MERCURY ASSET MANAGEMENT V I FUNDS INC, N-1A, 1998-12-14

MERCURY ASSET MANAGEMENT V I FUNDS INC
N-1A, 1998-12-14

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1998

SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [ ]
(Check appropriate box or boxes)
------------------------
MERCURY V.I. U.S. LARGE CAP FUND
of Mercury Asset Management V.I. Funds, Inc.
(Exact name of Registrant as specified in charter)

800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (888) 763-2260

JEFFREY M. PEEK
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)

Copies to:

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<S> <C> <C>
Counsel for the Fund:
JOEL H. GOLDBERG, Esq. and
Swidler Berlin Shereff Friedman, LLP LORRAINE D. MANDEL, Esq.
919 Third Avenue P.O. Box 9011
New York, New York 10022 Princeton, New Jersey 08543-9011
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of the Registration Statement.
------------------------

It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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MERCURY V.I. U.S. LARGE CAP FUND
OF MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

PROSPECTUS - , 1999

[MERRILL LYNCH ARTWORK]

THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD
KNOW BEFORE INVESTING, INCLUDING INFORMATION
ABOUT RISKS. PLEASE READ IT BEFORE YOU INVEST
AND KEEP IT FOR FUTURE REFERENCE.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

[MERCURY ASSET MANAGEMENT LOGO]
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Table of Contents

[FUND FACTS ICON]
FUND FACTS
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About the Mercury V.I. U.S. Large Cap Fund.................. 2

[ABOUT THE DETAILS ICON]
ABOUT THE DETAILS
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How the U.S. Large Cap Fund Invests......................... 4
Investment Risks............................................ 5
Adviser's Historical Performance Data -- Class A............ 9
Adviser's Historical Performance Data -- Class B............ 14

[THE MANAGEMENT TEAM ICON]
THE MANAGEMENT TEAM
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Management of the U.S. Large Cap Fund....................... 19

APPENDIX
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[ACCOUNT CHOICES ICON]
ACCOUNT CHOICES
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Fund Shares................................................. A-2
How to Buy and Sell Shares.................................. A-2
How Shares are Priced....................................... A-2
Dividends, Capital Gains and Taxes.......................... A-3

[TO LEARN MORE ICON]
TO LEARN MORE
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Shareholder Reports....................................Back Cover
Statement of Additional Information....................Back Cover
</TABLE>

MERCURY V.I. U.S. LARGE CAP FUND
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[FUND FACTS ICON]

IN AN EFFORT TO HELP YOU BETTER UNDERSTAND THE MANY CONCEPTS INVOLVED IN MAKING
AN INVESTMENT DECISION, WE HAVE DEFINED THE HIGHLIGHTED TERMS IN THIS PROSPECTUS
IN THE SIDEBAR.

LARGE CAP COMPANIES -- Companies whose market capitalization is at least $5
billion under current market conditions. The U.S. Large Cap Fund's definition of
large cap companies may be increased in response to changes in the market.

COMMON STOCK -- units of ownership of a corporation.

PREFERRED STOCK -- class of capital stock that often pays dividends at a
specified rate and has preference over common stock in dividend payments and
liquidation of assets.

CONVERTIBLE SECURITIES -- corporate securities (usually preferred stock or
bonds) that are exchangeable for a fixed number of other securities (usually
common stock) at a set price or formula.

ABOUT THE MERCURY V.I. U.S. LARGE CAP FUND
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WHAT ARE THE U.S. LARGE CAP FUND'S GOALS?

The U.S. Large Cap Fund's main goal is long-term capital growth. In other words,
it tries to choose investments that will increase in value. Current income from
dividends and interest will not be an important consideration in selecting
portfolio securities. We cannot guarantee that the U.S. Large Cap Fund will
achieve its goals.

WHAT ARE THE U.S. LARGE CAP FUND'S MAIN INVESTMENT STRATEGIES?

