600 | 588,000 | |||||||||
|
| |||||||||||
11,115,760 | ||||||||||||
Electric Utilities — 0.4% | ||||||||||||
CE Energy AS, 7.00%, 2/01/21 | EUR | 100 | 115,387 | |||||||||
FPL Energy National Wind Portfolio LLC, 6.13%, 3/25/19 (c) | USD | 13 | 13,032 | |||||||||
Talen Energy Supply LLC, 6.50%, 6/01/25 (c) | 124 | 124,000 | ||||||||||
Texas Competitive Electric Holdings Co. LLC/TCEH Finance, Inc., 10.50% (10.50% Cash or 11.25% PIK), 11/01/16 (a)(g)(h) | 5,370 | 577,275 | ||||||||||
Viridian Group FundCo II Ltd., 7.50%, 3/01/20 | EUR | 100 | 111,457 | |||||||||
|
| |||||||||||
941,151 | ||||||||||||
Electrical Equipment — 0.2% | ||||||||||||
GrafTech International Ltd., 6.38%, 11/15/20 | USD | 103 | 93,730 | |||||||||
Sensata Technologies BV: | ||||||||||||
5.63%, 11/01/24 (c) | 72 | 74,520 | ||||||||||
5.00%, 10/01/25 (c) | 121 | 117,824 | ||||||||||
Trionista Holdco GmbH, 5.00%, 4/30/20 | EUR | 105 | 120,864 | |||||||||
|
| |||||||||||
406,938 | ||||||||||||
Electronic Equipment, Instruments & Components — 0.7% | ||||||||||||
Belden, Inc., 5.50%, 4/15/23 | 260 | 299,659 | ||||||||||
CDW LLC/CDW Finance Corp.: | ||||||||||||
6.00%, 8/15/22 | USD | 545 | 562,713 | |||||||||
5.00%, 9/01/23 | 54 | 53,055 | ||||||||||
5.50%, 12/01/24 | 643 | 636,570 | ||||||||||
|
| |||||||||||
1,551,997 | ||||||||||||
Energy Equipment & Services — 0.4% | ||||||||||||
Pacific Drilling SA, 5.38%, 6/01/20 (c) | 210 | 159,075 | ||||||||||
Seventy Seven Energy, Inc., 6.50%, 7/15/22 | 86 | 55,040 | ||||||||||
Transocean, Inc.: | ||||||||||||
3.00%, 10/15/17 | 199 | 193,030 | ||||||||||
6.00%, 3/15/18 | 266 | 268,660 | ||||||||||
6.50%, 11/15/20 | 125 | 115,781 | ||||||||||
|
| |||||||||||
791,586 | ||||||||||||
Food & Staples Retailing — 0.6% | ||||||||||||
Findus Bondco SA, 9.13%, 7/01/18 | EUR | 100 | 116,781 | |||||||||
Rite Aid Corp.: | ||||||||||||
9.25%, 3/15/20 | USD | 90 | 97,537 | |||||||||
6.75%, 6/15/21 | 221 | 232,050 | ||||||||||
6.13%, 4/01/23 (c) | 837 | 862,110 | ||||||||||
7.70%, 2/15/27 | 100 | 117,500 | ||||||||||
|
| |||||||||||
1,425,978 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Food Products — 0.7% | ||||||||||||
Bakkavor Finance 2 PLC, 8.75%, 6/15/20 | GBP | 100 | $ | 172,227 | ||||||||
Boparan Finance PLC, 5.50%, 7/15/21 | 100 | 142,629 | ||||||||||
H. J. Heinz Co., 4.25%, 10/15/20 | USD | 457 | 466,711 | |||||||||
JBS USA LLC/JBS USA Finance, Inc., | 190 | 187,805 | ||||||||||
R&R PIK PLC, 9.25% | EUR | 213 | 239,275 | |||||||||
Smithfield Foods, Inc.: | ||||||||||||
5.88%, 8/01/21 (c) | USD | 52 | 53,690 | |||||||||
6.63%, 8/15/22 | 120 | 128,100 | ||||||||||
The WhiteWave Foods Co., 5.38%, 10/01/22 | 80 | 84,400 | ||||||||||
|
| |||||||||||
1,474,837 | ||||||||||||
Health Care Equipment & Supplies — 0.8% | ||||||||||||
Alere, Inc.: | ||||||||||||
7.25%, 7/01/18 | 315 | 329,963 | ||||||||||
8.63%, 10/01/18 | 146 | 151,183 | ||||||||||
6.50%, 6/15/20 | 48 | 49,440 | ||||||||||
6.38%, 7/01/23 (c) | 176 | 179,080 | ||||||||||
DJO Finco, Inc./DJO Finance LLC/DJO Finance Corp., | 636 | 655,080 | ||||||||||
Hologic, Inc.: | ||||||||||||
6.25%, 8/01/20 | 135 | 139,644 | ||||||||||
5.25%, 7/15/22 (c) | 249 | 254,291 | ||||||||||
|
| |||||||||||
1,758,681 | ||||||||||||
Health Care Providers & Services — 5.2% | ||||||||||||
Acadia Healthcare Co., Inc.: | ||||||||||||
5.13%, 7/01/22 | 85 | 84,363 | ||||||||||
5.63%, 2/15/23 (c) | 724 | 733,050 | ||||||||||
Amsurg Corp., 5.63%, 7/15/22 | 737 | 743,449 | ||||||||||
Care UK Health & Social Care PLC, | GBP | 100 | 152,410 | |||||||||
Centene Corp., 4.75%, 5/15/22 | USD | 234 | 241,020 | |||||||||
CHS/Community Health Systems, Inc., | 751 | 792,305 | ||||||||||
DaVita HealthCare Partners, Inc.: | ||||||||||||
5.13%, 7/15/24 | 578 | 568,246 | ||||||||||
5.00%, 5/01/25 | 504 | 485,100 | ||||||||||
Envision Healthcare Corp., 5.13%, 7/01/22 (c) | 170 | 171,275 | ||||||||||
Ephios Bondco PLC, 6.25%, 7/01/22 | EUR | 150 | 163,582 | |||||||||
ExamWorks Group, Inc., 5.63%, 4/15/23 | USD | 188 | 192,768 | |||||||||
Fresenius Medical Care U.S. Finance II, Inc., | 174 | 172,260 | ||||||||||
HCA Holdings, Inc., 6.25%, 2/15/21 | 160 | 172,400 | ||||||||||
HCA, Inc.: | ||||||||||||
6.50%, 2/15/20 | 314 | 350,895 | ||||||||||
7.50%, 2/15/22 | 514 | 590,457 | ||||||||||
5.88%, 3/15/22 | 485 | 527,437 | ||||||||||
4.75%, 5/01/23 | 962 | 974,025 | ||||||||||
5.00%, 3/15/24 | 468 | 476,190 | ||||||||||
5.38%, 2/01/25 | 518 | 526,443 | ||||||||||
5.25%, 4/15/25 | 170 | 176,800 | ||||||||||
Series 1, 5.88%, 5/01/23 | 53 | 56,313 | ||||||||||
HealthSouth Corp.: | ||||||||||||
5.13%, 3/15/23 | 130 | 129,187 | ||||||||||
5.75%, 11/01/24 | 222 | 226,717 | ||||||||||
Kindred Healthcare, Inc., 6.38%, 4/15/22 | 70 | 69,913 | ||||||||||
MPH Acquisition Holdings LLC, | 90 | 91,913 | ||||||||||
Omnicare, Inc.: | ||||||||||||
4.75%, 12/01/22 | 76 | 80,560 | ||||||||||
5.00%, 12/01/24 | 64 | 68,800 | ||||||||||
Surgical Care Affiliates, Inc., | 89 | 89,000 | ||||||||||
Tenet Healthcare Corp.: | ||||||||||||
6.25%, 11/01/18 | 69 | 74,951 |
Corporate Bonds | Par (000) | Value | ||||||||||
Health Care Providers & Services (concluded) | ||||||||||||
3.79%, 6/15/20 (c)(d) | USD | 320 | $ | 322,800 | ||||||||
6.00%, 10/01/20 | 422 | 449,957 | ||||||||||
4.50%, 4/01/21 | 54 | 53,460 | ||||||||||
4.38%, 10/01/21 | 142 | 138,805 | ||||||||||
8.13%, 4/01/22 | 403 | 440,681 | ||||||||||
6.75%, 6/15/23 (c) | 406 | 414,120 | ||||||||||
Truven Health Analytics, Inc., | 180 | 188,550 | ||||||||||
Voyage Care Bondco PLC, | GBP | 100 | 161,838 | |||||||||
WellCare Health Plans, Inc., | USD | 120 | 124,800 | |||||||||
|
| |||||||||||
11,476,840 | ||||||||||||
Hotels, Restaurants & Leisure — 2.9% | ||||||||||||
ARAMARK Services, Inc., 5.75%, 3/15/20 | 448 | 467,712 | ||||||||||
BC ULC/New Red Finance, Inc., | 210 | 215,775 | ||||||||||
Boyd Gaming Corp., | 471 | 482,775 | ||||||||||
Brunswick Corp., | 84 | 83,580 | ||||||||||
Cirsa Funding Luxembourg SA, | EUR | 100 | 107,594 | |||||||||
Gala Group Finance PLC, | GBP | 180 | 296,257 | |||||||||
Hilton Worldwide Finance LLC/Hilton Worldwide Finance Corp., 5.63%, 10/15/21 | USD | 250 | 259,675 | |||||||||
International Game Technology PLC: | ||||||||||||
6.25%, 2/15/22 (c) | 200 | 191,000 | ||||||||||
4.75%, 2/15/23 | EUR | 125 | 134,273 | |||||||||
Intralot Finance Luxembourg SA, | 215 | 237,296 | ||||||||||
MGM Resorts International: | ||||||||||||
8.63%, 2/01/19 | USD | 243 | 274,590 | |||||||||
6.75%, 10/01/20 | 453 | 480,180 | ||||||||||
6.63%, 12/15/21 | 73 | 76,285 | ||||||||||
7.75%, 3/15/22 | 340 | 374,000 | ||||||||||
6.00%, 3/15/23 | 170 | 172,125 | ||||||||||
NAI Entertainment Holdings/NAI Entertainment Holdings Finance Corp., 5.00%, 8/01/18 (c) | 41 | 41,820 | ||||||||||
Pinnacle Entertainment, Inc., 6.38%, 8/01/21 | 416 | 441,480 | ||||||||||
PortAventura Entertainment Barcelona BV, | EUR | 100 | 116,138 | |||||||||
Snai SpA, 7.63%, 6/15/18 | 100 | 114,551 | ||||||||||
Station Casinos LLC, 7.50%, 3/01/21 | USD | 803 | 859,210 | |||||||||
Sterling Entertainment Enterprises LLC, | 475 | 484,500 | ||||||||||
The Unique Pub Finance Co. PLC: | ||||||||||||
Series A4, 5.66%, 6/30/27 | GBP | 219 | 350,902 | |||||||||
Series N, 6.46%, 3/30/32 | 100 | 139,839 | ||||||||||
Waterford Gaming LLC/Waterford Gaming Financial Corp., 8.63%, 9/15/49 (c) | USD | 150 | 375 | |||||||||
|
| |||||||||||
6,401,932 | ||||||||||||
Household Durables — 1.5% | ||||||||||||
Allegion U.S. Holding Co., Inc., | 109 | 112,543 | ||||||||||
Beazer Homes USA, Inc.: | ||||||||||||
6.63%, 4/15/18 | 131 | 135,421 | ||||||||||
5.75%, 6/15/19 | 263 | 259,055 | ||||||||||
7.50%, 9/15/21 | 216 | 217,620 | ||||||||||
D.R. Horton, Inc., 4.00%, 2/15/20 | 434 | 431,700 | ||||||||||
Jarden Corp., 7.50%, 5/01/17 | 75 | 81,563 | ||||||||||
K. Hovnanian Enterprises, Inc., | 122 | 124,440 | ||||||||||
Lennar Corp.: | ||||||||||||
4.50%, 11/15/19 | 110 | 111,375 | ||||||||||
4.75%, 11/15/22 | 150 | 147,375 | ||||||||||
Magnolia BC SA, 9.00%, 8/01/20 | EUR | 200 | 236,906 | |||||||||
PulteGroup, Inc., 6.38%, 5/15/33 | USD | 30 | 30,375 | |||||||||
Shea Homes LP/Shea Homes Funding Corp., | 233 | 234,747 |
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Household Durables (concluded) | ||||||||||||
Standard Pacific Corp., 8.38%, 1/15/21 | USD | 585 | $ | 678,600 | ||||||||
TRI Pointe Holdings, Inc.: | ||||||||||||
4.38%, 6/15/19 | 175 | 171,500 | ||||||||||
5.88%, 6/15/24 | 120 | 117,600 | ||||||||||
Woodside Homes Co. LLC/Woodside Homes | 230 | 217,350 | ||||||||||
|
| |||||||||||
3,308,170 | ||||||||||||
Household Products — 0.4% | ||||||||||||
HRG Group, Inc., 7.88%, 7/15/19 (c) | 155 | 163,525 | ||||||||||
Spectrum Brands, Inc.: | ||||||||||||
6.38%, 11/15/20 | 100 | 105,750 | ||||||||||
6.63%, 11/15/22 | 225 | 239,625 | ||||||||||
6.13%, 12/15/24 (c) | 119 | 124,653 | ||||||||||
5.75%, 7/15/25 (c) | 289 | 293,335 | ||||||||||
|
| |||||||||||
926,888 | ||||||||||||
Independent Power and Renewable Electricity Producers — 1.2% |
| |||||||||||
AES Corp.: | ||||||||||||
4.88%, 5/15/23 | 176 | 165,440 | ||||||||||
5.50%, 3/15/24 | 269 | 258,913 | ||||||||||
Calpine Corp.: | ||||||||||||
6.00%, 1/15/22 (c) | 396 | 418,770 | ||||||||||
5.38%, 1/15/23 | 125 | 122,813 | ||||||||||
5.88%, 1/15/24 (c) | 145 | 153,337 | ||||||||||
5.50%, 2/01/24 | 351 | 339,593 | ||||||||||
Dynegy, Inc.: | ||||||||||||
6.75%, 11/01/19 (c) | 515 | 535,857 | ||||||||||
7.38%, 11/01/22 (c) | 130 | 136,175 | ||||||||||
Mirant Mid-Atlantic Pass-Through Trust: | ||||||||||||
Series B, 9.13%, 6/30/17 | 70 | 73,411 | ||||||||||
Series C, 10.06%, 12/30/28 | 395 | 432,075 | ||||||||||
NRG Energy, Inc., 6.25%, 5/01/24 | 130 | 129,025 | ||||||||||
|
| |||||||||||
2,765,409 | ||||||||||||
Insurance — 0.6% | ||||||||||||
A-S Co-Issuer Subsidiary, Inc./A-S Merger Sub LLC, 7.88%, 12/15/20 (c) | 266 | 280,630 | ||||||||||
CNO Financial Group, Inc., 4.50%, 5/30/20 | 62 | 62,930 | ||||||||||
Genworth Holdings, Inc., 4.80%, 2/15/24 | 100 | 87,250 | ||||||||||
HUB International Ltd., 7.88%, 10/01/21 (c) | 237 | 241,740 | ||||||||||
Pension Insurance Corp. PLC, 6.50%, 7/03/24 | GBP | 100 | 156,428 | |||||||||
Radian Group, Inc.: | ||||||||||||
2.25%, 3/01/19 (e) | USD | 72 | 127,755 | |||||||||
5.25%, 6/15/20 | 381 | 379,095 | ||||||||||
|
| |||||||||||
1,335,828 | ||||||||||||
Internet & Catalog Retail — 0.1% | ||||||||||||
Netflix, Inc., 5.50%, 2/15/22 (c) | 219 | 226,117 | ||||||||||
Internet Software & Services — 0.1% | ||||||||||||
IAC/InterActiveCorp., 4.88%, 11/30/18 | 117 | 120,656 | ||||||||||
IT Services — 0.2% | ||||||||||||
Sabre GLBL, Inc., 5.38%, 4/15/23 (c) | 150 | 147,750 | ||||||||||
WEX, Inc., 4.75%, 2/01/23 (c) | 190 | 183,350 | ||||||||||
|
| |||||||||||
331,100 | ||||||||||||
Life Sciences Tools & Services — 0.3% | ||||||||||||
Crimson Merger Sub, Inc., 6.63%, 5/15/22 (c) | 106 | 93,015 | ||||||||||
DPx Holdings BV, 7.50%, 2/01/22 (c) | 95 | 99,037 | ||||||||||
Jaguar Holding Co. II/Jaguar Merger Sub, Inc., | 320 | 340,800 | ||||||||||
Sterigenics-Nordion Holdings LLC, 6.50%, 5/15/23 (c) | 70 | 71,050 | ||||||||||
|
| |||||||||||
603,902 |
Corporate Bonds | Par (000) | Value | ||||||||||
Machinery — 1.0% | ||||||||||||
Accudyne Industries Borrower/Accudyne | USD | 160 | $ | 148,000 | ||||||||
CNH Industrial Finance Europe SA, 2.75%, 3/18/19 | EUR | 205 | 229,630 | |||||||||
Gates Global LLC/Gates Global Co., 5.75%, 7/15/22 | 100 | 102,580 | ||||||||||
Jurassic Holdings III, Inc., 6.88%, 2/15/21 (c) | USD | 112 | 87,360 | |||||||||
The Manitowoc Co., Inc., 5.88%, 10/15/22 | 185 | 199,337 | ||||||||||
Schaeffler Holding Finance BV: | ||||||||||||
6.88% (6.88% Cash or 7.38% PIK), | EUR | 160 | 184,816 | |||||||||
6.25% (6.25% Cash or 6.75% PIK), | USD | 482 | 507,907 | |||||||||
5.75% (5.75% Cash or 6.50% PIK), | EUR | 100 | 117,444 | |||||||||
6.75% (6.75% Cash or 7.25% PIK), | USD | 482 | 519,957 | |||||||||
Terex Corp., 6.00%, 5/15/21 | 190 | 190,950 | ||||||||||
|
| |||||||||||
2,287,981 | ||||||||||||
Marine — 0.2% | ||||||||||||
Global Ship Lease, Inc., 10.00%, 4/01/19 (c) | 495 | 516,037 | ||||||||||
Media — 6.6% | ||||||||||||
Altice SA: | ||||||||||||
7.25%, 5/15/22 | EUR | 200 | 225,200 | |||||||||
7.75%, 5/15/22 (c) | USD | 795 | 769,163 | |||||||||
6.25%, 2/15/25 | EUR | 100 | 105,911 | |||||||||
Altice U.S. Finance I Corp., 5.38%, 7/15/23 (c) | USD | 926 | 902,850 | |||||||||
Altice U.S. Finance II Corp., 7.75%, 7/15/25 (c) | 389 | 377,330 | ||||||||||
AMC Networks, Inc., 7.75%, 7/15/21 | 225 | 243,000 | ||||||||||
Cablevision Systems Corp., 5.88%, 9/15/22 | 216 | 209,520 | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp.: | ||||||||||||
5.25%, 9/30/22 | 18 | 17,730 | ||||||||||
5.13%, 5/01/23 (c) | 80 | 77,800 | ||||||||||
5.88%, 5/01/27 (c) | 733 | 715,591 | ||||||||||
Cengage Learning Acquisitions, Inc., 0.00%, 4/15/20 (a)(f)(g) | 230 | — | ||||||||||
Cequel Communications Holdings I LLC/Cequel Capital Corp., 5.13%, 12/15/21 (c) | 130 | 118,056 | ||||||||||
Clear Channel Worldwide Holdings, Inc.: | ||||||||||||
6.50%, 11/15/22 | 331 | 339,275 | ||||||||||
Series B, 6.50%, 11/15/22 | 812 | 845,495 | ||||||||||
DISH DBS Corp.: | ||||||||||||
5.13%, 5/01/20 | 446 | 451,017 | ||||||||||
5.00%, 3/15/23 | 220 | 203,500 | ||||||||||
5.88%, 11/15/24 | 523 | 502,407 | ||||||||||
DreamWorks Animation SKG, Inc., 6.88%, 8/15/20 (c) | 24 | 23,760 | ||||||||||
Gray Television, Inc., 7.50%, 10/01/20 | 91 | 96,460 | ||||||||||
iHeartCommunications, Inc.: | ||||||||||||
9.00%, 12/15/19 | 286 | 272,558 | ||||||||||
9.00%, 3/01/21 | 287 | 259,735 | ||||||||||
9.00%, 9/15/22 | 345 | 311,363 | ||||||||||
Interactive Data Corp., 5.88%, 4/15/19 (c) | 629 | 632,145 | ||||||||||
LIN Television Corp., 5.88%, 11/15/22 (c) | 120 | 121,500 | ||||||||||
Live Nation Entertainment, Inc.: | ||||||||||||
7.00%, 9/01/20 (c) | 69 | 73,313 | ||||||||||
5.38%, 6/15/22 (c) | 47 | 47,000 | ||||||||||
MDC Partners, Inc., 6.75%, 4/01/20 (c) | 225 | 224,156 | ||||||||||
Midcontinent Communications & Midcontinent Finance Corp., 6.25%, 8/01/21 (c) | 125 | 127,500 | ||||||||||
MPL 2 Acquisition Canco, Inc., 9.88%, 8/15/18 (c) | 173 | 182,299 | ||||||||||
Nielsen Finance LLC/Nielsen Finance Co., | 320 | 318,400 | ||||||||||
Numericable-SFR SAS: | ||||||||||||
5.38%, 5/15/22 | EUR | 100 | 113,157 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Media (concluded) | ||||||||||||
6.00%, 5/15/22 (c) | USD | 755 | $ | 744,147 | ||||||||
5.63%, 5/15/24 | EUR | 100 | 112,321 | |||||||||
6.25%, 5/15/24 (c) | USD | 483 | 475,151 | |||||||||
Outfront Media Capital LLC/Outfront Media Capital Corp.: | ||||||||||||
5.25%, 2/15/22 | 389 | 393,863 | ||||||||||
5.63%, 2/15/24 (c) | 37 | 37,833 | ||||||||||
Radio One, Inc., 7.38%, 4/15/22 (c) | 60 | 58,800 | ||||||||||
RCN Telecom Services LLC/RCN Capital Corp., 8.50%, 8/15/20 (c) | 305 | 319,487 | ||||||||||
Regal Entertainment Group, 5.75%, 2/01/25 | 48 | 46,860 | ||||||||||
Sirius XM Radio, Inc.: | ||||||||||||
4.25%, 5/15/20 (c) | 90 | 89,550 | ||||||||||
4.63%, 5/15/23 (c) | 65 | 61,019 | ||||||||||
6.00%, 7/15/24 (c) | 165 | 166,650 | ||||||||||
5.38%, 4/15/25 (c) | 615 | 593,475 | ||||||||||
Townsquare Media, Inc., 6.50%, 4/01/23 (c) | 48 | 47,520 | ||||||||||
Tribune Media Co., 5.88%, 7/15/22 (c) | 374 | 376,805 | ||||||||||
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH: | ||||||||||||
5.50%, 1/15/23 (c) | 200 | 203,875 | ||||||||||
4.00%, 1/15/25 | EUR | 148 | 168,298 | |||||||||
Univision Communications, Inc.: | ||||||||||||
8.50%, 5/15/21 (c) | USD | 178 | 187,345 | |||||||||
5.13%, 5/15/23 (c) | 695 | 674,150 | ||||||||||
5.13%, 2/15/25 (c) | 691 | 666,953 | ||||||||||
Virgin Media Finance PLC, 5.75%, 1/15/25 (c) | 400 | 400,000 | ||||||||||
|
| |||||||||||
14,731,293 | ||||||||||||
Metals & Mining — 2.8% | ||||||||||||
Alcoa, Inc.: | ||||||||||||
6.15%, 8/15/20 | 535 | 582,775 | ||||||||||
5.13%, 10/01/24 | 784 | 793,800 | ||||||||||
5.90%, 2/01/27 | 14 | 14,805 | ||||||||||
5.95%, 2/01/37 | 18 | 17,955 | ||||||||||
Constellium NV: | ||||||||||||
8.00%, 1/15/23 (c) | 610 | 625,250 | ||||||||||
5.75%, 5/15/24 (c) | 505 | 449,450 | ||||||||||
Eco-Bat Finance PLC, 7.75%, 2/15/17 | EUR | 130 | 141,163 | |||||||||
First Quantum Minerals Ltd.: | ||||||||||||
7.00%, 2/15/21 (c) | USD | 263 | 251,494 | |||||||||
7.25%, 5/15/22 (c) | 187 | 178,819 | ||||||||||
FMG Resources August 2006 Pty Ltd.: | ||||||||||||
9.75%, 3/01/22 (c) | 65 | 67,113 | ||||||||||
6.88%, 4/01/22 (c) | 138 | 96,773 | ||||||||||
Global Brass & Copper, Inc., 9.50%, 6/01/19 | 155 | 169,725 | ||||||||||
Novelis, Inc.: | ||||||||||||
8.38%, 12/15/17 | 245 | 253,881 | ||||||||||
8.75%, 12/15/20 | 713 | 753,997 | ||||||||||
Officine Maccaferri SpA, 5.75%, 6/01/21 | EUR | 100 | 109,841 | |||||||||
Ovako AB, 6.50%, 6/01/19 | 100 | 108,674 | ||||||||||
Ryerson, Inc./Joseph T. Ryerson & Son, Inc., 9.00%, 10/15/17 | USD | 110 | 110,825 | |||||||||
Steel Dynamics, Inc., 5.13%, 10/01/21 | 165 | 165,330 | ||||||||||
SunCoke Energy Partners LP/SunCoke Energy Partners Finance Corp., 7.38%, 2/01/20 (c) | 123 | 124,230 | ||||||||||
Wise Metals Group LLC/Wise Alloys Finance Corp., 8.75%, 12/15/18 (c) | 1,095 | 1,156,594 | ||||||||||
|
| |||||||||||
6,172,494 | ||||||||||||
Multiline Retail — 1.0% | ||||||||||||
Debenhams PLC, 5.25%, 7/15/21 | GBP | 115 | 177,947 | |||||||||
Family Dollar Stores, Inc., 5.00%, 2/01/21 | USD | 176 | 182,157 | |||||||||
Family Tree Escrow LLC: | ||||||||||||
5.25%, 3/01/20 (c) | 79 | 82,654 | ||||||||||
5.75%, 3/01/23 (c) | 1,264 | 1,320,880 | ||||||||||
Hema Bondco I BV, 6.25%, 6/15/19 | EUR | 100 | 92,533 |
Corporate Bonds | Par (000) | Value | ||||||||||
Multiline Retail (concluded) | ||||||||||||
New Look Secured Issuer PLC, 6.50%, 7/01/22 | GBP | 300 | $ | 460,530 | ||||||||
|
| |||||||||||
2,316,701 | ||||||||||||
Oil, Gas & Consumable Fuels — 12.8% | ||||||||||||
Antero Resources Corp.: | ||||||||||||
6.00%, 12/01/20 | USD | 96 | 96,480 | |||||||||
5.38%, 11/01/21 | 321 | 308,160 | ||||||||||
5.13%, 12/01/22 | 36 | 34,020 | ||||||||||
Arch Coal, Inc.: | ||||||||||||
7.00%, 6/15/19 | 58 | 8,410 | ||||||||||
7.25%, 6/15/21 | 48 | 6,720 | ||||||||||
Baytex Energy Corp., 5.13%, 6/01/21 (c) | 71 | 66,563 | ||||||||||
Berry Petroleum Co. LLC: | ||||||||||||
6.75%, 11/01/20 | 92 | 72,680 | ||||||||||
6.38%, 9/15/22 | 58 | 45,240 | ||||||||||
Bonanza Creek Energy, Inc.: | ||||||||||||
6.75%, 4/15/21 | 274 | 259,615 | ||||||||||
5.75%, 2/01/23 | 452 | 405,670 | ||||||||||
Calfrac Holdings LP, 7.50%, 12/01/20 (c) | 643 | 593,746 | ||||||||||
California Resources Corp.: | ||||||||||||
5.00%, 1/15/20 | 120 | 105,600 | ||||||||||
5.50%, 9/15/21 | 597 | 519,509 | ||||||||||
6.00%, 11/15/24 | 1,481 | 1,273,660 | ||||||||||
Carrizo Oil & Gas, Inc.: | ||||||||||||
7.50%, 9/15/20 | 137 | 144,193 | ||||||||||
6.25%, 4/15/23 | 273 | 273,683 | ||||||||||
Chaparral Energy, Inc., 7.63%, 11/15/22 | 115 | 82,800 | ||||||||||
Chesapeake Energy Corp.: | ||||||||||||
6.88%, 11/15/20 | 40 | 39,000 | ||||||||||
6.13%, 2/15/21 | 138 | 129,720 | ||||||||||
4.88%, 4/15/22 | 230 | 199,525 | ||||||||||
5.75%, 3/15/23 | 86 | 77,830 | ||||||||||
Cimarex Energy Co., 4.38%, 6/01/24 | 62 | 61,236 | ||||||||||
Concho Resources, Inc.: | ||||||||||||
5.50%, 10/01/22 | 160 | 159,200 | ||||||||||
5.50%, 4/01/23 | 365 | 365,000 | ||||||||||
CONSOL Energy, Inc., 5.88%, 4/15/22 | 1,372 | 1,166,200 | ||||||||||
CrownRock LP/CrownRock Finance, Inc.: | ||||||||||||
7.13%, 4/15/21 (c) | 433 | 448,155 | ||||||||||
7.75%, 2/15/23 (c) | 100 | 106,500 | ||||||||||
Denbury Resources, Inc.: | ||||||||||||
6.38%, 8/15/21 | 171 | 164,160 | ||||||||||
5.50%, 5/01/22 | 114 | 101,745 | ||||||||||
4.63%, 7/15/23 | 18 | 15,120 | ||||||||||
Diamondback Energy, Inc., 7.63%, 10/01/21 | 321 | 343,470 | ||||||||||
Energy Transfer Equity LP: | ||||||||||||
7.50%, 10/15/20 | 100 | 112,750 | ||||||||||
5.88%, 1/15/24 | 1,056 | 1,095,072 | ||||||||||
EP Energy LLC/Everest Acquisition Finance, Inc.: | ||||||||||||
9.38%, 5/01/20 | 615 | 657,251 | ||||||||||
6.38%, 6/15/23 (c) | 214 | 214,535 | ||||||||||
Genesis Energy LP/Genesis Energy Finance Corp.: | ||||||||||||
5.75%, 2/15/21 | 27 | 26,663 | ||||||||||
6.00%, 5/15/23 | 285 | 285,143 | ||||||||||
Gulfport Energy Corp., 7.75%, 11/01/20 | 217 | 227,307 | ||||||||||
Halcon Resources Corp.: | ||||||||||||
8.63%, 2/01/20 (c) | 386 | 381,175 | ||||||||||
8.88%, 5/15/21 | 146 | 95,995 | ||||||||||
9.25%, 2/15/22 | 97 | 62,807 | ||||||||||
Hilcorp Energy I LP/Hilcorp Finance Co.: | ||||||||||||
7.63%, 4/15/21 (c) | 145 | 150,800 | ||||||||||
5.00%, 12/01/24 (c) | 663 | 621,695 | ||||||||||
Kinder Morgan, Inc., 7.25%, 6/01/18 | 110 | 124,057 | ||||||||||
Laredo Petroleum, Inc., 7.38%, 5/01/22 | 212 | 223,130 |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||
Legacy Reserves LP/Legacy Reserves Finance Corp., 6.63%, 12/01/21 | USD | 110 | $ | 89,100 | ||||||||
Linn Energy LLC/Linn Energy Finance Corp.: | ||||||||||||
6.25%, 11/01/19 | 120 | 93,900 | ||||||||||
8.63%, 4/15/20 | 103 | 84,482 | ||||||||||
7.75%, 2/01/21 | 55 | 42,763 | ||||||||||
MarkWest Energy Partners LP/MarkWest Energy Finance Corp.: | ||||||||||||
4.50%, 7/15/23 | 643 | 630,140 | ||||||||||
4.88%, 6/01/25 | 546 | 533,715 | ||||||||||
Matador Resources Co., 6.88%, 4/15/23 (c) | 74 | 75,573 | ||||||||||
MEG Energy Corp.: | ||||||||||||
6.50%, 3/15/21 (c) | 501 | 482,213 | ||||||||||
6.38%, 1/30/23 (c) | 227 | 209,975 | ||||||||||
7.00%, 3/31/24 (c) | 1,203 | 1,153,376 | ||||||||||
Memorial Production Partners LP/Memorial Production Finance Corp.: | ||||||||||||
7.63%, 5/01/21 | 79 | 75,247 | ||||||||||
6.88%, 8/01/22 | 163 | 147,433 | ||||||||||
Memorial Resource Development Corp., 5.88%, 7/01/22 | 613 | 591,974 | ||||||||||
Newfield Exploration Co., 5.38%, 1/01/26 | 67 | 66,330 | ||||||||||
NGPL PipeCo LLC: | ||||||||||||
7.12%, 12/15/17 (c) | 37 | 37,925 | ||||||||||
9.63%, 6/01/19 (c) | 92 | 93,150 | ||||||||||
7.77%, 12/15/37 (c) | 225 | 238,500 | ||||||||||
Oasis Petroleum, Inc.: | ||||||||||||
7.25%, 2/01/19 | 120 | 123,000 | ||||||||||
6.50%, 11/01/21 | 100 | 99,500 | ||||||||||
6.88%, 1/15/23 | 65 | 64,188 | ||||||||||
Offshore Group Investment Ltd., 7.50%, 11/01/19 | 293 | 180,195 | ||||||||||
Paramount Resources Ltd., 6.88%, 6/30/23 (c) | 239 | 239,597 | ||||||||||
Parsley Energy LLC/Parsley Finance Corp., | 378 | 383,553 | ||||||||||
PBF Logistics LP/PBF Logistics Finance Corp., | 84 | 84,420 | ||||||||||
Peabody Energy Corp.: | ||||||||||||
6.00%, 11/15/18 | 130 | 62,400 | ||||||||||
6.50%, 9/15/20 | 123 | 41,820 | ||||||||||
6.25%, 11/15/21 | 90 | 30,600 | ||||||||||
7.88%, 11/01/26 | 225 | 75,375 | ||||||||||
Precision Drilling Corp.: | ||||||||||||
6.63%, 11/15/20 | 40 | 39,200 | ||||||||||
5.25%, 11/15/24 | 173 | 150,510 | ||||||||||
QEP Resources, Inc.: | ||||||||||||
5.38%, 10/01/22 | 65 | 62,771 | ||||||||||
5.25%, 5/01/23 | 171 | 163,733 | ||||||||||
Range Resources Corp.: | ||||||||||||
5.00%, 8/15/22 | 37 | 36,260 | ||||||||||
5.00%, 3/15/23 | 88 | 86,240 | ||||||||||
Regency Energy Partners LP/Regency Energy Finance Corp.: | ||||||||||||
5.00%, 10/01/22 | 91 | 92,438 | ||||||||||
4.50%, 11/01/23 | 587 | 566,455 | ||||||||||
Rockies Express Pipeline LLC: | ||||||||||||
5.63%, 4/15/20 (c) | 400 | 409,000 | ||||||||||
6.88%, 4/15/40 (c) | 346 | 362,435 | ||||||||||
Rose Rock Midstream LP/Rose Rock Finance Corp.: | ||||||||||||
5.63%, 7/15/22 | 52 | 50,830 | ||||||||||
5.63%, 11/15/23 (c) | 297 | 287,347 | ||||||||||
Rosetta Resources, Inc.: | ||||||||||||
5.88%, 6/01/22 | 78 | 83,265 | ||||||||||
5.88%, 6/01/24 | 101 | 108,827 | ||||||||||
RSP Permian, Inc., 6.63%, 10/01/22 (c) | 147 | 150,307 |
Corporate Bonds | Par (000) | Value | ||||||||||
Oil, Gas & Consumable Fuels (concluded) | ||||||||||||
Sabine Pass Liquefaction LLC: | ||||||||||||
5.63%, 4/15/23 | USD | 420 | $ | 418,555 | ||||||||
5.75%, 5/15/24 | 1,358 | 1,352,907 | ||||||||||
5.63%, 3/01/25 (c) | 491 | 486,090 | ||||||||||
Sabine Pass LNG LP, 6.50%, 11/01/20 | 313 | 323,955 | ||||||||||
Sanchez Energy Corp.: | ||||||||||||
7.75%, 6/15/21 | 84 | 83,580 | ||||||||||
6.13%, 1/15/23 | 726 | 649,770 | ||||||||||
SandRidge Energy, Inc.: | ||||||||||||
8.75%, 1/15/20 | 183 | 98,820 | ||||||||||
8.75%, 6/01/20 (c) | 96 | 87,120 | ||||||||||
7.50%, 3/15/21 | 25 | 10,938 | ||||||||||
7.50%, 2/15/23 | 80 | 33,816 | ||||||||||
Seven Generations Energy Ltd.: | ||||||||||||
8.25%, 5/15/20 (c) | 1,010 | 1,071,610 | ||||||||||
6.75%, 5/01/23 (c) | 110 | 109,725 | ||||||||||
SM Energy Co.: | ||||||||||||
6.13%, 11/15/22 (c) | 870 | 894,099 | ||||||||||
6.50%, 1/01/23 | 28 | 28,700 | ||||||||||
5.00%, 1/15/24 | 92 | 87,170 | ||||||||||
5.63%, 6/01/25 | 197 | 194,991 | ||||||||||
Southern Star Central Corp., 5.13%, 7/15/22 (c) | 162 | 164,430 | ||||||||||
Summit Midstream Holdings LLC/Summit Midstream Finance Corp., 7.50%, 7/01/21 | 137 | 143,507 | ||||||||||
Sunoco LP/Sunoco Finance Corp., 6.38%, | 98 | 101,920 | ||||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp., 6.38%, 8/01/22 | 381 | 396,240 | ||||||||||
Tesoro Logistics LP/Tesoro Logistics Finance Corp., 6.25%, 10/15/22 (c) | 272 | 281,520 | ||||||||||
Whiting Petroleum Corp.: | ||||||||||||
5.75%, 3/15/21 | 250 | 246,000 | ||||||||||
6.25%, 4/01/23 (c) | 457 | 453,573 | ||||||||||
WPX Energy, Inc., 5.25%, 9/15/24 | 198 | 182,407 | ||||||||||
|
| |||||||||||
28,533,495 | ||||||||||||
Paper & Forest Products — 0.2% | ||||||||||||
Clearwater Paper Corp., 4.50%, 2/01/23 | 36 | 34,110 | ||||||||||
Louisiana-Pacific Corp., 7.50%, 6/01/20 | 100 | 106,500 | ||||||||||
Norbord, Inc., 6.25%, 4/15/23 (c) | 145 | 147,893 | ||||||||||
PH Glatfelter Co., 5.38%, 10/15/20 | 34 | 34,850 | ||||||||||
Unifrax I LLC/Unifrax Holding Co., 7.50%, 2/15/19 (c) | 213 | 214,065 | ||||||||||
|
| |||||||||||
537,418 | ||||||||||||
Pharmaceuticals — 3.8% | ||||||||||||
Capsugel SA, 7.00% (7.00% Cash or 7.75% PIK), 5/15/19 (c)(h) | 75 | 76,321 | ||||||||||
Concordia Healthcare Corp., 7.00%, 4/15/23 (c) | 205 | 205,000 | ||||||||||
Endo Finance LLC & Endo Finco, Inc., 7.25%, | 51 | 54,188 | ||||||||||
Endo Finance LLC/Endo Ltd./Endo Finco, Inc.: | ||||||||||||
6.00%, 7/15/23 (c) | 616 | 629,860 | ||||||||||
6.00%, 2/01/25 (c) | 547 | 555,889 | ||||||||||
Horizon Pharma Financing, Inc., 6.63%, 5/01/23 (c) | 400 | 417,000 | ||||||||||
Mallinckrodt International Finance | ||||||||||||
4.88%, 4/15/20 (c) | 135 | 137,369 | ||||||||||
5.75%, 8/01/22 (c) | 210 | 214,725 | ||||||||||
Par Pharmaceutical Cos., Inc., 7.38%, | 192 | 204,960 | ||||||||||
PRA Holdings, Inc., 9.50%, 10/01/23 (c) | 40 | 44,700 | ||||||||||
Valeant Pharmaceuticals International, Inc.: | ||||||||||||
6.75%, 8/15/18 (c) | 40 | 41,950 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Pharmaceuticals (concluded) | ||||||||||||
5.38%, 3/15/20 (c) | USD | 792 | $ | 817,740 | ||||||||
6.38%, 10/15/20 (c) | 745 | 784,578 | ||||||||||
7.50%, 7/15/21 (c) | 540 | 581,175 | ||||||||||
6.75%, 8/15/21 (c) | 70 | 72,975 | ||||||||||
7.25%, 7/15/22 (c) | 55 | 58,438 | ||||||||||
5.50%, 3/01/23 (c) | 729 | 736,290 | ||||||||||
4.50%, 5/15/23 | EUR | 125 | 134,953 | |||||||||
5.88%, 5/15/23 (c) | USD | 1,564 | 1,603,100 | |||||||||
6.13%, 4/15/25 (c) | 1,016 | 1,045,210 | ||||||||||
|
| |||||||||||
8,416,421 | ||||||||||||
Professional Services — 0.1% | ||||||||||||
CEB, Inc., 5.63%, 6/15/23 (c) | 77 | 77,385 | ||||||||||
TMF Group Holding BV, 9.88%, 12/01/19 | EUR | 200 | 238,150 | |||||||||
|
| |||||||||||
315,535 | ||||||||||||
Real Estate Investment Trusts (REITs) — 1.1% | ||||||||||||
Communications Sales & Leasing, Inc.: | ||||||||||||
6.00%, 4/15/23 (c) | USD | 66 | 64,549 | |||||||||
8.25%, 10/15/23 (c) | 339 | 333,067 | ||||||||||
ESH Hospitality, Inc., 5.25%, 5/01/25 (c) | 98 | 95,305 | ||||||||||
Felcor Lodging LP: | ||||||||||||
5.63%, 3/01/23 | 68 | 69,870 | ||||||||||
6.00%, 6/01/25 (c) | 316 | 320,740 | ||||||||||
The GEO Group, Inc.: | ||||||||||||
5.88%, 1/15/22 | 272 | 282,880 | ||||||||||
5.88%, 10/15/24 | 220 | 226,600 | ||||||||||
GLP Capital LP/GLP Financing II, Inc., 4.38%, | 180 | 184,725 | ||||||||||
iStar Financial, Inc.: | ||||||||||||
3.00%, 11/15/16 (e) | 336 | 404,880 | ||||||||||
4.00%, 11/01/17 | 135 | 132,637 | ||||||||||
5.00%, 7/01/19 | 95 | 93,694 | ||||||||||
RHP Hotel Properties LP/RHP Finance Corp.: | ||||||||||||
5.00%, 4/15/21 | 167 | 167,000 | ||||||||||
5.00%, 4/15/23 (c) | 167 | 163,660 | ||||||||||
|
| |||||||||||
2,539,607 | ||||||||||||
Real Estate Management & Development — 1.6% | ||||||||||||
Aroundtown Property Holdings PLC, 3.00%, 12/09/21 | EUR | 100 | 103,692 | |||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co., 6.88%, 2/15/21 (c) | USD | 122 | 113,460 | |||||||||
Caesars Entertainment Resort Properties LLC, 8.00%, 10/01/20 | 570 | 536,872 | ||||||||||
Crescent Resources LLC/Crescent Ventures, Inc., 10.25%, 8/15/17 (c) | 150 | 159,187 | ||||||||||
The Howard Hughes Corp., 6.88%, 10/01/21 (c) | 97 | 102,820 | ||||||||||
Kennedy-Wilson, Inc., 5.88%, 4/01/24 | 114 | 113,430 | ||||||||||
Realogy Group LLC: | ||||||||||||
7.63%, 1/15/20 (c) | 1,268 | 1,342,812 | ||||||||||
9.00%, 1/15/20 (c) | 117 | 126,067 | ||||||||||
Realogy Group LLC/Realogy Co-Issuer Corp.: | ||||||||||||
4.50%, 4/15/19 (c) | 387 | 390,947 | ||||||||||
5.25%, 12/01/21 (c) | 437 | 442,463 | ||||||||||
Taylor Morrison Communities, Inc./Monarch Communities, Inc., 5.25%, 4/15/21 (c) | 69 | 67,965 | ||||||||||
Tropicana Entertainment LLC/Tropicana Finance Corp., 9.63%, 12/15/14 (a)(g) | 95 | — | ||||||||||
|
| |||||||||||
3,499,715 | ||||||||||||
Road & Rail — 0.4% | ||||||||||||
EC Finance PLC, 5.13%, 7/15/21 | EUR | 100 | 115,916 | |||||||||
Florida East Coast Holdings Corp., 6.75%, 5/01/19 (c) | USD | 305 | 305,763 | |||||||||
JCH Parent, Inc., 10.50% (10.50% Cash or 11.25% PIK), 3/15/19 (c)(h) | 416 | 312,842 |
Corporate Bonds | Par (000) | Value | ||||||||||
Road & Rail (concluded) | ||||||||||||
Watco Cos. LLC/Watco Finance Corp., 6.38%, | USD | 99 | $ | 100,237 | ||||||||
|
| |||||||||||
834,758 | ||||||||||||
Semiconductors & Semiconductor Equipment — 0.5% |
| |||||||||||
Advanced Micro Devices, Inc., 7.50%, 8/15/22 | 65 | 57,363 | ||||||||||
Micron Technology, Inc.: | ||||||||||||
5.25%, 1/15/24 (c) | 495 | 467,466 | ||||||||||
5.50%, 2/01/25 (c) | 95 | 89,015 | ||||||||||
NXP BV/NXP Funding LLC: | ||||||||||||
5.75%, 2/15/21 (c) | 200 | 208,000 | ||||||||||
4.63%, 6/15/22 (c) | 200 | 197,250 | ||||||||||
|
| |||||||||||
1,019,094 | ||||||||||||
Software — 1.9% | ||||||||||||
Audatex North America, Inc., 6.00%, 6/15/21 (c) | 245 | 251,737 | ||||||||||
BMC Software Finance, Inc., 8.13%, 7/15/21 (c) | 78 | 63,180 | ||||||||||
First Data Corp.: | ||||||||||||
7.38%, 6/15/19 (c) | 191 | 198,545 | ||||||||||
6.75%, 11/01/20 (c) | 365 | 385,761 | ||||||||||
8.25%, 1/15/21 (c) | 420 | 443,100 | ||||||||||
11.25%, 1/15/21 | 4 | 4,440 | ||||||||||
12.63%, 1/15/21 | 14 | 16,170 | ||||||||||
11.75%, 8/15/21 | 316 | 355,500 | ||||||||||
8.75%, 1/15/22 (c) | 437 | 464,586 | ||||||||||
Infor Software Parent LLC/Infor Software Parent, Inc., 7.13% (7.13% Cash or 7.88% PIK), 5/01/21 (c)(h) | 404 | 405,010 | ||||||||||
Infor U.S., Inc., 6.50%, 5/15/22 (c) | 633 | 644,077 | ||||||||||
Italics Merger Sub, Inc., 7.13%, 7/15/23 (c) | 160 | 158,000 | ||||||||||
Nuance Communications, Inc., 5.38%, 8/15/20 (c) | 215 | 216,075 | ||||||||||
Open Text Corp., 5.63%, 1/15/23 (c) | 141 | 139,590 | ||||||||||
Sophia LP/Sophia Finance, Inc., 9.75%, 1/15/19 (c) | 386 | 410,125 | ||||||||||
SS&C Technologies Holdings, Inc., 5.88%, 7/15/23 (c) | 163 | 164,630 | ||||||||||
|
| |||||||||||
4,320,526 | ||||||||||||
Specialty Retail — 0.8% | ||||||||||||
3AB Optique Developpement SAS, 5.63%, 4/15/19 | EUR | 100 | 105,354 | |||||||||
Asbury Automotive Group, Inc., 6.00%, 12/15/24 | USD | 142 | 147,680 | |||||||||
CST Brands, Inc., 5.00%, 5/01/23 | 59 | 58,705 | ||||||||||
Neiman Marcus Group Ltd. LLC, 8.00%, 10/15/21 (c) | 538 | 566,245 | ||||||||||
Penske Automotive Group, Inc.: | ||||||||||||
5.75%, 10/01/22 | 541 | 562,640 | ||||||||||
5.38%, 12/01/24 | 166 | 168,075 | ||||||||||
Sally Holdings LLC/Sally Capital, Inc., 5.50%, 11/01/23 | 75 | 78,000 | ||||||||||
THOM Europe SAS, 7.38%, 7/15/19 | EUR | 120 | 139,134 | |||||||||
|
| |||||||||||
1,825,833 | ||||||||||||
Technology Hardware, Storage & Peripherals — 0.3% |
| |||||||||||
NCR Corp., 6.38%, 12/15/23 | USD | 96 | 101,760 | |||||||||
Nokia OYJ: | ||||||||||||
5.00%, 10/26/17 (e) | EUR | 100 | 284,142 | |||||||||
6.63%, 5/15/39 | USD | 158 | 171,430 | |||||||||
|
| |||||||||||
557,332 | ||||||||||||
Textiles, Apparel & Luxury Goods — 0.3% | ||||||||||||
Levi Strauss & Co.: | ||||||||||||
6.88%, 5/01/22 | 160 | 170,800 | ||||||||||
5.00%, 5/01/25 (c) | 159 | 153,833 |
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Textiles, Apparel & Luxury Goods (concluded) | ||||||||||||
Springs Industries, Inc., 6.25%, 6/01/21 | USD | 133 | $ | 130,007 | ||||||||
Twin Set-Simona Barbieri SpA, 5.89%, 7/15/19 (d) | EUR | 100 | 99,445 | |||||||||
|
| |||||||||||
554,085 | ||||||||||||
Thrifts & Mortgage Finance — 0.3% | ||||||||||||
Jefferies Finance LLC/JFIN Co-Issuer Corp.: | ||||||||||||
7.38%, 4/01/20 (c) | USD | 200 | 196,500 | |||||||||
6.88%, 4/15/22 (c) | 401 | 390,975 | ||||||||||
Rialto Holdings LLC/Rialto Corp., | 110 | 114,400 | ||||||||||
|
| |||||||||||
701,875 | ||||||||||||
Trading Companies & Distributors — 3.1% | ||||||||||||
AerCap Ireland Capital Ltd./AerCap Global | 450 | 462,937 | ||||||||||
Aircastle Ltd.: | ||||||||||||
7.63%, 4/15/20 | 12 | 13,574 | ||||||||||
5.13%, 3/15/21 | 137 | 138,370 | ||||||||||
5.50%, 2/15/22 | 85 | 86,754 | ||||||||||
BlueLine Rental Finance Corp., 7.00%, 2/01/19 (c) | 244 | 250,710 | ||||||||||
HD Supply, Inc.: | ||||||||||||
11.00%, 4/15/20 | 936 | 1,041,674 | ||||||||||
7.50%, 7/15/20 | 1,947 | 2,058,953 | ||||||||||
5.25%, 12/15/21 (c) | 1,188 | 1,204,335 | ||||||||||
International Lease Finance Corp.: | ||||||||||||
4.63%, 4/15/21 | 71 | 71,710 | ||||||||||
5.88%, 8/15/22 | 480 | 518,400 | ||||||||||
Travis Perkins PLC, 4.38%, 9/15/21 | GBP | 100 | 159,890 | |||||||||
United Rentals North America, Inc.: | ||||||||||||
7.38%, 5/15/20 | USD | 64 | 68,287 | |||||||||
8.25%, 2/01/21 | 102 | 109,013 | ||||||||||
7.63%, 4/15/22 | 65 | 70,363 | ||||||||||
5.75%, 11/15/24 | 541 | 532,885 | ||||||||||
5.50%, 7/15/25 | 136 | 131,410 | ||||||||||
|
| |||||||||||
6,919,265 | ||||||||||||
Transportation Infrastructure — 0.1% | ||||||||||||
gategroup Finance Luxembourg SA, 6.75%, 3/01/19 | EUR | 151 | 175,585 | |||||||||
Silk Bidco AS, 7.50%, 2/01/22 | 100 | 113,854 | ||||||||||
|
| |||||||||||
289,439 | ||||||||||||
Wireless Telecommunication Services — 3.7% | ||||||||||||
Crown Castle International Corp., 5.25%, 1/15/23 | USD | 366 | 368,653 | |||||||||
Digicel Ltd., 6.00%, 4/15/21 (c) | 1,045 | 1,007,505 | ||||||||||
DigitalGlobe, Inc., 5.25%, 2/01/21 (c) | 59 | 57,746 | ||||||||||
Inmarsat Finance PLC, 4.88%, 5/15/22 (c) | 136 | 131,240 | ||||||||||
Intelsat Luxembourg SA, 8.13%, 6/01/23 | 310 | 257,300 | ||||||||||
Matterhorn Telecom SA, 3.88%, 5/01/22 | EUR | 100 | 105,632 | |||||||||
Play Finance 2 SA, 5.25%, 2/01/19 | 110 | 125,933 | ||||||||||
SBA Communications Corp.: | ||||||||||||
5.63%, 10/01/19 | USD | 60 | 62,400 | |||||||||
4.88%, 7/15/22 | 732 | 712,785 | ||||||||||
Sprint Capital Corp.: | ||||||||||||
6.88%, 11/15/28 | 180 | 154,800 | ||||||||||
8.75%, 3/15/32 | 165 | 160,463 | ||||||||||
Sprint Communications, Inc.: | ||||||||||||
9.00%, 11/15/18 (c) | 315 | 355,717 | ||||||||||
7.00%, 3/01/20 (c) | 797 | 866,897 | ||||||||||
Sprint Corp.: | ||||||||||||
7.25%, 9/15/21 | 400 | 390,000 | ||||||||||
7.88%, 9/15/23 | 689 | 671,982 | ||||||||||
7.13%, 6/15/24 | 569 | 527,804 | ||||||||||
7.63%, 2/15/25 | 530 | 499,525 |
Corporate Bonds | Par (000) | Value | ||||||||||
Wireless Telecommunication Services (concluded) |
| |||||||||||
T-Mobile USA, Inc.: | ||||||||||||
6.63%, 4/28/21 | USD | 548 | $ | 568,550 | ||||||||
6.13%, 1/15/22 | 38 | 39,235 | ||||||||||
6.73%, 4/28/22 | 75 | 78,188 | ||||||||||
6.50%, 1/15/24 | 572 | 590,590 | ||||||||||
6.38%, 3/01/25 | 567 | 579,757 | ||||||||||
|
| |||||||||||
8,312,702 | ||||||||||||
Total Corporate Bonds — 79.2% | 176,171,583 | |||||||||||
Floating Rate Loan Interests (d) | ||||||||||||
Aerospace & Defense — 0.0% | ||||||||||||
Sequa Corp., Initial Term Loan, 5.25%, 6/19/17 | 98 | 85,685 | ||||||||||
Air Freight & Logistics — 0.2% | ||||||||||||
Ceva Group PLC (FKA Louis No.1 PLC/TNT Logistics), Pre-Funded L/C Loan, 6.50%, 3/19/21 | 115 | 107,036 | ||||||||||
Ceva Intercompany BV, Dutch BV Term Loan, 6.50%, 3/19/21 | 119 | 111,464 | ||||||||||
Ceva Logistics Canada ULC (FKA TNT Canada ULC), Canadian Term Loan, 6.50%, 3/19/21 | 21 | 19,218 | ||||||||||
Ceva Logistics U.S. Holdings, Inc. (FKA Louis U.S. Holdco, Inc.), U.S. Term Loan, 6.50%, 3/19/21 | 165 | 153,743 | ||||||||||
|
| |||||||||||
391,461 | ||||||||||||
Airlines — 0.1% | ||||||||||||
Air Medical Group Holdings, Inc., Initial Term Loan, 4.50%, 4/28/22 | 170 | 168,620 | ||||||||||
Biotechnology — 0.1% | ||||||||||||
Grifols Worldwide Operations Ltd., U.S. Tranche B Term Loan, 3.19%, 2/27/21 | 177 | 176,506 | ||||||||||
Chemicals — 0.3% | ||||||||||||
Ascend Performance Materials Operations LLC, Term B Loan, 6.75%, 4/10/18 | 547 | 464,642 | ||||||||||
Axalta Coating Systems Dutch Holding B BV (Axalta Coating Systems U.S. Holdings, Inc.), Refinanced Term B Loan, 3.75%, 2/01/20 | 23 | 22,871 | ||||||||||
Oxea Finance & Cy SCA (Oxea Finance LLC), Term Loan (Second Lien), 8.25%, 7/15/20 | 150 | 140,625 | ||||||||||
|
| |||||||||||
628,138 | ||||||||||||
Commercial Services & Supplies — 0.1% | ||||||||||||
Spin Holdco, Inc., Initial Term Loan (First Lien), 4.25%, 11/14/19 | 226 | 225,168 | ||||||||||
Communications Equipment — 0.2% | ||||||||||||
Blue Coat Holdings, Inc., Initial Term Loan, | 63 | 62,823 | ||||||||||
CommScope, Inc., Tranche 5 Term Loan, | 141 | 140,707 | ||||||||||
Riverbed Technology, Inc., Term Loan, | 145 | 146,012 | ||||||||||
|
| |||||||||||
349,542 | ||||||||||||
Construction & Engineering — 0.0% | ||||||||||||
Brand Energy & Infrastructure Services, Inc. | 94 | 91,908 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Construction Materials — 0.1% | ||||||||||||
Stardust Finance Holdings, Inc., Senior Lien Term Loan, 6.50%, 3/13/22 | USD | 137 | $ | 137,162 | ||||||||
Diversified Consumer Services — 0.2% | ||||||||||||
Houghton Mifflin Harcourt Co., Term Loan, | 365 | 363,175 | ||||||||||
Diversified Financial Services — 0.0% | ||||||||||||
SS&C European Holdings S.à r.l., Term Loan B2, 3.25%, 6/29/22 | 49 | 48,692 | ||||||||||
Diversified Telecommunication Services — 0.7% | ||||||||||||
Avaya, Inc., Term B-7 Loan, 6.25%, 5/29/20 | 703 | 678,563 | ||||||||||
LightSquared LP, Term Loan (PIK), 8.75%, 6/15/20 | 900 | 878,625 | ||||||||||
|
| |||||||||||
1,557,188 | ||||||||||||
Electric Utilities — 0.4% | ||||||||||||
Energy Future Intermediate Holding Co. LLC (EFIH Finance, Inc.), Term Loan, 4.25%, 6/19/16 | 489 | 488,813 | ||||||||||
Texas Competitive Electric Holdings Co. LLC (TXU), DIP Delayed Draw Term Loan (2014), | 423 | 424,008 | ||||||||||
|
| |||||||||||
912,821 | ||||||||||||
Energy Equipment & Services — 0.0% | ||||||||||||
American Energy - Marcellus LLC, Initial Loan | 37 | 28,398 | ||||||||||
Food & Staples Retailing — 0.0% | ||||||||||||
BJ’s Wholesale Club, Inc., 2013 (November) Replacement Loan (Second Lien), 8.50%, 3/26/20 | 110 | 110,810 | ||||||||||
Health Care Equipment & Supplies — 0.1% | ||||||||||||
Alere, Inc. (FKA IM U.S. Holdings LLC), B Term Loan, 3.25%, 6/18/22 | 87 | 87,010 | ||||||||||
DJO Finance LLC, Initial Term Loan, 4.25%, 6/08/20 | 230 | 229,857 | ||||||||||
|
| |||||||||||
316,867 | ||||||||||||
Health Care Providers & Services — 0.0% | ||||||||||||
Surgery Center Holdings, Inc., Initial Term Loan | 75 | 74,637 | ||||||||||
Hotels, Restaurants & Leisure — 1.1% | ||||||||||||
Amaya Holdings BV, Initial Term B Loan (Second Lien), 8.00%, 8/01/22 | 783 | 788,518 | ||||||||||
Caesars Entertainment Resort Properties LLC, | 1,076 | 972,845 | ||||||||||
Station Casinos LLC, B Term Loan, 4.25%, 3/02/20 | 56 | 56,188 | ||||||||||
Travelport Finance (Luxembourg) S.à r.l., Initial Term Loan, 5.75%, 9/02/21 | 532 | 532,895 | ||||||||||
|
| |||||||||||
2,350,446 | ||||||||||||
Independent Power and Renewable Electricity Producers — 0.1% |
| |||||||||||
Calpine Corp., Term Loan (10/12), 4.00%, 10/09/19 | 184 | 183,355 | ||||||||||
Life Sciences Tools & Services — 0.0% | ||||||||||||
Sterigenics-Nordion Holdings LLC, Initial Term Loan, 4.25%, 5/15/22 | 95 | 94,763 | ||||||||||
Machinery — 0.4% | ||||||||||||
Accudyne Industries Borrower SCA/Accudyne Industries LLC (AKA Hamilton Sundstrand), Refinancing Term Loan, 4.00%, 12/13/19 | 331 | 318,701 | ||||||||||
Gates Global LLC, Initial Dollar Term Loan, | 450 | 443,145 |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Machinery (concluded) | ||||||||||||
SIG Combibloc Holdings SCA (FKA Onex Wizard Acquisition Co. II SCA), Initial Dollar Term Loan, 4.25%, 3/11/22 | USD | 127 | $ | 127,255 | ||||||||
|
| |||||||||||
889,101 | ||||||||||||
Media — 0.8% | ||||||||||||
Advantage Sales & Marketing, Inc.: | ||||||||||||
Initial Term Loan (First Lien), 4.25%, 7/23/21 | 129 | 128,308 | ||||||||||
Term Loan (Second Lien), 7.50%, 7/25/22 | 195 | 195,649 | ||||||||||
Cengage Learning Acquisitions, Inc. (FKA TL Acquisitions, Inc.), Term Loan, 7.00%, 3/31/20 | 579 | 579,267 | ||||||||||
iHeartCommunications, Inc. (FKA Clear Channel Communications, Inc.), Tranche D Term Loan, 6.94%, 1/30/19 | 583 | 537,953 | ||||||||||
Interactive Data Corp., Term Loan, 4.75%, 5/02/21 | 110 | 110,112 | ||||||||||
Univision Communications, Inc., Replacement First-Lien Term Loan, 4.00%, 3/01/20 | 124 | 122,913 | ||||||||||
|
| |||||||||||
1,674,202 | ||||||||||||
Metals & Mining — 0.1% | ||||||||||||
Novelis, Inc., Initial Term Loan, 4.00%, 6/02/22 | 130 | 129,460 | ||||||||||
Oil, Gas & Consumable Fuels — 0.2% | ||||||||||||
CITGO Holding, Inc., Term Loan, 9.50%, 5/12/18 | 468 | 468,585 | ||||||||||
Obsidian Natural Gas Trust, Loan, 7.00%, 11/02/15 | 55 | 54,747 | ||||||||||
|
| |||||||||||
523,332 | ||||||||||||
Pharmaceuticals — 0.2% | ||||||||||||
Endo Luxembourg Finance Co. I S.à r.l., Bridge Loan, 2.75%, 6/24/16 | 241 | 240,699 | ||||||||||
Par Pharmaceutical Cos., Inc. (Par Pharmaceutical, Inc.), Term B-2 Loan, 4.00%, 9/30/19 | 50 | 49,569 | ||||||||||
Valeant Pharmaceuticals International, Inc., Series F-1 Tranche B Term Loan, 4.00%, 4/01/22 | 199 | 198,461 | ||||||||||
|
| |||||||||||
488,729 | ||||||||||||
Real Estate Management & Development — 0.0% | ||||||||||||
Realogy Group LLC (FKA Realogy Corp.), Extended Synthetic Commitment, | 12 | 12,278 | ||||||||||
Road & Rail — 0.2% | ||||||||||||
The Hertz Corp., Tranche B-2 Term Loan, | 388 | 385,057 | ||||||||||
Software — 1.0% | ||||||||||||
Epicor Software Corp. (FKA Eagle Parent, Inc.), | 309 | 307,897 | ||||||||||
First Data Corp.: | ||||||||||||
2018 New Dollar Term Loan, 3.69%, 3/23/18 | 1,002 | 997,513 | ||||||||||
2018B Second New Term Loan, | 50 | 49,822 | ||||||||||
Informatica Corp., USD Term Loan (First Lien), | 376 | 374,943 | ||||||||||
Kronos, Inc., Initial Term Loan (Second Lien), | 174 | 179,717 | ||||||||||
SS&C Technologies, Inc./Sunshine Acquisition II, Inc., Term Loan B1, 3.25%, 6/29/22 | 216 | 216,144 | ||||||||||
TIBCO Software, Inc., Term Loan, 6.50%, 12/04/20 | 95 | 94,615 | ||||||||||
|
| |||||||||||
2,220,651 |
See Notes to Financial Statements.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | �� | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Floating Rate Loan Interests (d) | Par (000) | Value | ||||||||||
Trading Companies & Distributors — 0.1% |
| |||||||||||
HD Supply, Inc., Term Loan 2014,, 4.00%, | USD | 301 | $ | 300,297 | ||||||||
Total Floating Rate Loan Interests — 6.7% |
| 14,918,449 | ||||||||||
Foreign Agency Obligations | ||||||||||||
Brazil — 0.1% | ||||||||||||
Petrobras Global Finance BV, 4.75%, 1/14/25 | EUR | 100 | 102,764 | |||||||||
Canada — 0.1% | ||||||||||||
NOVA Chemicals Corp., 5.00%, 5/01/25 (c) | USD | 218 | 218,817 | |||||||||
Germany — 0.0% | ||||||||||||
HSH Nordbank AG, 0.79%, 2/14/17 (d) | EUR | 50 | 40,631 | |||||||||
Total Foreign Agency Obligations — 0.2% |
| 362,212 | ||||||||||
Non-Agency Mortgage-Backed Securities | ||||||||||||
Commercial Mortgage-Backed Securities — 0.2% |
| |||||||||||
Hilton USA Trust, Series 2013-HLT, Class EFX, 5.61%, 11/05/30 (c)(d) | USD | 442 | 447,975 | |||||||||
Other Interests (i) | Beneficial Interest (000) | |||||||||||
Household Durables — 0.1% | ||||||||||||
Stanley-Martin, Class B Membership Units (a) |
| — | (j) | 308,700 | ||||||||
Preferred Securities | ||||||||||||
Capital Trusts | Par (000) | |||||||||||
Banks — 3.0% | ||||||||||||
Banco Bilbao Vizcaya Argentaria SA, | EUR | 200 | 223,249 | |||||||||
Bank of America Corp.: | ||||||||||||
Series AA, 6.10% (d)(k) | USD | 163 | 160,963 | |||||||||
Series V, 5.13% (d)(k) | 405 | 396,799 | ||||||||||
Series X, 6.25% (d)(k) | 1,407 | 1,400,851 | ||||||||||
Series Z, 6.50% (d)(k) | 355 | 367,425 | ||||||||||
Bank of Ireland, 7.38% (d)(k) | EUR | 200 | 221,856 | |||||||||
Citigroup, Inc.: | ||||||||||||
5.95% (d)(k) | USD | 150 | 147,750 | |||||||||
Series O, 5.88% (d)(k) | 315 | 315,693 | ||||||||||
Series P, 5.95% (d)(k) | 690 | 665,988 | ||||||||||
JPMorgan Chase & Co.: | ||||||||||||
Series 1, 7.90% (d)(k) | 325 | 343,769 | ||||||||||
Series S, 6.75% (d)(k) | 539 | 575,884 | ||||||||||
Series V, 5.00% (d)(k) | 440 | 430,650 | ||||||||||
Series X, 6.10% (d)(k) | 175 | 175,613 | ||||||||||
Series Z, 5.30% (d)(k) | 175 | 173,705 | ||||||||||
Santander UK Group Holdings PLC, | GBP | 200 | 312,602 |
Capital Trusts | Par (000) | Value | ||||||||||
Banks (concluded) | ||||||||||||
Wells Fargo & Co.: | ||||||||||||
Series S, 5.90% (d)(k) | USD | 265 | $ | 265,663 | ||||||||
Series U, 5.88% (d)(k) | 615 | 629,637 | ||||||||||
|
| |||||||||||
6,808,097 | ||||||||||||
Capital Markets — 0.8% | ||||||||||||
The Goldman Sachs Group, Inc., Series L, | 553 | 554,991 | ||||||||||
Morgan Stanley: | ||||||||||||
Series H, 5.45% (d)(k) | 545 | 540,913 | ||||||||||
Series J, 5.55% (d)(k) | 225 | 223,369 | ||||||||||
State Street Corp., 5.25% (d)(k) | 19 | 19,024 | ||||||||||
UBS Group AG: | ||||||||||||
5.75% (d)(k) | EUR | 200 | 226,237 | |||||||||
7.00% (d)(k) | USD | 200 | 203,900 | |||||||||
|
| |||||||||||
1,768,434 | ||||||||||||
Consumer Finance — 0.2% | ||||||||||||
American Express Co., Series C, 4.90% (d)(k) | 420 | 406,896 | ||||||||||
Diversified Telecommunication Services — 0.1% |
| |||||||||||
Orange SA, 4.00% (d)(k) | EUR | 125 | 141,621 | |||||||||
Electric Utilities — 0.1% |
| |||||||||||
Gas Natural Fenosa Finance BV, 3.38% (d)(k) | 200 | 202,067 | ||||||||||
Wireless Telecommunication Services — 0.0% |
| |||||||||||
Telefonica Europe BV, 4.20% (d)(k) | 100 | 113,297 | ||||||||||
Total Capital Trusts — 4.2% |
| 9,440,412 | ||||||||||
Preferred Stocks | Shares | |||||||||||
Air Freight & Logistics — 0.1% |
| |||||||||||
XPO Logistics, Inc., 7.50% | USD | 106 | 106,413 | |||||||||
Consumer Finance — 0.0% |
| |||||||||||
Ally Financial, Inc., 8.50% | 1,670 | 44,172 | ||||||||||
Diversified Financial Services — 0.1% |
| |||||||||||
Concrete Investment II SCA (a) | 623 | 91,681 | ||||||||||
RBS Capital Funding Trust VI, 6.25% | 6,875 | 169,056 | ||||||||||
|
| |||||||||||
260,737 | ||||||||||||
Hotels, Restaurants & Leisure — 0.9% |
| |||||||||||
Amaya, Inc. (a) | 1,516 | 1,928,197 | ||||||||||
Total Preferred Stocks — 1.1% |
| 2,339,519 | ||||||||||
Trust Preferreds | ||||||||||||
Consumer Finance — 0.4% |
| |||||||||||
GMAC Capital Trust I, Series 2, 8.13%, | 32,966 | 856,457 | ||||||||||
Diversified Financial Services — 0.1% |
| |||||||||||
RBS Capital Funding Trust VII, Series G, | 9,177 | 224,194 | ||||||||||
Total Trust Preferreds — 0.5% |
| 1,080,651 | ||||||||||
Total Preferred Securities — 5.8% |
| 12,860,582 | ||||||||||
Total Long-Term Investments (Cost — $218,430,692) — 96.5% |
| 214,716,546 | ||||||||||
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Short-Term Securities | Shares | Value | ||||||
BlackRock Liquidity Funds, TempFund, | 7,472,441 | $ | 7,472,441 | |||||
Total Short-Term Securities (Cost — $ 7,472,441) — 3.4% | 7,472,441 | |||||||
Total Investments — 99.9% (Cost — $ 225,903,133) | 222,188,987 | |||||||
Other Assets Less Liabilities — 0.1% | 215,606 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 222,404,593 | ||||||
|
|
Notes to Schedule of Investments |
(a) | Non-income producing security. |
(b) | Security contractually bound to one or more other securities to form a single saleable unit which cannot be sold separately. |
(c) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors. |
(d) | Variable rate security. Rate shown is as of report date. |
(e) | Convertible security. |
(f) | Zero-coupon bond. |
(g) | Issuer filed for bankruptcy and/or is in default of interest payments. |
(h) | Represents a payment-in-kind security which may pay interest/dividends in additional par/shares and/or in cash. Rates shown are the current rate and possible payment rates. |
(i) | Other interests represent beneficial interests in liquidation trusts and other reorganization or private entities. |
(j) | Amount is less than $500. |
(k) | Security is perpetual in nature and has no stated maturity date. |
(l) | During the six months ended June 30, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares Held at December 31, 2014 | Net Activity | Shares Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 9,095,612 | (1,623,171 | ) | 7,472,441 | $ | 2,693 |
(m) | Represents the current yield as of report date. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
• | As of June 30, 2015, financial futures contracts outstanding were as follows: |
Contracts Short | Issue | Exchange | Expiration | Notional Value | Unrealized Appreciation | |||||||||||||||||||
(98 | ) | E-Mini S&P 500 Futures | Chicago Mercantile | September 2015 | USD | 10,066,560 | $ | 89,892 | ||||||||||||||||
(17 | ) | Russell 2000 Mini Index Futures | InterContinental Exchange | September 2015 | USD | 2,125,680 | 18,570 | |||||||||||||||||
Total | $ | 108,462 | ||||||||||||||||||||||
|
|
• | As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: |
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
CAD | 199,000 | USD | 160,417 | Citibank N.A. | 7/21/15 | $ | (1,137 | ) | ||||||||||||||
EUR | 66,000 | USD | 73,727 | Royal Bank of Scotland PLC | 7/21/15 | (125 | ) | |||||||||||||||
EUR | 117,000 | USD | 132,482 | Standard Chartered Bank | 7/21/15 | (2,007 | ) | |||||||||||||||
EUR | 152,000 | USD | 170,700 | State Street Bank and Trust Co. | 7/21/15 | (1,193 | ) | |||||||||||||||
GBP | 231,000 | USD | 354,367 | Citibank N.A. | 7/21/15 | 8,536 | ||||||||||||||||
USD | 162,875 | CAD | 201,300 | Royal Bank of Canada | 7/21/15 | 1,754 | ||||||||||||||||
USD | 2,551,795 | CAD | 3,126,000 | Royal Bank of Canada | 7/21/15 | 49,736 | ||||||||||||||||
USD | 255,683 | CAD | 315,000 | Royal Bank of Scotland PLC | 7/21/15 | 3,557 | ||||||||||||||||
USD | 26,876 | EUR | 24,000 | Bank of America N.A. | 7/21/15 | 112 |
See Notes to Financial Statements.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock High Yield V.I. Fund |
As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: (concluded)
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
USD | 100,006 | EUR | 91,000 | Goldman Sachs International | 7/21/15 | $ | (1,475 | ) | ||||||||||||||
USD | 756,965 | EUR | 671,670 | Goldman Sachs International | 7/21/15 | 7,936 | ||||||||||||||||
USD | 127,431 | EUR | 113,000 | HSBC Bank USA N.A. | 7/21/15 | 1,416 | ||||||||||||||||
USD | 161,132 | EUR | 143,000 | HSBC Bank USA N.A. | 7/21/15 | 1,662 | ||||||||||||||||
USD | 221,114 | EUR | 196,600 | HSBC Bank USA N.A. | 7/21/15 | 1,871 | ||||||||||||||||
USD | 363,018 | EUR | 330,900 | JPMorgan Chase Bank N.A. | 7/21/15 | (5,993 | ) | |||||||||||||||
USD | 9,450,728 | EUR | 8,781,000 | UBS AG | 7/21/15 | (341,607 | ) | |||||||||||||||
USD | 3,715,646 | GBP | 2,513,000 | Barclays Bank PLC | 7/21/15 | (232,294 | ) | |||||||||||||||
USD | 792,188 | GBP | 500,000 | State Street Bank and Trust Co. | 7/21/15 | 6,684 | ||||||||||||||||
Total | $ | (502,567 | ) | |||||||||||||||||||
|
|
• | As of June 30, 2015, centrally cleared credit default swaps - sold protection outstanding were as follows: |
Index | Receive Fixed Rate | Clearinghouse | Expiration Date | Credit Rating1 | Notional Amount (000)2 | Unrealized Appreciation | ||||||||||||||||||
CDX.NA.HY Series 24 Version 2 | 5.00% | Chicago Mercantile | 6/20/20 | B+ | USD | 7,286 | $ | 10,841 |
1 | Using Standard & Poor’s rating of the underlying securities of the index. |
2 | The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Long-Term Investments: | ||||||||||||||||
Common Stocks | $ | 6,755,166 | $ | 2,891,879 | — | $ | 9,647,045 | |||||||||
Corporate Bonds | — | 175,461,735 | $ | 709,848 | 176,171,583 | |||||||||||
Floating Rate Loan Interests | — | 14,610,725 | 307,724 | 14,918,449 | ||||||||||||
Foreign Agency Obligations | — | 362,212 | — | 362,212 | ||||||||||||
Non-Agency Mortgage-Backed Securities | — | 447,975 | — | 447,975 | ||||||||||||
Other Interests | — | — | 308,700 | 308,700 | ||||||||||||
Preferred Securities | 1,293,879 | 9,546,825 | 2,019,878 | 12,860,582 | ||||||||||||
Short-Term Securities | 7,472,441 | — | — | 7,472,441 | ||||||||||||
|
| |||||||||||||||
Total | $ | 15,521,486 | $ | 203,321,351 | $ | 3,346,150 | $ | 222,188,987 | ||||||||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Schedule of Investments (concluded) | BlackRock High Yield V.I. Fund |
| ||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||
| ||||||||||||||
Derivative Financial Instruments1 | ||||||||||||||
Assets: | ||||||||||||||
Credit contracts | — | $ | 10,841 | — | $ | 10,841 | ||||||||
Equity contracts | $ | 108,462 | — | — | 108,462 | |||||||||
Foreign currency exchange contracts | — | 83,264 | — | 83,264 | ||||||||||
Liabilities: | ||||||||||||||
Foreign currency exchange contracts | — | (585,831 | ) | — | (585,831 | ) | ||||||||
|
| |||||||||||||
Total | $ | 108,462 | $ | (491,726 | ) | — | $ | (383,264 | ) | |||||
|
| |||||||||||||
1 Derivative financial instruments are swaps, financial futures contracts and forward foreign currency exchange contracts. Swaps, financial futures contracts and forward foreign currency exchange contracts are valued at the unrealized appreciation/depreciation on the instrument. |
| |||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:
|
| |||||||||||||
| ||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||
| ||||||||||||||
Assets: | ||||||||||||||
Cash | $ | 10,748 | — | — | $ | 10,748 | ||||||||
Foreign currency at value | 35,906 | — | — | 35,906 | ||||||||||
Cash pledged for financial futures contracts | 537,500 | — | — | 537,500 | ||||||||||
Cash pledged for centrally cleared swaps | 393,130 | — | — | 393,130 | ||||||||||
|
| |||||||||||||
Total | $ | 977,284 | — | — | $ | 977,284 | ||||||||
|
| |||||||||||||
During the six months ended June 30, 2015, there were no transfers between Level 1 and Level 2. | ||||||||||||||
A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value: | ||||||||||||||
| ||||||||||||||||||||||||
Common Stocks | Corporate Bonds | Floating Rate Loan Interests | Other Interests | Preferred Securities | Total | |||||||||||||||||||
| ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Opening Balance, as of December 31, 2014 | — | $ | 742,307 | $ | 1,329,102 | $ | 316,575 | $ | 1,814,169 | $ | 4,202,153 | |||||||||||||
Transfers into Level 3 | — | — | — | — | — | — | ||||||||||||||||||
Transfers out of Level 3 | — | — | (884,328 | ) | — | — | (884,328 | ) | ||||||||||||||||
Accrued discounts/premiums | — | — | 239 | — | — | 239 | ||||||||||||||||||
Net realized gain (loss) | (744,580 | ) | — | 733 | — | — | (743,847 | ) | ||||||||||||||||
Net change in unrealized appreciation (depreciation)1,2 | 744,580 | 22,283 | 11,337 | (7,875 | ) | 205,709 | 976,034 | |||||||||||||||||
Purchases | — | 257 | 241,120 | — | — | 241,377 | ||||||||||||||||||
Sales | �� | — | (54,999 | ) | (390,479 | ) | — | — | (445,478 | ) | ||||||||||||||
|
| |||||||||||||||||||||||
Closing Balance, as of June 30, 2015 | — | $ | 709,848 | $ | 307,724 | $ | 308,700 | $ | 2,019,878 | $ | 3,346,150 | |||||||||||||
|
| |||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) on investments still held at June 30, 20152 | — | $ | 22,283 | $ | 1,877 | $ | (7,875 | ) | $ | 205,709 | $ | 221,994 | ||||||||||||
|
| |||||||||||||||||||||||
1 Included in the related net change in unrealized appreciation (depreciation) in the Statement of Operations. |
| |||||||||||||||||||||||
2 Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at June 30, 2015 is generally due to investments no longer held or categorized as Level 3 at period end. |
| |||||||||||||||||||||||
The Fund’s investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value of such Level 3 investments. |
See Notes to Financial Statements.
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Assets and Liabilities |
BlackRock | ||||
June 30, 2015 (Unaudited) | High Yield V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (cost — $218,430,692) | $ | 214,716,546 | ||
Investments at value — affiliated (cost — $7,472,441) | 7,472,441 | |||
Cash | 10,748 | |||
Cash pledged: | ||||
Financial futures contracts | 537,500 | |||
Centrally cleared swaps | 393,130 | |||
Foreign currency at value (cost — $35,855) | 35,906 | |||
Receivables: | ||||
Investments sold | 3,417,056 | |||
Capital shares sold. | 403,903 | |||
Dividends — affiliated | 302 | |||
Dividends — unaffiliated | 1,912 | |||
Interest | 3,100,158 | |||
From the Manager | 38,759 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 83,264 | |||
Variation margin receivable on financial futures contracts. | 3,337 | |||
Variation margin receivable on centrally cleared swaps | 37,497 | |||
Prepaid expenses | 455 | |||
|
| |||
Total assets. | 230,252,914 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investments purchased | 3,721,999 | |||
Capital shares redeemed | 2,322,331 | |||
Distribution fees | 18,666 | |||
Income dividends | 917,158 | |||
Investment advisory fees | 101,092 | |||
Officer’s and Directors’ fees | 1,454 | |||
Other affiliates | 806 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 585,831 | |||
Variation margin payable on financial futures contracts | 23,150 | |||
Other accrued expenses payable | 155,834 | |||
|
| |||
Total liabilities | 7,848,321 | |||
|
| |||
Net Assets | $ | 222,404,593 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 248,124,285 | ||
Distributions in excess of net investment income | (696,556 | ) | ||
Accumulated net realized loss | (20,927,431 | ) | ||
Net unrealized appreciation (depreciation) | (4,095,705 | ) | ||
|
| |||
Net Assets | $ | 222,404,593 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $134,266,501 and 18,077,214 shares outstanding, 200 million shares authorized, $0.10 par value | $ | 7.43 | ||
|
| |||
Class III — Based on net assets of $88,138,092 and 11,874,840 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 7.42 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock High Yield V.I. Fund | |||
Investment Income | ||||
Interest | $ | 5,836,045 | ||
Dividends — unaffiliated | 87,238 | |||
Dividends — affiliated | 2,693 | |||
Foreign taxes withheld | (1,619 | ) | ||
|
| |||
Total income | 5,924,357 | |||
|
| |||
Expenses | ||||
Investment advisory | 576,435 | |||
Transfer agent | 2,483 | |||
Transfer agent — Class I | 134,815 | |||
Transfer agent — Class III | 35,792 | |||
Distribution — Class III | 98,133 | |||
Professional | 35,981 | |||
Accounting services | 24,290 | |||
Custodian | 16,464 | |||
Printing | 13,091 | |||
Officer and Directors | 9,830 | |||
Registration | 338 | |||
Miscellaneous | 11,914 | |||
|
| |||
Total expenses | 959,566 | |||
Less fees waived by the Manager | (2,359 | ) | ||
Less transfer agent fees reimbursed — Class I | (93,182 | ) | ||
Less transfer agent fees reimbursed — Class III | (15,790 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 848,235 | |||
|
| |||
Net investment income | 5,076,122 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments | (1,781,673 | ) | ||
Financial futures contracts | (712,278 | ) | ||
Swaps | 203,969 | |||
Foreign currency transactions | 2,537,738 | |||
|
| |||
247,756 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (41,118 | ) | ||
Financial futures contracts | 506,445 | |||
Swaps | 16,672 | |||
Foreign currency translations | (1,352,096 | ) | ||
|
| |||
(870,097 | ) | |||
|
| |||
Net realized and unrealized loss | (622,341 | ) | ||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 4,453,781 | ||
|
|
See Notes to Financial Statements.
20 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statements of Changes in Net Assets | BlackRock High Yield V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 5,076,122 | $ | 9,185,562 | ||||
Net realized gain | 247,756 | 2,661,168 | ||||||
Net change in unrealized appreciation (depreciation) | (870,097 | ) | (8,019,294 | ) | ||||
|
| |||||||
Net increase in net assets resulting from operations | 4,453,781 | 3,827,436 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | (3,409,904 | ) | (8,696,920 | ) | ||||
Class III | (1,860,349 | ) | (1,788,652 | ) | ||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | (5,270,253 | ) | (10,485,572 | ) | ||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase in net assets derived from capital share transactions | 31,968,366 | 28,653,474 | ||||||
|
| |||||||
Net Assets | ||||||||
Total increase in net assets | 31,151,894 | 21,995,338 | ||||||
Beginning of period | 191,252,699 | 169,257,361 | ||||||
|
| |||||||
End of period | $ | 222,404,593 | $ | 191,252,699 | ||||
|
| |||||||
Distributions in excess of net investment income, end of period | $ | (696,556 | ) | $ | (502,425 | ) | ||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 21 |
Financial Highlights | BlackRock High Yield V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 7.44 | $ | 7.67 | $ | 7.44 | $ | 6.87 | $ | 7.13 | $ | 6.68 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.18 | 0.40 | 0.43 | 0.48 | 0.50 | 0.53 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.00 | )2 | (0.18 | ) | 0.24 | 0.56 | (0.27 | ) | 0.44 | |||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.18 | 0.22 | 0.67 | 1.04 | 0.23 | 0.97 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income3 | (0.19 | ) | (0.45 | ) | (0.44 | ) | (0.47 | ) | (0.49 | ) | (0.52 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 7.43 | $ | 7.44 | $ | 7.67 | $ | 7.44 | $ | 6.87 | $ | 7.13 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return4 | ||||||||||||||||||||||||
Based on net asset value | 2.36 | %5 | 2.89 | % | 9.33 | % | 15.65 | % | 3.33 | % | 15.34 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.84 | %6 | 0.87 | % | 0.85 | % | 0.86 | % | 0.68 | % | 0.71 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.70 | %6 | 0.73 | % | 0.73 | % | 0.77 | % | 0.67 | % | 0.71 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 4.80 | %6 | 5.23 | % | 5.65 | % | 6.65 | % | 6.98 | % | 7.83 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 134,267 | $ | 139,729 | $ | 150,691 | $ | 142,392 | $ | 134,486 | $ | 134,323 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 38 | % | 87 | % | 101 | % | 88 | % | 82 | % | 102 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Amount is greater than $(0.005) per share. |
3 | Distributions for annual periods determined in accordance with federal income tax regulations. |
4 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
5 | Aggregate total return. |
6 | Annualized. |
See Notes to Financial Statements.
22 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights (concluded) | BlackRock High Yield V.I. Fund |
Class III | ||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | Period 2012 | ||||||||||||||
2014 | 2013 | |||||||||||||||
Per Share Operating Performance | ||||||||||||||||
Net asset value, beginning of period | $ | 7.43 | $ | 7.67 | $ | 7.44 | $ | 7.12 | ||||||||
|
| |||||||||||||||
Net investment income2 | 0.17 | 0.38 | 0.40 | 0.38 | ||||||||||||
Net realized and unrealized gain (loss) | (0.00 | )3 | (0.18 | ) | 0.25 | 0.34 | ||||||||||
|
| |||||||||||||||
Net increase from investment operations | 0.17 | 0.20 | 0.65 | 0.72 | ||||||||||||
|
| |||||||||||||||
Distributions from net investment income4 | (0.18 | ) | (0.44 | ) | (0.42 | ) | (0.40 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ | 7.42 | $ | 7.43 | $ | 7.67 | $ | 7.44 | ||||||||
|
| |||||||||||||||
Total Return5 | ||||||||||||||||
Based on net asset value | 2.24 | %6 | 2.51 | % | 9.07 | % | 10.39 | %6 | ||||||||
|
| |||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||
Total expenses | 0.98 | %7 | 1.07 | % | 1.07 | % | 1.29 | %7 | ||||||||
|
| |||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.94 | %7 | 0.98 | % | 0.96 | % | 1.19 | %7 | ||||||||
|
| |||||||||||||||
Net investment income | 4.56 | %7 | 4.86 | % | 5.23 | % | 6.74 | %7 | ||||||||
|
| |||||||||||||||
Supplemental Data | ||||||||||||||||
Net assets, end of period (000) | $ | 88,138 | $ | 51,524 | $ | 18,567 | $ | 14,824 | ||||||||
|
| |||||||||||||||
Portfolio turnover rate | 38 | % | 87 | % | 101 | % | 88 | % | ||||||||
|
|
1 | Recommencement of operations. |
2 | Based on average shares outstanding. |
3 | Amount is greater than $(0.005) per share. |
4 | Distributions for annual periods determined in accordance with federal income tax regulations. |
5 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
6 | Aggregate total return. |
7 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 23 |
Notes to Financial Statements (Unaudited) | BlackRock High Yield V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”), is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock High Yield V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares. Class III Shares were redeemed on December 31, 2007, and recommenced on February 15, 2012.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Bond investments are valued on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche-specific spread to the benchmark yield based on the unique attributes of the tranche. Financial futures contracts traded on exchanges are valued at their last sale price. Swap agreements are valued utilizing quotes received daily by the Fund’s pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Certain centrally cleared swaps are valued at the price determined by the relevant exchange or clearinghouse. Investments in open-end registered investment companies are valued at NAV each business day.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants
24 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock High Yield V.I. Fund |
for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Fund’s pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board.
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., financial futures contracts, forward foreign currency exchange contracts and swaps) that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security”. Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 25 |
Notes to Financial Statements (continued) | BlackRock High Yield V.I. Fund |
3. Securities and Other Investments:
Asset-Backed and Mortgage-Backed Securities: The Fund may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. In addition, the Fund may subsequently have to reinvest the proceeds at lower interest rates. If the Fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
The Fund may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury.
Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Zero-Coupon Bonds: The Fund may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.
Capital Trusts and Trust Preferred Securities: The Fund may invest in capital trusts and/or trust preferred securities. These securities are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. For trust preferred securities, the issuing bank or corporation will pay interest to the trust, which will then be distributed to holders of the trust preferred securities as a dividend. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for federal income tax purposes. These securities generally are rated below that of the issuing company’s senior debt securities and are freely callable at the issuer’s option.
Preferred Stock: The Fund may invest in preferred stock. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Floating Rate Loan Interests: The Fund may invest in floating rate loan interests. The floating rate loan interests held by the Fund are typically issued to companies (the “borrower”) by banks, other financial institutions, and privately and publicly offered corporations (the “lender”). Floating rate loan interests are generally non-investment grade, often involve borrowers whose financial condition is troubled or uncertain and companies that are highly leveraged. The Fund may invest in obligations of borrowers who are in bankruptcy proceedings. Floating rate loan interests may include fully funded term loans or revolving lines of credit. Floating rate loan interests are typically senior in the corporate capital structure of the borrower. Floating rate loan interests generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally the lending rate offered by one or more European banks, such as the London Interbank Offered Rate (“LIBOR”), the prime rate offered by one or more U.S. banks or the certificate of deposit rate. Floating rate loan interests may involve foreign borrowers, and investments may be denominated in foreign currencies. The Fund considers these investments to be investments in debt securities for purposes of its investment policies.
26 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock High Yield V.I. Fund |
When the Fund purchases a floating rate loan interest, it may receive a facility fee and when it sells a floating rate loan interest, it may pay a facility fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit amount of a floating rate loan interest. Facility and commitment fees are typically amortized to income over the term of the loan or term of the commitment, respectively. Consent and amendment fees are recorded to income as earned. Prepayment penalty fees, which may be received by the Fund upon the prepayment of a floating rate loan interest by a borrower, are recorded as realized gains. The Fund may invest in multiple series or tranches of a loan. A different series or tranche may have varying terms and carry different associated risks.
Floating rate loan interests are usually freely callable at the borrower’s option. The Fund may invest in such loans in the form of participations in loans (“Participations”) or assignments (“Assignments”) of all or a portion of loans from third parties. Participations typically will result in the Fund having a contractual relationship only with the lender, not with the borrower. The Fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the Participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of offset against the borrower, and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the Participation. As a result, the Fund will assume the credit risk of both the borrower and the lender that is selling the Participation. The Fund’s investment in loan participation interests involves the risk of insolvency of the financial intermediaries who are parties to the transactions. In the event of the insolvency of the lender selling the Participation, the Fund may be treated as a general creditor of the lender and may not benefit from any offset between the lender and the borrower. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement.
4. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as credit risk, equity risk and foreign currency exchange rate risk. These contracts may be transacted on an exchange or over-the-counter (“OTC”).
Financial Futures Contracts: The Fund invests in long and/or short positions in financial futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.
Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited, if any, is recorded on the Statement of Assets and Liabilities as cash pledged for financial futures contracts. 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. Variation margin is recorded by the Fund as unrealized appreciation (depreciation) and, if applicable, as a receivable or payable for variation margin in the Statement of Assets and Liabilities.