The U.S. Large Cap Fund invests primarily in a diversified portfolio of equity
securities of LARGE CAP COMPANIES located in the U.S. that Fund management
believes are undervalued or have good prospects for earnings growth. The U.S.
Large Cap Fund may also invest up to 10% of its assets in stocks of companies
located in Canada. A company's stock is considered undervalued by the U.S. Large
Cap Fund's management when its price is less than what the Fund management
believes it is worth. A company whose earnings per share grow faster than
inflation and the economy in general usually has a higher stock price over time
than companies with slower earnings growth. The U.S. Large Cap Fund's evaluation
of the prospects for a company's industry or market sector is an important
factor in evaluating a particular company's earnings prospects. The U.S. Large
Cap Fund may purchase COMMON STOCK, PREFERRED STOCK and CONVERTIBLE SECURITIES
and other instruments.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE U.S. LARGE CAP FUND?

As with any equity fund, the value of the U.S. Large Cap Fund's investments, and
therefore the value of the U.S. Large Cap Fund's shares, may go up or down.
These value changes in the U.S. Large Cap Fund's investments may occur because
the U.S. stock market is rising or falling. At other times, specific factors may
affect the value of a particular investment. The U.S. Large Cap Fund is also
subject to the risk that the stocks the Fund's adviser selects will underperform
the markets or other funds with similar investment objectives and investment
strategies. If the value of the U.S. Large Cap Fund's investments goes down, you
may lose money.

In addition, because the U.S. Large Cap Fund will invest up to 10% of its assets
in securities of Canadian companies, the U.S. Large Cap Fund will be subject to
additional risks. For example, the U.S. Large Cap Fund's securities may go up or
down in value depending on changes in the Canadian stock market, on the relative
exchange rates of the U.S. dollar and the Canadian dollar, U.S. and Canadian
political and economic developments, and U.S. and Canadian laws relating to
investments in Canada. Canadian securities may also be less liquid, more
volatile and harder to value than U.S. securities.

2 MERCURY V.I. U.S. LARGE CAP FUND

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Fund Facts

[FUND FACTS ICON]

CONTRACT -- The U.S. Large Cap Fund offers its shares only to participating
insurance companies.

These insurance companies write variable annuity and/or variable life insurance
contracts that allow the contract owner to choose the U.S. Large Cap Fund as an
investment option. The contract owner does not become a U.S. Large Cap Fund
shareholder.

WHO SHOULD INVEST?

The U.S. Large Cap Fund may be an appropriate investment to fund a portion of a
CONTRACT owned by contract owners who:

- Have long-term goals in mind.
- Want a professionally managed and diversified portfolio.
- Are willing to accept the risk of short-term fluctuations in
exchange for the potential of higher long-term returns.

MERCURY V.I. U.S. LARGE CAP FUND 3

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[ABOUT THE DETAILS ICON] About the Details

ABOUT THE PORTFOLIO MANAGEMENT TEAM -- The U.S. Large Cap Fund is managed by
members of a team of 17 investment professionals who participate in the team's
research process and stock selection. The senior investment professionals in
this group include Garrett Fish, Andrew Hudson and Michael Morony.
Michael Morony is primarily responsible for the day-to-day management of the
U.S. Large Cap Fund.

ABOUT THE INVESTMENT ADVISER -- Mercury Asset Management International Ltd. is
the investment adviser.

HOW THE U.S. LARGE CAP FUND INVESTS
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The U.S. Large Cap Fund's main goal is long-term capital growth. The U.S. Large
Cap Fund tries to achieve its goal by investing primarily in a diversified
portfolio of equity securities of large cap companies located in the U.S. The
U.S. Large Cap Fund may also invest up to 10% of its assets in equity securities
of companies located in Canada. In selecting securities, the U.S. Large Cap Fund
emphasizes those securities that U.S. Large Cap Fund management believes to be
undervalued or have good prospects for earnings growth.

The U.S. Large Cap Fund will, under normal circumstances, invest at least 65% of
its total assets in equity securities of large cap companies located in the U.S.
Investments will also be made in equity securities of companies of any market
capitalization located in Canada and of small or medium capitalization companies
located in the U.S. Normally, Canadian investments will represent 10% or less of
the U.S. Large Cap Fund's assets. A company's market capitalization may go up or
down due to market fluctuations. The U.S. Large Cap Fund will not sell a
company's securities just because that company's market capitalization drops
below $5 billion or another amount set by the Fund. Equity securities consist
of:

- Common Stock
- Preferred Stock
- Securities Convertible into Common Stock
- Derivative securities such as options (including warrants)
and futures, the value of which is based on a common stock or
group of common stocks

The U.S. Large Cap Fund considers a company to be "located" in the U.S. or
Canada if:

- it is legally organized in the U.S. or Canada,
- the primary trading market for its securities is located in the
U.S. or Canada, or
- at least 50% of the company's (and its subsidiaries) non-current
assets, capitalization, gross revenues or profits have been
located in the U.S. or Canada during one of the last two fiscal
years.

Under this definition, a "foreign" company (a company organized or trading
outside the U.S. or Canada, or with substantial operations outside the U.S. or
Canada) may be considered to be "located" in the U.S. or Canada.

A company's stock is considered undervalued when the stock's current price is
less than U.S. Large Cap Fund management believes a share of the company is
worth. U.S. Large Cap Fund management feels a company's worth can be assessed by
several factors, such as:

- financial resources
- value of assets
- sales and earnings growth
- product development
- quality of management
- overall business prospects

4 MERCURY V.I. U.S. LARGE CAP FUND
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[ABOUT THE DETAILS ICON] About the Details

A company's stock may become undervalued when most investors fail to perceive
the company's strengths in one or more of these areas. A company whose earnings
per share grow faster than inflation and the economy in general usually has a
higher stock price over time than companies with slower earnings growth. The
U.S. Large Cap Fund's evaluation of the prospects for a company's industry or
market sector is an important factor in evaluating a particular company's
earnings prospects. Current income from dividends and interest will not be an
important consideration in selecting portfolio securities. The U.S. Large Cap
Fund may invest in debt securities that are issued together with a particular
equity security. The U.S. Large Cap Fund may or may not invest in derivatives to
hedge (protect against price movements) or to enable it to reallocate its
investments more quickly than it could by buying and selling the underlying
securities.

The U.S. Large Cap Fund has no stated minimum holding period for investments,
and will buy or sell securities whenever the U.S. Large Cap Fund management sees
an appropriate opportunity.

The U.S. Large Cap Fund will normally invest almost all of its assets in the
manner described above. The U.S. Large Cap Fund may, however, invest in
short-term instruments, such as money market securities and repurchase
agreements, to meet redemptions. The U.S. Large Cap Fund may also, without
limit, make short-term investments, purchase high quality bonds or buy or sell
derivatives to reduce exposure to equity securities when the U.S. Large Cap Fund
believes it is advisable to do so (on a temporary defensive basis). Short term
investments and temporary defensive positions may limit the potential for growth
in the value of U.S. Large Cap Fund shares and the U.S. Large Cap Fund may
therefore not achieve its investment objective.

The U.S. Large Cap Fund may use many different investment strategies in seeking
its investment objectives and it has certain investment restrictions. These
strategies and certain of the restrictions and policies governing the U.S. Large
Cap Fund's investments are explained in the U.S. Large Cap Fund's Statement of
Additional Information. If you would like to learn more about how the U.S. Large
Cap Fund may invest, request the Statement of Additional Information.

INVESTMENT RISKS
- --------------------------------------------------------------------------------

This section contains a summary discussion of the general risks of investing in
the U.S. Large Cap Fund.

As with any mutual fund, there can be no guarantee that the U.S. Large Cap Fund
will meet its goals, or that the U.S. Large Cap Fund's performance will be
positive over any period of time.

The U.S. Large Cap Fund is subject to three principal risks: market risk,
selection risk and Canadian investment risk. Market risk is the risk that the
U.S. or Canadian equity markets will go down in value, including the possibility
that the U.S. or Canadian equity markets will go down sharply and unpredictably.
Selection risk is the risk that the stocks that the U.S. Large Cap Fund's
adviser

MERCURY V.I. U.S. LARGE CAP FUND 5
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[ABOUT THE DETAILS ICON] About the Details

selects will underperform the markets or other funds with similar investment
objectives and investment strategies. Canadian investment risk is the risk that
the U.S. Large Cap Fund's Canadian securities may go up or down in value
depending on the fluctuations in the relative exchange rates of the U.S. dollar
and the Canadian dollar, U.S. and Canadian political and economic developments,
and changes in U.S. and Canadian laws relating to investments in Canada. In
addition to these risks, certain investment techniques that the U.S. Large Cap
Fund may use entail other risks.