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. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 27 |
Notes to Financial Statements (continued) | BlackRock High Yield V.I. Fund |
Swaps: The Fund enters into swap agreements, in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation).
For OTC swaps, any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, in the Statement of Assets and Liabilities and amortized over the term of the OTC swap. Payments received or made by the Fund for OTC swaps are recorded in the Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.
In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities as cash pledged for centrally cleared swaps. The daily change in valuation of centrally cleared swaps is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities. Payments received from (paid to) the counterparty, including at termination, are recorded as realized gain (loss) in the Statement of Operations.
Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.
• | Credit default swaps — The Fund enters into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit risk). The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occur. As a buyer, if an underlying credit event occurs, the Fund will either (i) receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. |
The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:
Fair Values of Derivative Financial Instruments as of June 30, 2015 | ||||||||||
Value | ||||||||||
Statement of Assets and Liabilities Location | Derivative Assets | Derivative Liabilities | ||||||||
Credit contracts | Net unrealized appreciation (depreciation)1 | $ | 10,841 | — | ||||||
Equity contracts | Net unrealized appreciation (depreciation)1 | 108,462 | — | |||||||
Foreign currency exchange contracts | Unrealized appreciation (depreciation) on forward foreign currency exchange contracts | 83,264 | $ | 585,831 | ||||||
Total | $ | 202,567 | $ | 585,831 | ||||||
|
|
1 | Includes cumulative appreciation (depreciation) on financial futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
28 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock High Yield V.I. Fund |
The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2015 | ||||||||||
Net Realized Gain (Loss) From | Net Change in Unrealized Appreciation (Depreciation) on | |||||||||
Credit contracts: | ||||||||||
Swaps | $ | 203,969 | $ | 16,672 | ||||||
Equity contracts: | ||||||||||
Financial futures contracts | (829,913 | ) | 506,445 | |||||||
Foreign currency exchange contracts: | ||||||||||
Foreign currency transactions/translations | 2,624,757 | (1,368,191 | ) | |||||||
Interest rate contracts: | ||||||||||
Financial futures contracts | 117,635 | — | ||||||||
|
|
|
| |||||||
Total | $ | 2,116,448 | $ | (845,074 | ) | |||||
|
|
|
| |||||||
For the six months ended June 30, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:
Financial futures contracts: | ||||
Average notional value of contracts - short | $ | 11,304,240 | ||
Forward foreign currency exchange contracts: | ||||
Average amounts purchased - in USD | $ | 19,180,302 | ||
Average amounts sold - in USD | $ | 1,195,164 | ||
Credit default swaps: | ||||
Average notional value - sell protection | $ | 8,510,500 |
Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund.
With exchange-traded futures, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund and its counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 29 |
Notes to Financial Statements (continued) | BlackRock High Yield V.I. Fund |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.
As of June 30, 2015, the Fund’s derivative assets and liabilities (by type) are as follows:
Assets | Liabilities | |||||||
Derivative Financial Instruments: | ||||||||
Financial futures contracts | $ | 3,337 | $ | 23,150 | ||||
Forward foreign currency exchange contracts | 83,264 | 585,831 | ||||||
Swaps — Centrally cleared | 37,497 | — | ||||||
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | 124,098 | 608,981 | ||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | (40,834 | ) | (23,150 | ) | ||||
|
| |||||||
Total derivative assets and liabilities subject to an MNA | $ | 83,264 | $ | 585,831 | ||||
|
|
As of June 30, 2015, the following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:
Counterparty | Derivative Assets Subject to an MNA by Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Received | Cash Collateral Received | Net Amount of Derivative Assets2 | |||||||||||
Bank of America N.A. | $ | 112 | — | — | — | $ | 112 | |||||||||
Citibank N.A. | 8,536 | $ | (1,137 | ) | — | — | 7,399 | |||||||||
Goldman Sachs International | 7,936 | (1,475 | ) | — | — | 6,461 | ||||||||||
HSBC Bank USA N.A. | 4,949 | — | — | — | 4,949 | |||||||||||
Royal Bank of Canada | 51,490 | — | — | — | 51,490 | |||||||||||
Royal Bank of Scotland PLC | 3,557 | (125 | ) | — | — | 3,432 | ||||||||||
State Street Bank and Trust Co. | 6,684 | (1,193 | ) | — | — | 5,491 | ||||||||||
|
| |||||||||||||||
Total | $ | 83,264 | $ | (3,930 | ) | — | — | $ | 79,334 | |||||||
|
| |||||||||||||||
Counterparty | Derivative Liabilities Subject to an MNA by Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities3 | |||||||||||
Barclays Bank PLC | $ | 232,294 | — | — | — | $ | 232,294 | |||||||||
Citibank N.A. | 1,137 | $ | (1,137 | ) | — | — | — | |||||||||
Goldman Sachs International | 1,475 | (1,475 | ) | — | — | — | ||||||||||
JPMorgan Chase Bank N.A. | 5,993 | — | — | — | 5,993 | |||||||||||
Royal Bank of Scotland PLC | 125 | (125 | ) | — | — | — | ||||||||||
Standard Chartered Bank | 2,007 | — | — | — | 2,007 | |||||||||||
State Street Bank and Trust Co. | 1,193 | (1,193 | ) | — | — | — | ||||||||||
UBS AG | 341,607 | — | — | — | 341,607 | |||||||||||
|
| |||||||||||||||
Total | $ | 585,831 | $ | (3,930 | ) | — | — | $ | 581,901 | |||||||
|
|
1 | The amount of derivatives for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA. |
2 | Net amount represents the net amount receivable from the counterparty in the event of default. |
3 | Net amount represents the net amount payable due to the counterparty in the event of default. |
5. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s and BlackRock Total Return V.I. Fund’s, a series of the Company, aggregate average daily net assets at the following annual rates:
Average Daily Net Assets | ||||
First $250 Million | 0.55 | % | ||
$250 Million - $500 Million | 0.50 | % | ||
$500 Million - $750 Million | 0.45 | % | ||
Greater than $750 Million | 0.40 | % |
For the six months ended June 30, 2015, the aggregate average daily net assets of the Fund and the Company’s BlackRock Total Return V.I. Fund were approximately $354,315,652.
30 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock High Yield V.I. Fund |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $918 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at an annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
Class I | 0.06 | % | ||
Class III | 0.05 | % |
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment advisor, common officers, or common directors. For the six months ended June 30, 2015, the purchase transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were $3,894.
6. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, including paydowns and excluding short-term securities, were $119,090,192 and $78,845,884, respectively.
7. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 31 |
Notes to Financial Statements (continued) | BlackRock High Yield V.I. Fund |
As of December 31, 2014, the Fund had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:
Expires December 31, | ||||
2016 | $ | 9,129,091 | ||
2017 | 11,211,061 | |||
|
| |||
Total | $ | 20,340,152 | ||
|
|
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $226,594,502 | |||
|
| |||
Gross unrealized appreciation | $ | 3,835,803 | ||
Gross unrealized depreciation | (8,241,318 | ) | ||
|
| |||
Net unrealized depreciation | $ | (4,405,515 | ) | |
|
|
8. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
9. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
The Fund invests a significant portion of its assets in fixed-income securities and/or uses derivatives tied to the fixed income markets. Changes in market interest rates or economic conditions, may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.
10. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class I | ||||||||||||||||||
Shares sold | 619,078 | $ | 4,655,927 | 999,676 | $ | 7,727,958 | ||||||||||||
Shares issued in reinvestment of distributions | 468,571 | 3,518,110 | 1,131,354 | 8,722,851 | ||||||||||||||
Shares redeemed | (1,801,014 | ) | (13,515,369 | ) | (2,981,459 | ) | (23,039,905 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net decrease | (713,365 | ) | $ | (5,341,332 | ) | (850,429 | ) | $ | (6,589,096 | ) | ||||||||
|
|
|
|
32 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (concluded) | BlackRock High Yield V.I. Fund |
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class III | ||||||||||||||||||
Shares sold | 11,808,700 | $ | 88,540,522 | 17,413,660 | $ | 133,730,046 | ||||||||||||
Shares issued in reinvestment of distributions | 228,105 | 1,715,302 | 215,717 | 1,651,674 | ||||||||||||||
Shares redeemed | (7,095,752 | ) | (52,946,126 | ) | (13,117,262 | ) | (100,139,150 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase | 4,941,053 | $ | 37,309,698 | 4,512,115 | $ | 35,242,570 | ||||||||||||
|
|
|
| |||||||||||||||
Total Net Increase | 4,227,688 | $ | 31,968,366 | 3,661,686 | $ | 28,653,474 | ||||||||||||
|
|
|
|
11. Subsequent Events:
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 33 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock International V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock International V.I. Fund |
Investment Objective |
BlackRock International V.I. Fund’s (the “Fund”) investment objective is long-term capital growth.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund outperformed its benchmark, the MSCI All Country World Index (ACWI) ex-U.S. |
What factors influenced performance?
• | Stock selection within the financials and materials sectors was the main driver of outperformance during the period. Genmab A/S, the Danish biotechnology company, was a leading contributor, as clinical trial data releases improved the case for a new drug to treat multiple myeloma. Syngenta AG, the Switzerland-based global agribusiness, and Royal Mail PLC, the U.K. postal and delivery services company, were two other top performers. |
• | Stock selection in consumer discretionary was the most significant detractor from relative return. Sands China Ltd., the Macau casino business, was one of the largest individual detractors during the period. Macau casino stocks have been under pressure for several quarters as the Chinese government has clamped down on corruption, causing sustained weakness in gaming revenues. Chinese food products company Want Want Holdings Limited and British-Swedish pharmaceutical giant AstraZeneca PLC were two other leading detractors. |
Describe recent portfolio activity.
• | The Fund’s energy weighting was reduced early in the period as European oil giants Royal Dutch Shell PLC (Netherlands) and Total SA (France) were both sold. Genmab A/S was sold after strong performance left limited room for further upside in the near-term, and Sands China Ltd. was sold based on the absence of any stabilization of growth. Mazda Motor Corporation, the Japanese auto company, was added as earnings should benefit from the product cycle and free cash flow should be boosted after the conclusion of a major investment in new offshore production facilities. Japan-based security software company Trend Micro Inc. was added to take advantage of the company’s exposure to new areas of cyber-security. A position was also added in Dutch chemical company Akzo Nobel NV, as it should be able to maintain prices at a time when low oil prices reduce input costs, while the company also stands to benefit from any volume recovery in Europe. |
Describe portfolio positioning at period end.
• | As of period end, the Fund’s largest sector overweight positions were in consumer discretionary, health care and industrials. The largest underweight exposures were financials, energy and consumer staples. On a regional basis, the largest overweight exposures were in the United Kingdom and the United States, while the largest underweight allocations were in Asia ex-Japan and emerging markets. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Geographic Allocation | Percent of Long-Term Investments |
United Kingdom | 26 | % | ||
Japan | 17 | |||
United States | 12 | |||
Netherlands | 9 | |||
Israel | 4 | |||
Ireland | 3 | |||
Mexico | 3 | |||
France | 3 | |||
Switzerland | 3 | |||
Belgium | 3 | |||
Germany | 3 | |||
Taiwan | 3 | |||
Canada | 2 | |||
Brazil | 2 | |||
South Korea | 2 | |||
China | 2 | |||
Other1 | 3 |
1 Includes holdings within countries that are 1% or less of long-term investments. Please refer to the Schedule of Investments for such countries.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock International V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. |
2 | The Fund invests primarily in stocks of companies located outside the U.S. The Fund’s total returns prior to October 1, 2011 are the returns of the Fund when it followed a different investment strategy under the name “BlackRock International Value V.I. Fund.” |
3 | A free float-adjusted market capitalization index designed to measure the combined equity market performance of developed and emerging market countries, excluding the United States. |
Performance Summary for the Period Ended June 30, 2015 |
Average Annual Total Returns | ||||||||||||||||||||
6-Month Total Returns5 | 1 Year5 | 5 Years5 | 10 Years5 | |||||||||||||||||
Class I4 | 5.05 | % | (2.91 | )% | 8.91 | % | 4.39 | % | ||||||||||||
MSCI All Country World Index ex-U.S. | 4.03 | (5.26 | ) | 7.76 | 5.54 |
4 | Average annual and cumulative total returns are based on changes in net asset values for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. The Fund’s total returns prior to October 1, 2011 are the returns of the Fund when it followed a different investment strategy under the name “BlackRock International Value V.I. Fund.” |
5 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example |
Actual | Hypothetical7 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period6 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period6 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,050.50 | $4.93 | $1,000.00 | $1,019.98 | $4.86 | 0.97% |
6 | Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
7 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock International V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative
financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock International V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Belgium — 2.9% | ||||||||
KBC Groep NV | 52,191 | $ | 3,498,797 | |||||
Brazil — 1.9% | ||||||||
Itau Unibanco Holding SA, Class S Preference Shares | 206,290 | 2,272,501 | ||||||
Canada — 1.9% | ||||||||
Finning International, Inc. (a) | 123,206 | 2,317,141 | ||||||
China — 1.5% | ||||||||
Bank of China Ltd., H Shares | 2,920,000 | 1,895,025 | ||||||
Denmark — 1.2% | ||||||||
Novo Nordisk A/S, Class B | 26,368 | 1,446,941 | ||||||
France — 3.0% | ||||||||
Cie de Saint-Gobain | 81,619 | 3,684,402 | ||||||
Germany — 2.6% | ||||||||
Deutsche Post AG, Registered Shares | 110,375 | 3,225,088 | ||||||
Indonesia — 1.4% | ||||||||
Bank Mandiri Perseo Tbk PT | 2,319,300 | 1,743,488 | ||||||
Ireland — 3.0% | ||||||||
Shire PLC | 46,549 | 3,740,168 | ||||||
Israel — 3.9% | ||||||||
Teva Pharmaceutical Industries Ltd. — ADR | 81,226 | 4,800,457 | ||||||
Japan — 16.7% | ||||||||
Kyowa Hakko Kirin Co. Ltd. | 230,000 | 3,005,610 | ||||||
Mazda Motor Corp. | 246,900 | 4,831,537 | ||||||
Recruit Holdings Co. Ltd. | 145,600 | 4,439,965 | ||||||
SoftBank Group Corp. | 64,000 | 3,769,791 | ||||||
Trend Micro, Inc. | 131,200 | 4,487,918 | ||||||
|
| |||||||
20,534,821 | ||||||||
Mexico — 3.0% | ||||||||
Grupo Televisa SAB — ADR | 95,964 | 3,725,322 | ||||||
Netherlands — 8.8% | ||||||||
Akzo Nobel NV | 61,358 | 4,479,699 | ||||||
ASML Holding NV | 29,189 | 3,036,171 | ||||||
ING Groep NV — CVA (a) | 194,527 | 3,230,201 | ||||||
|
| |||||||
10,746,071 | ||||||||
South Korea — 1.6% | ||||||||
SK Telecom Co. Ltd | 8,837 | 1,977,335 | ||||||
Switzerland — 2.9% | ||||||||
Syngenta AG, Registered Shares | 8,618 | 3,516,333 | ||||||
Taiwan — 2.5% | ||||||||
MediaTek, Inc. | 224,000 | 3,061,988 | ||||||
Turkey — 1.4% | ||||||||
Turkiye Garanti Bankasi AS | 559,171 | 1,743,973 | ||||||
United Kingdom — 25.5% | ||||||||
AstraZeneca PLC | 114,559 | 7,250,422 |
Common Stocks | Shares | Value | ||||||
United Kingdom (concluded) | ||||||||
Imperial Tobacco Group PLC | 52,174 | $ | 2,512,800 | |||||
Kingfisher PLC | 952,883 | 5,197,461 | ||||||
Liberty Global PLC, Series A (b) | 114,708 | 6,202,261 | ||||||
Royal Mail PLC | 398,811 | 3,224,173 | ||||||
Vodafone Group PLC | 1,878,734 | 6,853,382 | ||||||
|
| |||||||
31,240,499 | ||||||||
United States — 12.0% |
| |||||||
Alexion Pharmaceuticals, Inc. (b) | 15,908 | 2,875,689 | ||||||
AMETEK, Inc. | 59,821 | 3,276,994 | ||||||
Discovery Communications, Inc., Class A (a)(b) | 133,096 | 4,426,773 | ||||||
The Estee Lauder Cos., Inc., Class A | 21,951 | 1,902,274 | ||||||
TripAdvisor, Inc. (b) | 24,940 | 2,173,272 | ||||||
|
| |||||||
14,655,002 | ||||||||
Total Long-Term Investments (Cost — $113,246,421) — 97.7% | 119,825,352 | |||||||
Short-Term Securities | ||||||||
BlackRock Liquidity Funds, TempFund, | 2,823,257 | 2,823,257 | ||||||
Beneficial (000) | ||||||||
BlackRock Liquidity Series, LLC, Money Market | $ | 2,447 | 2,447,107 | |||||
Time Deposits | Par (000) | |||||||
United Kingdom — 0.0% |
| |||||||
Brown Brothers Harriman & Co., | GBP | 14 | 21,799 | |||||
Total Short-Term Securities (Cost — $5,292,163) — 4.3% | 5,292,163 | |||||||
Total Investments (Cost — $118,538,584) — 102.0% |
| 125,117,515 | ||||||
Liabilities in Excess of Other Assets — (2.0)% |
| (2,497,091 | ) | |||||
|
| |||||||
Net Assets — 100.0% | $ | 122,620,424 | ||||||
|
|
Portfolio Abbreviations | ||||||||||
ADR | American Depositary Receipts | GBP | British Pound | |||||||
AUD | Australian Dollar | USD | U.S. Dollar | |||||||
CAD | Canadian Dollar |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock International V.I. Fund |
Notes to Schedule of Investments |
(a) | Security, or a portion of security, is on loan. |
(b) | Non-income producing security. |
(c) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/Beneficial Interest Held at December 31, 2014 | Net Activity | Shares/Beneficial Interest Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 5,241,248 | (2,417,991 | ) | 2,823,257 | $ | 1,074 | ||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $4,207,750 | $ | (1,760,643 | ) | $2,447,107 | $ | 1,507 | 1 |
1 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(d) | Represents the current yield as of report date. |
(e) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: |
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
AUD | 4,469,000 | USD | 3,370,443 | Citibank N.A. | 7/16/15 | $ | 74,305 | |||||||||||||||
CAD | 5,801,000 | USD | 4,598,713 | Citibank N.A. | 7/16/15 | 44,753 | ||||||||||||||||
USD | 6,277,795 | GBP | 4,085,000 | Citibank N.A. | 7/30/15 | (139,359 | ) | |||||||||||||||
Total | $ | (20,301 | ) | |||||||||||||||||||
|
|
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (concluded) | BlackRock International V.I. Fund |
As of June 30, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Long-Term Investments: | ||||||||||||||||||||
Common Stocks: | ||||||||||||||||||||
Belgium | — | $ | 3,498,797 | — | $ | 3,498,797 | ||||||||||||||
Brazil | $ | 2,272,501 | — | — | 2,272,501 | |||||||||||||||
Canada | 2,317,141 | — | — | 2,317,141 | ||||||||||||||||
China | — | 1,895,025 | — | 1,895,025 | ||||||||||||||||
Denmark | — | 1,446,941 | — | 1,446,941 | ||||||||||||||||
France | — | 3,684,402 | — | 3,684,402 | ||||||||||||||||
Germany | — | 3,225,088 | — | 3,225,088 | ||||||||||||||||
Indonesia | — | 1,743,488 | — | 1,743,488 | ||||||||||||||||
Ireland | — | 3,740,168 | — | 3,740,168 | ||||||||||||||||
Israel | 4,800,457 | — | — | 4,800,457 | ||||||||||||||||
Japan | — | 20,534,821 | — | 20,534,821 | ||||||||||||||||
Mexico | 3,725,322 | — | — | 3,725,322 | ||||||||||||||||
Netherlands | — | 10,746,071 | — | 10,746,071 | ||||||||||||||||
South Korea | — | 1,977,335 | — | 1,977,335 | ||||||||||||||||
Switzerland | — | 3,516,333 | — | 3,516,333 | ||||||||||||||||
Taiwan | — | 3,061,988 | — | 3,061,988 | ||||||||||||||||
Turkey | — | 1,743,973 | — | 1,743,973 | ||||||||||||||||
United Kingdom | 6,202,261 | 25,038,238 | — | 31,240,499 | ||||||||||||||||
United States | 14,655,002 | — | — | 14,655,002 | ||||||||||||||||
Short-Term Securities | 2,823,257 | 2,468,906 | — | 5,292,163 | ||||||||||||||||
|
| |||||||||||||||||||
Total | $ | 36,795,941 | $ | 88,321,574 | — | $ | 125,117,515 | |||||||||||||
|
| |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Derivative Financial Instruments1 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Foreign currency exchange contracts | — | $ | 119,058 | — | $ | 119,058 | ||||||||||||||
Liabilities: | ||||||||||||||||||||
Foreign currency exchange contracts | — | (139,359 | ) | — | (139,359 | ) | ||||||||||||||
|
| |||||||||||||||||||
Total | — | $ | (20,301 | ) | — | $ | (20,301 | ) | ||||||||||||
|
| |||||||||||||||||||
1 Derivative financial instruments are forward foreign currency exchange contracts which are valued at the unrealized appreciation (depreciation) on the instrument. |
| |||||||||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, collateral on securities loaned at value of $2,447,107 is categorized as Level 2 within the disclosure hierarchy. | ||||||||||||||||||||
Transfers between Level 1 and Level 2 were as follows:
|
| |||||||||||||||||||
Transfers into Level 1 | Transfers out of Level 11 | Transfers into Level 21 | Transfers out of Level 2 | |||||||||||||||||
Assets: | ||||||||||||||||||||
Long-Term Investments: | ||||||||||||||||||||
Japan | — | $ | (1,168,876 | ) | $ | 1,168,876 | — | |||||||||||||
Netherlands | — | (3,877,292 | ) | 3,877,292 | — | |||||||||||||||
|
| |||||||||||||||||||
Total | — | $ | (5,046,168 | ) | $ | 5,046,168 | — | |||||||||||||
|
| |||||||||||||||||||
1 External pricing service used to reflect any significant market movements between the time the Fund valued such foreign securities and the earlier closing of foreign markets. |
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $1,939,303) (cost — $113,268,220) | $ | 119,847,151 | ||
Investments at value — affiliated (cost — $5,270,364) | 5,270,364 | |||
Receivables: | ||||
Dividends — unaffiliated | 501,657 | |||
Securities lending income — affiliated | 573 | |||
Dividends — affiliated | 83 | |||
From the Manager | 20,634 | |||
Unrealized appreciation on foreign currency exchange contracts | 119,058 | |||
Prepaid expenses | 301 | |||
|
| |||
Total assets | 125,759,821 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 2,447,107 | |||
Payables: | ||||
Capital shares redeemed | 265,580 | |||
Investment advisory fees | 77,712 | |||
Deferred foreign capital gain tax | 69,848 | |||
Officer’s and Directors’ fees | 1,516 | |||
Other affiliates | 745 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 139,359 | |||
Other accrued expenses payable | 137,530 | |||
|
| |||
Total liabilities | 3,139,397 | |||
|
| |||
Net Assets | $ | 122,620,424 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 141,895,984 | ||
Undistributed net investment income | 1,125,828 | |||
Accumulated net realized loss | (26,958,071 | ) | ||
Net unrealized appreciation/depreciation | 6,556,683 | |||
|
| |||
Net Assets | $ | 122,620,424 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $122,620,424 and 11,559,705 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.61 | ||
|
|
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock International V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 1,772,175 | ||
Securities lending — affiliated — net | 1,507 | |||
Dividends — affiliated | 1,074 | |||
Foreign taxes withheld | (117,930 | ) | ||
|
| |||
Total income | 1,656,826 | |||
|
| |||
Expenses | ||||
Investment advisory | 463,716 | |||
Transfer agent | 125,442 | |||
Professional | 26,262 | |||
Accounting services | 19,953 | |||
Custodian | 17,258 | |||
Officer and Directors | 9,414 | |||
Printing | 6,936 | |||
Miscellaneous | 4,761 | |||
|
| |||
Total expenses | 673,742 | |||
Less fees waived by the Manager | (1,033 | ) | ||
Less transfer agent fees reimbursed | (73,551 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 599,158 | |||
|
| |||
Net investment income | 1,057,668 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments | (428,495 | ) | ||
Foreign currency transactions | 70,123 | |||
|
| |||
(358,372 | ) | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 5,575,057 | |||
Foreign currency translations | (190,396 | ) | ||
|
| |||
5,384,661 | ||||
|
| |||
Net realized and unrealized gain | 5,026,289 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 6,083,957 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Statements of Changes in Net Assets | BlackRock International V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 1,057,668 | $ | 1,688,786 | ||||
Net realized gain (loss) | (358,372 | ) | 12,304,492 | |||||
Net change in unrealized appreciation (depreciation) | 5,384,661 | (21,023,951 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 6,083,957 | (7,030,673 | ) | |||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income | — | (2,500,005 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net decrease in net assets derived from capital share transactions | (8,607,138 | ) | (15,639,959 | ) | ||||
|
| |||||||
Net Assets | ||||||||
Total decrease in net assets | (2,523,181 | ) | (25,170,637 | ) | ||||
Beginning of period | 125,143,605 | 150,314,242 | ||||||
|
| |||||||
End of period | $ | 122,620,424 | $ | 125,143,605 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 1,125,828 | $ | 68,160 | ||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights | BlackRock International V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.10 | $ | 10.87 | $ | 9.04 | $ | 8.00 | $ | 9.55 | $ | 9.06 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.09 | 0.13 | 0.19 | 0.16 | 0.19 | 0.14 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.42 | (0.69 | ) | 1.86 | 1.04 | (1.50 | ) | 0.45 | ||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.51 | (0.56 | ) | 2.05 | 1.20 | (1.31 | ) | 0.59 | ||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income2 | — | (0.21 | ) | (0.22 | ) | (0.16 | ) | (0.24 | ) | (0.10 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.61 | $ | 10.10 | $ | 10.87 | $ | 9.04 | $ | 8.00 | $ | 9.55 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 5.05 | %4 | (5.19 | )% | 22.75 | % | 15.08 | % | (13.71 | )% | 6.57 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.09 | %5 | 1.11 | % | 1.08 | % | 1.05 | % | 0.89 | % | 0.89 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 0.97 | %5 | 0.99 | % | 0.97 | % | 0.96 | % | 0.88 | % | 0.89 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.71 | %5 | 1.21 | % | 1.92 | % | 1.84 | % | 2.08 | % | 1.61 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 122,620 | $ | 125,144 | $ | 150,314 | $ | 133,308 | $ | 134,471 | $ | 174,679 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 62 | % | 129 | % | 121 | % | 106 | % | 153 | % | 119 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Notes to Financial Statements (Unaudited) | BlackRock International V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock International V.I. Fund (the “Fund”). The Fund is classified as diversified.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”)(generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value (“NAV”) each business day.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock International V.I. Fund |
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., forward foreign currency exchange contracts), that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund are charged to the Fund. Other operating expenses shared by several funds are prorated among those funds on the basis of relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (continued) | BlackRock International V.I. Fund |
impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | |||||||
Credit Suisse Securities (USA) LLC | $ | 1,513,575 | $ | (1,513,575 | ) | — | ||||
JP Morgan Securities LLC | 425,728 | (425,728 | ) | — | ||||||
|
| |||||||||
Total | $ | 1,939,303 | $ | (1,939,303 | ) | — | ||||
|
|
1 | Collateral with a value of $2,447,107 has been received in connection with securities lending agreements. Excess of collateral received from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities lent if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:
Fair Values of Derivative Financial Instruments as of June 30, 2015 | ||||||||||
Value | ||||||||||
Statement of Assets and Liabilities Location | Derivative Assets | Derivative Liabilities | ||||||||
Foreign currency exchange contracts | Unrealized appreciation (depreciation) on forward foreign currency exchange contracts | $ | 119,058 | $ | (139,359 | ) | ||||
The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2015 | ||||||
Net Realized Gain From | Net Change in Unrealized Appreciation (Depreciation) On | |||||
Foreign currency exchange contracts: | ||||||
Foreign currency transactions/translations | $163,125 | $(210,280) |
For the six months ended June 30, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:
Forward foreign currency exchange contracts: | ||||
Average amounts purchased — in USD | $ | 7,068,993 | ||
Average amounts sold — in USD | $ | 12,062,977 |
Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock International V.I. Fund |
The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by such Fund.
In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund and its counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.
At June 30, 2015, the Fund’s derivative assets and liabilities (by type) are as follows:
Assets | Liabilities | |||||||
Derivative Financial Instruments: | ||||||||
Forward foreign currency exchange contracts | $ | 119,058 | 139,359 | |||||
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | 119,058 | 139,359 | ||||||
|
| |||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | — | — | ||||||
|
| |||||||
Total derivative assets and liabilities subject to an MNA | $ | 119,058 | 139,359 | |||||
|
|
As of June 30, 2015, the following table presents the Fund’s derivative assets by counterparty net of amounts available for offset under an MNA and net of the related collateral received by the Fund:
Counterparty | Derivative Assets Subject to an MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Received | Cash Collateral Received | Net Amount of Derivative Assets | |||||
Citibank N.A | $119,058 | $(119,058) | — | — | — | |||||
Counterparty | Derivative Liabilities Subject to an MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities1 | |||||
Citibank N.A | $139,359 | $(119,058) | — | — | $20,301 |
1 | Net amount represents the net amount payable due to the counterparty in the event of default. |
5. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (continued) | BlackRock International V.I. Fund |
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | ||||
First $1 Billion | 0.75 | % | |||
$1 Billion — $3 Billion | 0.71 | % | |||
$3 Billion — $5 Billion | 0.68 | % | |||
$5 Billion — $10 Billion | 0.65 | % | |||
Greater than $10 Billion | 0.64 | % |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
The Manager entered into a sub-advisory agreement with BlackRock International Ltd. (“BIL”), an affiliate of the Manager. The Manager pays BIL, for services it provides, a monthly fee that is a percentage of the investment advisory fees paid by the Fund to the Manager.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $699 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses at 0.08% of average daily net assets.
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. This amount is shown as transfer agent fees reimbursed in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitation as a percentage of net assets is 1.25% for Class I. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 80% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock International V.I. Fund |
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 85% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $254 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
6. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $75,069,026 and $79,771,835, respectively.
7. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of December 31, 2014, the Fund had a capital loss carryforward available to offset future realized capital gains of $25,133,494, all of which is due to expire December 31, 2017.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 118,838,941 | ||
|
| |||
Gross unrealized appreciation | $ | 9,139,761 | ||
Gross unrealized depreciation | (2,861,187 | ) | ||
|
| |||
Net unrealized appreciation | $ | 6,278,574 | ||
|
|
8. Bank Borrowings:
The Company, on behalf of the Fund , along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
9. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (concluded) | BlackRock International V.I. Fund |
instruments and receivables due from the counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
The Fund invests a substantial amount of its assets in issuers located in a single country or a limited number of countries. When the Fund concentrates its investments in this manner, it assumes the risk that economic, political and social conditions in those countries may have a significant impact on their investment performance. Foreign issuers may not be subject to the same uniform accounting, auditing and financial reporting standards and practices as used in the United States. Foreign securities markets may also be less liquid, more volatile, and less subject to governmental supervision not typically associated with investing in U.S. securities. Investment percentages in specific countries are presented in the Schedule of Investments.
The Fund invests a significant portion of its assets in securities of issuers located in Europe or with significant exposure to European issuers or countries. The European financial markets have recently experienced volatility and adverse trends due to concerns about economic downturns in, or rising government debt levels of, several European countries. These events may spread to other countries in Europe and may affect the value and liquidity of certain of the Fund’s investments.
As of June 30, 2015, the Fund had the following industry classifications:
Industry | Percent of Long-Term Investments | ||||
Pharmaceuticals | 17 | % | |||
Banks | 12 | % | |||
Media | 12 | % | |||
Wireless Telecommunication Services | 10 | % | |||
Chemicals | 7 | % | |||
Air Freight & Logistics | 5 | % | |||
Semiconductors & Semiconductor Equipment | 5 | % | |||
Other1 | 32 | % |
1 | All other industries held were each less than 5% of long-term investments. |
10. Capital Share Transactions:
Transactions in capital shares were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class I | ||||||||||||||||||
Shares sold | 130,183 | $ | 1,376,351 | 345,073 | $ | 3,700,519 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 246,306 | 2,500,005 | ||||||||||||||
Shares redeemed | (956,435 | ) | (9,983,489 | ) | (2,032,367 | ) | (21,840,483 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net decrease | (826,252 | ) | $ | (8,607,138 | ) | (1,440,988 | ) | $ | (15,639,959 | ) | ||||||||
|
|
|
|
11. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income distribution of $0.008015 per share on July 17, 2015 to shareholders of record on July 15, 2015.
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock iShares® Alternative Strategies V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock iShares® Alternative Strategies V.I. Fund |
Investment Objective |
BlackRock iShares® Alternative Strategies V.I. Fund’s (the “Fund”) investment objective is to seek long-term growth of capital and risk adjusted returns.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund underperformed its blended benchmark, the 60% MSCI All Country World Index/40% Barclays U.S. Aggregate Bond Index. |
What factors influenced performance?
• | The largest detractor from Fund performance was exposure to the price of gold through the iShares Gold Trust. The next-largest detractor was exposure to the price of silver through the iShares Silver Trust. |
• | The largest contributor to Fund performance was exposure to the MSCI All Country World Minimum Volatility Index through the iShares MSCI All Country World Minimum Volatility ETF. This was followed by exposure to U.S. dollar-denominated emerging market bonds through the iShares JPMorgan USD Emerging Markets Bond ETF. |
Describe recent portfolio activity.
• | During the six-month period, the Fund increased its exposures to commodities and emerging market bonds by increasing allocations to the iShares Commodities Select Strategy ETF and iShares JPMorgan USD Emerging Markets Bond ETF. At the same time, the Fund’s exposures to gold prices through the iShares Gold Trust and real estate through the iShares U.S. Real Estate ETF were decreased. |
Describe portfolio positioning at period end.
• | At period end, the Fund was invested in accordance with the quantitative model used to allocate its assets. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Portfolio Composition | Percent of Affiliated Investment Companies | |
Fixed Income Funds | 38% | |
Equity Funds | 31 | |
Short-Term Securities | 21 | |
Commodity Funds | 10 |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 1 |
BlackRock iShares® Alternative Strategies V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. |
2 | The Fund invests in a portfolio of underlying exchange-traded funds that seek to track alternative indices. |
3 | A customized weighted index comprised of 60% MSCI All Country World Index and 40% Barclays U.S. Aggregate Bond Index. |
4 | A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI All Country World Index consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. |
5 | A widely recognized unmanaged market-weighted index, comprised of investment-grade corporate bonds rated BBB or better, mortgages and U.S. Treasury and U.S. Government agency issues with at least one year to maturity. |
6 | Commencement of operations. |
Performance Summary for the Period Ended June 30, 2015 |
Average Annual Total Returns | ||||||
6-Month Total Returns8 | 1 Year8 | Since Inception8,9 | ||||
Class I7 | 1.57% | 1.68% | 4.22% | |||
Class III7 | 1.37 | 1.43 | 3.99 | |||
60% MSCI All Country World Index / 40% Barclays U.S. Aggregate Bond Index | 1.63 | 1.27 | 3.60 | |||
MSCI All Country World Index | 2.66 | 0.71 | 4.09 | |||
Barclays U.S. Aggregate Bond Index | (0.10) | 1.86 | 2.63 |
7 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
8 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
9 | The Fund commenced operations on April 30, 2014. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example |
Actual | Hypothetical11 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period10 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period10 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,015.70 | $3.80 | $1,000.00 | $1,021.03 | $3.81 | 0.76% | |||||||
Class III | $1,000.00 | $1,013.70 | $5.04 | $1,000.00 | $1,019.79 | $5.06 | 1.01% |
10 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
11 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half-year divided by 365. See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Disclosure of Expenses | BlackRock iShares® Alternative Strategies V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Consolidated Schedule of Investments June 30, 2015 (Unaudited) | BlackRock iShares® Alternative Strategies V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Affiliated Investment Companies (a) | Shares | Value | ||||||||
Commodity Funds — 13.6% |
| |||||||||
iShares Commodities Select Strategy ETF | 16,730 | $ | 660,333 | |||||||
iShares Gold Trust (b)(c) | 46,670 | 529,238 | ||||||||
iShares Silver Trust (b)(c) | 14,615 | 219,663 | ||||||||
|
| |||||||||
1,409,234 | ||||||||||
Equity Funds — 40.6% | ||||||||||
iShares International Developed Real Estate ETF | 37,249 | 1,107,785 | ||||||||
iShares MSCI All Country World Minimum Volatility ETF | 41,564 | 2,890,361 | ||||||||
iShares U.S. Real Estate ETF | 3,178 | 226,591 | ||||||||
|
| |||||||||
4,224,737 | ||||||||||
Fixed Income Funds — 50.6% | ||||||||||
iShares JPMorgan USD Emerging Markets Bond ETF (d) | 28,484 | 3,130,961 |
Affiliated Investment Companies (a) | Shares/ Beneficial Interest | Value | ||||||||
Fixed Income Funds (concluded) | ||||||||||
iShares U.S. Preferred Stock ETF | 54,550 | $ | 2,136,724 | |||||||
|
| |||||||||
5,267,685 | ||||||||||
Short-Term Securities — 27.6% | ||||||||||
BlackRock Liquidity Funds, TempFund, | 106,034 | 106,034 | ||||||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (e)(f) | $ | 2,762,989 | 2,762,989 | |||||||
|
| |||||||||
2,869,023 | ||||||||||
Total Affiliated Investment Companies (Cost — $13,914,156) — 132.4% | 13,770,679 | |||||||||
Liabilities in Excess of Other Assets — (32.4)% |
| (3,368,168 | ) | |||||||
|
| |||||||||
Net Assets — 100.0% | $ | 10,402,511 | ||||||||
|
|
Notes to Schedule of Investments |
(a) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/ Beneficial Interest Held at | Shares/ Beneficial Interest Purchased | Shares Sold | Shares/ Held at June 30, 2015 | Value at June 30, 2015 | Income | Realized Gain (Loss) | |||||||||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 343,660 | — | 237,626 | 1 | 106,034 | $ | 106,034 | $ | 56 | — | ||||||||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $ | 1,119,378 | $ | 1,643,611 | 2 | — | $ | 2,762,989 | $ | 2,762,989 | $ | 14,120 | 3 | — | ||||||||||||||
iShares Commodities Select Strategy ETF | — | 17,620 | 890 | 16,730 | $ | 660,333 | $ | 3,628 | $ | 757 | ||||||||||||||||||
iShares Gold Trust | 23,404 | 23,266 | — | 46,670 | $ | 529,238 | — | — | ||||||||||||||||||||
iShares International Developed Real Estate ETF | 18,045 | 19,873 | 669 | 37,249 | $ | 1,107,785 | $ | 21,802 | $ | (364 | ) | |||||||||||||||||
iShares JPMorgan USD Emerging Markets Bond ETF | 14,284 | 14,934 | 734 | 28,484 | $ | 3,130,961 | $ | 38,177 | $ | (2,327 | ) | |||||||||||||||||
iShares MSCI All Country World Minimum Volatility ETF | 20,308 | 22,171 | 915 | 41,564 | $ | 2,890,361 | $ | 29,251 | $ | (913 | ) | |||||||||||||||||
iShares Silver Trust | 7,002 | 11,022 | 3,409 | 14,615 | $ | 219,663 | — | $ | (3,693 | ) | ||||||||||||||||||
iShares U.S. Preferred Stock ETF | 27,982 | 27,628 | 1,060 | 54,550 | $ | 2,136,724 | $ | 34,086 | $ | (393 | ) | |||||||||||||||||
iShares U.S. Real Estate ETF | 5,517 | 3,413 | 5,752 | 3,178 | $ | 226,591 | $ | 6,879 | $ | 12,364 |
1 | Represents net shares sold. |
2 | Represents net beneficial interest purchased. |
3 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(b) | Non-income producing security. |
(c) | All or a portion of security is held by a wholly owned subsidiary. See Note 1 of the Notes to Consolidated Financial Statements for details on the wholly owned subsidiary. |
(d) | Security, or a portion of security, is on loan. |
(e) | Represents the current yield as of report date. |
(f) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
Portfolio Abbreviations | ||||||||||
ETF | Exchange Traded Fund |
See Notes to Consolidated Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (concluded) | BlackRock iShares® Alternative Strategies V.I. Fund |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Consolidated Financial Statements.
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Affiliated Investment Companies | $ | 11,007,690 | $ | 2,762,989 | — | $ | 13,770,679 | |||||||||
|
| |||||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 54,624 | — | — | $ | 54,624 | ||||||||||
Liabilities: | ||||||||||||||||
Collateral on securities loaned at value | — | $ | (2,762,989 | ) | — | (2,762,989 | ) | |||||||||
|
| |||||||||||||||
Total | $ | 54,624 | $ | (2,762,989 | ) | — | $ | (2,708,365 | ) | |||||||
|
|
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Consolidated Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock iShares® Alternative Strategies V.I. Fund | |||
Assets | ||||
Investments at value — affiliated (including securities loaned at value of $2,714,694)(cost — $13,914,156) | $ | 13,770,679 | ||
Cash | 54,624 | |||
Receivables: | ||||
Dividends — affiliated | 29,275 | |||
Investments sold | 24,257 | |||
Capital shares sold | 23,625 | |||
From the Manager | 7,725 | |||
Securities lending income — affiliated | 2,927 | |||
Prepaid expenses | 336 | |||
|
| |||
Total assets | 13,913,448 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 2,762,989 | |||
Payables: | ||||
Capital shares redeemed | 522,890 | |||
Investments purchased | 190,043 | |||
Officer’s and Directors’ fees | 574 | |||
Distribution fees | 171 | |||
Other accrued expenses payable | 34,270 | |||
|
| |||
Total liabilities | 3,510,937 | |||
|
| |||
Net Assets | $ | 10,402,511 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 10,439,147 | ||
Undistributed net investment income | 118,216 | |||
Accumulated net realized loss | (11,375 | ) | ||
Net unrealized appreciation (depreciation) | (143,477 | ) | ||
|
| |||
Net Assets | $ | 10,402,511 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $9,383,678 and 905,759 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.36 | ||
|
| |||
Class III — Based on net assets of $1,018,833 and 98,560 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.34 | ||
|
|
See Notes to Consolidated Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock iShares® Alternative Strategies V.I. Fund | |||
Investment Income | ||||
Dividends — affiliated | $ | 133,879 | ||
Securities lending — affiliated — net | 14,120 | |||
|
| |||
Total income | 147,999 | |||
|
| |||
Expenses | ||||
Professional | 44,442 | |||
Offering | 11,466 | |||
Investment advisory | 9,635 | |||
Printing | 7,009 | |||
Transfer agent — Class I | 3,149 | |||
Transfer agent — Class III | 214 | |||
Accounting services | 2,810 | |||
Transfer agent | 2,721 | |||
Officer and Directors | 2,702 | |||
Custodian | 2,334 | |||
Distribution — Class III | 725 | |||
Registration | 64 | |||
Miscellaneous | 1,343 | |||
|
| |||
Total expenses | 88,614 | |||
Less fees waived by the Manager | (9,635 | ) | ||
Less transfer agent fees reimbursed — Class I | (3,143 | ) | ||
Less transfer agent fees reimbursed — Class III | (212 | ) | ||
Less expenses reimbursed by the Manager | (45,749 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 29,875 | |||
|
| |||
Net investment income | 118,124 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain on investments — affiliated | 5,431 | |||
Net change in unrealized appreciation (depreciation) on investments — affiliated | (113,450 | ) | ||
|
| |||
Net realized and unrealized loss | (108,019 | ) | ||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 10,105 | ||
|
|
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Consolidated Statement of Changes in Net Assets | BlackRock iShares® Alternative Strategies V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Period to December 31,2014 | ||||||
Operations | ||||||||
Net investment income | $ | 118,124 | $ | 61,830 | ||||
Net realized gain (loss) | 5,431 | (15,924 | ) | |||||
Net change in unrealized appreciation (depreciation) | (113,450 | ) | (30,027 | ) | ||||
|
| |||||||
Net increase in net assets resulting from operations | 10,105 | 15,879 | ||||||
|
| |||||||
Distributions to Shareholders From2 | ||||||||
Net investment income: | ||||||||
Class I | — | (59,817 | ) | |||||
Class III | — | (3,839 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (3,258 | ) | |||||
Class III | — | (220 | ) | |||||
Return of capital: | ||||||||
Class I | — | (538 | ) | |||||
Class III | — | (34 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (67,706 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase in net assets derived from capital share transactions | 4,942,359 | 5,501,874 | ||||||
|
| |||||||
Net Assets | ||||||||
Total increase in net assets | 4,952,464 | 5,450,047 | ||||||
Beginning of period | 5,450,047 | — | ||||||
|
| |||||||
End of period | $ | 10,402,511 | $ | 5,450,047 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 118,216 | $ | 92 | ||||
|
|
1 | Commencement of operations. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Consolidated Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Financial Highlights | BlackRock iShares® Alternative Strategies V.I. Fund |
Class I | Class III | |||||||||||||||
Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to December 31, 2014 | Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to December 31, 2014 | |||||||||||||
Per Share Operating Performance | ||||||||||||||||
Net asset value, beginning of period | $ | 10.20 | $ | 10.00 | $ | 10.20 | $ | 10.00 | ||||||||
|
|
|
| |||||||||||||
Net investment income2 | 0.16 | 0.31 | 0.16 | 0.36 | ||||||||||||
Net realized and unrealized gain (loss) | (0.00 | )3 | 0.03 | (0.02 | ) | (0.03 | ) | |||||||||
|
|
|
| |||||||||||||
Net increase from investment operations | 0.16 | 0.34 | 0.14 | 0.33 | ||||||||||||
|
|
|
| |||||||||||||
Distributions from:4 | ||||||||||||||||
Net investment income | — | (0.13 | ) | — | (0.12 | ) | ||||||||||
Net realized capital gains | — | (0.01 | ) | — | (0.01 | ) | ||||||||||
Return of capital | — | (0.00 | )3 | — | (0.00 | )3 | ||||||||||
|
|
|
| |||||||||||||
Total distributions | — | (0.14 | ) | — | (0.13 | ) | ||||||||||
|
|
|
| |||||||||||||
Net asset value, end of period | $ | 10.36 | $ | 10.20 | $ | 10.34 | $ | 10.20 | ||||||||
|
|
|
| |||||||||||||
Total Return5,6 | ||||||||||||||||
Based on net asset value | 1.57 | % | 3.32 | % | 1.37 | % | 3.26 | % | ||||||||
|
|
|
| |||||||||||||
Ratios to Average Net Assets7,8 | ||||||||||||||||
Total expenses9 | 2.14 | % | 8.81 | % | 2.32 | % | 8.54 | % | ||||||||
|
|
|
| |||||||||||||
Total expenses after fees waived and reimbursed | 0.76 | % | 0.75 | % | 1.01 | % | 1.00 | % | ||||||||
|
|
|
| |||||||||||||
Net investment income | 3.07 | % | 4.36 | % | 3.04 | % | 5.05 | % | ||||||||
|
|
|
| |||||||||||||
Supplemental Data | ||||||||||||||||
Net assets, end of period (000) | $ | 9,384 | $ | 5,116 | $ | 1,019 | $ | 334 | ||||||||
|
|
|
| |||||||||||||
Portfolio turnover rate | 9 | % | 34 | % | 9 | % | 34 | % | ||||||||
|
|
|
|
1 | Commencement of operations. |
2 | Based on average shares outstanding. |
3 | Amount is greater than $(0.005) per share. |
4 | Distributions for annual periods determined in accordance with federal income tax regulations. |
5 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
6 | Aggregate total return. |
7 | Annualized. |
8 | Excludes expenses incurred indirectly as a result of investments in underlying funds as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to December 31, 2014 | |||||||
Investments in underlying funds | 0.37 | % | 0.41 | % |
9 | Organization and/or offering costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to December 31, 2014 | |||||||
Class I | 2.29 | % | 9.60 | % | ||||
Class III | 2.46 | % | 9.03 | % |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Notes to Consolidated Financial Statements (Unaudited) | BlackRock iShares® Alternative Strategies V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock iShares® Alternative Strategies V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
Basis of Consolidation: The accompanying consolidated financial statements of the Fund include the account of BlackRock iShares® Alternative Strategies V.I. Fund – Cayman (the “Subsidiary”), which is a wholly owned subsidiary of the Fund and primarily invests in commodity-related instruments. The Subsidiary enables the Fund to hold these commodity-related instruments and satisfy regulated investment company tax requirements. The Fund may invest up to 25% of its total assets in the Subsidiary. The net assets of the Subsidiary as of June 30, 2015 were $751,060, which is 7.2% of the Fund’s consolidated net assets. Intercompany accounts and transactions, if any, have been eliminated. The Subsidiary is subject to the same investment policies and restrictions that apply to the Fund, except that the Subsidiary may invest without limitation in commodity-related instruments.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value each business day.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock iShares® Alternative Strategies V.I. Fund |
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The portion of distributions that exceeds a Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a non-taxable return of capital. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Net income and realized gains from investments held by the Subsidiary are treated as ordinary income for tax purposes. Accordingly, the net investment income (loss) and realized gains (losses) reported in the Fund’s financial statements presented under U.S. GAAP for such investments held by the Subsidiary may differ significantly from distributions. As such, any net gain will pass through to the Fund as ordinary income for federal income tax purposes. If a net loss is realized by the Subsidiary in any taxable year, the loss will generally not be available to offset the Fund’s ordinary income and/or capital gains for that year.
Offering Costs: Offering costs are amortized over a 12-month period beginning with the commencement of operations.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Consolidated Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as affiliated investment companies in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Consolidated Statement of Assets and Liabilities as a component of investments at value — affiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Consolidated Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Notes to Consolidated Financial Statements (continued) | BlackRock iShares® Alternative Strategies V.I. Fund |
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities at Value | Cash Collateral Received1 | Net Amount | |||||||
Citigroup Global Markets, Inc. | $2,253,470 | $(2,253,470) | — | |||||||
Credit Suisse Securities (USA) LLC | 461,224 | (461,224) | — | |||||||
|
| |||||||||
Total | $2,714,694 | $(2,714,694) | — | |||||||
|
|
1 | Collateral with a value of $2,762,989 has been received in connection with securities lending agreements. Excess of collateral received from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of a borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |
First $1 Billion | 0.250% | |
$1 Billion - $3 Billion | 0.240% | |
$3 Billion - $5 Billion | 0.225% | |
$5 Billion - $10 Billion | 0.220% | |
Greater than $10 Billion | 0.210% |
The Manager provides investment management and other services to the Subsidiary. The Manager does not receive separate compensation from the Subsidiary for providing investment management or administrative services. However, the Fund pays the Manager based on the Fund’s net assets, which includes the assets of the Subsidiary.
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. In addition, the Manager has contractually agreed to waive the management fee on assets estimated to be attributable to the Fund’s investments in other equity and fixed-income mutual funds managed by BlackRock or its affiliates, if any. This amount is included in fees reimbursed by the Manager in the Consolidated Statement of Operations. For the six months ended June 30, 2015, the amount reimbursed was $50.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $10 for certain accounting services, which is included in accounting services in the Consolidated Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at the annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Consolidated Statement of Operations.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock iShares® Alternative Strategies V.I. Fund |
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 0.75% for Class I and 1.00% for Class III. The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors. The amounts waived or reimbursed are included in fees waived by the Manager and expenses reimbursed by the Manager and shown as transfer agent fees reimbursed — class specific in the Consolidated Statement of Operations. For the six months ended June 30, 2015, the amount is shown as fees waived by the Manager on the Statement of Operations and the amount included in expenses reimbursed by the Manager was $45,699.
If during the Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement from the Manager, are less than the expense limit for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund, of which the share class is a part, has more than $50 million in assets for the fiscal year and (2) the Manager or an affiliate continues to serve as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which the Manager becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse the Manager shall be calculated by reference to the expense limit for that share class in effect at the time the Manager became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.
On June 30, 2015, the Fund level waivers and/or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
Expires | Fund Level | Class I | Class III | |||||||||||||
12/31/2016 | $ | 89,728 | $ | 1,140 | $ | 24 | ||||||||||
12/31/2017 | $ | 55,334 | $ | 3,143 | $ | 212 |
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 80% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 85% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Consolidated Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $3,530 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Consolidated Statement of Operations.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $6,359,014 and $757,240, respectively.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Consolidated Financial Statements (continued) | BlackRock iShares® Alternative Strategies V.I. Fund |
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for the period ended December 31, 2014.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax years and does not believe there are any uncertain tax positions that require recognition of a tax liability.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 13,930,733 | ||
|
| |||
Gross unrealized appreciation | $ | 5,547 | ||
Gross unrealized depreciation | (165,601 | ) | ||
|
| |||
Net unrealized depreciation | $ | (160,054 | ) | |
|
| |||
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
8. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Consolidated Statement of Assets and Liabilities, less any collateral held by the Fund.
The Fund, through investment company investments, invests a significant portion of its assets in fixed-income securities and/or uses derivatives tied to the fixed-income markets. Changes in market interest rates or economic conditions may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (concluded) | BlackRock iShares® Alternative Strategies V.I. Fund |
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Period April 30, 20141 to December 31, 2014 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class I | ||||||||||||||||
Shares sold | 486,138 | $ | 5,102,063 | 522,021 | $ | 5,372,578 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 5,561 | 57,114 | ||||||||||||
Shares redeemed | (81,706 | ) | (851,377 | ) | (26,255 | ) | (268,110 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase | 404,432 | $ | 4,250,686 | 501,327 | $ | 5,161,582 | ||||||||||
|
|
|
| |||||||||||||
Class III | ||||||||||||||||
Shares sold | 72,531 | $ | 762,307 | 42,018 | $ | 436,785 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 387 | 3,967 | ||||||||||||
Shares redeemed | (6,743 | ) | (70,634 | ) | (9,633 | ) | (100,460 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase | 65,788 | $ | 691,673 | 32,772 | $ | 340,292 | ||||||||||
|
|
|
| |||||||||||||
Total Net Increase | 470,220 | $ | 4,942,359 | 534,099 | $ | 5,501,874 | ||||||||||
|
|
|
|
1 | Commencement of operations |
10. Subsequent Events:
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock iShares® Dynamic Allocation V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock iShares® Dynamic Allocation V.I. Fund |
Investment Objective |
BlackRock iShares® Dynamic Allocation V.I. Fund’s (the “Fund”) investment objective is to seek to provide total return.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund underperformed its blended benchmark (60% MSCI All Country World Income/40% Barclays U.S. Aggregate Bond Index). |
What factors influenced performance?
• | The largest detractor from Fund performance was exposure to Canadian equities through the iShares MSCI Canada ETF. The second-largest detractor came from exposure to U.S. dollar denominated investment-grade corporate, sovereign, supranational, local authority and non-U.S. agency bonds through the iShares Core U.S. Credit Bond ETF. |
• | The largest contributor to Fund performance was exposure to large- and mid-cap developed market equities (excluding the U.S. and Canada) through the iShares MSCI EAFE ETF. This was followed by exposure to small-cap U.S. equities through the iShares Russell 2000 ETF. |
Describe recent portfolio activity.
• | During the six-month period, the Fund’s exposure to large- and mid-cap developed market equities (excluding the U.S. and Canada), and investment-grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. government agencies, was raised by increasing allocations to the iShares MSCI EAFE ETF and iShares MBS ETF, respectively. At the same time, the Fund’s exposure to medium- and large-cap U.S. equities, and U.S. dollar-denominated investment-grade floating rate bonds with remaining maturities between one month and five years, was lowered by decreasing allocations within the iShares Russell 1000 ETF and iShares Floating Rate Bond ETFs, respectively. |
Describe portfolio positioning at period end.
• | At period end, the Fund was invested in accordance with the quantitative model used to allocate its assets. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Portfolio Composition | Percent of Affiliated Investment Companies | |
Equity Funds | 41% | |
Fixed Income Funds | 35 | |
Short-Term Securities | 23 | |
Commodity Funds | 1 |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock iShares® Dynamic Allocation V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. |
2 | The Fund invests in a portfolio of underlying exchange-traded funds that seek to track equity, fixed income and alternative indices. |
3 | A customized weighted index comprised of 60% MSCI All Country World Index and 40% Barclays U.S. Aggregate Bond Index. |
4 | A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI All Country World Index consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. |
5 | A widely recognized unmanaged market-weighted index, comprised of investment-grade corporate bonds rated BBB or better, mortgages and U.S. Treasury and U.S. Government agency issues with at least one year to maturity. |
6 | Commencement of operations. |
Performance Summary for the Period Ended June 30, 2015 | ||||||
Average Annual Total Returns | ||||||
6-Month Total Returns8 | 1 Year8 | Since Inception8,9 | ||||
Class I7 | 1.10% | (0.31)% | 2.04% | |||
Class III7 | 1.10 | (0.43) | 1.85 | |||
60% MSCI All Country World Index / 40% Barclays U.S. Aggregate Bond Index | 1.63 | 1.27 | 3.60 | |||
MSCI All Country World Index | 2.66 | 0.71 | 4.09 | |||
Barclays U.S. Aggregate Bond Index | (0.10) | 1.86 | 2.63 |
7 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
8 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
9 | The Fund commenced operations on April 30, 2014. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example | ||||||||||||||
Actual | Hypothetical11 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period10 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period10 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,011.00 | $3.79 | $1,000.00 | $1,021.03 | $3.81 | 0.76% | |||||||
Class III | $1,000.00 | $1,011.00 | $5.04 | $1,000.00 | $1,019.79 | $5.06 | 1.01% |
10 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
11 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock iShares® Dynamic Allocation V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments June 30, 2015 (Unaudited) | BlackRock iShares® Dynamic Allocation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Affiliated Investment Companies (a) | Shares | Value | ||||||
Commodity Funds — 1.3% | ||||||||
iShares Commodities Select Strategy ETF | 2,108 | $ | 83,203 | |||||
iShares Gold Trust (b)(c) | 6,116 | 69,355 | ||||||
iShares Silver Trust (b)(c) | 1,853 | 27,851 | ||||||
|
| |||||||
180,409 | ||||||||
Equity Funds — 54.9% | ||||||||
iShares Core MSCI Emerging Markets ETF (d) | 21,887 | 1,051,451 | ||||||
iShares International Developed Real Estate ETF | 4,681 | 139,213 | ||||||
iShares International Select Dividend ETF | 21,321 | 689,308 | ||||||
iShares Micro-Cap ETF (d) | 5,127 | 418,004 | ||||||
iShares MSCI All Country World Minimum Volatility ETF | 5,214 | 362,582 | ||||||
iShares MSCI Canada ETF | 16,540 | 441,122 | ||||||
iShares MSCI EAFE ETF | 19,364 | 1,229,420 | ||||||
iShares MSCI EAFE Small-Cap ETF | 5,970 | 304,589 | ||||||
iShares MSCI Frontier 100 ETF | 4,899 | 143,394 | ||||||
iShares Russell 1000 ETF | 13,622 | 1,580,697 | ||||||
iShares Russell 2000 ETF | 8,332 | 1,040,333 | ||||||
iShares S&P 100 ETF | 1,524 | 138,440 | ||||||
iShares U.S. Real Estate ETF | 370 | 26,381 | ||||||
|
| |||||||
7,564,934 | ||||||||
Fixed Income Funds — 46.4% | ||||||||
iShares Agency Bond ETF (d) | 7,559 | 855,528 |
Affiliated Investment Companies (a) | Shares/ Beneficial Interest | Value | ||||||
Fixed Income Funds (concluded) | ||||||||
iShares CMBS ETF | 1,077 | $ | 55,379 | |||||
iShares Core U.S. Credit Bond ETF | 10,321 | 1,120,551 | ||||||
iShares Core U.S. Treasury Bond ETF (d) | 36,897 | 923,163 | ||||||
iShares iBoxx $ High Yield Corporate Bond ETF (d) | 12,747 | 1,131,934 | ||||||
iShares JPMorgan USD Emerging Markets Bond ETF (d) | 3,740 | 411,101 | ||||||
iShares MBS ETF | 13,372 | 1,452,467 | ||||||
iShares TIPS Bond ETF | 1,529 | 171,324 | ||||||
iShares U.S. Preferred Stock ETF (d) | 7,225 | 283,003 | ||||||
|
| |||||||
6,404,450 | ||||||||
Short-Term Securities — 31.3% | ||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.07% (e) | 166,526 | 166,526 | ||||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (e)(f) | $ | 4,155,827 | 4,155,827 | |||||
|
| |||||||
4,322,353 | ||||||||
Total Affiliated Investment Companies (Cost — $18,614,726) — 133.9% | 18,472,146 | |||||||
Liabilities in Excess of Other Assets — (33.9)% | (4,681,225 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 13,790,921 | ||||||
|
|
Portfolio Abbreviation | ||
ETF | Exchange Traded Fund |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Consolidated Schedule of Investments (continued) | BlackRock iShares® Dynamic Allocation V.I. Fund |
Notes to Schedule of Investments |
(a) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/ Beneficial Interest Held at December 31, 2014 | Shares/ Beneficial Interest Purchased | Shares/ Beneficial Interest | Shares/ Beneficial Interest Held at June 30, 2015 | Value at June 30, 2015 | Income | Realized Gain (Loss) | |||||||||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 43,537 | 122,989 | 1 | — | 166,526 | 166,526 | $ | 84 | — | |||||||||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $123,622 | $ | 4,032,205 | 2 | — | $ | 4,155,827 | $ | 4,155,827 | $ | 5,911 | 3 | — | |||||||||||||||
iShares Agency Bond ETF | 3,180 | 4,379 | — | 7,559 | $ | 855,528 | $ | 2,572 | — | |||||||||||||||||||
iShares CMBS ETF | — | 1,077 | — | 1,077 | $ | 55,379 | $ | 182 | — | |||||||||||||||||||
iShares Commodities Select Strategy ETF | — | 2,108 | — | 2,108 | $ | 83,203 | $ | 466 | — | |||||||||||||||||||
iShares Core MSCI Emerging Markets ETF | 9,379 | 12,508 | — | 21,887 | $ | 1,051,451 | $ | 9,630 | — | |||||||||||||||||||
iShares Core U.S. Credit Bond ETF | 3,263 | 7,058 | — | 10,321 | $ | 1,120,551 | $ | 6,026 | — | |||||||||||||||||||
iShares Core U.S. Treasury Bond ETF | 19,529 | 26,129 | 8,761 | 36,897 | $ | 923,163 | $ | 2,891 | $ | (3,828 | ) | |||||||||||||||||
iShares Floating Rate Bond ETF | 2,706 | 437 | 3,143 | — | — | $ | 109 | $ | (169 | ) | ||||||||||||||||||
iShares Gold Trust | 5,216 | 4,180 | 3,280 | 6,116 | $ | 69,355 | — | $ | (1,068 | ) | ||||||||||||||||||
iShares iBoxx $ High Yield Corporate Bond ETF | 5,422 | 7,425 | 100 | 12,747 | $ | 1,131,934 | $ | 13,992 | $ | (430 | ) | |||||||||||||||||
iShares International Developed Real Estate ETF | — | 4,681 | — | 4,681 | $ | 139,213 | $ | 2,247 | — | |||||||||||||||||||
iShares International Select Dividend ETF | 8,895 | 12,426 | — | 21,321 | $ | 689,308 | $ | 10,452 | $ | 3,021 | ||||||||||||||||||
iShares JPMorgan USD Emerging Markets Bond ETF | 1,514 | 2,226 | — | 3,740 | $ | 411,101 | $ | 4,108 | — | |||||||||||||||||||
iShares MBS ETF | 4,873 | 8,590 | 91 | 13,372 | $ | 1,452,467 | $ | 5,313 | $ | (183 | ) | |||||||||||||||||
iShares Micro-Cap ETF | 768 | 4,359 | — | 5,127 | $ | 418,004 | $ | 234 | — | |||||||||||||||||||
iShares MSCI All Country World Minimum Volatility ETF | 2,417 | 3,169 | 372 | 5,214 | $ | 362,582 | $ | 3,768 | $ | 455 | ||||||||||||||||||
iShares MSCI Canada ETF | 4,739 | 11,801 | — | 16,540 | $ | 441,122 | $ | 2,706 | — | |||||||||||||||||||
iShares MSCI EAFE ETF | 7,211 | 12,153 | — | 19,364 | $ | 1,229,420 | $ | 19,527 | — | |||||||||||||||||||
iShares MSCI EAFE Small-Cap ETF | 3,893 | 4,802 | 2,725 | 5,970 | $ | 304,589 | $ | 5,130 | $ | (5,668 | ) | |||||||||||||||||
iShares MSCI Frontier 100 ETF | 2,046 | 2,853 | — | 4,899 | $ | 143,394 | — | $ | 2,858 | |||||||||||||||||||
iShares Russell 1000 ETF | 7,498 | 8,105 | 1,981 | 13,622 | $ | 1,580,697 | $ | 4,479 | $ | (4,471 | ) | |||||||||||||||||
iShares Russell 2000 ETF | 3,919 | 4,693 | 280 | 8,332 | $ | 1,040,333 | $ | 1,909 | $ | (5 | ) | |||||||||||||||||
iShares S&P 100 ETF | 1,322 | 918 | 716 | 1,524 | $ | 138,440 | $ | 1,520 | $ | (611 | ) | |||||||||||||||||
iShares Silver Trust | — | 1,853 | — | 1,853 | $ | 27,851 | — | — | ||||||||||||||||||||
iShares TIPS Bond ETF | 544 | 985 | — | 1,529 | $ | 171,324 | — | — | ||||||||||||||||||||
iShares U.S. Preferred Stock ETF | 3,051 | 4,174 | — | 7,225 | $ | 283,003 | $ | 3,560 | — | |||||||||||||||||||
iShares U.S. Real Estate ETF | 619 | 459 | 708 | 370 | $ | 26,381 | $ | 882 | $ | 1,824 |
1 | Represents net shares purchased. |
2 | Represents net beneficial interest purchased. |
3 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(b) | Non-income producing security. |
(c) | All or a portion of security is held by a wholly owned subsidiary. See Note 1 of the Notes to Consolidated Financial Statements for details on the wholly owned subsidiary. (d) Security, or a portion of security, is on loan. |
(e) | Represents the current yield as of report date. |
(f) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
See Notes to Consolidated Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Schedule of Investments (concluded) | BlackRock iShares® Dynamic Allocation V.I. Fund |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Consolidated Financial Statements.
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Affiliated Investment Companies | $ | 14,316,319 | $ | 4,155,827 | — | $ | 18,472,146 | |||||||||
|
| |||||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 27,404 | — | — | $ | 27,404 | ||||||||||
Liabilities: | ||||||||||||||||
Collateral on securities loaned at value | — | $ | (4,155,827 | ) | — | (4,155,827 | ) | |||||||||
|
| |||||||||||||||
Total | $ | 27,404 | $ | (4,155,827 | ) | — | $ | (4,128,423 | ) | |||||||
|
| |||||||||||||||
During the six months ended June 30, 2015, there were no transfers between levels. |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Consolidated Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock iShares® Dynamic Allocation V.I. Fund | |||
Assets | ||||
Investments at value — affiliated (including securities loaned at value of $4,062,267) (cost — $18,614,726) | $ | 18,472,146 | ||
Cash | 27,404 | |||
Receivables: | ||||
Investments sold | 448,812 | |||
Capital shares sold | 153,421 | |||
Dividends — affiliated | 43,665 | |||
From the Manager | 8,633 | |||
Securities lending income — affiliated | 2,436 | |||
Prepaid expenses | 338 | |||
|
| |||
Total assets | 19,156,855 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 4,155,827 | |||
Payables: | ||||
Investments purchased | 658,137 | |||
Capital shares redeemed | 509,979 | |||
Officer’s and Directors’ fees | 569 | |||
Distribution fees | 86 | |||
Other accrued expenses payable | 41,336 | |||
|
| |||
Total liabilities | 5,365,934 | |||
|
| |||
Net Assets | $ | 13,790,921 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 13,885,480 | ||
Undistributed net investment income | 76,161 | |||
Accumulated net realized loss | (28,140 | ) | ||
Net unrealized appreciation (depreciation) | (142,580 | ) | ||
|
| |||
Net Assets | $ | 13,790,921 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $13,170,349 and 1,300,283 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.13 | ||
|
| |||
Class III — Based on net assets of $620,572 and 61,332 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.12 | ||
|
|
See Notes to Consolidated Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock iShares® Dynamic Allocation V.I. Fund | |||
Investment Income | ||||
Dividends — affiliated | $ | 101,787 | ||
Securities lending — affiliated — net | 5,911 | |||
|
| |||
Total income | 107,698 | |||
|
| |||
Expenses | ||||
Professional | 49,796 | |||
Offering | 11,466 | |||
Printing | 8,820 | |||
Investment advisory | 6,235 | |||
Custodian | 4,426 | |||
Transfer agent — Class I | 4,239 | |||
Transfer agent — Class III | 20 | |||
Accounting services | 2,844 | |||
Transfer agent | 2,721 | |||
Officer and Directors | 2,707 | |||
Distribution — Class III | 285 | |||
Registration | 72 | |||
Miscellaneous | 1,756 | |||
|
| |||
Total expenses | 95,387 | |||
Less fees waived by the Manager | (6,235 | ) | ||
Less transfer agent fees reimbursed — Class I | (4,227 | ) | ||
Less transfer agent fees reimbursed — Class III | (19 | ) | ||
Less expenses reimbursed by the Manager | (53,199 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 31,707 | |||
|
| |||
Net investment income | 75,991 | |||
|
| |||
Realized and Unrealized Loss | ||||
Net realized loss on investments — affiliated | (8,275 | ) | ||
Net change in unrealized appreciation (depreciation) on investments — affiliated | (93,517 | ) | ||
|
| |||
Net realized and unrealized loss | (101,792 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting from Operations | $ | (25,801 | ) | |
|
|
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Consolidated Statement of Changes in Net Assets | BlackRock iShares® Dynamic Allocation V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended (Unaudited) | Period April 30, 20141 to December 31,2014 | ||||||
Operations | ||||||||
Net investment income | $ | 75,991 | $ | 58,115 | ||||
Net realized loss | (8,275 | ) | (15,951 | ) | ||||
Net change in unrealized appreciation (depreciation) | (93,517 | ) | (49,063 | ) | ||||
|
| |||||||
Net decrease in net assets resulting from operations | (25,801 | ) | (6,899 | ) | ||||
|
| |||||||
Distributions to Shareholders From2 | ||||||||
Net investment income: | ||||||||
Class I | — | (56,486 | ) | |||||
Class III | — | (165 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (8,094 | ) | |||||
Class III | — | (26 | ) | |||||
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| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (64,771 | ) | |||||
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| |||||||
Capital Share Transactions | ||||||||
Net increase in net assets derived from capital share transactions | 7,704,550 | 6,183,842 | ||||||
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| |||||||
Net Assets | ||||||||
Total increase in net assets | 7,678,749 | 6,112,172 | ||||||
Beginning of period | 6,112,172 | — | ||||||
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| |||||||
End of period | $ | 13,790,921 | $ | 6,112,172 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 76,161 | $ | 170 | ||||
|
|
1 | Commencement of operations. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Consolidated Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Consolidated Financial Highlights | BlackRock iShares® Dynamic Allocation V.I. Fund |
Class I | Class III | |||||||||||||||
Six Months Ended June 30, 2015 (Unaudited) | Period to | Six Months Ended June 30, 2015 (Unaudited) | Period to | |||||||||||||
Per Share Operating Performance | ||||||||||||||||
Net asset value, beginning of period | $ | 10.02 | $ | 10.00 | $ | 10.01 | $ | 10.00 | ||||||||
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| |||||||||||||
Net investment income2 | 0.09 | 0.20 | 0.10 | 0.17 | ||||||||||||
Net realized and unrealized gain (loss) | 0.02 | (0.07 | ) | 0.01 | (0.06 | ) | ||||||||||
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| |||||||||||||
Net increase from investment operations | 0.11 | 0.13 | 0.11 | 0.11 | ||||||||||||
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|
| |||||||||||||
Distributions from:3 | ||||||||||||||||
Net investment income | — | (0.10 | ) | — | (0.09 | ) | ||||||||||
Net realized capital gains | — | (0.01 | ) | — | (0.01 | ) | ||||||||||
|
|
|
| |||||||||||||
Total distributions | — | (0.11 | ) | — | (0.10 | ) | ||||||||||
|
|
|
| |||||||||||||
Net asset value, end of period | $ | 10.13 | $ | 10.02 | $ | 10.12 | $ | 10.01 | ||||||||
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|
| |||||||||||||
Total Return4,5 | ||||||||||||||||
Based on net asset value | 1.10 | % | 1.27 | % | 1.10 | % | 1.05 | % | ||||||||
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| |||||||||||||
Ratios to Average Net Assets6,7 | ||||||||||||||||
Total expenses8 | 2.16 | % | 6.47 | % | 2.14 | % | 8.32 | % | ||||||||
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| |||||||||||||
Total expenses after fees waived and reimbursed | 0.76 | % | 0.75 | % | 1.01 | % | 1.00 | % | ||||||||
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|
|
| |||||||||||||
Net investment income | 1.83 | % | 2.85 | % | 1.84 | % | 2.54 | % | ||||||||
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| |||||||||||||
Supplemental Data | ||||||||||||||||
Net assets, end of period (000) | $ | 13,170 | $ | 6,092 | $ | 621 | $ | 20 | ||||||||
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| |||||||||||||
Portfolio turnover | 11 | % | 25 | % | 11 | % | 25 | % | ||||||||
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|
1 | Commencement of operations. |
2 | Based on average shares outstanding. |
3 | Distributions for annual periods determined in accordance with federal income tax regulations. |
4 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
5 | Aggregate total return. |
6 | Annualized. |
7 | Excludes expenses incurred indirectly as a result of investments in underlying funds as follows: |
Six Months Ended | Period to | |||||||
Investments in underlying funds | 0.28 | % | 0.27 | % |
8 | Organization and/or offering costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to | |||||||
Class I | 2.30 | % | 7.00 | % | ||||
Class III | 2.24 | % | 9.13 | % |
See Notes to Consolidated Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Notes to Consolidated Financial Statements (Unaudited) | BlackRock iShares® Dynamic Allocation V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock iShares® Dynamic Allocation V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
Basis of Consolidation: The accompanying consolidated financial statements of the Fund include the account of BlackRock iShares® Dynamic Allocation V.I. Fund — Cayman (the “Subsidiary”), which is a wholly owned subsidiary of the Fund and primarily invests in commodity-related instruments. The Subsidiary enables the Fund to hold these commodity-related instruments and satisfy regulated investment company tax requirements. The Fund may invest up to 25% of its total assets in the Subsidiary. The net assets of the Subsidiary as of June 30, 2015 were $97,021, which is 0.7% of the Fund’s consolidated net assets. Intercompany accounts and transactions, if any, have been eliminated. The Subsidiary is subject to the same investment policies and restrictions that apply to the Fund, except that the Subsidiary may invest without limitation in commodity-related instruments.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value each business day.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock iShares® Dynamic Allocation V.I. Fund |
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Net income and realized gains from investments held by the Subsidiary are treated as ordinary income for tax purposes. Accordingly, the net investment income (loss) and realized gains (losses) reported in the Fund’s financial statements presented under U.S. GAAP for such investments held by the Subsidiary may differ significantly from distributions. As such, any net gain will pass through to the Fund as ordinary income for federal income tax purposes. If a net loss is realized by the Subsidiary in any taxable year, the loss will generally not be available to offset the Fund’s ordinary income and/or capital gains for that year.
Offering Costs: Offering costs are amortized over a 12-month period beginning with the commencement of operations.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Consolidated Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as affiliated investment companies in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Consolidated Statement of Assets and Liabilities as a component of investments at value — affiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Consolidated Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Consolidated Financial Statements (continued) | BlackRock iShares® Dynamic Allocation V.I. Fund |
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | ||||||||||||
Citigroup Global Markets, Inc. | $ | 281,172 | $ | (281,172 | ) | — | |||||||||
Credit Suisse Securities (USA) LLC | 1,309,175 | (1,309,175 | ) | — | |||||||||||
JP Morgan Securities LLC | 2,471,920 | (2,471,920 | ) | — | |||||||||||
Total | $ | 4,062,267 | $ | (4,062,267 | ) | — |
1 | Collateral with a value of $4,155,827 has been received in connection with securities lending agreements. Excess of collateral received from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | ||||
First $1 Billion | 0.150 | % | |||
$1 Billion - $3 Billion | 0.140 | % | |||
$3 Billion - $5 Billion | 0.135 | % | |||
Greater than $5 Billion | 0.130 | % |
The Manager provides investment management and other services to the Subsidiary. The Manager does not receive separate compensation from the Subsidiary for providing investment management or administrative services. However, the Fund pays the Manager based on the Fund’s net assets, which includes the assets of the Subsidiary.
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. In addition, the Manager has contractually agreed to waive the management fee on assets estimated to be attributable to the Fund’s investments in other equity and fixed-income mutual funds managed by BlackRock or its affiliates, if any. This amount is included in fees reimbursed by the Manager in the Consolidated Statement of Operations. For the six months ended June 30, 2015, the amount reimbursed was $63.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $16 for certain accounting services, which is included in accounting services in the Consolidated Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at the annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Consolidated Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (continued) | BlackRock iShares® Dynamic Allocation V.I. Fund |
course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 0.75% for Class I and 1.00% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors. The amounts waived or reimbursed are included in fees waived by the Manager and expenses reimbursed by the Manager and shown as transfer agent fees reimbursed — class specific in the Consolidated Statement of Operations. For the six months ended June 30, 2015, the amount is shown as fees waived by the Manager on the Consolidated Statement of Operations and the amount included in expenses reimbursed by the Manager was $53,136.
If during the Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement from the Manager, are less than the expense limit for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund, of which the share class is a part, has more than $50 million in assets for the fiscal year and (2) the Manager or an affiliate continues to serve as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which the Manager becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse the Manager shall be calculated by reference to the expense limit for that share class in effect at the time the Manager became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.
On June 30, 2015, the Fund level waivers and/or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
Expires | Fund Level | Class I | Class III | |||||||||
12/31/2016 | $91,762 | $2,453 | — | |||||||||
12/31/2017 | $59,371 | $4,227 | $19 |
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 80% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 85% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Consolidated Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $1,478 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Consolidated Statement of Operations.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $9,182,277 and $985,672, respectively.
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Consolidated Financial Statements (continued) | BlackRock iShares® Dynamic Allocation V.I. Fund |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for the period ended December 31, 2014.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 18,626,168 | ||
|
| |||
Gross unrealized appreciation | $ | 100,087 | ||
Gross unrealized depreciation | (254,109 | ) | ||
|
| |||
Net unrealized depreciation | $ | (154,022 | ) | |
|
| |||
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
8. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Consolidated Statement of Assets and Liabilities, less any collateral held by the Fund.
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Period April 30, 20141 to December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class I | ||||||||||||||||||
Shares sold | 752,601 | $ | 7,710,991 | 618,727 | $ | 6,271,365 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 5,896 | 59,320 | ||||||||||||||
Shares redeemed | (60,427 | ) | (612,613 | ) | (16,514 | ) | (167,120 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase | 692,174 | $ | 7,098,378 | 608,109 | $ | 6,163,565 | ||||||||||||
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|
|
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Consolidated Financial Statements (concluded) | BlackRock iShares® Dynamic Allocation V.I. Fund |
Six Months Ended June 30, 2015 | Period April 30, 20141 to December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class III | ||||||||||||||||||
Shares sold | 60,744 | $ | 620,658 | 2,007 | $ | 20,206 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 10 | 96 | ||||||||||||||
Shares redeemed | (1,426 | ) | (14,486 | ) | (3 | ) | (25 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase | 59,318 | $ | 606,172 | 2,014 | $ | 20,277 | ||||||||||||
|
|
|
| |||||||||||||||
Total Net Increase | 751,492 | $ | 7,704,550 | 610,123 | $ | 6,183,842 | ||||||||||||
|
|
|
|
1 | Commencement of operations. |
10. Subsequent Events:
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock iShares® Dynamic Fixed Income V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock iShares® Dynamic Fixed Income V.I. Fund |
Investment Objective |
BlackRock iShares® Dynamic Fixed Income V.I. Fund’s (the “Fund”) investment objective is to seek to provide total return.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund underperformed its benchmark, the Barclays U.S. Aggregate Bond Index. |
What factors influenced performance?
• | The largest detractor from Fund performance was exposure to U.S. dollar denominated investment-grade corporate, sovereign, supranational, local authority and non-U.S. agency bonds through the iShares Core U.S. Credit Bond ETF. The next-largest detractor was exposure to investment-grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. government agencies through the iShares MBS ETF. |
• | The largest contributor to Fund performance was exposure to U.S. dollar-denominated high yield corporate bonds through the iShares iBoxx $ High Yield Corporate Bond ETF. This was followed by exposure to the Barclays U.S. Agency Bond Index through the iShares Agency Bond ETF. |
Describe recent portfolio activity.
• | During the six-month period, the Fund’s exposure to investment-grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. government agencies and inflation-protected U.S. Treasury bonds was raised by increasing allocation to the iShares MBS and iShares TIPS Bond ETFs, respectively. At the same time, the Fund’s exposure to U.S. dollar-denominated investment-grade floating rate bonds with remaining maturities between one month and five years was lowered by decreasing the Fund’s allocation in the iShares Floating Rate Bond ETF. |
Describe portfolio positioning at period end.
• | At period end, the Fund was invested in accordance with the quantitative model used to allocate its assets. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Portfolio Composition | Percent of Affiliated Investment Companies | |
Fixed Income Funds | 74% | |
Short-Term Securities | 26 |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock iShares® Dynamic Fixed Income V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. |
2 | The Fund invests in a portfolio of underlying exchange-traded funds that seek to track fixed income indices. |
3 | A widely recognized unmanaged market-weighted index, comprised of investment-grade corporate bonds rated BBB or better, mortgages and U.S. Treasury and U.S. Government agency issues with at least one year to maturity. |
4 | Commencement of operations. |
Performance Summary for the Period Ended June 30, 2015 |
Average Annual Total Returns | ||||||
6-Month Total Returns6 | 1 Year6 | Since Inception6,7 | ||||
Class I5 | (0.40)% | 0.09% | 0.77% | |||
Class III5 | (0.40) | (0.07) | 0.54 | |||
Barclays U.S. Aggregate Bond Index | (0.10) | 1.86 | 2.63 |
5 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
6 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
7 | The Fund commenced operations on April 30, 2014. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example |
Actual | Hypothetical9 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period8 | Beginning Account Value | Ending Account Value | Expenses Paid During the Period8 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $996.00 | $3.76 | $1,000.00 | $1,021.03 | $3.81 | 0.76% | |||||||
Class III | $1,000.00 | $996.00 | $5.00 | $1,000.00 | $1,019.79 | $5.06 | 1.01% |
8 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
9 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock iShares Dynamic Fixed Income V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
4 | BLACKROCK FUNDS II | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock iShares® Dynamic Fixed Income V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Affiliated Investment Companies (a) | Shares | Value | ||||||
Fixed Income Funds — 107.1% |
| |||||||
iShares Agency Bond ETF (b) | 10,295 | $ | 1,165,188 | |||||
iShares CMBS ETF | 1,489 | 76,564 | ||||||
iShares Core U.S. Credit Bond ETF | 14,234 | 1,545,385 | ||||||
iShares Core U.S. Treasury Bond ETF (b) | 49,875 | 1,247,873 | ||||||
iShares iBoxx $ High Yield Corporate Bond ETF (b) | 17,397 | 1,544,854 | ||||||
iShares MBS ETF | 18,170 | 1,973,625 | ||||||
iShares TIPS Bond ETF | 2,070 | 231,944 | ||||||
|
| |||||||
7,785,433 | ||||||||
Affiliated Investment Companies (a) | Shares/ Beneficial Interest | Value | ||||||
Short-Term Securities — 36.9% |
| |||||||
BlackRock Liquidity Funds, TempFund, | 75,907 | $ | 75,907 | |||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (c)(d) | $ | 2,602,251 | 2,602,251 | |||||
|
| |||||||
2,678,158 | ||||||||
Total Affiliated Investment Companies |
| 10,463,591 | ||||||
Liabilities in Excess of Other Assets — (44.0)% |
| (3,195,061 | ) | |||||
|
| |||||||
Net Assets — 100.0% |
| $ | 7,268,530 | |||||
|
|
Notes to Schedule of Investments |
(a) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/ Beneficial Interest December 31, 2014 | Shares/ Beneficial Interest Purchased | Shares Sold | Shares/ June 30, 2015 | Value at June 30, 2015 | Income | Realized Loss | |||||||||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | — | 75,907 | 1 | — | 75,907 | $ | 75,907 | $ | 43 | — | ||||||||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | — | $2,602,251 | 2 | — | $2,602,251 | $ | 2,602,251 | $ | 2,944 | 3 | — | |||||||||||||||||
iShares Agency Bond ETF | 4,901 | 5,760 | 366 | 10,295 | $ | 1,165,188 | $ | 4,510 | $ | (155 | ) | |||||||||||||||||
iShares CMBS ETF | 730 | 759 | — | 1,489 | $ | 76,564 | $ | 516 | — | |||||||||||||||||||
iShares Core U.S. Credit Bond ETF | 4,715 | 10,047 | 528 | 14,234 | $ | 1,545,385 | $ | 10,408 | $ | (456 | ) | |||||||||||||||||
iShares Core U.S. Treasury Bond ETF | 29,399 | 35,744 | 15,268 | 49,875 | $ | 1,247,873 | $ | 5,044 | $ | (7,432 | ) | |||||||||||||||||
iShares Floating Rate Bond ETF | 3,844 | 1,542 | 5,386 | — | — | $ | 169 | $ | (261 | ) | ||||||||||||||||||
iShares iBoxx $ High Yield Corporate Bond ETF | 8,246 | 9,887 | 736 | 17,397 | $ | 1,544,854 | $ | 24,585 | $ | (2,907 | ) | |||||||||||||||||
iShares MBS ETF | 7,365 | 11,433 | 628 | 18,170 | $ | 1,973,625 | $ | 9,454 | $ | (48 | ) | |||||||||||||||||
iShares TIPS Bond ETF | 910 | 1,160 | — | 2,070 | $ | 231,944 | — | — |
1 | Represents net shares purchased. |
2 | Represents net beneficial interest purchased. |
3 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(b) | Security, or a portion of security, is on loan. |
(c) | Represents the current yield as of report date. |
(d) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
Portfolio Abbreviation | ||
ETF | Exchanged Traded Fund |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (concluded) | BlackRock iShares® Dynamic Fixed Income V.I. Fund |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Affiliated Investment Companies | $ | 7,861,340 | 2,602,251 | — | $ | 10,463,591 | ||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 24,582 | — | — | $ | 24,582 | ||||||||||
Liabilities: | ||||||||||||||||
Collateral on securities loaned at value | — | $ | (2,602,251 | ) | — | (2,602,251 | ) | |||||||||
|
| |||||||||||||||
Total | $ | 24,582 | (2,602,251 | ) | — | $ | (2,577,669 | ) | ||||||||
|
| |||||||||||||||
During the six months ended June 30, 2015, there were no transfers between levels. |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock V.I. Fund | |||
Assets | ||||
Investments at value — affiliated (including securities loaned at value of $2,543,934)(cost — $10,548,643) | $ | 10,463,591 | ||
Cash | 24,582 | |||
Receivables: | ||||
Investments sold | 315,409 | |||
Securities lending income — affiliated | 2,111 | |||
Capital shares sold | 2,104 | |||
From the Manager | 4,505 | |||
Dividends — affiliated | 8 | |||
Prepaid expenses | 335 | |||
|
| |||
Total assets | 10,812,645 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 2,602,251 | |||
Payables: | ||||
Capital shares redeemed | 500,530 | |||
Investments purchased | 400,563 | |||
Officer’s and Directors’ fees | 605 | |||
Distribution fees | 58 | |||
Other affiliates | 2 | |||
Other accrued expenses payable | 40,106 | |||
|
| |||
Total liabilities | 3,544,115 | |||
|
| |||
Net Assets | $ | 7,268,530 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 7,337,206 | ||
Undistributed net investment income | 36,175 | |||
Accumulated net realized loss | (19,799 | ) | ||
Net unrealized appreciation (depreciation) | (85,052 | ) | ||
|
| |||
Net Assets | $ | 7,268,530 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $6,928,285 and 691,927 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.01 | ||
|
| |||
Class III — Based on net assets of $340,245 and 34,075 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 9.99 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock V.I. Fund | |||
Investment Income | ||||
Dividends — affiliated | $ | 54,729 | ||
Securities lending — affiliated — net | 2,944 | |||
|
| |||
Total income | 57,673 | |||
|
| |||
Expenses | ||||
Professional | 27,391 | |||
Printing | 7,550 | |||
Offering | 7,194 | |||
Investment advisory | 4,212 | |||
Transfer agent | 2,721 | |||
Officer and Directors | 2,709 | |||
Accounting services | 2,669 | |||
Custodian | 2,652 | |||
Transfer agent — Class I | 1,877 | |||
Transfer agent — Class III | 33 | |||
Distribution — Class III | 211 | |||
Miscellaneous | 1,433 | |||
|
| |||
Total expenses | 60,652 | |||
Less fees waived by the Manager | (4,212 | ) | ||
Less transfer agent fees reimbursed — Class I | (1,868 | ) | ||
Less transfer agent fees reimbursed — Class III | (32 | ) | ||
Less expenses reimbursed by the Manager | (33,026 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 21,514 | |||
|
| |||
Net investment income | 36,159 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized loss on investments — affiliated | (11,259 | ) | ||
Net change in unrealized appreciation (depreciation) on investments — affiliated | (88,481 | ) | ||
|
| |||
Net realized and unrealized loss | (99,740 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting from Operations | $ | (63,581 | ) | |
|
|
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Changes in Net Assets | BlackRock iShares® Dynamic Fixed Income V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to December 31,2014 | ||||||
Operations | ||||||||
Net investment income | $ | 36,159 | $ | 26,458 | ||||
Net realized loss | (11,259 | ) | (7,974 | ) | ||||
Net change in unrealized appreciation (depreciation) | (88,481 | ) | 3,429 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | (63,581 | ) | 21,913 | |||||
|
| |||||||
Distributions to Shareholders From2 | ||||||||
Net investment income: | ||||||||
Class I | — | (28,139 | ) | |||||
Class III | — | (549 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (554 | ) | |||||
Class III | — | (12 | ) | |||||
Return of capital: | ||||||||
Class I | — | (241 | ) | |||||
Class III | — | (5 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (29,500 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase in net assets derived from capital share transactions | 3,630,241 | 3,709,457 | ||||||
|
| |||||||
Net Assets | ||||||||
Total increase in net assets | 3,566,660 | 3,701,870 | ||||||
Beginning of period | 3,701,870 | — | ||||||
|
| |||||||
End of period | $ | 7,268,530 | $ | 3,701,870 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 36,175 | $ | 16 | ||||
|
|
1 | Commencement of operations. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Financial Highlights | BlackRock iShares® Dynamic Fixed Income V.I. Fund |
Class I | Class III | |||||||||||||||||
Six Months Ended
| Period to
| Six Months Ended
| Period April 30, 20141 to
| |||||||||||||||
Per Share Operating Performance | ||||||||||||||||||
Net asset value, beginning of period | $ | 10.05 | $ | 10.00 | $ | 10.03 | $ | 10.00 | ||||||||||
|
| |||||||||||||||||
Net investment income2 | 0.07 | 0.12 | 0.06 | 0.14 | ||||||||||||||
Net realized and unrealized gain (loss) | (0.11 | ) | 0.01 | (0.10 | ) | (0.04 | ) | |||||||||||
|
| |||||||||||||||||
Net increase (decrease) from investment operations | (0.04 | ) | 0.13 | (0.04 | ) | 0.10 | ||||||||||||
|
| |||||||||||||||||
Distributions from:3 | ||||||||||||||||||
Net investment income | — | (0.08 | ) | — | (0.07 | ) | ||||||||||||
Net realized capital gains | — | (0.00 | )4 | — | (0.00 | )4 | ||||||||||||
Return of capital | — | (0.00 | )4 | — | (0.00 | )4 | ||||||||||||
|
| |||||||||||||||||
Total distributions | — | (0.08 | ) | — | (0.07 | ) | ||||||||||||
|
| |||||||||||||||||
Net asset value, end of period | $ | 10.01 | $ | 10.05 | $ | 9.99 | $ | 10.03 | ||||||||||
|
| |||||||||||||||||
Total Return5,6 | ||||||||||||||||||
Based on net asset value | (0.40 | )% | 1.30 | % | (0.40 | )% | 1.03 | % | ||||||||||
|
| |||||||||||||||||
Ratios to Average Net Assets7,8 | ||||||||||||||||||
Total expenses9 | 2.03 | % | 7.16 | % | 2.14 | % | 8.57 | % | ||||||||||
|
| |||||||||||||||||
Total expenses after fees waived and reimbursed | 0.76 | % | 0.75 | % | 1.01 | % | 1.00 | % | ||||||||||
|
| |||||||||||||||||
Net investment income | 1.29 | % | 1.83 | % | 1.15 | % | 1.98 | % | ||||||||||
|
| |||||||||||||||||
Supplemental Data | ||||||||||||||||||
Net assets, end of period (000) | $ | 6,928 | $ | 3,624 | $ | 340 | $ | 78 | ||||||||||
|
| |||||||||||||||||
Portfolio turnover rate | 16 | % | 61 | % | 16 | % | 61 | % | ||||||||||
|
|
1 | Commencement of operations. |
2 | Based on average shares outstanding. |
3 | Distributions for annual periods determined in accordance with federal income tax regulations. |
4 | Amount is greater than $(0.005) per share. |
5 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
6 | Aggregate total return. |
7 | Annualized. |
8 | Excludes expenses incurred indirectly as a result of investments in underlying funds as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to December 31, 2014 | |||
Investments in underlying funds | 0.26% | 0.25% |
9 | Organization and/or offering costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to December 31, 2014 | |||
Class I | 2.16% | 7.71% | ||
Class III | 2.25% | 8.93% |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (Unaudited) | BlackRock iShares® Dynamic Fixed Income V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock iShares® Dynamic Fixed Income V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value each business day.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The portion of distributions that exceeds a Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a non-taxable return of capital. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Offering Costs: Offering costs are amortized over a 12-month period beginning with the commencement of operations.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Notes to Financial Statements (continued) | BlackRock iShares® Dynamic Fixed Income V.I. Fund |
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as affiliated investment companies in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — affiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | |||||||||
Citigroup Global Markets, Inc | $ | 5,239 | $ | (5,239 | ) | — | ||||||
Credit Suisse Securities (USA) LLC | $ | 1,419,557 | $ | (1,419,557 | ) | — | ||||||
JP Morgan Securities LLC | 1,119,138 | (1,119,138 | ) | — | ||||||||
| ||||||||||||
Total | $ | 2,543,934 | $ | (2,543,934 | ) | — | ||||||
|
1 | Collateral with a value of $2,602,251 has been received in connection with securities lending agreements. Excess of collateral received from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock iShares® Dynamic Fixed Income V.I. Fund |
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |
First $1 Billion | 0.150% | |
$1 Billion - $3 Billion | 0.140% | |
$3 Billion - $5 Billion | 0.135% | |
Greater than $5 Billion | 0.130% |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. In addition, the Manager has contractually agreed to waive the management fee on assets estimated to be attributable to the Fund’s investments in other equity and fixed-income mutual funds managed by BlackRock or its affiliates, if any. This amount is included in fees reimbursed by the Manager in the Statement of Operations. For the six months ended June 30, 2015, the amount reimbursed was $35.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $10 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at the annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 0.75% for Class I and 1.00% for Class III. The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors. The amounts waived or reimbursed are included in fees waived by the Manager and expenses reimbursed by the Manager and shown as transfer agent fees reimbursed — class specific in the Statement of Operations. For the six months ended June 30, 2015, the amount is shown as fees waived by the Manager on the Statement of Operations and the amount included in expenses reimbursed by the Manager was $32,991.