LIQUIDITY, INFORMATION AND VALUATION RISKS.

Certain securities, including securities of small companies, securities of
Canadian companies and "restricted securities," may be illiquid or volatile,
making it difficult or impossible to sell them at the time and at the price that
the U.S. Large Cap Fund would like. Restricted securities have contractual or
legal restrictions on their resale and include "private placement" securities
that the U.S. Large Cap Fund may buy directly from the issuer. Also, important
information about these companies, securities or the markets in which they
trade, may be inaccurate or unavailable. It may be difficult to value accurately
these types of securities. Certain derivatives may be subject to these risks as
well.

OTHER CANADIAN SECURITIES RISKS.

Canadian securities are sensitive to conditions within Canada, but also tend to
follow the U.S. market. Canada's economy depends heavily on exports to the U.S.,
Canada's largest trading partner. The Canadian economy relies strongly on the
production and processing of natural resources. Historically, natural resource
prices have been volatile. Demand by many citizens of the Province of Quebec for
secession from Canada may significantly impact the Canadian economy.

- - The costs of Canadian securities transactions tend to be higher than those of
U.S. transactions.

- - The Canadian securities market has different clearance and settlement
procedures, which may cause delays. This means that the U.S. Large Cap Fund's
assets may be uninvested and not earning returns. The U.S. Large Cap Fund may
miss investment opportunities or be unable to dispose of a security because of
these delays.

FOREIGN SECURITY RISKS

The U.S. Large Cap Fund defines companies located in the U.S. or Canada broadly.
As a result, the U.S. Large Cap Fund's investments may include companies
organized, traded or having substantial operations outside the U.S. or Canada.
This may expose the U.S. Large Cap Fund to risks associated with foreign
investments.

- The value of holdings traded outside the U.S. (and any hedging
transactions in foreign currencies) will be affected by changes in
currency exchange rates.

6 MERCURY V.I. U.S. LARGE CAP FUND
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[ABOUT THE DETAILS ICON] About the Details

- The costs of non-U.S. securities transactions tend to be higher
than those of U.S. transactions.

- These holdings may be adversely affected by foreign government
action.

- International trade barriers or economic sanctions against certain
non-U.S. countries may adversely affect these holdings.

BORROWING AND LEVERAGE

The use of borrowing can create leverage. Leverage increases the U.S. Large Cap
Fund's exposure to risk by increasing its total investments. If the U.S. Large
Cap Fund borrows money to make more investments than it otherwise could or to
meet redemptions, and the U.S. Large Cap Fund's investments go down in value,
the U.S. Large Cap Fund's losses will be magnified. Borrowing will cost the U.S.
Large Cap Fund interest and other fees.

Certain securities that the U.S. Large Cap Fund buys may create leverage,
including, for example, derivative securities. Like borrowing, these investments
may increase the U.S. Large Cap Fund's exposure to risk.

DERIVATIVES

The U.S. Large Cap Fund may also use instruments referred to as "Derivatives."
Derivatives are financial instruments whose value is derived from another
security, a commodity (such as gold or oil) or an index (a measure of value or
rates, such as the S&P 500 or the prime lending rate). Derivatives can allow the
U.S. Large Cap Fund to increase or decrease its level of risk exposure more
quickly and efficiently than transactions in other types of instruments.
Derivatives, however, are volatile and involve significant risks, including many
of the risks described above. Derivatives may not always be available or cost
efficient. If the U.S. Large Cap Fund invests in derivatives the investments may
not be effective as a hedge against price movements and can limit potential for
growth in U.S. Large Cap Fund share value. Other risks include:

- Credit risk -- the risk that the counterparty on a derivative
transaction will be unable to honor its financial obligation to the
U.S. Large Cap Fund.

- Currency risk -- the risk that changes in the exchange rate
between two currencies will adversely affect the value (in U.S.
dollar terms) of an investment.