If during the Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement from the Manager, are less than the expense limit for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund, of which the share class is a part, has more than $50 million in assets for the fiscal year and (2) the Manager or an affiliate continues to serve as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which the Manager becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse the Manager shall be calculated by reference to the expense limit for that share class in effect at the time the Manager became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (continued) | BlackRock iShares® Dynamic Fixed Income V.I. Fund |
On June 30, 2015, the Fund level waivers and/or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
Expires | Fund Level | Class I | Class III | |||||
12/31/2016 | $75,070 | $1,455 | — | |||||
12/31/2017 | $37,203 | $1,868 | $32 |
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 80% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 85% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $736 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $5,079,978 and $893,235, respectively.
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for the period ended December 31, 2014.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax returns years and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 10,556,867 | ||
|
| |||
Gross unrealized appreciation | $ | 634 | ||
Gross unrealized depreciation | (93,910 | ) | ||
|
| |||
Net unrealized depreciation | $ | (93,276 | ) | |
|
|
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06%
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (concluded) | BlackRock iShares® Dynamic Fixed Income V.I. Fund |
per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 30, 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
8. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Period April 30, 20141 to December 31, 2014 | |||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||
Class I | ||||||||||||||||||||||
Shares sold | 414,373 | $ | 4,201,858 | 472,288 | $ | 4,754,105 | ||||||||||||||||
Shares issued in reinvestment of distributions | — | — | 2,490 | 25,027 | ||||||||||||||||||
Shares redeemed | (83,228 | ) | (837,839 | ) | (113,996 | ) | (1,147,697 | ) | ||||||||||||||
|
| |||||||||||||||||||||
Net increase | 331,145 | $ | 3,364,019 | 360,782 | $ | 3,631,435 | ||||||||||||||||
|
| |||||||||||||||||||||
Class III | ||||||||||||||||||||||
Shares sold | 29,398 | $ | 297,076 | 7,705 | $ | 77,639 | ||||||||||||||||
Shares issued in reinvestment of distributions | — | — | 49 | 492 | ||||||||||||||||||
Shares redeemed | (3,066 | ) | (30,854 | ) | (11 | ) | (109 | ) | ||||||||||||||
|
| |||||||||||||||||||||
Net increase | 26,332 | $ | 266,222 | 7,743 | $ | 78,022 | ||||||||||||||||
|
| |||||||||||||||||||||
Total Net Increase | 357,477 | $ | 3,630,241 | 368,525 | $ | 3,709,457 | ||||||||||||||||
|
|
1 | Commencement of operations. |
10. Subsequent Events:
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock iShares® Equity Appreciation V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock iShares® Equity Appreciation V.I. Fund |
Investment Objective |
BlackRock iShares® Equity Appreciation V.I. Fund’s (the “Fund”) investment objective is to seek to provide growth of capital.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund underperformed its benchmark, the MSCI All Country World Index. |
What factors influenced performance?
• | The largest detractor from Fund performance was exposure to Canadian equities through the iShares MSCI Canada ETF. The second-largest detractor was exposure to the Dow Jones EPAC Select Dividend Index through the iShares International Select Dividend ETF. |
• | The largest contributor to Fund performance was exposure to large- and mid-cap developed market equities (excluding the U.S. and Canada) through the iShares MSCI EAFE ETF. This was followed by exposure to small-cap U.S. equities through the iShares Russell 2000 ETF. |
Describe recent portfolio activity.
• | During the six-month period, the Fund’s exposure to large- and mid-cap developed market equities (excluding the U.S. and Canada) and microcap U.S. equities was raised by increasing allocation to the iShares MSCI EAFE ETF and iShares Micro-Cap ETF, respectively. At the same time, the Fund’s exposure to mid- and large-cap U.S. equities was lowered by decreasing the Fund’s allocation to the iShares Russell 1000 ETF. |
Describe portfolio positioning at period end.
• | At period end, the Fund was invested in accordance with the quantitative model used to allocate its assets. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Portfolio Composition | Percent of Affiliated Investment Companies | ||||
Equity Funds | 87% | ||||
Short-Term Securities | 13 |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock iShares® Equity Appreciation V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. |
2 | The Fund invests in a portfolio of underlying exchange-traded funds that seek to track equity indices. |
3 | This unmanaged index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI All Country World Index consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. |
4 | Commencement of operations. |
Performance Summary for the Period Ended June 30, 2015 |
Average Annual Total Returns | |||||||||||||||
6-Month Total Returns6 | 1 Year6 | Since Inception6,7 | |||||||||||||
Class I5 | 2.32 | % | (1.54 | )% | 2.30% | ||||||||||
Class III5 | 2.22 | (1.75 | ) | 2.03 | |||||||||||
MSCI All Country World Index | 2.66 | 0.71 | 4.09 |
5 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
6 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
7 | The Fund commenced operations on April 30, 2014. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Expense Example |
Actual | Hypothetical9 | ||||||||||||||||||||||||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period8 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period8 | Annualized Expense Ratio | |||||||||||||||||||||||||||||
Class I | $ | 1,000.00 | $ | 1,023.20 | $ | 3.81 | $ | 1,000.00 | $ | 1,021.03 | $ | 3.81 | 0.76 | % | |||||||||||||||||||||
Class III | $ | 1,000.00 | $ | 1,022.20 | $ | 5.06 | $ | 1,000.00 | $ | 1,019.79 | $ | 5.06 | 1.01 | % |
8 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
9 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half-year divided by 365. |
See | “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock iShares® Equity Appreciation V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock iShares® Equity Appreciation V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Affiliated Investment Companies (a) | Shares | Value | ||||||
Equity Funds — 107.0% |
| |||||||
iShares Core MSCI Emerging Markets ETF (b) | 24,737 | $ | 1,188,365 | |||||
iShares International Select Dividend ETF | 24,006 | 776,114 | ||||||
iShares Micro-Cap ETF (b) | 6,064 | 494,398 | ||||||
iShares MSCI Canada ETF | 18,927 | 504,783 | ||||||
iShares MSCI EAFE ETF | 21,783 | 1,383,003 | ||||||
iShares MSCI EAFE Small-Cap ETF | 6,117 | 312,089 | ||||||
iShares MSCI Frontier 100 ETF | 5,591 | 163,649 | ||||||
iShares Russell 1000 ETF | 14,905 | 1,729,576 | ||||||
iShares Russell 2000 ETF | 9,414 | 1,175,432 | ||||||
iShares S&P 100 ETF | 1,732 | 157,335 | ||||||
|
| |||||||
7,884,744 | ||||||||
Affiliated Investment Companies (a) | Shares/ Beneficial Interest | Value | ||||||
Short-Term Securities — 16.0% |
| |||||||
BlackRock Liquidity Funds, TempFund, | 76,567 | $ | 76,567 | |||||
BlackRock Liquidity Series, LLC, Money Market | $ | 1,102,956 | 1,102,956 | |||||
|
| |||||||
1,179,523 | ||||||||
Total Affiliated Investment Companies |
| 9,064,267 | ||||||
Liabilities in Excess of Other Assets — (23.0)% |
| (1,696,521 | ) | |||||
|
| |||||||
Net Assets — 100.0% |
| $ | 7,367,746 | |||||
|
|
Notes to Schedule of Investments |
(a) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/ Beneficial Interest Held at | Shares/ Beneficial Interest Purchased | Shares/ Beneficial Interest Sold | Shares/ Held at | Value at June 30, 2015 | Income | Realized Gain (Loss) | |||||||||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 74,281 | 2,286 | 1 | — | 76,567 | $ | 76,567 | $ | 38 | — | ||||||||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | — | $ | 1,102,956 | 2 | — | $ | 1,102,956 | $ | 1,102,956 | $ | 3,323 | 3 | — | |||||||||||||||
iShares Core MSCI Emerging Markets ETF | 12,062 | 13,354 | 679 | 24,737 | $ | 1,188,365 | $ | 10,939 | $ | (1,777 | ) | |||||||||||||||||
iShares International Select Dividend ETF | 11,016 | 14,003 | 1,013 | 24,006 | $ | 776,114 | $ | 11,839 | $ | (675 | ) | |||||||||||||||||
iShares Micro-Cap ETF | 960 | 5,153 | 49 | 6,064 | $ | 494,398 | $ | 306 | $ | (62 | ) | |||||||||||||||||
iShares MSCI Canada ETF | 6,415 | 12,797 | 285 | 18,927 | $ | 504,783 | $ | 3,084 | $ | (1,075 | ) | |||||||||||||||||
iShares MSCI EAFE ETF | 9,279 | 13,179 | 675 | 21,783 | $ | 1,383,003 | $ | 22,073 | $ | (1,027 | ) | |||||||||||||||||
iShares MSCI EAFE Small-Cap ETF | 4,824 | 5,336 | 4,043 | 6,117 | $ | 312,089 | $ | 5,811 | $ | (5,019 | ) | |||||||||||||||||
iShares MSCI Frontier 100 ETF | 2,476 | 3,173 | 58 | 5,591 | $ | 163,649 | — | $ | 2,734 | |||||||||||||||||||
iShares Russell 1000 ETF | 9,221 | 9,339 | 3,655 | 14,905 | $ | 1,729,576 | $ | 5,726 | $ | (7,879 | ) | |||||||||||||||||
iShares Russell 2000 ETF | 4,684 | 5,063 | 333 | 9,414 | $ | 1,175,432 | $ | 2,292 | $ | (962 | ) | |||||||||||||||||
iShares S&P 100 ETF | 856 | 894 | 18 | 1,732 | $ | 157,335 | $ | 1,328 | $ | (1 | ) |
1 | Represents net shares purchased. |
2 | Represents net beneficial interest purchased. |
3 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(b) | Security, or a portion of security, is on loan. |
(c) | Represents the current yield as of report date. |
(d) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
Portfolio Abbreviation |
ETF | Exchange Traded Fund |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (concluded) | BlackRock iShares® Equity Appreciation V.I. Fund |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 – unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 – other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 – unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Affiliated Investment Companies | $ | 7,961,311 | $ | 1,102,956 | — | $ | 9,064,267 | |||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 16,261 | — | — | $ | 16,261 | ||||||||||
Liabilities: | ||||||||||||||||
Collateral on securities loaned at value | — | $ | (1,102,956 | ) | — | (1,102,956 | ) | |||||||||
|
| |||||||||||||||
Total | $ | 16,261 | $ | (1,102,956 | ) | — | $ | (1,086,695 | ) | |||||||
|
|
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock iShares® Equity | |||
Assets | ||||
Investments at value — affiliated (including securities loaned at value of $1,092,085)(cost — $9,111,369) | $ | 9,064,267 | ||
Cash | 16,261 | |||
Receivables: | ||||
Investments sold | 428,143 | |||
Dividends — affiliated | 45,150 | |||
Capital shares sold | 10,809 | |||
From the Manager | 4,703 | |||
Securities lending income — affiliated | 935 | |||
Prepaid expenses | 336 | |||
|
| |||
Total assets | 9,570,604 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 1,102,956 | |||
Payables: | ||||
Investments purchased | 550,134 | |||
Capital shares redeemed | 512,334 | |||
Officer’s and Directors’ fees | 595 | |||
Distribution fees | 45 | |||
Other affiliates | 2 | |||
Other accrued expenses payable | 36,792 | |||
|
| |||
Total liabilities | 2,202,858 | |||
|
| |||
Net Assets | $ | 7,367,746 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 7,402,902 | ||
Undistributed net investment income | 46,574 | |||
Accumulated net realized loss | (34,628 | ) | ||
Net unrealized appreciation (depreciation) | (47,102 | ) | ||
|
| |||
Net Assets | $ | 7,367,746 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $7,141,859 and 702,713 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.16 | ||
|
| |||
Class III — Based on net assets of $225,887 and 22,267 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.14 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock iShares® Equity Appreciation V.I. Fund | |||
Investment Income | ||||
Dividends — affiliated | $ | 63,436 | ||
Securities lending — affiliated — net | 3,323 | |||
|
| |||
Total income | 66,759 | |||
|
| |||
Expenses | ||||
Professional | 25,472 | |||
Offering | 7,241 | |||
Printing | 6,856 | |||
Investment advisory | 4,027 | |||
Transfer agent | 2,721 | |||
Officer and Directors | 2,709 | |||
Accounting services | 2,665 | |||
Transfer agent — Class I | 2,488 | |||
Transfer agent — Class III | 16 | |||
Custodian | 1,657 | |||
Distribution — Class III | 143 | |||
Registration | 44 | |||
Miscellaneous | 1,377 | |||
|
| |||
Total expenses | 57,416 | |||
Less fees waived by the Manager | (4,027 | ) | ||
Less transfer agent fees reimbursed — Class I | (2,476 | ) | ||
Less transfer agent fees reimbursed — Class III | (15 | ) | ||
Less expenses reimbursed by the Manager | (30,374 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 20,524 | |||
|
| |||
Net investment income | 46,235 | |||
|
| |||
Realized and Unrealized Gain (Loss} | ||||
Net realized loss on investments — affiliated | (15,743 | ) | ||
Net change in unrealized appreciation (depreciation) on investments — affiliated | 14,501 | |||
|
| |||
Net realized and unrealized loss | (1,242 | ) | ||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 44,993 | ||
|
|
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Changes in Net Assets | BlackRock iShares® Equity Appreciation V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 46,235 | $ | 38,149 | ||||
Net realized loss | (15,743 | ) | (18,885 | ) | ||||
Net change in unrealized appreciation (depreciation) | 14,501 | (61,603 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 44,993 | (42,339 | ) | |||||
|
| |||||||
Distributions to Shareholders From2 | ||||||||
Net investment income: | ||||||||
Class I | — | (39,659 | ) | |||||
Class III | — | (215 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (39,874 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase in net assets derived from capital share transactions | 3,551,754 | 3,853,212 | ||||||
|
| |||||||
Net Assets | ||||||||
Total increase in net assets | 3,596,747 | 3,770,999 | ||||||
Beginning of period | 3,770,999 | — | ||||||
|
| |||||||
End of period | $ | 7,367,746 | $ | 3,770,999 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 46,574 | $ | 339 | ||||
|
|
1 | Commencement of operations. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Financial Highlights | BlackRock iShares® Equity Appreciation V.I. Fund |
Class I | Class III | |||||||||||||||||
Six Months Ended
| Period April 30, 20141 to December 31,
| Six Months Ended
| Period April 30, to December 31,
| |||||||||||||||
Per Share Operating Performance | ||||||||||||||||||
Net asset value, beginning of period | $ | 9.93 | $ | 10.00 | $ | 9.92 | $ | 10.00 | ||||||||||
|
| |||||||||||||||||
Net investment income2 | 0.09 | 0.21 | 0.11 | 0.21 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.14 | (0.17 | ) | 0.11 | (0.19 | ) | ||||||||||||
|
| |||||||||||||||||
Net increase from investment operations | 0.23 | 0.04 | 0.22 | 0.02 | ||||||||||||||
|
| |||||||||||||||||
Distributions from:3 | ||||||||||||||||||
Net investment income | — | (0.11 | ) | — | (0.10 | ) | ||||||||||||
|
| |||||||||||||||||
Net asset value, end of period | $ | 10.16 | $ | 9.93 | $ | 10.14 | $ | 9.92 | ||||||||||
|
| |||||||||||||||||
Total Return4,5 | ||||||||||||||||||
Based on net asset value | 2.32 | % | 0.37 | % | 2.22 | % | 0.16 | % | ||||||||||
|
| |||||||||||||||||
Ratios to Average Net Assets6,7 | ||||||||||||||||||
Total expenses8 | 2.00 | % | 7.84 | % | 1.98 | % | 10.67 | % | ||||||||||
|
| |||||||||||||||||
Total expenses after fees waived and reimbursed | 0.76 | % | 0.75 | % | 1.01 | % | 1.00 | % | ||||||||||
|
| |||||||||||||||||
Net investment income | 1.71 | % | 3.04 | % | 2.20 | % | 3.01 | % | ||||||||||
|
| |||||||||||||||||
Supplemental Data | ||||||||||||||||||
Net assets, end of period (000) | $ | 7,142 | $ | 3,749 | $ | 226 | $ | 22 | ||||||||||
|
| |||||||||||||||||
Portfolio turnover rate | 15 | % | 16 | % | 15 | % | 16 | % | ||||||||||
|
|
1 | Commencement of operations. |
2 | Based on average shares outstanding. |
3 | Distributions for annual periods determined in accordance with federal income tax regulations. |
4 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
5 | Aggregate total return. |
6 | Annualized. |
7 | Excludes expenses incurred indirectly as a result of investments in underlying funds as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Period to | |||||||
Investments in underlying funds | 0.29 | % | 0.27 | % |
8 | Organization and/or offering costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Period April 30, 20141 to December 31, 2014 | |||||||
Class I | 2.14 | % | 8.47 | % | ||||
Class III | 2.08 | % | 11.83 | % |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (Unaudited) | BlackRock iShares® Equity Appreciation V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock iShares® Equity Appreciation V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value each business day.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Offering Costs: Offering costs are amortized over a 12-month period beginning with the commencement of operations.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Notes to Financial Statements (continued) | BlackRock iShares® Equity Appreciation V.I. Fund |
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as affiliated investment companies in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — affiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | |||||||||
Credit Suisse Securities (USA) LLC | $ 177,980 | $ (177,980) | — | |||||||||
JP Morgan Securities LLC | 914,105 | (914,105) | — | |||||||||
|
| |||||||||||
Total | $1,092,085 | $(1,092,085) | — | |||||||||
|
|
1 | Collateral with a value of $1,102,956 has been received in connection with securities lending agreements. Excess of collateral received from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock iShares® Equity Appreciation V.I. Fund |
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |
First $1 Billion | 0.150% | |
$1 Billion - $3 Billion | 0.140% | |
$3 Billion - $5 Billion | 0.135% | |
Greater than $5 Billion | 0.130% |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. In addition, the Manager has contractually agreed to waive the management fee on assets estimated to be attributable to the Fund’s investment in other equity and fixed-income mutual funds managed by BlackRock or its affiliates, if any. This amount is included in fees reimbursed by the Manager in the Statement of Operations. For the six months ended June 30, 2015, the amount reimbursed was $38.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $10 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at the annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 0.75% for Class I and 1.00% for Class III. The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors. The amounts waived or reimbursed are included in fees waived by the Manager and expenses reimbursed by the Manager and shown as transfer agent fees reimbursed — class specific in the Statement of Operations. For the six months ended June 30, 2015, the amount is shown as fees waived by the Manager on the Statement of Operations and the amount included in expenses reimbursed by the Manager was $30,336.
If during the Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement from the Manager, are less than the expense limit for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund, of which the share class is a part, has more than $50 million in assets for the fiscal year and (2) the Manager or an affiliate continues to serve as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which the Manager becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse the Manager shall be calculated by reference to the expense limit for that share class in effect at the time the Manager became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (continued) | BlackRock iShares® Equity Appreciation V.I. Fund |
On June 30, 2015, the Fund level waivers and/or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
Expires | Fund Level | Class I | Class III | ||||||||||||
12/31/2016 | $72,150 | $1,138 | — | ||||||||||||
12/31/2017 | $34,363 | $2,476 | $15 |
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 80% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 85% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $831 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $4,937,658 and $803,659, respectively.
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for the period ended December 31, 2014.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years and does not believe there are any uncertain tax positions that require recognition of a tax liability in the financial statements.
As of December 31, 2014, the Fund had a capital loss carryforward, with no expiration date, available to offset future realized capital gains of $3,349.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
| ||||
Tax cost | $9,126,856 | |||
|
| |||
Gross unrealized appreciation | $ | 147,903 | ||
Gross unrealized depreciation | (210,492 | ) | ||
|
| |||
Net unrealized depreciation | $ | (62,589 | ) | |
|
| |||
|
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock iShares® Equity Appreciation V.I. Fund |
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
8. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Period April 30, 20141 to December 31, 2014 | |||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||
Class I | ||||||||||||||||||||||
Shares sold | 398,853 | $ | 4,096,337 | 376,194 | $ | 3,818,393 | ||||||||||||||||
Shares issued in reinvestment of distributions | — | — | 3,444 | 34,407 | ||||||||||||||||||
Shares redeemed | (73,532 | ) | (751,495 | ) | (2,246 | ) | (22,186 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||||
Net increase | 325,321 | $ | 3,344,842 | 377,392 | $ | 3,830,614 | ||||||||||||||||
|
|
|
| |||||||||||||||||||
Class III | ||||||||||||||||||||||
Shares sold | 21,071 | $ | 217,581 | 2,240 | $ | 22,501 | ||||||||||||||||
Shares issued in reinvestment of distributions | — | — | 12 | 119 | ||||||||||||||||||
Shares redeemed | (1,054 | ) | (10,669 | ) | (2 | ) | (22 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||||
Net increase | 20,017 | $ | 206,912 | 2,250 | $ | 22,598 | ||||||||||||||||
|
|
|
| |||||||||||||||||||
Total Net Increase | 345,338 | $ | 3,551,754 | 379,642 | $ | 3,853,212 | ||||||||||||||||
|
|
|
|
1 | Commencement of operations. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (concluded) | BlackRock iShares® Equity Appreciation V.I. Fund |
10. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015 as follows:
Net Investment Income | ||
Class I | $0.000390 | |
Class III | $0.000390 |
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Large Cap Core V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Large Cap Core V.I. Fund |
Investment Objective |
BlackRock Large Cap Core V.I. Fund’s (the “Fund”) investment objective is to seek high total investment return.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund underperformed its benchmark, the Russell 1000@ Index. |
What factors influenced performance?
• | Information technology (“IT”) was the prime detractor from relative performance, largely owing to the Fund’s tilt toward enterprise hardware and compute-intensive semiconductor companies. Key names underperformed as the magnitude of PC unit weakness in the first half of 2015 was worse than anticipated, pressuring earnings and forward guidance of several holdings with PC exposure. Micron Technology Inc. and Western Digital Corp. were the leading individual detractors within the Fund for the six-month period. Micron’s underperformance was exacerbated by forecasted higher costs as the firm invests in product lines outside of the PC end market and begins manufacturing DRAM on the next technology node; the stock sold off sharply on the unexpected cost outlook and manufacturing execution concerns. Other IT detractors included Hewlett-Packard Co. and Intel Corp., as well as an underweight in strong-performing Apple Inc. |
• | Consumer discretionary and industrials were additional sources of weakness. Zero exposure to internet & catalog retail names Amazon.com Inc. and Netflix, Inc. hurt in consumer discretionary as the stocks surged in the period. Within industrials, airlines struggled on concerns around capacity discipline and ticket prices, in addition to rising fuel costs, while across the sector in conglomerates, bellwether 3M Co. issued a rare earnings miss on currency pressures. |
• | Relative performance was supported by strong selection in the health care sector. The Fund’s tilt toward managed care proved especially advantageous as increased merger speculation and announcements sent shares of the companies sharply higher. Generally benign medical |
cost trends also continued to be supportive for the group, and sentiment rose further on a favorable Supreme Court ruling late in the period concerning insurance subsidies under the Affordable Care Act. Elsewhere in the sector, hospital operator Universal Health Services Inc. outperformed, benefiting from positive news about its eligibility for Medicare reimbursement for mental health services, as well as broadly favorable volume and margin trends. The positive impact of the Supreme Court’s ruling was also particularly notable for the company (and hospitals overall).
• | The Fund’s long-standing underweight to utilities helped performance as well. The sector was the top decliner within the benchmark during the six months given its vulnerability to rising interest rates. |
• | Lastly, selection in energy and consumer staples was additive. Underweights to oil majors Exxon Mobil Corp. and Chevron Corp. benefited in energy, while zero exposure to household products and an over-weight position in CVS Health Corp. boosted returns in consumer staples. |
Describe recent portfolio activity.
• | Due to a combination of portfolio trading activity and market movement during the six-month period, the Fund’s weighting in the health care and consumer discretionary sectors increased. The allocation to consumer staples also increased. The Fund’s weighting in the IT and industrials sectors decreased, with declines in financials as well. |
Describe portfolio positioning at period end.
• | Relative to the Russell 1000® Index, the Fund ended the period with its largest sector overweights in IT and health care, followed by financials. Industrials, telecommunication services and utilities were the most significant underweights. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Sector Allocation | Percent of Long-Term Investments | |
Information Technology | 23% | |
Financials | 20 | |
Health Care | 19 | |
Consumer Discretionary | 13 | |
Industrials | 8 | |
Consumer Staples | 8 | |
Energy | 7 | |
Materials | 2 |
For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Large Cap Core V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance related fees and expenses. For a portion of the period, returns do not show the effects of distribution fees (12b-1 fees) applicable to Class II Shares. If such fees were included, returns shown would have been lower. Class III Shares prior to January 27, 2009, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares. The returns for Class III Shares, however, are adjusted to reflect the distribution (12b-1) fees applicable to Class III Shares. |
2 | Under normal circumstances, the Fund invests at least 80% of its assets in a diversified portfolio of equity securities, primarily common stock, of large cap companies located in the United States included at the time of purchase in the Russell 1000® Index. |
3 | The index measures the performance of the large cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market capitalization and current index membership. The index represents approximately 92% of the total market capitalization of the Russell 3000® Index. |
Performance Summary for the Period Ended June 30, 2015 |
Average Annual Total Returns | ||||||||||||||||
6-Month Total Returns5 | 1 Year5 | 5 Years5 | 10 Years5 | |||||||||||||
Class I4 | 0.72 | % | 7.35 | % | 15.93 | % | 6.81 | % | ||||||||
Class II4 | 0.63 | 7.16 | 15.74 | 6.64 | ||||||||||||
Class III4 | 0.57 | 7.06 | 15.63 | 6.53 | 6 | |||||||||||
Russell 1000® Index | 1.71 | 7.37 | 17.58 | 8.13 |
4 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. For a portion of the period, returns do not show the effects of distribution fees (12b-1 fees) applicable to Class II Shares. If such fees were included, returns shown would have been lower. |
5 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
6 | The returns for Class III Shares prior to January 27, 2009, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares. The returns for Class III Shares, however, are adjusted to reflect the distribution (12b-1) fees applicable to Class III Shares. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Expense Example |
Actual | Hypothetical8 | |||||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period7 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period7 | Annualized Expense Ratio | ||||||||||
Class I | $1,000.00 | $1,007.20 | $2.79 | $1,000.00 | $1,022.02 | $2.81 | 0.56 | % | ||||||||
Class II | $1,000.00 | $1,006.30 | $3.63 | $1,000.00 | $1,021.17 | $3.66 | 0.73 | % | ||||||||
Class III | $1,000.00 | $1,005.70 | $4.18 | $1,000.00 | $1,020.63 | $4.21 | 0.84 | % |
7 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
8 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Large Cap Core V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Large Cap Core V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Aerospace & Defense — 1.1% |
| |||||||
Honeywell International, Inc. | 7,800 | $ | 795,366 | |||||
Raytheon Co. | 50,700 | 4,850,976 | ||||||
|
| |||||||
5,646,342 | ||||||||
Air Freight & Logistics — 1.4% |
| |||||||
FedEx Corp. | 42,310 | 7,209,624 | ||||||
Airlines — 1.0% |
| |||||||
Southwest Airlines Co. | 69,700 | 2,306,373 | ||||||
United Continental Holdings, Inc. (a) | 55,200 | 2,926,152 | ||||||
|
| |||||||
5,232,525 | ||||||||
Auto Components — 1.6% |
| |||||||
The Goodyear Tire & Rubber Co. | 51,500 | 1,552,725 | ||||||
Lear Corp. | 60,600 | 6,802,956 | ||||||
|
| |||||||
8,355,681 | ||||||||
Banks — 12.5% |
| |||||||
Bank of America Corp. | 700,783 | 11,927,327 | ||||||
Citigroup, Inc. | 246,499 | 13,616,605 | ||||||
JPMorgan Chase & Co. | 258,383 | 17,508,032 | ||||||
SunTrust Banks, Inc. | 171,830 | 7,392,126 | ||||||
U.S. Bancorp | 302,435 | 13,125,679 | ||||||
Wells Fargo & Co. | 47,120 | 2,650,029 | ||||||
|
| |||||||
66,219,798 | ||||||||
Beverages — 2.3% |
| |||||||
Dr Pepper Snapple Group, Inc. (b) | 112,700 | 8,215,830 | ||||||
Molson Coors Brewing Co., Class B | 59,100 | 4,125,771 | ||||||
|
| |||||||
12,341,601 | ||||||||
Biotechnology — 1.8% |
| |||||||
Amgen, Inc. | 60,000 | 9,211,200 | ||||||
Capital Markets — 1.4% |
| |||||||
The Goldman Sachs Group, Inc. | 35,720 | 7,457,979 | ||||||
Chemicals — 0.5% |
| |||||||
Cabot Corp. | 25,355 | 945,488 | ||||||
The Dow Chemical Co. | 37,400 | 1,913,758 | ||||||
|
| |||||||
2,859,246 | ||||||||
Communications Equipment — 3.4% |
| |||||||
Brocade Communications Systems, Inc. | 380,590 | 4,521,409 | ||||||
Cisco Systems, Inc. | 353,230 | 9,699,696 | ||||||
QUALCOMM, Inc. | 57,750 | 3,616,883 | ||||||
|
| |||||||
17,837,988 | ||||||||
Construction & Engineering — 1.0% |
| |||||||
AECOM (a) | 156,100 | 5,163,788 | ||||||
Consumer Finance — 1.8% |
| |||||||
Discover Financial Services | 85,460 | 4,924,205 | ||||||
SLM Corp. (a) | 472,940 | 4,667,918 | ||||||
|
| |||||||
9,592,123 |
Common Stocks | Shares | Value | ||||||
Containers & Packaging — 0.6% |
| |||||||
Packaging Corp. of America | 49,377 | $ | 3,085,569 | |||||
Electronic Equipment, Instruments & Components — 0.7% |
| |||||||
TE Connectivity Ltd. | 7,510 | 482,893 | ||||||
Zebra Technologies Corp., Class A (a) | 29,411 | 3,266,091 | ||||||
|
| |||||||
3,748,984 | ||||||||
Energy Equipment & Services — 2.8% |
| |||||||
Atwood Oceanics, Inc. (b) | 128,100 | 3,386,964 | ||||||
Halliburton Co. | 23,070 | 993,625 | ||||||
Schlumberger Ltd. | 100,100 | 8,627,619 | ||||||
Weatherford International PLC (a) | 133,270 | 1,635,223 | ||||||
|
| |||||||
14,643,431 | ||||||||
Food & Staples Retailing — 4.1% |
| |||||||
CVS Health Corp. | 167,850 | 17,604,108 | ||||||
The Kroger Co. | 7,760 | 562,678 | ||||||
Wal-Mart Stores, Inc. | 47,980 | 3,403,221 | ||||||
|
| |||||||
21,570,007 | ||||||||
Food Products — 0.6% |
| |||||||
Pilgrim’s Pride Corp. (b) | 41,400 | 950,958 | ||||||
Tyson Foods, Inc., Class A | 47,200 | 2,012,136 | ||||||
|
| |||||||
2,963,094 | ||||||||
Health Care Equipment & Supplies — 0.1% |
| |||||||
Medtronic PLC | 7,220 | 535,002 | ||||||
Health Care Providers & Services — 12.7% |
| |||||||
Aetna, Inc. | 107,800 | 13,740,188 | ||||||
Centene Corp. (a) | 83,700 | 6,729,480 | ||||||
Cigna Corp. | 64,000 | 10,368,000 | ||||||
Express Scripts Holding Co. (a) | 18,200 | 1,618,708 | ||||||
Humana, Inc. | 22,600 | 4,322,928 | ||||||
Laboratory Corp. of America Holdings (a) | 47,150 | 5,715,523 | ||||||
McKesson Corp. | 32,060 | 7,207,409 | ||||||
UnitedHealth Group, Inc. | 76,400 | 9,320,800 | ||||||
Universal Health Services, Inc., Class B | 56,065 | 7,966,837 | ||||||
|
| |||||||
66,989,873 | ||||||||
Hotels, Restaurants & Leisure — 2.1% |
| |||||||
Carnival Corp. | 177,217 | 8,752,748 | ||||||
Las Vegas Sands Corp. | 42,000 | 2,207,940 | ||||||
|
| |||||||
10,960,688 | ||||||||
Industrial Conglomerates — 1.9% |
| |||||||
3M Co. | 65,025 | 10,033,357 | ||||||
Insurance — 3.5% |
| |||||||
American International Group, Inc. | 220,000 | 13,600,400 | ||||||
The Travelers Cos., Inc. | 51,395 | 4,967,841 | ||||||
|
| |||||||
18,568,241 |
Portfolio Abbreviation | ||
ADR | American Depositary Receipts | |
SPDR | Standard & Poor’s Depositary Receipts |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock Large Cap Core V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Internet & Catalog Retail — 0.5% |
| |||||||
The Priceline Group, Inc. (a) | 2,120 | $ | 2,440,904 | |||||
Internet Software & Services — 3.7% |
| |||||||
Facebook, Inc., Class A (a) | 76,950 | 6,599,617 | ||||||
Google, Inc., Class A (a) | 11,960 | 6,458,878 | ||||||
Google, Inc., Class C (a) | 12,464 | 6,487,637 | ||||||
|
| |||||||
19,546,132 | ||||||||
IT Services — 4.5% |
| |||||||
Alliance Data Systems Corp. (a) | 3,510 | 1,024,709 | ||||||
Amdocs Ltd. | 76,624 | 4,182,904 | ||||||
Cognizant Technology Solutions Corp., Class A (a) | 62,200 | 3,799,798 | ||||||
DST Systems, Inc. | 10,170 | 1,281,217 | ||||||
MasterCard, Inc., Class A | 108,280 | 10,122,014 | ||||||
Total System Services, Inc. | 78,387 | 3,274,225 | ||||||
|
| |||||||
23,684,867 | ||||||||
Machinery — 1.4% |
| |||||||
Parker-Hannifin Corp. | 33,895 | 3,943,005 | ||||||
WABCO Holdings, Inc. (a) | 29,000 | 3,587,880 | ||||||
|
| |||||||
7,530,885 | ||||||||
Media — 3.1% |
| |||||||
Comcast Corp., Class A | 238,900 | 14,367,446 | ||||||
Omnicom Group, Inc. | 28,700 | 1,994,363 | ||||||
|
| |||||||
16,361,809 | ||||||||
Multiline Retail — 0.8% |
| |||||||
Macy’s, Inc. | 58,900 | 3,973,983 | ||||||
Multi-Utilities — 0.4% |
| |||||||
Public Service Enterprise Group, Inc. | 53,200 | 2,089,696 | ||||||
Oil, Gas & Consumable Fuels — 4.1% |
| |||||||
BP PLC — ADR | 152,250 | 6,083,910 | ||||||
Exxon Mobil Corp. | 20,375 | 1,695,200 | ||||||
Hess Corp. | 52,275 | 3,496,152 | ||||||
Marathon Petroleum Corp. | 49,650 | 2,597,191 | ||||||
PBF Energy, Inc., Class A | 39,560 | 1,124,295 | ||||||
Suncor Energy, Inc. | 189,240 | 5,207,885 | ||||||
Tesoro Corp. | 16,140 | 1,362,377 | ||||||
|
| |||||||
21,567,010 | ||||||||
Paper & Forest Products — 0.6% |
| |||||||
Domtar Corp. (b) | 81,300 | 3,365,820 | ||||||
Pharmaceuticals — 3.6% |
| |||||||
AstraZeneca PLC — ADR | 78,600 | 5,007,606 | ||||||
Johnson & Johnson | 17,985 | 1,752,818 | ||||||
Merck & Co., Inc. | 23,227 | 1,322,313 | ||||||
Pfizer, Inc. | 16,310 | 546,874 | ||||||
Teva Pharmaceutical Industries Ltd. — ADR | 178,922 | 10,574,290 | ||||||
|
| |||||||
19,203,901 | ||||||||
Road & Rail — 0.2% |
| |||||||
Union Pacific Corp. | 13,500 | 1,287,495 | ||||||
Semiconductors & Semiconductor Equipment — 3.0% |
| |||||||
Intel Corp. | 295,430 | 8,985,503 | ||||||
Micron Technology, Inc. (a) | 259,640 | 4,891,618 | ||||||
NVIDIA Corp. | 108,400 | 2,179,924 | ||||||
|
| |||||||
16,057,045 | ||||||||
Software — 2.2% |
| |||||||
Microsoft Corp. | 146,500 | 6,467,975 | ||||||
Oracle Corp. | 129,000 | 5,198,700 | ||||||
|
| |||||||
11,666,675 | ||||||||
Specialty Retail — 4.8% |
| |||||||
The Home Depot, Inc. | 87,600 | 9,734,988 |
Common Stocks | Shares | Value | ||||||
Specialty Retail (concluded) |
| |||||||
Lowe’s Cos., Inc. | 190,000 | $ | 12,724,300 | |||||
Ross Stores, Inc. | 62,050 | 3,016,251 | ||||||
|
| |||||||
25,475,539 | ||||||||
Technology Hardware, Storage & Peripherals — 4.8% |
| |||||||
Apple Inc. | 59,550 | 7,469,059 | ||||||
EMC Corp. | 233,700 | 6,167,343 | ||||||
Hewlett-Packard Co. | 127,621 | 3,829,906 | ||||||
Western Digital Corp. | 101,460 | 7,956,493 | ||||||
|
| |||||||
25,422,801 | ||||||||
Textiles, Apparel & Luxury Goods — 0.4% |
| |||||||
Deckers Outdoor Corp. (a) | 6,500 | 467,805 | ||||||
Fossil Group, Inc. (a) | 23,300 | 1,616,088 | ||||||
|
| |||||||
2,083,893 | ||||||||
Tobacco — 0.7% |
| |||||||
Altria Group, Inc. | 72,268 | 3,534,628 | ||||||
Total Common Stocks — 97.7% |
| 515,519,224 | ||||||
Investment Companies — 0.3% |
| |||||||
Utilities Select Sector SPDR Fund (b) | 42,600 | 1,766,196 | ||||||
Total Long-Term Investments (Cost — $410,367,369) — 98.0% |
| 517,285,420 | ||||||
Short-Term Securities | ||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.07% (c)(d) | 10,785,889 | 10,785,889 | ||||||
Beneficial Interest (000) | ||||||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (c)(d)(e) | $ | 9,895 | 9,895,238 | |||||
Total Short-Term Securities (Cost — $20,681,127) — 3.9% |
| 20,681,127 | ||||||
Total Investments (Cost — $431,048,496) — 101.9% |
| 537,966,547 | ||||||
Liabilities in Excess of Other Assets — (1.9)% | (10,023,356 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 527,943,191 | ||||||
|
|
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (concluded) | BlackRock Large Cap Core V.I. Fund |
Notes to Schedule of Investments |
(a) | Non-income producing security. |
(b) | Security, or a portion of security, is on loan. |
(c) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares Held at December 31, 2014 | Net Activity | Shares/Beneficial Interest Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 10,463,699 | 322,190 | 10,785,889 | $ | 4,718 | |||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | — | $ | 9,895,238 | $ | 9,895,238 | $ | 14,745 | 1 |
1 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(d) | Represents the current yield as of report date. |
(e) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets: | ||||||||||||||
Investments: | ||||||||||||||
Long-Term Investments: | ||||||||||||||
Common Stocks1 | $ | 515,519,224 | — | — | $ | 515,519,224 | ||||||||
Investment Companies | 1,766,196 | — | — | 1,766,196 | ||||||||||
Short-Term Securities | 10,785,889 | $ | 9,895,238 | — | 20,681,127 | |||||||||
|
| |||||||||||||
Total | $ | 528,071,309 | $ | 9,895,238 | — | $ | 537,966,547 | |||||||
|
|
1 | See above Schedule of Investments for values in each industry. |
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, collateral on securities loaned at value of $(9,895,238) is categorized as Level 2 within the disclosure hierarchy.
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Large Cap Core V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $9,619,312) (cost — $410,367,369) | $ | 517,285,420 | ||
Investments at value — affiliated (cost — $20,681,127) | 20,681,127 | |||
Receivables: | ||||
Investments sold | 533,076 | |||
Securities lending income — affiliated | 3,758 | |||
Capital shares sold | 1,026 | |||
Dividends — affiliated | 997 | |||
Dividends — unaffiliated | 613,236 | |||
From the Manager | 116,692 | |||
Prepaid expenses | 1,240 | |||
|
| |||
Total assets | 539,236,572 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 9,895,238 | |||
Payables: | ||||
Investments purchased | 499,348 | |||
Capital shares redeemed | 234,401 | |||
Distribution fees | 68,687 | |||
Investment advisory fees | 201,490 | |||
Officer’s and Directors’ fees | 2,362 | |||
Other affiliates | 2,575 | |||
Transfer agent fees | 262,946 | |||
Other accrued expenses payable | 126,334 | |||
|
| |||
Total liabilities | 11,293,381 | |||
|
| |||
Net Assets | $ | 527,943,191 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 397,853,242 | ||
Undistributed net investment income | 2,725,599 | |||
Accumulated net realized gain | 20,446,299 | |||
Net unrealized appreciation (depreciation) | 106,918,051 | |||
|
| |||
Net Assets | $ | 527,943,191 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $197,142,863 and 5,885,613 shares outstanding, 200 million shares authorized, $0.10 par value | $ | 33.50 | ||
|
| |||
Class II — Based on net assets of $6,455,330 and 192,821 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 33.48 | ||
|
| |||
Class III — Based on net assets of $324,344,998 and 9,741,294 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 33.30 | ||
|
|
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Large Cap Core V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 4,529,386 | ||
Securities lending — affiliated — net | 14,745 | |||
Dividends — affiliated | 4,718 | |||
Foreign taxes withheld | (33,256 | ) | ||
|
| |||
Total income | 4,515,593 | |||
|
| |||
Expenses | ||||
Investment advisory | 1,216,454 | |||
Transfer agent — Class I | 209,271 | |||
Transfer agent — Class II | 5,911 | |||
Transfer agent — Class III | 312,818 | |||
Distribution — Class II | 4,615 | |||
Distribution — Class III | 403,972 | |||
Accounting services | 63,187 | |||
Professional | 31,721 | |||
Custodian | 17,419 | |||
Officer and Directors | 12,117 | |||
Miscellaneous | 13,564 | |||
|
| |||
Total expenses | 2,291,049 | |||
Less fees waived by the Manager | (4,034 | ) | ||
Less transfer agent fees reimbursed — Class I | (158,143 | ) | ||
Less transfer agent fees reimbursed — Class II | (3,758 | ) | ||
Less transfer agent fees reimbursed — Class III | (183,547 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 1,941,567 | |||
|
| |||
Net investment income | 2,574,026 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain from investments | 15,638,061 | |||
Net change in unrealized appreciation (depreciation) on investments | (14,745,441 | ) | ||
|
| |||
Total realized and unrealized gain | 892,620 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 3,466,646 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Statements of Changes in Net Assets | BlackRock Large Cap Core V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 2,574,026 | $ | 4,231,194 | ||||
Net realized gain | 15,638,061 | 66,216,612 | ||||||
Net change in unrealized appreciation (depreciation) | (14,745,441 | ) | (10,072,263 | ) | ||||
|
| |||||||
Net increase in net assets resulting from operations | 3,466,646 | 60,375,543 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | — | (2,008,355 | ) | |||||
Class II | — | (47,781 | ) | |||||
Class III | — | (2,173,882 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (24,772,342 | ) | |||||
Class II | — | (723,347 | ) | |||||
Class III | — | (37,772,646 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (67,498,353 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets derived from capital share transactions | (16,211,613 | ) | 22,308,828 | |||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | (12,744,967 | ) | 15,186,018 | |||||
Beginning of period | 540,688,158 | 525,502,140 | ||||||
|
| |||||||
End of period | $ | 527,943,191 | $ | 540,688,158 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 2,725,599 | $ | 151,573 | ||||
|
| |||||||
1 Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights | BlackRock Large Cap Core V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 33.26 | $ | 33.80 | $ | 25.55 | $ | 23.00 | $ | 22.73 | $ | 21.04 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.19 | 0.34 | 0.30 | 0.39 | 0.29 | 0.23 | ||||||||||||||||||
Net realized and unrealized gain | 0.05 | 3.86 | 8.27 | 2.54 | 0.26 | 1.69 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.24 | 4.20 | 8.57 | 2.93 | 0.55 | 1.92 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.36 | ) | (0.32 | ) | (0.38 | ) | (0.28 | ) | (0.23 | ) | |||||||||||||
Net realized gain | — | (4.38 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (4.74 | ) | (0.32 | ) | (0.38 | ) | (0.28 | ) | (0.23 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 33.50 | $ | 33.26 | $ | 33.80 | $ | 25.55 | $ | 23.00 | $ | 22.73 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 0.72 | %4 | 12.36 | % | 33.56 | % | 12.75 | % | 2.40 | % | 9.12 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.71 | %5 | 0.73 | % | 0.73 | % | 0.69 | % | 0.56 | % | 0.57 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.56 | %5 | 0.57 | % | 0.58 | % | 0.59 | % | 0.56 | % | 0.57 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.13 | %5 | 0.97 | % | 1.03 | % | 1.56 | % | 1.21 | % | 1.10 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 197,143 | $ | 212,067 | $ | 219,418 | $ | 191,227 | $ | 193,953 | $ | 217,059 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 14 | % | 48 | % | 42 | % | 110 | % | 101 | % | 151 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Financial Highlights (continued) | BlackRock Large Cap Core V.I. Fund |
Class II | ||||||||||||||||||||||||
Six Months Ended June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 33.27 | $ | 33.79 | $ | 25.56 | $ | 23.01 | $ | 22.74 | $ | 21.05 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.16 | 0.28 | 0.25 | 0.35 | 0.23 | 0.21 | ||||||||||||||||||
Net realized and unrealized gain | 0.05 | 3.87 | 8.25 | 2.54 | 0.27 | 1.68 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.21 | 4.15 | 8.50 | 2.89 | 0.50 | 1.89 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.29 | ) | (0.27 | ) | (0.34 | ) | (0.23 | ) | (0.20 | ) | |||||||||||||
Net realized gain | — | (4.38 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (4.67 | ) | (0.27 | ) | (0.34 | ) | (0.23 | ) | (0.20 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 33.48 | $ | 33.27 | $ | 33.79 | $ | 25.56 | $ | 23.01 | $ | 22.74 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 0.63 | %4 | 12.23 | % | 33.28 | % | 12.59 | % | 2.20 | % | 8.98 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.85 | %5 | 0.89 | % | 0.86 | % | 0.85 | % | 0.71 | % | 0.72 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.73 | %5 | 0.74 | % | 0.75 | % | 0.74 | % | 0.71 | % | 0.72 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.97 | %5 | 0.81 | % | 0.86 | % | 1.42 | % | 1.00 | % | 0.98 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 6,455 | $ | 6,203 | $ | 6,080 | $ | 4,603 | $ | 4,239 | $ | 8,026 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 14 | % | 48 | % | 42 | % | 110 | % | 101 | % | 151 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights (concluded) | BlackRock Large Cap Core V.I. Fund |
Class III | ||||||||||||||||||||||||
Six Months | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 33.11 | $ | 33.66 | $ | 25.46 | $ | 22.92 | $ | 22.67 | $ | 21.00 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.14 | 0.24 | 0.22 | 0.32 | 0.25 | 0.20 | ||||||||||||||||||
Net realized and unrealized gain | 0.05 | 3.84 | 8.22 | 2.54 | 0.23 | 1.66 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.19 | 4.08 | 8.44 | 2.86 | 0.48 | 1.86 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.25 | ) | (0.24 | ) | (0.32 | ) | (0.23 | ) | (0.19 | ) | |||||||||||||
Net realized gain | — | (4.38 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (4.63 | ) | (0.24 | ) | (0.32 | ) | (0.23 | ) | (0.19 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 33.30 | $ | 33.11 | $ | 33.66 | $ | 25.46 | $ | 22.92 | $ | 22.67 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 0.57 | %4 | 12.07 | % | 33.16 | % | 12.49 | % | 2.11 | % | 8.88 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.95 | %5 | 0.98 | % | 0.99 | % | 0.94 | % | 0.81 | % | 0.82 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.84 | %5 | 0.85 | % | 0.86 | % | 0.87 | % | 0.81 | % | 0.82 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.86 | %5 | 0.69 | % | 0.75 | % | 1.30 | % | 1.05 | % | 0.93 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 324,345 | $ | 322,418 | $ | 300,005 | $ | 232,024 | $ | 145,432 | $ | 80,779 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 14 | % | 48 | % | 42 | % | 110 | % | 101 | % | 151 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (Unaudited) | BlackRock Large Cap Core V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Large Cap Core V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I, Class II and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class II and Class III Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value each business day.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Large Cap Core V.I. Fund |
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value-unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities at Value | Cash Collateral Received1 | Net Amount | |||||||||||
Citigroup Global Markets, Inc. | $ | 2,850,338 | $ | (2,850,338 | ) | — | ||||||||
JPMorgan Securities LLC | 573,056 | (573,056 | ) | — | ||||||||||
Merrill Lynch, Pierce, Fenner & Smith Inc. | 368,393 | (368,393 | ) | — | ||||||||||
National Financial Service LLC | 1,748,533 | (1,748,533 | ) | — | ||||||||||
UBS Securities LLC | 4,078,992 | (4,078,992 | ) | — | ||||||||||
| ||||||||||||||
Total | $ | 9,619,312 | $ | (9,619,312 | ) | — | ||||||||
|
1 | Collateral with a value of $9,895,238 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of a borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”), for 1940 Act purposes.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (continued) | BlackRock Large Cap Core V.I. Fund |
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |
First $250 Million | 0.500% | |
$250 Million - $300 Million | 0.450% | |
$300 Million - $400 Million | 0.425% | |
Greater than - $400 Million | 0.400% |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $2,683 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at annual rates of 0.15% and 0.25% based upon the average daily net assets attributable to Class II and Class III, respectively.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
Class I | 0.05 | % | ||
Class II | 0.07 | % | ||
Class III | 0.08 | % |
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed - class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I, 1.40% for Class II and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Large Cap Core V.I. Fund |
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 71.5% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 75% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $5,666 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $74,718,302 and $88,681,721, respectively.
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 432,699,385 | ||
|
| |||
Gross unrealized appreciation | $ | 122,494,169 | ||
Gross unrealized depreciation | (17,227,007 | ) | ||
|
| |||
Net unrealized appreciation | $ | 105,267,162 | ||
|
|
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Prior to November 25, 2014, the aggregate commitment amount was $1.1 billion, of which the Participating Funds, including the Fund, could borrow up to $650 million at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
8. Principal Risk:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (concluded) | BlackRock Large Cap Core V.I. Fund |
which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
As of June 30, 2015, the Fund invested a significant portion of its assets in securities in the information technology and financials sectors. Changes in economic conditions affecting such sectors would have a greater impact on the Fund and could affect the value, income and/or liquidity of positions in such securities.
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class l | ||||||||||||||||||
Shares sold | 23,815 | $ | 798,123 | 59,471 | $ | 2,095,885 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 795,345 | 26,780,696 | ||||||||||||||
Shares redeemed | (514,037 | ) | (17,270,779 | ) | (971,386 | ) | (34,061,388 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net decrease | (490,222 | ) | $ | (16,472,656 | ) | (116,570 | ) | $ | (5,184,807 | ) | ||||||||
|
|
|
| |||||||||||||||
Class ll | ||||||||||||||||||
Shares sold | 54,832 | $ | 1,841,385 | 49,108 | $ | 1,714,891 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 22,897 | 771,129 | ||||||||||||||
Shares redeemed | (48,441 | ) | (1,634,561 | ) | (65,480 | ) | (2,320,723 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase | 6,391 | $ | 206,824 | 6,525 | $ | 165,297 | ||||||||||||
|
|
|
| |||||||||||||||
Class lll | ||||||||||||||||||
Shares sold | 235,440 | $ | 7,796,073 | 547,577 | $ | 19,090,680 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 1,192,122 | 39,946,528 | ||||||||||||||
Shares redeemed | (232,280 | ) | (7,741,854 | ) | (913,518 | ) | (31,708,870 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase | 3,160 | $ | 54,219 | 826,181 | $ | 27,328,338 | ||||||||||||
|
|
|
| |||||||||||||||
Total Net Increase (Decrease) | (480,671 | ) | $ | (16,211,613 | ) | 716,136 | $ | 22,308,828 | ||||||||||
|
|
|
|
10. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income and a long-term capital gain distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015:
Net Investment Income | Long-Term Capital Gain | |||||||
Class I | $0.009522 | $0.409470 | ||||||
Class II | $0.009522 | $0.409470 | ||||||
Class III | $0.009522 | $0.409470 |
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Large Cap Growth V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Large Cap Growth V.I.Fund |
Investment Objective |
BlackRock Large Cap Growth V.I. Fund’s (the “Fund”) investment objective is to seek long-term capital growth.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund underperformed its benchmark, the Russell 1000@ Growth Index. |
What factors influenced performance?
• | Information technology (“IT”) was the prime detractor from relative performance, largely owing to the Fund’s tilt toward enterprise hardware and compute-intensive semiconductor companies. Key names underperformed as the magnitude of PC unit weakness in the first half of 2015 was worse than anticipated, pressuring earnings and forward guidance of several holdings with PC exposure. Micron Technology Inc. was the leading individual detractor within the Fund for the six-month period. Its underperformance was exacerbated by forecasted higher costs as the firm invests in product lines outside of the PC end market and begins manufacturing DRAM on the next technology node; the stock sold off sharply on the unexpected cost outlook and manufacturing execution concerns. Other IT detractors included Intel Corp. and EMC Corp., as well as an underweight in strong-performing Apple Inc. |
• | Consumer discretionary was an additional source of weakness. Specifically, zero exposure to internet & catalog retail names Amazon.com Inc. and Netflix, Inc. hurt as the stocks surged in the period. |
• | Elsewhere in the portfolio, a position in Discover Financial Services detracted as shares declined on an earnings miss and disappointing guidance on 2015 loss provisions. Zero exposure to strong-performing biotechnology firm Gilead Sciences proved negative as well. |
• | Relative performance was supported by strong selection in the health care sector. The Fund’s tilt toward managed care proved especially |
advantageous as increased merger speculation and announcements sent shares of the companies sharply higher. Generally benign medical cost trends also continued to be supportive for the group, and sentiment rose further on a favorable Supreme Court ruling late in the period concerning insurance subsidies under the Affordable Care Act. Elsewhere in the sector, hospital operator Universal Health Services Inc. outperformed, benefiting from positive news about its eligibility for Medicare reimbursement for mental health services, as well as broadly favorable volume and margin trends. The positive impact of the Supreme Court’s ruling was also particularly notable for the company (and hospitals overall). |
• | Though the IT sector was an overall detractor, IT services holding DST Systems was among the top individual contributors to performance. The stock outperformed as new leadership continues to improve underlying business momentum and return cash to shareholders via cash flow generation and non-operating asset monetization. |
Describe recent portfolio activity.
• | Due to a combination of portfolio trading activity and market movement during the six-month period, the Fund’s weighting in the health care and consumer staples sectors increased. The allocation to consumer discretionary also increased. The Fund’s weighting in the energy and industrials sectors decreased. |
Describe portfolio positioning at period end.
• | Relative to the Russell 1000® Growth Index, the Fund ended the period with its largest sector overweight in IT, while consumer discretionary was the most significant underweight. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Sector Allocation | Percent of Long-Term | ||||
Information Technology | 34 | % | |||
Health Care | 19 | ||||
Consumer Discretionary | 17 | ||||
Industrials | 10 | ||||
Consumer Staples | 8 | ||||
Financials | 6 | ||||
Energy | 3 | ||||
Materials | 3 |
For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Large Cap Growth V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance related fees and expenses. |
2 | The Fund invests primarily in a diversified portfolio of equity securities of large cap companies located in the United States. |
3 | This unmanaged index measures the performance of the large cap growth segment of the U.S. equity universe and consists of those Russell 1000® securities with higher price-to-book ratios and higher forecasted growth values. |
Performance Summary for the Period Ended June 30, 2015 | ||||||||
Average Annual Total Returns | ||||||||
6-Month Total Returns5 | 1 Year5 | 5 Years5 | 10 Years5 | |||||
Class I4 | 1.07% | 9.02% | 17.39% | 7.18% | ||||
Class III4 | 0.93 | 8.71 | 17.12 | 6.91 | ||||
Russell 1000® Growth Index | 3.96 | 10.56 | 18.59 | 9.11 |
4 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
5 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example | ||||||||||||||
Actual | Hypothetical7 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period6 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period6 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,010.70 | $4.09 | $1,000.00 | $1,020.73 | $4.11 | 0.82% | |||||||
Class III | $1,000.00 | $1,009.30 | $5.33 | $1,000.00 | $1,019.49 | $5.36 | 1.07% |
6 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
7 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Large Cap Growth V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the deriva-
tive financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Large Cap Growth V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Aerospace & Defense — 1.1% | ||||||||
Honeywell International, Inc. | 2,100 | $ | 214,137 | |||||
Lockheed Martin Corp. | 2,670 | 496,353 | ||||||
Rockwell Collins, Inc. | 8,600 | 794,210 | ||||||
|
| |||||||
1,504,700 | ||||||||
Air Freight & Logistics — 1.3% | ||||||||
FedEx Corp. | 10,370 | 1,767,048 | ||||||
Airlines — 1.2% | ||||||||
Delta Air Lines, Inc. | 3,460 | 142,137 | ||||||
Southwest Airlines Co. | 20,100 | 665,109 | ||||||
United Continental Holdings, Inc. (a) | 16,810 | 891,098 | ||||||
|
| |||||||
1,698,344 | ||||||||
Auto Components — 1.3% | ||||||||
Lear Corp. | 16,000 | 1,796,160 | ||||||
Banks — 2.5% | ||||||||
U.S. Bancorp | 64,250 | 2,788,450 | ||||||
Wells Fargo & Co. | 11,620 | 653,509 | ||||||
|
| |||||||
3,441,959 | ||||||||
Beverages — 2.6% | ||||||||
The Coca-Cola Co. | 35,560 | 1,395,019 | ||||||
Dr Pepper Snapple Group, Inc. | 30,350 | 2,212,515 | ||||||
|
| |||||||
�� | 3,607,534 | |||||||
Biotechnology — 2.9% | ||||||||
Amgen, Inc. | 26,160 | 4,016,083 | ||||||
Chemicals — 2.3% | ||||||||
The Dow Chemical Co. | 12,250 | 626,833 | ||||||
PPG Industries, Inc. | 22,740 | 2,608,733 | ||||||
|
| |||||||
3,235,566 | ||||||||
Communications Equipment — 1.3% | ||||||||
QUALCOMM, Inc. | 28,600 | 1,791,218 | ||||||
Construction & Engineering — 0.6% | ||||||||
AECOM (a) | 24,330 | 804,836 | ||||||
Consumer Finance — 2.1% | ||||||||
Discover Financial Services | 26,800 | 1,544,216 | ||||||
SLM Corp. (a) | 145,902 | 1,440,053 | ||||||
|
| |||||||
2,984,269 | ||||||||
Containers & Packaging — 0.6% | ||||||||
Packaging Corp. of America | 12,797 | 799,685 | ||||||
Electrical Equipment — 0.4% | ||||||||
SolarCity Corp. (a)(b) | 10,320 | 552,636 | ||||||
Electronic Equipment, Instruments & Components — 0.9% |
| |||||||
TE Connectivity Ltd. | 5,230 | 336,289 | ||||||
Zebra Technologies Corp., Class A (a) | 8,169 | 907,167 | ||||||
|
| |||||||
1,243,456 |
Common Stocks | Shares | Value | ||||||
Energy Equipment & Services — 2.4% | ||||||||
Atwood Oceanics, Inc. | 18,815 | $ | 497,469 | |||||
Halliburton Co. | 11,210 | 482,815 | ||||||
Oceaneering International, Inc. | 12,900 | 601,011 | ||||||
Schlumberger Ltd. | 20,650 | 1,779,823 | ||||||
|
| |||||||
3,361,118 | ||||||||
Food & Staples Retailing — 3.7% | ||||||||
CVS Health Corp. | 40,500 | 4,247,640 | ||||||
The Kroger Co. | 2,040 | 147,920 | ||||||
Wal-Mart Stores, Inc. | 10,080 | 714,974 | ||||||
|
| |||||||
5,110,534 | ||||||||
Food Products — 0.4% | ||||||||
Pilgrim’s Pride Corp. (b) | 10,030 | 230,389 | ||||||
Tyson Foods, Inc., Class A | 9,040 | 385,375 | ||||||
|
| |||||||
615,764 | ||||||||
Health Care Equipment & Supplies — 0.7% | ||||||||
Edwards Lifesciences Corp. (a) | 6,900 | 982,767 | ||||||
Health Care Providers & Services — 13.2% | ||||||||
Aetna, Inc. | 25,400 | 3,237,484 | ||||||
Centene Corp. (a) | 26,630 | 2,141,052 | ||||||
Cigna Corp. | 17,610 | 2,852,820 | ||||||
Laboratory Corp. of America Holdings (a) | 9,410 | 1,140,680 | ||||||
McKesson Corp. | 11,100 | 2,495,391 | ||||||
UnitedHealth Group, Inc. | 29,110 | 3,551,420 | ||||||
Universal Health Services, Inc., Class B | 20,357 | 2,892,730 | ||||||
|
| |||||||
18,311,577 | ||||||||
Hotels, Restaurants & Leisure — 0.6% | ||||||||
Las Vegas Sands Corp. | 15,500 | 814,835 | ||||||
Industrial Conglomerates — 2.2% | ||||||||
3M Co. | 19,710 | 3,041,253 | ||||||
Insurance — 1.1% | ||||||||
The Travelers Cos., Inc. | 15,910 | 1,537,861 | ||||||
Internet & Catalog Retail — 1.1% | ||||||||
The Priceline Group, Inc. (a) | 1,290 | 1,485,267 | ||||||
Internet Software & Services — 6.8% | ||||||||
Facebook, Inc., Class A (a) | 40,440 | 3,468,337 | ||||||
Google, Inc., Class A (a) | 5,485 | 2,962,119 | ||||||
Google, Inc., Class C (a) | 5,770 | 3,003,343 | ||||||
|
| |||||||
9,433,799 | ||||||||
IT Services — 8.7% | ||||||||
Alliance Data Systems Corp. (a) | 8,960 | 2,615,782 | ||||||
Amdocs Ltd. | 11,430 | 623,964 | ||||||
Cognizant Technology Solutions Corp., Class A (a) | 26,060 | 1,592,005 | ||||||
DST Systems, Inc. | 16,270 | 2,049,695 | ||||||
FleetCor Technologies, Inc. (a) | 1,000 | 156,060 |
Portfolio Abbreviation | ||||||||||
ADR | American Depositary Receipts |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock Large Cap Growth V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
IT Services (concluded) | ||||||||
MasterCard, Inc., Class A | 35,070 | $ | 3,278,344 | |||||
Total System Services, Inc. | 30,530 | 1,275,238 | ||||||
Visa, Inc., Class A | 6,880 | 461,992 | ||||||
|
| |||||||
12,053,080 | ||||||||
Machinery — 2.6% | ||||||||
Dover Corp. | 4,850 | 340,373 | ||||||
Parker-Hannifin Corp. | 13,350 | 1,553,005 | ||||||
Snap-On, Inc. | 2,800 | 445,900 | ||||||
WABCO Holdings, Inc. (a) | 10,500 | 1,299,060 | ||||||
|
| |||||||
3,638,338 | ||||||||
Media — 4.5% | ||||||||
Comcast Corp., Class A | 72,300 | 4,348,122 | ||||||
Omnicom Group, Inc. | 15,940 | 1,107,671 | ||||||
The Walt Disney Co. | 7,290 | 832,081 | ||||||
|
| |||||||
6,287,874 | ||||||||
Multiline Retail — 0.5% | ||||||||
Macy’s, Inc. | 10,020 | 676,049 | ||||||
Oil, Gas & Consumable Fuels — 0.7% | ||||||||
Marathon Petroleum Corp. | 6,656 | 348,175 | ||||||
PBF Energy, Inc., Class A | 11,896 | 338,084 | ||||||
Suncor Energy, Inc. | 12,140 | 334,093 | ||||||
|
| |||||||
1,020,352 | ||||||||
Pharmaceuticals — 2.0% | ||||||||
Teva Pharmaceutical Industries Ltd. — ADR | 46,768 | 2,763,989 | ||||||
Road & Rail — 1.0% | ||||||||
Norfolk Southern Corp. | 8,830 | 771,389 | ||||||
Union Pacific Corp. | 6,430 | 613,229 | ||||||
|
| |||||||
1,384,618 | ||||||||
Semiconductors & Semiconductor Equipment — 2.7% | ||||||||
Intel Corp. | 52,890 | 1,608,649 | ||||||
Micron Technology, Inc. (a) | 74,000 | 1,394,160 | ||||||
NVIDIA Corp. | 37,800 | 760,158 | ||||||
|
| |||||||
3,762,967 | ||||||||
Software — 5.9% | ||||||||
Microsoft Corp. | 124,690 | 5,505,063 | ||||||
Oracle Corp. | 65,740 | 2,649,322 | ||||||
|
| |||||||
8,154,385 |
Common Stocks | Shares | Value | ||||||
Specialty Retail — 7.3% | ||||||||
The Home Depot, Inc. | 35,330 | $ | 3,926,223 | |||||
Lowe’s Cos., Inc. | 50,800 | 3,402,076 | ||||||
Ross Stores, Inc. | 20,122 | 978,130 | ||||||
The TJX Cos., Inc. | 28,300 | 1,872,611 | ||||||
|
| |||||||
10,179,040 | ||||||||
Technology Hardware, Storage & Peripherals — 7.1% |
| |||||||
Apple Inc. | 55,000 | 6,898,375 | ||||||
EMC Corp. | 81,610 | 2,153,688 | ||||||
Western Digital Corp. | 9,600 | 752,832 | ||||||
|
| |||||||
9,804,895 | ||||||||
Textiles, Apparel & Luxury Goods — 1.3% | ||||||||
Deckers Outdoor Corp. (a) | 4,600 | 331,062 | ||||||
Fossil Group, Inc. (a) | 7,800 | 541,008 | ||||||
VF Corp. | 12,590 | 878,027 | ||||||
|
| |||||||
1,750,097 | ||||||||
Tobacco — 1.0% | ||||||||
Altria Group, Inc. | 27,322 | 1,336,319 | ||||||
Total Long-Term Investments (Cost — $107,088,521) — 98.6% |
| 136,750,272 | ||||||
Short-Term Securities | ||||||||
BlackRock Liquidity Funds, TempFund, | 2,159,512 | 2,159,512 | ||||||
Beneficial Interest (000) | ||||||||
BlackRock Liquidity Series, LLC, Money Market | $ | 641 | 641,421 | |||||
Total Short-Term Securities (Cost — $2,800,933) — 2.0% |
| 2,800,933 | ||||||
Total Investments (Cost — $109,889,454) — 100.6% |
| 139,551,205 | ||||||
Liabilities in Excess of Other Assets — (0.6)% | (778,355 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 138,772,850 | ||||||
|
|
Notes to Schedule of Investments |
(a) | Non-income producing security. |
(b) | Security, or a portion of security, is on loan. |
(c) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/Beneficial Interest Held at December 31, 2014 | Net Activity | Shares/Beneficial Interest Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 7,115,934 | (4,956,422 | ) | 2,159,512 | $ | 1,348 | ||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $ | 418,385 | $ | 223,036 | $ | 641,421 | $ | 9,559 | 1 |
1 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(d) | Represents the current yield as of report date. |
(e) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (concluded) | BlackRock Large Cap Growth V.I. Fund |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Long-Term Investments: | ||||||||||||||||
Common Stocks1 | $ | 136,750,272 | — | — | $ | 136,750,272 | ||||||||||
Short-Term Securities | 2,159,512 | $ | 641,421 | — | 2,800,933 | |||||||||||
|
| |||||||||||||||
Total | $ | 138,909,784 | $ | 641,421 | — | $ | 139,551,205 | |||||||||
|
| |||||||||||||||
1 See above Schedule of Investments for values in each industry. |
|
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, collateral on securities loaned at value of $(641,421) is categorized as Level 2 within the disclosure hierarchy.
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Large Cap Growth V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $624,339) (cost — $107,088,521) | $ | 136,750,272 | ||
Investments at value — affiliated (cost — $2,800,933) | 2,800,933 | |||
Receivables: | ||||
Investments sold | 2,846,068 | |||
Securities lending income — affiliated | 794 | |||
Capital shares sold | 18,818 | |||
Dividends — affiliated | 251 | |||
Dividends — unaffiliated | 145,046 | |||
From the Manager | 31,124 | |||
Prepaid expenses | 313 | |||
|
| |||
Total assets | 142,593,619 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 641,421 | |||
Payables: | ||||
Investments purchased | 2,962,209 | |||
Capital shares redeemed | 32,985 | |||
Distribution fees | 7,341 | |||
Investment advisory fees | 75,572 | |||
Officer’s and Directors’ fees | 1,366 | |||
Other affiliates | 621 | |||
Other accrued expenses payable | 99,254 | |||
|
| |||
Total liabilities | 3,820,769 | |||
|
| |||
Net Assets | $ | 138,772,850 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 104,017,038 | ||
Undistributed net investment income | 403,830 | |||
Accumulated net realized gain | 4,690,231 | |||
Net unrealized appreciation (depreciation) | 29,661,751 | |||
|
| |||
Net Assets | $ | 138,772,850 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $103,339,563 and 7,263,795 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 14.23 | ||
|
| |||
Class III — Based on net assets of $35,433,287 and 2,510,094 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 14.12 | ||
|
|
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Large Cap Growth V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 1,027,772 | ||
Securities lending — affiliated — net | 9,559 | |||
Dividends — affiliated | 1,348 | |||
Foreign taxes withheld | (9,205 | ) | ||
|
| |||
Total income | 1,029,474 | |||
|
| |||
Expenses | ||||
Investment advisory | 465,117 | |||
Transfer agent | 2,467 | |||
Transfer agent — Class I | 102,345 | |||
Transfer agent — Class III | 30,959 | |||
Distribution — Class III | 46,386 | |||
Professional | 22,855 | |||
Accounting services | 18,579 | |||
Officer and Directors | 9,506 | |||
Custodian | 5,729 | |||
Miscellaneous | 12,528 | |||
|
| |||
Total expenses | 716,471 | |||
Less fees waived by the Manager | (1,927 | ) | ||
Less transfer agent fees reimbursed — Class I | (65,243 | ) | ||
Less transfer agent fees reimbursed — Class III | (17,971 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 631,330 | |||
|
| |||
Net investment income | 398,144 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain from: | ||||
Investments | 3,435,651 | |||
Financial futures contracts | 119,033 | |||
|
| |||
3,554,684 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (2,333,965 | ) | ||
Financial futures contracts | (49,711 | ) | ||
|
| |||
(2,383,676 | ) | |||
|
| |||
Total realized and unrealized gain | 1,171,008 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 1,569,152 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Statements of Changes in Net Assets | BlackRock Large Cap Growth V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months June 30, 2015 | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 398,144 | $ | 685,017 | ||||
Net realized gain | 3,554,684 | 17,848,178 | ||||||
Net change in unrealized appreciation (depreciation) | (2,383,676 | ) | (962,858 | ) | ||||
|
| |||||||
Net increase in net assets resulting from operations | 1,569,152 | 17,570,337 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | — | (572,957 | ) | |||||
Class III | — | (112,045 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (14,022,350 | ) | |||||
Class III | — | (4,185,343 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (18,892,695 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets derived from capital share transactions | (3,215,259 | ) | 13,499,181 | |||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | (1,646,107 | ) | 12,176,823 | |||||
Beginning of period | 140,418,957 | 128,242,134 | ||||||
|
| |||||||
End of period | $ | 138,772,850 | $ | 140,418,957 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 403,830 | $ | 5,686 | ||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights | BlackRock Large Cap Growth V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.08 | $ | 14.22 | $ | 11.54 | $ | 10.99 | $ | 10.84 | $ | 9.45 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.04 | 0.09 | 0.09 | 0.17 | 0.09 | 0.07 | ||||||||||||||||||
Net realized and unrealized gain | 0.11 | 1.92 | 3.82 | 1.48 | 0.19 | 1.38 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.15 | 2.01 | 3.91 | 1.65 | 0.28 | 1.45 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.08 | ) | (0.10 | ) | (0.18 | ) | (0.10 | ) | (0.06 | ) | |||||||||||||
Net realized gain | — | (2.07 | ) | (1.13 | ) | (0.92 | ) | (0.03 | ) | — | ||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (2.15 | ) | (1.23 | ) | (1.10 | ) | (0.13 | ) | (0.06 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 14.23 | $ | 14.08 | $ | 14.22 | $ | 11.54 | $ | 10.99 | $ | 10.84 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 1.07 | %4 | 14.16 | % | 33.92 | % | 15.22 | % | 2.55 | % | 15.38 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.94 | %5 | 0.96 | % | 0.97 | % | 0.91 | % | 0.78 | % | 0.75 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.82 | %5 | 0.83 | % | 0.84 | % | 0.82 | % | 0.78 | % | 0.75 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.62 | %5 | 0.57 | % | 0.70 | % | 1.38 | % | 0.81 | % | 0.67 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 103,340 | $ | 108,329 | $ | 107,378 | $ | 91,778 | $ | 90,543 | $ | 103,607 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 15 | % | 51 | % | 36 | % | 102 | % | 106 | % | 171 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Financial Highlights (concluded) | BlackRock Large Cap Growth V.I. Fund |
Class III | ||||||||||||||||||||||||
Six Months (Unaudited) | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.99 | $ | 14.14 | $ | 11.49 | $ | 10.96 | $ | 10.81 | $ | 9.43 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.03 | 0.05 | 0.06 | 0.14 | 0.07 | 0.05 | ||||||||||||||||||
Net realized and unrealized gain | 0.10 | 1.92 | 3.79 | 1.46 | 0.19 | 1.37 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.13 | 1.97 | 3.85 | 1.60 | 0.26 | 1.42 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.05 | ) | (0.07 | ) | (0.15 | ) | (0.08 | ) | (0.04 | ) | |||||||||||||
Net realized gain | — | (2.07 | ) | (1.13 | ) | (0.92 | ) | (0.03 | ) | — | ||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (2.12 | ) | (1.20 | ) | (1.07 | ) | (0.11 | ) | (0.04 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 14.12 | $ | 13.99 | $ | 14.14 | $ | 11.49 | $ | 10.96 | $ | 10.81 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 0.93 | %4 | 13.96 | % | 33.58 | % | 14.82 | % | 2.33 | % | 15.10 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.17 | %5 | 1.22 | % | 1.22 | % | 1.16 | % | 1.03 | % | 1.00 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 1.07 | %5 | 1.09 | % | 1.09 | % | 1.08 | % | 1.03 | % | 1.00 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.38 | %5 | 0.32 | % | 0.45 | % | 1.16 | % | 0.65 | % | 0.48 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 35,433 | $ | 32,090 | $ | 20,864 | $ | 11,528 | $ | 8,677 | $ | 5,709 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 15 | % | 51 | % | 36 | % | 102 | % | 106 | % | 171 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (Unaudited) | BlackRock Large Cap Growth V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Large Cap Growth V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Financial futures contracts traded on exchanges are valued at their last sale price. Investments in open-end registered investment companies are valued at net asset value each business day.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., financial futures contracts), that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (continued) | BlackRock Large Cap Growth V.I. Fund |
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteedby the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value-unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty which are subject to offset under an MSLA:
Counterparty | Securities at Value | Cash Collateral Received1 | Net Amount | |||||||
BNP Paribas Securities Corp. | $ | 91,765 | $ | (91,765 | ) | — | ||||
Citigroup Global Markets, Inc. | 40,175 | (40,175 | ) | — | ||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | 96,129 | (96,129 | ) | — | ||||||
Morgan Stanley | 396,270 | (396,270 | ) | — | ||||||
|
| |||||||||
Total | $ | 624,339 | $ | (624,339 | ) | — | ||||
|
|
1 | Collateral with a value of $641,421 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of a borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Large Cap Growth V.I. Fund |
4. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as equity risk. These contracts may be transacted on an exchange or over-the-counter (“OTC”).
Financial Futures Contracts: The Fund invests in long and/or short positions in financial futures contracts and options on financial futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.
Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited, if any, is recorded on the Statement of Assets and Liabilities as cash pledged for financial futures contracts. 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. Variation margin is recorded by the Fund as unrealized appreciation or depreciation and, if applicable, as a receivable or payable for variation margin in the Statement of Assets and Liabilities.
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. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.
The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:
The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2015 | ||||||
Net Realized Gain | Net Change in Unrealized Appreciation/Depreciation on | |||||
Equity contracts: | ||||||
Financial futures contracts | $119,033 | $(49,711) |
For the six months ended June 30, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:
Financial futures contracts: | ||||||
Average notional value of contracts — long | $360,640 |
Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
A Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by such Fund.
With exchange traded futures, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
5. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (continued) | BlackRock Large Cap Growth V.I. Fund |
Average Daily Net Assets | Investment Advisory Fee | |
First $1 Billion | 0.65% | |
$1 Billion - $3 Billion | 0.61% | |
$3 Billion - $5 Billion | 0.59% | |
$5 Billion - $10 Billion | 0.57% | |
Greater than $10 Billion | 0.55% |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $666 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at an annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
Class I | 0.07 | % | ||
Class III | 0.07 | % |
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 71.5% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 75% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Large Cap Growth V.I. Fund |
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $3,801 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
6. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $22,043,177 and $19,917,470, respectively.
7. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 109,917,244 | ||
|
| |||
Gross unrealized appreciation | $ | 33,439,184 | ||
Gross unrealized depreciation | (3,805,223 | ) | ||
|
| |||
Net unrealized appreciation | $ | 29,633,961 | ||
|
|
8. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
9. Principal Risk:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (concluded) | BlackRock Large Cap Growth V.I. Fund |
As of June 30, 2015, the Fund invested a significant portion of its assets in securities in the information technology sector. Changes in economic conditions affecting such sector would have a greater impact on the Fund and could affect the value, income and/or liquidity of positions in such securities.
10. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class l | ||||||||||||||||
Shares sold | 150,698 | $ | 2,155,557 | 397,337 | $ | 5,782,241 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 1,023,991 | 14,595,308 | ||||||||||||
Shares redeemed | (578,046 | ) | (8,252,795 | ) | (1,283,483 | ) | (18,886,972 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase (decrease) | (427,348 | ) | $ | (6,097,238 | ) | 137,845 | $ | 1,490,577 | ||||||||
|
|
|
| |||||||||||||
Class lll | ||||||||||||||||
Shares sold | 784,920 | $ | 11,023,029 | 864,987 | $ | 12,869,616 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 303,602 | 4,297,386 | ||||||||||||
Shares redeemed | (568,159 | ) | (8,141,050 | ) | (350,364 | ) | (5,158,398 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase | 216,761 | $ | 2,881,979 | 818,225 | $ | 12,008,604 | ||||||||||
|
|
|
| |||||||||||||
Total Net Increase (Decrease) | (210,587 | ) | $ | (3,215,259 | ) | 956,070 | $ | 13,499,181 | ||||||||
|
|
|
|
11. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income, a short-term capital gain and a long-term capital gain distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015:
Net Investment Income | Short-Term Capital Gain | Long-Term Capital Gain | ||||
Class I | $0.000568 | $0.029777 | $0.094411 | |||
Class III | $0.000568 | $0.029777 | $0.094411 |
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Large Cap Value V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Large Cap Value V.I. Fund |
Investment Objective |
BlackRock Large Cap Value V.I. Fund’s (the “Fund”) investment objective is to seek long-term capital growth.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund outperformed its benchmark, the Russell 1000® Value Index. |
What factors influenced performance?
• | The health care sector was the largest contributor to relative performance. The Fund’s tilt toward managed care proved especially advantageous as increased merger speculation and announcements sent shares of the companies sharply higher. Generally benign medical cost trends also continued to be supportive for the group, and sentiment rose further on a favorable Supreme Court ruling late in the period concerning insurance subsidies under the Affordable Care Act. Elsewhere in the sector, hospital operator Universal Health Services Inc. outperformed, benefiting from positive news about its eligibility for Medicare reimbursement for mental health services, as well as broadly favorable volume and margin trends. The positive impact of the Supreme Court’s ruling was also particularly notable for the company (and hospitals overall). |
• | The Fund’s long-standing underweight to utilities helped performance as well. The sector was the top decliner within the benchmark during the six months given its vulnerability to rising interest rates. |
• | Additionally, selection in energy and consumer staples was additive. An underweight to Chevron Corp. and overweight to BP PLC benefited in energy, while an overweight position in CVS Health Corp. and underweight to household products (namely Procter & Gamble Co.) boosted returns in consumer staples. |
• | Conversely, information technology (“IT”) was the prime detractor from relative performance, largely owing to the Fund’s tilt toward enterprise |
hardware and compute-intensive semiconductor companies. Key names underperformed as the magnitude of PC unit weakness in the first half of 2015 was worse than anticipated, pressuring earnings and forward guidance of several holdings with PC exposure. Micron Technology Inc. and Western Digital Corp. were the leading individual detractors within the Fund for the six-month period. Micron’s underperformance was exacerbated by forecasted higher costs as the firm invests in product lines outside of the PC end market and begins manufacturing DRAM on the next technology node; the stock sold off sharply on the unexpected cost outlook and manufacturing execution concerns. Other notable IT detractors included Hewlett-Packard Co. and Intel Corp. |
• | Industrials were an additional source of weakness. Specifically, airlines struggled on concerns around capacity discipline and ticket prices, in addition to rising fuel costs. Across the sector in conglomerates, an underweight to strong-performing General Electric Co. hindered returns, as did an overweight in bellwether 3M Co., which issued a rare earnings miss on currency pressures. |
Describe recent portfolio activity.
• | Due to a combination of portfolio trading activity and market movement during the six-month period, the Fund’s weighting in the health care and consumer discretionary sectors increased. The Fund’s weighting in the industrials and IT sectors decreased. |
Describe portfolio positioning at period end.
• | Relative to the Russell 1000® Value Index, the Fund ended the period with its largest sector overweights in health care, IT and consumer discretionary. Energy, utilities and telecommunication services were the most significant underweights. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Sector Allocation | Percent of Long-Term Investments | |
Financials | 31% | |
Health Care | 18 | |
Information Technology | 15 | |
Energy | 10 | |
Industrials | 9 | |
Consumer Discretionary | 9 | |
Consumer Staples | 5 | |
Materials | 2 | |
Utilities | 1 |
For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Large Cap Value V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance related fees and expenses. For a portion of the period, returns do not show the effects of distribution fees (12b-1 fees) applicable to Class II Shares. If such fees were included, returns shown would have been lower. The returns for Class III Shares prior to January 27, 2009, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares, as adjusted to reflect the distribution (12b-1) fees applicable to Class III Shares. |
2 | Under normal circumstances, the Fund invests at least 80% of its assets in a diversified portfolio of equity securities, primarily common stock, of large cap companies located in the United States included at the time of purchase in the Russell 1000® Value Index. |
3 | An unmanaged index that is a subset of the Russell 1000® Index and consists of those Russell 1000® securities with lower price-to-book ratios and lower expected growth values. |
Performance Summary for the Period Ended June 30, 2015 | ||||||||
Average Annual Total Returns | ||||||||
6-Month Total Returns5 | 1 Year5 | 5 Years5 | 10 Years5 | |||||
Class I4 | 0.08% | 7.04% | 15.22% | 5.90% | ||||
Class II4 | 0.00 | 6.86 | 15.00 | 5.74 | ||||
Class III4 | (0.08) | 6.67 | 14.84 | 5.566 | ||||
Russell 1000® Value Index | (0.61) | 4.13 | 16.50 | 7.05 |
4 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. For a portion of the period, returns do not show the effects of distribution fees (12b-1 fees) applicable to Class II Shares. If such fees were included, returns shown would have been lower. |
5 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
6 | The returns for Class III Shares prior to January 27, 2009, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares, as adjusted to reflect the distribution (12b-1) fees applicable to Class III Shares. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example | ||||||||||||||
Actual | Hypothetical8 | |||||||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During the Period7 | Beginning Account Value | Ending Account Value | Expenses Paid During the Period7 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,000.80 | $3.82 | $1,000.00 | $1,020.98 | $3.86 | 0.77% | |||||||
Class II | $1,000.00 | $1,000.00 | $4.81 | $1,000.00 | $1,019.98 | $4.86 | 0.97% | |||||||
Class III | $1,000.00 | $ 999.20 | $5.60 | $1,000.00 | $1,019.19 | $5.66 | 1.13% |
7 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
8 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Large Cap Value V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Large Cap Value V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Aerospace & Defense — 1.7% | ||||||||
Raytheon Co. | 14,995 | $ | 1,434,722 | |||||
Rockwell Collins, Inc. | 5,500 | 507,925 | ||||||
|
| |||||||
1,942,647 | ||||||||
Air Freight & Logistics — 1.4% | ||||||||
FedEx Corp. | 9,010 | 1,535,304 | ||||||
Airlines — 1.1% | ||||||||
Southwest Airlines Co. | 18,140 | 600,253 | ||||||
United Continental Holdings, Inc. (a) | 11,400 | 604,314 | ||||||
|
| |||||||
1,204,567 | ||||||||
Auto Components — 1.4% | ||||||||
Lear Corp. | 13,380 | 1,502,039 | ||||||
Banks — 19.4% | ||||||||
Bank of America Corp. | 241,613 | 4,112,253 | ||||||
Citigroup, Inc. | 74,368 | 4,108,088 | ||||||
JPMorgan Chase & Co. | 76,396 | 5,176,593 | ||||||
SunTrust Banks, Inc. | 47,820 | 2,057,216 | ||||||
U.S. Bancorp | 78,335 | 3,399,739 | ||||||
Wells Fargo & Co. | 45,650 | 2,567,356 | ||||||
|
| |||||||
21,421,245 | ||||||||
Beverages — 1.1% | ||||||||
Molson Coors Brewing Co., Class B | 17,000 | 1,186,770 | ||||||
Biotechnology — 0.7% | ||||||||
Amgen, Inc. | 5,160 | 792,163 | ||||||
Capital Markets — 2.3% | ||||||||
The Goldman Sachs Group, Inc. | 12,478 | 2,605,282 | ||||||
Chemicals — 0.8% | ||||||||
Cabot Corp. | 5,134 | 191,447 | ||||||
The Dow Chemical Co. | 13,250 | 678,003 | ||||||
|
| |||||||
869,450 | ||||||||
Communications Equipment — 3.7% | ||||||||
Brocade Communications Systems, Inc. | 79,174 | 940,587 | ||||||
Cisco Systems, Inc. | 113,200 | 3,108,472 | ||||||
|
| |||||||
4,049,059 | ||||||||
Construction & Engineering — 1.0% | ||||||||
AECOM (a) | 34,300 | 1,134,644 | ||||||
Consumer Finance — 2.2% | ||||||||
Discover Financial Services | 23,675 | 1,364,153 | ||||||
SLM Corp. (a) | 106,358 | 1,049,753 | ||||||
|
| |||||||
2,413,906 | ||||||||
Diversified Financial Services — 0.6% | ||||||||
Berkshire Hathaway, Inc., Class B (a) | 5,265 | 716,619 | ||||||
Energy Equipment & Services — 1.2% | ||||||||
Atwood Oceanics, Inc. (b) | 35,730 | 944,701 |
Common Stocks | Shares | Value | ||||||
Energy Equipment & Services (concluded) | ||||||||
Halliburton Co. | 3,230 | $ | 139,116 | |||||
Weatherford International PLC (a) | 21,090 | 258,774 | ||||||
|
| |||||||
1,342,591 | ||||||||
Food & Staples Retailing — 3.6% | ||||||||
CVS Health Corp. | 27,645 | 2,899,408 | ||||||
Wal-Mart Stores, Inc. | 15,220 | 1,079,555 | ||||||
|
| |||||||
3,978,963 | ||||||||
Food Products — 0.6% | ||||||||
Pilgrim’s Pride Corp. (b) | 11,080 | 254,508 | ||||||
Tyson Foods, Inc., Class A | 9,800 | 417,774 | ||||||
|
| |||||||
672,282 | ||||||||
Health Care Equipment & Supplies — 0.1% | ||||||||
Medtronic PLC | 1,530 | 113,373 | ||||||
Health Care Providers & Services — 10.2% | ||||||||
Aetna, Inc. | 21,700 | 2,765,882 | ||||||
Cigna Corp. | 13,510 | 2,188,620 | ||||||
Humana, Inc. | 4,860 | 929,621 | ||||||
Laboratory Corp. of America Holdings (a) | 10,210 | 1,237,656 | ||||||
UnitedHealth Group, Inc. | 18,790 | 2,292,380 | ||||||
Universal Health Services, Inc., Class B | 13,311 | 1,891,493 | ||||||
|
| |||||||
11,305,652 | ||||||||
Hotels, Restaurants & Leisure — 1.8% | ||||||||
Carnival Corp. | 40,165 | 1,983,749 | ||||||
Household Products — 0.1% | ||||||||
The Procter & Gamble Co. | 1,400 | 109,536 | ||||||
Industrial Conglomerates — 2.5% | ||||||||
3M Co. | 12,595 | 1,943,409 | ||||||
General Electric Co. | 30,855 | 819,817 | ||||||
|
| |||||||
2,763,226 | ||||||||
Insurance — 5.2% | ||||||||
American International Group, Inc. | 62,400 | 3,857,568 | ||||||
The Chubb Corp. | 4,165 | 396,258 | ||||||
The Travelers Cos., Inc. | 15,210 | 1,470,199 | ||||||
|
| |||||||
5,724,025 | ||||||||
IT Services — 2.5% | ||||||||
Amdocs Ltd. | 15,951 | 870,765 | ||||||
DST Systems, Inc. | 9,040 | 1,138,859 | ||||||
Total System Services, Inc. | 18,551 | 774,875 | ||||||
|
| |||||||
2,784,499 | ||||||||
Machinery — 1.2% | ||||||||
Parker-Hannifin Corp. | 11,000 | 1,279,630 | ||||||
Media — 2.1% | ||||||||
Comcast Corp., Class A | 39,630 | 2,383,348 |
Portfolio Abbreviations |
ADR | American Depositary Receipts |
SPDR | Standard & Poor’s Depositary Receipts |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock Large Cap Value V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Multiline Retail — 1.0% | ||||||||
Macy’s, Inc. | 16,000 | $ | 1,079,520 | |||||
Multi-Utilities — 0.7% | ||||||||
Public Service Enterprise Group, Inc. | 18,700 | 734,536 | ||||||
Oil, Gas & Consumable Fuels — 8.4% | ||||||||
BP PLC — ADR | 54,400 | 2,173,824 | ||||||
Chevron Corp. | 2,560 | 246,963 | ||||||
Exxon Mobil Corp. | 37,490 | 3,119,168 | ||||||
Hess Corp. | 13,090 | 875,459 | ||||||
Marathon Petroleum Corp. | 7,770 | 406,449 | ||||||
PBF Energy, Inc., Class A | 8,810 | 250,380 | ||||||
Suncor Energy, Inc. | 63,565 | 1,749,309 | ||||||
Tesoro Corp. | 5,249 | 443,068 | ||||||
|
| |||||||
9,264,620 | ||||||||
Paper & Forest Products — 0.9% | ||||||||
Domtar Corp. | 23,650 | 979,110 | ||||||
Pharmaceuticals — 6.1% | ||||||||
AstraZeneca PLC — ADR | 16,800 | 1,070,328 | ||||||
Johnson & Johnson | 7,995 | 779,193 | ||||||
Merck & Co., Inc. | 23,075 | 1,313,660 | ||||||
Pfizer, Inc. | 40,790 | 1,367,689 | ||||||
Teva Pharmaceutical Industries Ltd. — ADR | 38,173 | 2,256,024 | ||||||
|
| |||||||
6,786,894 | ||||||||
Semiconductors & Semiconductor Equipment — 3.2% |
| |||||||
Intel Corp. | 77,970 | 2,371,458 | ||||||
Micron Technology, Inc. (a) | 51,640 | 972,898 | ||||||
NVIDIA Corp. | 10,000 | 201,100 | ||||||
|
| |||||||
3,545,456 | ||||||||
Software — 1.1% | ||||||||
Microsoft Corp. | 12,410 | 547,901 | ||||||
Oracle Corp. | 17,640 | 710,892 | ||||||
|
| |||||||
1,258,793 |
Common Stocks | Shares | Value | ||||||
Specialty Retail — 2.5% | ||||||||
Lowe’s Cos., Inc. | 41,960 | $ | 2,810,061 | |||||
Technology Hardware, Storage & Peripherals — 3.9% |
| |||||||
EMC Corp. | 50,890 | 1,342,987 | ||||||
Hewlett-Packard Co. | 37,807 | 1,134,588 | ||||||
Seagate Technology PLC | 1,680 | 79,800 | ||||||
Western Digital Corp. | 22,780 | 1,786,408 | ||||||
|
| |||||||
4,343,783 | ||||||||
Total Common Stocks — 96.3% | 106,617,342 | |||||||
Investment Companies — 0.5% | ||||||||
Utilities Select Sector SPDR Fund (b) | 12,600 | 522,396 | ||||||
Total Long-Term Investments (Cost — $82,173,890) — 96.8% |
| 107,139,738 | ||||||
Short-Term Securities | ||||||||
BlackRock Liquidity Funds, TempFund, | 973,849 | 973,849 | ||||||
Beneficial Interest (000) | ||||||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (c)(d)(e) | $ | 1,434 | 1,433,897 | |||||
Total Short-Term Securities (Cost — $2,407,746) — 2.2% |
| 2,407,746 | ||||||
Total Investments (Cost — $84,581,636) — 99.0% |
| 109,547,484 | ||||||
Other Assets Less Liabilities — 1.0% |
| 1,123,704 | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 110,671,188 | ||||||
|
|
Notes to Schedule of Investments |
(a) | Non-income producing security. |
(b) | Security, or a portion of security, is on loan. |
(c) | During the six months ended June 30, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares Held at December 31, 2014 | Net Activity | Shares/Beneficial Interest Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 626,837 | 347,012 | 973,849 | $ 644 | ||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | — | $1,433,897 | $1,433,897 | $2,820 | 1 |
1 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(d) | Represents the current yield as of report date. |
(e) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (concluded) | BlackRock Large Cap Value V.I. Fund |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Long-Term Investments: | ||||||||||||||||
Common Stocks1 | $ | 106,617,342 | — | — | $ | 106,617,342 | ||||||||||
Investment Companies | 522,396 | — | — | 522,396 | ||||||||||||
Short-Term Securities | 973,849 | $ | 1,433,897 | — | 2,407,746 | |||||||||||
|
| |||||||||||||||
Total | $ | 108,113,587 | $ | 1,433,897 | — | $ | 109,547,484 | |||||||||
|
|
1 | See above Schedule of Investments for values in each industry. |
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, collateral on securities loaned at value of $(1,433,897) is categorized as Level 2 within the disclosure hierarchy.
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Large Cap Value V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $1,392,876) (cost — $82,173,890) | $ | 107,139,738 | ||
Investments at value — affiliated (cost — $2,407,746) | 2,407,746 | |||
Receivables: | ||||
Investments sold | 2,795,457 | |||
Securities lending income — affiliated | 745 | |||
Capital shares sold | 4,702 | |||
Dividends — affiliated | 138 | |||
Dividends — unaffiliated | 125,562 | |||
From the Manager | 37,185 | |||
Prepaid expenses | 264 | |||
|
| |||
Total assets | 112,511,537 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 1,433,897 | |||
Payables: | ||||
Investments purchased | 227,345 | |||
Capital shares redeemed | 17,449 | |||
Distribution fees | 1,095 | |||
Investment advisory fees | 60,086 | |||
Officer’s and Directors’ fees | 1,396 | |||
Other affiliates | 579 | |||
Transfer agent fees | 60,755 | |||
Other accrued expenses payable | 37,747 | |||
|
| |||
Total liabilities | 1,840,349 | |||
|
| |||
Net Assets | $ | 110,671,188 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 80,697,479 | ||
Undistributed net investment income | 650,314 | |||
Accumulated net realized gain | 4,357,547 | |||
Net unrealized appreciation (depreciation) | 24,965,848 | |||
|
| |||
Net Assets | $ | 110,671,188 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $102,468,409 and 8,037,634 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 12.75 | ||
|
| |||
Class II — Based on net assets of $6,278,426 and 491,661 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 12.77 | ||
|
| |||
Class III — Based on net assets of $1,924,353 and 152,687 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 12.60 | ||
|
|
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Large Cap Value V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 1,086,133 | ||
Securities lending — affiliated — net | 2,820 | |||
Dividends — affiliated | 644 | |||
Foreign taxes withheld | (7,706 | ) | ||
|
| |||
Total income | 1,081,891 | |||
|
| |||
Expenses | ||||
Investment advisory | 417,291 | |||
Transfer agent | 2,449 | |||
Transfer agent — Class I | 107,873 | |||
Transfer agent — Class II | 4,150 | |||
Transfer agent — Class III | 1,794 | |||
Professional | 23,279 | |||
Accounting services | 15,608 | |||
Officer and Directors | 9,335 | |||
Custodian | 7,546 | |||
Printing | 6,355 | |||
Distribution — Class II | 3,267 | |||
Distribution — Class III | 2,417 | |||
Miscellaneous | 3,727 | |||
|
| |||
Total expenses | 605,091 | |||
Less fees waived by the Manager | (56,190 | ) | ||
Less transfer agent fees reimbursed — Class I | (107,873 | ) | ||
Less transfer agent fees reimbursed — Class II | (3,085 | ) | ||
Less transfer agent fees reimbursed — Class III | (730 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 437,213 | |||
|
| |||
Net investment income | 644,678 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain from investments | 4,318,137 | |||
Net change in unrealized appreciation (depreciation) on investments | (4,859,419 | ) | ||
|
| |||
Total realized and unrealized loss | (541,282 | ) | ||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 103,396 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Statements of Changes in Net Assets | BlackRock Large Cap Value V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 644,678 | $ | 1,260,638 | ||||
Net realized gain | 4,318,137 | 15,921,385 | ||||||
Net change in unrealized appreciation (depreciation) | (4,859,419 | ) | (3,982,971 | ) | ||||
|
| |||||||
Net increase in net assets resulting from operations | 103,396 | 13,199,052 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | — | (1,205,217 | ) | |||||
Class II | — | (35,033 | ) | |||||
Class III | — | (14,752 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (14,653,547 | ) | |||||
Class II | — | (535,310 | ) | |||||
Class III | — | (247,653 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (16,691,512 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net decrease in net assets derived from capital share transactions | (4,935,403 | ) | (2,998,061 | ) | ||||
|
| |||||||
Net Assets | ||||||||
Total decrease in net assets | (4,832,007 | ) | (6,490,521 | ) | ||||
Beginning of period | 115,503,195 | 121,993,716 | ||||||
|
| |||||||
End of period | $ | 110,671,188 | $ | 115,503,195 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 650,314 | $ | 5,636 | ||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights | BlackRock Large Cap Value V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months Ended June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 12.74 | $ | 13.22 | $ | 10.73 | $ | 9.59 | $ | 9.80 | $ | 9.13 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.07 | 0.15 | 0.14 | 0.15 | 0.12 | 0.10 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.06 | ) | 1.47 | 3.46 | 1.15 | (0.19 | ) | 0.68 | ||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.01 | 1.62 | 3.60 | 1.30 | (0.07 | ) | 0.78 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.16 | ) | (0.16 | ) | (0.16 | ) | (0.14 | ) | (0.11 | ) | |||||||||||||
Net realized gain | — | (1.94 | ) | (0.95 | ) | — | — | — | ||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (2.10 | ) | (1.11 | ) | (0.16 | ) | (0.14 | ) | (0.11 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 12.75 | $ | 12.74 | $ | 13.22 | $ | 10.73 | $ | 9.59 | $ | 9.80 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 0.08 | %4 | 12.22 | % | 33.61 | % | 13.58 | % | (0.76 | )% | 8.61 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.08 | %5 | 1.08 | % | 1.08 | % | 1.01 | % | 0.88 | % | 0.86 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.77 | %5 | 0.77 | % | 0.78 | % | 0.82 | % | 0.88 | % | 0.86 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.17 | %5 | 1.10 | % | 1.10 | % | 1.41 | % | 1.13 | % | 1.08 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 102,468 | $ | 109,570 | $ | 115,094 | $ | 97,758 | $ | 98,462 | $ | 121,090 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 11 | % | 35 | % | 41 | % | 114 | % | 117 | % | 161 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Financial Highlights (continued) | BlackRock Large Cap Value V.I. Fund |
Class II | ||||||||||||||||||||||||
Six Months 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 12.77 | $ | 13.25 | $ | 10.75 | $ | 9.60 | $ | 9.81 | $ | 9.14 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.06 | 0.13 | 0.11 | 0.12 | 0.11 | 0.09 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.06 | ) | 1.46 | 3.47 | 1.16 | (0.19 | ) | 0.68 | ||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | — | 1.59 | 3.58 | 1.28 | (0.08 | ) | 0.77 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.13 | ) | (0.13 | ) | (0.13 | ) | (0.13 | ) | (0.10 | ) | |||||||||||||
Net realized gain | — | (1.94 | ) | (0.95 | ) | — | — | — | ||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (2.07 | ) | (1.08 | ) | (0.13 | ) | (0.13 | ) | (0.10 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 12.77 | $ | 12.77 | $ | 13.25 | $ | 10.75 | $ | 9.60 | $ | 9.81 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 0.00 | %4 | 11.94 | % | 33.39 | % | 13.35 | % | (0.89 | )% | 8.47 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.21 | %5 | 1.23 | % | 1.20 | % | 1.18 | % | 1.03 | % | 1.01 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.97 | %5 | 0.97 | % | 0.98 | % | 1.00 | % | 1.03 | % | 1.00 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.98 | %5 | 0.92 | % | 0.90 | % | 1.22 | % | 0.99 | % | 0.96 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 6,278 | $ | 4,002 | $ | 5,324 | $ | 3,682 | $ | 2,909 | $ | 2,239 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 11 | % | 35 | % | 41 | % | 114 | % | 117 | % | 161 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights (concluded) | BlackRock Large Cap Value V.I. Fund |
Class III | ||||||||||||||||||||||||
Six Months Ended June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 12.61 | $ | 13.12 | $ | 10.66 | $ | 9.52 | $ | 9.74 | $ | 9.07 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.05 | 0.10 | 0.09 | 0.12 | 0.10 | 0.08 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.06 | ) | 1.44 | 3.44 | 1.14 | (0.20 | ) | 0.69 | ||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | (0.01 | ) | 1.54 | 3.53 | 1.26 | (0.10 | ) | 0.77 | ||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.11 | ) | (0.12 | ) | (0.12 | ) | (0.12 | ) | (0.10 | ) | |||||||||||||
Net realized gain | — | (1.94 | ) | (0.95 | ) | — | — | — | ||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (2.05 | ) | (1.07 | ) | (0.12 | ) | (0.12 | ) | (0.10 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 12.60 | $ | 12.61 | $ | 13.12 | $ | 10.66 | $ | 9.52 | $ | 9.74 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | (0.08 | )%4 | 11.72 | % | 33.16 | % | 13.26 | % | (1.09 | )% | 8.46 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.31 | %5 | 1.32 | % | 1.33 | % | 1.26 | % | 1.13 | % | 1.10 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 1.13 | %5 | 1.13 | % | 1.14 | % | 1.15 | % | 1.13 | % | 1.10 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.81 | %5 | 0.73 | % | 0.74 | % | 1.13 | % | 0.93 | % | 0.85 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 1,924 | $ | 1,931 | $ | 1,576 | $ | 987 | $ | 928 | $ | 607 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 11 | % | 35 | % | 41 | % | 114 | % | 117 | % | 161 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (Unaudited) | BlackRock Large Cap Value V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Large Cap Value V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I, Class II and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class II and Class III Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value each business day.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Large Cap Value V.I. Fund |
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | |||||||
Citigroup Global Markets, Inc. | $ | 623,746 | $ | (623,746 | ) | — | ||||
JP Morgan Securities LLC | 124,658 | (124,658 | ) | — | ||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | 127,300 | (127,300 | ) | — | ||||||
Morgan Stanley | 26,866 | (26,866 | ) | — | ||||||
National Financial Services LLC | 490,306 | (490,306 | ) | — | ||||||
|
| |||||||||
Total | $ | 1,392,876 | $ | (1,392,876 | ) | — | ||||
|
|
1 | Collateral with a value of $1,433,897 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of a borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”), for 1940 Act purposes.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (continued) | BlackRock Large Cap Value V.I. Fund |
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |
First $1 Billion | 0.75% | |
$1 Billion - $3 Billion | 0.71% | |
$3 Billion - $5 Billion | 0.68% | |
$5 Billion - $10 Billion | 0.65% | |
Greater than $10 Billion | 0.64% |
The Manager has agreed to voluntarily waive 0.10% of its investment advisory fee payable by the Fund. This voluntary waiver may be reduced or discontinued at any time without notice. For the six months ended June 30, 2015, the Manager waived $55,638, which is included in fees waived by the Manager in the Statement of Operations.
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is included in fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any. For the six months ended June 30, 2015, the amount waived was $552.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $578 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at annual rates of 0.15% and 0.25% based upon the average daily net assets attributable to Class II and Class III, respectively.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
Class I | 0.00 | % | ||
Class II | 0.05 | % | ||
Class III | 0.11 | % |
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I, 1.40% for Class II and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Large Cap Value V.I. Fund |
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 71.5% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 75% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $1,119 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $11,700,815 and $18,738,188, respectively.
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 85,971,806 | ||
|
| |||
Gross unrealized appreciation | $ | 26,471,555 | ||
Gross unrealized depreciation | (2,895,877 | ) | ||
|
| |||
Net unrealized appreciation | $ | 23,575,678 | ||
|
|
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (concluded) | BlackRock Large Cap Value V.I. Fund |
8. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
As of June 30, 2015, the Fund invested a significant portion of its assets in securities in the financials sector. Changes in economic conditions affecting such sector would have a greater impact on the Fund and could affect the value, income and/or liquidity of positions in such securities.
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||
Class l | ||||||||||||||||||
Shares sold | 99,255 | $ | 1,263,337 | 158,048 | $ | 2,132,491 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 1,226,020 | 15,858,766 | ||||||||||||||
Shares redeemed | (665,429 | ) | (8,481,809 | ) | (1,484,399 | ) | (20,198,249 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net decrease | (566,174 | ) | $ | (7,218,472 | ) | (100,331 | ) | $ | (2,206,992 | ) | ||||||||
|
|
|
| |||||||||||||||
Class ll | ||||||||||||||||||
Shares sold | 236,543 | $ | 3,026,673 | 149,529 | $ | 2,046,081 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 43,951 | 570,343 | ||||||||||||||
Shares redeemed | (58,287 | ) | (738,067 | ) | (281,930 | ) | (3,843,922 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase (decrease) | 178,256 | $ | 2,288,606 | (88,450 | ) | $ | (1,227,498 | ) | ||||||||||
|
|
|
| |||||||||||||||
Class lll | ||||||||||||||||||
Shares sold | 8,914 | $ | 111,572 | 52,860 | $ | 720,659 | ||||||||||||
Shares issued in reinvestment of distributions | — | — | 20,500 | 262,405 | ||||||||||||||
Shares redeemed | (9,336 | ) | (117,109 | ) | (40,364 | ) | (546,635 | ) | ||||||||||
|
|
|
| |||||||||||||||
Net increase (decrease) | (422 | ) | $ | (5,537 | ) | 32,996 | $ | 436,429 | ||||||||||
|
|
|
| |||||||||||||||
Total Net Decrease | (388,340 | ) | $ | (4,935,403 | ) | (155,785 | ) | $ | (2,998,061 | ) | ||||||||
|
|
|
|
10. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income and a long-term capital gain distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015:
Net Investment Income | Long-Term Capital Gain | |||||
Class I | $0.000651 | $0.165094 | ||||
Class II | $0.000651 | $0.165094 | ||||
Class III | $0.000651 | $0.165094 |
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Managed Volatility V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Managed Volatility V.I. Fund |
Investment Objective |
BlackRock Managed Volatility V.I. Fund’s (the “Fund”) investment objective is to seek a level of current income and degree of stability of principal not normally available from an investment solely in equity securities, as well as the opportunity for capital appreciation greater than is normally available from an investment solely in debt securities.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund outperformed both its blended benchmark (50% MSCI All Country World Index (“ACWI”) /50% Citigroup World Government Bond Index (“WGBI”) (hedged into USD)) and its performance benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index. |
What factors influenced performance?
• | The Fund’s performance benefited from an overweight position in equities relative to fixed income. The most significant contributors to performance included exposure to European and Japanese equities, both of which benefited from supportive policy measures and stronger economic data during the period. Additionally, exposure to U.S. consumer stocks helped performance, primarily in the first quarter of 2015. An overweighting of Australian bonds versus U.S. bonds also aided performance, as U.S. rates rose on evidence that the domestic economy had recovered from the first quarter contraction. |
• | Exposure to Indian equities was a primary detractor from performance, driven by disappointing corporate earnings and negative investor sentiment. Additionally, global equities, particularly European stocks, stumbled at the end of the period amid rising concerns over the Greek debt crisis. Within fixed income, a position designed to protect against rising U.S. interest rates detracted relative to the cash benchmark during the first quarter, as softer domestic data led to speculation that the U.S. Federal Reserve would delay its first rate hike and declining U.S. Treasury yields. |
Describe recent portfolio activity.
• | The Fund gradually reduced its aggregate equity exposure due to increased uncertainty surrounding growth and monetary policy around |
the world. In addition, equity exposure was shifted from the U.S. to Europe and Japan following signs of weak domestic earnings growth and slowing economic momentum. The Fund also sold country-specific emerging markets positions following underperformance. Within fixed income, the Fund took measures to protect against shifts in currency exchange rates, and further diversified its credit exposure by adding to the high yield corporate bond allocation. Additionally, long positions were established in Australian and U.K. bonds versus a short position in U.S. bonds focused at the front-end of the curve, given continued divergence in global central bank policies.
• | Derivatives are used as a means to hedge and/or take outright views on interest rates, credit risk and/or foreign exchange positions in the Fund. During the period, the use of derivatives did not have a material impact on performance. |
• | The Fund held a relatively high allocation to cash as a means of reducing overall portfolio volatility. The cash position did not have a material impact on performance. |
Describe portfolio positioning at period end.
• | Relative to its blended benchmark, the Fund ended the period overweight in equities and underweight in fixed income. The Fund’s equity position maintained a tilt toward Europe and Japan given supportive policy backdrops and relatively attractive valuations in those regions and, in the case of Japan, ongoing efforts to reform corporate governance. The Fund was underweight U.S. equities on concerns over the potential for heightened market volatility in the wake of any rate hike. Within U.S. fixed income, the Fund maintained a low duration profile (and correspondingly lower sensitivity to interest rate changes) versus Australian and U.K. markets, based on relative valuations and growth outlooks. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Portfolio Composition | Percent of Long-Term Investments |
Investment Companies | 99 | % | ||
Non-Agency Mortgage-Backed Securities | 1 |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Managed Volatility V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. The Fund’s total returns prior to January 22, 2013, are the returns of the Fund when it followed different investment strategies under the name BlackRock Balanced Capital V.I. Fund. |
2 | The Fund uses an asset allocation strategy, investing varying percentages of its portfolio in three major categories: stocks, bonds and money market investments. |
3 | This unmanaged index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI All Country World Index consists of 46 country indexes comprising of 23 developed and 23 emerging market country indexes. |
4 | A market capitalization weighted bond index consisting of government bond markets of 23 countries, including the United States. |
5 | A customized weighted index comprised of the returns of 50% MSCI ACWI/50% Citigroup WGBI (hedged into USD). |
6 | An unmanaged index that tracks 3-month U.S. Treasury securities. Effective June 2, 2014, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index was added to the performance benchmarks against which the Fund measures its performance. |
Performance Summary for the Period Ended June 30, 2015 | ||||||||||||||||
Average Annual Total Returns | ||||||||||||||||
6-Month Total Returns8 | 1 Year8 | 5 Years8 | 10 Years8 | |||||||||||||
Class I7 | 1.31 | % | 1.37 | % | 8.45 | % | 4.45 | % | ||||||||
50% MSCI ACWI/50% Citigroup WGBI (hedged into USD) | 1.07 | 2.23 | 7.92 | 5.65 | ||||||||||||
MSCI ACWI | 2.66 | 0.71 | 11.93 | 6.41 | ||||||||||||
Citigroup WGBI (hedged into USD) | (0.68 | ) | 3.54 | 3.49 | 4.07 | |||||||||||
BofA Merrill Lynch 3-Month U.S. Treasury Bill Index | 0.01 | 0.02 | 0.08 | 1.42 |
7 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. The Fund’s total returns prior to January 22, 2013, are the returns of the Fund when it followed different investment strategies under the name BlackRock Balanced Capital V.I. Fund. |
8 | For a portion of the period, the Fund’s investment advisor waived a portion of its fees. Without such waiver, the Fund’s performance would have been lower. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example |
Actual | Hypothetical10 | �� | ||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period9 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period9 | Annualized Ratio | ||||||||
Class I | $1,000.00 | $1,013.10 | $4.99 | $1,000.00 | $1,019.84 | $5.01 | 1.00% |
9 | Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). The fees and expenses of the underlying funds in which the Fund invests are not included in the Fund’s annualized expense ratio. |
10 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Managed Volatility V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical example is useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative
financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Managed Volatility V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Asset-Backed Securities (a) | Par (000) | Value | ||||||
Countrywide Asset-Backed Certificates, Series 2004-5, Class A, 1.09%, 10/25/34 | $ | 7 | $ | 6,932 | ||||
Morgan Stanley ABS Capital I, Inc., Trust, Series 2005-HE1, Class A2MZ, 0.79%, 12/25/34 | 8 | 7,335 | ||||||
SASCO Mortgage Loan Trust, Series 2005-GEL2, Class A, 0.74%, 4/25/35 | 1 | 1,085 | ||||||
Structured Asset Investment Loan Trust, Series 2004-8, Class M4, 1.68%, 9/25/34 | 13 | 10,915 | ||||||
Structured Asset Securities Corp. Mortgage Pass-Through Certificates, Series 2004-23XS, Class 2A1, 0.48%, 1/25/35 | 13 | 11,640 | ||||||
Total Asset-Backed Securities — 0.2% |
| 37,907 | ||||||
Investment Companies | Shares | |||||||
iShares 1-3 Year Credit Bond ETF (b) | 10,156 | 1,069,731 | ||||||
iShares Core U.S. Aggregate Bond ETF (b) | 24,611 | 2,677,185 | ||||||
iShares MSCI EAFE ETF (b) | 27,461 | 1,743,499 | ||||||
SPDR Barclays International Treasury Bond ETF (c) | 80,574 | 4,191,459 | ||||||
Total Investment Companies — 48.1% |
| 9,681,874 |
Non-Agency Mortgage-Backed Securities | Par (000) | Value | ||||||
Collateralized Mortgage Obligations — 0.3% | ||||||||
Countrywide Alternative Loan Trust, Series 2007-22, Class 2A16, 6.50%, 9/25/37 | $ | 30 | $ | 23,846 | ||||
Credit Suisse Mortgage Capital Certificates: | ||||||||
Series 2011-2R, Class 2A1, 2.65%, 7/27/36 (a)(d) | 24 | 24,538 | ||||||
Series 2011-5R, Class 2A1, 2.76%, 8/27/46 (a)(d) | 23 | 22,048 | ||||||
Impac Secured Assets CMN Owner Trust, Series 2004-3, Class 1A4, 0.98%, 11/25/34 (a) | 5 | 5,378 | ||||||
Total Non-Agency Mortgage-Backed |
| 75,810 | ||||||
Total Long-Term Investments (Cost — $10,505,466) — 48.6% |
| 9,795,591 | ||||||
Short-Term Securities | Shares | |||||||
BlackRock Liquidity Funds, TempFund, | 9,635,841 | 9,635,841 | ||||||
Total Short-Term Securities (Cost — $9,635,841) — 47.9% |
| 9,635,841 | ||||||
Total Investments (Cost — $20,141,307) — 96.5% | 19,431,432 | |||||||
Other Assets Less Liabilities — 3.5% | 700,674 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 20,132,106 | ||||||
|
|
Portfolio Abbreviations |
AUD | Australian Dollar | EUR | Euro | MSCI | Morgan Stanley Capital | |||||||
CAD | Canadian Dollar | FTSE | Financial Times Stock Exchange | International | ||||||||
CHF | Swiss Franc | GBP | British Pound | SPDR | Standard & Poor’s Depositary | |||||||
ETF | Exchange Traded Fund | JPY | Japanese Yen | Receipts |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock Managed Volatility V.I. Fund |
Notes to Schedule of Investments |
(a) | Variable rate security. Rate shown is as of report date. |
(b) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/ Beneficial Interest December 31, 2014 | Shares/ Beneficial Interest | Shares/ Beneficial Interest June 30, 2015 | Value at June 30, 2015 | Income | |||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | $8,221,571 | 1,414,270 | 1 | $9,635,841 | $ | 9,635,841 | $ | 3,605 | ||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | — | — | 1 | — | — | $ | 2,036 | 2 | ||||||||||||
iShares 1-3 Year Credit Bond ETF | 10,156 | — | 10,156 | $ | 1,069,731 | $ | 4,760 | |||||||||||||
iShares Core U.S. Aggregate Bond ETF | 24,611 | — | 24,611 | $ | 2,677,185 | $ | 24,240 | |||||||||||||
iShares MSCI EAFE ETF | 27,461 | — | 27,461 | $ | 1,743,499 | $ | 30,517 |
1 | Represents net shares/beneficial interest purchased. |
2 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(c) | Non-income producing security. |
(d) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors. |
(e) | Represents the current yield as of report date. |
• | As of June 30, 2015, financial futures contracts outstanding were as follows: |
Contracts Long/(Short) | Issue | Exchange | Expiration | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
19 | CAC 40 10 Euro Future Index | Paris | July 2015 | USD | 1,013,885 | $(15,771) | ||||||||||||||
5 | IBEX 35 Index | Madrid | July 2015 | USD | 600,621 | (494 | ) | |||||||||||||
(3 | ) | AUD Currency Futures | Chicago Mercantile | September 2015 | USD | 230,550 | 1,000 | |||||||||||||
10 | Australian Government Bonds (10 Year) | Sydney | September 2015 | USD | 962,759 | 4,316 | ||||||||||||||
13 | Australian Government Bonds (3 Year) | Sydney | September 2015 | USD | 1,112,522 | 1,737 | ||||||||||||||
(1 | ) | CAD Currency Futures | Chicago Mercantile | September 2015 | USD | 79,980 | 1,438 | |||||||||||||
(1 | ) | CHF Currency Futures | Chicago Mercantile | September 2015 | USD | 134,025 | 579 | |||||||||||||
4 | DAX Index Futures | Eurex | September 2015 | USD | 1,226,504 | (13,289 | ) | |||||||||||||
(23 | ) | Euro Currency Futures | Chicago Mercantile | September 2015 | USD | 3,207,350 | 50,202 | |||||||||||||
4 | FTSE/MIB Index Futures | Borsa-Italiana | September 2015 | USD | 503,311 | (1,001 | ) | |||||||||||||
(9 | ) | GBP Currency Futures | Chicago Mercantile | September 2015 | USD | 884,531 | (11,829 | ) | ||||||||||||
(26 | ) | JPY Currency Futures | Chicago Mercantile | September 2015 | USD | 2,659,313 | (8,542 | ) | ||||||||||||
3 | Long Gilt British | NYSE Liffe | September 2015 | USD | 545,519 | 1,725 | ||||||||||||||
13 | Nikkei 225 Index | Osaka | September 2015 | USD | 2,148,874 | (30,438 | ) | |||||||||||||
(14 | ) | U.S. Treasury Notes (10 Year) | Chicago Board of Trade | September 2015 | USD | 1,766,406 | 15,403 | |||||||||||||
(45 | ) | U.S. Treasury Notes (2 Year) | Chicago Board of Trade | September 2015 | USD | 9,852,188 | (16,940 | ) | ||||||||||||
(35 | ) | U.S. Treasury Notes (5 Year) | Chicago Board of Trade | September 2015 | USD | 4,174,023 | 1,533 | |||||||||||||
Total | $(20,371) | |||||||||||||||||||
|
|
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (concluded) | BlackRock Managed Volatility V.I. Fund |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Long-Term Investments: | ||||||||||||||||||||
Asset-Backed Securities | — | $ | 37,907 | — | $ | 37,907 | ||||||||||||||
Investment Companies | $ | 9,681,874 | — | — | 9,681,874 | |||||||||||||||
Non-Agency Mortgage-Backed Securities | — | 75,810 | — | 75,810 | ||||||||||||||||
Short-Term Securities | 9,635,841 | — | — | 9,635,841 | ||||||||||||||||
|
| |||||||||||||||||||
Total | $ | 19,317,715 | $ | 113,717 | — | $ | 19,431,432 | |||||||||||||
|
| |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Derivative Financial Instruments1 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Foreign currency exchange contracts | $ | 53,219 | — | — | $ | 53,219 | ||||||||||||||
Interest rate contracts | 24,714 | — | — | 24,714 | ||||||||||||||||
Liabilities: | ||||||||||||||||||||
Equity contracts | (60,993 | ) | — | (60,993 | ) | |||||||||||||||
Foreign currency exchange contracts | (20,371 | ) | — | — | (20,371 | ) | ||||||||||||||
Interest rate contracts | (16,940 | ) | — | — | (16,940 | ) | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | (20,371 | ) | — | — | $ | (20,371 | ) | ||||||||||||
|
| |||||||||||||||||||
1 Derivative financial instruments are financial futures contracts, which are valued at the unrealized appreciation (depreciation) on the instrument. |
| |||||||||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets are categorized within the disclosure hierarchy as follows: | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Cash | $ | 108,559 | — | — | $ | 108,559 | ||||||||||||||
Foreign currency at value | 42,020 | — | — | 42,020 | ||||||||||||||||
Cash pledged for financial futures contracts | 620,200 | — | — | 620,200 | ||||||||||||||||
|
| |||||||||||||||||||
Total | $ | 770,779 | — | — | $ | 770,779 | ||||||||||||||
|
|
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Managed Volatility V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (cost — $4,964,091) | $ | 4,305,176 | ||
Investments at value — affiliated (cost — $15,177,216) | 15,126,256 | |||
Cash | 108,559 | |||
Cash pledged: | ||||
Financial futures contracts | 620,200 | |||
Foreign currency at value (cost — $51,041) | 42,020 | |||
Receivables: | ||||
Dividends — affiliated | 717 | |||
Dividends — unaffiliated | 30,517 | |||
Interest | 279 | |||
From the Manager | 6,842 | |||
Variation margin receivable on financial futures contracts | 52,034 | |||
Prepaid expenses | 51 | |||
|
| |||
Total assets | 20,292,651 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Capital shares redeemed | 41,633 | |||
Custodian fees | 4,626 | |||
Investment advisory fees | 6,091 | |||
Officer’s and Directors’ fees | 425 | |||
Other affiliates | 116 | |||
Pricing fees | 2,863 | |||
Professional fees | 41,675 | |||
Transfer agent fees | 12,748 | |||
Variation margin payable on financial futures contracts | 38,246 | |||
Other accrued expenses payable | 12,122 | |||
|
| |||
Total liabilities | 160,545 | |||
|
| |||
Net Assets | $ | 20,132,106 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 19,909,526 | ||
Undistributed net investment loss | (63,238 | ) | ||
Undistributed net realized gain | 1,025,082 | |||
Net unrealized appreciation (depreciation) | (739,264 | ) | ||
|
| |||
Net Assets | $ | 20,132,106 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $20,132,106 and 1,450,033 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 13.88 | ||
|
|
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Managed Volatility V.I. Fund | |||
Investment Income | ||||
Dividends — affiliated | $ | 63,122 | ||
Dividends — unaffiliated | (26,095 | )1 | ||
Interest | 2,287 | |||
Securities lending — affiliated — net | 2,036 | |||
|
| |||
Total income | 41,350 | |||
|
| |||
Expenses | ||||
Investment advisory | 57,375 | |||
Professional | 49,796 | |||
Transfer agent | 2,473 | |||
Transfer agent — Class I | 21,055 | |||
Printing | 10,188 | |||
Accounting services | 6,087 | |||
Officer and Directors | 2,595 | |||
Custodian | 1,488 | |||
Miscellaneous | 2,049 | |||
|
| |||
Total expenses | 153,106 | |||
Less fees waived by Manager | (27,407 | ) | ||
Less transfer agent fees reimbursed — Class I | (21,055 | ) | ||
|
| |||
Total expenses after fees waived and/or reimbursed | 104,644 | |||
|
| |||
Net investment loss | (63,294 | ) | ||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments — unaffiliated | 82,982 | |||
Financial futures contracts | 714,718 | |||
Swaps | 78,289 | |||
Foreign currency transactions | (31,002 | ) | ||
|
| |||
844,987 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments — unaffiliated | (341,091 | ) | ||
Investments — affiliated | 41,317 | |||
Financial futures contracts | (132,133 | ) | ||
Swaps | (43,955 | ) | ||
Foreign currency translations | (3,146 | ) | ||
|
| |||
(479,008 | ) | |||
|
| |||
Net realized and unrealized gain | 365,979 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 302,685 | ||
|
|
1 | Amount consists of dividend income redesignated as realized gains during the period. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Statements of Changes in Net Assets | BlackRock Managed Volatility V.I. Fund |
Decrease in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income (loss) | $ | (63,294 | ) | $ | 56,779 | |||
Net realized gain | 844,987 | 1,474,692 | ||||||
Net change in unrealized appreciation (depreciation) | (479,008 | ) | (1,029,893 | ) | ||||
|
| |||||||
Net increase in net assets resulting from operations | 302,685 | 501,578 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net realized gain | — | (1,545,799 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (1,545,799 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net decrease in net assets derived from capital share transactions | (1,453,321 | ) | (1,765,081 | ) | ||||
|
| |||||||
Net Assets | ||||||||
Total decrease in net assets | (1,150,636 | ) | (2,809,302 | ) | ||||
Beginning of period | 21,282,742 | 24,092,044 | ||||||
|
| |||||||
End of period | $ | 20,132,106 | $ | 21,282,742 | ||||
|
| |||||||
Undistributed net investment income (loss), end of period | $ | (63,238 | ) | $ | 56 | |||
|
|
1 Distributions for annual periods determined in accordance with federal income tax regulations.
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights | BlackRock Managed Volatility V.I. Fund |
Class I | ||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||||
2015 | Year Ended December 31, | |||||||||||||||||||||||||
|
| |||||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.70 | $ | 14.41 | $ | 13.28 | $ | 12.26 | $ | 12.07 | $ | 11.30 | ||||||||||||||
| ||||||||||||||||||||||||||
Net investment income (loss)1 | (0.04 | ) | 0.04 | 0.07 | 0.20 | 0.21 | 0.18 | |||||||||||||||||||
Net realized and unrealized gain | 0.22 | 0.29 | 1.60 | 1.01 | 0.26 | 0.81 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.18 | 0.33 | 1.67 | 1.21 | 0.47 | 0.99 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||||
Net investment income | — | — | (0.13 | ) | (0.19 | ) | (0.28 | ) | (0.22 | ) | ||||||||||||||||
Net realized gain | — | (1.04 | ) | (0.41 | ) | — | — | — | ||||||||||||||||||
| ||||||||||||||||||||||||||
Total distributions | — | (1.04 | ) | (0.54 | ) | (0.19 | ) | (0.28 | ) | (0.22 | ) | |||||||||||||||
| ||||||||||||||||||||||||||
Net asset value, end of period | $ | 13.88 | $ | 13.70 | $ | 14.41 | $ | 13.28 | $ | 12.26 | $ | 12.07 | ||||||||||||||
| ||||||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||||
Based on net asset value | 1.31 | %4 | 2.28 | % | 12.62 | % | 9.88 | % | 3.84 | % | 8.76 | % | ||||||||||||||
| ||||||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||||
Total expenses | 1.47 | %5,6 | 1.60 | %5 | 1.78 | %7 | 1.36 | % | 1.16 | % | 1.14 | % | ||||||||||||||
| ||||||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 1.00 | %5,6 | 1.07 | %5 | 1.23 | %7 | 1.22 | % | 1.14 | % | 1.14 | % | ||||||||||||||
| ||||||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed and excluding interest expense | 1.00 | %5,6 | 1.07 | %5 | 1.23 | %7 | 1.22 | % | 1.13 | % | 1.10 | % | ||||||||||||||
| ||||||||||||||||||||||||||
Net investment income (loss) | (0.61 | )%5,6 | 0.25 | %5 | 0.47 | %7 | 1.49 | % | 1.71 | % | 1.60 | % | ||||||||||||||
| ||||||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||||
Net assets, end of period (000) | $20,132 | $ | 21,283 | $ | 24,092 | $ | 25,975 | $ | 26,860 | $ | 29,641 | |||||||||||||||
| ||||||||||||||||||||||||||
Portfolio turnover rate8 | 0 | % | 64 | % | 241 | % | 502 | % | 570 | % | 730 | % | ||||||||||||||
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.23%. |
6 | Annualized. |
7 | Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.22%. |
8 | Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover rate is as follows: |
|
| |||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
2015 | Year Ended December 31, | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
| ||||||||||||||||||||||||
Portfolio turnover rate (excluding MDRs) | 0 | % | 64 | % | 229 | % | 400 | % | 400 | % | 547 | % | ||||||||||||
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Notes to Financial Statements (Unaudited) | BlackRock Managed Volatility V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Managed Volatility V.I. Fund (the “Fund”). The Fund is classified as diversified.
The Fund, together with certain other registered investment companies advised by the BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Bond investments are valued on the basis of last available bid prices or current market quotations provided by dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche-specific spread to the benchmark yield based on the unique attributes of the tranche. Financial futures contracts traded on exchanges are valued at their last sale price. Swap agreements are valued utilizing quotes received daily by the Fund’s pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Investments in open-end registered investment companies are valued at net asset value each business day.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Managed Volatility V.I. Fund |
such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., financial futures contracts and swaps), that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund are charged to the Fund. Other operating expenses shared by several funds are prorated among those funds on the basis of relative net assets or other appropriate methods.
The Fund has an arrangement with the custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Asset-Backed and Mortgage-Backed Securities: The Fund may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. In addition, the Fund may subsequently have to reinvest the proceeds at lower interest rates. If the Fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
The Fund may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the U.S. government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (continued) | BlackRock Managed Volatility V.I. Fund |
faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury.
Multiple Class Pass-Through Securities: The Fund may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities. These multiple class securities may be issued by Ginnie Mae, U.S. Government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investments in IOs.
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as investment companies in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as equity risk, interest rate risk or foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.
Financial Futures Contracts: The Fund invests in long and/or short positions in financial futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk), changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Managed Volatility V.I. Fund |
Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited, if any, is recorded on the Statement of Assets and Liabilities as cash pledged for financial futures contracts. 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. Variation margin is recorded by the Fund as unrealized appreciation (depreciation) and, if applicable, as a receivable or payable for variation margin in the Statement of Assets and Liabilities.
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. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
Swaps: The Fund enters into swap agreements in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation).
For OTC swaps, any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, in the Statement of Assets and Liabilities and amortized over the term of the OTC swap. Payments received or made by the Fund for OTC swaps are recorded in the Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.
In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities as cash pledged for centrally cleared swaps. The daily change in valuation of centrally cleared swaps is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities. Payments received from (paid to) the counterparty, including at termination, are recorded as realized gain (loss) in the Statement of Operations.
Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.
• | Total return swaps — The Fund enters into total return swaps to obtain exposure to a security or market without owning such security or investing directly in that market or to transfer the risk/return of one market (e.g., fixed income) to another market (e.g., equity or commodity prices) (equity risk, commodity price risk and/or interest rate risk). Total return swaps are agreements in which there is an exchange of cash flows whereby one party commits to make payments based on the total return (coupons plus capital gains/losses) of an underlying instrument in exchange for fixed or floating rate interest payments. To the extent the total return of the instrument or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (continued) | BlackRock Managed Volatility V.I. Fund |
The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:
Fair Values of Derivative Financial Instruments as of June 30, 2015 | ||||||||||
Value | ||||||||||
Statement of Assets and Liabilities Location | Derivative Assets | Derivative Liabilities | ||||||||
Equity contracts | Net unrealized appreciation (depreciation)1 | — | $60,993 | |||||||
Foreign currency exchange contracts | Net unrealized appreciation (depreciation)1 | $53,219 | 20,371 | |||||||
Interest rate contracts | Net unrealized appreciation (depreciation)1 | 24,714 | 16,940 | |||||||
Total | $77,933 | $98,304 |
1 | Includes cumulative appreciation (depreciation) on financial futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2015 | ||||||||||
Net Realized Gain (Loss) From | Net Change in Unrealized Appreciation (Depreciation) on | |||||||||
Equity contracts: | ||||||||||
Financial futures contracts | $ 566,615 | $ (42,116) | ||||||||
Swaps | 78,289 | (43,955) | ||||||||
Foreign currency exchange contracts: | ||||||||||
Financial futures contracts | 347,583 | (91,377) | ||||||||
Interest rate contracts: | ||||||||||
Financial futures contracts | (199,480) | 1,360 | ||||||||
|
| |||||||||
Total | $ 793,007 | $(176,088) | ||||||||
|
|
For the six months ended June 30, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:
Financial futures contracts: | ||||
Average notional value of contracts - Long | $ | 8,343,810 | ||
Average notional value of contracts - Short | $ | 23,065,799 | ||
Total return swaps: | ||||
Average notional value | $ | 336,855 |
Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund.
With exchange-traded futures, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrictor prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Managed Volatility V.I. Fund |
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund and its counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.
As of June 30, 2015, the Fund’s derivative assets and liabilities (by type) are as follows:
Assets | Liabilities | |||||||
Derivative Financial Instruments: | ||||||||
Financial futures contracts | $ | 52,034 | $ | 38,249 | ||||
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 52,034 | $ | 38,249 | ||||
|
| |||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | (52,034 | ) | $ | (38,249 | ) | ||
|
| |||||||
Total derivative assets and liabilities subject to an MNA | — | — | ||||||
|
|
5. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |
First $1 Billion | 0.55% | |
$1 Billion - $3 Billion | 0.52% | |
$3 Billion - $5 Billion | 0.50% | |
$5 Billion - $10 Billion | 0.48% | |
Greater than $ 10 Billion | 0.47% |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. In addition, the Manager has contractually agreed to waive the management fee on assets estimated to be attributed to the Fund’s investments in other equity and fixed-income mutual funds managed by Manager of its affiliates, if any. This amount is included in fees waived by Manager in the Statement of Operations. For the six months ended June 30, 2015, the amount waived was $3,130.
The Manager entered into sub-advisory agreements with BlackRock International Limited (“BIL”), BlackRock Asset Management North Asia Limited (“BNA”) and BlackRock (Singapore) Limited (“BSL”), each an affiliate of the Manager. The Manager pays BIL, BNA and BSL, for services they provide, a monthly fee that is a percentage of the investment advisory fees paid by the Fund to the Manager.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $112 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (continued) | BlackRock Managed Volatility V.I. Fund |
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse all such fees for Class I Shares. The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — Class I in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitation as a percentage of average daily net assets is 1.00% for Class I Shares. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors. This amount is included in fees waived by Manager in the Statement of Operations. For the six months ended June 30, 2015, the amount waived was $24,277.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 80% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 85% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $508 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
6. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, including paydowns and excluding short-term securities, were $0 and $2,368,518, respectively.
7. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (concluded) | BlackRock Managed Volatility V.I. Fund |
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 20,141,251 | ||||
| ||||||
Gross unrealized appreciation | $ | 9,349 | ||||
Gross unrealized depreciation | (719,168 | ) | ||||
| ||||||
Net unrealized depreciation | $ | (709,819 | ) | |||
|
8. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
9. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
10. Capital Share Transactions:
Transactions in capital shares were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Class I | Shares | Amount | Shares | Amount | ||||||||||||
Shares sold | 2,248 | $ | 31,756 | 13,500 | $ | 197,483 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 111,166 | 1,545,799 | ||||||||||||
Shares redeemed | (106,049 | ) | (1,485,077 | ) | (242,976 | ) | (3,508,363 | ) | ||||||||
Net decrease | (103,801 | ) | $ | (1,453,321 | ) | (118,310 | ) | $ | (1,765,081 | ) |
11. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a short-term capital gain and a long-term capital gain distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015 as follows:
Short-Term Capital Gain | Long-Term Capital Gain | |||
Class I | $0.109238 | $0.114271 |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Money Market V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Money Market Overview | BlackRock Money Market V.I. Fund |
For the Six-Month Period Ended June 30, 2015 |
The Federal Open Market Committee (the “FOMC”) left the federal funds rate unchanged at the target range of 0.00% to 0.25% throughout the first half of 2015. The FOMC’s statement at the conclusion of the March 18th meeting read “that an increase in the target range for the federal funds rate remains unlikely at the April Committee meeting,” but the FOMC “anticipates that it will be appropriate to raise the target range when it sees further improvement in the labor market.” This language marked a departure from previous statements in which the FOMC said “it can be patient in beginning to normalize the stance of monetary policy.” The removal of the word “patient” was viewed by the market as a small but meaningful step toward the beginning of higher rates.
As the period progressed, economic growth appeared to rebound from the soft patch caused by temporary factors earlier in the year. While the FOMC acknowledged at their June 17th meeting that “the underutilization of labor resources diminished somewhat,” continued weakness in broad inflation measures prompted the FOMC to remain patient in regard to raising interest rates. Several Federal Reserve (“Fed”) officials subsequently indicated that the September meeting continues to be the likely date for a “lift-off” of the anticipated rate hiking cycle if economic activity accelerates as expected. This outlook, however, is becoming increasingly clouded by events in overseas markets. Specifically, the FOMC could forestall the beginning of the normalization of monetary policy should U.S. markets be materially affected by the recent turmoil in Greece, Puerto Rico or China.
Chairwoman Yellen followed the release of the June statement with a scheduled press conference in which she further clarified the FOMC’s views. While Ms. Yellen did say she expects the FOMC will raise rates in 2015, she stated that the decision would be driven by economic data and played down the importance of timing. She stressed that the date of the first rate increase is less important than the trajectory of subsequent increases, affirming that the tightening cycle would be “gradual” and not follow a “mechanical formula.”
In the eurozone, the European Central Bank (“ECB”) elected to maintain its deposit rate at a negative 0.20%. At the ECB’s most recent meeting, President Mario Draghi said that he expects the economic recovery in the eurozone to broaden as easier credit conditions, a lower euro and cheaper oil have added to the pace of growth. The ECB forecasted eurozone growth rates at 1.5% for the year 2015 and 1.9% in 2016. Regarding Greece, Mario Draghi said that the “situation is in evolution” and that the ECB will continue to “monitor the situation very closely.”
London Interbank Offered Rates (“LIBOR”) moved higher over the period amid speculation of a possible rate hike from the FOMC in mid- to late-2015. The benchmark three-month LIBOR ended the period at 0.283%, which is nearly three basis points (0.03%) higher than it had been six months prior.
After an extended period of calm conditions, the short-term tax-exempt market began to show weakness as April 15 personal income tax payments due were much larger than expected, forcing significant outflows from money market mutual funds. In order to satisfy the large amount of shareholder withdrawals, money funds broadly sold variable rate demand notes (“VRDNs”) back to dealers, causing dealer inventories to swell. As supply increased, the rates on VRDNs moved higher for the first time in 2015. After remaining at its all-time low of 0.02% for nearly the entire first quarter of 2015, the benchmark Securities Industry and Financial Markets Association (“SIFMA”) Index, which represents the average rate on seven-day, high-quality, tax-exempt VRDNs, moved higher in April and touched a recent high of 0.11% in late April and May. The month of June, however, ushered some demand back into the VRDN market as money funds sought to quickly reinvest the seasonal inflows of bond coupons from their holdings. The SIFMA Index dropped to 0.07% by June 30; which still seemed relatively generous given that the average rate for the overall 6-month period ended June 30 was only 0.05%. (The SIFMA Index is a highly relevant measure for tax-exempt money market mutual funds because VRDNs make up the bulk of their assets.)
Given the continued improvement in the fiscal health of state and local municipal issuers, their need for short-term borrowing declined for the fifth consecutive year, resulting in a lower supply of one-year fixed-rate notes in the municipal market and keeping one-year rates relatively low. However, expectations for a federal funds rate hike before the year ends have caused some upward pressure, albeit modest, on one-year rates. Consequently, the Municipal Market Advisors AAA General Obligation One-Year Index yield increased from 0.19% on January 1, 2015 to 0.29% on June 30, 2015.
Municipal money fund investors continue to be very selective within one-year maturities. As the FOMC’s change in monetary policy remains on the horizon and fund investors face unprecedented money market fund reform, there is widespread desire to maintain defensive positioning with higher levels of liquidity and shorter weighted average maturities. We expect one-year levels to continue to move higher throughout the summer “note season,” when municipalities issue the bulk of their one-year tax and revenue anticipation notes. Thus, issuers will soon need to offer greater yield premiums to entice buyers to extend out to the full year maturity, which would cause the short-term municipal yield curve to steepen.
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Fund Summary as of June 30, 2015 | BlackRock Money Market V.I. Fund |
Investment Objective |
BlackRock Money Market V.I. Fund’s (the “Fund”) investment objective is to seek to preserve capital, maintain liquidity, and achieve the highest possible current income consistent with the foregoing.
On May 13, 2015, the Board of Directors of the Fund approved changes to the Fund’s name and principal investment strategies. The Fund will change its name to BlackRock Government Money Market V.I. Fund. Under its new principal investment strategies, the Fund will invest at least 99.5% of its total assets in cash, U.S. Treasury bills, notes and other obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and repurchase agreements secured by such obligations or cash. These changes become effective on September 1, 2015.
Yields | 7-Day SEC Yield | 7-Day Yield | ||||||||
Class I | 0.00 | % | 0.00 | % |
Portfolio Composition | Percent of Net Assets |
Repurchase Agreements | 39 | % | ||||
Commercial Paper | 21 | |||||
U.S. Treasury Obligations | 12 | |||||
Municipal Bonds | 11 | |||||
Certificates of Deposit | 10 | |||||
U.S. Government Sponsored Agency Obligations | 7 | |||||
Total | 100 | % |
The 7-Day SEC Yield may differ from the 7-Day Yield shown above due to the fact that the 7-Day SEC Yield excludes distributed capital gains.
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Disclosure of Expenses |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, acquired fund fees and expenses and other Fund expenses. The expense example shown below (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical expense with the 5% hypothetical examples that appear in other funds’ shareholder reports.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical example is useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Expense Example | ||||||||||||||
Actual | Hypothetical2 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period1 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period1 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,000.00 | $0.99 | $1,000.00 | $1,023.80 | $1.00 | 0.20% |
1 | Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
2 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Money Market V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Certificates of Deposit | Par (000) | Value | ||||||
Domestic — 10.1% | ||||||||
Bank of America N.A., 0.27%, 9/02/15 | $ | 8,200 | $ | 8,200,000 | ||||
BMO Harris Bank N.A., 0.29%, 8/27/15 (a) | 9,000 | 9,000,000 | ||||||
Total Certificates of Deposit — 10.1% | 17,200,000 | |||||||
Commercial Paper (b) | ||||||||
Charta LLC, 0.21%, 8/28/15 | 2,000 | 1,999,323 | ||||||
Ciesco LLC: | ||||||||
0.28%, 8/06/15 | 5,000 | 4,998,600 | ||||||
0.28%, 8/11/15 | 4,000 | 3,998,724 | ||||||
Collateralized Commercial Paper Co. LLC, | 2,000 | 1,999,800 | ||||||
Collateralized Commercial Paper II Co. LLC: | ||||||||
0.40%, 7/07/15 | 1,000 | 999,933 | ||||||
0.39%, 7/17/15 | 5,000 | 4,999,133 | ||||||
CRC Funding LLC, 0.31%, 9/21/15 | 7,000 | 6,995,057 | ||||||
Jupiter Securitization Co. LLC: | ||||||||
0.27%, 7/07/15 | 3,000 | 2,999,865 | ||||||
0.26%, 8/13/15 | 2,000 | 1,999,379 | ||||||
Old Line Funding LLC, 0.30%, 10/07/15 | 5,000 | 4,995,917 | ||||||
Total Commercial Paper — 21.2% | 35,985,731 | |||||||
Municipal Bonds (c) | ||||||||
Jets Stadium Development LLC Series 2014A-4B VRDN, 0.14%, 7/07/15 (c) | 6,000 | 6,000,000 | ||||||
New York State HFA RB (10 Barclay Street Project) | 5,000 | 5,000,000 | ||||||
New York State HFA RB (Biltmore Tower Housing Project) Series 2002A VRDN (Fannie Mae Guaranty), | 3,000 | 3,000,000 | ||||||
New York State HFA RB (Victory Housing Project) | 5,000 | 5,000,000 | ||||||
Total Municipal Bonds — 11.2% | 19,000,000 | |||||||
U.S. Government Sponsored Agency Obligations | Par (000) | Value | ||||||
Federal Farm Credit Bank Variable Rate Notes, | $ | 2,300 | $ | 2,300,061 | ||||
Federal Home Loan Bank Discount Notes: (b) | ||||||||
0.13%, 10/02/15 | 2,000 | 1,999,354 | ||||||
0.15%, 11/04/15 | 3,900 | 3,897,953 | ||||||
Freddie Mac Variable Rate Notes, 0.18%, 11/25/15 (a) | 4,000 | 4,000,000 | ||||||
Total U.S. Government Sponsored Agency Obligations — 7.2% |
| 12,197,368 | ||||||
U.S. Treasury Obligations | ||||||||
U.S. Treasury Bills, 0.29%, 6/23/16 (b) | 3,000 | 2,991,647 | ||||||
U.S. Treasury Notes: | ||||||||
0.25%, 7/15/15 | 4,000 | 4,000,146 | ||||||
0.25%, 8/15/15 | 2,000 | 2,000,378 | ||||||
1.25%, 8/31/15 | 5,000 | 5,009,443 | ||||||
0.08%, 4/30/16 (a) | 4,200 | 4,200,007 | ||||||
0.09%, 4/30/17 (a) | 2,000 | 1,999,926 | ||||||
Total U.S. Treasury Obligations — 11.9% | 20,201,547 | |||||||
Repurchase Agreements | ||||||||
BNP Paribas Securities Corp., 0.10%, 7/01/15 | 12,000 | 12,000,000 | ||||||
Total Value of BNP Paribas Securities Corp. | 12,000,000 | |||||||
Credit Suisse Securities (USA) LLC, 0.40%, 7/01/15 (c) (Purchased on 11/10/14 to be repurchased at $5,559,470, collateralized by corporate/debt obligation, 0.00% due at 4/25/45, aggregate original par and fair value of $6,650,000 and $6,650,000, respectively) | 5,539 | 5,539,000 | ||||||
Total Value of Credit Suisse Securities (USA) LLC | 5,539,000 |
Portfolio Abbreviations | ||||||||||
HFA | Housing Finance Agency | SBPA | Stand-by Bond Purchase | VRDN | Variable Rate Demand Notes | |||||
RB | Revenue Bonds | Agreement |
See Notes to Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Money Market V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Repurchase Agreements | Par (000) | Value | ||||||
Goldman Sachs & Co., 0.16%, 7/01/15 | $ | 8,000 | $ | 8,000,000 | ||||
Total Value of Goldman Sachs & Co. | 8,000,000 | |||||||
JPMorgan Securities LLC, 0.12%, 7/01/15 | 10,000 | 10,000,000 | ||||||
Total Value of JPMorgan Securities LLC | 10,000,000 | |||||||
Mizuho Securities USA, Inc., 1.13%, 8/03/15 (c) | 2,100 | 2,100,000 |
Repurchase Agreements | Par (000) | Value | ||||||
Mizuho Securities USA, Inc., 0.15%, 7/01/15 | $ | 4,000 |
| $ | 4,000,000 |
| ||
Total Value of Mizuho Securities USA, Inc. | 6,100,000 | |||||||
Morgan Stanley & Co. LLC, 0.09%, 7/01/15 | 11,571 | 11,571,000 | ||||||
Total Value of Morgan Stanley & Co. LLC | 11,571,000 | |||||||
RBC Capital Markets, LLC, 0.09%, 7/01/15 | 12,000 | 12,000,000 | ||||||
Total Value of RBC Capital Markets, LLC | 12,000,000 | |||||||
Total Repurchase Agreements — 38.4% | 65,210,000 | |||||||
Total Investments (Cost — $169,794,646*) — 100.0% | 169,794,646 | |||||||
Liabilities in Excess of Other Assets — 0.0% | (53,533 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 169,741,113 | ||||||
|
|
Notes to Schedule of Investments |
* | Cost for federal income tax purposes. |
(a) | Variable rate security. Rate shown is as of report date. |
(b) | Rate shown reflects the discount rate at the time of purchase. |
(c) | Variable rate security. Rate shown is as of report date and maturity shown is the date the principal owed can be recovered through demand. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (concluded) | BlackRock Money Market V.I. Fund |
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Short-Term Securities1 | — | $ | 169,794,646 | — | $ | 169,794,646 |
1 | See above Schedule of Investments for values in each security type. |
During the period ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Money Market V.I. Fund | |||
Assets | ||||
Investments at value (cost — $104,584,646) | $ | 104,584,646 | ||
Repurchase agreements at value (cost — $65,210,000) | 65,210,000 | |||
Receivables: | ||||
Capital shares sold | 48,000 | |||
Interest | 34,804 | |||
From the Manager | 3,492 | |||
Prepaid expenses | 879 | |||
|
| |||
Total assets | 169,881,821 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Capital shares redeemed | 62,094 | |||
Investment advisory fees | 23,075 | |||
Professional fees | 20,810 | |||
Transfer agent fees | 20,692 | |||
Officer’s and Directors’ fees | 1,734 | |||
Other affiliates | 788 | |||
Other accrued expenses payable | 11,515 | |||
|
| |||
Total liabilities | 140,708 | |||
|
| |||
Net Assets | $ | 169,741,113 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 169,734,109 | ||
Accumulated net realized gain | 7,004 | |||
|
| |||
Net Assets | $ | 169,741,113 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $169,741,113 and 169,738,250 shares outstanding, 3.3 billion shares authorized, $0.10 par value | $ | 1.00 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Money Market V.I. Fund | |||
Investment Income | ||||
Interest | $ | 208,944 | ||
|
| |||
Expenses | ||||
Investment advisory | 524,678 | |||
Transfer agent | 2,482 | |||
Transfer agent — Class I | 29,598 | |||
Professional | 22,184 | |||
Custodian | 11,009 | |||
Officer and Directors | 9,954 | |||
Accounting services | 5,581 | |||
Miscellaneous | 8,769 | |||
|
| |||
Total expenses | 614,255 | |||
Less fees waived by the Manager | (375,751 | ) | ||
Less transfer agent fees reimbursed | (29,598 | ) | ||
|
| |||
Total expenses after fees waived and/or reimbursed | 208,906 | |||
|
| |||
Net investment income | 38 | |||
|
| |||
Realized Gain | ||||
Net realized gain from investments | 3,960 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 3,998 | ||
|
|
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statements of Changes in Net Assets | BlackRock Money Market V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months June 30, 2015 | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 38 | $ | 75 | ||||
Net realized gain | 3,960 | 17,240 | ||||||
|
| |||||||
Net increase in net assets resulting from operations | 3,998 | 17,315 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income | (38 | ) | (824 | ) | ||||
Net realized gain | — | (13,538 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | (38 | ) | (14,362 | ) | ||||
|
| |||||||
Capital Share Transactions | ||||||||
Net proceeds from sales of shares | 94,401,375 | 321,593,820 | ||||||
Reinvestment of distributions | 37 | 14,060 | ||||||
Cost of shares redeemed | (152,905,610 | ) | (272,939,329 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets derived from capital share transactions | (58,504,198 | ) | 48,668,551 | |||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | (58,500,238 | ) | 48,671,504 | |||||
Beginning of period | 228,241,351 | 179,569,847 | ||||||
|
| |||||||
End of period | $ | 169,741,113 | $ | 228,241,351 | ||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Financial Highlights | BlackRock Money Market V.I. Fund |
Class I | ||||||||||||||||||||||||||
Six Months June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
| ||||||||||||||||||||||||||
Net investment income1 | 0.0000 | 0.0000 | 0.0000 | 0.0000 | 0.0000 | 0.0000 | ||||||||||||||||||||
Net realized gain | 0.0000 | 1 | 0.0001 | 0.0000 | 1 | 0.0000 | 1 | 0.0000 | 1 | 0.0000 | 1 | |||||||||||||||
| ||||||||||||||||||||||||||
Net increase from investment operations | 0.0000 | 0.0001 | 0.0000 | 0.0000 | 0.0000 | 0.0000 | ||||||||||||||||||||
| ||||||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||||
Net investment income3 | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | ||||||||||||||
Net realized gains | (0.0000 | )3 | (0.0001 | ) | (0.0000 | )3 | (0.0000 | )3 | (0.0000 | )3 | (0.0000 | )3 | ||||||||||||||
| ||||||||||||||||||||||||||
Total distributions | (0.0000 | ) | (0.0001 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | ||||||||||||||
| ||||||||||||||||||||||||||
Net asset value, end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
| ||||||||||||||||||||||||||
Total Return4 | ||||||||||||||||||||||||||
Based on net asset value | 0.00 | %5 | 0.01 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||||
| ||||||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||||
Total expenses | 0.59 | %6 | 0.61 | % | 0.63 | % | 0.61 | % | 0.58 | % | 0.58 | % | ||||||||||||||
| ||||||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.20 | %6 | 0.17 | % | 0.20 | % | 0.25 | % | 0.24 | % | 0.30 | % | ||||||||||||||
| ||||||||||||||||||||||||||
Net investment income | 0.00 | %6 | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||||
| ||||||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||||
Net assets, end of period (000) | $ | 169,741 | $ | 228,241 | $ | 179,570 | $ | 198,888 | $ | 235,527 | $ | 236,788 | ||||||||||||||
|
1 | Amount is less than $0.00005 per share. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Amount is greater than $(0.00005) per share. |
4 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
5 | Aggregate total return. |
6 | Annualized. |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (Unaudited) | BlackRock Money Market V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The Funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Money Market Fund V.I. Fund (the “Fund”). The Fund is classified as diversified.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments. The Fund’s investments are valued under the amortized cost method which approximates current market value in accordance with Rule 2a-7 under the 1940 Act. Under this method, investments are valued at cost when purchased and, thereafter, a constant proportionate accretion of discounts and amortization of premiums are recorded until the maturity of the security. The Fund seeks to maintain its net asset value per share at $1.00, although there is no assurance that it will be able to do so on a continuing basis.
Municipal investments (including commitments to purchase such investments on a “when-issued” basis) are valued on the basis of prices provided by dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments and information with respect to various relationships between investments.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.
Distributions: Distributions from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund are charged to the Fund. Other operating expenses shared by several funds are prorated among those funds on the basis of relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Repurchase Agreements: The Fund may enter into repurchase agreements. In a repurchase agreement, the Fund purchases a security from a counterparty who agrees to repurchase the same security at a mutually agreed upon date and price. On a daily basis, the counterparty is required to maintain eligible collateral subject to the agreement and in value no less than the agreed repurchase amount. The agreements are conditioned upon the collateral being deposited under the Federal Reserve book entry system or held in a segregated account by the Fund’s custodian or designated sub-custodians under tri-party repurchase agreements.
In the event the counterparty defaults and the fair value of the collateral declines, the Fund could experience losses, delays and costs in liquidating the collateral.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Notes to Financial Statements (continued) | BlackRock Money Market V.I. Fund |
Repurchase agreements are entered into by the Fund under Master Repurchase Agreements (each, an “MRA”). The MRA permits the Fund, under certain circumstances including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables with collateral held by and/or posted to the counterparty. As a result, one single net payment is created. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Based on the terms of the MRA, the Fund receives securities as collateral with a market value in excess of the repurchase price at maturity. Upon a bankruptcy or insolvency of the MRA counterparty, the Fund would recognize a liability with respect to such excess collateral. The liability reflects the Fund’s obligation under bankruptcy law to return the excess to the counterparty.
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | ||||
First $1 Billion | 0.500 | % | |||
$1 Billion - $2 Billion | 0.450 | % | |||
$2 Billion - $3 Billion | 0.400 | % | |||
$3 Billion - $4 Billion | 0.375 | % | |||
$4 Billion - $7 Billion | 0.350 | % | |||
$7 Billion - $10 Billion | 0.325 | % | |||
$10 Billion - $ 15 Billion | 0.300 | % | |||
Greater than $15 Billion | 0.290 | % |
The Manager voluntarily agreed to waive a portion of the investment advisory fees to enable the Fund to maintain minimum levels of daily net investment income. This amount is reported in the Statement of Operations as fees waived by the Manager.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $1,036 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses to 0.02% of average daily net assets.
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitation as a percentage of average daily net assets is 1.25% for Class I until May 1, 2016. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment advisor, common officers, or common directors. For the six months ended June 30, 2015, the sales transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were $1,900,145.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Money Market V.I. Fund |
5. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
6. Principal Risks:
Many municipalities insure repayment of their bonds, which may reduce the potential for loss due to credit risk. The market value of these bonds may fluctuate for other reasons, including market perception of the value of such insurance, and there is no guarantee that the insurer will meet its obligation.
Inventories of municipal bonds held by brokers and dealers may decrease, which would lessen their ability to make a market in these securities. Such a reduction in market making capacity could potentially decrease the Fund’s ability to buy or sell bonds. As a result, the Fund may sell a security, to sell other securities to raise cash, or give up an investment opportunity, any of which could have a negative impact on performance. If the Fund needed to sell large blocks of bonds, those sales could further reduce the bonds’ prices and impact performance.
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Funds to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Fund.
The Fund may invest in municipal bonds below investment grade quality (sometimes called “junk bonds”), which are predominantly speculative, have greater credit risk and generally are less liquid and have more volatile prices than higher quality securities.
Certain obligations held by the Fund have a credit enhancement or liquidity feature that may, under certain circumstances, provide for repayment of principal and interest on the obligation when due. These enhancements, which may include letters of credit, stand-by bond purchase agreements and/or third party insurance, are issued by financial institutions. The value of the obligations may be affected by changes in creditworthiness of the entities that provide the credit enhancements or liquidity features. The Fund monitors its exposure by reviewing the creditworthiness of the issuers, as well as the financial institutions issuing the credit enhancements and by limiting the amount of holdings with credit enhancements from one financial institution.
On July 23, 2014, the U.S. Securities and Exchange Commission adopted amendments to money market fund regulations, which structurally change the way that certain money market funds will be required to operate. The compliance period for amendments range between July 2015 and October 2016. When implemented, the changes may affect the Fund’s investment strategies, fees and expenses, portfolio and share liquidity and return potential. On May 13, 2015, the Board of Directors of the Fund approved changes to the Fund’s name and principal investment strategies. The Fund will change its name to BlackRock Government Money Market V.I. Fund. Under its new principal investment strategies, the Fund will invest at least 99.5% of its total assets in cash, U.S. Treasury bills, notes and other obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and repurchase agreements secured by such obligations or cash. These changes become effective on September 1, 2015.
7. Capital Share Transactions:
The number of shares sold, reinvested and redeemed corresponds to the net proceeds from the sale of shares, reinvestment of all distributions and cost of shares redeemed, respectively, since shares are sold and redeemed at $1.00 per share.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Notes to Financial Statements (concluded) | BlackRock Money Market V.I. Fund |
8. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a short-term capital gain distribution of $0.000018 per share on July 17, 2015 to shareholders of record on July 15, 2015.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock S&P 500 Index V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock S&P 500 Index V.I. Fund |
Investment Objective |
BlackRock S&P 500 Index V.I. Fund’s (the “Fund”) investment objective is to seek investment results that, before expenses, correspond to the aggregate price and yield performance of the Standard and Poor’s (“S&P”) 500® Index.