- Leverage risk -- the risk associated with certain types of
investments or trading strategies (such as borrowing money to
increase the amount of investments) that relatively small market
movements may result in large changes in the value of an
investment. Certain investments or trading strategies that involve
leverage can result in losses that greatly exceed the amount
originally invested.

MERCURY V.I. U.S. LARGE CAP FUND 7
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[ABOUT THE DETAILS ICON] About the Details

- Liquidity risk -- the risk that certain securities may be
difficult or impossible to sell at the time that the seller would
like or at the price that the seller believes the security is
currently worth.

- Index risk -- If the derivative is linked to the performance of an
index, it will be subject to the risks associated with changes in
that index. If the index changes, the U.S. Large Cap Fund could
receive lower interest payments or experience a reduction in the
value of the derivative to below what the U.S. Large Cap Fund
paid. Certain indexed securities, including inverse securities
(which move in an opposite direction to the index), may create
leverage, to the extent that they increase or decrease in value at
a rate that is a multiple of the changes in the applicable index.

The U.S. Large Cap Fund may use the following types of derivative instruments:

- Futures -- exchange-traded contracts involving the obligation of
the seller to deliver, and the buyer to receive, certain assets
(or a money payment based on the change in value of
certain assets or an index) at a specified time. Futures may
involve leverage risk and currency risk.

- Forwards -- private contracts involving the obligation of the
seller to deliver, and the buyer to receive, certain assets (or a
money payment based on the change in value of certain assets or an
index) at a specified time. Forwards involve credit risk and
leverage risk, and may involve currency risk.

- Options -- exchange-traded or private contracts involving the
right of a holder to deliver (a "put") or receive (a "call")
certain assets (or a money payment based on the change of certain
assets or an index) from another party at a specified price within
a specified time period. Options may involve leverage risk.
Private options also involve credit risk and liquidity risk.
Options may also involve currency risk.

CONVERTIBLE SECURITIES

Convertible securities, including bonds and preferred stock, are convertible
into common stock. As a result of the conversion feature, the interest or
dividend rate on a convertible security is generally less than would be the case
if the security were not convertible. The value of a convertible security will
be affected both by its stated interest or dividend rate and the value of the
underlying common stock. Therefore, its value will be affected by the factors
that affect both debt securities (such as interest rates) and equity securities
(such as stock market movements generally). Some convertible securities might
require the U.S. Large Cap Fund to sell the securities back to the issuer or a
third party at a time that is disadvantageous to the U.S. Large Cap Fund.

8 MERCURY V.I. U.S. LARGE CAP FUND
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[ABOUT THE DETAILS ICON] About the Details

DEBT SECURITIES

Debt securities, such as bonds, involve credit risk, which is the risk that the
borrower will not make timely payments of principal and interest. These
securities are also subject to interest rate risk, which is the risk that the
value of the security may fall when interest rates rise. In general, the market
price of debt securities with longer maturities will go up or down more in
response to changes in interest rates than shorter term securities.

ADVISER'S HISTORICAL PERFORMANCE DATA -- CLASS A
- --------------------------------------------------------------------------------

The following tables present historical performance data for all accounts that
have been managed by the investment adviser or another Mercury investment
adviser and that have substantially similar (although not necessarily identical)
objectives and policies to the U.S. Large Cap Fund's. These accounts have been
managed using investment styles and strategies substantially similar to those to
be used in managing the U.S. Large Cap Fund. THESE FIGURES DO NOT REPRESENT THE
PERFORMANCE OF THE U.S. LARGE CAP FUND OR OF A PARTICIPATING INSURANCE COMPANY
SEPARATE ACCOUNT THAT FUNDS YOUR CONTRACT. The U.S. Large Cap Fund is newly
organized and does not yet have a performance record. The U.S. Large Cap Fund's
actual performance may be higher or lower, and past performance is no guarantee
of future results. IN ADDITION, PARTICIPATING INSURANCE COMPANIES GENERALLY
IMPOSE ADDITIONAL CHARGES AND FEES IN CONNECTION WITH A CONTRACT. THESE
ADDITIONAL FEES AND CHARGES WILL REDUCE THE CONTRACT OWNER'S RETURNS.