Portfolio Management Commentary |
How did the Fund perform? |
• | For the six months ended June 30, 2015, the Fund’s Class I and Class II Shares returned 1.07% and 0.98%, respectively, while the benchmark S&P 500® Index returned 1.23%. |
• | Returns for the Fund’s respective share classes differ from the benchmark index based on individual share-class expenses. |
Describe the market environment. |
• | The year started with U.S. stock prices falling as lower oil prices punished the energy sector and the negative impact of a stronger dollar began to show in the earnings of large global exporting companies. High valuations in U.S. stocks drove equity investors toward more appealing opportunities overseas. U.S. stocks rebounded in February thanks to increased merger and acquisition activity and strong earnings reports from cyclical technology companies. However, stock prices came under pressure again in March as an improving labor market furthered the appreciation of the U.S. dollar and raised investors’ focus on the timing of an expected Federal Reserve move toward tightening policy. U.S. equities came back into favor in April, after a powerful rally in European equities left valuations in the United States looking more appealing by comparison. U.S. stocks continued to outperform international markets in the following months as increasing turmoil around Greece’s debt troubles drove investors to the relative stability of U.S. markets. |
• | A clear sign of strength has yet to emerge from the blurry U.S. economic picture, as uptrends in the housing and labor markets stand in contrast with consumer caution and productivity languor. This economic unevenness together with still quiescent inflation has kept the Federal Reserve tentative on when to start raising short-term interest rates. However, hiring strength and a modest but concrete pickup in wage growth point to a possible acceleration in the second half of 2015. More investors are now penciling in an autumn rate hike — a significant event that could push market volatility beyond the unusually low levels of the past few years, but the investment advisor expects most of the ups and downs will be short-lived for stocks. |
Describe recent portfolio activity. |
• | During the period, as changes were made to the composition of the S&P 500® Index, the Fund purchased and sold securities to maintain its objective of seeking to correspond to the risks and return of the benchmark index. |
Describe portfolio positioning at period end. |
• | The Fund remains positioned to match the risk characteristics of its benchmark index, irrespective of the market’s future direction. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Sector Allocation | Percent of Long-Term Investments |
Information Technology | 20 | % | ||||
Financials | 17 | |||||
Health Care | 15 | |||||
Consumer Discretionary | 13 | |||||
Industrials | 10 | |||||
Consumer Staples | 9 | |||||
Energy | 8 | |||||
Materials | 3 | |||||
Utilities | 3 | |||||
Telecommunication Services | 2 |
For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock S&P 500 Index V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. |
2 | Under normal circumstances, the Fund invests at least 80% of its assets in the common stocks represented in the S&P 500® Index and in derivative instruments linked to the S&P 500®Index. |
3 | An unmanaged index that covers 500 leading companies and captures approximately 80% coverage of available market capitalization. |
Performance Summary for the Period Ended June 30, 2015 |
Average Annual Total Returns | ||||||||||||||||||||
6-Month Total Returns5 | 1 Year5 | 5 Years5 | 10 Years5 | |||||||||||||||||
Class I4 | 1.07 | % | 7.12 | % | 16.91 | % | 7.56 | % | ||||||||||||
Class II4 | 0.98 | 6.90 | 16.74 | 7.37 | ||||||||||||||||
S&P 500® Index | 1.23 | 7.42 | 17.34 | 7.90 |
4 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
5 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example |
Actual | Hypothetical7 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period6 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period6 | Annualized Ratio | ||||||||
Class I | $1,000.00 | $1,010.70 | $1.55 | $1,000.00 | $1,023.26 | $1.56 | 0.31% | |||||||
Class II | $1,000.00 | $1,009.80 | $2.29 | $1,000.00 | $1,022.51 | $2.31 | 0.46% |
6 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
7 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock S&P 500 Index V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Derivative Financial Instruments
|
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative
financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock S&P 500 Index V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Aerospace & Defense — 2.6% | ||||||||
The Boeing Co. | 6,967 | $ | 966,462 | |||||
General Dynamics Corp. | 3,382 | 479,196 | ||||||
Honeywell International, Inc. | 8,454 | 862,054 | ||||||
L-3 Communications Holdings, Inc. | 886 | 100,455 | ||||||
Lockheed Martin Corp. | 2,898 | 538,738 | ||||||
Northrop Grumman Corp. | 2,099 | 332,964 | ||||||
Precision Castparts Corp. | 1,497 | 299,205 | ||||||
Raytheon Co. | 3,320 | 317,658 | ||||||
Rockwell Collins, Inc. | 1,446 | 133,538 | ||||||
Textron, Inc. | 2,984 | 133,176 | ||||||
United Technologies Corp. | 8,969 | 994,931 | ||||||
|
| |||||||
5,158,377 | ||||||||
Air Freight & Logistics — 0.7% | ||||||||
C.H. Robinson Worldwide, Inc. | 1,589 | 99,138 | ||||||
Expeditors International of Washington, Inc. | 2,072 | 95,530 | ||||||
FedEx Corp. | 2,846 | 484,958 | ||||||
United Parcel Service, Inc., Class B | 7,506 | 727,406 | ||||||
|
| |||||||
1,407,032 | ||||||||
Airlines — 0.5% | ||||||||
American Airlines Group, Inc. | 7,502 | 299,592 | ||||||
Delta Air Lines, Inc. | 8,903 | 365,735 | ||||||
Southwest Airlines Co. | 7,237 | 239,472 | ||||||
|
| |||||||
904,799 | ||||||||
Auto Components — 0.4% | ||||||||
BorgWarner, Inc. | 2,453 | 139,429 | ||||||
Delphi Automotive PLC | 3,134 | 266,672 | ||||||
The Goodyear Tire & Rubber Co. | 2,918 | 87,978 | ||||||
Johnson Controls, Inc. | 7,100 | 351,663 | ||||||
| �� | |||||||
845,742 | ||||||||
Automobiles — 0.6% | ||||||||
Ford Motor Co. | 43,047 | 646,135 | ||||||
General Motors Co. | 14,610 | 486,951 | ||||||
Harley-Davidson, Inc. | 2,292 | 129,154 | ||||||
|
| |||||||
1,262,240 | ||||||||
Banks — 6.1% | ||||||||
Bank of America Corp. | 113,618 | 1,933,778 | ||||||
BB&T Corp. | 7,914 | 319,013 | ||||||
Citigroup, Inc. | 32,854 | 1,814,855 | ||||||
Comerica, Inc. | 1,923 | 98,688 | ||||||
Fifth Third Bancorp | 8,834 | 183,924 | ||||||
Huntington Bancshares, Inc. | 8,749 | 98,951 | ||||||
JPMorgan Chase & Co. | 40,184 | 2,722,868 | ||||||
KeyCorp | 9,216 | 138,424 | ||||||
M&T Bank Corp. (a) | 1,429 | 178,525 | ||||||
People’s United Financial, Inc. | 3,352 | 54,336 | ||||||
The PNC Financial Services Group, Inc. (b) | 5,624 | 537,936 | ||||||
Regions Financial Corp. | 14,609 | 151,349 | ||||||
SunTrust Banks, Inc. | 5,593 | 240,611 | ||||||
U.S. Bancorp | 19,238 | 834,929 | ||||||
Wells Fargo & Co. | 50,760 | 2,854,742 | ||||||
Zions Bancorp | 2,162 | 68,611 | ||||||
|
| |||||||
12,231,540 | ||||||||
Beverages — 2.1% | ||||||||
Brown-Forman Corp., Class B | 1,695 | 169,805 | ||||||
The Coca-Cola Co. | 42,443 | 1,665,039 | ||||||
Coca-Cola Enterprises, Inc. | 2,335 | 101,432 | ||||||
Constellation Brands, Inc., Class A | 1,836 | 213,013 | ||||||
Dr Pepper Snapple Group, Inc. (a) | 2,100 | 153,090 | ||||||
Molson Coors Brewing Co., Class B | 1,735 | 121,120 | ||||||
Monster Beverage Corp. (c) | 1,582 | 212,020 |
Common Stocks | Shares | Value | ||||||
Beverages (concluded) | ||||||||
PepsiCo, Inc. | 16,011 | $ | 1,494,467 | |||||
|
| |||||||
4,129,986 | ||||||||
Biotechnology — 3.2% | ||||||||
Alexion Pharmaceuticals, Inc. (c) | 2,425 | 438,367 | ||||||
Amgen, Inc. | 8,232 | 1,263,777 | ||||||
Biogen, Inc. (c) | 2,547 | 1,028,835 | ||||||
Celgene Corp. (c) | 8,589 | 994,048 | ||||||
Gilead Sciences, Inc. | 15,916 | 1,863,445 | ||||||
Regeneron Pharmaceuticals, Inc. (c) | 817 | 416,776 | ||||||
Vertex Pharmaceuticals, Inc. (c) | 2,640 | 325,987 | ||||||
|
| |||||||
6,331,235 | ||||||||
Building Products — 0.1% | ||||||||
Allegion PLC | 1,027 | 61,764 | ||||||
Masco Corp. | 3,770 | 100,546 | ||||||
|
| |||||||
162,310 | ||||||||
Capital Markets — 2.3% | ||||||||
Affiliated Managers Group, Inc. (c) | 590 | 128,974 | ||||||
Ameriprise Financial, Inc. | 1,969 | 245,987 | ||||||
The Bank of New York Mellon Corp. | 12,152 | 510,019 | ||||||
BlackRock, Inc. (b) | 1,371 | 474,339 | ||||||
The Charles Schwab Corp. | 12,522 | 408,843 | ||||||
E*TRADE Financial Corp. (c) | 3,141 | 94,073 | ||||||
Franklin Resources, Inc. | 4,222 | 207,005 | ||||||
The Goldman Sachs Group, Inc. | 4,351 | 908,445 | ||||||
Invesco Ltd. | 4,620 | 173,204 | ||||||
Legg Mason, Inc. | 1,054 | 54,313 | ||||||
Morgan Stanley | 16,652 | 645,931 | ||||||
Northern Trust Corp. | 2,361 | 180,522 | ||||||
State Street Corp. | 4,453 | 342,881 | ||||||
T. Rowe Price Group, Inc. | 2,846 | 221,220 | ||||||
|
| |||||||
4,595,756 | ||||||||
Chemicals — 2.3% | ||||||||
Air Products & Chemicals, Inc. | 2,083 | 285,017 | ||||||
Airgas, Inc. | 725 | 76,691 | ||||||
CF Industries Holdings, Inc. | 2,575 | 165,521 | ||||||
The Dow Chemical Co. | 11,754 | 601,452 | ||||||
Eastman Chemical Co. | 1,618 | 132,385 | ||||||
Ecolab, Inc. | 2,909 | 328,921 | ||||||
EI du Pont de Nemours & Co. | 9,779 | 625,367 | ||||||
FMC Corp. | 1,435 | 75,409 | ||||||
International Flavors & Fragrances, Inc. | 874 | 95,519 | ||||||
LyondellBasell Industries NV, Class A | 4,254 | 440,374 | ||||||
Monsanto Co. | 5,158 | 549,791 | ||||||
The Mosaic Co. | 3,358 | 157,322 | ||||||
PPG Industries, Inc. | 2,940 | 337,277 | ||||||
Praxair, Inc. | 3,120 | 372,996 | ||||||
The Sherwin-Williams Co. | 858 | 235,967 | ||||||
Sigma-Aldrich Corp. | 1,284 | 178,925 | ||||||
|
| |||||||
4,658,934 | ||||||||
Commercial Services & Supplies — 0.4% | ||||||||
The ADT Corp. | 1,849 | 62,071 | ||||||
Cintas Corp. | 1,043 | 88,227 | ||||||
Pitney Bowes, Inc. | 2,142 | 44,575 | ||||||
Republic Services, Inc. | 2,728 | 106,856 | ||||||
Stericycle, Inc. (c) | 915 | 122,528 | ||||||
Tyco International PLC | 4,520 | 173,930 | ||||||
Waste Management, Inc. | 4,604 | 213,395 | ||||||
|
| |||||||
811,582 | ||||||||
Communications Equipment — 1.5% | ||||||||
Cisco Systems, Inc. | 55,134 | 1,513,980 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock S&P 500 Index V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Communications Equipment (concluded) | ||||||||
F5 Networks, Inc. (c) | 784 | $ | 94,354 | |||||
Harris Corp. | 1,335 | 102,675 | ||||||
Juniper Networks, Inc. | 3,806 | 98,842 | ||||||
Motorola Solutions, Inc. | 2,010 | 115,253 | ||||||
QUALCOMM, Inc. | 17,654 | 1,105,670 | ||||||
|
| |||||||
3,030,774 | ||||||||
Construction & Engineering — 0.1% | ||||||||
Fluor Corp. | 1,591 | 84,339 | ||||||
Jacobs Engineering Group, Inc. (c) | 1,366 | 55,487 | ||||||
Quanta Services, Inc. (c) | 2,293 | 66,084 | ||||||
|
| |||||||
205,910 | ||||||||
Construction Materials — 0.1% | ||||||||
Martin Marietta Materials, Inc. | 670 | 94,812 | ||||||
Vulcan Materials Co. | 1,438 | 120,691 | ||||||
|
| |||||||
215,503 | ||||||||
Consumer Finance — 0.8% | ||||||||
American Express Co. | 9,467 | 735,775 | ||||||
Capital One Financial Corp. | 5,920 | 520,782 | ||||||
Discover Financial Services | 4,792 | 276,115 | ||||||
Navient Corp. | 4,213 | 76,719 | ||||||
|
| |||||||
1,609,391 | ||||||||
Containers & Packaging — 0.2% | ||||||||
Avery Dennison Corp. | 968 | 58,990 | ||||||
Ball Corp. | 1,480 | 103,822 | ||||||
MeadWestvaco Corp. | 3,618 | 170,733 | ||||||
Owens-Illinois, Inc. (c) | 1,769 | 40,581 | ||||||
Sealed Air Corp. | 2,268 | 116,530 | ||||||
|
| |||||||
490,656 | ||||||||
Distributors — 0.1% | ||||||||
Genuine Parts Co. | 1,661 | 148,709 | ||||||
Diversified Consumer Services — 0.0% | ||||||||
H&R Block, Inc. | 2,948 | 87,408 | ||||||
Diversified Financial Services — 2.0% | ||||||||
Berkshire Hathaway, Inc., Class B (c) | 19,757 | 2,689,125 | ||||||
CME Group, Inc. | 3,425 | 318,731 | ||||||
Intercontinental Exchange, Inc. | 1,209 | 270,344 | ||||||
Leucadia National Corp. | 3,406 | 82,698 | ||||||
McGraw Hill Financial, Inc. | 2,954 | 296,729 | ||||||
Moody’s Corp. | 1,915 | 206,743 | ||||||
The NASDAQ OMX Group, Inc. | 1,293 | 63,111 | ||||||
|
| |||||||
3,927,481 | ||||||||
Diversified Telecommunication Services — 2.2% | ||||||||
AT&T Inc. | 56,234 | 1,997,432 | ||||||
CenturyLink, Inc. | 6,103 | 179,306 | ||||||
Frontier Communications Corp. | 12,488 | 61,816 | ||||||
Level 3 Communications, Inc. (c) | 3,187 | 167,859 | ||||||
Verizon Communications, Inc. | 44,166 | 2,058,577 | ||||||
|
| |||||||
4,464,990 | ||||||||
Electric Utilities — 1.6% | ||||||||
American Electric Power Co, Inc. | 5,289 | 280,158 | ||||||
Duke Energy Corp. | 7,493 | 529,156 | ||||||
Edison International | 3,511 | 195,141 | ||||||
Entergy Corp. | 1,961 | 138,251 | ||||||
Eversource Energy | 3,405 | 154,621 | ||||||
Exelon Corp. | 9,287 | 291,798 | ||||||
FirstEnergy Corp. | 4,583 | 149,177 | ||||||
NextEra Energy, Inc. | 4,811 | 471,622 | ||||||
Pepco Holdings, Inc. | 2,723 | 73,358 | ||||||
Pinnacle West Capital Corp. | 1,193 | 67,870 |
Common Stocks | Shares | Value | ||||||
Electric Utilities (concluded) | ||||||||
PPL Corp. | 7,197 | $ | 212,096 | |||||
The Southern Co. | 9,828 | 411,793 | ||||||
Xcel Energy, Inc. | 5,446 | 175,252 | ||||||
|
| |||||||
3,150,293 | ||||||||
Electrical Equipment — 0.5% | ||||||||
AMETEK, Inc. | 2,622 | 143,633 | ||||||
Eaton Corp. PLC | 5,058 | 341,364 | ||||||
Emerson Electric Co. | 7,238 | 401,202 | ||||||
Rockwell Automation, Inc. | 1,457 | 181,600 | ||||||
|
| |||||||
1,067,799 | ||||||||
Electronic Equipment, Instruments & Components — 0.4% |
| |||||||
Amphenol Corp., Class A | 3,340 | 193,620 | ||||||
Corning, Inc. | 13,634 | 268,999 | ||||||
FLIR Systems, Inc. | 1,491 | 45,953 | ||||||
TE Connectivity Ltd. | 4,388 | 282,148 | ||||||
|
| |||||||
790,720 | ||||||||
Energy Equipment & Services — 1.3% | ||||||||
Baker Hughes, Inc. | 4,694 | 289,620 | ||||||
Cameron International Corp. (c) | 2,083 | 109,087 | ||||||
Diamond Offshore Drilling, Inc. | 761 | 19,641 | ||||||
Ensco PLC, Class A | 2,527 | 56,276 | ||||||
FMC Technologies, Inc. (c) | 2,485 | 103,103 | ||||||
Halliburton Co. | 9,177 | 395,253 | ||||||
Helmerich & Payne, Inc. | 1,162 | 81,828 | ||||||
National Oilwell Varco, Inc. | 4,190 | 202,293 | ||||||
Noble Corp. PLC | 2,603 | 40,060 | ||||||
Schlumberger Ltd. | 13,748 | 1,184,940 | ||||||
Transocean Ltd. (a) | 3,625 | 58,435 | ||||||
|
| |||||||
2,540,536 | ||||||||
Food & Staples Retailing — 2.3% | ||||||||
Costco Wholesale Corp. | 4,752 | 641,805 | ||||||
CVS Health Corp. | 12,218 | 1,281,424 | ||||||
The Kroger Co. | 5,307 | 384,811 | ||||||
Sysco Corp. | 6,390 | 230,679 | ||||||
Walgreens Boots Alliance, Inc. | 9,455 | 798,380 | ||||||
Wal-Mart Stores, Inc. | 17,091 | 1,212,265 | ||||||
Whole Foods Market, Inc. | 3,925 | 154,802 | ||||||
|
| |||||||
4,704,166 | ||||||||
Food Products — 1.6% | ||||||||
Archer-Daniels-Midland Co. | 6,722 | 324,135 | ||||||
Campbell Soup Co. | 1,904 | 90,726 | ||||||
ConAgra Foods, Inc. | 4,581 | 200,281 | ||||||
General Mills, Inc. | 6,454 | 359,617 | ||||||
The Hershey Co. | 1,610 | 143,016 | ||||||
Hormel Foods Corp. | 1,466 | 82,638 | ||||||
The J.M. Smucker Co. | 1,062 | 115,131 | ||||||
Kellogg Co. | 2,715 | 170,231 | ||||||
Keurig Green Mountain, Inc. | 1,251 | 95,864 | ||||||
Kraft Foods Group, Inc. | 6,414 | 546,088 | ||||||
McCormick & Co, Inc., Non-Voting Shares | 1,393 | 112,763 | ||||||
Mead Johnson Nutrition Co. | 2,180 | 196,680 | ||||||
Mondelez International, Inc., Class A | 17,613 | 724,599 | ||||||
Tyson Foods, Inc., Class A | 3,179 | 135,521 | ||||||
|
| |||||||
3,297,290 | ||||||||
Gas Utilities — 0.0% | ||||||||
AGL Resources, Inc. | 1,295 | 60,295 | ||||||
Health Care Equipment & Supplies — 2.2% | ||||||||
Abbott Laboratories | 16,120 | 791,170 | ||||||
Baxter International, Inc. | 5,897 | 412,377 | ||||||
Becton Dickinson & Co. | 2,255 | 319,421 |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock S&P 500 Index V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Health Care Equipment & Supplies (concluded) | ||||||||
Boston Scientific Corp. (c) | 14,516 | $ | 256,933 | |||||
CR Bard, Inc. | 808 | 137,926 | ||||||
DENTSPLY International, Inc. | 1,503 | 77,480 | ||||||
Edwards Lifesciences Corp. (c) | 1,173 | 167,070 | ||||||
Intuitive Surgical, Inc. (c) | 400 | 193,800 | ||||||
Medtronic PLC | 15,431 | 1,143,437 | ||||||
St. Jude Medical, Inc. | 3,032 | 221,548 | ||||||
Stryker Corp. | 3,232 | 308,882 | ||||||
Varian Medical Systems, Inc. (c) | 1,089 | 91,835 | ||||||
Zimmer Biomet Holdings, Inc. | 1,830 | 199,891 | ||||||
|
| |||||||
4,321,770 | ||||||||
Health Care Providers & Services — 2.9% | ||||||||
Aetna, Inc. | 3,799 | 484,221 | ||||||
AmerisourceBergen Corp. | 2,252 | 239,478 | ||||||
Anthem, Inc. | 2,865 | 470,261 | ||||||
Cardinal Health, Inc. | 3,566 | 298,296 | ||||||
Cigna Corp. | 2,792 | 452,304 | ||||||
DaVita HealthCare Partners, Inc. (c) | 1,878 | 149,245 | ||||||
Express Scripts Holding Co. (c) | 7,898 | 702,448 | ||||||
HCA Holdings, Inc. (c) | 3,141 | 284,952 | ||||||
Henry Schein, Inc. (c) | 912 | 129,613 | ||||||
Humana, Inc. | 1,616 | 309,108 | ||||||
Laboratory Corp. of America Holdings (c) | 1,083 | 131,281 | ||||||
McKesson Corp. | 2,515 | 565,397 | ||||||
Patterson Cos., Inc. | 927 | 45,099 | ||||||
Quest Diagnostics, Inc. | 1,567 | 113,639 | ||||||
Tenet Healthcare Corp. (c) | 1,062 | 61,469 | ||||||
UnitedHealth Group, Inc. | 10,301 | 1,256,722 | ||||||
Universal Health Services, Inc., Class B | 991 | 140,821 | ||||||
|
| |||||||
5,834,354 | ||||||||
Health Care Technology — 0.1% | ||||||||
Cerner Corp. (c) | 3,287 | 227,000 | ||||||
Hotels, Restaurants & Leisure — 1.7% | ||||||||
Carnival Corp. | 4,857 | 239,887 | ||||||
Chipotle Mexican Grill, Inc. (c) | 334 | 202,067 | ||||||
Darden Restaurants, Inc. | 1,334 | 94,821 | ||||||
Marriott International, Inc., Class A | 2,231 | 165,963 | ||||||
McDonald’s Corp. | 10,381 | 986,922 | ||||||
Royal Caribbean Cruises Ltd. | 1,784 | 140,383 | ||||||
Starbucks Corp. | 16,247 | 871,083 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 1,868 | 151,476 | ||||||
Wyndham Worldwide Corp. | 1,307 | 107,056 | ||||||
Wynn Resorts Ltd. | 880 | 86,830 | ||||||
Yum! Brands, Inc. | 4,678 | 421,394 | ||||||
|
| |||||||
3,467,882 | ||||||||
Household Durables — 0.4% | ||||||||
DR Horton, Inc. | 3,609 | 98,742 | ||||||
Garmin Ltd. | 1,295 | 56,889 | ||||||
Harman International Industries, Inc. | 771 | 91,703 | ||||||
Leggett & Platt, Inc. | 1,492 | 72,631 | ||||||
Lennar Corp., Class A | 1,932 | 98,609 | ||||||
Mohawk Industries, Inc. (c) | 671 | 128,094 | ||||||
Newell Rubbermaid, Inc. | 2,930 | 120,452 | ||||||
PulteGroup, Inc. | 3,546 | 71,452 | ||||||
Whirlpool Corp. | 849 | 146,919 | ||||||
|
| |||||||
885,491 | ||||||||
Household Products — 1.7% | ||||||||
The Clorox Co. | 1,427 | 148,437 | ||||||
Colgate-Palmolive Co. | 9,210 | 602,426 | ||||||
Kimberly-Clark Corp. | 3,948 | 418,370 | ||||||
The Procter & Gamble Co. | 29,379 | 2,298,613 | ||||||
|
| |||||||
3,467,846 |
Common Stocks | Shares | Value | ||||||
Independent Power and Renewable Electricity Producers — 0.1% |
| |||||||
AES Corp. | 7,391 | $ | 98,005 | |||||
NRG Energy, Inc. | 3,615 | 82,711 | ||||||
|
| |||||||
180,716 | ||||||||
Industrial Conglomerates — 2.3% | ||||||||
3M Co. | 6,856 | 1,057,881 | ||||||
Danaher Corp. | 6,672 | 571,056 | ||||||
General Electric Co. | 109,119 | 2,899,292 | ||||||
Roper Industries, Inc. | 1,080 | 186,257 | ||||||
|
| |||||||
4,714,486 | ||||||||
Insurance — 2.7% | ||||||||
ACE Ltd. | 3,536 | 359,540 | ||||||
Aflac, Inc. | 4,698 | 292,216 | ||||||
The Allstate Corp. | 4,430 | 287,374 | ||||||
American International Group, Inc. | 14,441 | 892,743 | ||||||
Aon PLC | 3,051 | 304,124 | ||||||
Assurant, Inc. | 761 | 50,987 | ||||||
The Chubb Corp. | 2,490 | 236,899 | ||||||
Cincinnati Financial Corp. | 1,618 | 81,191 | ||||||
Genworth Financial, Inc., Class A (c) | 5,425 | 41,067 | ||||||
The Hartford Financial Services Group, Inc. | 4,532 | 188,395 | ||||||
Lincoln National Corp. | 2,741 | 162,322 | ||||||
Loews Corp. | 3,233 | 124,503 | ||||||
Marsh & McLennan Cos., Inc. | 5,820 | 329,994 | ||||||
MetLife, Inc. | 12,069 | 675,743 | ||||||
Principal Financial Group, Inc. | 2,974 | 152,536 | ||||||
The Progressive Corp. | 5,831 | 162,277 | ||||||
Prudential Financial, Inc. | 4,904 | 429,198 | ||||||
Torchmark Corp. | 1,375 | 80,053 | ||||||
The Travelers Cos., Inc. | 3,450 | 333,477 | ||||||
Unum Group | 2,732 | 97,669 | ||||||
XL Group PLC | 3,320 | 123,504 | ||||||
|
| |||||||
5,405,812 | ||||||||
Internet & Catalog Retail — 1.5% | ||||||||
Amazon.com, Inc. (c) | 4,134 | 1,794,528 | ||||||
Expedia, Inc. | 1,071 | 117,114 | ||||||
Netflix, Inc. (c) | 654 | 429,639 | ||||||
The Priceline Group, Inc. (c) | 561 | 645,919 | ||||||
TripAdvisor, Inc. (c) | 1,204 | 104,917 | ||||||
|
| |||||||
3,092,117 | ||||||||
Internet Software & Services — 3.3% | ||||||||
Akamai Technologies, Inc. (c) | 1,945 | 135,800 | ||||||
eBay, Inc. (c) | 11,972 | 721,193 | ||||||
Facebook, Inc., Class A (c) | 22,807 | 1,956,042 | ||||||
Google, Inc.: | ||||||||
Class A (c) | 3,099 | 1,673,584 | ||||||
Class C (c) | 3,108 | 1,617,745 | ||||||
VeriSign, Inc. (c) | 1,152 | 71,101 | ||||||
Yahoo!, Inc. (c) | 9,403 | 369,444 | ||||||
|
| |||||||
6,544,909 | ||||||||
IT Services — 3.3% | ||||||||
Accenture PLC, Class A | 6,785 | 656,652 | ||||||
Alliance Data Systems Corp. (c) | 677 | 197,643 | ||||||
Automatic Data Processing, Inc. | 5,087 | 408,130 | ||||||
Cognizant Technology Solutions Corp., Class A (c) | 6,585 | 402,278 | ||||||
Computer Sciences Corp. | 1,491 | 97,869 | ||||||
Fidelity National Information Services, Inc. | 3,069 | 189,664 | ||||||
Fiserv, Inc. (c) | 2,571 | 212,956 | ||||||
International Business Machines Corp. | 9,929 | 1,615,051 | ||||||
MasterCard, Inc., Class A | 10,501 | 981,633 | ||||||
Paychex, Inc. | 3,515 | 164,783 | ||||||
Teradata Corp. (c) | 1,561 | 57,757 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Schedule of Investments (continued) | BlackRock S&P 500 Index V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
IT Services (concluded) | ||||||||
Total System Services, Inc. | 1,792 | $ | 74,852 | |||||
Visa, Inc., Class A | 20,953 | 1,406,994 | ||||||
The Western Union Co. | 5,670 | 115,271 | ||||||
Xerox Corp. | 11,375 | 121,030 | ||||||
|
| |||||||
6,702,563 | ||||||||
Leisure Products — 0.1% | ||||||||
Hasbro, Inc. | 1,203 | 89,972 | ||||||
Mattel, Inc. | 3,654 | 93,871 | ||||||
|
| |||||||
183,843 | ||||||||
Life Sciences Tools & Services — 0.4% | ||||||||
Agilent Technologies, Inc. | 3,651 | 140,856 | ||||||
PerkinElmer, Inc. | 1,218 | 64,116 | ||||||
Thermo Fisher Scientific, Inc. | 4,310 | 559,266 | ||||||
Waters Corp. (c) | 896 | 115,028 | ||||||
|
| |||||||
879,266 | ||||||||
Machinery — 1.5% | ||||||||
Caterpillar, Inc. | 6,547 | 555,317 | ||||||
Cummins, Inc. | 1,817 | 238,372 | ||||||
Deere & Co. | 3,616 | 350,933 | ||||||
Dover Corp. | 1,737 | 121,903 | ||||||
Flowserve Corp. | 1,466 | 77,200 | ||||||
Illinois Tool Works, Inc. | 3,663 | 336,227 | ||||||
Ingersoll-Rand PLC | 2,869 | 193,428 | ||||||
Joy Global, Inc. | 1,049 | 37,974 | ||||||
PACCAR, Inc. | 3,825 | 244,073 | ||||||
Pall Corp. | 1,160 | 144,362 | ||||||
Parker-Hannifin Corp. | 1,502 | 174,728 | ||||||
Pentair PLC | 1,945 | 133,719 | ||||||
Snap-On, Inc. | 631 | 100,487 | ||||||
Stanley Black & Decker, Inc. | 1,665 | 175,225 | ||||||
Xylem, Inc. | 1,983 | 73,510 | ||||||
|
| |||||||
2,957,458 | ||||||||
Media — 3.6% | ||||||||
Cablevision Systems Corp., New York Group, Class A (a) | 2,369 | 56,714 | ||||||
CBS Corp., Class B, Non-Voting Shares | 4,903 | 272,117 | ||||||
Comcast Corp., Class A | 27,219 | 1,636,951 | ||||||
DIRECTV (c) | 5,431 | 503,942 | ||||||
Discovery Communications, Inc.: | ||||||||
Class A (c) | 1,587 | 52,784 | ||||||
Class C (c) | 2,829 | 87,925 | ||||||
The Interpublic Group of Cos., Inc. | 4,430 | 85,366 | ||||||
News Corp., Class A (c) | 5,346 | 77,998 | ||||||
Omnicom Group, Inc. | 2,657 | 184,635 | ||||||
Scripps Networks Interactive, Inc., Class A (a) | 1,052 | 68,769 | ||||||
TEGNA, Inc. | 2,440 | 78,251 | ||||||
Time Warner Cable, Inc. | 3,063 | 545,735 | ||||||
Time Warner, Inc. | 8,935 | 781,008 | ||||||
Twenty-First Century Fox, Inc., Class A | 19,161 | 623,595 | ||||||
Viacom, Inc., Class B | 3,869 | 250,092 | ||||||
The Walt Disney Co. | 16,888 | 1,927,596 | ||||||
|
| |||||||
7,233,478 | ||||||||
Metals & Mining — 0.3% | ||||||||
Alcoa, Inc. | 13,142 | 146,533 | ||||||
Allegheny Technologies, Inc. | 1,200 | 36,240 | ||||||
Freeport-McMoRan, Inc. | 11,216 | 208,842 | ||||||
Newmont Mining Corp. | 5,727 | 133,783 | ||||||
Nucor Corp. | 3,471 | 152,967 | ||||||
|
| |||||||
678,365 | ||||||||
Multiline Retail — 0.8% | ||||||||
Dollar General Corp. | 3,218 | 250,167 |
Common Stocks | Shares | Value | ||||||
Multiline Retail (concluded) | ||||||||
Dollar Tree, Inc. (c) | 2,211 | $ | 174,647 | |||||
Family Dollar Stores, Inc. | 1,041 | 82,041 | ||||||
Kohl’s Corp. | 2,143 | 134,173 | ||||||
Macy’s, Inc. | 3,643 | 245,793 | ||||||
Nordstrom, Inc. | 1,519 | 113,166 | ||||||
Target Corp. | 6,915 | 564,471 | ||||||
|
| |||||||
1,564,458 | ||||||||
Multi-Utilities — 1.1% | ||||||||
Ameren Corp. | 2,622 | 98,797 | ||||||
CenterPoint Energy, Inc. | 4,655 | 88,585 | ||||||
CMS Energy Corp. | 2,955 | 94,087 | ||||||
Consolidated Edison, Inc. | 3,153 | 182,496 | ||||||
Dominion Resources, Inc. | 6,427 | 429,773 | ||||||
DTE Energy Co. | 1,928 | 143,906 | ||||||
NiSource, Inc. | 3,421 | 155,963 | ||||||
PG&E Corp. | 5,199 | 255,271 | ||||||
Public Service Enterprise Group, Inc. | 5,460 | 214,469 | ||||||
SCANA Corp. | 1,532 | 77,596 | ||||||
Sempra Energy | 2,500 | 247,350 | ||||||
TECO Energy, Inc. | 2,511 | 44,344 | ||||||
WEC Energy Group, Inc. (a) | 3,394 | 152,628 | ||||||
|
| |||||||
2,185,265 | ||||||||
Oil, Gas & Consumable Fuels — 6.4% | ||||||||
Anadarko Petroleum Corp. | 5,501 | 429,408 | ||||||
Apache Corp. | 4,065 | 234,266 | ||||||
Cabot Oil & Gas Corp. | 4,457 | 140,574 | ||||||
Chesapeake Energy Corp. | 5,610 | 62,664 | ||||||
Chevron Corp. | 20,375 | 1,965,576 | ||||||
Cimarex Energy Co. | 1,015 | 111,965 | ||||||
ConocoPhillips | 13,352 | 819,946 | ||||||
CONSOL Energy, Inc. | 2,482 | 53,959 | ||||||
Devon Energy Corp. | 4,173 | 248,252 | ||||||
EOG Resources, Inc. | 5,924 | 518,646 | ||||||
EQT Corp. | 1,653 | 134,455 | ||||||
Exxon Mobil Corp. | 45,305 | 3,769,376 | ||||||
Hess Corp. | 2,646 | 176,964 | ||||||
Kinder Morgan, Inc. | 18,791 | 721,386 | ||||||
Marathon Oil Corp. | 7,268 | 192,893 | ||||||
Marathon Petroleum Corp. | 5,900 | 308,629 | ||||||
Murphy Oil Corp. | 1,810 | 75,242 | ||||||
Newfield Exploration Co. (c) | 1,711 | 61,801 | ||||||
Noble Energy, Inc. | 4,161 | 177,591 | ||||||
Occidental Petroleum Corp. | 8,323 | 647,280 | ||||||
ONEOK, Inc. | 2,251 | 88,869 | ||||||
Phillips 66 | 5,871 | 472,968 | ||||||
Pioneer Natural Resources Co. | 1,606 | 222,736 | ||||||
Range Resources Corp. | 1,784 | 88,094 | ||||||
Southwestern Energy Co. (c) | 4,162 | 94,602 | ||||||
Spectra Energy Corp. | 7,243 | 236,122 | ||||||
Tesoro Corp. | 1,349 | 113,869 | ||||||
Valero Energy Corp. | 5,508 | 344,801 | ||||||
The Williams Cos., Inc. | 7,270 | 417,225 | ||||||
|
| |||||||
12,930,159 | ||||||||
Paper & Forest Products — 0.1% | ||||||||
International Paper Co. | 4,561 | 217,058 | ||||||
Personal Products — 0.1% | ||||||||
The Estee Lauder Cos., Inc., Class A | 2,404 | 208,331 | ||||||
Pharmaceuticals — 6.4% | ||||||||
AbbVie, Inc. | 18,627 | 1,251,548 | ||||||
Allergan PLC (c) | 4,252 | 1,290,312 | ||||||
Bristol-Myers Squibb Co. | 18,060 | 1,201,712 | ||||||
Eli Lilly & Co. | 10,561 | 881,738 |
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock S&P 500 Index V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Pharmaceuticals (concluded) | ||||||||
Endo International PLC (c) | 2,176 | $ | 173,318 | |||||
Hospira, Inc. (c) | 1,865 | 165,444 | ||||||
Johnson & Johnson | 30,031 | 2,926,821 | ||||||
Mallinckrodt PLC (c) | 1,262 | 148,563 | ||||||
Merck & Co., Inc. | 30,590 | 1,741,489 | ||||||
Mylan NV (c) | 4,460 | 302,656 | ||||||
Perrigo Co. PLC | 1,585 | 292,956 | ||||||
Pfizer, Inc. | 66,676 | 2,235,646 | ||||||
Zoetis, Inc. | 5,404 | 260,581 | ||||||
|
| |||||||
12,872,784 | ||||||||
Professional Services — 0.2% | ||||||||
The Dun & Bradstreet Corp. | 394 | 48,068 | ||||||
Equifax, Inc. | 1,289 | 125,149 | ||||||
Nielsen Holdings NV | 3,992 | 178,722 | ||||||
Robert Half International, Inc. | 1,446 | 80,253 | ||||||
|
| |||||||
432,192 | ||||||||
Real Estate Investment Trusts (REITs) — 2.4% | ||||||||
American Tower Corp. | 4,564 | 425,776 | ||||||
Apartment Investment & Management Co., Class A | 1,662 | 61,378 | ||||||
AvalonBay Communities, Inc. | 1,424 | 227,655 | ||||||
Boston Properties, Inc. | 1,651 | 199,837 | ||||||
Crown Castle International Corp. | 3,655 | 293,497 | ||||||
Equinix, Inc. | 614 | 155,956 | ||||||
Equity Residential | 3,929 | 275,698 | ||||||
Essex Property Trust, Inc. | 699 | 148,538 | ||||||
General Growth Properties, Inc. | 6,763 | 173,539 | ||||||
HCP, Inc. | 4,961 | 180,928 | ||||||
Health Care REIT, Inc. | 3,773 | 247,622 | ||||||
Host Hotels & Resorts, Inc. | 8,242 | 163,439 | ||||||
Iron Mountain, Inc. | 2,001 | 62,031 | ||||||
Kimco Realty Corp. | 4,490 | 101,205 | ||||||
The Macerich Co. | 1,525 | 113,765 | ||||||
Plum Creek Timber Co., Inc. | 1,900 | 77,083 | ||||||
Prologis, Inc. | 5,677 | 210,617 | ||||||
Public Storage | 1,568 | 289,092 | ||||||
Realty Income Corp. | 2,518 | 111,774 | ||||||
Simon Property Group, Inc. | 3,371 | 583,249 | ||||||
SL Green Realty Corp. | 1,073 | 117,912 | ||||||
Ventas, Inc. | 3,550 | 220,420 | ||||||
Vornado Realty Trust | 1,881 | 178,560 | ||||||
Weyerhaeuser Co. | 5,649 | 177,943 | ||||||
|
| |||||||
4,797,514 | ||||||||
Real Estate Management & Development — 0.1% | ||||||||
CBRE Group, Inc., Class A (c) | 3,013 | 111,481 | ||||||
Road & Rail — 0.9% | ||||||||
CSX Corp. | 10,699 | 349,322 | ||||||
JB Hunt Transport Services, Inc. | 996 | 81,762 | ||||||
Kansas City Southern | 1,201 | 109,531 | ||||||
Norfolk Southern Corp. | 3,321 | 290,123 | ||||||
Ryder System, Inc. | 568 | 49,626 | ||||||
Union Pacific Corp. | 9,482 | 904,298 | ||||||
|
| |||||||
1,784,662 | ||||||||
Semiconductors & Semiconductor Equipment — 2.4% | ||||||||
Altera Corp. | 3,263 | 167,066 | ||||||
Analog Devices, Inc. | 3,396 | 217,972 | ||||||
Applied Materials, Inc. | 13,263 | 254,915 | ||||||
Avago Technologies Ltd. | 2,772 | 368,482 | ||||||
Broadcom Corp., Class A | 5,886 | 303,070 | ||||||
First Solar, Inc. (c) | 809 | 38,007 | ||||||
Intel Corp. | 51,368 | 1,562,358 |
Common Stocks | Shares | Value | ||||||
Semiconductors & Semiconductor Equipment (concluded) |
| |||||||
KLA-Tencor Corp. | 1,732 | $ | 97,356 | |||||
Lam Research Corp. | 1,721 | 140,003 | ||||||
Linear Technology Corp. | 2,603 | 115,131 | ||||||
Microchip Technology, Inc. | 2,165 | 102,675 | ||||||
Micron Technology, Inc. (c) | 11,636 | 219,222 | ||||||
NVIDIA Corp. | 5,604 | 112,696 | ||||||
Qorvo, Inc. (c) | 1,604 | 128,753 | ||||||
Skyworks Solutions, Inc. | 2,056 | 214,030 | ||||||
Texas Instruments, Inc. | 11,310 | 582,578 | ||||||
Xilinx, Inc. | 2,802 | 123,736 | ||||||
|
| |||||||
4,748,050 | ||||||||
Software — 3.7% | ||||||||
Adobe Systems, Inc. (c) | 5,140 | 416,391 | ||||||
Autodesk, Inc. (c) | 2,467 | 123,535 | ||||||
CA, Inc. | 3,446 | 100,933 | ||||||
Citrix Systems, Inc. (c) | 1,728 | 121,236 | ||||||
Electronic Arts, Inc. (c) | 3,350 | 222,775 | ||||||
Intuit, Inc. | 2,989 | 301,202 | ||||||
Microsoft Corp. (d) | 87,649 | 3,869,703 | ||||||
Oracle Corp. | 34,522 | 1,391,237 | ||||||
Red Hat, Inc. (c) | 1,996 | 151,556 | ||||||
Salesforce.com, Inc. (c) | 6,601 | 459,628 | ||||||
Symantec Corp. | 7,342 | 170,701 | ||||||
|
| |||||||
7,328,897 | ||||||||
Specialty Retail — 2.3% | ||||||||
AutoNation, Inc. (c) | 824 | 51,896 | ||||||
AutoZone, Inc. (c) | 345 | 230,081 | ||||||
Bed Bath & Beyond, Inc. (c) | 1,871 | 129,062 | ||||||
Best Buy Co., Inc. | 3,167 | 103,276 | ||||||
CarMax, Inc. (c) | 2,285 | 151,290 | ||||||
GameStop Corp., Class A | 1,158 | 49,748 | ||||||
The Gap, Inc. | 2,864 | 109,319 | ||||||
The Home Depot, Inc. | 14,067 | 1,563,266 | ||||||
L Brands, Inc. | 2,652 | 227,356 | ||||||
Lowe’s Cos., Inc. | 10,099 | 676,330 | ||||||
O’Reilly Automotive, Inc. (c) | 1,096 | 247,674 | ||||||
Ross Stores, Inc. | 4,462 | 216,898 | ||||||
Staples, Inc. | 6,912 | 105,823 | ||||||
Tiffany & Co. | 1,225 | 112,455 | ||||||
The TJX Cos., Inc. | 7,374 | 487,938 | ||||||
Tractor Supply Co. | 1,482 | 133,291 | ||||||
Urban Outfitters, Inc. (c) | 1,061 | 37,135 | ||||||
|
| |||||||
4,632,838 | ||||||||
Technology Hardware, Storage & Peripherals — 4.8% | ||||||||
Apple Inc. | 62,372 | 7,823,008 | ||||||
EMC Corp. | 21,031 | 555,008 | ||||||
Hewlett-Packard Co. | 19,562 | 587,056 | ||||||
NetApp, Inc. | 3,393 | 107,083 | ||||||
SanDisk Corp. | 2,252 | 131,111 | ||||||
Seagate Technology PLC | 3,437 | 163,258 | ||||||
Western Digital Corp. | 2,341 | 183,581 | ||||||
|
| |||||||
9,550,105 | ||||||||
Textiles, Apparel & Luxury Goods — 0.9% | ||||||||
Coach, Inc. | 2,991 | 103,519 | ||||||
Fossil Group, Inc. (c) | 493 | 34,194 | ||||||
Hanesbrands, Inc. | 4,361 | 145,309 | ||||||
Michael Kors Holdings Ltd. (c) | 2,183 | 91,882 | ||||||
NIKE, Inc., Class B | 7,559 | 816,523 | ||||||
PVH Corp. | 887 | 102,182 | ||||||
Ralph Lauren Corp. | 656 | 86,828 | ||||||
Under Armour, Inc., Class A (c) | 1,815 | 151,444 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Schedule of Investments (continued) | BlackRock S&P 500 Index V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Textiles, Apparel & Luxury Goods (concluded) | ||||||||
VF Corp. | 3,695 | $ | 257,689 | |||||
|
| |||||||
1,789,570 | ||||||||
Thrifts & Mortgage Finance — 0.0% | ||||||||
Hudson City Bancorp, Inc. | 5,308 | 52,443 | ||||||
Tobacco — 1.4% | ||||||||
Altria Group, Inc. | 21,270 | 1,040,316 | ||||||
Philip Morris International, Inc. | 16,772 | 1,344,611 | ||||||
Reynolds American, Inc. | 4,501 | 336,045 | ||||||
|
| |||||||
2,720,972 | ||||||||
Trading Companies & Distributors — 0.2% | ||||||||
Fastenal Co. (a) | 2,958 | 124,768 | ||||||
United Rentals, Inc. (c) | 1,041 | 91,212 | ||||||
W.W. Grainger, Inc. | 653 | 154,532 | ||||||
|
| |||||||
370,512 | ||||||||
Total Long-Term Investments (Cost — $72,681,105) — 98.3% | 197,366,101 | |||||||
Short-Term Securities | Shares | Value | ||||||
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.07% (b)(e) | 2,830,538 | $ | 2,830,538 | |||||
Beneficial | ||||||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (b)(e)(f) | $ | 755 | 754,899 | |||||
Total Short-Term Securities (Cost — $3,585,437) — 1.8% | 3,585,437 | |||||||
Total Investments Before Investments Sold Short (Cost — $76,266,542) — 100.1% |
| 200,951,538 | ||||||
Investments Sold Short | ||||||||
Chemicals — (0.0)% | ||||||||
The Chemours Co. (c) | (1,955 | ) | (31,280 | ) | ||||
Household Durables — (0.0)% | ||||||||
TopBuild Corp. (c) | (376 | ) | (10,904 | ) | ||||
Total Investments Sold Short (Proceeds — $42,174) — (0.0)% | (42,184 | ) | ||||||
Total Investments — 100.1% | 200,909,354 | |||||||
Liabilities in Excess of Other Assets — (0.1)% | (250,155 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 200,659,199 | ||||||
|
|
Notes to Schedule of Investments |
(a) | Security, or a portion of security, is on loan. |
(b) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/ Beneficial Interest Held at December 31, 2014 | Shares/ Beneficial Interest Purchased | Shares Sold | Shares/ Beneficial Interest Held at June 30, 2015 | Value at June 30, 2015 | Income | Realized Gain | |||||||||||||||||||||
BlackRock, Inc. | 1,430 | — | (59 | ) | 1,371 | $ | 474,339 | $ | 6,076 | $ | 5,287 | |||||||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 1,091,358 | 1,739,180 | 1 | — | 2,830,538 | $ | 2,830,538 | $ | 1,177 | — | ||||||||||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $ | 304,913 | $ | 449,986 | 2 | — | $ | 754,899 | $ | 754,899 | $ | 6,685 | 3 | — | ||||||||||||||
The PNC Financial Services Group, Inc. | 5,904 | — | (280 | ) | 5,624 | $ | 537,936 | $ | 5,786 | $ | 14,038 |
1 Represents net shares purchased.
2 Represents net beneficial interest purchased.
3 Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses.
(c) | Non-income producing security. |
(d) | All or a portion of security has been pledged in connection with outstanding financial futures contracts. |
(e) | Represents the current yield as of report date. |
(f) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
• | As of June 30, 2015, financial futures contracts outstanding were as follows: |
Contracts Long | Issue | Exchange | Expiration | Notional Value | Unrealized Depreciation | |||||||||||||||||
29 | E-Mini S&P 500 Futures | Chicago Mercantile | September 2015 | USD | 2,978,880 | ($68,102 | ) |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (concluded) | BlackRock S&P 500 Index V.I. Fund |
active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Long-Term Investments1 | $ | 197,366,101 | — | — | $ | 197,366,101 | ||||||||||||||
Short-Term Securities | 2,830,538 | $ | 754,899 | — | 3,585,437 | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Investments Sold Short | (42,184 | ) | — | — | (42,184 | ) | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | 200,154,455 | $ | 754,899 | — | $ | 200,909,354 | |||||||||||||
|
| |||||||||||||||||||
1 See above Schedule of Investments for values in each industry. | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Derivative Financial Instruments2 | ||||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Equity contracts | $ | (68,102 | ) | — | — | $ | (68,102 | ) | ||||||||||||
2 Derivative financial instruments are financial futures contracts, which are valued at the unrealized appreciation (depreciation) on the instrument. |
| |||||||||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows: | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Cash | $ | 15,793 | — | — | $ | 15,793 | ||||||||||||||
Liabilities: | ||||||||||||||||||||
Collateral on securities loaned at value | — | $ | (754,899 | ) | — | (754,899 | ) | |||||||||||||
Total | $ | 15,793 | $ | (754,899 | ) | — | $ | (739,106 | ) | |||||||||||
|
|
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock S&P 500 Index V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $737,815) (cost — $72,183,692) | $ | 196,353,826 | ||
Investments at value — affiliated (cost — $4,082,850) | 4,597,712 | |||
Cash | 15,793 | |||
Receivables: | ||||
Capital shares sold | 471,397 | |||
Dividends — unaffiliated | 227,715 | |||
Investments sold | 92,050 | |||
From the Manager | 17,338 | |||
Variation margin receivable on financial futures contracts | 5,655 | |||
Securities lending income — affiliated | 461 | |||
Dividends — affiliated | 235 | |||
Prepaid expenses | 5,474 | |||
|
| |||
Total assets | 201,787,656 | |||
|
| |||
Liabilities | ||||
Investments sold short at value (proceeds — $42,174) | 42,184 | |||
Collateral on securities loaned at value | 754,899 | |||
Payables: | ||||
Investments purchased | 168,442 | |||
Investment advisory fees | 33,427 | |||
Capital shares redeemed | 26,498 | |||
Officer’s and Directors’ fees | 1,551 | |||
Other affiliates | 991 | |||
Distribution fees | 255 | |||
Other accrued expenses payable | 100,210 | |||
|
| |||
Total liabilities | 1,128,457 | |||
|
| |||
Net Assets | $ | 200,659,199 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 72,679,746 | ||
Undistributed net investment income | 1,757,399 | |||
Accumulated net realized gain | 1,605,170 | |||
Net unrealized appreciation (depreciation) | 124,616,884 | |||
|
| |||
Net Assets | $ | 200,659,199 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $198,636,311 and 9,527,141 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 20.85 | ||
|
| |||
Class II — Based on net assets of $2,022,888 and 97,752 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 20.69 | ||
|
|
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 2,018,889 | ||
Dividends — affiliated | 13,039 | |||
Securities lending — affiliated — net | 6,685 | |||
Foreign taxes withheld | (301 | ) | ||
|
| |||
Total income | 2,038,312 | |||
|
| |||
Expenses | ||||
Investment advisory | 307,471 | |||
Transfer agent | 1,660 | |||
Transfer agent — Class I | 50,458 | |||
Transfer agent — Class II | 506 | |||
Distribution — Class II | 1,505 | |||
Professional | 28,428 | |||
Accounting services | 25,443 | |||
Custodian | 13,710 | |||
Officer and Directors | 9,904 | |||
Printing | 7,375 | |||
Miscellaneous | 28,378 | |||
|
| |||
Total expenses | 474,838 | |||
Less fees waived by the Manager | (105,240 | ) | ||
Less transfer agent fees reimbursed — Class I | (50,458 | ) | ||
Less transfer agent fees reimbursed — Class II | (506 | ) | ||
Less expenses reimbursed by the Manager | (2,624 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 316,010 | |||
|
| |||
Net investment income | 1,722,302 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain from: | ||||
Investments — unaffiliated | 7,019,968 | |||
Investments — affiliated | 19,325 | |||
Financial futures contracts | 129,710 | |||
|
| |||
7,169,003 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments — unaffiliated | (6,375,392 | ) | ||
Investments — affiliated | (8,611 | ) | ||
Short sales | (10 | ) | ||
Financial futures contracts | (87,622 | ) | ||
|
| |||
(6,471,635 | ) | |||
|
| |||
Net realized and unrealized gain | 697,368 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 2,419,670 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Statements of Changes in Net Assets | BlackRock S&P 500 Index V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 1,722,302 | $ | 3,384,625 | ||||
Net realized gain | 7,169,003 | 9,609,445 | ||||||
Net change in unrealized appreciation (depreciation) | (6,471,635 | ) | 12,102,506 | |||||
|
| |||||||
Net increase in net assets resulting from operations | 2,419,670 | 25,096,576 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | — | (3,320,811 | ) | |||||
Class II | — | (29,196 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (9,660,245 | ) | |||||
Class II | — | (94,268 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (13,104,520 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net decrease in net assets derived from capital share transactions | (7,751,434 | ) | (7,653,814 | ) | ||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | (5,331,764 | ) | 4,338,242 | |||||
Beginning of period | 205,990,963 | 201,652,721 | ||||||
|
| |||||||
End of period | $ | 200,659,199 | $ | 205,990,963 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 1,757,399 | $ | 35,097 | ||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights | BlackRock S&P 500 Index V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 20.63 | $ | 19.43 | $ | 15.43 | $ | 13.92 | $ | 14.52 | $ | 13.24 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.17 | 0.35 | 0.30 | 0.29 | 0.24 | 0.22 | ||||||||||||||||||
Net realized and unrealized gain | 0.05 | 2.25 | 4.61 | 1.87 | 0.02 | 1.72 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.22 | 2.60 | 4.91 | 2.16 | 0.26 | 1.94 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.36 | ) | (0.31 | ) | (0.30 | ) | (0.26 | ) | (0.23 | ) | |||||||||||||
Net realized gain | — | (1.04 | ) | (0.60 | ) | (0.35 | ) | (0.60 | ) | (0.43 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (1.40 | ) | (0.91 | ) | (0.65 | ) | (0.86 | ) | (0.66 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 20.85 | $ | 20.63 | $ | 19.43 | $ | 15.43 | $ | 13.92 | $ | 14.52 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 1.07 | %4 | 13.30 | % | 31.87 | % | 15.60 | % | 1.70 | % | 14.70 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.46 | %5 | 0.46 | % | 0.46 | % | 0.46 | % | 0.43 | % | 0.43 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 0.31 | %5 | 0.34 | % | 0.41 | % | 0.43 | % | 0.43 | % | 0.42 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.68 | %5 | 1.70 | % | 1.69 | % | 1.87 | % | 1.65 | % | 1.63 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 198,636 | $ | 204,029 | $ | 199,825 | $ | 158,160 | $ | 147,145 | $ | 163,308 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 3 | % | 3 | % | 4 | % | 4 | % | 4 | % | 5 | % | ||||||||||||
|
| |||||||||||||||||||||||
Class II | ||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 20.49 | $ | 19.31 | $ | 15.34 | $ | 13.84 | $ | 14.44 | $ | 13.12 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.16 | 0.32 | 0.27 | 0.26 | 0.22 | 0.18 | ||||||||||||||||||
Net realized and unrealized gain | 0.04 | 2.22 | 4.58 | 1.86 | 0.02 | 1.75 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.20 | 2.54 | 4.85 | 2.12 | 0.24 | 1.93 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.32 | ) | (0.28 | ) | (0.27 | ) | (0.24 | ) | (0.18 | ) | |||||||||||||
Net realized gain | — | (1.04 | ) | (0.60 | ) | (0.35 | ) | (0.60 | ) | (0.43 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (1.36 | ) | (0.88 | ) | (0.62 | ) | (0.84 | ) | (0.61 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 20.69 | $ | 20.49 | $ | 19.31 | $ | 15.34 | $ | 13.84 | $ | 14.44 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 0.98 | %4 | 13.11 | % | 31.67 | % | 15.44 | % | 1.58 | % | 14.73 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.61 | %5 | 0.60 | % | 0.60 | % | 0.61 | % | 0.58 | % | 0.58 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 0.46 | %5 | 0.48 | % | 0.56 | % | 0.58 | % | 0.58 | % | 0.58 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.53 | %5 | 1.55 | % | 1.54 | % | 1.72 | % | 1.52 | % | 1.39 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 2,023 | $ | 1,962 | $ | 1,828 | $ | 1,584 | $ | 1,355 | $ | 855 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 3 | % | 3 | % | 4 | % | 4 | % | 4 | % | 5 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (Unaudited) | BlackRock S&P 500 Index V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock S&P 500 Index V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class II Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class II Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Financial futures contracts traded on exchanges are valued at their last sale price. Investments in open-end registered investment companies are valued at NAV each business day.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., financial futures contracts and short sales), that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock S&P 500 Index V.I. Fund |
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Short Sales: The Fund may enter into short sale transactions in which the Fund sells a security it does not hold in anticipation of a decline in the market price of that security. When the Fund makes a short sale, it will borrow the security sold short from a broker/counterparty and deliver the security to the purchaser. To close out a short position, the Fund delivers the same security to the broker and records a liability to reflect the obligation to return the security to the broker. The amount of the liability is subsequently marked-to-market to reflect the market value of the short sale. The Fund maintains a segregated account of securities or deposits cash with the broker-dealer as collateral for the short sales. Cash deposited with the broker is recorded as an asset in the Statement of Assets and Liabilities. Securities segregated as collateral are denoted in the Schedule of Investments. The Fund may pay a financing fee for the difference between the market value of the short position and the cash collateral deposited with the broker which would be recorded as interest expense. The Fund is required to repay the counterparty any dividends received on the security sold short, which is shown as dividend expense in the Statement of Operations. The Fund may pay a fee on the assets borrowed from the counterparty, which is shown as stock loan fees in the Statement of Operations. The Fund is exposed to market risk based on the amount, if any, that the market value of the security increases beyond the market value at which the position was sold. Thus, a short sale of a security involves the risk that instead of declining, the price of the security sold short will rise. The short sale of securities involves the possibility of a theoretically unlimited loss since there is a theoretically unlimited potential for the market price of the security sold short to increase. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited as to the dollar amount, will be recognized upon the termination of a short sale if the market price is either less than or greater than the proceeds originally received. There is no assurance the Fund will be able to close out a short position at a particular time or at an acceptable price.
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (continued) | BlackRock S&P 500 Index V.I. Fund |
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:
| ||||||||||
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | |||||||
| ||||||||||
JP Morgan Securities LLC | $122,322 | $(122,322) | — | |||||||
Morgan Stanley | 56,420 | (56,420) | — | |||||||
UBS Securities LLC | 559,073 | (559,073) | — | |||||||
| ||||||||||
Total | $737,815 | $(737,815) | — | |||||||
|
1 | Collateral with a value of $754,899 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as equity risk. These contracts may be transacted on an exchange or over-the-counter (“OTC”).
Financial Futures Contracts: The Fund invests in long and/or short positions in financial futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.
Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited, if any, is recorded on the Statement of Assets and Liabilities as cash pledged for financial futures contracts. 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. Variation margin is recorded by the Fund as unrealized appreciation (depreciation) and, if applicable, as a receivable or payable for variation margin in the Statement of Assets and Liabilities.
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. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.
The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:
Fair Values of Derivative Financial Instruments as of June 30, 2015 | ||||
Value | ||||
Statement of Assets and Liabilities Location | Derivative Liabilities | |||
Equity contracts | Net unrealized depreciation1 | $68,102 |
1 | Includes cumulative appreciation (depreciation) on financial futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2015 | ||||||
Net Realized Gain From | Net Change in Unrealized Appreciation (Depreciation) on | |||||
Equity contracts: | ||||||
Financial futures contracts | $129,710 | $(87,622) |
For the six months ended June 30, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:
Financial futures contracts: | ||||
Average notional value of contracts - long | $3,086,560 |
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock S&P 500 Index V.I. Fund |
Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund.
With exchange-traded futures, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
5. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee of 0.30% of the Fund’s average daily net assets.
BlackRock has contractually agreed to waive 0.10% of its management fee until May 1, 2016.
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is included in fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any. For the six months ended June 30, 2015, the amount waived was $1,037.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $1,018 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at the annual rate of 0.15% based upon the average daily net assets attributable to Class II.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse all such fees for Class I and Class II.
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I and 1.40% for Class II. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
Notes to Financial Statements (continued) | BlackRock S&P 500 Index V.I. Fund |
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 71.5% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 75% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $2,469 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
6. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $5,066,152 and $12,966,936, respectively.
7. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
| ||||
Tax cost | $ | 82,055,207 | ||
|
| |||
Gross unrealized appreciation | $ | 120,485,704 | ||
Gross unrealized depreciation | (1,589,373 | ) | ||
|
| |||
Net unrealized appreciation | $ | 118,896,331 | ||
|
|
8. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
20 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (concluded) | BlackRock S&P 500 Index V.I. Fund |
9. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
As of June 30, 2015, the Fund invested a significant portion of its assets in securities in the information technology sector. Changes in economic conditions affecting such sector would have a greater impact on the Fund and could affect the value, income and/or liquidity of positions in such securities.
10. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
| ||||||||||||||||
Class I | ||||||||||||||||
| ||||||||||||||||
Shares sold | 631,931 | $ | 13,176,645 | 914,408 | $ | 18,390,948 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 623,151 | 12,981,056 | ||||||||||||
Shares redeemed | (996,416 | ) | (20,968,520 | ) | (1,931,083 | ) | (39,046,639 | ) | ||||||||
|
|
|
| |||||||||||||
Net decrease | (364,485 | ) | $ | (7,791,875 | ) | (393,524 | ) | $ | (7,674,635 | ) | ||||||
|
|
|
| |||||||||||||
| ||||||||||||||||
Class II | ||||||||||||||||
| ||||||||||||||||
Shares sold | 5,706 | $ | 119,014 | 18,610 | $ | 376,026 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 5,967 | 123,464 | ||||||||||||
Shares redeemed | (3,726 | ) | (78,573 | ) | (23,499 | ) | (478,669 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase | 1,980 | $ | 40,441 | 1,078 | $ | 20,821 | ||||||||||
|
|
|
| |||||||||||||
Total Net Decrease | (362,505 | ) | $ | (7,751,434 | ) | (392,446 | ) | $ | (7,653,814 | ) | ||||||
|
|
|
|
11. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income and short-term and long-term capital gain distributions in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015:
Net Investment Income | Short-Term Capital Gain | Long-Term Capital Gain | ||||
Class I | $0.003532 | $0.004688 | $0.020299 | |||
Class II | $0.003532 | $0.004688 | $0.020299 |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 21 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Total Return V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Total Return V.I. Fund |
Investment Objective |
BlackRock Total Return V.I. Fund’s (the “Fund”) investment objective is to maximize total return, consistent with income generation and prudent investment management.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund outperformed its benchmark, the Barclays U.S. Aggregate Bond Index. |
What factors influenced performance?
• | The Fund outperformed the benchmark index largely due to its positioning across sectors of the U.S. bond market. In particular, the Fund’s allocations to U.S. securitized assets including commercial mortgage-backed securities, asset-backed securities and non-agency residential mortgage-backed securities added to relative performance. In addition, holdings of U.S. high yield and investment grade corporate bonds were positive contributors to performance. Finally, an emphasis on the U.S. dollar versus the euro and the yen helped performance, as global monetary policy and economic growth trends diverged. |
• | The Fund’s municipal bond position was the leading detractor from relative performance. In addition, the Fund held less duration exposure (a measure of sensitivity to changing interest rates) than the benchmark early in the period as interest rates declined which acted as a constraint on returns. |
Describe recent portfolio activity.
• | Throughout the period, the Fund’s overall duration and interest rate sensitivity were tactically managed, with duration initially underweight but |
brought close to neutral late in the period as U.S. Treasuries benefited from increased risk aversion on fears over the potential impact of a scenario under which Greece exits the Eurozone. |
• | For much of the period, the Fund was modestly underweight in U.S. investment grade credits given the sector’s low all-in yields. However, this allocation was increased in May as global yields rose, with a focus on longer-maturity bonds within industrials. The Fund maintained an overweight position in securitized assets for based on their relative value versus other sectors that trade at a yield spread versus U.S. Treasuries, as well as a strong supply/demand backdrop. However, toward the end of the period the Fund’s allocation to securitized assets was trimmed on increasing macro volatility and diminishing relative value versus other spread sectors. |
Describe portfolio positioning at period end.
• | At the end of the period, the Fund held less duration exposure to the benchmark particularly to the shorter end of the U.S. yield curve. Within spread sectors, the Fund was modestly overweight in U.S. corporate bonds, and remained overweight in securitized assets and municipal bonds. The Fund continued to be overweight in the U.S. dollar versus other major currencies. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Portfolio Composition | Percent of Long-Term Investments |
U.S. Government Sponsored Agency Securities | 39 | % | ||
Corporate Bonds | 25 | |||
U.S. Treasury Obligations | 15 | |||
Asset-Backed Securities | 9 | |||
Non-Agency Mortgage-Backed Securities | 7 | |||
Foreign Government Obligations | 2 | |||
Taxable Municipal Bonds | 2 | |||
Preferred Securities | 1 |
Credit Quality Allocations1 | Percent of Long-Term Investments |
AAA/Aaa2 | 63 | % | ||
AA/Aa | 5 | |||
A | 13 | |||
BBB/Baa | 12 | |||
BB/Ba | 2 | |||
B | 1 | |||
CCC/Caa | 1 | |||
CC/Ca | 1 | |||
N/R | 2 |
1 | For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s or Moody’s Investors Service if ratings differ. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change. |
2 | The investment advisor evaluates the credit quality of unrated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis of sectors, individual investments and/or issuers. Using this approach, the investment advisor has deemed unrated U.S. Government Sponsored Agency Securities and U.S. Treasury Obligations to be as AAA/ Aaa. |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Total Return V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. The returns for Class III Shares prior to August 14, 2012, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares, as adjusted to reflect the distribution and/or service (12b-1) fees applicable to Class III Shares. |
2 | The Fund normally invests at least 80%, and typically invests 90% or more, of its assets in fixed income securities, such as corporate bonds and notes, mortgage-backed securities, asset-backed securities, convertible securities, preferred stocks, government obligations and money market securities |
3 | A widely recognized unmanaged market-weighted index, comprised of investment-grade corporate bonds rated BBB or better, mortgages and U.S. Treasury and U.S. Government agency issues with at least one year to maturity. |
Performance Summary for the Period Ended June 30, 2015 | ||||||||||||
Average Annual Total Returns | ||||||||||||
Standardized 30-Day Yields5 | Unsubsidized 30-Day Yields5 | 6-Month Total Returns6 | 1 Year6 | 5 Years6 | 10 Years6 | |||||||
Class I4 | 2.18% | 1.98% | 0.12% | 1.61% | 4.43% | 4.04% | ||||||
Class III4 | 1.87 | 1.86 | (0.04) | 1.28 | 4.147 | 3.767 | ||||||
Barclays U.S. Aggregate Bond Index | — | — | (0.10) | 1.86 | 3.35 | 4.44 |
4 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend/payable date. Insurance-related fees and expenses are not reflected in these returns. |
5 | The standardized 30-day yield includes the effects of any waivers and/or reimbursements. The unsubsidized 30-day yield excludes the effects of any waivers and/or reimbursements. |
6 | For a portion of the period, the Fund’s investment advisor waived a portion of its fees. Without such waiver, the Fund’s performance would have been lower. |
7 | The returns for Class III Shares prior to August 14, 2012, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares, as adjusted to reflect the distribution and/or service (12b-1) fees applicable to Class III Shares. Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example | ||||||||||||||||||
Actual | Hypothetical10 | |||||||||||||||||
Including Interest Expense and Fees | Excluding Interest Expense and Fees | Including Interest Expense and Fees | Excluding Interest Expense and Fees | |||||||||||||||
Beginning 2015 | Ending 2015 | Expenses the Period8 | Expenses the Period9 | Beginning 2015 | Ending 2015 | Expenses the Period8 | Ending 2015 | Expenses the Period9 | ||||||||||
Class I | $1,000.00 | $1,001.20 | $3.57 | $3.52 | $1,000.00 | $1,021.22 | $3.61 | $1,021.27 | $3.56 | |||||||||
Class III | $1,000.00 | $ 999.60 | $5.11 | $5.06 | $1,000.00 | $1,019.69 | $5.16 | $1,019.74 | $5.11 |
8 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class (0.72% for Class I and 1.03% for Class III), multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
9 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class (0.71% for Class I and 1.02% for Class III), multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
10 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Total Return V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
The Benefits and Risks of Leveraging |
The Fund may utilize leverage to seek to enhance yield and net asset value (“NAV”). However, these objectives cannot be achieved in all interest rate environments.
The Fund may utilize leverage by entering into reverse repurchase agreements. In general, the concept of leveraging is based on the premise that the financing cost of leverage, which is based on short-term interest rates, is normally lower than the income earned by the Fund on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of the Fund (including the assets obtained from leverage) are invested in higher-yielding portfolio investments, the Fund’s shareholders benefit from the incremental net income.
The interest earned on securities purchased with the proceeds from leverage is distributed to the Fund’s shareholders, and the value of these portfolio holdings is reflected in the Fund’s per share NAV. However, in order to benefit shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other ongoing costs of leverage exceed the Fund’s return on assets purchased with leverage proceeds, income to shareholders is lower than if the Fund had not used leverage.
Furthermore, the value of the Fund’s portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. As a result, changes in interest rates can influence the Fund’s NAV positively or negatively in addition to the impact on Fund performance from leverage. Changes in the direction of interest rates are difficult to predict accurately, and there is no assurance that the Fund’s leveraging strategy will be successful.
The use of leverage also generally causes greater changes in the Fund’s NAV and distribution rates than it would in a comparable fund that does not use leverage. In a declining market, leverage is likely to cause a greater decline in the NAV of the Fund’s shares than if the Fund were not leveraged. In addition, the Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of the leverage instruments, which may cause the Fund to incur losses. The use of leverage may limit the Fund’s ability to invest in certain types of securities or use certain types of hedging strategies. The Fund incurs expenses in connection with the use of leverage, all of which are borne by the Fund’s shareholders and may reduce income.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative
financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Asset-Backed Securities | Par (000) | Value | ||||||||||
ACAS CLO Ltd., Series 2012-1AR, Class BR, | USD | 250 | $ | 249,506 | ||||||||
ACE Securities Corp. Home Equity Loan Trust, | 122 | 110,520 | ||||||||||
American Homes 4 Rent, Series 2014-SFR2, Class A, 3.79%, 10/17/36 (a) | 99 | 101,790 | ||||||||||
Anchorage Capital CLO 6 Ltd., Series 2015-6A, Class B, 2.33%, 4/15/27 (a)(b) | 250 | 247,675 | ||||||||||
Auto ABS, Series 2012-2, Class A, 2.80%, 4/27/25 | EUR | 22 | 25,113 | |||||||||
B2R Mortgage Trust, Series 2015-1, Class A1, | USD | 100 | 99,062 | |||||||||
Battalion CLO IV Ltd., Series 2013-4A, Class A1, | 250 | 249,817 | ||||||||||
Bayview Financial Revolving Asset Trust, Series 2004-B, Class A1, 1.19%, 5/28/39 (a)(b) | 179 | 139,083 | ||||||||||
Bayview Opportunity Master Fund IIIA Trust, | 91 | 90,919 | ||||||||||
BCMSC Trust: | ||||||||||||
Series 2000-A, Class A2, 7.58%, 6/15/30 (b) | 40 | 21,979 | ||||||||||
Series 2000-A, Class A3, 7.83%, 6/15/30 (b) | 38 | 21,074 | ||||||||||
Series 2000-A, Class A4, 8.29%, 6/15/30 (b) | 65 | 38,263 | ||||||||||
Bear Stearns Asset Backed Securities I Trust, | 89 | 71,743 | ||||||||||
Bear Stearns Asset-Backed Securities I Trust, | 93 | 71,897 | ||||||||||
Carlyle Global Market Strategies CLO Ltd., | 300 | 299,908 | ||||||||||
CHLUPA Trust, Series 2013-VM, Class A, | 129 | 128,972 | ||||||||||
Chrysler Capital Auto Receivables Trust: | ||||||||||||
Series 2014-AA, Class B, 1.76%, 8/15/19 (a) | 60 | 59,837 | ||||||||||
Series 2014-AA, Class C, 2.28%, 11/15/19 (a) | 75 | 74,878 | ||||||||||
CIFC Funding Ltd.: | ||||||||||||
Series 2011-1AR, Class A1R, | 183 | 182,533 | ||||||||||
Series 2014-2A, Class A1L, 1.76%, 5/24/26 (a)(b) | 250 | 248,838 | ||||||||||
Colony American Homes, Series 2015-1A, Class A, | 100 | 98,910 | ||||||||||
Countrywide Asset-Backed Certificates: | ||||||||||||
Series 2003-BC3, Class A2, 0.81%, 9/25/33 (b) | 127 | 117,039 | ||||||||||
Series 2004-5, Class A, 1.09%, 10/25/34 (b) | 143 | 140,369 |
Asset-Backed Securities | Par (000) | Value | ||||||||||
Series 2006-S10, Class A3, 0.51%, 10/25/36 (b) | USD | 85 | $ | 68,390 | ||||||||
Series 2006-SPS1, Class A, | 5 | 14,455 | ||||||||||
CT CDO IV Ltd., Series 2006-4A, Class A1, | 128 | 128,204 | ||||||||||
CWHEQ Home Equity Loan Trust: | ||||||||||||
Series 2006-S5, Class A4, 5.84%, 6/25/35 | 21 | 20,430 | ||||||||||
Series 2006-S5, Class A5, 6.16%, 6/25/35 | 18 | 15,955 | ||||||||||
CWHEQ Revolving Home Equity Loan Resecuritization Trust, Series 2006-RES, Class 4Q1B, | 47 | 37,622 | ||||||||||
DCP Rights LLC, Series 2014-1A, Class A, | 225 | 226,157 | ||||||||||
GT Loan Financing I Ltd., Series 2013-1A, Class A, 1.55%, 10/28/24 (a)(b) | 250 | 248,804 | ||||||||||
Highbridge Loan Management Ltd., Series 2012-1AR, Class A2R, 2.53%, 9/20/22 (a)(b) | 250 | 249,976 | ||||||||||
Home Loan Mortgage Loan Trust, Series 2005-1, | 45 | 40,055 | ||||||||||
ING Investment Management CLO Ltd., | 250 | 247,895 | ||||||||||
Invitation Homes Trust: | ||||||||||||
Series 2014-SFR1, Class A, | 100 | 98,849 | ||||||||||
Series 2014-SFR3, Class A, | 135 | 133,748 | ||||||||||
Series 2015-SFR3, Class A, | 100 | 99,903 | ||||||||||
Litigation Fee Residual Funding LLC, Series 2015-1, Class A, 3.50%, 10/01/27 (a) | 138 | 138,000 | ||||||||||
Long Beach Mortgage Loan Trust: | ||||||||||||
Series 2005-WL1, Class M4, 1.23%, 6/25/35 (b) | 40 | 31,768 | ||||||||||
Series 2006-10, Class 2A3, 0.34%, 11/25/36 (b) | 110 | 53,026 | ||||||||||
Series 2006-10, Class 2A4, 0.40%, 11/25/36 (b) | 24 | 11,476 | ||||||||||
Morgan Stanley ABS Capital I, Inc., Trust, | 155 | 147,924 | ||||||||||
Navient Private Education Loan Trust: | ||||||||||||
Series 2014-AA, Class A2A, 2.74%, 2/15/29 (a) | 100 | 100,495 | ||||||||||
Series 2014-CTA, Class B, | 200 | 196,173 | ||||||||||
Series 2015-AA, Class A2B, | 100 | 101,096 | ||||||||||
Series 2015-AA, Class A3, | 103 | 104,798 |
Portfolio Abbreviations | ||||||||||
BRL | Brazilian Real | GO | General Obligation | OTC | Over-the-counter | |||||
BZDIOVER | Overnight Brazil CETIP Interbank Rate | KRW | South Korean Won | RB | Revenue Bonds | |||||
CDO | Collateralized Debt Obligation | LIBOR | London Interbank Offered Rate | RUB | Russian Ruble | |||||
CLO | Collateralized Loan Obligation | MXN | Mexican Peso | TBA | To-be-announced | |||||
CNY | Chinese Yuan | MXIBTIIE | Mexican Equilibrium Interbank Interest Rate | USD | U.S. Dollar | |||||
EUR | Euro |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Asset-Backed Securities | Par (000) | Value | ||||||||||
NextGear Floorplan Master Owner Trust, Series 2014-1A, Class A, 1.92%, 10/15/19 (a) | USD | 235 | $ | 235,795 | ||||||||
Northwoods Capital IX Ltd., Series 2012-9A, Class A, 1.70%, 1/18/24 (a)(b) | 260 | 259,384 | ||||||||||
Octagon Investment Partners XVI Ltd., Series 2013-1A, Class A, 1.39%, 7/17/25 (a)(b) | 260 | 257,348 | ||||||||||
OHA Loan Funding Ltd., Series 2013-2A, Class A, | 225 | 223,965 | ||||||||||
OneMain Financial Issuance Trust: | ||||||||||||
Series 2014-1A, Class A, 2.43%, 6/18/24 (a) | 300 | 301,680 | ||||||||||
Series 2014-2A, Class A, 2.47%, 9/18/24 (a) | 180 | 180,956 | ||||||||||
Series 2014-2A, Class B, 3.02%, 9/18/24 (a) | 100 | 100,779 | ||||||||||
Series 2014-2A, Class C, 4.33%, 9/18/24 (a) | 100 | 100,895 | ||||||||||
Series 2015-2A, Class A, 2.57%, 7/18/25 (a) | 160 | 160,122 | ||||||||||
Series 2015-2A, Class B, 3.10%, 7/18/25 (a) | 200 | 200,620 | ||||||||||
Option One Mortgage Acceptance Corp. Asset Back Certificates, Series 2003-4, Class A2, | 246 | 229,349 | ||||||||||
OZLM Funding IV Ltd., Series 2013-4A, Class A1, | 390 | 385,866 | ||||||||||
OZLM Funding Ltd., Series 2012-2A, Class A1, | 360 | 359,794 | ||||||||||
PFS Financing Corp., Series 2014-BA, Class A, | 295 | 293,801 | ||||||||||
RASC Trust, Series 2003-KS5, Class AIIB, | 102 | 89,318 | ||||||||||
RMAT LLC, Series 2015-RPL1, Class A1, | 99 | 99,206 | ||||||||||
Santander Drive Auto Receivables Trust: | ||||||||||||
Series 2014-S1, Class R, 1.42%, 8/16/18 (a) | 21 | 20,737 | ||||||||||
Series 2014-S2, Class R, 1.43%, 11/16/18 (a) | 30 | 29,914 | ||||||||||
Series 2014-S3, Class R, 1.44%, 2/19/19 (a) | 29 | 28,961 | ||||||||||
Series 2014-S4, Class R, 1.43%, 4/16/19 (a) | 32 | 32,052 | ||||||||||
Series 2014-S5, Class R, 1.43%, 6/18/19 (a) | 31 | 31,516 | ||||||||||
Series 2014-S6, Class R, 1.43%, 12/17/19 (a) | 51 | 50,871 | ||||||||||
SASCO Mortgage Loan Trust, Series 2005-GEL2, Class A, 0.74%, 4/25/35 (b) | 22 | 22,245 | ||||||||||
Scholar Funding Trust, Series 2011-A, Class A, | 150 | 150,678 | ||||||||||
SLC Private Student Loan Trust: | ||||||||||||
Series 2006-A, Class A5, 0.45%, 7/15/36 (b) | 274 | 272,714 | ||||||||||
Series 2010-B, Class A2, 3.69%, 7/15/42 (a)(b) | 96 | 99,476 | ||||||||||
SLM Private Credit Student Loan Trust: | ||||||||||||
Series 2002-A, Class A2, 0.84%, 12/16/30 (b) | 148 | 146,132 | ||||||||||
Series 2004-B, Class A2, 0.49%, 6/15/21 (b) | 167 | 166,026 | ||||||||||
Series 2004-B, Class A3, 0.62%, 3/15/24 (b) | 50 | 47,944 | ||||||||||
Series 2005-B, Class A2, 0.47%, 3/15/23 (b) | 49 | 48,929 | ||||||||||
Series 2006-A, Class A4, 0.48%, 12/15/23 (b) | 379 | 374,843 | ||||||||||
Series 2006-C, Class A4, 0.46%, 3/15/23 (b) | 72 | 70,820 |
Asset-Backed Securities | Par (000) | Value | ||||||||||
SLM Private Education Loan Trust: | ||||||||||||
Series 2011-A, Class A3, | USD | 200 | $ | 212,369 | ||||||||
Series 2011-B, Class A2, | 100 | 105,017 | ||||||||||
Series 2011-B, Class A3, | 100 | 105,701 | ||||||||||
Series 2011-C, Class A2A, | 120 | 128,496 | ||||||||||
Series 2011-C, Class A2B, | 260 | 279,218 | ||||||||||
Series 2012-A, Class A1, | 392 | 395,112 | ||||||||||
Series 2012-A, Class A2, 3.83%, 1/17/45 (a) | 385 | 405,794 | ||||||||||
Series 2013-B, Class A2A, | 538 | 533,670 | ||||||||||
SMB Private Education Loan Trust, Series 2014-A, Class A1, 0.69%, 9/15/21 (a)(b) | 156 | 155,607 | ||||||||||
SoFi Professional Loan Program LLC: | ||||||||||||
Series 2015-A, Class A2, | 92 | 91,556 | ||||||||||
Series 2015-B, Class A1, | 100 | 100,000 | ||||||||||
Series 2015-B, Class A2, 2.51%, 9/27/32 (a) | 100 | 99,980 | ||||||||||
SpringCastle America Funding LLC: | ||||||||||||
Series 2014-AA, Class A, 2.70%, 5/25/23 (a) | 347 | 348,809 | ||||||||||
Series 2014-AA, Class B, | 255 | 260,795 | ||||||||||
Springleaf Funding Trust, Series 2015-AA, Class A, 3.16%, 11/15/24 (a) | 205 | 207,432 | ||||||||||
Structured Asset Securities Corp. Mortgage Pass-Through Certificates, Series 2004-23XS, Class 2A1, 0.48%, 1/25/35 (b) | 246 | 226,983 | ||||||||||
Sunset Mortgage Loan Co. LLC, Series 2014-NPL2, Class A, 3.72%, 11/16/44 (a)(c) | 76 | 75,673 | ||||||||||
SWAY Residential Trust, Series 2014-1, Class A, 1.49%, 1/17/20 (a)(b) | 193 | 193,303 | ||||||||||
Symphony CLO XII Ltd., Series 2013-12A, Class A, 1.58%, 10/15/25 (a)(b) | 255 | 254,054 | ||||||||||
Symphony CLO XV Ltd., Series 2014-15A, Class B1, 2.47%, 10/17/26 (a)(b) | 250 | 250,317 | ||||||||||
Tricon American Homes Trust, Series 2015-SFR1, Class A, 1.44%, 5/17/32 (a)(b) | 100 | 99,175 | ||||||||||
U.S. Residential Opportunity Fund Trust, | 193 | 193,289 | ||||||||||
Venture XIX CLO Ltd., Series 2014-19A, | 250 | 250,593 | ||||||||||
Vibrant CLO Ltd., Series 2012-1A, Class A1, | 640 | 640,000 | ||||||||||
Total Asset-Backed Securities — 9.1% | 16,090,603 | |||||||||||
Corporate Bonds | ||||||||||||
Aerospace & Defense — 0.2% | ||||||||||||
Lockheed Martin Corp.: | ||||||||||||
2.90%, 3/01/25 | 20 | 19,212 | ||||||||||
3.60%, 3/01/35 | 43 | 39,768 | ||||||||||
4.07%, 12/15/42 | 44 | 41,575 | ||||||||||
Northrop Grumman Corp., 3.85%, 4/15/45 | 103 | 90,627 | ||||||||||
Raytheon Co., 3.15%, 12/15/24 | 21 | 20,828 |
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Aerospace & Defense (concluded) | ||||||||||||
United Technologies Corp., 4.15%, 5/15/45 | USD | 58 | $ | 55,382 | ||||||||
|
| |||||||||||
267,392 | ||||||||||||
Air Freight & Logistics — 0.1% | ||||||||||||
FedEx Corp.: | ||||||||||||
4.90%, 1/15/34 | 123 | 127,513 | ||||||||||
3.90%, 2/01/35 | 7 | 6,471 | ||||||||||
4.10%, 2/01/45 | 58 | 52,098 | ||||||||||
|
| |||||||||||
186,082 | ||||||||||||
Airlines — 0.2% | ||||||||||||
American Airlines Group, Inc., 4.63%, 3/01/20 (a) | 69 | 66,757 | ||||||||||
American Airlines Pass-Through Trust, Series 2015-1, Class A, 3.38%, 5/01/27 | 203 | 200,463 | ||||||||||
Southwest Airlines Co., 2.75%, 11/06/19 | 33 | 33,482 | ||||||||||
Turkish Airlines Pass-Through Trust, Series 2015-1, Class A, 4.20%, 3/15/27 (a) | 43 | 42,785 | ||||||||||
United Airlines Pass-Through Trust, Series 2014-1, Class B, 4.75%, 10/11/23 | 19 | 19,333 | ||||||||||
|
| |||||||||||
362,820 | ||||||||||||
Auto Components — 0.1% | ||||||||||||
BorgWarner, Inc., 3.38%, 3/15/25 | 67 | 65,927 | ||||||||||
Icahn Enterprises LP/Icahn Enterprises Finance Corp.: | ||||||||||||
3.50%, 3/15/17 | 37 | 37,231 | ||||||||||
4.88%, 3/15/19 | 50 | 50,375 | ||||||||||
6.00%, 8/01/20 | 60 | 61,950 | ||||||||||
|
| |||||||||||
215,483 | ||||||||||||
Automobiles — 0.3% | ||||||||||||
Daimler Finance North America LLC: | ||||||||||||
2.25%, 3/02/20 (a) | 416 | 410,965 | ||||||||||
2.45%, 5/18/20 (a) | 150 | 149,031 | ||||||||||
General Motors Co., 4.88%, 10/02/23 | 30 | 31,628 | ||||||||||
|
| |||||||||||
591,624 | ||||||||||||
Banks — 4.2% | ||||||||||||
Abbey National Treasury Services PLC, 2.38%, 3/16/20 | 232 | 231,212 | ||||||||||
Bank of America Corp.: | ||||||||||||
2.60%, 1/15/19 | 169 | 170,840 | ||||||||||
2.25%, 4/21/20 | 461 | 452,610 | ||||||||||
3.30%, 1/11/23 | 182 | 179,240 | ||||||||||
4.00%, 4/01/24 | 89 | 90,564 | ||||||||||
4.00%, 1/22/25 | 160 | 155,887 | ||||||||||
3.95%, 4/21/25 | 222 | 213,828 | ||||||||||
4.88%, 4/01/44 | 17 | 17,267 | ||||||||||
The Bank of Nova Scotia: | ||||||||||||
1.30%, 7/21/17 | 332 | 332,068 | ||||||||||
2.80%, 7/21/21 | 439 | 441,584 | ||||||||||
Barclays PLC: | ||||||||||||
2.75%, 11/08/19 | 200 | 198,559 | ||||||||||
2.88%, 6/08/20 | 200 | 198,583 | ||||||||||
BB&T Corp., 2.45%, 1/15/20 | 66 | 66,148 | ||||||||||
Citigroup, Inc.: | ||||||||||||
1.80%, 2/05/18 | 127 | 126,694 | ||||||||||
2.50%, 9/26/18 | 131 | 132,475 | ||||||||||
2.50%, 7/29/19 | 183 | 183,268 | ||||||||||
2.40%, 2/18/20 | 337 | 332,827 | ||||||||||
3.50%, 5/15/23 | 79 | 77,130 | ||||||||||
3.88%, 3/26/25 | 90 | 86,211 | ||||||||||
Commonwealth Bank of Australia, 2.30%, 3/12/20 | 250 | 249,759 | ||||||||||
HSBC Bank Brasil SA — Banco Multiplo, | 700 | 708,400 | ||||||||||
HSBC USA, Inc., 2.35%, 3/05/20 | 327 | 324,326 |
Corporate Bonds | Par (000) | Value | ||||||||||
Banks (concluded) | ||||||||||||
JPMorgan Chase & Co.: | ||||||||||||
1.35%, 2/15/17 | USD | 155 | $ | 155,135 | ||||||||
2.35%, 1/28/19 | 217 | 217,836 | ||||||||||
2.20%, 10/22/19 | 66 | 65,418 | ||||||||||
2.25%, 1/23/20 | 270 | 265,325 | ||||||||||
2.75%, 6/23/20 | 312 | 311,575 | ||||||||||
3.88%, 9/10/24 | 176 | 173,167 | ||||||||||
Macquarie Bank Ltd., 1.60%, 10/27/17 (a) | 124 | 123,944 | ||||||||||
Royal Bank of Canada, 2.15%, 3/06/20 | 222 | 221,639 | ||||||||||
Standard Chartered PLC, 2.25%, 4/17/20 (a) | 200 | 196,442 | ||||||||||
Swedbank AB, 2.20%, 3/04/20 (a) | 240 | 238,397 | ||||||||||
U.S. Bancorp, 2.95%, 7/15/22 | 170 | 167,329 | ||||||||||
Wells Fargo & Co.: | ||||||||||||
1.50%, 7/01/15 | 110 | 110,000 | ||||||||||
3.30%, 9/09/24 | 61 | 60,064 | ||||||||||
3.00%, 2/19/25 | 106 | 101,520 | ||||||||||
3.90%, 5/01/45 | 130 | 116,994 | ||||||||||
|
| |||||||||||
7,494,265 | ||||||||||||
Beverages — 0.0% | ||||||||||||
Anheuser-Busch InBev Worldwide, Inc., | 35 | 30,902 | ||||||||||
Molson Coors Brewing Co., 5.00%, 5/01/42 | 25 | 24,338 | ||||||||||
|
| |||||||||||
55,240 | ||||||||||||
Biotechnology — 0.4% | ||||||||||||
Amgen, Inc.: | ||||||||||||
2.13%, 5/01/20 | 107 | 104,774 | ||||||||||
3.13%, 5/01/25 | 110 | 104,076 | ||||||||||
5.65%, 6/15/42 | 101 | 112,263 | ||||||||||
4.40%, 5/01/45 | 58 | 53,446 | ||||||||||
Baxalta, Inc., 4.00%, 6/23/25 (a) | 95 | 94,293 | ||||||||||
Celgene Corp.: | ||||||||||||
2.25%, 5/15/19 | 81 | 81,158 | ||||||||||
3.25%, 8/15/22 | 82 | 81,092 | ||||||||||
Gilead Sciences, Inc.: | ||||||||||||
2.35%, 2/01/20 | 20 | 20,072 | ||||||||||
4.50%, 2/01/45 | 55 | 54,788 | ||||||||||
|
| |||||||||||
705,962 | ||||||||||||
Capital Markets — 1.2% | ||||||||||||
The Bank of New York Mellon Corp.: | ||||||||||||
2.10%, 1/15/19 | 161 | 161,471 | ||||||||||
3.00%, 2/24/25 | 112 | 108,510 | ||||||||||
Deutsche Bank AG, 1.88%, 2/13/18 | 116 | 115,645 | ||||||||||
The Goldman Sachs Group, Inc.: | ||||||||||||
3.63%, 2/07/16 | 98 | 99,587 | ||||||||||
2.63%, 1/31/19 | 178 | 180,203 | ||||||||||
2.55%, 10/23/19 | 327 | 327,766 | ||||||||||
2.60%, 4/23/20 | 123 | 122,384 | ||||||||||
3.50%, 1/23/25 | 53 | 51,399 | ||||||||||
3.75%, 5/22/25 | 258 | 254,605 | ||||||||||
4.80%, 7/08/44 | 30 | 29,614 | ||||||||||
Jefferies Group LLC, 6.50%, 1/20/43 | 20 | 19,540 | ||||||||||
Morgan Stanley: | ||||||||||||
2.80%, 6/16/20 | 314 | 314,334 | ||||||||||
3.75%, 2/25/23 | 70 | 70,780 | ||||||||||
3.70%, 10/23/24 | 116 | 115,530 | ||||||||||
4.30%, 1/27/45 | 142 | 132,684 | ||||||||||
|
| |||||||||||
2,104,052 | ||||||||||||
Chemicals — 0.3% | ||||||||||||
Agrium, Inc.: | ||||||||||||
3.15%, 10/01/22 | 59 | 57,204 | ||||||||||
4.13%, 3/15/35 | 46 | 41,132 | ||||||||||
Chevron Phillips Chemical Co. LLC/Chevron Phillips Chemical Co. LP, 2.45%, 5/01/20 (a) | 118 | 117,246 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Chemicals (concluded) | ||||||||||||
The Dow Chemical Co.: | ||||||||||||
4.38%, 11/15/42 | USD | 23 | $ | 20,953 | ||||||||
4.63%, 10/01/44 | 39 | 36,403 | ||||||||||
Eastman Chemical Co., 4.80%, 9/01/42 | 59 | 56,591 | ||||||||||
Ecolab, Inc., 2.25%, 1/12/20 | 64 | 63,357 | ||||||||||
LYB International Finance BV, 4.00%, 7/15/23 | 117 | 119,732 | ||||||||||
Monsanto Co., 3.60%, 7/15/42 | 56 | 44,458 | ||||||||||
The Sherwin-Williams Co., 4.00%, 12/15/42 | 20 | 18,556 | ||||||||||
|
| |||||||||||
575,632 | ||||||||||||
Commercial Services & Supplies — 0.1% | ||||||||||||
Republic Services, Inc., 3.20%, 3/15/25 | 121 | 116,379 | ||||||||||
Waste Management, Inc.: | ||||||||||||
3.13%, 3/01/25 | 47 | 45,597 | ||||||||||
3.90%, 3/01/35 | 56 | 51,347 | ||||||||||
|
| |||||||||||
213,323 | ||||||||||||
Communications Equipment — 0.1% | ||||||||||||
Cisco Systems, Inc., 2.13%, 3/01/19 | 35 | 35,243 | ||||||||||
Harris Corp., 2.70%, 4/27/20 | 28 | 27,642 | ||||||||||
Juniper Networks, Inc., 3.30%, 6/15/20 | 48 | 48,340 | ||||||||||
QUALCOMM, Inc., 4.65%, 5/20/35 | 126 | 121,968 | ||||||||||
|
| |||||||||||
233,193 | ||||||||||||
Consumer Finance — 2.0% | ||||||||||||
Ally Financial, Inc.: | ||||||||||||
4.13%, 2/13/22 | 130 | 124,800 | ||||||||||
5.13%, 9/30/24 | 135 | 135,337 | ||||||||||
American Express Credit Corp.: | ||||||||||||
1.13%, 6/05/17 | 299 | 297,874 | ||||||||||
2.25%, 8/15/19 | 162 | 162,273 | ||||||||||
2.38%, 5/26/20 | 245 | 243,243 | ||||||||||
Capital One N.A., 2.95%, 7/23/21 | 263 | 259,240 | ||||||||||
Discover Bank, 3.10%, 6/04/20 | 250 | 249,751 | ||||||||||
Discover Financial Services, 3.75%, 3/04/25 | 44 | 42,012 | ||||||||||
Ford Motor Credit Co. LLC: | ||||||||||||
1.72%, 12/06/17 | 690 | 686,418 | ||||||||||
2.15%, 1/09/18 | 200 | 200,823 | ||||||||||
General Motors Financial Co., Inc.: | ||||||||||||
2.75%, 5/15/16 | 139 | 140,661 | ||||||||||
2.63%, 7/10/17 | 360 | 363,918 | ||||||||||
4.75%, 8/15/17 | 230 | 242,722 | ||||||||||
3.45%, 4/10/22 | 88 | 86,227 | ||||||||||
4.00%, 1/15/25 | 151 | 148,166 | ||||||||||
Synchrony Financial, 2.70%, 2/03/20 | 33 | 32,598 | ||||||||||
Toyota Motor Credit Corp., 2.75%, 5/17/21 | 159 | 161,313 | ||||||||||
|
| |||||||||||
3,577,376 | ||||||||||||
Containers & Packaging — 0.2% | ||||||||||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Luxembourg SA, 6.88%, 2/15/21 | 260 | 271,050 | ||||||||||
Diversified Financial Services — 0.6% | ||||||||||||
BP Capital Markets PLC, 2.24%, 5/10/19 | 184 | 185,389 | ||||||||||
General Electric Capital Corp.: | ||||||||||||
3.15%, 9/07/22 | 103 | 103,415 | ||||||||||
3.10%, 1/09/23 | 181 | 180,501 | ||||||||||
Moody’s Corp., 4.50%, 9/01/22 | 54 | 57,520 | ||||||||||
Shell International Finance BV: | ||||||||||||
2.13%, 5/11/20 | 225 | 224,517 | ||||||||||
4.13%, 5/11/35 | 200 | 195,784 | ||||||||||
3.63%, 8/21/42 | 44 | 38,480 | ||||||||||
Woodside Finance Ltd., 3.65%, 3/05/25 (a) | 62 | 59,543 | ||||||||||
|
| |||||||||||
1,045,149 |
Corporate Bonds | Par (000) | Value | ||||||||||
Diversified Telecommunication Services — 1.1% | ||||||||||||
AT&T Inc.: | ||||||||||||
2.38%, 11/27/18 | USD | 54 | $ | 54,473 | ||||||||
2.30%, 3/11/19 | 136 | 136,110 | ||||||||||
2.45%, 6/30/20 | 245 | 240,166 | ||||||||||
3.88%, 8/15/21 | 93 | 95,925 | ||||||||||
3.00%, 6/30/22 | 308 | 297,394 | ||||||||||
3.40%, 5/15/25 | 58 | 55,315 | ||||||||||
4.30%, 12/15/42 | 79 | 67,707 | ||||||||||
4.75%, 5/15/46 | 45 | 40,949 | ||||||||||
Orange SA, 5.50%, 2/06/44 | 55 | 58,233 | ||||||||||
Verizon Communications, Inc.: | ||||||||||||
2.63%, 2/21/20 | 231 | 230,481 | ||||||||||
3.45%, 3/15/21 | 146 | 148,822 | ||||||||||
5.05%, 3/15/34 | 55 | 55,370 | ||||||||||
4.40%, 11/01/34 | 224 | 207,370 | ||||||||||
3.85%, 11/01/42 | 200 | 165,059 | ||||||||||
4.86%, 8/21/46 | 128 | 119,797 | ||||||||||
|
| |||||||||||
1,973,171 | ||||||||||||
Electric Utilities — 0.8% | ||||||||||||
Alabama Power Co., 2.80%, 4/01/25 | 21 | 20,129 | ||||||||||
Commonwealth Edison Co., 4.70%, 1/15/44 | 61 | 64,200 | ||||||||||
Duke Energy Carolinas LLC: | ||||||||||||
4.25%, 12/15/41 | 130 | 127,898 | ||||||||||
3.75%, 6/01/45 | 48 | 43,773 | ||||||||||
Duke Energy Corp., 3.75%, 4/15/24 | 25 | 25,473 | ||||||||||
Duke Energy Florida, Inc., 3.85%, 11/15/42 | 48 | 44,373 | ||||||||||
Entergy Arkansas, Inc., 3.70%, 6/01/24 | 172 | 179,537 | ||||||||||
Exelon Corp., 2.85%, 6/15/20 | 41 | 41,238 | ||||||||||
Florida Power & Light Co., 3.80%, 12/15/42 | 39 | 36,391 | ||||||||||
Georgia Power Co., 3.00%, 4/15/16 | 153 | 155,699 | ||||||||||
PacifiCorp.: | ||||||||||||
3.60%, 4/01/24 | 174 | 179,639 | ||||||||||
3.35%, 7/01/25 | 120 | 120,084 | ||||||||||
Progress Energy, Inc., 4.88%, 12/01/19 | 11 | 12,012 | ||||||||||
Public Service Co. of Colorado, 2.50%, 3/15/23 | 98 | 94,122 | ||||||||||
Puget Sound Energy, Inc., 4.30%, 5/20/45 | 79 | 78,558 | ||||||||||
Southern California Edison Co., 1.25%, 11/01/17 | 47 | 46,957 | ||||||||||
Trans-Allegheny Interstate Line Co., | 151 | 149,995 | ||||||||||
|
| |||||||||||
1,420,078 | ||||||||||||
Electrical Equipment — 0.0% | ||||||||||||
Rockwell Automation, Inc., 2.88%, 3/01/25 | 78 | 75,645 | ||||||||||
Energy Equipment & Services — 0.0% | ||||||||||||
Ensco PLC, 5.75%, 10/01/44 | 12 | 10,694 | ||||||||||
Transocean, Inc., 6.80%, 3/15/38 | 16 | 11,960 | ||||||||||
|
| |||||||||||
22,654 | ||||||||||||
Food & Staples Retailing — 0.1% | ||||||||||||
CVS Health Corp., 5.30%, 12/05/43 | 27 | 29,421 | ||||||||||
Wal-Mart Stores, Inc.: | ||||||||||||
2.55%, 4/11/23 | 58 | 56,001 | ||||||||||
4.00%, 4/11/43 | 35 | 33,396 | ||||||||||
|
| |||||||||||
118,818 | ||||||||||||
Food Products — 0.0% | ||||||||||||
Kraft Foods Group, Inc., 6.88%, 1/26/39 | 28 | 34,312 | ||||||||||
Health Care Equipment & Supplies — 0.7% | ||||||||||||
Abbott Laboratories: | ||||||||||||
2.55%, 3/15/22 | 130 | 127,010 | ||||||||||
2.95%, 3/15/25 | 65 | 62,488 | ||||||||||
Baxter International, Inc., 2.40%, 8/15/22 | 54 | 51,168 |
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Health Care Equipment & Supplies (concluded) | ||||||||||||
Becton Dickinson and Co.: | ||||||||||||
1.45%, 5/15/17 | USD | 96 | $ | 95,930 | ||||||||
1.80%, 12/15/17 | 34 | 34,004 | ||||||||||
2.68%, 12/15/19 | 130 | 130,098 | ||||||||||
3.13%, 11/08/21 | 59 | 58,490 | ||||||||||
Boston Scientific Corp.: | ||||||||||||
2.65%, 10/01/18 | 82 | 83,181 | ||||||||||
2.85%, 5/15/20 | 100 | 99,295 | ||||||||||
3.85%, 5/15/25 | 109 | 105,757 | ||||||||||
Medtronic, Inc.: | ||||||||||||
2.50%, 3/15/20 (a) | 67 | 67,112 | ||||||||||
3.13%, 3/15/22 | 63 | 63,840 | ||||||||||
4.63%, 3/15/44 | 120 | 120,968 | ||||||||||
4.63%, 3/15/45 (a) | 63 | 63,778 | ||||||||||
Zimmer Holdings, Inc.: | ||||||||||||
3.55%, 4/01/25 | 41 | 39,614 | ||||||||||
4.25%, 8/15/35 | 89 | 82,259 | ||||||||||
|
| |||||||||||
1,284,992 | ||||||||||||
Health Care Providers & Services — 1.1% | ||||||||||||
Aetna, Inc.: | ||||||||||||
4.50%, 5/15/42 | 43 | 39,999 | ||||||||||
4.13%, 11/07/42 | 22 | 19,495 | ||||||||||
AmerisourceBergen Corp.: | ||||||||||||
1.15%, 5/15/17 | 164 | 163,720 | ||||||||||
3.25%, 3/01/25 | 21 | 20,202 | ||||||||||
4.25%, 3/01/45 | 21 | 19,064 | ||||||||||
Anthem, Inc.: | ||||||||||||
1.88%, 1/15/18 | 246 | 245,572 | ||||||||||
2.30%, 7/15/18 | 327 | 328,945 | ||||||||||
Series A, 3.70%, 8/15/21 | 146 | 149,390 | ||||||||||
3.30%, 1/15/23 | 157 | 150,892 | ||||||||||
4.65%, 8/15/44 | 45 | 41,159 | ||||||||||
Cigna Corp., 3.25%, 4/15/25 | 166 | 159,231 | ||||||||||
Express Scripts Holding Co.: | ||||||||||||
1.25%, 6/02/17 | 79 | 78,630 | ||||||||||
3.90%, 2/15/22 | 63 | 64,693 | ||||||||||
HCA, Inc.: | ||||||||||||
5.38%, 2/01/25 | 130 | 132,119 | ||||||||||
5.25%, 4/15/25 | 135 | 140,400 | ||||||||||
Laboratory Corp. of America Holdings, 2.63%, 2/01/20 | 63 | 62,512 | ||||||||||
UnitedHealth Group, Inc.: | ||||||||||||
2.88%, 12/15/21 | 75 | 74,992 | ||||||||||
3.95%, 10/15/42 | 73 | 66,050 | ||||||||||
|
| |||||||||||
1,957,065 | ||||||||||||
Hotels, Restaurants & Leisure — 0.0% | ||||||||||||
McDonald’s Corp., 4.60%, 5/26/45 | 25 | 24,390 | ||||||||||
Household Durables — 0.1% | ||||||||||||
Newell Rubbermaid, Inc., 2.88%, 12/01/19 | 124 | 125,326 | ||||||||||
Household Products — 0.1% | ||||||||||||
Kimberly-Clark Corp.: | ||||||||||||
1.90%, 5/22/19 | 185 | 184,574 | ||||||||||
2.65%, 3/01/25 | 35 | 33,832 | ||||||||||
|
| |||||||||||
218,406 | ||||||||||||
Industrial Conglomerates — 0.2% | ||||||||||||
Eaton Corp., 2.75%, 11/02/22 | 137 | 133,250 | ||||||||||
General Electric Co., 4.50%, 3/11/44 | 180 | 182,806 | ||||||||||
|
| |||||||||||
316,056 | ||||||||||||
Insurance — 1.5% | ||||||||||||
Aflac, Inc., 3.63%, 6/15/23 | 38 | 38,401 | ||||||||||
The Allstate Corp., 3.15%, 6/15/23 | 38 | 38,049 |
Corporate Bonds | Par (000) | Value | ||||||||||
Insurance (concluded) | ||||||||||||
American International Group, Inc.: | ||||||||||||
3.38%, 8/15/20 | USD | 77 | $ | 79,700 | ||||||||
3.88%, 1/15/35 | 39 | 35,226 | ||||||||||
4.50%, 7/16/44 | 42 | 39,952 | ||||||||||
4.38%, 1/15/55 | 42 | 37,407 | ||||||||||
Aon PLC, 4.75%, 5/15/45 | 20 | 19,278 | ||||||||||
Berkshire Hathaway Finance Corp., 4.30%, 5/15/43 | 30 | 29,035 | ||||||||||
Lincoln National Corp., 3.35%, 3/09/25 | 21 | 20,370 | ||||||||||
Loews Corp., 2.63%, 5/15/23 | 38 | 36,335 | ||||||||||
Manulife Financial Corp., 3.40%, 9/17/15 | 220 | 221,126 | ||||||||||
MassMutual Global Funding II, 2.35%, 4/09/19 (a) | 200 | 202,036 | ||||||||||
MetLife, Inc., 4.05%, 3/01/45 | 128 | 117,567 | ||||||||||
Metropolitan Life Global Funding I: | ||||||||||||
1.30%, 4/10/17 (a) | 510 | 511,153 | ||||||||||
2.30%, 4/10/19 (a) | 210 | 211,306 | ||||||||||
Prudential Financial, Inc.: | ||||||||||||
4.75%, 9/17/15 | 277 | 279,143 | ||||||||||
4.50%, 11/15/20 | 352 | 385,041 | ||||||||||
4.60%, 5/15/44 | 103 | 99,585 | ||||||||||
The Travelers Cos., Inc., 4.60%, 8/01/43 | 85 | 87,954 | ||||||||||
XLIT Ltd., 2.30%, 12/15/18 | 75 | 75,505 | ||||||||||
|
| |||||||||||
2,564,169 | ||||||||||||
Internet & Catalog Retail — 0.1% | ||||||||||||
Amazon.com, Inc., 2.60%, 12/05/19 | 129 | 129,808 | ||||||||||
IT Services — 0.1% | ||||||||||||
MasterCard, Inc., 3.38%, 4/01/24 | 120 | 122,491 | ||||||||||
Life Sciences Tools & Services — 0.0% | ||||||||||||
Thermo Fisher Scientific, Inc., 3.30%, 2/15/22 | 76 | 75,102 | ||||||||||
Machinery — 0.2% | ||||||||||||
Caterpillar, Inc., 4.75%, 5/15/64 | 119 | 116,484 | ||||||||||
Ingersoll-Rand Luxembourg Finance SA, | 52 | 51,773 | ||||||||||
John Deere Capital Corp., 3.35%, 6/12/24 | 142 | 144,733 | ||||||||||
|
| |||||||||||
312,990 | ||||||||||||
Media — 1.0% | ||||||||||||
21st Century Fox America, Inc.: | ||||||||||||
3.70%, 9/15/24 | 38 | 38,284 | ||||||||||
4.75%, 9/15/44 | 27 | 26,400 | ||||||||||
CBS Corp., 2.30%, 8/15/19 | 71 | 70,170 | ||||||||||
Comcast Corp.: | ||||||||||||
3.38%, 8/15/25 | 69 | 68,090 | ||||||||||
4.40%, 8/15/35 | 139 | 138,023 | ||||||||||
4.75%, 3/01/44 | 41 | 41,621 | ||||||||||
4.60%, 8/15/45 | 35 | 34,700 | ||||||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc.: | ||||||||||||
4.60%, 2/15/21 | 141 | 150,214 | ||||||||||
6.38%, 3/01/41 | 33 | 35,498 | ||||||||||
5.15%, 3/15/42 | 38 | 35,750 | ||||||||||
Discovery Communications LLC, 3.45%, 3/15/25 | 44 | 41,287 | ||||||||||
The Interpublic Group of Cos., Inc.: | ||||||||||||
4.00%, 3/15/22 | 47 | 48,075 | ||||||||||
3.75%, 2/15/23 | 40 | 39,577 | ||||||||||
NBCUniversal Media LLC: | ||||||||||||
4.38%, 4/01/21 | 52 | 56,320 | ||||||||||
4.45%, 1/15/43 | 56 | 53,821 | ||||||||||
Scripps Networks Interactive, Inc., 2.75%, 11/15/19 | 131 | 131,280 | ||||||||||
Time Warner Cable, Inc.: | ||||||||||||
5.00%, 2/01/20 | 58 | 62,618 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Media (concluded) | ||||||||||||
4.13%, 2/15/21 | USD | 160 | $ | 165,191 | ||||||||
4.00%, 9/01/21 | 22 | 22,586 | ||||||||||
5.50%, 9/01/41 | 126 | 117,516 | ||||||||||
Time Warner, Inc.: | ||||||||||||
2.10%, 6/01/19 | 185 | 183,785 | ||||||||||
3.60%, 7/15/25 | 80 | 77,814 | ||||||||||
4.65%, 6/01/44 | 121 | 115,029 | ||||||||||
Viacom, Inc.: | ||||||||||||
2.75%, 12/15/19 | 19 | 18,998 | ||||||||||
4.50%, 3/01/21 | 54 | 57,126 | ||||||||||
|
| |||||||||||
1,829,773 | ||||||||||||
Metals & Mining — 0.4% | ||||||||||||
Freeport-McMoRan, Inc.: | ||||||||||||
4.00%, 11/14/21 | 128 | 125,693 | ||||||||||
5.40%, 11/14/34 | 62 | 53,484 | ||||||||||
Newmont Mining Corp., 3.50%, 3/15/22 | 84 | 80,165 | ||||||||||
Novelis, Inc., 8.75%, 12/15/20 | 310 | 327,825 | ||||||||||
Nucor Corp., 5.20%, 8/01/43 | 40 | 40,926 | ||||||||||
|
| |||||||||||
628,093 | ||||||||||||
Multiline Retail — 0.1% | ||||||||||||
Macy’s Retail Holdings, Inc., 4.50%, 12/15/34 | 59 | 56,609 | ||||||||||
Target Corp.: | ||||||||||||
3.50%, 7/01/24 | 28 | 28,582 | ||||||||||
4.00%, 7/01/42 | 46 | 43,468 | ||||||||||
|
| |||||||||||
128,659 | ||||||||||||
Multi-Utilities — 0.6% | ||||||||||||
Berkshire Hathaway Energy Co.: | ||||||||||||
2.40%, 2/01/20 | 35 | 34,847 | ||||||||||
3.50%, 2/01/25 | 45 | 44,812 | ||||||||||
CenterPoint Energy Houston Electric LLC, | 44 | 45,257 | ||||||||||
CMS Energy Corp., 3.88%, 3/01/24 | 118 | 119,979 | ||||||||||
Consumers Energy Co., 3.95%, 5/15/43 | 39 | 37,200 | ||||||||||
Dominion Resources, Inc.: | ||||||||||||
1.95%, 8/15/16 | 151 | 152,168 | ||||||||||
2.50%, 12/01/19 | 121 | 121,362 | ||||||||||
DTE Electric Co., 3.95%, 6/15/42 | 48 | 45,603 | ||||||||||
DTE Energy Co.: | ||||||||||||
2.40%, 12/01/19 | 35 | 34,997 | ||||||||||
3.50%, 6/01/24 | 104 | 104,143 | ||||||||||
NiSource Finance Corp., 3.85%, 2/15/23 | 81 | 83,348 | ||||||||||
Pacific Gas & Electric Co.: | ||||||||||||
4.75%, 2/15/44 | 46 | 47,424 | ||||||||||
4.30%, 3/15/45 | 39 | 37,459 | ||||||||||
PG&E Corp., 2.40%, 3/01/19 | 66 | 66,086 | ||||||||||
Sempra Energy, 2.88%, 10/01/22 | 39 | 37,814 | ||||||||||
Virginia Electric & Power Co.: | ||||||||||||
4.45%, 2/15/44 | 39 | 39,164 | ||||||||||
4.20%, 5/15/45 | 83 | 80,206 | ||||||||||
|
| |||||||||||
1,131,869 | ||||||||||||
Oil, Gas & Consumable Fuels — 2.5% | ||||||||||||
Anadarko Petroleum Corp.: | ||||||||||||
7.95%, 6/15/39 | 40 | 52,352 | ||||||||||
4.50%, 7/15/44 | 55 | 50,548 | ||||||||||
Chevron Corp.: | ||||||||||||
2.19%, 11/15/19 | 35 | 35,194 | ||||||||||
1.96%, 3/03/20 | 213 | 211,254 | ||||||||||
Continental Resources, Inc.: | ||||||||||||
3.80%, 6/01/24 | 55 | 50,204 | ||||||||||
4.90%, 6/01/44 | 63 | 53,059 | ||||||||||
Devon Energy Corp., 5.60%, 7/15/41 | 57 | 59,676 | ||||||||||
Energy Transfer Partners LP: | ||||||||||||
4.15%, 10/01/20 | 75 | 77,082 |
Corporate Bonds | Par (000) | Value | ||||||||||
Oil, Gas & Consumable Fuels (concluded) | ||||||||||||
4.65%, 6/01/21 | USD | 186 | $ | 190,900 | ||||||||
4.90%, 3/15/35 | 60 | 54,139 | ||||||||||
6.63%, 10/15/36 | 31 | 32,680 | ||||||||||
5.15%, 2/01/43 | 54 | 48,090 | ||||||||||
Enterprise Products Operating LLC: | ||||||||||||
3.90%, 2/15/24 | 57 | 57,237 | ||||||||||
3.70%, 2/15/26 | 48 | 46,477 | ||||||||||
4.45%, 2/15/43 | 150 | 135,565 | ||||||||||
EOG Resources, Inc.: | ||||||||||||
2.45%, 4/01/20 | 308 | 310,138 | ||||||||||
3.90%, 4/01/35 | 101 | 95,611 | ||||||||||
Exxon Mobil Corp., 1.82%, 3/15/19 | 224 | 224,290 | ||||||||||
Kinder Morgan Energy Partners LP: | ||||||||||||
3.50%, 3/01/21 | 720 | 709,921 | ||||||||||
5.63%, 9/01/41 | 15 | 14,067 | ||||||||||
4.70%, 11/01/42 | 89 | 74,342 | ||||||||||
Kinder Morgan, Inc., 3.05%, 12/01/19 | 153 | 152,831 | ||||||||||
Laredo Petroleum, Inc., 7.38%, 5/01/22 | 15 | 15,787 | ||||||||||
Linn Energy LLC/Linn Energy Finance Corp., | 183 | 143,197 | ||||||||||
Marathon Petroleum Corp., 4.75%, 9/15/44 | 40 | 36,508 | ||||||||||
MEG Energy Corp.: | ||||||||||||
6.50%, 3/15/21 (a) | 16 | 15,400 | ||||||||||
7.00%, 3/31/24 | 30 | 28,763 | ||||||||||
Noble Energy, Inc., 4.15%, 12/15/21 | 96 | 100,010 | ||||||||||
Occidental Petroleum Corp., 3.13%, 2/15/22 | 83 | 83,208 | ||||||||||
Peabody Energy Corp., 6.00%, 11/15/18 | 25 | 12,000 | ||||||||||
Phillips 66, 4.88%, 11/15/44 | 43 | 41,071 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp.: | ||||||||||||
2.60%, 12/15/19 | 147 | 146,377 | ||||||||||
2.85%, 1/31/23 | 147 | 137,968 | ||||||||||
5.15%, 6/01/42 | 31 | 29,976 | ||||||||||
4.90%, 2/15/45 | 48 | 45,255 | ||||||||||
Spectra Energy Partners LP, 3.50%, 3/15/25 | 83 | 79,486 | ||||||||||
Sunoco Logistics Partners Operations LP, | 103 | 97,475 | ||||||||||
TransCanada PipeLines Ltd.: | ||||||||||||
1.88%, 1/12/18 | 38 | 38,251 | ||||||||||
2.50%, 8/01/22 | 44 | 41,739 | ||||||||||
4.63%, 3/01/34 | 119 | 117,989 | ||||||||||
Valero Energy Corp., 3.65%, 3/15/25 | 181 | 175,994 | ||||||||||
Western Gas Partners LP, 4.00%, 7/01/22 | 59 | 59,204 | ||||||||||
Williams Partners LP: | ||||||||||||
4.00%, 11/15/21 | 188 | 189,760 | ||||||||||
4.50%, 11/15/23 | 14 | 14,065 | ||||||||||
4.90%, 1/15/45 | 92 | 78,940 | ||||||||||
|
| |||||||||||
4,464,080 | ||||||||||||
Paper & Forest Products — 0.1% | ||||||||||||
International Paper Co.: | ||||||||||||
3.65%, 6/15/24 | 59 | 58,151 | ||||||||||
4.80%, 6/15/44 | 66 | 61,202 | ||||||||||
|
| |||||||||||
119,353 | ||||||||||||
Pharmaceuticals — 1.8% | ||||||||||||
AbbVie, Inc.: | ||||||||||||
2.50%, 5/14/20 | 149 | 147,471 | ||||||||||
2.90%, 11/06/22 | 106 | 102,640 | ||||||||||
4.50%, 5/14/35 | 142 | 138,919 | ||||||||||
4.40%, 11/06/42 | 102 | 96,511 | ||||||||||
Actavis Funding SCS: | ||||||||||||
2.35%, 3/12/18 | 919 | 923,851 | ||||||||||
3.00%, 3/12/20 | 893 | 895,025 | ||||||||||
Bristol-Myers Squibb Co., 4.50%, 3/01/44 | 62 | 64,181 | ||||||||||
Eli Lilly & Co.: | ||||||||||||
2.75%, 6/01/25 | 18 | 17,389 |
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Corporate Bonds | Par (000) | Value | ||||||||||
Pharmaceuticals (concluded) | ||||||||||||
3.70%, 3/01/45 | USD | 42 | $ | 38,103 | ||||||||
GlaxoSmithKline Capital PLC, 2.85%, 5/08/22 | 69 | 68,396 | ||||||||||
Merck & Co., Inc., 3.70%, 2/10/45 | 147 | 131,325 | ||||||||||
Mylan, Inc., 3.13%, 1/15/23 (a) | 121 | 115,456 | ||||||||||
Novartis Capital Corp., 4.40%, 4/24/20 | 125 | 137,959 | ||||||||||
Pfizer, Inc.: | ||||||||||||
4.30%, 6/15/43 | 58 | 56,675 | ||||||||||
4.40%, 5/15/44 | 43 | 42,420 | ||||||||||
Teva Pharmaceutical Finance Co. BV, | 47 | 47,902 | ||||||||||
Valeant Pharmaceuticals International, Inc., | 112 | 115,220 | ||||||||||
Zoetis, Inc., 3.25%, 2/01/23 | 42 | 40,690 | ||||||||||
|
| |||||||||||
3,180,133 | ||||||||||||
Real Estate Investment Trusts (REITs) — 0.3% | ||||||||||||
American Tower Corp., 3.45%, 9/15/21 | 57 | 56,725 | ||||||||||
ERP Operating LP, 3.38%, 6/01/25 | 38 | 37,209 | ||||||||||
HCP, Inc., 4.00%, 6/01/25 | 106 | 103,774 | ||||||||||
Omega Healthcare Investors, Inc., 4.50%, 4/01/27 (a) | 33 | 31,655 | ||||||||||
Simon Property Group LP: | ||||||||||||
3.38%, 10/01/24 | 77 | 76,505 | ||||||||||
4.25%, 10/01/44 | 48 | 45,582 | ||||||||||
Ventas Realty LP, 3.75%, 5/01/24 | 101 | 99,530 | ||||||||||
|
| |||||||||||
450,980 | ||||||||||||
Road & Rail — 0.4% | ||||||||||||
Burlington Northern Santa Fe LLC: | ||||||||||||
3.00%, 3/15/23 | 61 | 59,596 | ||||||||||
4.15%, 4/01/45 | 28 | 25,825 | ||||||||||
CSX Corp., 4.10%, 3/15/44 | 42 | 38,462 | ||||||||||
Norfolk Southern Corp., 4.45%, 6/15/45 | 55 | 52,770 | ||||||||||
Penske Truck Leasing Co. LP/PTL Finance Corp., | 138 | 133,769 | ||||||||||
Ryder System, Inc., 2.45%, 9/03/19 | 150 | 149,693 | ||||||||||
Union Pacific Corp.: | ||||||||||||
3.38%, 2/01/35 | 27 | 24,003 | ||||||||||
3.88%, 2/01/55 | 109 | 95,853 | ||||||||||
Union Pacific Railroad Co. Pass-Through Trust, | 110 | 109,669 | ||||||||||
|
| |||||||||||
689,640 | ||||||||||||
Software — 0.5% | ||||||||||||
Adobe Systems, Inc., 3.25%, 2/01/25 | 38 | 36,687 | ||||||||||
First Data Corp.: | ||||||||||||
7.38%, 6/15/19 (a) | 105 | 109,147 | ||||||||||
8.75%, 1/15/22 | 120 | 127,575 | ||||||||||
Microsoft Corp.: | ||||||||||||
3.50%, 2/12/35 | 107 | 97,819 | ||||||||||
3.75%, 2/12/45 | 55 | 49,590 | ||||||||||
Oracle Corp.: | ||||||||||||
2.80%, 7/08/21 | 239 | 241,911 | ||||||||||
4.30%, 7/08/34 | 65 | 64,099 | ||||||||||
4.38%, 5/15/55 | 121 | 112,433 | ||||||||||
|
| |||||||||||
839,261 | ||||||||||||
Specialty Retail — 0.1% | ||||||||||||
The Home Depot, Inc., 5.40%, 9/15/40 | 28 | 31,895 | ||||||||||
Lowe’s Cos., Inc., 4.25%, 9/15/44 | 38 | 36,742 | ||||||||||
QVC, Inc.: | ||||||||||||
3.13%, 4/01/19 | 32 | 31,785 | ||||||||||
5.13%, 7/02/22 | 80 | 82,382 | ||||||||||
|
| |||||||||||
182,804 |
Corporate Bonds | Par (000) | Value | ||||||||||
Technology Hardware, Storage & Peripherals — 0.7% | ||||||||||||
Apple Inc.: | ||||||||||||
2.10%, 5/06/19 | USD | 361 | $ | 364,634 | ||||||||
2.00%, 5/06/20 | 637 | 633,308 | ||||||||||
3.45%, 2/09/45 | 39 | 33,053 | ||||||||||
Hewlett-Packard Co., 3.75%, 12/01/20 | 143 | 147,362 | ||||||||||
|
| |||||||||||
1,178,357 | ||||||||||||
Tobacco — 0.4% | ||||||||||||
Altria Group, Inc.: | ||||||||||||
2.63%, 1/14/20 | 64 | 63,751 | ||||||||||
2.85%, 8/09/22 | 46 | 44,216 | ||||||||||
4.25%, 8/09/42 | 34 | 30,175 | ||||||||||
Philip Morris International, Inc.: | ||||||||||||
1.13%, 8/21/17 | 164 | 163,709 | ||||||||||
4.13%, 3/04/43 | 48 | 44,284 | ||||||||||
4.88%, 11/15/43 | 65 | 67,252 | ||||||||||
Reynolds American, Inc.: | ||||||||||||
2.30%, 6/12/18 | 60 | 60,449 | ||||||||||
3.25%, 6/12/20 | 46 | 46,593 | ||||||||||
3.25%, 11/01/22 | 79 | 76,089 | ||||||||||
4.45%, 6/12/25 | 76 | 77,430 | ||||||||||
4.75%, 11/01/42 | 48 | 43,545 | ||||||||||
RJ Reynolds Tobacco Co., 3.75%, 5/20/23 | 21 | 20,410 | ||||||||||
|
| |||||||||||
737,903 | ||||||||||||
Trading Companies & Distributors — 0.1% | ||||||||||||
Air Lease Corp., 3.75%, 2/01/22 | 82 | 81,951 | ||||||||||
GATX Corp., 2.60%, 3/30/20 | 54 | 53,283 | ||||||||||
United Rentals North America, Inc., 7.63%, 4/15/22 | 35 | 37,887 | ||||||||||
|
| |||||||||||
173,121 | ||||||||||||
Wireless Telecommunication Services — 0.6% | ||||||||||||
America Movil SAB de CV, 2.38%, 9/08/16 | 385 | 389,859 | ||||||||||
Sprint Communications, Inc., 9.00%, 11/15/18 (a) | 390 | 440,411 | ||||||||||
Sprint Corp., 7.88%, 9/15/23 | 135 | 131,665 | ||||||||||
T-Mobile USA, Inc.: | ||||||||||||
6.63%, 4/28/21 | 55 | 57,063 | ||||||||||
6.73%, 4/28/22 | 50 | 52,125 | ||||||||||
6.84%, 4/28/23 | 15 | 15,769 | ||||||||||
Vodafone Group PLC, 2.50%, 9/26/22 | 61 | 55,952 | ||||||||||
|
| |||||||||||
1,142,844 | ||||||||||||
Total Corporate Bonds — 25.7% | 45,550,986 | |||||||||||
Foreign Agency Obligations | ||||||||||||
Norway — 0.2% | ||||||||||||
Statoil ASA, 2.90%, 11/08/20 | 280 | 286,877 | ||||||||||
Total Foreign Agency Obligations — 0.2% | 286,877 | |||||||||||
Foreign Government Obligations | ||||||||||||
Brazil — 0.1% | ||||||||||||
Federative Republic of Brazil, 4.25%, 1/07/25 | 270 | 260,685 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Foreign Government Obligations | Par (000) | Value | ||||||||||
Colombia — 0.1% | ||||||||||||
Republic of Colombia, 4.00%, 2/26/24 | USD | 205 | $ | 203,975 | ||||||||
Germany — 0.5% | ||||||||||||
Deutsche Bundesrepublik Inflation Linked Bonds, | EUR | 670 | 811,574 | |||||||||
Mexico — 1.0% | ||||||||||||
United Mexican States: | ||||||||||||
4.75%, 6/14/18 | MXN | 6,300 | 402,456 | |||||||||
8.50%, 12/13/18 | 1,500 | 106,423 | ||||||||||
5.00%, 12/11/19 | 1,500 | 94,647 | ||||||||||
4.00%, 10/02/23 | USD | 820 | 842,550 | |||||||||
8.00%, 12/07/23 | MXN | 4,000 | 287,582 | |||||||||
6.05%, 1/11/40 | USD | 6 | 6,810 | |||||||||
4.75%, 3/08/44 | 132 | 125,400 | ||||||||||
|
| |||||||||||
1,865,868 | ||||||||||||
Peru — 0.1% | ||||||||||||
Republic of Peru, 7.35%, 7/21/25 | 100 | 130,500 | ||||||||||
Russia — 0.1% | ||||||||||||
Russian Federation: | ||||||||||||
7.60%, 7/20/22 | RUB | 1,115 | 17,012 | |||||||||
7.00%, 8/16/23 | 5,960 | 85,806 | ||||||||||
|
| |||||||||||
102,818 | ||||||||||||
Slovenia — 0.1% | ||||||||||||
Republic of Slovenia, 4.13%, 2/18/19 (a) | USD | 200 | 208,000 | |||||||||
Turkey — 0.3% | ||||||||||||
Republic of Turkey, 5.75%, 3/22/24 | 530 | 573,725 | ||||||||||
Total Foreign Government Obligations — 2.3% | 4,157,145 | |||||||||||
Non-Agency Mortgage-Backed Securities | ||||||||||||
Collateralized Mortgage Obligations — 1.5% | ||||||||||||
Adjustable Rate Mortgage Trust, Series 2005-12, Class 4A1, 3.26%, 3/25/36 (b) | 63 | 47,285 | ||||||||||
Countrywide Alternative Loan Trust: | ||||||||||||
Series 2005-72, Class A3, 0.48%, 1/25/36 (b) | 34 | 27,640 | ||||||||||
Series 2005-80CB, Class 4A1, 6.00%, 2/25/36 | 59 | 49,875 | ||||||||||
Series 2006-OA14, Class 1A1, | 165 | 138,954 | ||||||||||
Series 2006-OA6, Class 1A2, | 83 | 71,977 | ||||||||||
Series 2007-22, Class 2A16, 6.50%, 9/25/37 | 910 | 722,176 | ||||||||||
Series 2007-OA3, Class 1A1, | 42 | 34,691 | ||||||||||
Countrywide Home Loan Mortgage Pass-Through Trust: | ||||||||||||
Series 2006-OA4, Class A1, 1.12%, 4/25/46 (b) | 230 | 132,024 | ||||||||||
Series 2006-OA5, Class 2A1, | 245 | 197,694 | ||||||||||
Credit Suisse Mortgage Capital Certificates: | ||||||||||||
Series 2014-11R, Class 16A1, | 102 | 98,972 | ||||||||||
Series 2015-5R, Class 3A1, 4.45%, 1/29/37 (a) | 40 | 39,972 | ||||||||||
Series 2015-6R, Class 5A1, 4.75%, 1/27/37 (a) | 41 | 38,130 | ||||||||||
Series 2015-6R, Class 5A2, | 61 | 32,568 |
Non-Agency Mortgage-Backed Securities | Par (000) | Value | ||||||||||
Collateralized Mortgage Obligations (concluded) | ||||||||||||
Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-RMP1, Class A2, 0.33%, 12/25/36 (b) | USD | 203 | $ | 172,964 | ||||||||
Impac Secured Assets CMN Owner Trust, | 135 | 133,367 | ||||||||||
LSTAR Securities Investment Trust: | ||||||||||||
Series 2014-1, Class Note, | 298 | 298,009 | ||||||||||
Series 2015-3, Class A, 2.18%, 3/01/20 (a)(b) | 98 | 96,737 | ||||||||||
MASTR Resecuritization Trust, Series 2008-3, Class A1, 0.62%, 8/25/37 (a)(b) | 65 | 46,716 | ||||||||||
Morgan Stanley Resecuritization Trust, | 200 | 178,944 | ||||||||||
Residential Accredit Loans, Inc. Trust, | 303 | 141,298 | ||||||||||
|
| |||||||||||
2,699,993 | ||||||||||||
Commercial Mortgage-Backed Securities — 5.2% | ||||||||||||
Banc of America Commercial Mortgage Trust: | ||||||||||||
Series 2007-1, Class AMFX, | 25 | 26,067 | ||||||||||
Series 2007-3, Class A1A, 5.75%, 6/10/49 (b) | 258 | 275,119 | ||||||||||
Series 2007-3, Class A4, 5.75%, 6/10/49 (b) | 630 | 665,668 | ||||||||||
Series 2007-3, Class AJ, 5.75%, 6/10/49 (b) | 40 | 41,469 | ||||||||||
Series 2007-5, Class AM, 5.77%, 2/10/51 (b) | 85 | 89,399 | ||||||||||
Banc of America Merrill Lynch Commercial Mortgage Securities Trust, Series 2014-FL1, Class A, 1.59%, 12/15/31 (a)(b) | 100 | 100,129 | ||||||||||
Bear Stearns Commercial Mortgage Securities Trust: | ||||||||||||
Series 2007-PW15, Class A1A, | 172 | 180,448 | ||||||||||
Series 2007-PW16, Class AM, | 41 | 43,908 | ||||||||||
Series 2007-PW17, Class A3, 5.74%, 6/11/50 | 38 | 37,834 | ||||||||||
BHMS Mortgage Trust, Series 2014-ATLS, Class AFL, 1.68%, 7/05/33 (a)(b) | 100 | 99,395 | ||||||||||
BXHTL Mortgage Trust, Series 2015-JWRZ, Class GL, 2.35%, 5/15/29 (a)(b) | 100 | 95,148 | ||||||||||
Carefree Portfolio Trust, Series 2014-CARE, Class A, 1.51%, 11/15/19 (a)(b) | 100 | 100,249 | ||||||||||
CDGJ Commercial Mortgage Trust, | 160 | 160,057 | ||||||||||
Citigroup Commercial Mortgage Trust, | 184 | 183,005 | ||||||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust, Series 2007-CD5, Class AMA, 6.33%, 11/15/44 (b) | 25 | 27,153 |
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Non-Agency Mortgage-Backed Securities | Par (000) | Value | ||||||||||
Commercial Mortgage-Backed Securities (continued) |
| |||||||||||
COBALT CMBS Commercial Mortgage Trust, | USD | 158 | $ | 168,838 | ||||||||
Commercial Mortgage Pass-Through Certificates: | ||||||||||||
Series 2007-C9, Class AJFL, 0.88%, | 90 | 87,438 | ||||||||||
Series 2010-RR1, Class GEB, 5.54%, | 110 | 115,131 | ||||||||||
Series 2012-LTRT, Class A2, 3.40%, | 180 | 178,174 | ||||||||||
Series 2013-FL3, Class A, 1.70%, | 214 | 213,857 | ||||||||||
Series 2013-GAM, Class A2, 3.37%, | 130 | 131,767 | ||||||||||
Series 2014-CR20, Class A4, 3.59%, | 16 | 16,328 | ||||||||||
Series 2014-FL5, Class D, 4.00%, | 100 | 92,560 | ||||||||||
Series 2014-KYO, Class F, 3.69%, | 130 | 130,123 | ||||||||||
Series 2015-CR22, Class A5, 3.31%, | 60 | 59,692 | ||||||||||
Series 2015-LC21, Class A4, 3.71%, | 10 | 10,252 | ||||||||||
Series 2007-GG11, Class AM, 5.87%, | 130 | 139,445 | ||||||||||
Core Industrial Trust: | ||||||||||||
Series 2015-CALW, Class A, 3.04%, | 100 | 100,376 | ||||||||||
Series 2015-TEXW, Class A, 3.08%, | 100 | 100,122 | ||||||||||
Credit Suisse Mortgage Capital Certificates: | ||||||||||||
Series 2010-RR2, Class 2A, 6.15%, | 299 | 315,564 | ||||||||||
Series 2015-DEAL, Class D, 3.29%, | 100 | 99,525 | ||||||||||
Del Coronado Trust, Series 2013-HDMZ, | 180 | 180,054 | ||||||||||
Deutsche Bank Re-REMIC Trust: | ||||||||||||
Series 2011-C32, Class A3A, 5.90%, | 165 | 172,827 | ||||||||||
Series 2013-EZ3, Class A, 1.64%, | 123 | 123,590 | ||||||||||
Extended Stay America Trust, Series 2013-ESH7, | 180 | 180,578 | ||||||||||
GAHR Commercial Mortgage Trust, | 100 | 99,985 | ||||||||||
GS Mortgage Securities Corp. II, | 360 | 341,152 | ||||||||||
GS Mortgage Securities Trust, | 30 | 32,368 | ||||||||||
Hilton USA Trust, Series 2013-HLT, Class EFX, | 290 | 293,920 | ||||||||||
JPMorgan Chase Commercial Mortgage | ||||||||||||
Series 2007-CB20, Class AJ, 6.28%, | 20 | 20,899 | ||||||||||
Series 2008-C2, Class ASB, 6.13%, | 92 | 95,900 | ||||||||||
Series 2014-FL6, Class A, 1.59%, | 105 | 104,942 | ||||||||||
Series 2015-CSMO, Class D, 3.49%, | 100 | 100,212 |
Non-Agency Mortgage-Backed Securities | Par (000) | Value | ||||||||||
Commercial Mortgage-Backed Securities (concluded) |
| |||||||||||
Merrill Lynch Mortgage Trust: | ||||||||||||
Series 2005-CKI1, Class AJ, 5.28%, | USD | 195 | $ | 196,463 | ||||||||
Series 2007-C1, Class A1A, 5.84%, | 109 | 113,670 | ||||||||||
Morgan Stanley Bank of America Merrill Lynch | 32 | 33,168 | ||||||||||
Morgan Stanley Capital I Trust: | ||||||||||||
Series 2007-HQ11, Class AMFL, 0.36%, | 25 | 24,514 | ||||||||||
Series 2007-HQ12, Class A2FX, 5.59%, | 65 | 64,871 | ||||||||||
Series 2007-HQ12, Class AM, 5.86%, | 315 | 332,536 | ||||||||||
Series 2007-IQ13, Class AM, 5.41%, | 120 | 126,632 | ||||||||||
Series 2007-IQ14, Class A1A, 5.67%, | 71 | 75,902 | ||||||||||
Series 2007-IQ15, Class AM, 5.91%, | 505 | 537,117 | ||||||||||
Morgan Stanley Re-REMIC Trust: | ||||||||||||
Series 2011-IO, Class C, 0.00%, | 83 | 78,196 | ||||||||||
Series 2012-IO, Class AXB2, 1.00%, | 74 | 74,264 | ||||||||||
Series 2012-XA, Class A, 2.00%, | 118 | 117,903 | ||||||||||
RBSCF Trust, Series 2010-RR3, Class WBTA, | 744 | 766,116 | ||||||||||
SCG Trust, Series 2013-SRP1, Class AJ, 2.14%, 11/15/26 (a)(b) | 120 | 120,355 | ||||||||||
STRIPs Ltd.: | ||||||||||||
Series 2012-1A, Class A, 1.50%, | 140 | 138,660 | ||||||||||
Series 2012-1A, Class B, 0.50%, | 100 | 90,750 | ||||||||||
Wachovia Bank Commercial Mortgage Trust: | ||||||||||||
Series 2006-C28, Class AJ, 5.63%, | 27 | 27,498 | ||||||||||
Series 2006-C29, Class AM, 5.34%, | 30 | 31,520 | ||||||||||
Series 2006-WL7A, Class H, 0.59%, | 150 | 146,538 | ||||||||||
Series 2007-C33, Class AJ, 6.15%, | 153 | 158,176 | ||||||||||
Wells Fargo Commercial Mortgage Trust: | ||||||||||||
Series 2015-C27, Class A5, 3.45%, | 20 | 20,130 | ||||||||||
Series 2015-C27, Class C, 3.89%, | 30 | 27,918 | ||||||||||
Wells Fargo Resecuritization Trust, | 64 | 64,355 | ||||||||||
|
| |||||||||||
9,197,919 | ||||||||||||
Interest Only Commercial Mortgage-Backed Securities — 0.5% |
| |||||||||||
BB-UBS Trust, Series 2012-SHOW, Class XA, | 3,475 | 178,636 | ||||||||||
Commercial Mortgage Pass-Through Certificates: | ||||||||||||
Series 2013-LC6, Class XA, 1.90%, | 1,965 | 154,108 | ||||||||||
Series 2015-3BP, Class XA, 0.17%, | 1,916 | 16,114 | ||||||||||
Series 2015-CR23, Class XA, 1.16%, | 620 | 42,144 | ||||||||||
GS Mortgage Securities Corp. II, | 2,618 | 237,823 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Non-Agency Mortgage-Backed Securities | Par (000) | Value | ||||||||||
Interest Only Commercial Mortgage-Backed Securities (concluded) |
| |||||||||||
Hilton USA Trust, Series 2013-HLT, Class X1FX, | USD | 2,340 | $ | 934 | ||||||||
JPMBB Commercial Mortgage Securities Trust, Series 2015-C28, Class XA, 1.35%, | 999 | 75,354 | ||||||||||
Morgan Stanley Bank of America Merrill Lynch Trust, Series 2014-C19, Class XA, 1.31%, | 406 | 28,770 | ||||||||||
WF-RBS Commercial Mortgage Trust: | ||||||||||||
Series 2014-C24, Class XA, 1.13%, | 823 | 54,013 | ||||||||||
Series 2014-LC14, Class XA, 1.61%, | 986 | 78,223 | ||||||||||
|
| |||||||||||
866,119 | ||||||||||||
Total Non-Agency Mortgage-Backed Securities — 7.2% |
| 12,764,031 | ||||||||||
Other Interests (e) | Beneficial Interest (000) | |||||||||||
Capital Markets — 0.0% | ||||||||||||
Lehman Brothers Holdings Capital Trust VII (f)(g) |
| 185 | 19 | |||||||||
Lehman Brothers Holdings, Inc. (f)(g) | 1,025 | 103 | ||||||||||
Total Other Interests — 0.0% | 122 | |||||||||||
Preferred Securities | ||||||||||||
Capital Trusts |
| Par (000 | ) | |||||||||
Aerospace & Defense — 0.1% | ||||||||||||
United Technologies Corp., 1.78%, 5/04/18 (c) |
| 209 | 209,643 | |||||||||
Banks — 0.2% | ||||||||||||
Bank of America Corp., 6.10% (b)(h) | 60 | 59,250 | ||||||||||
Citigroup, Inc.: | ||||||||||||
5.90% (b)(h) | 45 | 44,325 | ||||||||||
5.95% (b)(h) | 65 | 62,738 | ||||||||||
JPMorgan Chase & Co., 5.30% (b)(h) | 100 | 99,260 | ||||||||||
|
| |||||||||||
265,573 | ||||||||||||
Capital Markets — 0.1% | ||||||||||||
The Goldman Sachs Group, Inc., 5.38% (b)(h) |
| 87 | 85,947 | |||||||||
State Street Capital Trust IV, 1.29%, | 40 | 34,900 | ||||||||||
|
| |||||||||||
120,847 | ||||||||||||
Consumer Finance — 0.0% | ||||||||||||
Capital One Financial Corp., 5.55% (b)(h) |
| 64 | 63,440 | |||||||||
Insurance — 0.0% | ||||||||||||
MetLife, Inc., 5.25% (b)(h) | 33 | 32,711 | ||||||||||
Total Capital Trusts — 0.4% | 692,214 | |||||||||||
Preferred Stocks | Shares | Value | ||||||||||
Media — 0.1% | ||||||||||||
NBCUniversal Enterprise, Inc. 5.25% (a) | 200,000 | $ | 212,750 | |||||||||
Thrifts & Mortgage Finance — 0.1% | ||||||||||||
Fannie Mae, Series S, 8.25% | 10,000 | 37,500 | ||||||||||
Freddie Mac, Series Z, 8.38% | 10,000 | 37,500 | ||||||||||
|
| |||||||||||
75,000 | ||||||||||||
Total Preferred Stocks — 0.2% |
| 287,750 | ||||||||||
Trust Preferreds | ||||||||||||
Consumer Finance — 0.1% | ||||||||||||
GMAC Capital Trust I, 8.13%, 2/15/40 (b) | 8,000 | 207,840 | ||||||||||
Diversified Financial Services — 0.2% | ||||||||||||
Citigroup Capital XIII, 7.88%, 10/30/40 (b) | 13,971 | 362,687 | ||||||||||
Total Trust Preferreds — 0.3% |
| 570,527 | ||||||||||
Total Preferred Securities — 0.9% |
| 1,550,491 | ||||||||||
Taxable Municipal Bonds | Par (000) | |||||||||||
Bay Area Toll Authority RB, 5.00%, 10/01/54 | USD | 125 | 133,839 | |||||||||
City of San Jose, CA Airport Revenue RB, | 30 | 31,006 | ||||||||||
County of Miami-Dade, FL Aviation Revenue RB, | 60 | 64,740 | ||||||||||
County of Sacramento, CA Airport System | 25 | 26,929 | ||||||||||
Energy Northwest RB, 5.00%, 7/01/19 | 85 | 97,264 | ||||||||||
Los Angeles Community College District/CA GO, | 40 | 53,392 | ||||||||||
Los Angeles Unified School District GO, 5.00%, | 60 | 71,795 | ||||||||||
Massachusetts Development Finance Agency | 95 | 100,045 | ||||||||||
Metropolitan Transportation Authority RB, 6.67%, | 55 | 70,978 | ||||||||||
Municipal Electric Authority of Georgia RB, | 40 | 47,967 | ||||||||||
New Jersey Economic Development Authority RB, | 165 | 178,952 | ||||||||||
New Jersey Health Care Facilities Financing | 280 | 297,296 | ||||||||||
New Jersey State Turnpike Authority RB, 7.41%, | 60 | 83,323 | ||||||||||
New York City Water & Sewer System RB: |
| 200 240 40 |
| | 233,108 281,942 50,046 | | ||||||
New York State Dormitory Authority RB, 5.39%, | 30 | 35,019 | ||||||||||
New York State Thruway Authority RB, 5.00%, | 25 | 28,312 | ||||||||||
New York State Urban Development Corp RB, | 105 | 121,860 | ||||||||||
Pennsylvania Economic Development Financing | 35 | 36,847 | ||||||||||
Port Authority of New York & New Jersey RB, | 80 | 84,851 | ||||||||||
Richland County School District No. 2/SC GO, | 30 | 35,573 | ||||||||||
South Carolina State Public Service Authority | 70 | 75,649 |
See Notes to Financial Statements.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Taxable Municipal Bonds | Par (000) | Value | ||||||||||
South Carolina Transportation Infrastructure Bank RB: | ||||||||||||
5.00%, 10/01/23 (i) | USD | 25 | $ | 29,736 | ||||||||
5.00%, 10/01/24 (i) | 25 | 29,888 | ||||||||||
State of California GO, 7.55%, 4/01/39 | 235 | 339,794 | ||||||||||
State of Georgia GO, 5.00%, 2/01/22 (i) | 50 | 59,717 | ||||||||||
State of Illinois GO, 5.10%, 6/01/33 | 220 | 204,193 | ||||||||||
University of California RB, 4.86%, 5/15/12 | 20 | 18,070 | ||||||||||
Total Taxable Municipal Bonds — 1.7% | 2,922,131 | |||||||||||
U.S. Government Sponsored Agency Securities | ||||||||||||
Collateralized Mortgage Obligations — 0.2% | ||||||||||||
Fannie Mae: | ||||||||||||
Series 2013-C01, Class M2, | 220 | 238,865 | ||||||||||
Series 2014-C01, Class M2, | 90 | 92,661 | ||||||||||
|
| |||||||||||
331,526 | ||||||||||||
Commercial Mortgage-Backed Securities — 0.1% |
| |||||||||||
Fannie Mae: | ||||||||||||
Series 2014-M13, Class A2, | 30 | 30,192 | ||||||||||
Series 2015-M3, Class A2, | 94 | 92,807 | ||||||||||
Freddie Mac, Series K045, Class A2, | 60 | 60,369 | ||||||||||
|
| |||||||||||
183,368 | ||||||||||||
Interest Only Commercial Mortgage-Backed Securities — 0.1% |
| |||||||||||
Fannie Mae: | ||||||||||||
Series 2013-M5, Class X2, | 561 | 58,889 | ||||||||||
Series 2014-M13, Class X2, | 3,762 | 45,206 | ||||||||||
Ginnie Mae, Series 2012-120, Class IO, | 1,037 | 70,386 | ||||||||||
|
| |||||||||||
174,481 | ||||||||||||
Mortgage-Backed Securities — 40.0% | ||||||||||||
Fannie Mae Mortgage-Backed Securities: | ||||||||||||
2.50%, 7/01/30 (j) | 1,093 | 1,106,240 | ||||||||||
3.00%, 4/01/29-7/01/45 (b)(j) | 8,213 | 8,252,561 | ||||||||||
3.14%, 3/01/41 (b) | 93 | 99,024 | ||||||||||
3.16%, 12/01/40 (b) | 134 | 142,326 | ||||||||||
3.36%, 6/01/41 (b) | 103 | 109,108 | ||||||||||
3.50%, 7/01/26-7/01/45 (j) | 7,873 | 8,195,704 | ||||||||||
3.51%, 9/01/41 (b) | 115 | 122,143 | ||||||||||
4.00%, 2/01/25-7/01/45 (j) | 14,213 | 15,073,476 | ||||||||||
4.50%, 2/01/25-7/01/45 (j) | 5,453 | 5,882,821 | ||||||||||
4.69%, 8/01/38 (b) | 143 | 150,445 | ||||||||||
5.00%, 7/01/33-7/01/45 (j) | 2,759 | 3,054,352 | ||||||||||
5.50%, 2/01/35-7/01/45 (j) | 1,955 | 2,200,657 | ||||||||||
6.00%, 2/01/17-6/01/41 | 843 | 961,283 | ||||||||||
6.50%, 5/01/40 | 393 | 451,506 | ||||||||||
Freddie Mac Mortgage-Backed Securities: | ||||||||||||
2.50%, 7/01/30 (j) | 600 | 606,937 | ||||||||||
2.56%, 4/01/38 (b) | 220 | 233,145 | ||||||||||
3.00%, 7/01/30-8/01/43 (j) | 2,826 | 2,832,732 | ||||||||||
3.02%, 2/01/41 (b) | 108 | 115,996 | ||||||||||
3.50%, 4/01/42-7/01/45 (j) | 2,039 | 2,099,775 | ||||||||||
4.00%, 8/01/44-7/01/45 (j) | 3,303 | 3,493,943 | ||||||||||
4.50%, 2/01/39-7/01/45 (j) | 1,220 | 1,317,996 | ||||||||||
5.00%, 8/01/40-7/01/45 (j) | 846 | 933,626 | ||||||||||
5.50%, 6/01/41-7/01/45 (j) | 329 | 368,419 |
U.S. Government Sponsored Agency Securities | Par (000) | Value | ||||||||||
Mortgage-Backed Securities (concluded) | ||||||||||||
Ginnie Mae Mortgage-Backed Securities: | ||||||||||||
3.00%, 7/15/45 (j) | USD | 2,083 | $ | 2,102,691 | ||||||||
3.50%, 12/15/42-7/15/45 (j) | 3,951 | 4,110,866 | ||||||||||
4.00%, 9/20/40-7/15/45 (j) | 2,396 | 2,542,834 | ||||||||||
4.50%, 5/20/41-2/15/42 | 2,281 | 2,485,552 | ||||||||||
5.00%, 12/15/38-7/15/45 (j) | 1,059 | 1,172,403 | ||||||||||
5.50%, 7/15/45 (j) | 500 | 563,047 | ||||||||||
|
| |||||||||||
70,781,608 | ||||||||||||
Total U.S. Government Sponsored Agency Securities — 40.4% |
| 71,470,983 | ||||||||||
U.S. Treasury Obligations | ||||||||||||
U.S. Treasury Bonds, 3.00%, 5/15/45 | 5,672 | 5,558,266 | ||||||||||
U.S. Treasury Inflation Indexed Notes, | 5,520 | 5,414,538 | ||||||||||
U.S. Treasury Notes: | ||||||||||||
0.63%, 5/31/17-6/30/17 (k) | 2,091 | 2,090,349 | ||||||||||
1.13%, 6/15/18 | 6,580 | 6,604,677 | ||||||||||
1.50%, 10/31/19 | 710 | 710,388 | ||||||||||
1.63%, 6/30/20 | 3,245 | 3,244,747 | ||||||||||
1.88%, 5/31/22 | 2,175 | 2,150,871 | ||||||||||
2.13%, 6/30/22 | 2,140 | 2,149,029 | ||||||||||
Total U.S. Treasury Obligations — 15.8% | 27,922,865 | |||||||||||
Total Long-Term Investments (Cost — $183,176,972) — 103.3% | 182,716,234 | |||||||||||
Short-Term Securities | ||||||||||||
Borrowed Bond Agreements — 0.6% | ||||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc., | 1,105 | 1,104,723 | ||||||||||
(Purchased on 6/30/15 to be repurchased at $1,104,723, collateralized by U.S. Treasury Notes, 2.13% due at 5/15/25, par and fair value of USD 1,124,400 and $1,104,020, respectively) | ||||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc., | 38 | 37,952 | ||||||||||
(Purchased on 6/30/15 to be repurchased at $37,952, collateralized by U.S. Treasury Notes, 1.63% due at 6/30/20, par and fair value of USD 38,000 and $37,997, respectively) | ||||||||||||
|
| |||||||||||
1,142,675 | ||||||||||||
Shares | ||||||||||||
Money Market Funds — 0.1% | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.07% (l)(m) | 152,737 | 152,737 | ||||||||||
Total Short-Term Securities (Cost — $1,295,412) — 0.7% | 1,295,412 | |||||||||||
Options Purchased | ||||||||||||
(Cost — $2,452) — 0.0% | 2,048 | |||||||||||
Total Investments Before TBA Sale Commitments (Cost — $184,474,836) — 104.0% |
| 184,013,694 | ||||||||||
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Borrowed Bonds | Par (000) | Value | ||||||||||
U.S. Treasury Obligations — (0.6)% | ||||||||||||
U.S. Treasury Notes, | USD | 1,124 | $ | (1,104,020 | ) | |||||||
Total Borrowed Bonds (Proceeds — $1,103,637) — (0.6)% | (1,104,020 | ) | ||||||||||
Investments Sold Short | ||||||||||||
U.S. Treasury Obligations — (2.2)% | ||||||||||||
U.S. Treasury Notes, | 3,919 | (3,847,968 | ) | |||||||||
Total Securities Sold Short (Proceeds — $3,848,001) — (2.2)% | (3,847,968 | ) | ||||||||||
TBA Sale Commitments (j) | ||||||||||||
Fannie Mae Mortgage-Backed Securities: | ||||||||||||
3.00%, 7/01/45 | 4,245 | (4,229,164 | ) | |||||||||
3.50%, 7/01/30 | 1,324 | (1,396,344 | ) | |||||||||
4.00%, 7/01/30-7/01/45 | 3,400 | (3,595,889 | ) | |||||||||
4.50%, 7/01/45 | 1,260 | (1,362,178 | ) | |||||||||
5.00%, 7/01/45 | 1,900 | (2,098,195 | ) | |||||||||
5.50%, 7/01/45 | 1,100 | (1,235,063 | ) | |||||||||
6.00%, 7/01/45 | 100 | (113,576 | ) | |||||||||
6.50%, 7/01/45 | 100 | (115,000 | ) | |||||||||
Freddie Mac Mortgage-Backed Securities: | ||||||||||||
3.00%, 7/01/45 | 1,125 | (1,118,276 | ) | |||||||||
4.00%, 7/01/45 | 1,300 | (1,374,775 | ) | |||||||||
Ginnie Mae Mortgage-Backed Securities: | ||||||||||||
3.50%, 7/15/45 | 1,900 | (1,971,833 | ) | |||||||||
4.00%, 7/15/45 | 300 | (317,924 | ) | |||||||||
4.50%, 7/15/45 | 710 | (768,579 | ) | |||||||||
Total TBA Sale Commitments (Proceeds – $19,731,049) – (11.1)% | (19,696,796 | ) | ||||||||||
Options Written | Value | |||
(Premiums Received — $113) — (0.0)% | $ | (194 | ) | |
Total Investments Net of TBA Sale Commitments and Options Written — 90.1% | 159,364,716 | |||
Other Assets Less Liabilities — 9.9% | 17,576,571 | |||
|
| |||
Net Assets — 100.0% | $ | 176,941,287 | ||
|
|
Notes to Schedule of Investments |
(a) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors. |
(b) | Variable rate security. Rate shown is as of report date. |
(c) | Represents a step-up bond that pays an initial coupon rate for the first period and then a higher coupon rate for the following periods. Rate shown is as of report date. |
(d) | Zero-coupon bond. |
(e) | Other interests represent beneficial interests in liquidation trusts and other reorganization or private entities. |
(f) | Non-income producing security. |
(g) | Issuer filed for bankruptcy and/or is in default of interest payments. |
(h) | Security is perpetual in nature and has no stated maturity date. |
(i) | When-issued security. Unsettled when-issued transactions were as follows: |
Counterparty | Value | Unrealized Appreciation (Depreciation) | ||||||
Citigroup Global Markets, Inc. | $59,717 | $199 | ||||||
Goldman Sachs & Co. | $64,740 | $ (96 | ) | |||||
Wells Fargo Securities, LLC | $59,624 | $131 |
See Notes to Financial Statements.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund |
(j) | Represents or includes a TBA transaction. As of June 30, 2015, unsettled TBA transactions were as follows: |
Counterparty | Value | Unrealized Appreciation (Depreciation) | ||||||
Barclays Capital, Inc. | $ | 3,062,062 | $ | 3,444 | ||||
BNP Paribas Securities Corp. | $ | 436,028 | $ | (1,831 | ) | |||
Citigroup Global Markets, Inc. | $ | 424,492 | $ | (594 | ) | |||
Credit Suisse Securities (USA) LLC | $ | 3,545,966 | $ | 8,256 | ||||
Deutsche Bank Securities, Inc. | $ | 483,308 | $ | 8,743 | ||||
Goldman Sachs & Co. | $ | 6,016,815 | $ | 20,242 | ||||
J.P. Morgan Securities LLC | $ | 1,529,413 | $ | (4,369 | ) | |||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | $ | 2,757,642 | $ | (4,218 | ) | |||
Morgan Stanley & Co. LLC | $ | 307,324 | $ | 3,480 | ||||
Nomura Securities International, Inc. | $ | (415,141 | ) | $ | 3,234 | |||
RBC Capital Markets, LLC | $ | 1,394,777 | $ | 4,027 |
(k) | All or a portion of security has been pledged as collateral in connection with outstanding reverse repurchase agreements. |
(l) | During the six months ended June 30, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares Held at | Net Activity | Shares Held at | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 1,225,706 | (1,072,969 | ) | 152,737 | $ | 1,096 |
(m) | Represents the current yield as of report date. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
• | As of June 30, 2015, reverse repurchase agreements outstanding were as follows: |
Counterparty | Interest Rate | Trade Date | Maturity Date | Face Value | Face Value Including Accrued Interest | |||||||||||||
BNP Paribas Securities Corp. | 0.20 | % | 6/30/15 | 7/01/15 | $ | 1,939,000 | $ | 1,939,011 | ||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | (0.49 | %) | 6/30/15 | 7/01/15 | 3,427,775 | 3,427,728 | ||||||||||||
Total | $ | 5,366,775 | $ | 5,366,739 | ||||||||||||||
|
|
As of June 30, 2015, U.S. Treasury Obligations with an aggregate value of $5,366,739 have been pledged as collateral in connection with open reverse repurchase agreements. All open reverse repurchase agreements will mature on the next business day. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund |
• | As of June 30, 2015, financial futures contracts outstanding were as follows: |
Contracts (Short) | Issue | Exchange | Expiration | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
12 | Australian Government Bonds (10 Year) | Sydney | September 2015 | USD | 1,155,311 | $ 5,308 | ||||||||||||||
Euro-BTP Italian Government | ||||||||||||||||||||
8 | Bonds Futures | Eurex | September 2015 | USD | 1,161,319 | (15,601 | ) | |||||||||||||
(6 | ) | Euro-Bund | Eurex | September 2015 | USD | 1,016,745 | (324 | ) | ||||||||||||
54 | U.S. Treasury Bonds (30 Year) | Chicago Board of Trade | September 2015 | USD | 8,145,563 | (81,259 | ) | |||||||||||||
71 | U.S. Treasury Notes (10 Year) | Chicago Board of Trade | September 2015 | USD | 8,958,203 | (3,608 | ) | |||||||||||||
92 | U.S. Treasury Notes (2 Year) | Chicago Board of Trade | September 2015 | USD | 20,142,250 | 18,214 | ||||||||||||||
38 | U.S. Treasury Notes (5 Year) | Chicago Board of Trade | September 2015 | USD | 4,531,797 | (30 | ) | |||||||||||||
11 | U.S. Ultra Treasury Bonds | Chicago Board of Trade | September 2015 | USD | 1,694,688 | (5,330 | ) | |||||||||||||
(72 | ) | Euro Dollar Futures | Chicago Mercantile | December 2015 | USD | 17,903,700 | (3,457 | ) | ||||||||||||
(11 | ) | Euro Dollar Futures | Chicago Mercantile | June 2016 | USD | 2,724,562 | (2,066 | ) | ||||||||||||
(3 | ) | Euro Dollar Futures | Chicago Mercantile | September 2016 | USD | 741,375 | (477 | ) | ||||||||||||
(28 | ) | Euro Dollar Futures | Chicago Mercantile | December 2016 | USD | 6,904,100 | (5,161 | ) | ||||||||||||
2 | Euro Dollar Futures | Chicago Mercantile | March 2017 | USD | 492,225 | 90 | ||||||||||||||
7 | Euro Dollar Futures | Chicago Mercantile | June 2017 | USD | 1,719,637 | 231 | ||||||||||||||
Total | $(93,470) | |||||||||||||||||||
|
|
• | As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: |
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||
BRL | 44,408 | USD | 14,313 | Goldman Sachs International | 7/02/15 | $ (30) | ||||||||||||
BRL | 25,160 | USD | 8,000 | Goldman Sachs International | 7/02/15 | 86 | ||||||||||||
BRL | 18,702 | USD | 6,000 | UBS AG | 7/02/15 | 15 | ||||||||||||
USD | 14,000 | BRL | 44,408 | Goldman Sachs International | 7/02/15 | (273 | ) | |||||||||||
USD | 8,109 | BRL | 25,160 | Goldman Sachs International | 7/02/15 | 17 | ||||||||||||
USD | 6,028 | BRL | 18,702 | UBS AG | 7/02/15 | 13 | ||||||||||||
USD | 92,420 | MXN | 1,406,835 | JPMorgan Chase Bank N.A. | 7/02/15 | 2,926 | ||||||||||||
USD | 152,708 | MXN | 2,327,239 | Goldman Sachs International | 7/09/15 | 4,742 | ||||||||||||
RUB | 327,580 | USD | 6,416 | Citibank N.A. | 7/14/15 | (513 | ) | |||||||||||
RUB | 327,580 | USD | 6,412 | Goldman Sachs International | 7/14/15 | (510 | ) | |||||||||||
RUB | 655,902 | USD | 12,848 | JPMorgan Chase Bank N.A. | 7/14/15 | (1,030 | ) | |||||||||||
USD | 11,503 | RUB | 603,674 | Citibank N.A. | 7/14/15 | 626 | ||||||||||||
USD | 5,927 | RUB | 310,301 | JPMorgan Chase Bank N.A. | 7/14/15 | 337 | ||||||||||||
USD | 6,253 | RUB | 328,138 | JPMorgan Chase Bank N.A. | 7/14/15 | 340 | ||||||||||||
USD | 22,768 | RUB | 1,265,174 | Morgan Stanley Capital Services LLC | 7/14/15 | (27 | ) | |||||||||||
USD | 22,106 | RUB | 1,213,077 | Morgan Stanley Capital Services LLC | 7/14/15 | 249 | ||||||||||||
USD | 12,453 | RUB | 653,660 | Morgan Stanley Capital Services LLC | 7/14/15 | 676 | ||||||||||||
USD | 22,715 | RUB | 1,218,678 | Morgan Stanley Capital Services LLC | 7/14/15 | 758 | ||||||||||||
USD | 22,900 | RUB | 1,219,426 | Morgan Stanley Capital Services LLC | 7/14/15 | 929 | ||||||||||||
USD | 100,324 | MXN | 1,528,610 | Goldman Sachs International | 7/16/15 | 3,187 | ||||||||||||
MXN | 1,583,745 | USD | 103,368 | Citibank N.A. | 7/20/15 | (2,757 | ) | |||||||||||
USD | 102,907 | MXN | 1,583,745 | JPMorgan Chase Bank N.A. | 7/20/15 | 2,296 | ||||||||||||
USD | 789,848 | EUR | 709,000 | Standard Chartered Bank | 7/21/15 | (810 | ) | |||||||||||
USD | 80,545 | MXN | 1,227,778 | Barclays Bank PLC | 7/21/15 | 2,554 | ||||||||||||
USD | 258,615 | MXN | 3,880,000 | Barclays Bank PLC | 7/21/15 | 12,148 | ||||||||||||
USD | 82,889 | MXN | 1,273,256 | BNP Paribas S.A. | 7/27/15 | 2,045 | ||||||||||||
USD | 139,123 | MXN | 2,183,118 | HSBC Bank PLC | 8/03/15 | 579 | ||||||||||||
USD | 6,000 | BRL | 18,914 | UBS AG | 8/04/15 | (5 | ) | |||||||||||
MXN | 2,654,797 | USD | 172,949 | Barclays Bank PLC | 8/10/15 | (4,553 | ) | |||||||||||
USD | 171,668 | MXN | 2,654,797 | HSBC Bank PLC | 8/10/15 | 3,274 |
See Notes to Financial Statements.
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund |
As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: (concluded)
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||
USD | 90,576 | MXN | 1,406,835 | State Street Bank and Trust Co. | 8/10/15 | $ 1,340 | ||||||||||||
MXN | 1,622,635 | USD | 105,656 | Goldman Sachs International | 8/17/15 | (2,783 | ) | |||||||||||
USD | 104,879 | MXN | 1,622,635 | UBS AG | 8/17/15 | 2,006 | ||||||||||||
USD | 5,030 | RUB | 291,501 | Deutsche Bank AG | 9/09/15 | (118 | ) | |||||||||||
USD | 28,665 | MXN | 443,086 | Bank of America N.A. | 9/18/15 | 635 | ||||||||||||
Total | $28,369 | |||||||||||||||||
|
|
• | As of June 30, 2015, exchange-traded options purchased were as follows: |
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Value | |||||||||||||||
Euro Dollar 90-Day | Put | USD | 98.00 | 9/11/15 | 4 | $1,275 |
• | As of June 30, 2015, OTC interest rate swaptions purchased were as follows: |
Description | Counterparty | Put/ Call | Exercise Rate | Pay/Receive Exercise Rate | Floating Rate Index | Expiration Date | Notional (000) | Value | ||||||||||||||
2-Year Interest Rate Swap | Deutsche Bank AG | Call | 1.92% | Receive | 3-month KRW Certificate of Deposit | 11/09/15 | KRW | 205,250 | $773 |
• | As of June 30, 2015, OTC interest rate swaptions written were as follows: |
Description | Counterparty | Put/ Call | Exercise Rate | Pay/Receive Exercise Rate | Floating Rate Index | Expiration Date | Notional (000) | Value | ||||||||||||||
2-Year Interest Rate Swap | Deutsche Bank AG | Call | 1.63% | Pay | 3-month KRW Certificate of Deposit | 11/09/15 | KRW | 205,250 | $(194) |
• | As of June 30, 2015, centrally cleared credit default swaps — buy protection outstanding were as follows: |
Index | Pay Rate | Clearinghouse | Expiration Date | Notional | Unrealized Appreciation | |||||||||||||||
CDX.NA.IG Series 24 Version 1 | 1.00% | Chicago Mercantile | 6/20/20 | USD | 1,001 | $2,071 |
• | As of June 30, 2015, centrally cleared credit default swaps — sold protection outstanding were as follows: |
Index | Receive Fixed Rate | Clearinghouse | Expiration Date | Credit Rating1 | Notional | Unrealized Appreciation | ||||||||||||||
CDX.NA.HY Series 24 Version 2 | 5.00% | Chicago Mercantile | 6/20/20 | B+ | USD | 1,530 | $4,759 |
1 | Using Standard & Poor’s rating of the underlying securities of the index. |
2 | The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement. |
• | As of June 30, 2015, centrally cleared interest rate swaps outstanding were as follows: |
Fixed Rate | Floating Rate | Clearinghouse | Effective Date | Expiration Date | Notional (000) | Unrealized Appreciation (Depreciation) | ||||||||||||||
0.65%1 | 3-month LIBOR | Chicago Mercantile | N/A | 11/26/16 | USD | 535 | $ (78) | |||||||||||||
1.26%1 | 3-month LIBOR | Chicago Mercantile | 1/12/162 | 1/12/17 | USD | 7,141 | (25,168 | ) | ||||||||||||
2.17%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/15/23 | USD | 69 | 153 | |||||||||||||
2.04%1 | 3-month LIBOR | Chicago Mercantile | N/A | 4/30/25 | USD | 27 | 876 | |||||||||||||
2.36%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/15/25 | USD | 34 | 138 | |||||||||||||
2.45%1 | 3-month LIBOR | Chicago Mercantile | N/A | 6/22/25 | USD | 41 | (66 | ) | ||||||||||||
2.39%1 | 3-month LIBOR | Chicago Mercantile | N/A | 4/24/45 | USD | 205 | 21,791 | |||||||||||||
2.74%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/08/45 | USD | 228 | 7,780 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund |
As of June 30, 2015, centrally cleared interest rate swaps outstanding were as follows: (concluded)
Fixed Rate | Floating Rate | Clearinghouse | Effective Date | Expiration Date | Notional Amount (000) | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||
2.74%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/08/45 | USD | 228 | $ 7,561 | |||||||||||||||||||
2.69%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/27/45 | USD | 423 | 19,338 | |||||||||||||||||||
2.69%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/27/45 | USD | 423 | 19,154 | |||||||||||||||||||
2.93%1 | 3-month LIBOR | Chicago Mercantile | N/A | 7/02/45 | USD | 560 | (1,015 | ) | ||||||||||||||||||
Total | $50,464 | |||||||||||||||||||||||||
|
|
1 | Fund pays the fixed rate and receives the floating rate. |
2 | Forward swap. |
• | As of June 30, 2015, OTC credit default swaps - buy protection outstanding were as follows: |
Issuer | Pay Fixed Rate | Counterparty | Expiration Date | Notional | Value | Premiums Paid | Unrealized Appreciation (Depreciation) | |||||||||||||||||
Genworth Holdings, Inc. | 1.00% | JPMorgan Chase Bank N.A. | 12/20/16 | USD | 90 | $ | 691 | $ 1,115 | $(424) | |||||||||||||||
United Mexican States | 1.00% | JPMorgan Chase Bank N.A. | 6/20/20 | USD | 135 | 1,756 | 1,184 | 572 | ||||||||||||||||
United Mexican States | 1.00% | Bank of America N.A. | 9/20/20 | USD | 135 | 2,106 | 1,777 | 329 | ||||||||||||||||
Republic of South Africa | 1.00% | Barclays Bank PLC | 9/20/20 | USD | 331 | 17,358 | 17,761 | (403) | ||||||||||||||||
Republic of Turkey | 1.00% | Barclays Bank PLC | 9/20/20 | USD | 29 | 1,679 | 1,458 | 221 | ||||||||||||||||
Republic of Turkey | 1.00% | BNP Paribas S.A. | 9/20/20 | USD | 68 | 4,020 | 4,718 | (698) | ||||||||||||||||
Federation of Malaysia | 1.00% | JPMorgan Chase Bank N.A. | 9/20/20 | USD | 48 | 921 | 815 | 106 | ||||||||||||||||
CMBX.NA Series 7 AAA | 0.50% | Citibank N.A. | 1/17/47 | USD | 28 | 838 | 847 | (9) | ||||||||||||||||
CMBX.NA Series 7 AAA | 0.50% | Deutsche Bank AG | 1/17/47 | USD | 30 | 898 | 908 | (10) | ||||||||||||||||
CMBX.NA Series 7 AAA | 0.50% | JPMorgan Chase Bank N.A. | 1/17/47 | USD | 35 | 1,048 | 1,053 | (5) | ||||||||||||||||
CMBX.NA Series 7 AAA | 0.50% | JPMorgan Chase Bank N.A. | 1/17/47 | USD | 35 | 1,048 | 1,059 | (11) | ||||||||||||||||
Total | $ | 32,363 | $32,695 | $(332) | ||||||||||||||||||||
|
|
• | As of June 30, 2015, OTC credit default swaps - sold protection outstanding were as follows: |
Issuer/Index | Receive Fixed Rate | Counterparty | Expiration Date | Credit Rating1 | Notional Amount (000)2 | Value | Premiums Received | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||
Goldman Sachs | ||||||||||||||||||||||||||||
Transocean, Inc. | 1.00% | International | 6/20/19 | BB+ | USD | 95 | $(14,744) | $ (2,367) | $(12,377) | |||||||||||||||||||
Goldman Sachs | ||||||||||||||||||||||||||||
Transocean, Inc. | 1.00% | International | 6/20/19 | BB+ | USD | 15 | (2,328) | (373) | (1,955) | |||||||||||||||||||
Barrick Gold Corp. | 1.00% | Deutsche Bank AG | 12/20/19 | BBB- | USD | 60 | (815) | (2,112) | 1,297 | |||||||||||||||||||
Transocean, Inc. | 1.00% | Bank of America N.A. | 12/20/19 | BB+ | USD | 30 | (5,613) | (2,166) | (3,447) | |||||||||||||||||||
Transocean, Inc. | 1.00% | Bank of America N.A. | 12/20/19 | BB+ | USD | 25 | (4,678) | (1,746) | (2,932) | |||||||||||||||||||
Transocean, Inc. | 1.00% | Bank of America N.A. | 12/20/19 | BB+ | USD | 25 | (4,677) | (1,704) | (2,973) | |||||||||||||||||||
JPMorgan Chase Bank | ||||||||||||||||||||||||||||
Apache Corp. | 1.00% | N.A. | 3/20/20 | BBB+ | USD | 60 | (203) | (2,450) | 2,247 | |||||||||||||||||||
The Goldman Sachs Group, Inc. | 1.00% | Bank of America N.A. | 6/20/20 | A- | USD | 200 | 924 | 1,108 | (184) | |||||||||||||||||||
United Mexican States | 1.00% | Bank of America N.A. | 6/20/20 | BBB+ | USD | 135 | (1,748) | (1,372) | (376) | |||||||||||||||||||
Federative Republic of Brazil | 1.00% | Bank of America N.A. | 9/20/20 | BBB- | USD | 143 | (11,061) | (9,488) | (1,573) | |||||||||||||||||||
Federative Republic of Brazil | 1.00% | BNP Paribas S.A. | 9/20/20 | BBB- | USD | 145 | (11,178) | (10,168) | (1,010) | |||||||||||||||||||
Federative Republic of Brazil | 1.00% | BNP Paribas S.A. | 9/20/20 | BBB- | USD | 145 | (11,186) | (10,168) | (1,018) | |||||||||||||||||||
Federative Republic of Brazil | 1.00% | BNP Paribas S.A. | 9/20/20 | BBB- | USD | 145 | (11,178) | (10,054) | (1,124) | |||||||||||||||||||
Federative Republic of Brazil | 1.00% | Citibank N.A. | 9/20/20 | BBB- | USD | 50 | (3,855) | (3,642) | (213) | |||||||||||||||||||
Russian Federation | 1.00% | Bank of America N.A. | 9/20/20 | BB+ | USD | 105 | (11,281) | (11,862) | 581 | |||||||||||||||||||
United Mexican States | 1.00% | BNP Paribas S.A. | 9/20/20 | BBB+ | USD | 137 | (2,143) | (1,786) | (357) | |||||||||||||||||||
JPMorgan Chase Bank | ||||||||||||||||||||||||||||
United Mexican States | 1.00% | N.A. | 9/20/20 | BBB+ | USD | 273 | (4,271) | (3,638) | (633) |
See Notes to Financial Statements.
20 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund |
As of June 30, 2015, OTC credit default swaps — sold protection outstanding were as follows: (concluded)
Issuer/Index | Receive Fixed Rate | Counterparty | Expiration Date | Credit Rating1 | Notional Amount (000)2 | Value | Premiums Received | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
United Mexican States | 1.00 | % | JPMorgan Chase Bank N.A. | 9/20/20 | BBB+ | USD | 135 | $ | (2,113 | ) | $ | (1,548 | ) | $ | (565 | ) | ||||||||||||||||
Barrick Gold Corp. | 1.00 | % | Goldman Sachs International | 6/20/21 | BBB- | USD | 136 | (7,113 | ) | (9,591 | ) | 2,478 | ||||||||||||||||||||
CMBX.NA Series 3 AM | 0.50 | % | Credit Suisse International | 12/13/49 | BBB- | USD | 390 | (4,645 | ) | (36,506 | ) | 31,861 | ||||||||||||||||||||
CMBX.NA Series 4 AM | 0.50 | % | Deutsche Bank AG | 2/17/51 | BB | USD | 95 | (1,878 | ) | (13,428 | ) | 11,550 | ||||||||||||||||||||
Total | $ | (115,784 | ) | $ | (135,061 | ) | $ | 19,277 | ||||||||||||||||||||||||
|
|
1 | Using Standard & Poor’s rating of the issuer or the underlying securities of the index, as applicable. |
2 | The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement. |
• | As of June 30, 2015, OTC interest rate swaps outstanding were as follows: |
Fixed Rate | Floating Rate | Counterparty | Expiration Date | Notional Amount (000) | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
11.36%1 | 1-day BZDIOVER | Credit Suisse International | 1/04/16 | BRL | 898 | $(3,835 | ) | $102 | $(3,937 | ) | ||||||||||||||||
11.26%1 | 1-day BZDIOVER | Deutsche Bank AG | 1/04/16 | BRL | 216 | (1,134 | ) | 53 | (1,187 | ) | ||||||||||||||||
12.14%2 | 1-day BZDIOVER | JPMorgan Chase Bank N.A. | 1/04/16 | BRL | 1,860 | 1,972 | 498 | 1,474 | ||||||||||||||||||
11.59%1 | 1-day BZDIOVER | JPMorgan Chase Bank N.A. | 1/04/16 | BRL | 965 | (1,181 | ) | 120 | (1,301 | ) | ||||||||||||||||
12.13%2 | 1-day BZDIOVER | JPMorgan Chase Bank N.A. | 1/04/16 | BRL | 840 | 941 | 225 | 716 | ||||||||||||||||||
11.85%1 | 1-day BZDIOVER | JPMorgan Chase Bank N.A. | 1/04/16 | BRL | 553 | (1,013 | ) | (13 | ) | (1,000 | ) | |||||||||||||||
3.70%1 | 28-day MXIBTIIE | Bank of America N.A. | 6/20/16 | MXN | 6,424 | 170 | (5 | ) | 175 | |||||||||||||||||
3.69%1 | 28-day MXIBTIIE | Bank of America N.A. | 6/20/16 | MXN | 6,424 | 109 | (4 | ) | 113 | |||||||||||||||||
3.69%1 | 28-day MXIBTIIE | Bank of America N.A. | 6/20/16 | MXN | 4,057 | 81 | (3 | ) | 84 | |||||||||||||||||
3.69%1 | �� | 28-day MXIBTIIE | Citibank N.A. | 6/20/16 | MXN | 3,381 | 68 | (2 | ) | 70 | ||||||||||||||||
4.19%1 | 28-day MXIBTIIE | Deutsche Bank AG | 12/16/16 | MXN | 2,756 | 797 | (14 | ) | 811 | |||||||||||||||||
2.25%1 | 7-day China Fixing Repo Rates | Bank of America N.A. | 5/22/17 | CNY | 1,428 | (84 | ) | (6 | ) | (78 | ) | |||||||||||||||
2.27%1 | 7-day China Fixing Repo Rates | Bank of America N.A. | 5/27/17 | CNY | 1,440 | 8 | (2 | ) | 10 | |||||||||||||||||
2.24%1 | 7-day China Fixing Repo Rates | JPMorgan Chase Bank N.A. | 5/27/17 | CNY | 1,415 | (154 | ) | (2 | ) | (152 | ) | |||||||||||||||
1.68%1 | 3-month KRW Certificate of Deposit | Citibank N.A. | 6/04/17 | KRW | 380,000 | (149 | ) | 1 | (150 | ) | ||||||||||||||||
1.70%1 | 3-month KRW Certificate of Deposit | Bank of America N.A. | 6/05/17 | KRW | 247,708 | 31 | 2 | 29 | ||||||||||||||||||
1.67%1 | 3-month KRW Certificate of Deposit | Barclays Bank PLC | 6/08/17 | KRW | 257,341 | (116 | ) | 1 | (117 | ) | ||||||||||||||||
1.67%1 | 3-month KRW Certificate of Deposit | Citibank N.A. | 6/08/17 | KRW | 254,951 | (115 | ) | 1 | (116 | ) | ||||||||||||||||
4.35%2 | 28-day MXIBTIIE | Bank of America N.A. | 11/17/17 | MXN | 936 | (33 | ) | 6 | (39 | ) | ||||||||||||||||
4.69%2 | 28-day MXIBTIIE | Bank of America N.A. | 3/16/18 | MXN | 841 | (297 | ) | 6 | (303 | ) | ||||||||||||||||
4.55%2 | 28-day MXIBTIIE | Barclays Bank PLC | 3/21/18 | MXN | 826 | (88 | ) | 12 | (100 | ) | ||||||||||||||||
4.57%2 | 28-day MXIBTIIE | Citibank N.A. | 3/21/18 | MXN | 826 | (116 | ) | 12 | (128 | ) | ||||||||||||||||
4.85%2 | 28-day MXIBTIIE | Bank of America N.A. | 11/01/18 | MXN | 716 | (130 | ) | 2 | (132 | ) | ||||||||||||||||
4.72%2 | 28-day MXIBTIIE | Citibank N.A. | 11/14/18 | MXN | 1,100 | 82 | 3 | 79 | ||||||||||||||||||
5.05%2 | 28-day MXIBTIIE | Citibank N.A. | 11/15/19 | MXN | 776 | 95 | 8 | 87 | ||||||||||||||||||
5.04%2 | 28-day MXIBTIIE | Bank of America N.A. | 11/18/19 | MXN | 735 | 213 | 3 | 210 | ||||||||||||||||||
4.81%1 | 28-day MXIBTIIE | Bank of America N.A. | 1/28/20 | MXN | 573 | (646 | ) | — | (646 | ) | ||||||||||||||||
5.42%1 | 28-day MXIBTIIE | Goldman Sachs International | 3/06/20 | MXN | 1,152 | 407 | (18 | ) | 425 | |||||||||||||||||
5.23%1 | 28-day MXIBTIIE | Bank of America N.A. | 3/12/20 | MXN | 1,531 | (90 | ) | (5 | ) | (85 | ) | |||||||||||||||
2.60%1 | 7-day China Fixing Repo Rates | Goldman Sachs International | 5/22/20 | CNY | 322 | 130 | (3 | ) | 133 | |||||||||||||||||
2.65%1 | 7-day China Fixing Repo Rates | Goldman Sachs International | 5/22/20 | CNY | 290 | 238 | (3 | ) | 241 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 21 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund |
As of June 30, 2015, OTC interest rate swaps outstanding were as follows: (concluded)
Fixed Rate | Floating Rate | Counterparty | Expiration Date | Notional (000) | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||||||||
2.60%1 | 7-day China Fixing Repo Rates | HSBC Bank PLC | 5/25/20 | CNY | 613 | $ | 254 | $ | (2 | ) | $ | 256 | ||||||||||||
2.63%1 | 7-day China Fixing Repo Rates | JPMorgan Chase Bank N.A. | 5/27/20 | CNY | 306 | 196 | (1 | ) | 197 | |||||||||||||||
2.65%1 | 7-day China Fixing Repo Rates | JPMorgan Chase Bank N.A. | 5/27/20 | CNY | 303 | 241 | (1 | ) | 242 | |||||||||||||||
2.57%1 | 3-month LIBOR | Deutsche Bank AG | 10/27/20 | USD | 300 | 12,607 | – | 12,607 | ||||||||||||||||
11.41%2 | 1-day BZDIOVER | Bank of America N.A. | 1/04/21 | BRL | 162 | 3,426 | 4 | 3,422 | ||||||||||||||||
12.50%1 | 1-day BZDIOVER | Bank of America N.A. | 1/04/21 | BRL | 107 | (307 | ) | 4 | (311 | ) | ||||||||||||||
12.05%1 | 1-day BZDIOVER | Bank of America N.A. | 1/04/21 | BRL | 87 | (1,031 | ) | (2 | ) | (1,029 | ) | |||||||||||||
12.35%1 | 1-day BZDIOVER | Bank of America N.A. | 1/04/21 | BRL | 87 | (517 | ) | – | (517 | ) | ||||||||||||||
12.44%1 | 1-day BZDIOVER | Citibank N.A. | 1/04/21 | BRL | 156 | (687 | ) | 2 | (689 | ) | ||||||||||||||
12.41%1 | 1-day BZDIOVER | Credit Suisse International | 1/04/21 | BRL | 129 | (643 | ) | 1 | (644 | ) | ||||||||||||||
12.46%1 | 1-day BZDIOVER | Credit Suisse International | 1/04/21 | BRL | 129 | (535 | ) | 1 | (536 | ) | ||||||||||||||
12.35%1 | 1-day BZDIOVER | Credit Suisse International | 1/04/21 | BRL | 88 | (527 | ) | – | (527 | ) | ||||||||||||||
12.43%1 | 1-day BZDIOVER | HSBC Bank PLC | 1/04/21 | BRL | 128 | (583 | ) | 2 | (585 | ) | ||||||||||||||
11.84%1 | 1-day BZDIOVER | HSBC Bank PLC | 1/04/21 | BRL | 58 | (924 | ) | (1 | ) | (923 | ) | |||||||||||||
12.50%1 | 1-day BZDIOVER | JPMorgan Chase Bank N.A. | 1/04/21 | BRL | 177 | (509 | ) | 6 | (515 | ) | ||||||||||||||
12.52%1 | 1-day BZDIOVER | JPMorgan Chase Bank N.A. | 1/04/21 | BRL | 175 | (523 | ) | 2 | (525 | ) | ||||||||||||||
11.72%1 | 1-day BZDIOVER | JPMorgan Chase Bank N.A. | 1/04/21 | BRL | 16 | (304 | ) | – | (304 | ) | ||||||||||||||
3.30%2 | 3-month LIBOR | Morgan Stanley Capital Services LLC | 5/06/21 | USD | 700 | (57,030 | ) | – | (57,030 | ) | ||||||||||||||
3.27%2 | 3-month LIBOR | Deutsche Bank AG | 5/16/21 | USD | 470 | (37,036 | ) | – | (37,036 | ) | ||||||||||||||
12.26%1 | 1-day BZDIOVER | Citibank N.A. | 1/02/23 | BRL | 143 | (996 | ) | 7 | (1,003 | ) | ||||||||||||||
12.37%1 | 1-day BZDIOVER | JPMorgan Chase Bank N.A. | 1/02/23 | BRL | 246 | (1,171 | ) | 10 | (1,181 | ) | ||||||||||||||
2.16%2 | 3-month LIBOR | Bank of America N.A. | 5/28/23 | USD | 200 | 853 | – | 853 | ||||||||||||||||
2.31%2 | 3-month LIBOR | Deutsche Bank AG | 5/31/23 | USD | 200 | (1,419 | ) | – | (1,419 | ) | ||||||||||||||
5.84%1 | 28-day MXIBTIIE | Deutsche Bank AG | 11/14/24 | MXN | 1,094 | (2,286 | ) | (6 | ) | (2,280 | ) | |||||||||||||
5.85%1 | 28-day MXIBTIIE | Deutsche Bank AG | 11/14/24 | MXN | 476 | (977 | ) | (3 | ) | (974 | ) | |||||||||||||
5.73%2 | 28-day MXIBTIIE | Bank of America N.A. | 1/03/25 | MXN | 672 | 1,829 | 9 | 1,820 | ||||||||||||||||
5.55%1 | 28-day MXIBTIIE | Bank of America N.A. | 1/13/25 | MXN | 494 | (1,774 | ) | (2 | ) | (1,772 | ) | |||||||||||||
5.56%1 | 28-day MXIBTIIE | Goldman Sachs International | 1/13/25 | MXN | 712 | (2,559 | ) | (3 | ) | (2,556 | ) | |||||||||||||
6.46%1 | 28-day MXIBTIIE | Credit Suisse International | 5/30/25 | MXN | 1,352 | 739 | (23 | ) | 762 | |||||||||||||||
6.46%1 | 28-day MXIBTIIE | Credit Suisse International | 5/30/25 | MXN | 489 | 267 | (8 | ) | 275 | |||||||||||||||
6.46%1 | 28-day MXIBTIIE | Deutsche Bank AG | 5/30/25 | MXN | 619 | 338 | (11 | ) | 349 | |||||||||||||||
6.43%1 | 28-day MXIBTIIE | Bank of America N.A. | 6/06/25 | MXN | 541 | 177 | (9 | ) | 186 | |||||||||||||||
6.33%1 | 28-day MXIBTIIE | Citibank N.A. | 6/09/25 | MXN | 271 | (45 | ) | (1 | ) | (44 | ) | |||||||||||||
6.37%1 | 28-day MXIBTIIE | Goldman Sachs International | 6/30/25 | MXN | 900 | 49 | (5 | ) | 54 | |||||||||||||||
Total | $ | (95,246 | ) | $ | 945 | $ | (96,191 | ) | ||||||||||||||||
|
|
1 | Fund pays the floating rate and receives the fixed rate. |
2 | Fund pays the fixed rate and receives the floating rate. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
See Notes to Financial Statements.
22 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Total Return V.I. Fund |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.
As of June 30, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Long-Term Investments: | ||||||||||||||||
Asset-Backed Securities | — | $ | 13,773,328 | $ | 2,317,275 | $ | 16,090,603 | |||||||||
Corporate Bonds | — | 45,550,986 | — | 45,550,986 | ||||||||||||
Foreign Agency Obligations | — | 286,877 | — | 286,877 | ||||||||||||
Foreign Government Obligations | — | 4,157,145 | — | 4,157,145 | ||||||||||||
Non-Agency Mortgage-Backed Securities | — | 11,706,607 | 1,057,424 | 12,764,031 | ||||||||||||
Other Interests | — | 122 | — | 122 | ||||||||||||
Preferred Securities | $ | 645,527 | 904,964 | — | 1,550,491 | |||||||||||
Taxable Municipal Bonds | — | 2,922,131 | — | 2,922,131 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 71,470,983 | — | 71,470,983 | ||||||||||||
U.S. Treasury Obligations | — | 27,922,865 | — | 27,922,865 | ||||||||||||
Short-Term Securities | 152,737 | 1,142,675 | — | 1,295,412 | ||||||||||||
Options Purchased: | ||||||||||||||||
Interest Rate Contracts | 1,275 | 773 | — | 2,048 | ||||||||||||
Liabilities: | ||||||||||||||||
Investments: | ||||||||||||||||
Borrowed Bonds | — | (1,104,020) | — | (1,104,020) | ||||||||||||
Investments Sold Short | — | (3,847,968) | — | (3,847,968) | ||||||||||||
TBA Sale Commitments | — | (19,696,796) | — | (19,696,796) | ||||||||||||
|
| |||||||||||||||
Total | $ | 799,539 | $ | 155,190,672 | $ | 3,374,699 | $ | 159,364,910 | ||||||||
|
| |||||||||||||||
| ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Derivative Financial Instruments1 | ||||||||||||||||
Assets: | ||||||||||||||||
Credit contracts | — | $ | 58,072 | — | $ | 58,072 | ||||||||||
Foreign currency exchange contracts | — | 41,778 | — | 41,778 | ||||||||||||
Interest rate contracts | $ | 23,843 | 102,471 | — | 126,314 | |||||||||||
Liabilities: | ||||||||||||||||
Credit contracts | — | (32,297) | — | (32,297) | ||||||||||||
Foreign currency exchange contracts | — | (13,409) | — | (13,409) | ||||||||||||
Interest rate contracts | (117,313) | (148,392) | — | (265,705) | ||||||||||||
|
| |||||||||||||||
Total | $ | (93,470) | $ | 8,223 | — | $ | (85,247) | |||||||||
|
| |||||||||||||||
1 Derivative financial instruments are swaps, financial futures contracts and forward foreign currency exchange contracts. Swaps, financial futures contracts and forward foreign currency exchange contracts are valued at the unrealized appreciation (depreciation) on the instrument.
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount or face value, including accrued interest, for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:
|
| |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 2,631,575 | — | — | $ | 2,631,575 | ||||||||||
Foreign currency at value | 205,345 | — | — | 205,345 | ||||||||||||
Cash pledged for financial futures contracts | 201,540 | — | — | 201,540 | ||||||||||||
Cash pledged for centrally cleared swaps | 370,180 | — | — | 370,180 | ||||||||||||
Liabilities: | ||||||||||||||||
Reverse repurchase agreements | — | $ | (5,366,739) | — | (5,366,739) | |||||||||||
|
| |||||||||||||||
Total | $ | 3,408,640 | $ | (5,366,739) | — | $ | (1,958,099) | |||||||||
|
|
During the six months ended June 30, 2015, there were no transfers between Level 1 and Level 2.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 23 |
Schedule of Investments (concluded) | BlackRock Total Return V.I. Fund |
A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:
Asset-Backed Securities | Floating Rate Loan Interests | Non-Agency Mortgage-Backed Securities | Total | |||||||||||||
Assets: | ||||||||||||||||
Opening Balance, as of December 31, 2014 | $ | 1,724,509 | $ | 294,700 | $ | 1,396,320 | $ | 3,415,529 | ||||||||
Transfers into Level 3 | 1,270,448 | — | — | 1,270,448 | ||||||||||||
Transfers out of Level 3 | (840,577 | ) | — | (467,369 | ) | (1,307,946 | ) | |||||||||
Accrued discounts/premiums | 288 | — | 951 | 1,239 | ||||||||||||
Net realized gain (loss) | (2,662 | ) | — | 5,238 | 2,576 | |||||||||||
Net change in unrealized appreciation (depreciation)1,2 | 18,453 | (1,466 | ) | (8,879 | ) | 8,108 | ||||||||||
Purchases | 483,450 | — | 373,722 | 857,172 | ||||||||||||
Sales | (336,634 | ) | (293,234 | ) | (242,559 | ) | (872,427 | ) | ||||||||
Closing Balance, as of June 30, 2015 | $ | 2,317,275 | — | $ | 1,057,424 | $ | 3,374,699 | |||||||||
Net change in unrealized appreciation (depreciation) on investments still held at June 30, 20152 | $ | 16,468 | — | $ | (8,463 | ) | $ | 8,005 |
1 | Included in the related net change in unrealized appreciation (depreciation) in the Statement of Operations. |
2 | Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at June 30, 2015 is generally due to investments no longer held or categorized as Level 3 at period end. |
The Fund’s investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value of such Level 3 investments.
See Notes to Financial Statements.
24 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Total Return V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (cost — $184,322,099) | $ | 183,860,957 | ||
Investments at value — affiliated (cost — $152,737) | 152,737 | |||
Cash | 2,631,575 | |||
Cash pledged: | ||||
Financial futures contracts | 201,540 | |||
Centrally cleared swaps | 370,180 | |||
Foreign currency at value (cost — $208,247) | 205,345 | |||
Receivables: | ||||
Investments sold | 15,498,067 | |||
TBA sale commitments | 19,731,049 | |||
Capital shares sold | 42,553,161 | |||
Dividends — affiliated | 128 | |||
Interest | 693,719 | |||
From the Manager | 42,179 | |||
Swap premiums paid | 34,906 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 41,778 | |||
Unrealized appreciation on OTC swaps | 76,922 | |||
Variation margin receivable on financial futures contracts | 7,345 | |||
Variation margin receivable on centrally cleared swaps | 12,152 | |||
Prepaid expenses | 317 | |||
Other assets | 39,149 | |||
|
| |||
Total assets | 266,153,206 | |||
|
| |||
Liabilities | ||||
Investments sold short at value (proceeds — $3,848,001) | 3,847,968 | |||
Borrowed bonds at value (proceeds — $1,103,637 | 1,104,020 | |||
Options written at value (premiums received — $113) | 194 | |||
TBA sale commitments at value (proceeds — $19,731,049) | 19,696,796 | |||
Reverse repurchase agreements | 5,366,739 | |||
Payables: | ||||
Investments purchased | 58,440,388 | |||
Swaps | 5,778 | |||
Capital shares redeemed | 6,617 | |||
Distribution fees | 2,296 | |||
Income dividends | 223,324 | |||
Interest expense | 13,687 | |||
Investment advisory fees | 53,394 | |||
Officer’s and Directors’ fees | 1,380 | |||
Other affiliates | 707 | |||
Swap premiums received | 136,327 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 13,409 | |||
Unrealized depreciation on OTC swaps | 154,168 | |||
Variation margin payable on financial futures contracts | 16,201 | |||
Other accrued expenses payable | 128,526 | |||
|
| |||
Total liabilities | 89,211,919 | |||
|
| |||
Net Assets | $ | 176,941,287 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 202,692,011 | ||
Distributions in excess of net investment income | (288,499 | ) | ||
Accumulated net realized loss | (24,986,174 | ) | ||
Net unrealized appreciation (depreciation) | (476,051 | ) | ||
|
| |||
Net Assets | $ | 176,941,287 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $164,347,876 and 13,916,155 shares outstanding, 600 million shares authorized, $0.10 par value | $ | 11.81 | ||
|
| |||
Class III — Based on net assets of $12,593,411 and 1,079,354 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 11.67 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 25 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Total Return V.I. Fund | |||
Investment Income | ||||
Interest | $ | 1,820,727 | ||
Dividends | 21,877 | |||
Dividends — affiliated | 1,096 | |||
Foreign taxes withheld | (31 | ) | ||
|
| |||
Total income | 1,843,669 | |||
|
| |||
Expenses | ||||
Investment advisory | 330,059 | |||
Transfer agent | 2,483 | |||
Transfer agent — Class I | 125,610 | |||
Transfer agent — Class III | 4,554 | |||
Professional | 46,493 | |||
Custodian | 42,158 | |||
Accounting services | 18,472 | |||
Distribution — Class III | 12,084 | |||
Printing | 11,403 | |||
Officer and Directors | 9,497 | |||
Miscellaneous | 20,868 | |||
|
| |||
Total expenses excluding interest expense | 623,681 | |||
Interest expense | 8,780 | |||
|
| |||
Total expenses | 632,461 | |||
Less fees waived by the Manager | (998 | ) | ||
Less transfer agent fees reimbursed — Class I | (125,034 | ) | ||
Less transfer agent fees reimbursed — Class III | (1,589 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 504,840 | |||
|
| |||
Net investment income | 1,338,829 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments | 504,368 | |||
Borrowed bonds | (13,906 | ) | ||
Options written | (1,024 | ) | ||
Financial futures contracts | (62,169 | ) | ||
Interest rate floors | (31,651 | ) | ||
Swaps | 127,976 | |||
Foreign currency transactions | 171,696 | |||
|
| |||
695,290 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (1,486,042 | ) | ||
Short Sales | 33 | |||
Borrowed bonds | (383 | ) | ||
Options written | (81 | ) | ||
Financial futures contracts | (244,656 | ) | ||
Interest rate floors | 5,776 | |||
Swaps | 57,046 | |||
Foreign currency translations | (166,779 | ) | ||
|
| |||
(1,835,086 | ) | |||
|
| |||
Net realized and unrealized loss | (1,139,796 | ) | ||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 199,033 | ||
|
|
See Notes to Financial Statements.
26 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statements of Changes in Net Assets | BlackRock Total Return V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 1,338,829 | $ | 3,729,438 | ||||
Net realized gain | 695,290 | 3,290,217 | ||||||
Net change in unrealized appreciation (depreciation) | (1,835,086 | ) | 1,897,952 | |||||
|
| |||||||
Net increase in net assets resulting from operations | 199,033 | 8,917,607 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | (1,446,850 | ) | (3,854,690 | ) | ||||
Class III | (94,642 | ) | (141,038 | ) | ||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | (1,541,492 | ) | (3,995,728 | ) | ||||
|
| |||||||
Capital Share Transactions | ||||||||
Net increase (decrease) in net assets derived from capital share transactions | 40,218,015 | (5,548,603 | ) | |||||
|
| |||||||
Net Assets | ||||||||
Total increase (decrease) in net assets | 38,875,556 | (626,724 | ) | |||||
Beginning of period | 138,065,731 | 138,692,455 | ||||||
|
| |||||||
End of period | $ | 176,941,287 | $ | 138,065,731 | ||||
|
| |||||||
Distributions in excess of net investment income, end of period | $ | (288,499 | ) | $ | (85,836 | ) | ||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 27 |
Financial Highlights | BlackRock Total Return V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months Ended June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.93 | $ | 11.51 | $ | 12.01 | $ | 11.49 | $ | 11.29 | $ | 10.82 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.12 | 0.32 | 0.32 | 0.38 | 0.46 | 0.50 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.10 | ) | 0.44 | (0.45 | ) | 0.55 | 0.21 | 0.53 | ||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.02 | 0.76 | (0.13 | ) | 0.93 | 0.67 | 1.03 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income2 | (0.14 | ) | (0.34 | ) | (0.37 | ) | (0.41 | ) | (0.47 | ) | (0.56 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 11.81 | $ | 11.93 | $ | 11.51 | $ | 12.01 | $ | 11.49 | $ | 11.29 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 0.12 | %4 | 6.66 | % | (1.14 | )% | 8.25 | % | 6.07 | % | 9.69 | % | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.92 | %5 | 0.88 | % | 0.87 | % | 0.80 | % | 0.69 | % | 0.75 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees reimbursed and paid indirectly | 0.72 | %5 | 0.69 | % | 0.67 | % | 0.67 | % | 0.69 | % | 0.75 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees reimbursed and paid indirectly and excluding interest expense | 0.71 | %5 | 0.66 | % | 0.65 | % | 0.64 | % | 0.64 | % | 0.63 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.99 | %5 | 2.68 | % | 2.75 | % | 3.24 | % | 4.04 | % | 4.46 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 164,348 | $ | 130,765 | $ | 135,943 | $ | 162,921 | $ | 171,452 | $ | 188,615 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate6 | 447 | % | 772 | % | 724 | % | 953 | % | 1,203 | % | 1,331 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
6 | Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover rate is as follows: |
|
| |||||||||||||||||||||||
Six Months Ended June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
| ||||||||||||||||||||||||
Portfolio turnover rate (excluding MDRs) | 304 | % | 560 | % | 498 | % | 729 | %* | 755 | % | 986 | % | ||||||||||||
|
* | The portfolio turnover is also for Class III from period August 14, 2012 to December 31, 2012 and period April 25, 2012 to June 19, 2012. |
See Notes to Financial Statements.
28 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights (concluded) | BlackRock Total Return V.I. Fund |
Class III | ||||||||||||||||||||||
Six Months 2015 | Year Ended December 31, | Period 2012 | Period 20122 | |||||||||||||||||||
(Unaudited) | 2014 | 2013 | ||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.79 | $ | 11.38 | $ | 11.86 | $ | 11.71 | $ | 11.65 | ||||||||||||
| ||||||||||||||||||||||
Net investment income3 | 0.10 | 0.27 | 0.28 | 0.13 | 0.05 | |||||||||||||||||
Net realized and unrealized gain (loss) | (0.10 | ) | 0.44 | (0.42 | ) | 0.16 | 0.07 | |||||||||||||||
| ||||||||||||||||||||||
Net increase (decrease) from investment operations | — | 0.71 | (0.14 | ) | 0.29 | 0.12 | ||||||||||||||||
| ||||||||||||||||||||||
Distributions from net investment income4 | (0.12 | ) | (0.30 | ) | (0.34 | ) | (0.14 | ) | (0.06 | ) | ||||||||||||
| ||||||||||||||||||||||
Net asset value, end of period | $ | 11.67 | $ | 11.79 | $ | 11.38 | $ | 11.86 | $ | 11.71 | ||||||||||||
| ||||||||||||||||||||||
Total Return5 | ||||||||||||||||||||||
Based on net asset value | (0.04 | )%6 | 6.28 | % | (1.30 | )% | 2.50 | %6 | 1.00 | %6 | ||||||||||||
| ||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||
Total expenses | 1.07 | %7 | 1.11 | % | 1.06 | % | 0.95 | %7 | 1.09 | %7 | ||||||||||||
| ||||||||||||||||||||||
Total expenses after fees reimbursed and paid indirectly | 1.03 | %7 | 1.01 | % | 0.96 | % | 0.95 | %7 | 0.98 | %7 | ||||||||||||
| ||||||||||||||||||||||
Total expenses after fees reimbursed and paid indirectly and excluding interest expense | 1.02 | %7 | 0.98 | % | 0.94 | % | 0.91 | %7 | 0.95 | %7 | ||||||||||||
| ||||||||||||||||||||||
Net investment income | 1.65 | %7 | 2.31 | % | 2.45 | % | 2.83 | %7 | 3.22 | %7 | ||||||||||||
| ||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||
Net assets, end of period (000) | $ | 12,593 | $ | 7,300 | $ | 2,750 | $ | 344 | — | 2 | ||||||||||||
| ||||||||||||||||||||||
Portfolio turnover rate8 | 447 | % | 772 | % | 724 | % | 953 | % | 953 | % | ||||||||||||
|
1 | Recommencement of operations. |
2 | There were no Class III Shares outstanding as of June 19, 2012. |
3 | Based on average shares outstanding. |
4 | Distributions for annual periods determined in accordance with federal income tax regulations. |
5 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
6 | Aggregate total return. |
7 | Annualized. |
8 | Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover rate is as follows: |
|
| |||||||||||||||
Six Months Ended June 30, 2015 | Year Ended December 31, | |||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | |||||||||||||
| ||||||||||||||||
Portfolio turnover rate (excluding MDRs) | 304 | % | 560 | % | 498 | % | 729 | %* | ||||||||
|
* | The portfolio turnover is also for Class III from period August 14, 2012 to December 31, 2012 and period April 25, 2012 to June 19, 2012. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 29 |
Notes to Financial Statements (Unaudited) | | BlackRock Total Return V.I. Fund | |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Total Return V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares. Class III Shares recommenced on April 25, 2012, were redeemed on June 19, 2012 and recommenced on August 14, 2012.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Bond investments are valued on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche-specific spread to the benchmark yield based on the unique attributes of the tranche. Financial futures contracts traded on exchanges are valued at their last sale price. To-be-announced (“TBA”) commitments are valued on the basis of last available bid prices or current market quotations provided by pricing services. Swap agreements are valued utilizing quotes received daily by the Fund’s pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Certain centrally cleared swaps are valued at the price determined by the relevant exchange or clearinghouse. Investments in open-end registered investment companies are valued at NAV each business day.
Municipal investments (including commitments to purchase such investments on a “when-issued” basis) are valued on the basis of prices provided by dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments and information with respect to various relationships between investments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.
Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price
30 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
is available, the prior day’s price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options and options on swaps (“swaptions”) are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Fund’s pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, its delegate, using a pricing service and/or policies approved by the Board.
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., dollar rolls, TBA sale commitments, financial futures contracts, forward foreign currency exchange contracts, options written and swaps), or certain borrowings (e.g., reverse repurchase transactions) that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments or borrowings. Doing so allows the investment or borrowing to be excluded from treatment as a “senior security”. Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
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Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
Distributions: Distributions from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Asset-Backed and Mortgage-Backed Securities: The Fund may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. In addition, the Fund may subsequently have to reinvest the proceeds at lower interest rates. If the Fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
The Fund may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury.
Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Collateralized Debt Obligations: The Fund may invest in collateralized debt obligations (“CDOs”), which include collateralized bond obligations (“CBOs”) and collateralized loan obligations (“CLOs”). CBOs and CLOs are types of asset-backed securities. A CDO is an entity that is backed by a diversified pool of debt securities (CBOs) or syndicated bank loans (CLOs). The cash flows of the CDO can be split into multiple segments, called “tranches,” which will vary in risk profile and yield. The riskiest segment is the subordinated or “equity” tranche. This tranche bears the greatest risk of defaults from the underlying assets in the CDO and serves to protect the other, more senior, tranches from default in all but the most severe circumstances. Since it is shielded from defaults by the more junior tranches, a “senior” tranche will typically have higher credit ratings and lower yields than their underlying securities, and often receive investment grade ratings from one or more of the nationally recognized rating agencies. Despite the protection from the more junior tranches, senior tranches can experience substantial losses due to actual defaults, increased sensitivity to future defaults and the disappearance of one or more protecting tranches as a result of changes in the credit profile of the underlying pool of assets.