The composite figures shown in the tables presented below were calculated in the
following manner:

- All of the accounts in the composite were managed by the
investment adviser's Mercury affiliates. All personnel of the
investment adviser and its Mercury affiliates are employed by a
single holding company. Portfolio managers perform management
services for accounts of various Mercury advisers, including the
U.S. Large Cap Fund's investment adviser, depending on the nature
of each adviser's clients. The investment process, including the
resources available to the portfolio managers and the supervisory
review, is the same across advisers. As a practical matter, there
is no significant distinction between the process used in
determining the recommendations of the investment adviser and
those of its Mercury affiliates.

- The accounts included in the composite are not U.S. mutual funds,
and are not subject to the same rules and regulations (for
example, diversification and liquidity requirements and
restrictions on transactions with affiliates) as the U.S. Large
Cap Fund, or to the same types of expenses that the U.S. Large Cap
Fund or a contract owner will pay. These differences might have
adversely affected the performance figures shown below.

MERCURY V.I. U.S. LARGE CAP FUND 9
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[ABOUT THE DETAILS ICON] About the Details

- Unlike the U.S. Large Cap Fund, some of the accounts in the
composite do not value their assets on a daily basis. Therefore,
the performance figures shown below have been calculated using a
somewhat different formula than the one that the U.S. Large Cap
Fund will use. This difference might have adversely affected the
performance figures shown.

- The composite figures have been calculated by weighting the
performance of each included account by the level of the account's
total assets at the beginning of each monthly or quarterly period.
Accounts were added to the composite as of the first full quarter
under management and excluded at the end of the last full quarter
under management. Accordingly, the number of accounts included in
the composite vary by quarter, beginning with one from July 1,
1990 through January 1, 1996, and increasing to [four] in the most
recent quarter.

- The performance of each of the accounts in the composite may have
been influenced by the level of the account's total assets. Had an
account's assets been different, its performance might have been
higher or lower.

- The accounts presented were accounted for in various base
currencies other than U.S. dollars. The U.S. Large Cap Fund will
calculate its net asset value daily in U.S. dollars. For purposes
of this presentation, the accounts' performance history was
converted into U.S. dollars on at least a quarterly basis using
exchange rate movements to approximate the equivalent U.S. dollar
returns which might have been achieved.

- The figures shown below represent the performance, converted to
U.S. dollars, of the composite's included accounts. THEY ARE NOT
THE PERFORMANCE OF EITHER THE U.S. LARGE CAP FUND OR OF A
PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT (THAT FUNDS YOUR
CONTRACT) THAT INVESTS IN THE U.S. LARGE CAP FUND. Figures show
total returns. Total return shows you how much an investment has
changed in value over the stated time period and includes both
capital appreciation and income. The first table reflects average
annual total returns. This smooths out variations in annual
performance by averaging returns over the stated period. The
second table shows actual total returns for each one year period.

10 MERCURY V.I. U.S. LARGE CAP FUND
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[ABOUT THE DETAILS ICON] About the Details

includes a "Net of Fees and Charges" section, which reflects
adjustments of the gross performance to reflect the deduction of
all of the fees and expenses that the U.S. Large Cap Fund is
projected to pay on its Class A shares. These projected fees and
expenses are shown in a fee table in the separate prospectus
describing the contract. THE "NET OF FEES AND CHARGES" FIGURES DO
NOT REFLECT THE ADDITIONAL FEES AND CHARGES THAT A PARTICIPATING
INSURANCE COMPANY MAY IMPOSE IN CONNECTION WITH A CONTRACT. THESE
ADDITIONAL FEES AND CHARGES WILL REDUCE A CONTRACT OWNER'S RETURN.
Like the gross figures, the net figures are hypothetical, because
they do not reflect the actual fees and charges paid by the
included accounts. The net figures assume a participating
insurance company separate account bought Class A shares at the
beginning of the period and sold (redeemed) the shares at the end
of the period. To the extent the U.S. Large Cap Fund's expenses
deviate from the projections, the "Net of Fees and Charges"
figures will be inaccurate. The effect would be greater over
longer periods due to compounding. The effect of charges in
connection with a contract will similarly be magnified over longer
periods. The net figures shown -- that is, the performance results
after applicable U.S. Large Cap Fund level deductions -- are equal
to or lower than the actual net results of the included accounts.