Inflation-Indexed Bonds: The Fund may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation rises or falls, the principal value of inflation-indexed bonds will be adjusted upward or downward, and consequently the interest payable on these securities (calculated with respect to a larger or smaller principal amount) will be increased or reduced, respectively. Any upward or downward adjustment in the principal amount of an inflation-indexed bond will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
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Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
Multiple Class Pass-Through Securities: The Fund may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities. These multiple class securities may be issued by Ginnie Mae, U.S. government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated pre-payments of principal, the Fund may not fully recoup its initial investment in IOs.
Stripped Mortgage-Backed Securities: The Fund may invest in stripped mortgage-backed securities issued by the U.S. Government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest (IOs) and principal (POs) distributions on a pool of Mortgage Assets. The Fund also may invest in stripped mortgage-backed securities that are privately issued.
Zero-Coupon Bonds: The Fund may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.
Capital Trusts and Trust Preferred Securities: The Fund may invest in capital trusts and/or trust preferred securities. These securities are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. For trust preferred securities, the issuing bank or corporation will pay interest to the trust, which will then be distributed to holders of the trust preferred securities as a dividend. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for federal income tax purposes. These securities generally are rated below that of the issuing company’s senior debt securities and are freely callable at the issuer’s option.
Preferred Stock: The Fund may invest in preferred stock. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Forward Commitments and When-Issued Delayed Delivery Securities: The Fund may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. The Fund may purchase securities under such conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Since the value of securities purchased may fluctuate prior to settlement, the Fund may be required to pay more at settlement than the security is worth. In addition, the Fund is not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default by the counterparty, the Fund’s maximum amount of loss is the unrealized appreciation of unsettled when-issued transactions, which is shown in the Schedule of Investments.
TBA Commitments: The Fund may enter into TBA commitments. TBA commitments are forward agreements for the purchase or sale of mortgage-backed securities for a fixed price, with payment and delivery on an agreed upon future settlement date. The specific securities to be delivered are not identified at the trade date. However, delivered securities must meet specified terms, including issuer, rate and mortgage terms. When entering into TBA commitments, the Fund may take possession of or deliver the underlying mortgage-backed securities but can extend the settlement or roll the transaction. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.
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Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
In order to better define contractual rights and to secure rights that will help the Fund mitigate their counterparty risk, TBA commitments may be entered into by the Fund under Master Securities Forward Transaction Agreements (each, an “MSFTA”). An MSFTA typically contains, among other things, collateral posting terms and netting provisions in the event of default and/or termination event. The collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of the collateral currently pledged by the Fund and the counterparty. Cash collateral that has been pledged to cover the obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral for TBA commitments or cash received as collateral for TBA commitments, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Typically, the Funds are permitted to sell, repledge or use the collateral they receive; however, the counterparty is not permitted to do so. To the extent amounts due to the Fund are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance.
Mortgage Dollar Roll Transactions: The Fund may sell TBA mortgage-backed securities and simultaneously contract to repurchase substantially similar (i.e., same type, coupon and maturity) securities on a specific future date at an agreed upon price. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. The Fund accounts for mortgage dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions may increase the Fund’s portfolio turnover rate. Mortgage dollar rolls involve the risk that the market value of the securities that the Fund is required to purchase may decline below the agreed upon repurchase price of those securities.
Borrowed Bond Agreements: The Fund may enter into borrowed bond agreements. In a borrowed bond agreement, the Fund borrows a bond from a counterparty in exchange for cash collateral. The borrowed bond agreement contains a commitment that the security and the cash will be returned to the counterparty and the Fund, at a mutually agreed upon date. Certain agreements have no stated maturity and can be terminated by either party at any time. Borrowed bond agreements are entered into primarily in connection with short sales of bonds. Earnings on cash collateral and compensation to the lender of the bond are based on agreed upon rates between the Fund and the counterparty. The value of the underlying cash collateral approximates the market value and accrued interest of the borrowed bond. To the extent that a borrowed bond transaction exceeds one business day, the value of the cash collateral in the possession of the counterparty is monitored on a daily basis to ensure the adequacy of the collateral. As the market value of the borrowed bond changes, the cash collateral is periodically increased or decreased with a frequency and in amounts prescribed in the borrowed bond agreement. The Fund may also experience delays in gaining access to the collateral.
Reverse Repurchase Agreements: The Fund may enter into reverse repurchase agreements with qualified third party broker-dealers. In a reverse repurchase agreement, the Fund sells securities to a bank or broker-dealer and agrees to repurchase the same securities at a mutually agreed upon date and price. The Fund receives cash from the sale to use for other investment purposes. During the term of the reverse repurchase agreement, the Funds continues to receive the principal and interest payments on the securities sold. Certain agreements have no stated maturity and can be terminated by either party at any time. Interest on the value of the reverse repurchase agreements issued and outstanding is based upon competitive market rates determined at the time of issuance. The Fund may utilize reverse repurchase agreements when it is anticipated that the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. Reverse repurchase agreements involve leverage risk. If the Fund suffers a loss on its investment of the transaction proceeds from a reverse repurchase agreement, the Fund would still be required to pay the full repurchase price. Further, the Fund remains subject to the risk that the market value of the securities to be repurchased may declines below the repurchase price. In such cases, the Fund would be required to return a portion of the cash received from the transaction or provide additional securities to the counterparty.
For financial reporting purposes, cash received in exchange for securities delivered plus accrued interest due to the counterparty is recorded as a liability in the Statement of Assets and Liabilities at face value including accrued interest. Due to the short term nature of the reverse repurchase agreements, face value approximates fair value. Interest payments made by the Fund to the counterparties are recorded as a component of interest expense in the Statement of Operations. In periods of increased demand for the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
Borrowed bond agreements, reverse repurchase transactions and treasury roll transactions are entered into by the Fund under Master Repurchase Agreements (each, an “MRA”), which permit the Fund, under certain circumstances, including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the counterparty and create one single net payment due to or from the Fund. With borrowed bond agreements, reverse repurchase transactions and treasury roll transactions, typically the Fund and the counterparties are permitted to sell, re-pledge, or use the collateral associated with the transaction. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Pursuant to the terms of the MRA, the Fund receives or posts securities as collateral with a market value in excess of the repurchase price to be paid or received by the Fund upon the maturity of the transaction. Upon a bankruptcy or insolvency of the MRA counterparty, the Fund is considered an unsecured creditor with respect to excess collateral and, as such, the return of excess collateral may be delayed.
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Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
For the six months ended June 30, 2015, the average amount of transactions considered borrowings which include reverse repurchase agreements, and the daily weighted average interest rates for the Fund were $9,952,403 and (0.12)%, respectively.
As of June 30, 2015, the following table is a summary of the Fund’s open borrowed bond agreements and reverse repurchase agreements by counterparty which are subject to offset under an MRA on a net basis:
Counterparty | Borrowed Bond Agreements1 | Reverse Repurchase Agreements | Borrowed Bonds at Value including Accrued Interest2 | Net Amount before Collateral | Non-cash Collateral Pledged | Net Collateral (Received)/ Pledged | Net Exposure Due (to)/from Counterparty3 | |||||||||||||||||||||
BNP Paribas Securities Corp. | — | $(1,939,011) | — | $(1,939,011) | $1,939,011 | $1,939,011 | — | |||||||||||||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | $1,142,675 | (3,427,728) | $(1,142,017) | (3,427,070) | 3,426,159 | 3,426,159 | $(911) | |||||||||||||||||||||
Total | $1,142,675 | $(5,366,739) | $(1,142,017) | $(5,366,081) | $5,365,170 | $5,365,170 | $(911) |
1 Included in Investments at value — unaffiliated in the Statement of Assets and Liabilities.
2 Includes accrued interest on borrowed bonds in the amount of $3,052 which is included in interest expense payable in the Statement of Assets and Liabilities.
3 Net exposure represents the net receivable (payable) that would be due from/to the counterparty in the event of default.
In the event the counterparty of securities under an MRA files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds from the agreement may be restricted while the counterparty, or its trustee or receiver, determines whether or not to enforce the Fund’s obligation to repurchase the securities.
Short Sales: The Fund may enter into short sale transactions in which the Fund sells a security it does not hold in anticipation of a decline in the market price of that security. When the Fund makes a short sale, it will borrow the security sold short (borrowed bond) and deliver the security to the counterparty to which it sold the security short. An amount equal to the proceeds 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 market value of the short sale. The Fund is required to repay the counterparty interest on the security sold short, which is shown as interest expense in the Statement of Operations. The Fund is exposed to market risk based on the amount, if any, that the market value of the security increases beyond the market value at which the position was sold. Thus, a short sale of a security involves the risk that instead of declining, the price of the security sold short will rise. The short sale of securities involves the possibility of a theoretically unlimited loss since there is a theoretically unlimited potential for the market price of the security sold short to increase. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited as to the dollar amount, will be recognized upon the termination of a short sale if the market price is either less than or greater than the proceeds originally received. There is no assurance the Fund will be able to close out a short position at a particular time or at an acceptable price.
4. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as credit risk, interest rate risk, foreign currency exchange rate risk or other risk (e.g., inflation risk). These contracts may be transacted on an exchange or OTC.
Financial Futures Contracts: The Fund invests in long and/or short positions in financial futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.
Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited, if any, is recorded on the Statement of Assets and Liabilities as cash pledged for financial futures contracts. 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. Variation margin is recorded by the Fund as unrealized appreciation (depreciation) and, if applicable, as a receivable or payable for variation margin in the Statement of Assets and Liabilities.
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. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 35 |
Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
Options: The Fund purchases and writes call and put options to increase or decrease its exposure to underlying instruments (including interest rate risk) and/or, in the case of options written, to generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. When the Fund purchases (writes) an option, an amount equal to the premium paid (received) by the Fund is reflected as an asset (liability). The amount of the asset (liability) is subsequently marked-to-market to reflect the current market value of the option purchased (written). When an instrument 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 instrument acquired or deducted from (or added to) the proceeds of the instrument 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 premiums received or paid). When the Fund writes a call option, such option is “covered,” meaning that the Fund holds the underlying instrument subject to being called by the option counterparty. When the Fund writes a put option, such option is covered by cash in an amount sufficient to cover the obligation.
Options on swaps (“swaptions”) are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swaptions is granting or buying the right to enter into a previously agreed upon interest rate or credit default swap agreement (interest rate risk and/or credit risk) at any time before the expiration of the option.
In purchasing and writing options, the Fund bears the risk of an unfavorable change in the value of the underlying instrument or the risk that the Fund may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Fund purchasing or selling a security when it otherwise would not, or at a price different from the current market value.
For the six months ended June 30, 2015, transactions in options written, including swaptions were as follows:
Calls | Puts | |||||||||||||||||||||||
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| |||||||||||||||||||||
Notional (000)1 | Premiums Received | Notional (000)1 | Premiums Received | |||||||||||||||||||||
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| |||||||||||||||||||||
Outstanding options, beginning of period | — | — | — | — | ||||||||||||||||||||
Options written | 206,650 | $ | 17,023 | 1,400 | $ | 16,910 | ||||||||||||||||||
Options closed | (1,400 | ) | (16,910 | ) | (1,400 | ) | (16,910 | ) | ||||||||||||||||
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| |||||||||||||||||||||
Outstanding options, end of period | 205,250 | $ | 113 | — | — | |||||||||||||||||||
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1 Amount shown is in the currency in which the transaction was denominated.
Swaps: The Fund enters into swap agreements, in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation).
For OTC swaps, any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, in the Statement of Assets and Liabilities and amortized over the term of the OTC swap. Payments received or made by the Fund for OTC swaps are recorded in the Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.
In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that
36 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities as cash pledged for centrally cleared swaps. The daily change in valuation of centrally cleared swaps is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities. Payments received from (paid to) the counterparty, including at termination, are recorded as realized gain (loss) in the Statement of Operations.
Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.
• | Credit default swaps — The Fund enters into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit risk). The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occur. As a buyer, if an underlying credit event occurs, the Fund will either (i) receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. |
• | Total return swaps — The Fund enters into total return swaps to obtain exposure to a security or market without owning such security or investing directly in that market or to transfer the risk/return of one market (e.g., fixed income) to another market (e.g., equity) (equity risk and/or interest rate risk). Total return swaps are agreements in which there is an exchange of cash flows whereby one party commits to make payments based on the total return (coupons plus capital gains/losses) of an underlying instrument in exchange for fixed or floating rate interest payments. To the extent the total return of the instrument or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty. |
• | Interest rate swaps — The Fund enters into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds, which may decrease when interest rates rise (interest rate risk). Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. In more complex swaps, the notional principal amount may decline (or amortize) over time. |
• | Forward interest rate swaps — The Fund may enter into forward interest rate swaps and forward total return swaps. In a forward swap, the Fund and the counterparty agree to make either periodic net payments beginning on a specified future effective date or a net payment at termination, unless terminated earlier. |
• | Interest rate caps and floors — The Fund enters into interest rate caps and floors to gain or reduce exposure to interest rates (interest rate risk). Caps are agreements whereby one party agrees to make payments to the other, in return for a premium, to the extent that interest rate indexes exceed a specified rate, or “cap”. Floors are agreements whereby one party agrees to make payments to the other, in return for a premium, to the extent that interest rates indexes fall below a specified rate, or “floor”. When the Fund purchases (writes) a cap or floor, an amount equal to the premium paid (received) by the Fund is reflected as an asset (liability). The amount of the asset (liability) is subsequently marked to market to reflect the current value of the cap or floor. The maximum potential amount of future payments that the Fund would be required to make under an interest rate cap would be the notional amount times the percentage increase in interest rates determined by the difference between the interest rate index current value and the value at the time the cap was entered into. The maximum potential amount of future payments that the Fund would be required to make under an interest rate floor would be the notional amount times the percentage increase in interest rates determined by the difference between the interest rate index current value and the value at the time the floor was entered into. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 37 |
Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:
Fair Values of Derivative Financial Instruments as of June 30, 2015 | ||||||||||
Value | ||||||||||
Statement of Assets and Liabilities Location | Derivative Assets | Derivative Liabilities | ||||||||
Unrealized appreciation (depreciation) on OTC | ||||||||||
Credit contracts | swaps; Swap premiums paid/received | $ 91,875 | $168,466 | |||||||
Unrealized appreciation (depreciation) on | ||||||||||
Foreign currency exchange contracts | forward foreign currency exchange contracts | 41,778 | 13,409 | |||||||
Net unrealized appreciation (depreciation)1; | ||||||||||
Unrealized appreciation (depreciation) on OTC | ||||||||||
swaps; Swap premiums paid/received; | ||||||||||
Interest rate contracts | Investments at value - unaffiliated2 | 129,465 | 265,863 | |||||||
Total | $263,118 | $447,738 |
1 | Includes cumulative appreciation (depreciation) on financial futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
2 | Includes options purchased at value as reported in the Schedule of Investments. |
The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2015 | ||||||||||||
Net Realized Gain (Loss) From | Net Change in Unrealized Appreciation (Depreciation) on | |||||||||||
|
| |||||||||||
Credit contracts: | ||||||||||||
Swaps | $ 103,474 | $ (10,078 | ) | |||||||||
Foreign currency exchange contracts: | ||||||||||||
Foreign currency transactions/translations | 517,232 | (166,418 | ) | |||||||||
Interest rate contracts: | ||||||||||||
Financial futures contracts | (62,169 | ) | (244,656 | ) | ||||||||
Swaps | 24,502 | 67,124 | ||||||||||
Options3 | (102,002 | ) | 70,246 | |||||||||
Interest rate floors | (31,651 | ) | 5,776 | |||||||||
|
| |||||||||||
Total | $ 449,386 | $(278,006 | ) | |||||||||
|
|
3 | Options purchased are included in the net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments. |
For the six months ended June 30, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:
Financial futures contracts: | ||||
Average notional value of contracts - long | $ | 31,173,801 | ||
Average notional value of contracts - short | $ | 21,477,945 | ||
Forward foreign currency exchange contracts: | ||||
Average amounts purchased - in USD | $ | 3,807,803 | ||
Average amounts sold - in USD | $ | 950,280 | ||
Options: | ||||
Average value of option contracts purchased | $ | 1,063 | ||
Average notional value of swaption contracts purchased | $ | 92,003 | ||
Average notional value of swaption contracts written | $ | 92,003 | ||
Average value of interest rate floors purchased | $ | 20,402 | ||
Average value of interest rate floors written | $ | 3,698 | ||
Credit default swaps: | ||||
Average notional value - buy protection | $ | 1,605,000 | ||
Average notional value - sell protection | $ | 4,115,500 | ||
Interest rate swaps: | ||||
Average notional value - pays fixed rate | $ | 11,948,666 | ||
Average notional value - receives fixed rate | $ | 4,328,855 |
Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund. For OTC options purchased, the Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by such Fund should the counterparty fail to perform under the contracts. Options written by the Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty, to perform.
38 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
With exchange-traded options purchased, futures and centrally cleared swaps, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange-traded futures and centrally cleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund and its counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.
As of June 30, 2015, the Fund’s derivative assets and liabilities (by type) are as follows:
Assets | Liabilities | |||||||
Derivative Financial Instruments: | ||||||||
Financial futures contracts | $ | 7,345 | $ | 16,201 | ||||
Forward foreign currency exchange contracts | 41,778 | 13,409 | ||||||
Options1 | 2,048 | 194 | ||||||
Swaps — Centrally cleared | 12,152 | — | ||||||
Swaps — OTC2 | 111,828 | 290,495 | ||||||
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| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 175,151 | $ | 320,299 | ||||
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Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | (20,772 | ) | (16,201 | ) | ||||
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Total derivative assets and liabilities subject to an MNA | $ | 154,379 | $ | 304,098 | ||||
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1 | Includes options purchased at value which is included in Investments at value — unaffiliated in the Statement of Assets and Liabilities and reported in the Schedule of Investments. |
2 | Includes unrealized appreciation (depreciation) on OTC swaps and swap premiums paid/received in the Statement of Assets and Liabilities. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 39 |
Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
As of June 30, 2015, the following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:
Counterparty | Derivative Assets Subject to an MNA by Counterparty | Derivatives for Offset1 | Non-cash Collateral Received | Cash Collateral Received | Net Amount of Derivative Assets2 | |||||||||||
Bank of America N.A. | $ | 11,368 | $ | (11,368 | ) | — | — | — | ||||||||
Barclays Bank PLC | 34,155 | (5,173 | ) | — | — | $ | 28,982 | |||||||||
BNP Paribas S.A. | 6,763 | (6,763 | ) | — | — | — | ||||||||||
Citibank N.A. | 1,743 | (1,743 | ) | — | — | — | ||||||||||
Credit Suisse International | 33,002 | (33,002 | ) | — | — | — | ||||||||||
Deutsche Bank AG | 28,348 | (28,348 | ) | — | — | — | ||||||||||
Goldman Sachs International | 11,363 | (11,363 | ) | — | — | — | ||||||||||
HSBC Bank PLC | 4,111 | (1,511 | ) | — | — | 2,600 | ||||||||||
JPMorgan Chase Bank N.A. | 17,540 | (15,299 | ) | — | — | 2,241 | ||||||||||
Morgan Stanley Capital Services LLC | 2,612 | (2,612 | ) | — | — | — | ||||||||||
State Street Bank and Trust Co. | 1,340 | — | — | — | 1,340 | |||||||||||
UBS AG | 2,034 | (5 | ) | — | — | 2,029 | ||||||||||
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Total | $ | 154,379 | $ | (117,187 | ) | — | — | $ | 37,192 | |||||||
|
| |||||||||||||||
Counterparty | Derivative Liabilities Subject to an MNA by Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities3 | |||||||||||
Bank of America N.A. | $ | 44,773 | $ | (11,368 | ) | — | — | $ | 33,405 | |||||||
Barclays Bank PLC | 5,173 | (5,173 | ) | — | — | — | ||||||||||
BNP Paribas S.A. | 36,383 | (6,763 | ) | — | — | 29,620 | ||||||||||
Citibank N.A. | 9,267 | (1,743 | ) | — | — | 7,524 | ||||||||||
Credit Suisse International | 42,181 | (33,002 | ) | — | — | 9,179 | ||||||||||
Deutsche Bank AG | 58,792 | (28,348 | ) | — | — | 30,444 | ||||||||||
Goldman Sachs International | 32,847 | (11,363 | ) | — | — | 21,484 | ||||||||||
HSBC Bank PLC | 1,511 | (1,511 | ) | — | — | — | ||||||||||
JPMorgan Chase Bank N.A. | 15,299 | (15,299 | ) | — | — | — | ||||||||||
Morgan Stanley Capital Services LLC | 57,057 | (2,612 | ) | — | — | 54,445 | ||||||||||
Standard Chartered Bank | 810 | — | — | — | 810 | |||||||||||
UBS AG | 5 | (5 | ) | — | — | — | ||||||||||
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Total | $ | 304,098 | $ | (117,187 | ) | — | — | $ | 186,911 | |||||||
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1 | The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA. |
2 | Net amount represents the net amount receivable from the counterparty in the event of default. |
3 | Net amount represents the net amount payable due to the counterparty in the event of default. |
5. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s and BlackRock High Yield V.I. Fund’s, a series of the Company, aggregate average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |
First $250 Million | 0.50% | |
$250 Million — $500 Million | 0.45% | |
$500 Million — $750 Million | 0.40% | |
Greater than $750 Million | 0.35% |
For the six months ended June 30, 2015, the aggregate average daily net assets of the Fund and the Company’s BlackRock High Yield V.I. Fund were approximately $354,315,652.
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $701 for certain accounting services, which is included in accounting services in the Statement of Operations.
40 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at an annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
| ||||
Class I | 0.00 | % | ||
Class III | 0.06 | % | ||
|
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment advisor, common officers, or common directors. For the six months ended June 30, 2015, the purchase and sale transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were $313,829 and $24,967, respectively.
6. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, including paydowns and excluding short-term securities, were as follows:
Purchases | Sales | |||||||
Non-U.S. Government Securities | $ | 453,364,811 | $ | 455,433,026 | ||||
U.S. Government Securities | $ | 216,228,752 | $ | 222,828,080 |
For the six months ended June 30, 2015, purchases and sales related to mortgage dollar rolls were $214,538,932 and $214,567,728, respectively.
7. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 41 |
Notes to Financial Statements (continued) | BlackRock Total Return V.I. Fund |
As of December 31, 2014, the Fund had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:
Expires December 31, | ||||
2016 | $ | 1,194,833 | ||
2017 | 24,152,425 | |||
|
| |||
Total | $ | 25,347,258 | ||
|
|
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 184,526,635 | ||
|
| |||
Gross unrealized appreciation | $ | 1,176,879 | ||
Gross unrealized depreciation | (1,689,820 | ) | ||
|
| |||
Net unrealized depreciation | $ | (512,941 | ) | |
|
|
8. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
9. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
The Fund invests a significant portion of its assets in fixed-income securities and/or uses derivatives tied to the fixed income markets. Changes in market interest rates or economic conditions, may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.
42 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (concluded) | BlackRock Total Return V.I. Fund |
10. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class I | ||||||||||||||||
Shares sold | 3,698,736 | $ | 43,704,569 | 610,635 | $ | 7,212,225 | ||||||||||
Shares issued in reinvestment of distributions | 127,192 | 1,529,470 | 328,911 | 3,884,830 | ||||||||||||
Shares redeemed | (871,388 | ) | (10,463,303 | ) | (1,784,037 | ) | (21,079,266 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase (decrease) | 2,954,540 | $ | 34,770,736 | (844,491 | ) | $ | (9,982,211 | ) | ||||||||
|
|
|
| |||||||||||||
Class III | ||||||||||||||||
Shares sold | 619,421 | $ | 7,335,359 | 1,336,186 | $ | 15,666,774 | ||||||||||
Shares issued in reinvestment of distributions | 7,654 | 90,900 | 11,423 | 133,709 | ||||||||||||
Shares redeemed | (167,089 | ) | (1,978,980 | ) | (969,885 | ) | (11,366,875 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase | 459,986 | $ | 5,447,279 | 377,724 | $ | 4,433,608 | ||||||||||
|
|
|
| |||||||||||||
Total Net Increase (Decrease) | 3,414,526 | $ | 40,218,015 | (466,767 | ) | $ | (5,548,603 | ) | ||||||||
|
|
|
|
11. Subsequent Events:
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 43 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock U.S. Government Bond V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock U.S. Government Bond V.I. Fund |
Investment Objective |
BlackRock U.S. Government Bond V.I. Fund’s (the “Fund”) investment objective is to seek to maximize total return, consistent with income generation and prudent investment management.
Portfolio Management Commentary |
How did the Fund perform?
• | For the six months ended June 30, 2015, the Fund underperformed its benchmark, the Barclays U.S. Government/Mortgage Index. |
What factors influenced performance?
• | The principal detractor from the Fund’s performance versus the benchmark was its yield curve positioning. Specifically, the Fund was positioned in a way that detracted from performance when the yield curve steepened (which occurs when the differential between longer-term and shorter-term yields widens) during the period. Additionally, the Fund’s overweight position in 15-year versus an underweight in 30-year agency mortgage-backed securities (“MBS”) detracted from performance. |
• | Conversely, the Fund’s conservative positioning with respect to duration (interest rate sensitivity) contributed to performance during the six-month period. Additionally, the Fund was positioned to benefit from a narrowing in the yield spread offered by MBS versus Treasury bonds, and also benefited from a tilt toward higher-coupon mortgage pools. An overweight position in the U.S. dollar versus foreign currencies, including the euro and the Australian dollar, also added to relative return. Finally, the Fund’s allocation to commercial mortgage-backed securities (“CMBS”) performed well based on strong demand from yield-oriented investors during the period. |
Describe recent portfolio activity.
• | During the six-month period, the Fund tactically managed duration in consideration of interest rate expectations. The Fund began the period with a modest duration underweight in preparation for an eventual U.S. Federal Reserve rate hike. As Treasuries benefited late in the period from increased risk aversion in view of the potential for a Greek exit from the Eurozone, the Fund moved to a roughly equal-weight duration versus the benchmark. |
• | Throughout most of the first half of 2015, the Fund was cautious in its MBS exposure, as the investment advisor anticipated that elevated pre- |
payment levels would have a detrimental impact on MBS returns. The Fund continued to be overweight in the U.S. dollar versus foreign currencies in the expectation that U.S. monetary policy will diverge from other developed nations later in the year. Finally, the Fund reduced its exposure to positions that would benefit from yield-curve flattening, as the differential between longer-term and shorter-term rates showed signs of widening. |
• | In securitized sectors, the Fund favored positions in the more defensive sectors of the MBS market, overweighting Ginnie Mae securities as well as 15-year MBS relative to 30-year MBS, with a focus on higher coupon, lower duration mortgage pools. The Fund also added positions in CMBS interest-only securities and single-asset, single borrower CMBS securities in the new-issue market to take advantage of attractive rates compared to other fixed-income securities. |
• | The Fund uses derivatives as a part of its investment strategy. Derivatives are used as a means to manage risk and/or gain or reduce exposure to interest rates, credit risk and/or foreign exchange positions in the Fund. During the period, the Fund’s use of derivatives did not have a material impact on performance. |
Describe portfolio positioning at period end.
• | As of period end, the Fund maintained an overweight position in the U.S. dollar in relation to the euro and the Australian dollar. The Fund also held long positions in U.S. Treasury bonds as well as other positions that would add to performance if Treasury bond yields were to ease over the short term. The Fund maintained an overweight position in Treasury Inflation Protected Securities. |
• | The Fund ended the period positioned to benefit from any widening of the spread offered by MBS versus Treasuries. The Fund was underweight with respect to overall duration and interest rate sensitivity, and it held a bias toward higher-coupon MBS on the view that prepayment concerns will ease. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Portfolio Composition | Percent of Long-Term Investments |
U.S. Government Sponsored Agency Securities | 64 | % | ||
U.S. Treasury Obligations | 30 | |||
Asset-Backed Securities | 3 | |||
Non-Agency Mortgage-Backed Securities | 3 |
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock U.S. Government Bond V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance related fees and expenses. The Fund’s total returns prior to October 1, 2011 are the returns of the Fund when it followed a different investment objective and different investment strategies under the name “BlackRock Government Income V.I. Fund”. The returns for Class III Shares prior to July 15, 2013, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares. The returns for Class III Shares, however, are adjusted to reflect the distribution and/or service (12b-1) fees applicable to Class III Shares. |
2 | The Fund invests, under normal circumstances, at least 80% of its assets in bonds that are issued or guaranteed by the U.S. Government and its agencies. |
3 | An index that measures debt issued by the U.S. Government, and its agencies, as well as mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae and Freddie Mac. |
4 | An unmanaged index that includes the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae and Freddie Mac that meet certain maturity and liquidity criteria. |
Performance Summary for the Period Ended June 30, 2015 |
Standardized 30-Day Yields6 | Unsubsidized 30-Day Yields6 | 6-Month Total Returns7 | Average Annual Total Returns | |||||||||||||||||||||
1 Year7 |
5 Years7 |
10 Years7 | ||||||||||||||||||||||
Class I5 | 1.64 | % | 1.40 | % | (0.02 | )% | 1.95 | % | 2.44 | % | 3.36 | % | ||||||||||||
Class III5 | 1.33 | 1.12 | (0.26 | ) | 1.54 | 2.18 | 8 | 3.10 | 8 | |||||||||||||||
Barclays U.S. Government/Mortgage Index | — | — | 0.17 | 2.27 | 2.73 | 4.25 | ||||||||||||||||||
Barclays U.S. Mortgage-Backed Securities Index | — | — | 0.31 | 2.28 | 2.89 | 4.56 |
5 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend/payable date. Insurance-related fees and expenses are not reflected in these returns. The Fund’s total returns prior to October 1, 2011 are the returns of the Fund when it followed a different investment objective and different investment strategies under the name “BlackRock Government Income V.I. Fund”. |
6 | The standardized 30-day yield includes the effects of any waivers and/or reimbursements. The unsubsidized 30-day yield excludes the effects of any waivers and/or reimbursements. |
7 | For a portion of the period, the Fund’s investment advisor waived a portion of its fee. Without such waiver, the Fund’s performance would have been lower. |
8 | The returns for Class III Shares prior to July 15, 2013, the recommencement of operations of Class III Shares, are based upon the performance of the Fund’s Class I Shares. The returns for Class III Shares, however, are adjusted to reflect the distribution and/or service (12b-1) fees applicable to Class III Shares. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
Expense Example |
Actual | Hypothetical11 | |||||||||||||||||
Including Interest Expense and Fees | Excluding Interest Expense and Fees | Including Interest Expense and Fees | Excluding Interest Expense and Fees | |||||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period9 | Expenses Paid During the Period10 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period9 | Ending Account Value June 30, 2015 | Expenses Paid During the | ||||||||||
Class I | $1,000.00 | $999.80 | $3.57 | $3.42 | $1,000.00 | $1,021.22 | $1,021.37 | $3.61 | $3.46 | |||||||||
Class III | $1,000.00 | $997.40 | $5.05 | $4.95 | $1,000.00 | $1,019.74 | $1,019.84 | $5.11 | $5.01 |
9 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class (0.72% for Class I and 1.02% for Class III), multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
10 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class (0.69% for Class I and 1.00% for Class III), multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
11 | Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 365. See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock U.S. Government Bond V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
The Benefits and Risks of Leveraging |
The Fund may utilize leverage to seek to enhance yield and net asset value (“NAV”). However, these objectives cannot be achieved in all interest rate environments.
The Fund may utilize leverage by entering into reverse repurchase agreements. In general, the concept of leveraging is based on the premise that the financing cost of leverage, which is based on short-term interest rates, is normally lower than the income earned by the Fund on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of the Fund (including the assets obtained from leverage) are invested in higher-yielding portfolio investments, the Fund’s shareholders benefit from the incremental net income.
The interest earned on securities purchased with the proceeds from leverage is distributed to Fund shareholders, and the value of these portfolio holdings is reflected in the Fund’s per share NAV. However, in order to benefit shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other ongoing costs of leverage exceed the Fund’s return on assets purchased with leverage proceeds, income to shareholders is lower than if the Fund had not used leverage.
Furthermore, the value of the Fund’s portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. As a result, changes in interest rates can influence the Fund’s NAV positively or negatively in addition to the impact on Fund performance from leverage. Changes in the direction of interest rates are difficult to predict accurately, and there is no assurance that the Fund’s leveraging strategy will be successful.
The use of leverage also generally causes greater changes in the Fund’s NAV and distribution rates than it would in a comparable fund that does not use leverage. In a declining market, leverage is likely to cause a greater decline in the NAV of the Fund’s shares than if the Fund were not leveraged. In addition, the Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of the leverage instruments, which may cause the Fund to incur losses. The use of leverage may limit the Fund’s ability to invest in certain types of securities or use certain types of hedging strategies. The Fund incurs expenses in connection with the use of leverage, all of which are borne by Fund shareholders and may reduce income.
Derivative Financial Instruments |
The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative
financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.
4 | BLACKROCK FUNDS II | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock U.S. Government Bond V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Asset-Backed Securities | Par (000) | Value | ||||||||||
Cedar Funding III CLO Ltd., Series 2014-3A, Class A1, 1.79%, 5/20/26 (a)(b) | USD | 500 | $ | 500,625 | ||||||||
Dryden XXVIII Senior Loan Fund, Series 2013-28A, Class A1L, 1.37%, 8/15/25 (a)(b) | 700 | 692,781 | ||||||||||
Invitation Homes Trust, Series 2015-SFR2, Class A, 1.54%, 6/17/32 (a)(b) | 392 | 390,787 | ||||||||||
OCP CLO Ltd., Series 2012-2A, Class A2, 1.76%, 11/22/23 (a)(b) | 800 | 798,866 | ||||||||||
OHA Credit Partners VIII Ltd., Series 2013-8A, Class A, 1.38%, 4/20/25 (a)(b) | 500 | 494,550 | ||||||||||
Progress Residential Trust, Series 2015-SFR1, Class A, 1.59%, 2/17/32 (a)(b) | 500 | 498,498 | ||||||||||
Tricon American Homes Trust, Series 2015-SFR1, Class A, 1.44%, 5/17/32 (a)(b) | 200 | 198,350 | ||||||||||
Washington Mill CLO Ltd., Series 2014-1A, Class A1, 1.78%, 4/20/26 (a)(b) | 500 | 500,100 | ||||||||||
Total Asset-Backed Securities — 4.7% | 4,074,557 | |||||||||||
Corporate Bonds | ||||||||||||
Diversified Financial Services — 0.3% | ||||||||||||
Northern Rock Asset Management PLC, 5.63%, 6/22/17 (a) | 200 | 216,715 | ||||||||||
Thrifts & Mortgage Finance — 0.8% | ||||||||||||
Cie de Financement Foncier SA, 2.50%, 9/16/15 (a) | 700 | 702,857 | ||||||||||
Total Corporate Bonds — 1.1% | 919,572 | |||||||||||
Foreign Government Obligations | ||||||||||||
Mexico — 0.3% | ||||||||||||
United Mexican States, 8.00%, 12/07/23 | MXN | 3,950 | 283,988 | |||||||||
Non-Agency Mortgage-Backed Securities | ||||||||||||
Commercial Mortgage-Backed Securities — 2.5% | ||||||||||||
Banc of America Commercial Mortgage Trust, Series 2007-1, Class A4, 5.45%, 1/15/49 | USD | 454 | 477,997 | |||||||||
BHMS Mortgage Trust, Series 2014-ATLS, Class AFL, 1.68%, 7/05/33 (a)(b) | 700 | 695,763 | ||||||||||
GAHR Commercial Mortgage Trust, Series 2015-NRF, Class AFL1, 1.48%, 12/15/16 (a)(b) | 1,000 | 999,849 | ||||||||||
|
| |||||||||||
2,173,609 |
Non-Agency Mortgage-Backed Securities | Par (000) | Value | ||||||||||
Interest Only Commercial Mortgage-Backed Securities — 2.0% |
| |||||||||||
Commercial Mortgage Pass-Through Certificates: | ||||||||||||
Series 2013-CR7, Class XA, 1.66%, 3/10/46 (b) | USD | 3,722 | $ | 279,469 | ||||||||
Series 2014-CR14, Class XA, 1.03%, 2/10/47 (b) | 1,418 | 64,035 | ||||||||||
Series 2015-CR22, Class XA, 1.17%, 3/10/48 (b) | 2,396 | 162,342 | ||||||||||
Series 2015-LC21, Class XA, 0.89%, 7/10/48 (b) | 7,000 | 395,423 | ||||||||||
Commercial Mortgage Trust, Series 2015-LC19, Class XA, 1.38%, 2/10/48 (b) | 1,596 | 139,831 | ||||||||||
Core Industrial Trust: | ||||||||||||
Series 2015-CALW, Class XA, 0.94%, 2/10/34 (a)(b) | 3,895 | 184,156 | ||||||||||
Series 2015-TEXW, Class XA, 0.90%, 2/10/34 (a)(b) | 3,300 | 149,061 | ||||||||||
Series 2015-WEST, Class XA, 1.08%, 2/10/37 (a)(b) | 1,600 | 121,440 | ||||||||||
FREMF Mortgage Trust, Series 2015-K718, Class X2A, 0.10%, 2/25/22 (a)(b) | 23,189 | 124,735 | ||||||||||
WF-RBS Commercial Mortgage Trust, Series 2014-LC14, Class XA, 1.61%, 3/15/47 (b) | 1,624 | 128,878 | ||||||||||
|
| |||||||||||
1,749,370 | ||||||||||||
Total Non-Agency Mortgage-Backed Securities — 4.5% |
| 3,922,979 | ||||||||||
U.S. Government Sponsored Agency Securities | ||||||||||||
Agency Obligations — 9.4% | ||||||||||||
Fannie Mae, 1.63%, 10/26/15 | 3,880 | 3,898,348 | ||||||||||
Federal Home Loan Bank: | ||||||||||||
1.95%, 7/24/18 | 1,820 | 1,822,013 | ||||||||||
4.00%, 4/10/28 | 500 | 544,433 | ||||||||||
Freddie Mac, 1.25%, 1/30/18 | 1,880 | 1,881,440 | ||||||||||
|
| |||||||||||
8,146,234 | ||||||||||||
Collateralized Mortgage Obligations — 0.5% | ||||||||||||
Ginnie Mae, Series 2014-107, Class WX, 6.85%, 7/20/39 (b) | 337 | 399,036 | ||||||||||
Interest Only Commercial Mortgage-Backed Securities — 0.2% |
| |||||||||||
Freddie Mac: | ||||||||||||
Series K043, Class X1, 0.68%, 12/25/24 (b) | 3,198 | 139,568 | ||||||||||
Series K718, Class X1, 0.77%, 1/25/22 (b) | 2,199 | 81,279 | ||||||||||
Ginnie Mae: | ||||||||||||
Series 2002-83, Class IO, 0.00%, 10/16/42 (b) | 1,122 | 11 | ||||||||||
Series 2003-109, Class IO, 0.00%, 11/16/43 (b) | 3,520 | 35 | ||||||||||
Series 2003-17, Class IO, 0.00%, 3/16/43 (b) | 2,517 | 25 | ||||||||||
|
| |||||||||||
220,918 |
Portfolio Abbreviations |
BRL | Brazilian Real | EURIBOR | Euro Interbank Offered Rate | OTC | Over-the-counter | |||||
CHF | Swiss Franc | IDR | Indonesian Rupiah | PLN | Polish Zloty | |||||
CLP | Chilean Peso | JPY | Japanese Yen | RUB | Russian Ruble | |||||
CNH | Chinese Yuan Offshore | LIBOR | London Interbank Offered Rate | TBA | To-be-announced | |||||
CNY | Chinese Yuan | MXN | Mexican Peso | USD | U.S. Dollar | |||||
EUR | Euro | MYR | Malaysian Ringit | ZAR | South African Rand |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock U.S. Government Bond V.I. Fund | |||
(Percentages shown are based on Net Assets) |
U.S. Government Sponsored Agency Securities | Par (000) | Value | ||||||||
Mortgage-Backed Securities — 98.6% | ||||||||||
Fannie Mae Mortgage-Backed Securities: | ||||||||||
2.50%, 7/01/30 (c) | USD | 1,568 | $ | 1,586,995 | ||||||
3.00%, 4/01/29-7/01/45 (b)(c) | 14,239 | 14,507,414 | ||||||||
3.14%, 3/01/41 (b) | 115 | 122,542 | ||||||||
3.16%, 12/01/40 (b) | 141 | 149,662 | ||||||||
3.36%, 6/01/41 (b) | 103 | 109,108 | ||||||||
3.50%, 7/01/26-7/01/45 (c) | 5,719 | 5,970,640 | ||||||||
3.51%, 9/01/41 (b) | 115 | 122,143 | ||||||||
4.00%, 2/01/25-7/01/45 (c) | 13,764 | 14,598,384 | ||||||||
4.50%, 2/01/25-3/01/44 | 2,768 | 2,999,089 | ||||||||
5.00%, 7/01/30-7/01/45 (c) | 4,584 | 4,929,156 | ||||||||
5.50%, 11/01/21-7/01/45 (c) | 1,032 | 1,143,544 | ||||||||
6.00%, 4/01/35-6/01/41 | 873 | 996,181 | ||||||||
6.50%, 5/01/40 | 983 | 1,128,883 | ||||||||
Freddie Mac Mortgage-Backed Securities: | ||||||||||
3.00%, 1/01/43-7/01/45 (c) | 5,511 | 5,484,508 | ||||||||
3.02%, 2/01/41 (b) | 136 | 144,995 | ||||||||
3.50%, 4/01/42-7/01/45 (c) | 3,638 | 3,744,025 | ||||||||
4.00%, 8/01/44-7/01/45 (c) | 5,303 | 5,606,716 | ||||||||
4.50%, 2/01/39-7/01/45 (c) | 1,185 | 1,279,463 | ||||||||
5.00%, 8/01/40-7/01/45 (c) | 646 | 713,407 | ||||||||
5.50%, 6/01/41-7/01/45 (c) | 501 | 560,681 | ||||||||
8.00%, 12/01/29-7/01/30 | 60 | 71,431 | ||||||||
Ginnie Mae Mortgage-Backed Securities: | ||||||||||
3.00%, 7/15/45 (c) | 2,600 | 2,624,524 | ||||||||
3.50%, 12/15/42-7/15/45 (c) | 6,326 | 6,575,110 | ||||||||
4.00%, 9/20/40-7/15/45 (c) | 3,262 | 3,461,093 | ||||||||
4.50%, 5/20/41-2/15/42 | 4,074 | 4,442,030 | ||||||||
5.00%, 12/15/38-7/15/45 (c) | 747 | 827,604 | ||||||||
5.50%, 1/15/34 | 1,203 | 1,388,634 | ||||||||
|
| |||||||||
85,287,962 | ||||||||||
Total U.S. Government Sponsored Agency Securities — 108.7% |
| 94,054,150 | ||||||||
U.S. Treasury Obligations | ||||||||||
U.S. Treasury Bonds, 3.00%, 5/15/45 | 7,223 | 7,078,928 | ||||||||
U.S. Treasury Inflation Indexed Notes, 0.25%, 1/15/25 | 2,422 | 2,375,382 | ||||||||
U.S. Treasury Notes: | ||||||||||
0.63%, 5/31/17-6/30/17 | 2,980 | 2,979,096 | ||||||||
0.88%, 6/15/17 (d) | 5,600 | 5,625,374 | ||||||||
1.25%, 10/30/18-2/29/20 (d) | 8,190 | 8,101,699 | ||||||||
1.50%, 10/31/19 (d) | 1,180 | 1,180,645 | ||||||||
1.63%, 6/30/20-11/15/22 | 4,969 | 4,929,208 | ||||||||
1.88%, 5/31/22 | 3,285 | 3,248,556 | ||||||||
2.13%, 6/30/22-5/15/25 | 5,955 | 5,918,634 | ||||||||
2.50%, 8/15/23 | 1,610 | 1,644,715 | ||||||||
2.38%, 8/15/24 (d) | 1,478 | 1,486,270 | ||||||||
Total U.S. Treasury Obligations — 51.5% | 44,568,507 | |||||||||
Total Long-Term Investments (Cost — $147,603,787) — 170.8% | 147,823,753 | |||||||||
Shares | Value | |||||||||
Money Market Funds — 0.9% | ||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.07% (e)(f) | 747,797 | $ | 747,797 | |||||||
Total Short-Term Securities (Cost — $747,797) — 0.9% |
| 747,797 | ||||||||
Options Purchased | ||||||||||
(Cost — $34,864) — 0.0% | 20,056 | |||||||||
Total Investments Before TBA Sale Commitments and Options Written |
| |||||||||
(Cost — $148,386,448) — 171.7% |
| 148,591,606 | ||||||||
TBA Sale Commitments (c) | ||||||||||
Fannie Mae Mortgage-Backed Securities: | ||||||||||
3.00%, 7/01/30-7/01/45 | USD | 16,300 | (16,398,146 | ) | ||||||
3.50%, 7/01/30-7/01/45 | 2,600 | (2,725,200 | ) | |||||||
4.00%, 7/01/45 | 4,900 | (5,191,454 | ) | |||||||
4.50%, 7/01/45 | 1,800 | (1,945,969 | ) | |||||||
5.00%, 7/01/45 | 1,100 | (1,214,749 | ) | |||||||
5.50%, 7/01/45 | 600 | (673,688 | ) | |||||||
Freddie Mac Mortgage-Backed Securities: | ||||||||||
3.50%, 7/01/45 | 1,600 | (1,646,000 | ) | |||||||
4.00%, 7/01/45 | 2,300 | (2,432,295 | ) | |||||||
5.00%, 7/01/45 | 500 | (550,391 | ) | |||||||
Ginnie Mae Mortgage-Backed Securities: | ||||||||||
3.00%, 7/15/45 | 675 | (681,381 | ) | |||||||
3.50%, 7/15/45 | 800 | (830,195 | ) | |||||||
4.00%, 7/15/45 | 1,175 | (1,245,202 | ) | |||||||
4.50%, 7/15/45 | 1,500 | (1,617,422 | ) | |||||||
5.50%, 7/15/45 | 1,200 | (1,351,312 | ) | |||||||
Total TBA Sale Commitments (Proceeds — $38,550,479) — (44.5)% | (38,503,404 | ) | ||||||||
Options Written | ||||||||||
(Premiums Received — $116,195) — (0.1)% | (103,895 | ) | ||||||||
Total Investments Net of TBA Sale Commitments and Options Written — 127.1% | 109,984,307 | |||||||||
Liabilities in Excess of Other Assets — (27.1)% | (23,468,206 | ) | ||||||||
|
| |||||||||
Net Assets — 100.0% | $ | 86,516,101 | ||||||||
|
|
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock U.S. Government Bond V.I. Fund |
Notes to Schedule of Investments |
(a) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors. |
(b) | Variable rate security. Rate shown is as of report date. |
(c) | Represents or includes a TBA transaction. As of June 30, 2015, unsettled TBA transactions were as follows: |
Counterparty | Value | Unrealized Appreciation (Depreciation) | ||||||
Barclays Capital, Inc. | $ | (1,175,719 | ) | $ | 6,547 | |||
BNP Paribas Securities Corp. | $ | 436,028 | $ | (1,831 | ) | |||
Citigroup Global Markets, Inc. | $ | 443,465 | $ | 16,972 | ||||
Credit Suisse Securities (USA) LLC | $ | 3,526,332 | $ | (18,221 | ) | |||
Deutsche Bank Securities, Inc. | $ | 4,642,784 | $ | (20,885 | ) | |||
Goldman Sachs & Co. | $ | 444,330 | $ | 8,821 | ||||
J.P. Morgan Securities LLC | $ | 2,712,303 | $ | (12,084 | ) | |||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | $ | (1,813,412 | ) | $ | (1,351 | ) | ||
Morgan Stanley & Co. LLC | $ | 2,728,853 | $ | 4,388 | ||||
Nomura Securities International, Inc. | $ | (207,570 | ) | $ | 1,617 | |||
RBC Capital Markets, LLC | $ | (697,389 | ) | $ | 9,611 | |||
Wells Fargo Securities, LLC | $ | 1,538,174 | $ | (357 | ) |
(d) | All or a portion of security has been pledged as collateral in connection with outstanding reverse repurchase agreements. |
(e) | During the six months ended June 30, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares Held at December 31, 2014 | Net Activity | Shares Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 127,083 | 620,714 | 747,797 | $ | 1,099 |
(f) | Represents the current yield as of report date. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
• | As of June 30, 2015, reverse repurchase agreements outstanding were as follows: |
Counterparty | Interest Rate | Trade Date | Maturity Date1 | Face Value | Face Value Including Accrued Interest | |||||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | 0.21 | % | 6/02/15 | Open | $ | 1,180,000 | $ | 1,180,193 | ||||||||||
BNP Paribas Securities Corp. | 0.20 | % | 6/10/15 | Open | 1,480,000 | 1,480,164 | ||||||||||||
BNP Paribas Securities Corp. | 0.09 | % | 6/10/15 | Open | 1,610,000 | 1,610,080 | ||||||||||||
BNP Paribas Securities Corp. | 0.09 | % | 6/10/15 | Open | 4,025,000 | 4,025,201 | ||||||||||||
RBC Capital Markets, LLC | 0.18 | % | 6/10/15 | Open | 1,885,275 | 1,885,464 | ||||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | (0.49 | %) | 6/30/15 | 7/01/15 | 3,834,730 | 3,834,678 | ||||||||||||
Total | $ | 14,015,005 | $ | 14,015,780 | ||||||||||||||
|
|
|
|
1 | Certain agreements have no stated maturity and can be terminated by either party at any time. |
• | The type of underlying collateral and the remaining maturity of open reverse repurchase agreements in relation to the reverse repurchase agreements on the Statement of Assets and Liabilities is as follows: |
Remaining Contracted Maturity of the Agreements | ||||||||||||||||||
Reverse Repurchase Agreements | Open/Demand1 | Overnight | Up to 30 days | 31-90 days | Greater Than 90 Days But Less Than One Year | Total | ||||||||||||
U.S. Treasury Obligations | $ | 10,181,102 | $ | 3,834,678 | — | — | — | $ | 14,015,780 |
1 | Certain agreements have no stated maturity and can be terminated by either party at any time. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Schedule of Investments (continued) | BlackRock U.S. Government Bond V.I. Fund |
• | As of June 30, 2015, financial futures contracts outstanding were as follows: |
Contracts Long (Short) | Issue | Exchange | Expiration | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
Australian Government Bonds | ||||||||||||||||||||
6 | (10 Year) | Sydney | September 2015 | USD | 577,656 | $ 3,607 | ||||||||||||||
(12) | Euro Dollar Futures | Chicago Mercantile | September 2015 | USD | 2,989,050 | (11,716 | ) | |||||||||||||
Euro-BTP Italian Government | ||||||||||||||||||||
4 | Bonds Futures | Eurex | September 2015 | USD | 580,660 | (10,551 | ) | |||||||||||||
9 | U.S. Treasury Bonds (30 Year) | Chicago Board of Trade | September 2015 | USD | 1,357,594 | (18,876 | ) | |||||||||||||
(52) | U.S. Treasury Notes (10 Year) | Chicago Board of Trade | September 2015 | USD | 6,560,937 | (27,411 | ) | |||||||||||||
(15) | U.S. Treasury Notes (2 Year) | Chicago Board of Trade | September 2015 | USD | 3,284,063 | (3,973 | ) | |||||||||||||
33 | U.S. Treasury Notes (5 Year) | Chicago Board of Trade | September 2015 | USD | 3,935,508 | 15,547 | ||||||||||||||
(2) | U.S. Ultra Treasury Bonds | Chicago Board of Trade | September 2015 | USD | 308,125 | 10,013 | ||||||||||||||
(35) | Euro Dollar Futures | Chicago Mercantile | December 2015 | USD | 8,703,188 | (2,084 | ) | |||||||||||||
22 | Euro Dollar Futures | Chicago Mercantile | March 2016 | USD | 5,460,400 | 7,682 | ||||||||||||||
(11) | Euro Dollar Futures | Chicago Mercantile | June 2016 | USD | 2,724,562 | (2,557 | ) | |||||||||||||
(3) | Euro Dollar Futures | Chicago Mercantile | September 2016 | USD | 741,375 | (455 | ) | |||||||||||||
(23) | Euro Dollar Futures | Chicago Mercantile | December 2016 | USD | 5,671,225 | (4,629 | ) | |||||||||||||
(1) | Euro Dollar Futures | Chicago Mercantile | March 2017 | USD | 246,112 | (94 | ) | |||||||||||||
1 | Euro Dollar Futures | Chicago Mercantile | June 2017 | USD | 245,662 | 74 | ||||||||||||||
10 | Euro Dollar Futures | Chicago Mercantile | December 2017 | USD | 2,449,000 | 23,112 | ||||||||||||||
Total | $(22,311 | ) | ||||||||||||||||||
|
|
• | As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: |
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||
BRL | 10,181 | USD | 3,227 | BNP Paribas S.A. | 7/02/15 | $ 45 | ||||||||||||||
BRL | 19,164 | USD | 6,177 | Citibank N.A. | 7/02/15 | (13 | ) | |||||||||||||
BRL | 19,242 | USD | 6,000 | �� | Citibank N.A. | 7/02/15 | 184 | |||||||||||||
BRL | 19,431 | USD | 6,263 | Citibank N.A. | 7/02/15 | (13 | ) | |||||||||||||
BRL | 28,715 | USD | 9,255 | Citibank N.A. | 7/02/15 | (19 | ) | |||||||||||||
BRL | 14,747 | USD | 4,667 | Deutsche Bank AG | 7/02/15 | 73 | ||||||||||||||
BRL | 15,725 | USD | 5,000 | Goldman Sachs International | 7/02/15 | 54 | ||||||||||||||
BRL | 18,933 | USD | 6,000 | Goldman Sachs International | 7/02/15 | 85 | ||||||||||||||
BRL | 18,978 | USD | 6,000 | Goldman Sachs International | 7/02/15 | 99 | ||||||||||||||
BRL | 19,098 | USD | 6,000 | Goldman Sachs International | 7/02/15 | 138 | ||||||||||||||
BRL | 22,117 | USD | 7,000 | Goldman Sachs International | 7/02/15 | 108 | ||||||||||||||
BRL | 22,246 | USD | 7,000 | Goldman Sachs International | 7/02/15 | 150 | ||||||||||||||
BRL | 28,044 | USD | 9,039 | Goldman Sachs International | 7/02/15 | (19 | ) | |||||||||||||
BRL | 73,768 | USD | 23,333 | Goldman Sachs International | 7/02/15 | 375 | ||||||||||||||
BRL | 19,019 | USD | 6,130 | Royal Bank of Scotland PLC | 7/02/15 | (13 | ) | |||||||||||||
BRL | 12,468 | USD | 4,000 | UBS AG | 7/02/15 | 10 | ||||||||||||||
BRL | 19,152 | USD | 6,000 | UBS AG | 7/02/15 | 155 | ||||||||||||||
BRL | 154,674 | USD | 49,853 | UBS AG | 7/02/15 | (104 | ) | |||||||||||||
CLP | 7,280,002 | USD | 11,392 | BNP Paribas S.A. | 7/02/15 | (4 | ) | |||||||||||||
CLP | 5,579,010 | USD | 8,730 | Credit Suisse International | 7/02/15 | (3 | ) | |||||||||||||
CLP | 7,290,263 | USD | 11,408 | Credit Suisse International | 7/02/15 | (4 | ) | |||||||||||||
CLP | 7,322,702 | USD | 11,459 | Credit Suisse International | 7/02/15 | (4 | ) | |||||||||||||
CLP | 9,799,965 | USD | 15,750 | Credit Suisse International | 7/02/15 | (423 | ) | |||||||||||||
CLP | 1,420,313 | USD | 2,250 | Deutsche Bank AG | 7/02/15 | (29 | ) | |||||||||||||
CLP | 21,653,800 | USD | 35,000 | Deutsche Bank AG | 7/02/15 | (1,134 | ) | |||||||||||||
CLP | 5,728,500 | USD | 8,964 | Goldman Sachs International | 7/02/15 | (3 | ) | |||||||||||||
USD | 3,282 | BRL | 10,181 | BNP Paribas S.A. | 7/02/15 | 7 | ||||||||||||||
USD | 6,000 | BRL | 19,164 | Citibank N.A. | 7/02/15 | (159 | ) |
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock U.S. Government Bond V.I. Fund |
��
As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: (continued)
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||
USD | 6,000 | BRL | 19,431 | Citibank N.A. | 7/02/15 | $ (245) | ||||||||||||||
USD | 6,202 | BRL | 19,242 | Citibank N.A. | 7/02/15 | 13 | ||||||||||||||
USD | 9,000 | BRL | 28,715 | Citibank N.A. | 7/02/15 | (229) | ||||||||||||||
USD | 4,753 | BRL | 14,747 | Deutsche Bank AG | 7/02/15 | 10 | ||||||||||||||
USD | 5,068 | BRL | 15,725 | Goldman Sachs International | 7/02/15 | 11 | ||||||||||||||
USD | 6,102 | BRL | 18,933 | Goldman Sachs International | 7/02/15 | 13 | ||||||||||||||
USD | 6,117 | BRL | 18,978 | Goldman Sachs International | 7/02/15 | 13 | ||||||||||||||
USD | 6,155 | BRL | 19,098 | Goldman Sachs International | 7/02/15 | 13 | ||||||||||||||
USD | 7,128 | BRL | 22,117 | Goldman Sachs International | 7/02/15 | 15 | ||||||||||||||
USD | 7,170 | BRL | 22,246 | Goldman Sachs International | 7/02/15 | 15 | ||||||||||||||
USD | 9,000 | BRL | 28,044 | Goldman Sachs International | 7/02/15 | (13) | ||||||||||||||
USD | 23,776 | BRL | 73,768 | Goldman Sachs International | 7/02/15 | 50 | ||||||||||||||
USD | 6,000 | BRL | 19,019 | Royal Bank of Scotland PLC | 7/02/15 | (113) | ||||||||||||||
USD | 4,019 | BRL | 12,468 | UBS AG | 7/02/15 | 8 | ||||||||||||||
USD | 6,173 | BRL | 19,152 | UBS AG | 7/02/15 | 13 | ||||||||||||||
USD | 48,227 | BRL | 154,674 | UBS AG | 7/02/15 | (1,484) | ||||||||||||||
USD | 11,667 | CLP | 7,280,002 | BNP Paribas S.A. | 7/02/15 | 281 | ||||||||||||||
USD | 9,000 | CLP | 5,579,010 | Credit Suisse International | 7/02/15 | 275 | ||||||||||||||
USD | 11,667 | CLP | 7,290,263 | Credit Suisse International | 7/02/15 | 265 | ||||||||||||||
USD | 11,667 | CLP | 7,322,702 | Credit Suisse International | 7/02/15 | 214 | ||||||||||||||
USD | 15,335 | CLP | 9,799,965 | Credit Suisse International | 7/02/15 | 6 | ||||||||||||||
USD | 2,223 | CLP | 1,420,313 | Deutsche Bank AG | 7/02/15 | 1 | ||||||||||||||
USD | 33,885 | CLP | 21,653,800 | Deutsche Bank AG | 7/02/15 | 12 | ||||||||||||||
USD | 9,000 | CLP | 5,728,500 | Goldman Sachs International | 7/02/15 | 39 | ||||||||||||||
IDR | 120,600,000 | USD | 9,000 | Standard Chartered Bank | 7/06/15 | 34 | ||||||||||||||
MXN | 99,864 | USD | 6,500 | Citibank N.A. | 7/06/15 | (149) | ||||||||||||||
USD | 9,000 | IDR | 119,610,000 | BNP Paribas S.A. | 7/06/15 | 40 | ||||||||||||||
MXN | 275,166 | USD | 17,500 | Barclays Bank PLC | 7/20/15 | (20) | ||||||||||||||
USD | 301,873 | MXN | 4,529,000 | Barclays Bank PLC | 7/21/15 | 14,180 | ||||||||||||||
MYR | 41,267 | USD | 11,000 | Deutsche Bank AG | 7/29/15 | (90) | ||||||||||||||
PLN | 112,680 | EUR | 27,000 | HSBC Bank PLC | 7/29/15 | (169) | ||||||||||||||
USD | 13,333 | MYR | 50,057 | JPMorgan Chase Bank N.A. | 7/29/15 | 98 | ||||||||||||||
ZAR | 60,872 | USD | 5,000 | Barclays Bank PLC | 7/31/15 | (25) | ||||||||||||||
USD | 4,000 | BRL | 12,610 | UBS AG | 8/04/15 | (3) | ||||||||||||||
RUB | 403,340 | USD | 7,000 | Société Générale | 9/08/15 | 125 | ||||||||||||||
USD | 7,000 | RUB | 406,245 | Société Générale | 9/08/15 | (177) | ||||||||||||||
CNH | 1,148,096 | USD | 184,000 | Bank of America N.A. | 9/09/15 | (84) | ||||||||||||||
CNH | 1,148,506 | USD | 184,000 | Citibank N.A. | 9/09/15 | (18) | ||||||||||||||
CNH | 1,148,110 | USD | 184,000 | Deutsche Bank AG | 9/09/15 | (81) | ||||||||||||||
CNH | 1,148,246 | USD | 184,000 | Goldman Sachs International | 9/09/15 | (60) | ||||||||||||||
CNH | 1,148,214 | USD | 184,000 | UBS AG | 9/09/15 | (65) | ||||||||||||||
USD | 614,555 | CNY | 3,871,832 | BNP Paribas S.A. | 9/09/15 | (6,774) | ||||||||||||||
USD | 305,445 | CNY | 1,924,657 | Deutsche Bank AG | 9/09/15 | (3,413) | ||||||||||||||
CHF | 27,686 | USD | 30,000 | BNP Paribas S.A. | 9/16/15 | (296) | ||||||||||||||
CHF | 41,482 | USD | 45,000 | BNP Paribas S.A. | 9/16/15 | (495) | ||||||||||||||
CHF | 55,309 | USD | 60,000 | BNP Paribas S.A. | 9/16/15 | (660) | ||||||||||||||
CHF | 82,985 | USD | 90,000 | BNP Paribas S.A. | 9/16/15 | (967) | ||||||||||||||
CHF | 143,055 | USD | 155,000 | Goldman Sachs International | 9/16/15 | (1,518) | ||||||||||||||
CHF | 18,443 | USD | 20,000 | UBS AG | 9/16/15 | (212) |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Schedule of Investments (continued) | BlackRock U.S. Government Bond V.I. Fund |
As of June 30, 2015, forward foreign currency exchange contracts outstanding were as follows: (concluded)
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||
CHF | 27,667 | USD | 30,000 | UBS AG | 9/16/15 | $ (316) | ||||||||||||||
EUR | 27,122 | USD | 30,540 | Goldman Sachs International | 9/16/15 | (269) | ||||||||||||||
EUR | 775,000 | USD | 872,158 | Goldman Sachs International | 9/16/15 | (7,179) | ||||||||||||||
JPY | 40,389,327 | USD | 330,000 | Goldman Sachs International | 9/16/15 | 368 | ||||||||||||||
JPY | 6,906,082 | USD | 56,000 | TD Securities, Inc. | 9/16/15 | 489 | ||||||||||||||
USD | 140,112 | CHF | 130,629 | Barclays Bank PLC | 9/16/15 | (37) | ||||||||||||||
USD | 193,258 | CHF | 180,198 | Citibank N.A. | 9/16/15 | (73) | ||||||||||||||
USD | 96,629 | CHF | 90,068 | Goldman Sachs International | 9/16/15 | (4) | ||||||||||||||
USD | 866,760 | EUR | 775,000 | Bank of America N.A. | 9/16/15 | 1,781 | ||||||||||||||
USD | 14,642 | EUR | 13,000 | BNP Paribas S.A. | 9/16/15 | 133 | ||||||||||||||
USD | 7,487 | EUR | 6,648 | Citibank N.A. | 9/16/15 | 68 | ||||||||||||||
USD | 8,415 | EUR | 7,475 | Citibank N.A. | 9/16/15 | 72 | ||||||||||||||
USD | 440,000 | JPY | 54,000,980 | Royal Bank of Scotland PLC | 9/16/15 | (1,703) | ||||||||||||||
Total | $(8,747) | |||||||||||||||||||
|
|
• | As of June 30, 2015, exchange-traded options purchased were as follows: |
Description | Put/ Call | Strike | Expiration Date | Contracts | Value | |||||||||
Euro Dollar 90-Day | Put | USD | 98.75 | 9/11/15 | 70 | $ | 14,000 | |||||||
Euro Dollar 90-Day | Put | USD | 98.25 | 9/11/15 | 70 | 1,313 | ||||||||
Total | $ | 15,313 | ||||||||||||
|
|
• | As of June 30, 2015, OTC options purchased were as follows: |
Description | Counterparty | Put/ Call | Strike | Expiration Date | Notional Amount (000) | Value | ||||||||||||||||
USD Currency | Goldman Sachs Bank USA | Call | MXN | 15.55 | 7/01/15 | USD | 13 | $ | 134 | |||||||||||||
USD Currency | Citibank N.A. | Call | JPY | 124.50 | 8/24/15 | USD | 800 | 4,609 | ||||||||||||||
Total | $ | 4,743 | ||||||||||||||||||||
|
|
• | As of June 30, 2015, exchange-traded options written were as follows: |
Description | Put/ Call | Strike | Expiration Date | Contracts | Value | |||||||||||
Euro Dollar 90-Day | Put | USD | 98.50 | 9/11/15 | 140 | $ | (7,875 | ) |
• | As of June 30, 2015, OTC interest rate swaptions written were as follows: |
Description | Counterparty | Put/ Call | Exercise Rate | Pay/Receive Exercise Rate | Floating Rate Index | Expiration Date | Notional | Value | ||||||||||||||||
10-Year Interest Rate Swap | Citibank N.A. | Call | 0.90% | Pay | 6-month EURIBOR | 9/18/15 | EUR | 2,060 | $ | (9,365 | ) | |||||||||||||
10-Year Interest Rate Swap | Deutsche Bank AG | Call | 3.45% | Pay | 3-month LIBOR | 5/09/16 | USD | 900 | (66,591 | ) | ||||||||||||||
10-Year Interest Rate Swap | Citibank N.A. | Put | 1.50% | Receive | 6-month EURIBOR | 9/18/15 | EUR | 2,060 | (13,067 | ) | ||||||||||||||
10-Year Interest Rate Swap | Deutsche Bank AG | Put | 3.45% | Receive | 3-month LIBOR | 5/09/16 | USD | 900 | (6,997 | ) | ||||||||||||||
Total | $ | (96,020 | ) | |||||||||||||||||||||
|
|
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock U.S. Government Bond V.I. Fund |
• | As of June 30, 2015, centrally cleared interest rate swaps outstanding were as follows: |
Fixed Rate | Floating Rate | Clearinghouse | Effective Date | Expiration Date | Notional (000) | Unrealized Appreciation (Depreciation) | ||||||||||||||
1.26%1 | 3-month LIBOR | Chicago Mercantile | 1/12/162 | 1/12/17 | USD | 4,812 | $ (16,960 | ) | ||||||||||||
1.50%1 | 3-month LIBOR | Chicago Mercantile | N/A | 2/28/19 | USD | 3,100 | (22,883 | ) | ||||||||||||
1.89%1 | 3-month LIBOR | Chicago Mercantile | 10/05/152 | 11/30/19 | USD | 1,000 | (7,270 | ) | ||||||||||||
1.89%1 | 3-month LIBOR | Chicago Mercantile | 10/05/152 | 11/30/19 | USD | 1,000 | (7,385 | ) | ||||||||||||
3.26%1 | 3-month LIBOR | Chicago Mercantile | N/A | 11/18/24 | USD | 2,100 | (97,685 | ) | ||||||||||||
2.50%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/27/25 | USD | 900 | (15,355 | ) | ||||||||||||
2.99%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/15/40 | USD | 600 | (13,828 | ) | ||||||||||||
2.39%1 | 3-month LIBOR | Chicago Mercantile | N/A | 4/24/45 | USD | 265 | 28,169 | |||||||||||||
2.38%1 | 3-month LIBOR | Chicago Mercantile | N/A | 4/24/45 | USD | 135 | 14,651 | |||||||||||||
2.74%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/08/45 | USD | 150 | 5,113 | |||||||||||||
2.74%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/08/45 | USD | 150 | 4,969 | |||||||||||||
2.69%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/27/45 | USD | 275 | 12,586 | |||||||||||||
2.69%1 | 3-month LIBOR | Chicago Mercantile | N/A | 5/27/45 | USD | 275 | 12,467 | |||||||||||||
Total | $(103,411 | ) | ||||||||||||||||||
|
|
1 | Fund pays the fixed rate and receives the floating rate. |
2 | Forward swap. |
• | As of June 30, 2015, OTC interest rate swaps outstanding were as follows: |
Fixed Rate | Floating Rate | Counterparty | Expiration Date | Notional | Value | Unrealized Appreciation | ||||||||||||||||
2.36%1 | 3-month LIBOR | Citibank N.A. | 12/20/15 | USD | 2,200 | $ | 20,993 | $ | 20,993 |
1 | Fund pays the floating rate and receives the fixed rate. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Schedule of Investments (continued) | BlackRock U.S. Government Bond V.I. Fund |
As of June 30, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Long-Term Investments: | ||||||||||||||||
Asset-Backed Securities | — | $ | 2,579,282 | $ | 1,495,275 | $ | 4,074,557 | |||||||||
Corporate Bonds | — | 919,572 | — | 919,572 | ||||||||||||
Foreign Government Obligations | — | 283,988 | — | 283,988 | ||||||||||||
Non-Agency Mortgage-Backed Securities | — | 3,922,979 | — | 3,922,979 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 94,054,150 | — | 94,054,150 | ||||||||||||
U.S. Treasury Obligations | — | 44,568,507 | — | 44,568,507 | ||||||||||||
Short-Term Securities: | ||||||||||||||||
Money Market Funds | $ | 747,797 | — | — | 747,797 | |||||||||||
Options Purchased: | ||||||||||||||||
Foreign Currency Exchange Contracts | — | 4,743 | — | 4,743 | ||||||||||||
Interest Rate Contracts | 15,313 | — | — | 15,313 | ||||||||||||
Liabilities: | ||||||||||||||||
Investments: | ||||||||||||||||
TBA Sale Commitments | — | (38,503,404 | ) | — | (38,503,404 | ) | ||||||||||
|
| |||||||||||||||
Total | $ | 763,110 | $ | 107,829,817 | $ | 1,495,275 | $ | 110,088,202 | ||||||||
|
|
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Derivative Financial Instruments1 | ||||||||||||||
Assets: | ||||||||||||||
Foreign currency exchange contracts | — | $ | 20,138 | — | $ | 20,138 | ||||||||
Interest rate contracts | $ | 60,035 | 98,948 | — | 158,983 | |||||||||
Liabilities: | ||||||||||||||
Foreign currency exchange contracts | — | (28,885 | ) | — | (28,885 | ) | ||||||||
Interest rate contracts | (90,221 | ) | (277,386 | ) | — | (367,607 | ) | |||||||
|
| |||||||||||||
Total | $ | (30,186 | ) | $ | (187,185 | ) | — | $ | (217,371 | ) | ||||
|
|
1 Derivative financial instruments are swaps, financial futures contracts, forward foreign currency exchange contracts and options written. Swaps, financial futures contracts and forward foreign currency exchange contracts are valued at the unrealized appreciation (depreciation) on the instrument and options written are shown at value. | ||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount or face value, including accrued interest for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows: |
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets: | ||||||||||||||
Cash | $ | 991,057 | — | — | $ | 991,057 | ||||||||
Foreign currency at value | 49,657 | — | — | 49,657 | ||||||||||
Cash pledged for financial futures contracts | 113,660 | — | — | 113,660 | ||||||||||
Cash pledged for centrally cleared swaps | 428,950 | — | — | 428,950 | ||||||||||
Liabilities: | ||||||||||||||
Reverse repurchase agreements | — | $ | (14,015,780 | ) | — | (14,015,780 | ) | |||||||
|
| |||||||||||||
Total | $ | 1,583,324 | $ | (14,015,780 | ) | — | $ | (12,432,456 | ) | |||||
|
|
During the six months ended June 30, 2015, there were no transfers between Level 1 and Level 2.
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (concluded) | BlackRock U.S. Government Bond V.I. Fund |
A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the year in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:
Asset-Backed Securities | ||||
Assets: |
| |||
Opening Balance, as of December 31, 2014 | — | |||
Transfers into Level 31 | $ | 1,480,996 | ||
Transfers out of Level 3 | — | |||
Accrued discounts/premiums | 326 | |||
Net realized gain (loss) | — | |||
Net change in unrealized appreciation (depreciation)2,3 | 13,953 | |||
Purchases | — | |||
Sales | — | |||
Closing Balance, as of June 30, 2015 | $ | 1,495,275 | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments still held at June 30, 20153 | $ | 13,953 | ||
|
|
1 | As of December 31, 2014, the Fund used observable inputs in determining the value of certain investments. As of June 30, 2015, the Fund used significant unobservable inputs in determining the value of the same investments. As a result, investments with a beginning of period value of $1,480,996 transferred from Level 2 to Level 3 in the disclosure hierarchy. |
2 | Included in the related net change in unrealized appreciation (depreciation) in the Statement of Operations. |
3 | Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at June 30, 2015 is generally due to investments no longer held or categorized as Level 3 at period end. |
The Fund’s investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value of such Level 3 investments.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock U.S. Government Fund | |||
Assets | ||||
Investments at value — unaffiliated (cost — $147,638,651) | $ | 147,843,809 | ||
Investments at value — affiliated (cost — $747,797) | 747,797 | |||
Cash | 991,057 | |||
Cash pledged: | ||||
Financial futures contracts | 113,660 | |||
Centrally cleared swaps | 428,950 | |||
Foreign currency at value (cost — $49,950) | 49,657 | |||
Receivables: | ||||
Investments sold | 8,039,828 | |||
TBA sale commitments | 38,550,479 | |||
Capital shares sold | 59,356 | |||
Dividends — affiliated | 117 | |||
Interest | 295,640 | |||
From the Manager | 30,925 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 20,138 | |||
Unrealized appreciation on OTC swaps | 20,993 | |||
Variation margin receivable on financial futures contracts | 6,539 | |||
Variation margin receivable on centrally cleared swaps | 1,291 | |||
Prepaid expenses | 221 | |||
Other assets | 29,622 | |||
|
| |||
Total assets | 197,230,079 | |||
|
| |||
Liabilities | ||||
Options written at value (premiums received — $116,195) | 103,895 | |||
TBA sale commitments at value (proceeds — $38,550,479) | 38,503,404 | |||
Reverse repurchase agreements | 14,015,780 | |||
Payables: | ||||
Investments purchased payable | 57,770,543 | |||
Capital shares redeemed payable | 215 | |||
Distribution fees payable | 157 | |||
Income dividends payable | 138,685 | |||
Investment advisory fees payable | 33,482 | |||
Officer’s and Directors’ fees payable | 1,435 | |||
Other affiliates payable | 505 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 28,885 | |||
Variation margin payable on financial futures contracts | 9,571 | |||
Other accrued expenses payable | 107,421 | |||
|
| |||
Total liabilities | 110,713,978 | |||
|
| |||
Net Assets | $ | 86,516,101 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | $ | 90,036,400 | ||
Distributions in excess of net investment income | (304,972) | |||
Accumulated net realized loss | (3,395,698) | |||
Net unrealized appreciation (depreciation) | 180,371 | |||
|
| |||
Net Assets | $ | 86,516,101 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $85,691,900 and 8,328,344 shares outstanding, 300 million shares authorized, $0.10 par value | $ | 10.29 | ||
|
| |||
Class III — Based on net assets of $824,201 and 80,161 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 10.28 | ||
|
|
See Notes to Financial Statements.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Fund | |||
Investment Income: | ||||
Interest | $ | 846,144 | ||
Dividends — affiliated | 1,099 | |||
|
| |||
Total income | 847,243 | |||
|
| |||
Expenses: | ||||
Investment advisory | 225,533 | |||
Transfer agent | 2,482 | |||
Transfer agent — Class I | 93,951 | |||
Transfer agent — Class III | 684 | |||
Professional | 29,613 | |||
Custodian | 27,658 | |||
Accounting Services | 13,802 | |||
Officer and Directors | 9,197 | |||
Printing | 8,970 | |||
Distribution — Class III | 1,153 | |||
Miscellaneous | 9,333 | |||
|
| |||
Total expenses excluding interest expense | 422,376 | |||
Interest expense | 10,891 | |||
|
| |||
Total expenses | 433,267 | |||
Less fees waived by the Manager | (14,254) | |||
Less transfer agent fees reimbursed — Class I | (93,589) | |||
Less transfer agent fees reimbursed — Class III | (434) | |||
|
| |||
Total expenses after fees waived and reimbursed | 324,990 | |||
|
| |||
Net investment income | 522,253 | |||
|
| |||
Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) from: | ||||
Investments | 265,880 | |||
Financial futures contracts | 114,747 | |||
Options written | (195,887) | |||
Swaps | (12,068) | |||
Foreign currency transactions | 136,763 | |||
|
| |||
309,435 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (728,982) | |||
Financial futures contracts | (8,449) | |||
Options written | 48,497 | |||
Swaps | 32,667 | |||
Foreign currency translations | (126,925) | |||
|
| |||
(783,192) | ||||
|
| |||
Net realized and unrealized loss | (473,757) | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 48,496 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Statements of Changes in Net Assets | BlackRock U.S. Government Bond V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 522,253 | $ | 1,862,823 | ||||
Net realized gain | 309,435 | 2,736,436 | ||||||
Net change in unrealized appreciation (depreciation) | (783,192) | 1,020,927 | ||||||
|
| |||||||
Net increase in net assets resulting from operations | 48,496 | 5,620,186 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | (859,522) | (2,245,858) | ||||||
Class III | (7,587) | (11,871) | ||||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | (867,109) | (2,257,729) | ||||||
|
| |||||||
Capital Share Transactions | ||||||||
Net decrease in net assets derived from capital share transactions | (6,389,829) | (13,081,287) | ||||||
|
| |||||||
Net Assets | ||||||||
Total decrease in net assets | (7,208,442) | (9,718,830) | ||||||
Beginning of period | 93,724,543 | 103,443,373 | ||||||
|
| |||||||
End of period | $ | 86,516,101 | $ | 93,724,543 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income, end of period | $ | (304,972) | $ | 39,884 | ||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights | BlackRock U.S. Government Bond V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.39 | $ | 10.04 | $ | 10.71 | $ | 10.76 | $ | 10.45 | $ | 9.99 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.06 | 0.19 | 0.13 | 0.23 | 0.29 | 0.39 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.06 | ) | 0.39 | (0.48 | ) | 0.03 | 0.36 | 0.46 | ||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | — | 0.58 | (0.35 | ) | 0.26 | 0.65 | 0.85 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | (0.10 | ) | (0.23 | ) | (0.25 | ) | (0.27 | ) | (0.34 | ) | (0.39 | ) | ||||||||||||
Net realized gain | — | — | (0.07 | ) | (0.04 | ) | — | — | ||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | (0.10 | ) | (0.23 | ) | (0.32 | ) | (0.31 | ) | (0.34 | ) | (0.39 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.29 | $ | 10.39 | $ | 10.04 | $ | 10.71 | $ | 10.76 | $ | 10.45 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | (0.02 | )%4 | 5.87% | (3.25 | )% | 2.41% | 6.31% | 8.67% | ||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 0.96% | 5 | 0.89% | 0.90% | 0.83% | 0.66% | 0.75% | |||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.72% | 5 | 0.69% | 0.69% | 0.69% | 0.66% | 0.75% | |||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed and excluding interest expense | 0.69% | 5 | 0.66% | 0.68% | 0.68% | 0.66% | 0.63% | |||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.16% | 5 | 1.88% | 1.24% | 2.13% | 2.80% | 3.68% | |||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 85,692 | $ | 92,975 | $ | 103,218 | $ | 130,938 | $ | 145,886 | $ | 192,317 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate6 | 741% | 1,388% | 1,956% | 1,529% | 2,601% | 3,289% | ||||||||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Annualized. |
6 | Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover is as follows: |
Six Months | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Portfolio turnover rate (excluding MDRs) | 447% | 956% | 1,415% | 1,119% | 1,825% | 2,400% |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Financial Highlights (concluded) | BlackRock U.S. Government Bond V.I. Fund |
Class III | ||||||||||||||||||||
Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | Period July 15, 20131 | Period January 1, 2013 to July 9, 20132 | Period May 9, 20121 | ||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||
Net asset value, beginning of period | $ | 10.39 | $ | 10.04 | $ | 10.19 | $ | 10.71 | $ | 10.77 | ||||||||||
|
| |||||||||||||||||||
Net investment income3 | 0.04 | 0.17 | 0.11 | 0.01 | 0.08 | |||||||||||||||
Net realized and unrealized gain (loss) | (0.07 | ) | 0.38 | (0.09 | ) | (0.38 | ) | 0.05 | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) from investment operations | (0.03 | ) | 0.55 | 0.02 | (0.37 | ) | 0.13 | |||||||||||||
|
| |||||||||||||||||||
Distributions from:4 | ||||||||||||||||||||
Net investment income | (0.08 | ) | (0.20 | ) | (0.10 | ) | (0.15 | ) | (0.15 | ) | ||||||||||
Net realized gain | — | — | (0.07 | ) | — | (0.04 | ) | |||||||||||||
|
| |||||||||||||||||||
Total distributions | (0.08 | ) | (0.20 | ) | (0.17 | ) | (0.15 | ) | (0.19 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ | 10.28 | $ | 10.39 | $ | 10.04 | $ | 10.19 | $ | 10.71 | ||||||||||
|
| |||||||||||||||||||
Total Return5 | ||||||||||||||||||||
Based on net asset value | (0.26 | )%6 | 5.56% | 0.26% | 6 | (3.60 | )%6 | 1.24% | 6 | |||||||||||
|
| |||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||
Total expenses. | 1.15% | 7 | 1.09% | 0.86% | 7 | 1.66% | 7 | 1.14% | 7 | |||||||||||
|
| |||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 1.02% | 7 | 1.00% | 0.85% | 7 | 0.85% | 7 | 1.01% | 7 | |||||||||||
|
| |||||||||||||||||||
Total expenses after fees waived and/or reimbursed and excluding interest expense | 1.00% | 7 | 0.98% | 0.84% | 7 | 0.85% | 7 | 0.99% | 7 | |||||||||||
|
| |||||||||||||||||||
Net investment income | 0.85% | 7 | 1.63% | 2.30% | 7 | 0.25% | 7 | 1.20% | 7 | |||||||||||
|
| |||||||||||||||||||
Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000) | $ | 824 | $ | 750 | $ | 225 | — | 2 | $ | 29 | ||||||||||
|
| |||||||||||||||||||
Portfolio turnover rate8 | 741% | 1,388% | 1,956% | 1,956% | 1,529% | |||||||||||||||
|
|
1 | Recommencement of operations. |
2 | There were no Class III Shares outstanding from July 9, 2013 to July 14, 2013. On July 15, 2013, operations recommenced. |
3 | Based on average shares outstanding. |
4 | Distributions for annual periods determined in accordance with federal income tax regulations. |
5 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
6 | Aggregate total return. |
7 | Annualized. |
8 | Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover is as follows: |
Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | Period July 15, 2013 | Period 2013 | Period May 9, 2012 | ||||||||||||||||
Portfolio turnover rate (excluding MDRs) | 447 | % | 956 | % | 1,415 | % | 1,415 | % | 1,119 | % |
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (Unaudited) | BlackRock U.S. Government Bond V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock U.S. Government Bond V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class III Shares bear certain expenses related to the distribution of such shares. Class III Shares recommenced on May 9, 2012, were redeemed on July 9, 2013 and recommenced on July 15, 2013.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Bond investments are valued on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. Financial futures contracts traded on exchanges are valued at their last sale price. To-be-announced (“TBA”) commitments are valued on the basis of last available bid prices or current market quotations provided by pricing services. Swap agreements are valued utilizing quotes received daily by the Fund’s pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Certain centrally cleared swaps are valued at the price determined by the relevant exchange or clearinghouse. Investments in open-end registered investment companies are valued at NAV each business day.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.
Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options and options on swaps (“swaptions”) are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Fund’s pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board.
Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., financial futures contracts, forward foreign currency exchange contracts, options written and swaps), or certain borrowings (e.g., reverse repurchase transactions) that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments or borrowings. Doing so allows the investment or borrowing to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses pro rated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Asset-Backed and Mortgage-Backed Securities: The Fund may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. In addition, the Fund may subsequently have to reinvest the proceeds at lower interest rates. If the Fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
20 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
The Fund may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States but are supported by the right of the issuer to borrow from the U.S. Treasury.
Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Inflation-Indexed Bonds: The Fund may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation rises or falls, the principal value of inflation-indexed bonds will be adjusted upward or downward, and consequently the interest payable on these securities (calculated with respect to a larger or smaller principal amount) will be increased or reduced, respectively. Any upward or downward adjustment in the principal amount of an inflation-indexed bond will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
Multiple Class Pass-Through Securities: The Fund may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities. These multiple class securities may be issued by Ginnie Mae, U.S. government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated pre-payments of principal, the Fund may not fully recoup its initial investment in IOs.
Stripped Mortgage-Backed Securities: The Fund may invest in stripped mortgage-backed securities issued by the U.S. Government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest (IOs) and principal (POs) distributions on a pool of Mortgage Assets. The Fund also may invest in stripped mortgage-backed securities that are privately issued.
Zero-Coupon Bonds: The Fund may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.
TBA Commitments: The Fund may enter into TBA commitments. TBA commitments are forward agreements for the purchase or sale of mortgage-backed securities for a fixed price, with payment and delivery on an agreed upon future settlement date. The specific securities to be delivered are not identified at the trade date. However, delivered securities must meet specified terms, including issuer, rate and mortgage terms. When entering into TBA commitments, the Fund may take possession of or deliver the underlying mortgage-backed securities but can extend the settlement or roll the transaction. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.
In order to better define contractual rights and to secure rights that will help the Fund mitigate their counterparty risk, TBA commitments may be entered into by the Fund under Master Securities Forward Transaction Agreements (each, an “MSFTA”). An MSFTA typically contains, among other things, collateral posting terms and netting provisions in the event of default and/or termination event. The collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of the collateral currently pledged by the Fund and the counterparty. Cash collateral that has been pledged to cover the obligations of the Fund and cash collateral
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 21 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral for TBA commitments or cash received as collateral for TBA commitments, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Typically, the Fund is permitted to sell, repledge or use the collateral they receive; however, the counterparty is not permitted to do so. To the extent amounts due to the Fund are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance.
Mortgage Dollar Roll Transactions: The Fund may sell TBA mortgage-backed securities and simultaneously contract to repurchase substantially similar (i.e., same type, coupon and maturity) securities on a specific future date at an agreed upon price. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. The Fund accounts for mortgage dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions may increase the Fund’s portfolio turnover rate. Mortgage dollar rolls involve the risk that the market value of the securities that the Fund is required to purchase may decline below the agreed upon repurchase price of those securities.
Reverse Repurchase Agreements: The Fund may enter into reverse repurchase agreements with qualified third party broker-dealers. In a reverse repurchase agreement, the Fund sells securities to a bank or broker-dealer and agrees to repurchase the same securities at a mutually agreed upon date and price. The Fund receives cash from the sale to use for other investment purposes. During the term of the reverse repurchase agreement, the Fund continues to receive the principal and interest payments on the securities sold. Certain agreements have no stated maturity and can be terminated by either party at any time. Interest on the value of the reverse repurchase agreements issued and outstanding is based upon competitive market rates determined at the time of issuance. The Fund may utilize reverse repurchase agreements when it is anticipated that the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. Reverse repurchase agreements involve leverage risk. If the Fund suffers a loss on its investment of the transaction proceeds from a reverse repurchase agreement, the Fund would still be required to pay the full repurchase price. Further, the Fund remains subject to the risk that the market value of the securities repurchased declines below the repurchase price. In such cases, the Fund would be required to return a portion of the cash received from the transaction or provide additional securities to the counterparty.
For financial reporting purposes, cash received in exchange for securities delivered plus accrued interest due to the counterparty is recorded as a liability in the Statement of Assets and Liabilities at face value including accrued interest. Due to the short term nature of the reverse repurchase agreements, face value approximates fair value. Interest payments made by the Fund to the counterparties are recorded as a component of interest expense in the Statement of Operations. In periods of increased demand for the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
For the six months ended June 30, 2015, the average amount of transactions considered borrowings, which include reverse repurchase agreements, and the daily weighted average interest rates for the Fund were $21,007,481 and 0.05%, respectively.
Reverse repurchase transactions are entered into by the Fund under Master Repurchase Agreements (each, an “MRA”), which permit the Fund, under certain circumstances, including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the counterparty and create one single net payment due to or from the Fund. With reverse repurchase transactions, typically the Fund and the counterparties are permitted to sell, re-pledge, or use the collateral associated with the transaction. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Pursuant to the terms of the MRA, the Fund receives or posts securities as collateral with a market value in excess of the repurchase price to be paid or received by the Fund upon the maturity of the transaction. Upon a bankruptcy or insolvency of the MRA counterparty, the Fund is considered an unsecured creditor with respect to excess collateral and, as such, the return of excess collateral may be delayed.
As of June 30, 2015, the following table is a summary of the Fund’s open reverse repurchase agreements by counterparty which are subject to offset under an MRA on a net basis:
Counterparty | Reverse Repurchase Agreements | Fair Value of Non-cash | Cash Collateral Pledged | Net Amount | ||||||||||||
BNP Paribas Securities Corp. | $ 7,115,445 | $ (7,115,445) | — | — | ||||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | 5,014,871 | (5,014,871) | — | — | ||||||||||||
RBC Capital Markets, LLC | 1,885,464 | (1,885,464) | — | — | ||||||||||||
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Total | $ 14,015,780 | $(14,015,780) | — | — | ||||||||||||
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1 | Collateral with a value of $14,039,947 has been pledged in connection with open reverse repurchase agreements. Excess of collateral pledged to the individual counterparty is not shown for financial reporting purposes. |
22 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
In the event the counterparty of securities under an MRA files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds from the agreement may be restricted while the counterparty, or its trustee or receiver, determines whether or not to enforce the Fund’s obligation to repurchase the securities.
4. Derivative Financial Instruments:
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage economically its exposure to certain risks such as interest rate risk, foreign currency exchange rate risk or other risk (e.g., inflation risk). These contracts may be transacted on an exchange or OTC.
Financial Futures Contracts: The Fund invests in long and/or short positions in financial futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.
Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited, if any, is recorded on the Statement of Assets and Liabilities as cash pledged for financial futures contracts. 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. Variation margin is recorded by the Fund as unrealized appreciation (depreciation) and, if applicable, as a receivable or payable for variation margin in the Statement of Assets and Liabilities.
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. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
Options: The Fund purchases and writes call and put options to increase or decrease its exposure to underlying instruments (including interest rate risk and foreign currency exchange rate risk) and/or, in the case of options written, to generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised), the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. When the Fund purchases (writes) an option, an amount equal to the premium paid (received) by the Fund is reflected as an asset (liability). The amount of the asset (liability) is subsequently marked-to-market to reflect the current market value of the option purchased (written). When an instrument 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 instrument acquired or deducted from (or added to) the proceeds of the instrument 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 premiums received or paid). When the Fund writes a call option, such option is “covered,” meaning that the Fund holds the underlying instrument subject to being called by the option counterparty. When the Fund writes a put option, such option is covered by cash in an amount sufficient to cover the obligation.
Options on swaps (“swaptions”) are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swaptions is granting or buying the right to enter into a previously agreed upon interest rate or credit default swap agreement (interest rate risk and/or credit risk) at any time before the expiration of the option.
The Fund also purchases or sells listed or OTC foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates or to gain exposure to foreign currencies (foreign currency exchange rate risk).
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 23 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
When foreign currency is purchased or sold through an exercise of a foreign currency option, the related premium paid (or received) is added to (or deducted from) the basis of the foreign currency acquired or deducted from (or added to) the proceeds of the foreign currency sold (receipts from the foreign currency purchased). Such transactions may be effected with respect to hedges on non-U.S. dollar denominated instruments owned by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund.
The Fund may also purchase and write a variety of options with non-standard payout structures or other features (“barrier options”). Barrier options are generally traded OTC. The Fund may invest in various types of barrier options including one-touch options. One-touch options provide the purchaser of the option an agreed-upon payout if the price of the underlying instrument reaches or surpasses a predetermined barrier price level prior to the option’s expiration date. Barrier options may also be referred to as knockout options. In a reverse knockout option, the option expires worthless if the price of the underlying instrument decreases beyond a predetermined barrier price level prior to the option’s expiration date.
In purchasing and writing options, the Fund bears the risk of an unfavorable change in the value of the underlying instrument or the risk that the Fund may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Fund purchasing or selling a security when it otherwise would not, or at a price different from the current market value.
For the six months ended June 30, 2015, transactions in options written, including swaptions were as follows:
Calls | Puts | |||||||||||||||||||
Notional (000)1 | Premiums Received | Contracts | Notional (000)1 | Premiums Received | ||||||||||||||||
Outstanding options, beginning of period | 8,165 | $ | 216,638 | — | 9,740 | $ | 258,040 | |||||||||||||
Options written | 4,084 | 74,287 | 140 | 4,084 | 95,061 | |||||||||||||||
Options exercised | (925 | ) | (8,329 | ) | — | — | — | |||||||||||||
Options expired | — | — | — | (900 | ) | (11,490 | ) | |||||||||||||
Options closed | (8,364 | ) | (234,886 | ) | — | (9,964 | ) | (273,126 | ) | |||||||||||
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Outstanding options, end of period | 2,960 | $ | 47,710 | 140 | 2,960 | $ | 68,485 | |||||||||||||
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1 | Amount shown is in the currency in which the transaction was denominated. |
Swaps: The Fund enters into swap agreements, in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation).
For OTC swaps, any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, in the Statement of Assets and Liabilities and amortized over the term of the OTC swap. Payments received or made by the Fund for OTC swaps are recorded in the Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.
In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities as cash pledged for centrally cleared swaps. The daily change in valuation of centrally cleared swaps is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities. Payments received from (paid to) the counterparty, including at termination, are recorded as realized gain (loss) in the Statement of Operations.
Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.
• | Credit default swaps — The Fund enters into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit risk). The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make a specific payment should a |
24 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occur. As a buyer, if an underlying credit event occurs, the Fund will either (i) receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. |
• | Total return swaps — The Fund enters into total return swaps to obtain exposure to a security or market without owning such security or investing directly in that market or to transfer the risk/return of one market (e.g., fixed income) to another market (e.g., equity) (equity risk and/or interest rate risk). Total return swaps are agreements in which there is an exchange of cash flows whereby one party commits to make payments based on the total return (coupons plus capital gains/losses) of an underlying instrument in exchange for fixed or floating rate interest payments. To the extent the total return of the instrument or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty. |
• | Interest rate swaps — The Fund enters into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds, which may decrease when interest rates rise (interest rate risk). Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating rate, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. In more complex swaps, the notional principal amount may decline (or amortize) over time. |
• | Forward interest rate swaps — The Fund may enter into forward interest rate swaps and forward total return swaps. In a forward swap, the Fund and the counterparty agree to make either periodic net payments beginning on a specified future effective date or a net payment at termination, unless terminated earlier. |
The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:
Fair Values of Derivative Financial Instruments as of June 30, 2015 | ||||||||||||
Value | ||||||||||||
Statement of Assets and Liabilities Location | Derivative Assets | Derivative Liabilities | ||||||||||
Interest rate contracts | Net unrealized appreciation (depreciation)1; Unrealized appreciation (depreciation) on OTC swaps; Investments at value — unaffiliated2; Options written at value | $174,296 | $367,607 | |||||||||
Foreign currency exchange contracts | Unrealized appreciation (depreciation) on foreign currency exchange contracts; Investments at value — unaffiliated2 | 24,881 | 28,885 | |||||||||
Total | $199,177 | $396,492 | ||||||||||
|
|
1 | Includes cumulative appreciation (depreciation) on financial futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
2 | Includes options purchased at value as reported in the Schedule of Investments. |
The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2015 | ||||||||
Net Realized Gain (Loss) From | Net Change in Unrealized Appreciation (Depreciation) on | |||||||
Interest rate contracts: | ||||||||
Financial futures contracts | $114,747 | $ (8,449) | ||||||
Swaps | (12,068) | 32,667 | ||||||
Options3 | (220,020) | 99,674 | ||||||
Foreign currency exchange contracts: | ||||||||
Foreign currency transactions/translations | 383,073 | (125,953) | ||||||
Options3 | 49,445 | (8,137) | ||||||
Total | $315,177 | $ (10,198) |
3 | Options purchased are included in the net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 25 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
For the six months ended June 30, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:
Financial futures contracts: | ||||
Average notional value of contracts — long | $ | 13,492,589 | ||
Average notional value of contracts — short | $ | 23,568,886 | ||
Forward foreign currency exchange contracts: | ||||
Average amounts purchased — in USD | $ | 3,769,019 | ||
Average amounts sold — in USD | $ | 1,898,205 | ||
Options: | ||||
Average value of option contracts purchased | $ | 24,142 | ||
Average value of option contracts written | $ | 3,938 | ||
Average notional value of swaption contracts purchased | $ | 5,834,000 | ||
Average notional value of swaption contracts written | $ | 8,660,595 | ||
Interest rate swaps: | ||||
Average notional value — pays fixed rate | $ | 12,687,000 | ||
Average notional value — receives fixed rate | $ | 2,200,000 | ||
Total return swaps: | ||||
Average notional value | $ | 1,497,000 |
Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund. For OTC options purchased, the Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by such Fund should the counterparty fail to perform under the contracts. Options written by the Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty, to perform.
With exchange-traded options purchased, futures and centrally cleared swaps, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange-traded futures and centrally cleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro-rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund and its counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready
26 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.
As of June 30, 2015, the Fund’s derivative assets and liabilities (by type) are as follows:
Assets | Liabilities | |||||||
Derivative Financial Instruments: | ||||||||
Financial futures contracts | $ | 6,539 | $ | 9,571 | ||||
Foreign currency exchange contracts | 20,138 | 28,885 | ||||||
Options | 20,0561 | 103,895 | ||||||
Swaps — Centrally cleared. | 1,291 | — | ||||||
Swaps — OTC2 | 20,993 | — | ||||||
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 69,017 | $ | 142,351 | ||||
|
| |||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | (23,143 | ) | (17,446 | ) | ||||
|
| |||||||
Total derivative assets and liabilities subject to an MNA | $ | 45,874 | $ | 124,905 | ||||
|
|
1 | Includes options purchased at value which is included in Investments at value — unaffiliated in the Statement of Assets and Liabilities and reported in the Schedule of Investments. |
2 | Includes unrealized appreciation (depreciation) on OTC swaps and swap premiums paid/received in the Statement of Assets and Liabilities. |
As of June 30, 2015, the following tables present the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:
Counterparty | Derivative Assets Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Received | Cash Collateral Received | Net Amount of Derivative Assets2 | |||||||||||
Bank of America N.A | $ 1,781 | $ (84) | — | — | $ 1,697 | |||||||||||
Barclays Bank PLC | 14,180 | (82) | — | — | 14,098 | |||||||||||
BNP Paribas S.A | 506 | (506) | — | — | — | |||||||||||
Citibank N.A | 25,939 | (23,350) | — | — | 2,589 | |||||||||||
Credit Suisse International | 760 | (434) | — | — | 326 | |||||||||||
Deutsche Bank AG | 96 | (96) | — | — | — | |||||||||||
Goldman Sachs Bank USA | 134 | — | — | — | 134 | |||||||||||
Goldman Sachs International | 1,546 | (1,546) | — | — | — | |||||||||||
JPMorgan Chase Bank N.A | 98 | — | — | — | 98 | |||||||||||
Société Générale | 125 | (125) | — | — | — | |||||||||||
Standard Chartered Bank | 34 | — | — | — | 34 | |||||||||||
TD Securities, Inc. | 489 | — | — | — | 489 | |||||||||||
UBS AG | 186 | (186) | — | — | — | |||||||||||
|
| |||||||||||||||
Total | $45,874 | $(26,409) | — | — | $19,465 | |||||||||||
|
| |||||||||||||||
Counterparty | Derivative Liabilities Counterparty | Derivatives Available for Offset1 | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities3 | |||||||||||
Bank of America N.A | $ 84 | $ (84) | — | — | — | |||||||||||
Barclays Bank PLC | 82 | (82) | — | — | — | |||||||||||
BNP Paribas S.A | 9,196 | (506) | — | — | 8,690 | |||||||||||
Citibank N.A | 23,350 | (23,350) | — | — | — | |||||||||||
Credit Suisse International | 434 | (434) | — | — | — | |||||||||||
Deutsche Bank AG | 78,335 | (96) | — | — | 78,239 | |||||||||||
Goldman Sachs International | 9,065 | (1,546) | — | — | 7,519 | |||||||||||
HSBC Bank PLC | 169 | — | — | — | 169 | |||||||||||
Royal Bank of Scotland PLC | 1,829 | — | — | — | 1,829 | |||||||||||
Société Générale | 177 | (125) | — | — | 52 | |||||||||||
UBS AG | 2,184 | (186) | — | — | 1,998 | |||||||||||
|
| |||||||||||||||
Total | $124,905 | $(26,409) | — | — | $98,496 | |||||||||||
|
|
1 | The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA. |
2 | Net amount represents the net amount receivable from the counterparty in the event of default. |
3 | Net amount represents the net amount payable due to the counterparty in the event of default. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 27 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
5. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |||
First $1 Billion | 0.50 | % | ||
$1 Billion — $3 Billion | 0.47 | % | ||
$3 Billion — $5 Billion | 0.45 | % | ||
$5 Billion — $10 Billion | 0.44 | % | ||
Greater than $10 Billion | 0.43 | % |
The Manager has agreed to voluntarily waive 0.03% of its investment advisory fee payable by the Fund. This voluntary waiver may be reduced or discontinued at any time without notice.
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is included in fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any. For the six months ended June 30, 2015, the amount waived was $722.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $489 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at an annual rate of 0.25% based upon the average daily net assets attributable to Class III.
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
Class I | 0.00 | % | ||
Class III | 0.06 | % |
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
28 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock U.S. Government Bond V.I. Fund |
6. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, including paydowns and excluding short-term securities, were as follows:
Purchases | Sales | |||||||
Non-U.S. Government Securities | $ | 611,576,830 | $ | 655,912,096 | ||||
U.S. Government Securities | $ | 173,149,126 | $ | 163,844,972 |
For the six months ended June 30, 2015, purchases and sales related to mortgage dollar rolls were $311,393,382 and $311,405,547, respectively.
7. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of December 31, 2014, the Fund had a capital loss carryforward of $3,638,010 available to offset future realized capital gains. This amount is not subject to expiration.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
Tax cost | $ | 148,454,352 | ||
|
| |||
Gross unrealized appreciation | $ | 850,961 | ||
Gross unrealized depreciation | (713,707 | ) | ||
|
| |||
Net unrealized appreciation | $ | 137,254 | ||
|
|
8. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
9. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 29 |
Notes to Financial Statements (concluded) | BlackRock U.S. Government Bond V.I. Fund |
The Fund invests a significant portion of its assets in fixed-income securities and/or uses derivatives tied to the fixed-income markets. Changes in market interest rates or economic conditions, may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.
10. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Class I | Shares | Amount | Shares | Amount | ||||||||||||
Shares sold | 77,979 | $ | 813,741 | 140,430 | $ | 1,442,154 | ||||||||||
Shares issued in reinvestment of distributions | 85,931 | 897,706 | 218,183 | 2,239,330 | ||||||||||||
Shares redeemed | (786,029 | ) | (8,196,817 | ) | (1,684,285 | ) | (17,287,049 | ) | ||||||||
|
|
|
| |||||||||||||
Net decrease | (622,119 | ) | $ | (6,485,370 | ) | (1,325,672 | ) | $ | (13,605,565 | ) | ||||||
|
|
|
| |||||||||||||
Class III | Shares | Amount | Shares | Amount | ||||||||||||
Shares sold | 177,552 | $ | 1,854,996 | 395,893 | $ | 4,088,221 | ||||||||||
Shares issued in reinvestment of distributions | 711 | 7,423 | 1,025 | 10,561 | ||||||||||||
Shares redeemed | (170,280 | ) | (1,766,878 | ) | (347,183 | ) | (3,574,504 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase | 7,983 | $ | 95,541 | 49,735 | $ | 524,278 | ||||||||||
|
|
|
| |||||||||||||
Total Net Decrease | (614,136 | ) | $ | (6,389,829 | ) | (1,275,937 | ) | $ | (13,081,287 | ) | ||||||
|
|
|
|
At June 30, 2015, 1,963 Class III Shares of the Fund were owned by affiliates.
11. Subsequent Events:
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.
30 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
JUNE 30, 2015
SEMI-ANNUAL REPORT (UNAUDITED)
| BLACKROCK® |
BlackRock Variable Series Funds, Inc.
▶ BlackRock Value Opportunities V.I. Fund
Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee |
Fund Summary as of June 30, 2015 | BlackRock Value Opportunities V.I. Fund |
Investment Objective |
BlackRock Value Opportunities V.I. Fund’s (the “Fund”) investment objective is to seek long-term growth of capital.
Portfolio Management Commentary |
How did the Fund perform? |
• | For the six months ended June 30, 2015, the Fund outperformed its benchmark, the Standard & Poor’s (“S&P”) SmallCap 600® Value Index. |
What factors influenced performance? |
• | The Fund’s security selection in the energy sector, along with its underweight in oil & gas equipment & services companies, was the most significant contributor to performance. A small overweight in the consumer discretionary sector was additive to performance, as was stock selection within the group. Most notably, the Fund’s position in Men’s Warehouse, Inc. generated strong performance during the period. Individual stock selection within the technology, materials and financials sectors was also robust. |
• | Stock selection in health care, which was not enough to overcome the benefit of a strong overweight in this outperforming sector, was the largest detractor from performance. Most of the adverse impact came from not owning several high-returning stocks in the health care providers & |
services industry, the top performing area of the market. Stock selection within the industrials and utilities sectors also detracted from returns, particularly among professional services companies and electric utilities, respectively. |
Describe recent portfolio activity. |
• | The Fund’s weighting in the information technology and energy sectors increased during the period, while its allocations to financials (specifically real estate investment trusts) and health care decreased. |
Describe portfolio positioning at period end. |
• | The Fund continued to emphasize high quality, reasonably valued companies with strong balance sheets and the potential for rising market share and substantial growth. Relative to the S&P SmallCap 600® Value Index, the Fund ended the period with overweight positions in the health care and consumer discretionary sectors, and it was underweight in the industrials and consumer staples sectors. |
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.
Portfolio Information |
Sector Allocation | Percent of Long-Term Investments |
Financials | 23 | % | ||||
Industrials | 17 | |||||
Information Technology | 15 | |||||
Consumer Discretionary | 14 | |||||
Health Care | 12 | |||||
Materials | 6 | |||||
Energy | 6 | |||||
Utilities | 5 | |||||
Consumer Staples | 2 |
For Fund compliance purposes, the Fund’s classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.
2 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
BlackRock Value Opportunities V.I. Fund |
Total Return Based on a $10,000 Investment |
1 | Assuming transaction costs, if any, and other operating expenses, including investment advisory fees. Does not include insurance-related fees and expenses. |
2 | The Fund invests primarily in common stocks of small cap companies and emerging growth companies that the investment advisor believes have special investment value. |
3 | An unmanaged index that is a subset of the S&P 600® Index and consists of those stocks in the S&P 600® Index exhibiting the strongest value characteristics. |
Performance Summary for the Period Ended June 30, 2015 |
Average Annual Total Returns | ||||||||
6-Month Total Returns5 | 1 Year5 | 5 Years5 | 10 Years5 | |||||
Class I4 | 2.67% | 0.60% | 17.33% | 7.66% | ||||
Class II4 | 2.56 | 0.40 | 17.15 | 7.49 | ||||
Class III4 | 2.53 | 0.37 | 17.08 | 7.38 | ||||
S&P SmallCap 600® Value Index | 0.78 | 3.75 | 17.50 | 8.73 |
4 | Average annual and cumulative total returns are based on changes in net asset value for the periods shown, and assume reinvestment of all distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. |
5 | For a portion of the period, the Fund’s investment advisor waived a portion of its fees. Without such waiver, the Fund’s performance would have been lower. |
Past performance is not indicative of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Expense Example |
Actual | Hypothetical7 | |||||||||||||
Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period6 | Beginning Account Value January 1, 2015 | Ending Account Value June 30, 2015 | Expenses Paid During the Period6 | Annualized Expense Ratio | ||||||||
Class I | $1,000.00 | $1,026.70 | $4.52 | $1,000.00 | $1,020.33 | $4.51 | 0.90% | |||||||
Class II | $1,000.00 | $1,025.60 | $5.37 | $1,000.00 | $1,019.49 | $5.36 | 1.07% | |||||||
Class III | $1,000.00 | $1,025.30 | $5.47 | $1,000.00 | $1,019.39 | $5.46 | 1.09% |
6 | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
7 | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
See “Disclosure of Expenses” on page 4 for further information on how expenses were calculated. |
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 3 |
Disclosure of Expenses | BlackRock Value Opportunities V.I. Fund |
Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2015 and held through June 30, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”
The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
4 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments June 30, 2015 (Unaudited) | BlackRock Value Opportunities V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Aerospace & Defense — 3.3% | ||||||||
Aerojet Rocketdyne Holdings, Inc. (a)(b) | 121,400 | $ | 2,502,054 | |||||
American Science & Engineering, Inc. | 14,299 | 626,439 | ||||||
Esterline Technologies Corp. (a) | 13,100 | 1,248,954 | ||||||
The KEYW Holding Corp. (a)(b) | 10,600 | 98,792 | ||||||
Moog, Inc., Class A (a) | 21,200 | 1,498,416 | ||||||
Teledyne Technologies, Inc. (a) | 14,400 | 1,519,344 | ||||||
Triumph Group, Inc. | 20,084 | 1,325,343 | ||||||
|
| |||||||
8,819,342 | ||||||||
Air Freight & Logistics — 0.8% | ||||||||
UTi Worldwide, Inc. (a)(b) | 221,557 | 2,213,354 | ||||||
Auto Components — 1.3% | ||||||||
Dorman Products, Inc. (a) | 25,544 | 1,217,427 | ||||||
Tenneco, Inc. (a) | 38,212 | 2,194,897 | ||||||
|
| |||||||
3,412,324 | ||||||||
Automobiles — 0.1% | ||||||||
Thor Industries, Inc. | 6,658 | 374,712 | ||||||
Banks — 9.7% | ||||||||
Bank of Hawaii Corp. (b) | 16,300 | 1,086,884 | ||||||
CenterState Banks, Inc. | 156,400 | 2,112,964 | ||||||
FCB Financial Holdings, Inc., Class A (a) | 66,700 | 2,121,060 | ||||||
First BanCorp Puerto Rico (a) | 173,000 | 833,860 | ||||||
First Financial Bancorp | 131,900 | 2,366,286 | ||||||
First Horizon National Corp. | 167,100 | 2,618,457 | ||||||
NBT Bancorp, Inc. | 13,400 | 350,678 | ||||||
Opus Bank | 59,087 | 2,137,768 | ||||||
PrivateBancorp, Inc. | 51,300 | 2,042,766 | ||||||
S&T Bancorp, Inc. | 85,300 | 2,524,027 | ||||||
TriState Capital Holdings, Inc. (a) | 178,000 | 2,301,540 | ||||||
United Bankshares, Inc. (b) | 76,300 | 3,069,549 | ||||||
United Community Banks, Inc./GA | 110,400 | 2,304,048 | ||||||
|
| |||||||
25,869,887 | ||||||||
Beverages — 0.7% | ||||||||
Cott Corp. | 197,452 | 1,931,081 | ||||||
Biotechnology — 0.1% | ||||||||
MannKind Corp. (a)(b) | 24,212 | 137,766 | ||||||
XOMA Corp. (a)(b) | 5,307 | 20,591 | ||||||
|
| |||||||
158,357 | ||||||||
Building Products — 0.8% | ||||||||
Continental Building Products, Inc. (a) | 103,300 | 2,188,927 | ||||||
Capital Markets — 1.1% | ||||||||
Financial Engines, Inc. (b) | 38,100 | 1,618,488 | ||||||
FXCM, Inc., Class A (b) | 61,700 | 89,465 | ||||||
Investment Technology Group, Inc. | 48,300 | 1,197,840 | ||||||
|
| |||||||
2,905,793 | ||||||||
Chemicals — 3.6% | ||||||||
Axiall Corp. | 43,207 | 1,557,612 | ||||||
Huntsman Corp. | 65,700 | 1,449,999 | ||||||
Kraton Performance Polymers, Inc. (a) | 112,077 | 2,676,399 | ||||||
OM Group, Inc. | 43,000 | 1,444,800 | ||||||
Stepan Co. | 44,500 | 2,407,895 | ||||||
|
| |||||||
9,536,705 | ||||||||
Commercial Services & Supplies — 0.9% | ||||||||
Matthews International Corp., Class A | 42,632 | 2,265,464 | ||||||
Communications Equipment — 1.2% | ||||||||
ARRIS Group, Inc. (a) | 46,908 | 1,435,385 | ||||||
JDS Uniphase Corp. (a) | 149,100 | 1,726,578 | ||||||
|
| |||||||
3,161,963 |
Common Stocks | Shares | Value | ||||||
Construction & Engineering — 2.6% | ||||||||
EMCOR Group, Inc. | 84,200 | $ | 4,022,234 | |||||
MYR Group, Inc. (a) | 79,900 | 2,473,704 | ||||||
Orion Marine Group, Inc. (a) | 43,656 | 315,196 | ||||||
|
| |||||||
6,811,134 | ||||||||
Consumer Finance — 0.8% | ||||||||
Cash America International, Inc. (b) | 76,500 | 2,003,535 | ||||||
Enova International, Inc. (a) | 7,106 | 132,740 | ||||||
|
| |||||||
2,136,275 | ||||||||
Diversified Consumer Services — 0.5% | ||||||||
Lincoln Educational Services Corp. | 217,462 | 439,273 | ||||||
Regis Corp. (a) | 59,340 | 935,198 | ||||||
|
| |||||||
1,374,471 | ||||||||
Electric Utilities — 3.1% | ||||||||
ALLETE, Inc. | 71,300 | 3,307,607 | ||||||
El Paso Electric Co. | 91,400 | 3,167,924 | ||||||
PNM Resources, Inc. | 70,000 | 1,722,000 | ||||||
|
| |||||||
8,197,531 | ||||||||
Electrical Equipment — 0.1% | ||||||||
AZZ, Inc. | 7,200 | 372,960 | ||||||
Electronic Equipment, Instruments & Components — 6.1% |
| |||||||
Anixter International, Inc. (a) | 28,400 | 1,850,260 | ||||||
FARO Technologies, Inc. (a) | 6,400 | 298,880 | ||||||
Ingram Micro, Inc., Class A (a) | 70,429 | 1,762,838 | ||||||
Newport Corp. (a) | 62,156 | 1,178,478 | ||||||
OSI Systems, Inc. (a) | 37,893 | 2,682,445 | ||||||
Plexus Corp. (a) | 87,100 | 3,821,948 | ||||||
Rofin-Sinar Technologies, Inc. (a) | 57,517 | 1,587,469 | ||||||
SYNNEX Corp. (b) | 41,434 | 3,032,554 | ||||||
|
| |||||||
16,214,872 | ||||||||
Energy Equipment & Services — 2.3% | ||||||||
Patterson-UTI Energy, Inc. | 91,400 | 1,719,691 | ||||||
Superior Energy Services, Inc. | 104,000 | 2,188,160 | ||||||
TETRA Technologies, Inc. (a)(b) | 361,800 | 2,308,284 | ||||||
|
| |||||||
6,216,135 | ||||||||
Food & Staples Retailing — 1.3% | ||||||||
Smart & Final Stores, Inc. (a) | 61,700 | 1,102,579 | ||||||
SUPERVALU, Inc. (a) | 295,915 | 2,393,952 | ||||||
|
| |||||||
3,496,531 | ||||||||
Food Products — 0.5% | ||||||||
Pinnacle Foods, Inc. | 28,043 | 1,277,078 | ||||||
Gas Utilities — 2.0% | ||||||||
The Laclede Group, Inc. | 28,700 | 1,494,122 | ||||||
Northwest Natural Gas Co. | 35,400 | 1,493,172 | ||||||
South Jersey Industries, Inc. | 90,600 | 2,240,538 | ||||||
|
| |||||||
5,227,832 | ||||||||
Health Care Equipment & Supplies — 9.0% |
| |||||||
Accuray, Inc. (a)(b) | 411,465 | 2,773,274 | ||||||
Hansen Medical, Inc. (a)(b) | 1,372,774 | 1,256,088 | ||||||
Invacare Corp. | 179,558 | 3,883,840 | ||||||
Merit Medical Systems, Inc. (a) | 175,280 | 3,775,531 | ||||||
NuVasive, Inc. (a) | 100,728 | 4,772,493 | ||||||
OraSure Technologies, Inc. (a) | 410,315 | 2,211,598 | ||||||
Tandem Diabetes Care, Inc. (a) | 148,196 | 1,606,445 | ||||||
Thoratec Corp. (a) | 85,679 | 3,818,713 | ||||||
|
| |||||||
24,097,982 |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 5 |
Schedule of Investments (continued) | BlackRock Value Opportunities V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Common Stocks | Shares | Value | ||||||
Health Care Providers & Services — 1.8% | ||||||||
Landauer, Inc. | 27,767 | $ | 989,616 | |||||
Owens & Minor, Inc. (b) | 113,832 | 3,870,288 | ||||||
|
| |||||||
4,859,904 | ||||||||
Hotels, Restaurants & Leisure — 2.5% | ||||||||
Bloomin’ Brands, Inc. | 64,164 | 1,369,901 | ||||||
Interval Leisure Group, Inc. | 58,415 | 1,334,783 | ||||||
La Quinta Holdings, Inc. (a) | 90,697 | 2,072,426 | ||||||
Papa John’s International, Inc. | 23,424 | 1,771,089 | ||||||
|
| |||||||
6,548,199 | ||||||||
Household Durables — 0.5% | ||||||||
Taylor Morrison Home Corp., Class A (a) | 69,103 | 1,406,937 | ||||||
Insurance — 2.7% | ||||||||
Argo Group International Holdings Ltd. | 38,320 | 2,134,424 | ||||||
Fidelity & Guaranty Life | 53,800 | 1,271,294 | ||||||
Heritage Insurance Holdings, Inc. (a) | 89,300 | 2,053,007 | ||||||
Maiden Holdings Ltd. | 82,300 | 1,298,694 | ||||||
Safety Insurance Group, Inc. | 8,285 | 478,127 | ||||||
|
| |||||||
7,235,546 | ||||||||
IT Services — 1.3% | ||||||||
Acxiom Corp. (a) | 89,000 | 1,564,620 | ||||||
CSG Systems International, Inc. | 62,625 | 1,982,708 | ||||||
|
| |||||||
3,547,328 | ||||||||
Life Sciences Tools & Services — 0.6% | ||||||||
Pacific Biosciences of California, Inc. (a) | 280,664 | 1,616,625 | ||||||
Machinery — 6.1% | ||||||||
Actuant Corp., Class A | 131,900 | 3,045,571 | ||||||
Albany International Corp., Class A | 58,200 | 2,316,360 | ||||||
Astec Industries, Inc. | 23,000 | 961,860 | ||||||
Barnes Group, Inc. | 84,200 | 3,282,958 | ||||||
CIRCOR International, Inc. | 33,971 | 1,852,439 | ||||||
Crane Co. | 22,200 | 1,303,806 | ||||||
The Manitowoc Co., Inc. (b) | 38,900 | 762,440 | ||||||
RBC Bearings, Inc. (a) | 29,200 | 2,095,392 | ||||||
Standex International Corp. | 8,000 | 639,440 | ||||||
|
| |||||||
16,260,266 | ||||||||
Media — 1.6% | ||||||||
AMC Entertainment Holdings, Inc., Class A | 44,161 | 1,354,859 | ||||||
Carmike Cinemas, Inc. (a) | 49,627 | 1,317,101 | ||||||
Live Nation Entertainment, Inc. (a) | 56,546 | 1,554,450 | ||||||
|
| |||||||
4,226,410 | ||||||||
Metals & Mining — 1.8% | ||||||||
Haynes International, Inc. | 56,905 | 2,806,555 | ||||||
Materion Corp. | 21,514 | 758,370 | ||||||
Rubicon Minerals Corp. (a) | 1,295,244 | 1,360,006 | ||||||
|
| |||||||
4,924,931 | ||||||||
Multiline Retail — 1.0% | ||||||||
Fred’s, Inc., Class A | 140,963 | 2,719,176 | ||||||
Oil, Gas & Consumable Fuels — 3.2% | ||||||||
Bill Barrett Corp. (a)(b) | 141,535 | 1,215,786 | ||||||
Callon Petroleum Co. (a) | 201,500 | 1,676,480 | ||||||
Emerald Oil, Inc. (a)(b) | 15,765 | 67,001 | ||||||
Oasis Petroleum, Inc. (a) | 140,156 | 2,221,473 | ||||||
SM Energy Co. | 71,200 | 3,283,744 | ||||||
|
| |||||||
8,464,484 | ||||||||
Paper & Forest Products — 0.9% | ||||||||
PH Glatfelter Co. | 110,300 | 2,425,497 | ||||||
Professional Services — 0.8% | ||||||||
Kforce, Inc. | 96,700 | 2,211,529 |
Common Stocks | Shares | Value | ||||||
Real Estate Investment Trusts (REITs) — 5.4% | ||||||||
Armada Hoffler Properties, Inc. | 142,688 | $ | 1,425,453 | |||||
CyrusOne, Inc. | 117,201 | 3,451,569 | ||||||
Education Realty Trust, Inc. (b) | 71,913 | 2,255,192 | ||||||
LTC Properties, Inc. | 62,738 | 2,609,901 | ||||||
Pennsylvania Real Estate Investment Trust | 123,106 | 2,627,082 | ||||||
Rouse Properties, Inc. (b) | 128,409 | 2,099,487 | ||||||
|
| |||||||
14,468,684 | ||||||||
Real Estate Management & Development — 1.2% | ||||||||
Marcus & Millichap, Inc. (a) | 71,900 | 3,317,466 | ||||||
Semiconductors & Semiconductor Equipment — 2.8% | ||||||||
DSP Group, Inc. (a) | 144,000 | 1,487,520 | ||||||
Exar Corp. (a)(b) | 111,100 | 1,086,558 | ||||||
Microsemi Corp. (a) | 98,000 | 3,425,100 | ||||||
Ultratech, Inc. (a) | 74,000 | 1,373,440 | ||||||
|
| |||||||
7,372,618 | ||||||||
Software — 3.4% | ||||||||
Bottomline Technologies, Inc. (a) | 114,445 | 3,182,715 | ||||||
Mentor Graphics Corp. | 78,600 | 2,077,398 | ||||||
PTC, Inc. (a) | 59,000 | 2,420,180 | ||||||
Zynga, Inc., Class A (a) | 453,500 | 1,297,010 | ||||||
|
| |||||||
8,977,303 | ||||||||
Specialty Retail — 4.2% | ||||||||
DSW, Inc., Class A | 40,042 | 1,336,202 | ||||||
Genesco, Inc. (a) | 21,622 | 1,427,701 | ||||||
Kirkland’s, Inc. | 46,053 | 1,283,497 | ||||||
The Men’s Wearhouse, Inc. | 79,653 | 5,103,368 | ||||||
Penske Automotive Group, Inc. | 38,266 | 1,994,041 | ||||||
|
| |||||||
11,144,809 | ||||||||
Textiles, Apparel & Luxury Goods — 2.6% | ||||||||
Crocs, Inc. (a) | 129,944 | 1,911,476 | ||||||
G-III Apparel Group Ltd. (a) | 33,006 | 2,321,972 | ||||||
Oxford Industries, Inc. | 21,012 | 1,837,499 | ||||||
Vera Bradley, Inc. (a)(b) | 69,374 | 781,845 | ||||||
|
| |||||||
6,852,792 | ||||||||
Thrifts & Mortgage Finance — 1.6% | ||||||||
Brookline Bancorp, Inc. | 195,500 | 2,207,195 | ||||||
Essent Group Ltd. (a) | 74,200 | 2,029,370 | ||||||
|
| |||||||
4,236,565 | ||||||||
Trading Companies & Distributors — 1.6% | ||||||||
Applied Industrial Technologies, Inc. | 56,600 | 2,244,190 | ||||||
DXP Enterprises, Inc. (a) | 42,800 | 1,990,200 | ||||||
|
| |||||||
4,234,390 | ||||||||
Total Common Stocks — 99.5% | 265,312,169 | |||||||
Warrants (c) | ||||||||
Biotechnology — 0.0% | ||||||||
MannKind Corp. (Issued/exercisable 2/06/12, 0.6 Share for 1 Warrant, Expires 2/08/16, Strike Price $2.40) | 53,200 | 107,411 | ||||||
XOMA Corp. (Issued/exercisable 3/09/12, 0.50 Share for 1 Warrant, Expires 3/09/17, Strike Price $1.76) | 47,650 | 51,462 | ||||||
Total Warrants — 0.0% | 158,873 | |||||||
Total Long-Term Investments (Cost — $235,823,473) — 99.5% | 265,471,042 | |||||||
See Notes to Financial Statements.
6 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Schedule of Investments (continued) | BlackRock Value Opportunities V.I. Fund | |||
(Percentages shown are based on Net Assets) |
Short-Term Securities | Shares | Value | ||||||
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.07% (d)(e) | 1,880,423 | $ | 1,880,423 | |||||
Beneficial Interest (000) | ||||||||
BlackRock Liquidity Series, LLC, Money Market Series, 0.23% (d)(e)(f) | $ | 16,744 | 16,743,966 | |||||
Total Short-Term Securities (Cost — $18,624,389) — 7.0% | 18,624,389 |
Value | ||||||
Total Investments (Cost — $254,447,862) — 106.5% | $ | 284,095,431 | ||||
Liabilities in Excess of Other Assets — (6.5)% | (17,411,252 | ) | ||||
|
| |||||
Net Assets — 100.0% | $ | 266,684,179 | ||||
|
|
Notes to Schedule of Investments |
(a) | Non-income producing security. |
(b) | Security, or a portion of security, is on loan. |
(c) | Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date of the warrants, if any. |
(d) | During the six months ended June 30, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
Affiliate | Shares/Beneficial Interest Held at December 31, 2014 | Net Activity | Shares/Beneficial Interest Held at June 30, 2015 | Income | ||||||||||||
BlackRock Liquidity Funds, TempFund, Institutional Class | 2,536,061 | (655,638 | ) | 1,880,423 | $ | 1,092 | ||||||||||
BlackRock Liquidity Series, LLC, Money Market Series | $22,645,608 | $ | (5,901,642 | ) | $16,743,966 | $ | 152,313 | 1 |
1 | Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees, and other payments to and from borrowers of securities, and less the collateral investment expenses. |
(e) | Represents the current yield as of report date. |
(f) | Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day. |
• | For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. |
• | Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows: |
• | Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access |
• | Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs) |
• | Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 7 |
Schedule of Investments (concluded) | BlackRock Value Opportunities V.I. Fund |
As of June 30, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Long-Term Investments: | ||||||||||||||||||||
Common Stocks1 | $ | 265,312,169 | — | — | $ | 265,312,169 | ||||||||||||||
Warrants1 | 107,411 | $ | 51,462 | — | 158,873 | |||||||||||||||
Short-Term Securities | 1,880,423 | 16,743,966 | — | 18,624,389 | ||||||||||||||||
|
| |||||||||||||||||||
Total | $ | 267,300,003 | $ | 16,795,428 | — | $ | 284,095,431 | |||||||||||||
|
| |||||||||||||||||||
1 See above Schedule of Investments for values in each industry. |
| |||||||||||||||||||
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of June 30, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:
|
| |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Cash | $ | 396,284 | — | — | $ | 396,284 | ||||||||||||||
Liabilities: | ||||||||||||||||||||
Collateral on securities loaned at value | — | $ | (16,743,966 | ) | — | (16,743,966 | ) | |||||||||||||
|
| |||||||||||||||||||
Total | $ | 396,284 | $ | (16,743,966 | ) | — | $ | (16,347,682 | ) | |||||||||||
|
|
During the six months ended June 30, 2015, there were no transfers between levels.
See Notes to Financial Statements.
8 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statement of Assets and Liabilities |
June 30, 2015 (Unaudited) | BlackRock Value Opportunities V.I. Fund | |||
Assets | ||||
Investments at value — unaffiliated (including securities loaned at value of $16,339,573) (cost — $235,823,473) | $ | 265,471,042 | ||
Investments at value — affiliated (cost — $18,624,389) | 18,624,389 | |||
Cash | 396,284 | |||
Receivables: | ||||
Investments sold | 2,327,998 | |||
Dividends — unaffiliated | 206,449 | |||
From the Manager | 44,830 | |||
Securities lending income — affiliated | 14,574 | |||
Capital shares sold | 7,096 | |||
Dividends — affiliated | 178 | |||
Prepaid expenses | 622 | |||
|
| |||
Total assets | 287,093,462 | |||
|
| |||
Liabilities | ||||
Collateral on securities loaned at value | 16,743,966 | |||
Payables: | ||||
Investments purchased | 3,205,860 | |||
Investment advisory fees | 167,367 | |||
Capital shares redeemed | 95,896 | |||
Distribution fees | 2,044 | |||
Officer’s and Directors’ fees | 1,647 | |||
Other affiliates | 1,443 | |||
Other accrued expenses payable | 191,060 | |||
|
| |||
Total liabilities | 20,409,283 | |||
|
| |||
Net Assets | $ | 266,684,179 | ||
|
| |||
Net Assets Consist of | ||||
Paid-in capital | 223,845,496 | |||
Undistributed net investment income | 110,147 | |||
Accumulated net realized gain | 13,080,971 | |||
Net unrealized appreciation (depreciation) | 29,647,565 | |||
|
| |||
Net Assets | $ | 266,684,179 | ||
|
| |||
Net Asset Value | ||||
Class I — Based on net assets of $255,423,375 and 9,229,168 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 27.68 | ||
|
| |||
Class II — Based on net assets of $3,704,983 and 134,225 shares outstanding, 100 million shares authorized, $0.10 par value | $ | 27.60 | ||
|
| |||
Class III — Based on net assets of $7,555,821 and 339,100 shares outstanding, 10 million shares authorized, $0.10 par value | $ | 22.28 | ||
|
|
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 9 |
Statement of Operations |
Six Months Ended June 30, 2015 (Unaudited) | BlackRock Value Opportunities V.I. Fund | |||
Investment Income | ||||
Dividends — unaffiliated | $ | 1,146,222 | ||
Securities lending — affiliated — net | 152,313 | |||
Dividends — affiliated | 1,092 | |||
Foreign taxes withheld | (3,554 | ) | ||
|
| |||
Total income | 1,296,073 | |||
|
| |||
Expenses | ||||
Investment advisory | 1,004,461 | |||
Transfer agent | 599 | |||
Transfer agent — Class I | 227,097 | |||
Transfer agent — Class II | 3,739 | |||
Transfer agent — Class III | 7,923 | |||
Accounting services | 31,610 | |||
Professional | 28,291 | |||
Custodian | 21,756 | |||
Distribution — Class II | 2,760 | |||
Distribution — Class III | 9,608 | |||
Officer and Directors | 10,372 | |||
Printing | 7,973 | |||
Miscellaneous | 6,915 | |||
|
| |||
Total expenses | 1,363,104 | |||
Less fees waived by the Manager | (998 | ) | ||
Less transfer agent fees reimbursed — Class I | (137,325 | ) | ||
Less transfer agent fees reimbursed — Class II | (2,084 | ) | ||
Less transfer agent fees reimbursed — Class III | (7,538 | ) | ||
|
| |||
Total expenses after fees waived and reimbursed | 1,215,159 | |||
|
| |||
Net investment income | 80,914 | |||
|
| |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: | ||||
Investments | 8,843,352 | |||
Foreign currency transactions | (1,870 | ) | ||
|
| |||
8,841,482 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (1,854,040 | ) | ||
Foreign currency translations | (4 | ) | ||
|
| |||
(1,854,044 | ) | |||
|
| |||
Net realized and unrealized gain | 6,987,438 | |||
|
| |||
Net Increase in Net Assets Resulting from Operations | $ | 7,068,352 | ||
|
|
See Notes to Financial Statements.
10 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Statements of Changes in Net Assets | BlackRock Value Opportunities V.I. Fund |
Increase (Decrease) in Net Assets: | Six Months Ended June 30, 2015 (Unaudited) | Year Ended December 31, 2014 | ||||||
Operations | ||||||||
Net investment income | $ | 80,914 | $ | 1,010,205 | ||||
Net realized gain | 8,841,482 | 45,863,341 | ||||||
Net change in unrealized appreciation (depreciation) | (1,854,044 | ) | (32,735,512 | ) | ||||
|
| |||||||
Net increase in net assets resulting from operations | 7,068,352 | 14,138,034 | ||||||
|
| |||||||
Distributions to Shareholders From1 | ||||||||
Net investment income: | ||||||||
Class I | — | (673,029 | ) | |||||
Class II | — | (2,387 | ) | |||||
Class III | — | (9,977 | ) | |||||
Net realized gain: | ||||||||
Class I | — | (17,110,220 | ) | |||||
Class II | — | (247,624 | ) | |||||
Class III | — | (642,158 | ) | |||||
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | — | (18,685,395 | ) | |||||
|
| |||||||
Capital Share Transactions | ||||||||
Net decrease in net assets derived from capital share transactions | (13,011,009 | ) | (15,635,691 | ) | ||||
|
| |||||||
Net Assets | ||||||||
Total decrease in net assets | (5,942,657 | ) | (20,183,052 | ) | ||||
Beginning of period | 272,626,836 | 292,809,888 | ||||||
|
| |||||||
End of period | $ | 266,684,179 | $ | 272,626,836 | ||||
|
| |||||||
Undistributed net investment income, end of period | $ | 110,147 | $ | 29,233 | ||||
|
|
1 | Distributions for annual periods determined in accordance with federal income tax regulations. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 11 |
Financial Highlights | BlackRock Value Opportunities V.I. Fund |
Class I | ||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 26.96 | $ | 27.48 | $ | 19.39 | $ | 17.16 | $ | 17.66 | $ | 13.79 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income1 | 0.01 | 0.10 | 0.09 | 0.09 | 0.07 | 0.08 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.71 | 1.35 | 8.13 | 2.23 | (0.50 | ) | 3.87 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.72 | 1.45 | 8.22 | 2.32 | (0.43 | ) | 3.95 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.08 | ) | (0.13 | ) | (0.09 | ) | (0.07 | ) | (0.08 | ) | |||||||||||||
Net realized gain | — | (1.89 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (1.97 | ) | (0.13 | ) | (0.09 | ) | (0.07 | ) | (0.08 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 27.68 | $ | 26.96 | $ | 27.48 | $ | 19.39 | $ | 17.16 | $ | 17.66 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 2.67 | %4 | 5.22 | % | 42.40 | % | 13.54 | % | (2.43 | )% | 28.69 | %5 | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.01 | %6 | 1.02 | % | 1.00 | % | 0.95 | % | 0.84 | % | 0.84 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 0.90 | %6 | 0.90 | % | 0.90 | % | 0.87 | % | 0.84 | % | 0.84 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.07 | %6 | 0.37 | % | 0.37 | % | 0.48 | % | 0.37 | % | 0.54 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 255,423 | $ | 260,860 | $ | 279,345 | $ | 213,871 | $ | 216,551 | $ | 255,596 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 57 | % | 66 | % | 47 | % | 45 | % | 55 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Includes proceeds received from a settlement litigation which impacted the Fund’s total return. Not including these proceeds, the total return would have been 28.32%. |
6 | Annualized. |
See Notes to Financial Statements.
12 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Financial Highlights (continued) | BlackRock Value Opportunities V.I. Fund |
Class II | ||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 26.91 | $ | 27.43 | $ | 19.35 | $ | 17.13 | $ | 17.62 | $ | 13.76 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income (loss)1 | (0.01 | ) | 0.05 | 0.05 | 0.06 | 0.04 | 0.06 | |||||||||||||||||
Net realized and unrealized gain (loss) | 0.70 | 1.34 | 8.12 | 2.22 | (0.49 | ) | 3.86 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.69 | 1.39 | 8.17 | 2.28 | (0.45 | ) | 3.92 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.02 | ) | (0.09 | ) | (0.06 | ) | (0.04 | ) | (0.06 | ) | |||||||||||||
Net realized gain | — | (1.89 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (1.91 | ) | (0.09 | ) | (0.06 | ) | (0.04 | ) | (0.06 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 27.60 | $ | 26.91 | $ | 27.43 | $ | 19.35 | $ | 17.13 | $ | 17.62 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 2.56 | %4 | 5.03 | % | 42.25 | % | 13.31 | % | (2.55 | )% | 28.50 | %5 | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.18 | %6 | 1.19 | % | 1.14 | % | 1.16 | % | 0.99 | % | 0.99 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 1.07 | %6 | 1.07 | % | 1.04 | % | 1.04 | % | 0.99 | % | 0.99 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income (loss) | (0.11 | )%6 | 0.20 | % | 0.22 | % | 0.31 | % | 0.21 | % | 0.38 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 3,705 | $ | 3,764 | $ | 4,701 | $ | 3,968 | $ | 3,980 | $ | 5,143 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 57 | % | 66 | % | 47 | % | 45 | % | 55 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Includes proceeds received from a settlement litigation which impacted the Fund’s total return. Not including these proceeds, the total return would have been 28.13% |
6 | Annualized. |
See Notes to Financial Statements.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 13 |
Financial Highlights (concluded) | BlackRock Value Opportunities V.I. Fund |
Class III | ||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
June 30, 2015 | Year Ended December 31, | |||||||||||||||||||||||
(Unaudited) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 21.73 | $ | 22.50 | $ | 15.90 | $ | 14.09 | $ | 14.50 | $ | 11.35 | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income (loss)1 | (0.01 | ) | 0.04 | 0.02 | 0.04 | 0.02 | 0.05 | |||||||||||||||||
Net realized and unrealized gain (loss) | 0.56 | 1.11 | 6.67 | 1.83 | (0.40 | ) | 3.16 | |||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) from investment operations | 0.55 | 1.15 | 6.69 | 1.87 | (0.38 | ) | 3.21 | |||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from:2 | ||||||||||||||||||||||||
Net investment income | — | (0.03 | ) | (0.09 | ) | (0.06 | ) | (0.03 | ) | (0.06 | ) | |||||||||||||
Net realized gain | — | (1.89 | ) | — | — | — | — | |||||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (1.92 | ) | (0.09 | ) | (0.06 | ) | (0.03 | ) | (0.06 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 22.28 | $ | 21.73 | $ | 22.50 | $ | 15.90 | $ | 14.09 | $ | 14.50 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return3 | ||||||||||||||||||||||||
Based on net asset value | 2.53 | %4 | 5.07 | % | 42.08 | % | 13.28 | % | (2.61 | )% | 28.31 | %5 | ||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 1.29 | %6 | 1.25 | % | 1.32 | % | 1.21 | % | 1.09 | % | 1.09 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and reimbursed | 1.09 | %6 | 1.09 | % | 1.09 | % | 1.08 | % | 1.09 | % | 1.09 | % | ||||||||||||
|
| |||||||||||||||||||||||
Net investment income (loss) | (0.12 | )%6 | 0.18 | % | 0.13 | % | 0.28 | % | 0.11 | % | 0.37 | % | ||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 7,556 | $ | 8,002 | $ | 8,764 | $ | 11,262 | $ | 10,571 | $ | 11,700 | ||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 57 | % | 66 | % | 47 | % | 45 | % | 55 | % | ||||||||||||
|
|
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Where applicable, excludes insurance-related fees and expenses and assumes the reinvestment of distributions. |
4 | Aggregate total return. |
5 | Includes proceeds received from a settlement litigation which impacted the Fund’s total return. Not including these proceeds, the total return would have been 27.96%. |
6 | Annualized. |
See Notes to Financial Statements.
14 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (Unaudited) | BlackRock Value Opportunities V.I. Fund |
1. Organization:
BlackRock Variable Series Funds, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation that is comprised of 20 separate funds. The funds offer shares to insurance companies for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. The financial statements presented are for BlackRock Value Opportunities V.I. Fund (the “Fund”). The Fund is classified as diversified. Class I, Class II and Class III Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class. In addition, Class II and Class III Shares bear certain expenses related to the distribution of such shares.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.
2. Significant Accounting Policies:
The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:
Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”)(generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.
Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at net asset value (“NAV”) each business day.
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE.
The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.
In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 15 |
Notes to Financial Statements (continued) | BlackRock Value Opportunities V.I. Fund |
Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.
Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.
The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.
3. Securities and Other Investments:
Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
The market value of securities on loan, all of which were classified as common stocks in the Fund’s Schedule of Investments, and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of June 30, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.
Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.
16 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Value Opportunities V.I. Fund |
As of June 30, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty which are subject to offset under an MSLA:
Counterparty | Securities Loaned at Value | Cash Collateral Received1 | Net Amount | |||||||||
Barclays Capital, Inc. | $ | 7,229 | $ | (7,229 | ) | — | ||||||
BNP Paribas S.A. | 1,001,626 | (1,001,626 | ) | — | ||||||||
Citigroup Global Markets, Inc. | 1,154,123 | (1,154,123 | ) | — | ||||||||
Deutsche Bank Securities, Inc. | 22,235 | (22,235 | ) | — | ||||||||
Goldman Sachs & Co. | 944,489 | (944,489 | ) | — | ||||||||
JP Morgan Securities LLC | 5,843,580 | (5,843,580 | ) | — | ||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc. | 372,123 | (372,123 | ) | — | ||||||||
Morgan Stanley | 4,646,493 | (4,646,493 | ) | — | ||||||||
National Financial Services LLC | 101,950 | (101,950 | ) | — | ||||||||
UBS Securities LLC | 2,245,725 | (2,245,725 | ) | — | ||||||||
| ||||||||||||
Total | $ | 16,339,573 | $ | (16,339,573 | ) | — | ||||||
|
1 | Collateral with a value of $16,743,966 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes. |
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities lent if the collateral received does not cover the value on the securities loaned in the event of a borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.
4. Investment Advisory Agreement and Other Transactions with Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.
The Company, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets | Investment Advisory Fee | |
First $1 Billion | 0.75% | |
$1 Billion - $3 Billion | 0.71% | |
$3 Billion - $5 Billion | 0.68% | |
$5 Billion - $10 Billion | 0.65% | |
Greater than $10 Billion | 0.64% |
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies, if any.
For the six months ended June 30, 2015, the Fund reimbursed the Manager $1,380 for certain accounting services, which is included in accounting services in the Statement of Operations.
The Company, on behalf of the Fund, entered into a Distribution Agreement and a Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing distribution fees. The fees are accrued daily and paid monthly at annual rates of 0.15% and 0.25% based upon the average daily net assets attributable to Class II and Class III, respectively.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 17 |
Notes to Financial Statements (continued) | BlackRock Value Opportunities V.I. Fund |
The Manager, on behalf of the Fund, entered into agreements with insurance companies and other financial intermediaries (“Service Organizations”), some of which may be affiliates. Pursuant to these agreements, the Service Organizations provide the Fund with administrative, networking, recordkeeping, sub-transfer agency and shareholder services to sub-accounts they service. For these services, the Service Organizations receive an annual fee per shareholder account, which will vary depending on share class and/or net assets of Fund shareholders serviced by the Service Organizations. For the six months ended June 30, 2015, the Fund did not pay any amounts to affiliates in return for these services. The Manager has contractually agreed to reimburse such fees in order to limit such expenses as a percentage of average daily net assets as follows:
| ||||
Class I | 0.07 | % | ||
Class II | 0.09 | % | ||
Class III | 0.01 | % | ||
|
The Manager has agreed not to reduce or discontinue this contractual reimbursement prior to May 1, 2016 unless approved by the Board, including a majority of the Independent Directors or by a majority of the outstanding voting securities of the Fund. These amounts are shown as transfer agent fees reimbursed — class specific in the Statement of Operations.
In addition, the Fund pays the transfer agent, which is not an affiliate, a fee for issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts, which is included in transfer agent in the Statement of Operations.
The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows: 1.25% for Class I, 1.40% for Class II and 1.50% for Class III. The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2016, unless approved by the Board, including a majority of the Independent Directors.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to a securities lending agreement effective January 1, 2015, the Fund retains 71.5% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the Equity-Bond Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income as follows: 75% of securities lending income, and this amount retained can never be less than 65% of the total of securities lending income plus the collateral investment expenses.
The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended June 30, 2015, the Fund paid BIM $60,712 for securities lending agent services.
Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Company’s Chief Compliance Officer, which is included in officer and directors in the Statement of Operations.
The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment advisor, common officers, or common directors. For the six months ended June 30, 2015, the purchase and sales transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were $457,923 and $2,764,091, respectively.
5. Purchases and Sales:
For the six months ended June 30, 2015, purchases and sales of investments, excluding short-term securities, were $76,091,141 and $87,893,684, respectively.
6. Income Tax Information:
It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended December 31, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
18 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Notes to Financial Statements (continued) | BlackRock Value Opportunities V.I. Fund |
Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.
As of June 30, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
| ||||
Tax cost | $ | 254,953,335 | ||
|
| |||
Gross unrealized appreciation | $ | 42,223,573 | ||
Gross unrealized depreciation | (13,081,477 | ) | ||
|
| |||
Net unrealized appreciation | $ | 29,142,096 | ||
|
|
7. Bank Borrowings:
The Company, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended June 30, 2015, the Fund did not borrow under the credit agreement.
8. Principal Risks:
In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations, including to pay principal and interest when due (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
As of June 30, 2015, the Fund invested a significant portion of its assets in securities in the financials sector. Changes in economic conditions affecting such sector would have a greater impact on the Fund and could affect the value, income and/or liquidity of positions in such securities.
9. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
| ||||||||||||||||
Class I | ||||||||||||||||
| ||||||||||||||||
Shares sold | 145,883 | $ | 3,936,205 | 272,829 | $ | 7,619,384 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 654,708 | 17,783,249 | ||||||||||||
Shares redeemed | (591,660 | ) | (16,154,747 | ) | (1,419,005 | ) | (39,638,942 | ) | ||||||||
|
|
|
| |||||||||||||
Net decrease | (445,777 | ) | $ | (12,218,542 | ) | (491,468 | ) | $ | (14,236,309 | ) | ||||||
|
|
|
|
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 | 19 |
Notes to Financial Statements (concluded) | BlackRock Value Opportunities V.I. Fund |
Six Months Ended June 30, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
| ||||||||||||||||
Class II | ||||||||||||||||
| ||||||||||||||||
Shares sold | 6,242 | $ | 168,845 | 587 | $ | 16,056 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 9,221 | 250,011 | ||||||||||||
Shares redeemed | (11,873 | ) | (322,558 | ) | (41,367 | ) | (1,141,813 | ) | ||||||||
|
|
|
| |||||||||||||
Net decrease | (5,631 | ) | $ | (153,713 | ) | (31,559 | ) | $ | (875,746 | ) | ||||||
|
|
|
| |||||||||||||
| ||||||||||||||||
Class III | ||||||||||||||||
| ||||||||||||||||
Shares sold | 6,988 | $ | 152,765 | 55,250 | $ | 1,262,539 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 29,788 | 652,135 | ||||||||||||
Shares redeemed | (36,175 | ) | (791,519 | ) | (106,184 | ) | (2,438,310 | ) | ||||||||
|
|
|
| |||||||||||||
Net decrease | (29,187 | ) | $ | (638,754 | ) | (21,146 | ) | $ | (523,636 | ) | ||||||
|
|
|
| |||||||||||||
Total Net Decrease | (480,595 | ) | $ | (13,011,009 | ) | (544,173 | ) | $ | (15,635,691 | ) | ||||||
|
|
|
|
10. Subsequent Events:
Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:
The Fund paid a net investment income and a long-term capital gain distribution in the following amounts per share on July 17, 2015 to shareholders of record on July 15, 2015:
Net Investment Income | Long-Term Capital Gain | |||
Class I | $0.003730 | $0.489079 | ||
Class II | $0.003730 | $0.489079 | ||
Class III | $0.003730 | $0.489079 |
20 | BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements |
The Board of Directors (the “Board,” and the members of which are referred to as “Board Members”) of BlackRock Variable Series Funds, Inc. (the “Corporation”) met in person on April 14, 2015 (the “April Meeting”) and May 12-13, 2015 (the “May Meeting”) to consider the approval of the Corporation’s investment advisory agreements (collectively, the “Advisory Agreements”) between the Corporation, on behalf of BlackRock Basic Value V.I. Fund (the “Basic Value V.I. Fund”), BlackRock Capital Appreciation V.I. Fund (the “Capital Appreciation V.I. Fund”), BlackRock Equity Dividend V.I. Fund (the “Equity Dividend V.I. Fund”), BlackRock Global Allocation V.I. Fund (the “Global Allocation V.I. Fund”), BlackRock Global Opportunities V.I. Fund (the “Global Opportunities V.I. Fund”), BlackRock High Yield V.I. Fund (the “High Yield V.I. Fund”), BlackRock International V.I. Fund (the “International V.I. Fund”), BlackRock iShares Alternative Strategies V.I. Fund (the “iShares Alternative Strategies V.I. Fund”), BlackRock iShares Dynamic Allocation V.I. Fund (the “iShares Dynamic Allocation V.I. Fund”), BlackRock iShares Dynamic Fixed Income V.I. Fund (the “iShares Dynamic Fixed Income V.I. Fund”), BlackRock iShares Equity Appreciation V.I. Fund (the “iShares Equity Appreciation V.I. Fund), BlackRock Large Cap Core V.I. Fund (the “Large Cap Core V.I. Fund”), BlackRock Large Cap Growth V.I. Fund (the “Large Cap Growth V.I. Fund”), BlackRock Large Cap Value V.I. Fund (the “Large Cap Value V.I. Fund”), BlackRock Managed Volatility V.I. Fund (the “Managed Volatility V.I. Fund”), BlackRock Money Market V.I. Fund (the “Money Market V.I. Fund”), BlackRock S&P 500 Index V.I. Fund (the “S&P 500 Index V.I. Fund”), BlackRock Total Return V.I. Fund (the “Total Return V.I. Fund”), BlackRock U.S. Government Bond V.I. Fund (the “U.S. Government Bond V.I. Fund”) and BlackRock Value Opportunities V.I. Fund (the “Value Opportunities V.I. Fund”) (each, a “Fund,” and collectively, the “Funds”), each a series of the Corporation, and BlackRock Advisors, LLC (the “Manager”), each Fund’s investment advisor. The Board also considered the approval of the sub-advisory agreements (collectively, the “Sub-Advisory Agreements”) between the Manager and (a) BlackRock International Limited; (b) BlackRock Asset Management North Asia Limited; and (c) BlackRock (Singapore) Limited (collectively, the “Sub-Advisors”), respectively, with respect to the Funds, as applicable. The Manager and the Sub-Advisors are referred to herein as “BlackRock.” The Advisory Agreements and the Sub-Advisory Agreements are referred to herein as the “Agreements.”
Activities and Composition of the Board
On the date of the April and May Meetings, the Board consisted of thirteen individuals, ten of whom were not “interested persons” of the Corporation as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). One of the Board Members is a non-management interested Board Member by virtue of his former positions with BlackRock, Inc. and its affiliates. The Board Members are responsible for the oversight of the operations of the Funds and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Chairman of the Board is an Independent Board Member. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Performance Oversight Committee and the Executive Committee, each of which also has one interested Board Member).
The Agreements
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. The Board has four quarterly meetings per year, each extending over two days, a fifth one-day meeting to consider specific information surrounding the consideration of renewing the Agreements and additional in-person and telephonic meetings as needed. In connection with this year-long deliberative process, the Board assessed, among other things, the nature, extent and quality of the services provided to each Fund by BlackRock, BlackRock’s personnel and affiliates, including (as applicable): investment management services; administrative and shareholder services; the oversight of fund service providers; marketing services; risk oversight; compliance; and ability to meet applicable legal and regulatory requirements.
The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to each Fund and its shareholders. Among the matters the Board considered were: (a) investment performance for one-year, three-year, five-year and/or since inception periods, as applicable, against peer funds, applicable benchmark, and performance metrics, as applicable, as well as senior management’s and portfolio managers’ analysis of the reasons for any over-performance or underperformance relative to peers, benchmarks, and other performance metrics, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by each Fund for services, such as marketing and distribution, call center and fund accounting; (c) Fund operating expenses and how BlackRock allocates expenses to each Fund; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of each Fund’s investment objective(s), policies and restrictions, and meeting new regulatory requirements; (e) each Fund’s compliance with its compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of each Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment mandates across the open-end fund, exchange-traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable, and the similarities and differences between these products and the services provided as compared to each Fund; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates, along with investment professionals’ investments in the fund(s) they manage; and (m) periodic updates on BlackRock’s business.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements (continued) |
The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. BlackRock also furnished information to the Board in response to specific questions. These questions covered issues such as: BlackRock’s profitability; investment performance; subadvisory and advisory relationships with other clients (including mutual funds sponsored by third parties); the viability of specific funds; fund size and manager capacity; BlackRock’s research capabilities; portfolio managers’ investments in funds they manage; funds’ portfolio risk targets; and management fee levels and breakpoints. The Board further discussed with BlackRock: BlackRock’s management structure; portfolio turnover, execution quality and use of soft dollars; BlackRock’s portfolio manager compensation and performance accountability; marketing support for the funds; services provided to the funds by BlackRock affiliates; and BlackRock’s oversight of relationships with third party service providers.
Board Considerations in Approving the Agreements
The Approval Process: Prior to the April Meeting, the Board requested and received materials specifically relating to the Agreements. The Board is continuously engaged in a process with its independent legal counsel and BlackRock to review the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April Meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on Fund fees and expenses as compared with a peer group of funds as determined by Lipper (“Expense Peers”) and the investment performance of each Fund as compared with a peer group of funds as determined by Lipper,1 and for the Large Cap Growth Fund, a customized peer group selected by BlackRock, and for the S&P 500 Index V.I. Fund, the gross investment performance of the Fund as compared with its benchmark, and for Equity Dividend V.I. Fund, Global Allocation V.I. Fund and Managed Volatility V.I. Fund, certain performance metrics; (b) information on the profits realized by BlackRock and its affiliates pursuant to the Agreements and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees charged to other clients, such as institutional clients, sub-advised mutual funds, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) review of non-management fees; (e) the existence, impact and sharing of potential economies of scale; (f) a summary of aggregate amounts paid by each Fund to BlackRock; (g) sales and redemption data regarding each Fund’s shares; and (h) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.
At the April Meeting, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the April Meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May Meeting.
At the May Meeting, the Board, including the Independent Board Members, approved the continuation of the Advisory Agreements between the Manager and the Corporation, on behalf of each Fund, and the Sub-Advisory Agreements between the Manager and the Sub-Advisors, with respect to each Fund, as applicable, each for a one-year term ending June 30, 2016. In approving the continuation of the Agreements, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Fund and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with each Fund; (d) each Fund’s costs to investors compared to the costs of Expense Peers and performance compared to the relevant performance comparison as previously discussed; (e) the sharing of potential economies of scale; (f) fall-out benefits to BlackRock and its affiliates as a result of its relationship with each Fund; and (g) other factors deemed relevant by the Board Members.
The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Fund shares, securities lending and cash management, services related to the valuation and pricing of Fund portfolio holdings, direct and indirect benefits to BlackRock and its affiliates from their relationship with each Fund and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.
A. Nature, Extent and Quality of the Services Provided by BlackRock
The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of each Fund. Throughout the year, the Board compared Fund performance to the performance of a comparable group of mutual funds, a relevant benchmark, and performance metrics, as applicable. The Board met with BlackRock’s senior management personnel responsible for investment activities, including the senior investment officers. The Board also reviewed the materials provided by each Fund’s portfolio management team discussing each Fund’s performance and each Fund’s investment objective(s), strategies and outlook.
The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and each Fund’s portfolio management team; BlackRock’s research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the
1 Funds are ranked by Lipper in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements (continued) |
approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to each Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.
In addition to advisory services, the Board considered the quality of the administrative and other non-investment advisory services provided to each Fund. BlackRock and its affiliates provide each Fund with certain administrative, shareholder and other services (in addition to any such services provided to each Fund by third parties) and officers and other personnel as are necessary for the operations of each Fund. In particular, BlackRock and its affiliates provide each Fund with the following administrative services including, among others: (i) preparing disclosure documents, such as the prospectus, the summary prospectus (as applicable), the statement of additional information and periodic shareholder reports; (ii) oversight of daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; (vi) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain open-end funds; and (vii) performing other administrative functions necessary for the operation of each Fund, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.
B. The Investment Performance of each Fund and BlackRock
The Board, including the Independent Board Members, also reviewed and considered the performance history of each Fund. In preparation for the April Meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of each Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock. In connection with its review, the Board received and reviewed information regarding the investment performance of each Fund as compared to other funds in its applicable Lipper category, and for the Large Cap Growth V.I. Fund, the customized peer group selected by BlackRock, and for the S&P 500 Index V.I. Fund, the gross investment performance of the Fund as compared with its benchmark, and for Equity Dividend V.I. Fund, Global Allocation V.I. Fund and Managed Volatility V.I. Fund, certain performance metrics. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review its methodology. The Board and its Performance Oversight Committee regularly review, and meet with Fund management to discuss, the performance of each Fund throughout the year.
In evaluating performance, the Board recognized that the performance data reflects a snapshot of a period or as of a particular date and that selecting a different performance period could produce significantly different results. Further, the Board recognized that it is possible that long-term performance can be adversely affected by even one period of significant underperformance so that a single investment decision or theme has the ability to affect long-term performance disproportionately.
The Board noted that for the one-, three- and five-year periods reported, the Basic Value V.I. Fund ranked in the third, second and third quartiles, respectively, against its Lipper Performance Universe. The Board and BlackRock reviewed and discussed the reasons for the Basic Value V.I. Fund’s underperformance during the one- and five-year periods. The Board was informed that, among other things, the portfolio management team continued to find value in more cyclically-oriented, higher beta stocks, at the beginning of 2014. However, during the fall of 2014, major macroeconomic developments drove stock prices rather than business fundamentals. Weak economic data from both China and Germany combined to suggest that the global economy was on shaky ground. These developments led to a shift in sentiment and expectations which produced unexpected declines in both the price of oil and U.S. 10-Year Treasury yields, which caused some extreme movements in U.S. equities and underperformance within the portfolio. The Board and BlackRock also discussed BlackRock’s strategy for improving the Basic Value V.I. Fund’s performance and BlackRock’s commitment to providing the resources necessary to assist the Basic Value V.I. Fund’s portfolio managers in seeking to do so.
The Board noted that for each of the one-, three- and five-year periods reported, the Capital Appreciation V.I. Fund ranked in the fourth quartile, respectively, against its Lipper Performance Universe. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during these periods. The Board was informed that, among other things, the portfolio’s aggressive positioning generated relative underperformance as investors sold more volatile, high growth holdings in favor of more defensive dividend yielding companies. The decision to position the portfolio aggressively in 2011 and maintain the aggressive positioning throughout the year and into 2012 was very costly, as avoiding risk and playing defense was the recipe for outperformance. The Capital Appreciation V.I. Fund’s performance during these periods was also hampered by relatively poor stock selection across several sectors, as the Fund maintained a bias toward riskier and higher growth stocks.
The Board and BlackRock also discussed BlackRock’s strategy for improving the Capital Appreciation V.I. Fund’s performance and BlackRock’s commitment to providing the resources necessary to assist the Fund’s portfolio managers in seeking to do so. BlackRock and the Board previously had concurred, given the Capital Appreciation V.I. Fund’s poor historical performance, in changing the portfolio management team. Both BlackRock and the Board are hopeful that these changes will result in improved performance going forward, although there can be no assurance that will be the case. The Board will continue to monitor the Capital Appreciation V.I. Fund’s performance.
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Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements (continued) |
The Board noted that for the one-, three- and five-year periods reported, the Equity Dividend V.I. Fund ranked in the second, fourth and fourth quartiles, respectively, against its Lipper Performance Universe. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during the three- and five-year periods. The Board was informed that, among other things, underperformance was primarily generated by the Fund’s structural low beta combined with negative alpha from stock selection and sector allocation decisions. The Fund’s focus on dividend growth also proved to be a headwind as peer funds that focus on high dividend yield have generally performed well as investors have searched for yield in the low rate environment, and multiple expansion has subsequently occurred in bond-like sectors such as utilities and real estate investment trusts (REITs). The Board also noted a comparison of the Equity Dividend V.I. Fund performance relative to certain other performance metrics that reflect the Fund’s performance in light of its outcome-oriented objective. BlackRock believes that these additional performance metrics are appropriate given the Equity Dividend V.I. Fund’s objective. BlackRock and the Board previously had concurred in making changes within the portfolio management team. Both BlackRock and the Board are hopeful that these changes will result in improved performance going forward, although there can be no assurance that will be the case. The Board will continue to monitor the Equity Dividend V.I. Fund’s performance.
The Board noted that for the one-, three- and five-year periods reported, the Global Allocation V.I. Fund ranked in the fourth, third and fourth quartiles, respectively, against its Lipper Performance Universe. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during these periods. The Board was informed that, among other things, major detractors from performance during the one-, three- and five-year periods included stock selection and an underweight in the U.S., stock selection in Canada (largely attributed to gold-related securities), an overweight position to select emerging market countries such as Russia and Brazil, and an underweight to fixed income, notably U.S. Treasuries. Additionally, an overweight to cash negatively impacted performance as global equity and fixed income markets broadly advanced over the period. The Board also noted a comparison of the Global Allocation V.I. Fund’s performance relative to certain other performance metrics that reflect the Fund’s performance in light of its outcome-oriented objective. BlackRock believes that these additional performance metrics are appropriate given the Global Allocation V.I. Fund’s objective.
The Board noted that for each of the one-, three- and five-year periods reported, the Global Opportunities V.I. Fund ranked in the fourth quartile, against its Lipper Performance Universe. The Board and BlackRock reviewed and discussed the reasons for the Global Opportunities V.I. Fund’s underperformance during these periods. The Board was informed that, among other things, the primary detractor of performance for the one-, three-and five-year periods was the Global Opportunities V.I. Fund’s overweight bias to Europe, focusing on companies geared for economic recovery in the periphery and improved real estate markets in the U.K. and Ireland. The Global Opportunities V.I. Fund also had a beta-adjusted overweight bias to Japan, primarily in financial companies poised to benefit from the reflationary policies of the Bank of Japan. Additionally, the Global Opportunities V.I. Fund’s notable underweight bias to emerging markets detracted from the Fund’s performance during these periods.
The Board and BlackRock also discussed BlackRock’s strategy for improving the Global Opportunities V.I. Fund’s performance and BlackRock’s commitment to providing the resources necessary to assist the Fund’s portfolio managers in seeking to do so.
The Board noted that for each of the one-, three- and five-year periods reported, the High Yield V.I. Fund ranked in first quartile against its Lipper Performance Universe.
The Board noted that for the one-, three- and five-year periods reported, the International V.I. Fund ranked in the second, third and fourth quartiles, respectively, against its Lipper Performance Universe. The Board noted the International V.I. Fund’s improved performance during the one-year period.
The Board and BlackRock reviewed and discussed the reasons for the International V.I. Fund’s underperformance during the three- and five-year periods. The Board was informed that, among other things, the primary driver of underperformance for the three-year period was the strategy’s high quality bias, particularly during the third quarter of 2012. The team’s modestly defensive positioning stemmed from the expectation of a persistent environment of low and fragile growth. The primary driver of underperformance for the five-year period is attributable to the value bias of the previous management team. In 2010, the historical bias led to under exposure to emerging markets and growth-based companies, both of which performed well that year.
The Board and BlackRock also discussed BlackRock’s strategy for improving the International V.I. Fund’s performance and BlackRock’s commitment to providing the resources necessary to assist the International V.I. Fund’s portfolio managers in seeking to do so.
The Board noted that for the since-inception period reported, the iShares Alternative Strategies V.I. Fund ranked in the first quartile against its Lipper Performance Universe.
The Board noted that for the since-inception period reported, the iShares Dynamic Allocation V.I. Fund ranked in the third quartile against its Lipper Performance Universe. The Board was informed that, among other things, the primary detractor of performance for the since-inception period was the iShares Dynamic Allocation V.I. Fund’s lower equity and higher fixed income allocation compared to the funds in the Lipper Performance Universe. European and Australian equity, and the energy sector, underperformed in the period since Fund inception. Allocations to these regions and sectors impacted the overall model performance. Within fixed income, the allocation to high yield debt underperformed. The Board and BlackRock also discussed BlackRock’s strategy for improving the iShares Dynamic Allocation V.I. Fund’s performance and BlackRock’s commitment to providing the resources necessary to assist the Fund’s portfolio managers in seeking to do so.
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Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements (continued) |
The Board noted that for the since-inception period reported, the iShares Dynamic Fixed Income V.I. Fund ranked in the second quartile against its Lipper Performance Universe.
The Board noted that for the since-inception period reported, the iShares Equity Appreciation V.I. Fund ranked in the fourth quartile against its Lipper Performance Universe. The Board was informed that, among other things, the primary detractor of performance for the since-inception period was the iShares Equity Appreciation V.I. Fund’s lower allocation to U.S. equities compared to the funds in the Lipper Performance Universe. European and Australian equity, and the energy sector, underperformed in the period since Fund inception. Allocations to these regions and sectors impacted the overall model performance. The Board and BlackRock also discussed BlackRock’s strategy for improving the iShares Equity Appreciation V.I. Fund’s performance and BlackRock’s commitment to providing the resources necessary to assist the Fund’s portfolio managers in seeking to do so.
The Board noted that for the one-, three- and five-year periods reported, the Large Cap Core V.I. Fund ranked in the second, third and fourth quartiles, respectively, against its Lipper Performance Universe. The Board noted the Large Cap Core V.I. Fund’s improved performance during the one-year period. The Board and BlackRock reviewed and discussed the reasons for the Large Cap Core V.I. Fund’s underperformance during the three- and five-year periods. The Board was informed that, among other things, the primary detractor of performance for the three- and five-year periods was the Large Cap Core V.I. Fund’s bias towards higher-beta, lower-cap securities during de-risking periods of market decline and higher volatility. Compounding this effect was the Large Cap Core V.I. Fund’s overweight bias to momentum, which struggled greatly in the volatile risk-on/risk-off environment. The Board and BlackRock also discussed BlackRock’s strategy for improving the Large Cap Core V.I. Fund’s performance and BlackRock’s commitment to providing the resources necessary to assist the Fund’s portfolio managers in seeking to do so.
The Board noted that for the one-, three- and five-year periods reported, the Large Cap Growth V.I. Fund ranked in the first, second and first quartiles, respectively, against its Customized Lipper Peer Group. BlackRock believes that the Customized Lipper Peer Group is an appropriate performance metric for the Large Cap Growth V.I. Fund.
The Board noted that for the one-, three- and five-year periods reported, the Large Cap Value V.I. Fund ranked in the second, third and fourth quartiles, respectively, against its Lipper Performance Universe. The Board noted the Large Cap Value V.I. Fund’s improved performance during the one-year period. The Board and BlackRock reviewed and discussed the reasons for the Large Cap Value V.I. Fund’s underperformance during the three- and five-year periods The Board and BlackRock reviewed and discussed the reasons for the Large Cap Value V.I. Fund’s underperformance during the three-and five-year periods. The Board was informed that, among other things, the primary detractor of performance for the three- and five-year periods was the Large Cap Value V.I. Fund’s bias towards higher-beta, lower-cap securities during de-risking periods of market decline and higher volatility. Compounding this effect was the Large Cap Value V.I. Fund’s overweight bias to momentum, which struggled greatly in the volatile risk-on/risk-off environment. The Board and BlackRock also discussed BlackRock’s strategy for improving the Large Cap Value V.I. Fund’s performance and BlackRock’s commitment to providing the resources necessary to assist the Fund’s portfolio managers in seeking to do so.
The Board noted that for the one-, three- and five-year periods reported, the Managed Volatility V.I. Fund ranked in the second, second and first quartiles, respectively, against its Lipper Performance Universe. The Board also noted a comparison of the Managed Volatility V.I. Fund’s performance relative to certain other performance metrics that reflect the Fund’s performance in light of its outcome-oriented objective. BlackRock believes that these additional performance metrics are appropriate given the Managed Volatility V.I. Fund’s objective.
The Board noted that for the one-, three- and five-year periods reported, the Money Market V.I. Fund ranked in the first, third, and third quartiles, respectively, against its Lipper Performance Universe. Additionally the Board noted that the Money Market V.I. Fund performed within the one basis point threshold of its Lipper Performance Universe peer median for the three- and five-year periods. The Board reviewed the Money Market V.I. Fund’s performance within the context of the low yield environment that has existed over the past few years.
The quartile standing of the Money Market V.I. Fund in its Lipper Performance Universe takes into account the Fund’s current yield only. The Board believes that a money market fund can only be understood holistically, accounting for current yield and risk. While the Board reviews the Money Market V.I. Fund’s current yield performance, it also examines the liquidity, duration, and credit quality of the Fund’s portfolio. In the Board’s view, BlackRock’s money market funds have performed well over the one-, three- and five-year periods given BlackRock’s emphasis on preserving capital and seeking as high a level of current income as is consistent with liquidity while simultaneously managing risk. The Board noted that effective on or about September 1, 2015, the Money Market V.I. Fund would undergo a change in its investment strategy, and in that connection would change its name from BlackRock Money Market V.I. Fund to BlackRock Government Money Market V.I. Fund.
The Board noted that for each of the one-, three- and five-year periods reported, the S&P 500 Index V.I. Fund’s gross performance (before fees and expenses) was within tolerance of its benchmark index. BlackRock believes that gross performance relative to the benchmark is an appropriate performance metric for the S&P 500 Index V.I. Fund.
The Board noted that for the one-, three- and five-year periods reported, the Total Return V.I. Fund ranked in the first, second and first quartiles, respectively, against its Lipper Performance Universe.
The Board noted that for the one-, three- and five-year periods reported, the U.S. Government Bond V.I. Fund ranked in the first, second and second quartiles, respectively, against its Lipper Performance Universe.
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Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements (continued) |
The Board noted that for each of the one-, three- and five-year periods reported, the Value Opportunities V.I. Fund ranked in the second quartile, against its Lipper Performance Universe.
C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with each Fund
The Board, including the Independent Board Members, reviewed each Fund’s contractual management fee rate compared with the other funds in its Lipper category. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared each Fund’s total expense ratio, as well as its actual management fee rate, to those of other funds in its Lipper category. The total expense ratio represents a fund’s total net operating expenses, including any 12b-1 or non 12b-1 service fees. The total expense ratio gives effect to any expense reimbursements or fee waivers that benefit a fund, and the actual management fee rate gives effect to any management fee reimbursements or waivers that benefit a fund. The Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds.
The Board received and reviewed statements relating to BlackRock’s financial condition. The Board reviewed BlackRock’s profitability methodology and was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to each Fund. The Board reviewed BlackRock’s profitability with respect to each Fund and other funds the Board currently oversees for the year ended December 31, 2014 compared to available aggregate profitability data provided for the two prior years. The Board reviewed BlackRock’s profitability with respect to certain other U.S. fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, precision of expense allocations and business mix. As a result, calculating and comparing profitability at individual fund levels is difficult.
The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board reviewed BlackRock’s overall operating margin, in general, compared to that of certain other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.
In addition, the Board considered the cost of the services provided to each Fund by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of each Fund and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of each Fund. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board. The Board further considered factors including but not limited to BlackRock’s commitment of time, assumption of risk and liability profile in servicing each Fund in contrast to what is required of BlackRock with respect to other products with similar investment mandates across the open-end fund, ETF, closed-end fund, sub-advised mutual fund and institutional account product channels, as applicable.
The Board noted that the Basic Value V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio ranked in the first and second quartiles, respectively, relative to the Fund’s Expense Peers. The Board also noted that the Basic Value V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Basic Value V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Basic Value V.I. Fund on a class-by-class basis.
The Board noted that the Capital Appreciation V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio ranked in the first and second quartiles, respectively, relative to the Fund’s Expense Peers. The Board also noted that the Capital Appreciation V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Capital Appreciation V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Capital Appreciation V.I. Fund on a class-by-class basis.
The Board noted that the Equity Dividend V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the second quartile, relative to the Fund’s Expense Peers. The Board also noted that the Equity Dividend V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Equity Dividend V.I. Fund’s total
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Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements (continued) |
expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Equity Dividend V.I. Fund on a class-by-class basis.
The Board noted that the Global Allocation V.I. Fund’s contractual management fee rate ranked in the second quartile, and that the actual management fee rate and total expense ratio each ranked in the second quartile, relative to the Fund’s Expense Peers. The Board also noted that the Global Allocation V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Global Allocation V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Global Allocation V.I. Fund on a class-by-class basis.
The Board noted that the Global Opportunities V.I. Fund’s contractual management fee rate ranked in the second quartile, and that the actual management fee rate and total expense ratio ranked in the third and fourth quartiles, respectively, relative to the Fund’s Expense Peers. The Board also noted that the Global Opportunities V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Global Opportunities V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. After discussion between the Board, including the independent Board Members, and BlackRock, the Board and BlackRock agreed to a lower contractual expense cap on a class-by-class basis. The cap became effective on June 1, 2015. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Global Opportunities V.I. Fund on a class-by-class basis.
The Board noted that the High Yield V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Fund’s Expense Peers. The Board also noted that the High Yield V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the aggregate assets of the Fund, combined with the assets of Total Return V.I. Fund, increase above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the High Yield V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the High Yield V.I. Fund on a class-by-class basis.
The Board noted that the International V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the second quartile, relative to the Fund’s Expense Peers. The Board also noted that the International V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the International V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the International V.I. Fund on a class-by-class basis.
The Board noted that the varying fee structure for fund of funds can limit the value of management fee comparisons. The Board also noted that the iShares Alternative Strategies V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Fund’s Expense Peers. The Board further noted that the iShares Alternative Strategies V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. Additionally, the Board noted that BlackRock has contractually agreed to a cap on the iShares Alternative Strategies V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis.
The Board noted that the varying fee structure for fund of funds can limit the value of management fee comparisons. The Board also noted that the iShares Dynamic Allocation V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Fund’s Expense Peers. The Board further noted that the iShares Dynamic Allocation V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. Additionally, the Board noted that BlackRock has contractually agreed to a cap on the iShares Dynamic Allocation V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis.
The Board noted that the varying fee structure for fund of funds can limit the value of management fee comparisons. The Board also noted that the iShares Dynamic Fixed Income V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Fund’s Expense Peers. The Board further noted that the iShares Dynamic Fixed Income V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. Additionally, the Board noted that BlackRock has contractually agreed to a cap on the iShares Dynamic Fixed Income V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis.
The Board noted that the varying fee structure for fund of funds can limit the value of management fee comparisons. The Board also noted that the iShares Equity Appreciation V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio ranked in the first and second quartiles, respectively, relative to the Fund’s Expense Peers. The Board further noted that the iShares Equity Appreciation V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund
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Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements (continued) |
increases above certain contractually specified levels. Additionally, the Board noted that BlackRock has contractually agreed to a cap on the iShares Equity Appreciation V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis.
The Board noted that the Large Cap Core V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Fund’s Expense Peers. The Board also noted that the Large Cap Core V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Large Cap Core V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Large Cap Core V.I. Fund on a class-by-class basis.
The Board noted that the Large Cap Growth V.I. Fund’s contractual management fee rate ranked in the second quartile, and that the actual management fee rate and total expense ratio each ranked in the second quartile, relative to the Fund’s Expense Peers. The Board also noted that the Large Cap Growth V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Large Cap Growth V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Large Cap Growth V.I. Fund on a class-by-class basis.
The Board noted that the Large Cap Value V.I. Fund’s contractual management fee rate ranked in the third quartile, and that the actual management fee rate and total expense ratio ranked in the first and second quartiles, respectively, relative to the Fund’s Expense Peers. The Board determined that the Large Cap Value V.I. Fund’s contractual management fee rate was appropriate in light of the median contractual management fee rate paid by the Fund’s Expense Peers. The Board also noted that the Large Cap Value V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Large Cap Value V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock had voluntarily agreed to waive a portion of the advisory fee payable by the Large Cap Value V.I. Fund. The waiver became effective on June 1, 2012. After discussions between the Board, including the Independent Board Members, and BlackRock, the Board and BlackRock agreed to a continuation of the voluntary advisory fee waiver. Finally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Large Cap Value V.I. Fund on a class-by-class basis.
The Board noted that the Managed Volatility V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Fund’s Expense Peers. The Board also noted that the Managed Volatility V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Managed Volatility V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Finally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Managed Volatility V.I. Fund on a class-by-class basis. In addition, the Board noted that BlackRock had agreed to a lower contractual expense cap on a class-by-class basis. The contractual expense cap reduction became effective on June 1, 2014. After discussions between the Board, including the Independent Board Members, and BlackRock, the Board and BlackRock agreed to a continuation of the contractual cap.
The Board noted that the Money Market V.I. Fund’s contractual management fee rate ranked in the fourth quartile, and that the actual management fee rate and total expense ratio each ranked in the third quartile, relative to the Fund’s Expense Peers. The Board reviewed the Money Market V.I. Fund’s expenses within the context of the low yield environment and consequent expense waivers and reimbursements. The Board also noted that the Money Market V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Money Market V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Money Market V.I. Fund on a class-by-class basis. Finally, the Board noted that, to enable the Money Market V.I. Fund to maintain minimum levels of daily net investment income, BlackRock has voluntarily agreed to waive a portion of its fees and/or reimburse the Fund’s operating expenses as necessary. This waiver and/or reimbursement may be discontinued at any time without notice.
The Board noted that the S&P 500 Index V.I. Fund’s contractual management fee rate ranked in the second quartile, and that the actual management fee rate and total expense ratio ranked in the second and first quartiles, respectively, relative to the Fund’s Expense Peers. The Board also noted that BlackRock has contractually agreed to a cap on the S&P 500 Index V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock had contractually agreed to waive a portion of the advisory fee payable by the S&P 500 Index V.I. Fund. Finally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the S&P 500 Index V.I. Fund on a class-by-class basis.
The Board noted that the Total Return V.I. Fund’s contractual management fee rate ranked in the second quartile, and that the actual management fee rate and total expense ratio ranked in the third and second quartiles, respectively, relative to the Fund’s Expense Peers. The Board also noted that the Total Return V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the aggregate assets of the
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements (continued) |
Fund, combined with the assets of High Yield V.I. Fund, increase above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Total Return V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Total Return V.I. Fund on a class-by-class basis.
The Board noted that the U.S. Government Bond V.I. Fund’s contractual management fee rate ranked in the second quartile, and that the actual management fee rate and total expense ratio ranked in the second and fourth quartiles, respectively, relative to the Fund’s Expense Peers. The Board also noted that the U.S. Government Bond V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the U.S. Government Bond V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the U.S. Government Bond V.I. Fund on a class-by-class basis. Additionally, the Board noted that BlackRock had voluntarily agreed to waive a portion of the advisory fee payable by the U.S. Government Bond V.I. Fund. The waiver became effective on June 1, 2014. After discussions between the Board, including the Independent Board Members, and BlackRock, the Board and BlackRock agreed to a continuation of the voluntary advisory fee waiver.
The Board noted that the Value Opportunities V.I. Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio ranked in the first and second quartiles, respectively, relative to the Fund’s Expense Peers. The Board also noted that the Value Opportunities V.I. Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to a cap on the Value Opportunities V.I. Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. Additionally, the Board noted that BlackRock has contractually agreed to a cap on certain operational and recordkeeping fees for the Value Opportunities V.I. Fund on a class-by-class basis.
D. Economies of Scale
The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of each Fund increase, as well as the existence of expense caps, as applicable. The Board also considered the extent to which each Fund benefits from such economies and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable each Fund to participate in these economies of scale, for example through the use of breakpoints, in the case of the S&P 500 Index V.I. Fund, or, in the case of each other Fund, revised breakpoints in the advisory fee based upon the asset level of the Fund, and in the case of High Yield V.I. Fund and Total Return V.I. Fund, based on the combined assets of those two Funds. In its consideration, the Board Members took into account the existence of any expense caps and further considered the continuation and/or implementation, as applicable, of such caps.
E. Other Factors Deemed Relevant by the Board Members
The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with each Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to each Fund, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that, except with respect to the Money Market V.I. Fund, it had considered the investment by BlackRock’s funds in affiliated ETFs without any offset against the management fees payable by the funds to BlackRock.
In connection with its consideration of the Agreements, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.
The Board noted the competitive nature of the open-end fund marketplace, and that shareholders are able to redeem their Fund shares if they believe that each Fund’s fees and expenses are too high or if they are dissatisfied with the performance of each Fund.
Conclusion
The Board, including the Independent Board Members, approved the continuation of the Advisory Agreements between the Manager and the Corporation, on behalf of each Fund, for a one-year term ending June 30, 2016, and the Sub-Advisory Agreements between the Manager and the Sub-Advisors, with respect to each Fund, as applicable, for a one-year term ending June 30, 2016. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Disclosure of Investment Advisory Agreements and Sub-Advisory Agreements (continued) |
this determination. The contractual fee arrangements for each Fund reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Officers and Directors |
Robert M. Hernandez, Chairman of the Board and Director
Fred G. Weiss, Vice Chairman of the Board and Director
James H. Bodurtha, Director
Bruce R. Bond, Director
Valerie G. Brown, Director
Donald W. Burton, Director
Honorable Stuart E. Eizenstat, Director
Robert Fairbairn, Director
Kenneth A. Froot, Director
Henry Gabbay, Director
John F. O’Brien, Director
Donald C. Opatrny, Director
Roberta Cooper Ramo, Director
David H. Walsh, Director
John M. Perlowski, Director, President and Chief Executive Officer
Jennifer McGovern, Vice President
Neal Andrews, Chief Financial Officer
Jay Fife, Treasurer
Charles Park, Chief Compliance Officer
Fernanda Piedra, Anti-Money Laundering Compliance Officer
Benjamin Archibald, Secretary
Effective March 1, 2015, Charles Park resigned as Anti-Money Laundering Officer of the Corporation and Fernanda Piedra became Anti-Money Laundering Compliance Officer of the Corporation.
Effective as of the close of business on May 13, 2015, Valerie G. Brown and Donald C. Opatrny were appointed to serve as Directors of the Corporation.
Investment Advisor BlackRock Advisors, LLC Wilmington, DE 19809 |
Sub-Advisors BlackRock International Limited1 Edinburgh, United Kingdom |
Accounting Agent and Transfer Agent BNY Mellon Investment Servicing (US) Inc. |
Custodians The Bank of New York Mellon3 New York, NY 10286 | |||
BlackRock Asset Management North Asia Limited2 Hong Kong | Wilmington, DE 19809 |
Brown Brothers Harriman & Co.4 Boston, MA 02109 | ||||
BlackRock (Singapore) Limited2 079912 Singapore | ||||||
Distributor BlackRock Investments, LLC New York, NY 10022 | Legal Counsel Willkie Farr & Gallagher LLP New York, NY 10019 | Independent Registered Public Accounting Firm Deloitte & Touche LLP Philadelphia, PA 19103 | Address of the Funds 100 Bellevue Parkway Wilmington, DE 19809 |
1For BlackRock International V.I. Fund and BlackRock Managed Volatility V.I Fund.
2For BlackRock Managed Volatility V.I. Fund.
3For all Funds except BlackRock Global Allocation V.I. Fund, BlackRock International V.I. Fund and BlackRock Large Cap Growth V.I. Fund.
4For BlackRock Global Allocation V.I. Fund, BlackRock International V.I. Fund and BlackRock Large Cap Growth V.I. Fund.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
Additional Information |
General Information |
Availability of Quarterly Schedule of Investments
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Funds’ Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.
Availability of Proxy Voting Policies and Procedures
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling (800) 441-7762; (2) at http://www.blackrock.com/prospectus/insurance and (3) on the SEC’s website at http:// www.sec.gov.
Availability of Proxy Voting Record
Information about how the Funds voted proxies relating to securities held in the Funds’ portfolios during the most recent 12-month period ended June 30 is available, upon request and without charge (1) at http://www.blackrock.com/prospectus/insurance, or by calling (800) 441-7762 and (2) on the SEC’s website at http://www.sec.gov.
BlackRock Privacy Principles |
BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.
BLACKROCK VARIABLE SERIES FUNDS, INC. | JUNE 30, 2015 |
This report is only for distribution to shareholders of the Funds of BlackRock Variable Series Funds, Inc. Past performance results shown in this report should not be considered a representation of future performance. Investment return and principal value of non-money market fund shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. An investment in the BlackRock Money Market V.I. Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in money market funds. Statements and other information herein are as dated and are subject to change.
VS-6/15-SAR |
Item 2 – Code of Ethics – Not Applicable to this semi-annual report
Item 3 – Audit Committee Financial Expert – Not Applicable to this semi-annual report
Item 4 – | Principal Accountant Fees and Services – Not Applicable to this semi-annual report | |
Item 5 – | Audit Committee of Listed Registrants – Not Applicable | |
Item 6 – | Investments | |
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form. | ||
(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing. | ||
Item 7 – | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not Applicable | |
Item 8 – | Portfolio Managers of Closed-End Management Investment Companies – Not Applicable | |
Item 9 – | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable | |
Item 10 – | Submission of Matters to a Vote of Security Holders –There have been no material changes to these procedures. | |
Item 11 – | Controls and Procedures | |
(a) – The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended. | ||
(b) – There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. | ||
Item 12 – | Exhibits attached hereto | |
(a)(1) – Code of Ethics – Not Applicable to this semi-annual report | ||
(a)(2) – Certifications – Attached hereto | ||
(a)(3) – Not Applicable | ||
(b) – Certifications – Attached hereto |
2
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Variable Series Funds, Inc.
By: | /s/ John M. Perlowski | |
John M. Perlowski | ||
Chief Executive Officer (principal executive officer) of | ||
BlackRock Variable Series Funds, Inc. | ||
Date: | August 25, 2015 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ John M. Perlowski | |
John M. Perlowski | ||
Chief Executive Officer (principal executive officer) of | ||
BlackRock Variable Series Funds, Inc. | ||
Date: | August 25, 2015 |
By: | /s/ Neal J. Andrews | |
Neal J. Andrews | ||
Chief Financial Officer (principal financial officer) of | ||
BlackRock Variable Series Funds, Inc. | ||
Date: | August 25, 2015 |
3