- Both tables include figures for a benchmark index (Standard &
Poor's 500 Index) and for the Lipper Growth Funds universe so that
you can compare the composite's performance to the performance of
the market as a whole. The Standard & Poor's 500 Composite Stock
Price Index is an unmanaged index and does not reflect any fees or
charges. The Lipper Growth Funds Average reflects advisory fees
and other fees and charges.

MERCURY V.I. U.S. LARGE CAP FUND 11
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[ABOUT THE DETAILS ICON] About the Details

AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

THIS IS NOT THE PERFORMANCE OF EITHER THE U.S. LARGE CAP FUND OR OF ANY
PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT INVESTING IN THE FUND.

FOR FOR FOR FOR FOR FOR
ONE-YEAR TWO-YEAR THREE-YEAR FOUR-YEAR FIVE-YEAR SIX-YEAR
PERIOD PERIOD PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED:
- ----------------------------------------------------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- ----------------------------------------------------------------------------------------------------------------------------
Class A Fees and Charges % % % % % %
- ----------------------------------------------------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3):
- ----------------------------------------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (4):
- ----------------------------------------------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (5):
- ----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
FOR
EIGHT YEARS
AND
FOR FOR MONTH
SEVEN-YEAR EIGHT-YEAR PERIOD
PERIOD PERIOD ENDED
ENDED ENDED (1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED:
- --------------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- --------------------------------------------------------------------------------------
Class A Fees and Charges % % %
- --------------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3):
- --------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (4):
- --------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (5):
- --------------------------------------------------------------------------------------
</TABLE>

(1) The investment adviser and its affiliates first began managing accounts with
substantially similar objectives and policies to those of the U.S. Large Cap
Fund on July 1, 1990.

(2) Reflects the reinvestment of dividends and distributions, and the deduction
of all fees and expenses that the U.S. Large Cap Fund is projected to pay.
To the extent the U.S. Large Cap Fund's expenses deviate from the
projections, the "Net of Fees and Charges" figures will be inaccurate. The
effect would be greater over longer periods due to compounding. Does not
reflect the additional fees and charges that a participating insurance
company may impose in connection with a contract. These additional fees and
charges reduce investment returns. Compounding will magnify this effect over
longer periods.

(3) Does not reflect the deduction of any fees, charges or expenses other than
certain brokerage commissions. These figures are hypothetical and presented
for information only; they do not reflect actual performance of the accounts
because the accounts would have paid fees and expenses.

(4) An unmanaged index comprised of common stock prices. No advisory fees, and
no other expenses (e.g., custody or brokerage fees) are reflected in the
total returns of the Index. Index returns reflect reinvestment of net
dividends and distributions.

(5) An average of the performance of other U.S. investment companies that
concentrate their investments in equity securities of U.S. companies whose
long-term earnings are expected to grow significantly faster than the
earnings of the stocks represented in the major unmanaged stock indices. The
average includes 12b-1 fees, advisory fees and other expenses. The average
also reflects reinvestment of dividends and distributions.

12 MERCURY V.I. U.S. LARGE CAP FUND
<PAGE> 15

[ABOUT THE DETAILS ICON] About the Details

TOTAL RETURNS ON AN ANNUAL BASIS
- --------------------------------------------------------------------------------

THIS IS NOT THE PERFORMANCE OF EITHER THE U.S. LARGE CAP FUND OR OF ANY
PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT INVESTING IN THE FUND.

FOR THE
MONTHS ENDED
FOR EACH YEAR ENDED DECEMBER 31,
1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED: GROSS OF FEES AND
CHARGES (2): % % % %
- ----------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (3):
- ----------------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (4):
- ----------------------------------------------------------------------------------------------

<CAPTION>
FOR THE PERIOD
JULY 1, 1990
TO
FOR EACH YEAR ENDED DECEMBER 31, DECEMBER 31,
1994 1993 1992 1991 1990(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED: GROSS OF FEES AND
CHARGES (2): % % % % %
- ----------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (3):
- ----------------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (4):
- ----------------------------------------------------------------------------------------------
</TABLE>

(1) The investment adviser and its affiliates first began managing accounts with
substantially similar objectives and policies to those of the U.S. Large Cap
Fund on July 1, 1990.

(2) Does not reflect the deduction of any fees, charges or expenses, other than
certain brokerage commissions. These figures are hypothetical and presented
for information only; they do not reflect actual performance of the accounts
because the accounts would have paid fees and expenses. If these fees and
expenses were included, the performance figures would be lower.

(3) An unmanaged index comprised of common stock prices. No advisory fees, and
no other expenses (e.g., custody or brokerage fees) are reflected in the
total returns of the Index. Index returns reflect reinvestment of net
dividends and distributions.

(4) An average of the performance of other U.S. investment companies that
concentrate their investments in equity securities of U.S. companies whose
long-term earnings are expected to grow significantly faster than the
earnings of the stocks represented in the major unmanaged stock indices. The
average includes 12b-1 fees, advisory fees and other expenses. The average
also reflects reinvestment of dividends and distributions.

MERCURY V.I. U.S. LARGE CAP FUND 13
<PAGE> 16
[ABOUT THE DETAILS ICON] About the Details

ADVISER'S HISTORICAL PERFORMANCE DATA -- CLASS B
- --------------------------------------------------------------------------------

The composite figures shown in the tables presented below were calculated in the
following manner:

- The composite figures have been calculated by weighting the
performance of each included account by the level of the account's
total assets at the beginning of each monthly or

14 MERCURY V.I. U.S. LARGE CAP FUND
<PAGE> 17
[ABOUT THE DETAILS ICON] About the Details

quarterly period. Accounts were added to the composite as of the
first full quarter under management and excluded at the end of the
last full quarter under management. Accordingly, the number of
accounts included in the composite vary by quarter, beginning with
one from July 1, 1990 through January 1, 1996, and increasing to
[four] in the most recent quarter.

- To provide you with additional information, these composite
performance figures are presented two different ways. The "Gross
of Fees and Charges" row reflects the composite's gross
performance -- that is, performance before any deductions for fees
or expenses in connection with either the U.S. Large Cap Fund or a
contract. These figures are hypothetical and presented for
information only; they do not reflect actual performance of the
accounts because the accounts would have paid fees and expenses.
The first table (average annual total returns) also includes a
"Net of Fees and Charges" section, which reflects adjustments of
the gross performance to reflect the deduction of all of the fees
and expenses that the U.S. Large Cap Fund is projected to pay on
its Class B shares. These projected fees and expenses are shown in
a fee table in the separate prospectus describing the contract.
THE "NET OF FEES AND CHARGES" FIGURES DO NOT REFLECT THE
ADDITIONAL FEES AND CHARGES THAT A PARTICIPATING INSURANCE COMPANY
MAY IMPOSE IN CONNECTION WITH A CONTRACT. THESE ADDITIONAL FEES
AND CHARGES WILL REDUCE A CONTRACT OWNER'S RETURN. Like the gross
figures, the

MERCURY V.I. U.S. LARGE CAP FUND 15
<PAGE> 18
[ABOUT THE DETAILS ICON] About the Details

net figures are hypothetical, because they do not reflect the
actual fees and charges paid by the included accounts. The net
figures assume a participating insurance company separate account
bought Class B shares at the beginning of the period and sold
(redeemed) the shares at the end of the period. To the extent the
U.S. Large Cap Fund's expenses deviate from the projections, the
"Net of Fees and Charges" figures will be inaccurate. The effect
would be greater over longer periods due to compounding. The
effect of charges in connection with a contract will similarly be
magnified over longer periods. The net figures shown -- that is,
the performance results after applicable U.S. Large Cap Fund level
deductions -- are equal to or lower than the actual net results of
the included accounts.

16 MERCURY V.I. U.S. LARGE CAP FUND
<PAGE> 19
[ABOUT THE DETAILS ICON] About the Details

AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

THIS IS NOT THE PERFORMANCE OF EITHER THE U.S. LARGE CAP FUND OR OF ANY
PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT INVESTING IN THE FUND.

FOR FOR FOR FOR FOR FOR
ONE-YEAR TWO-YEAR THREE-YEAR FOUR-YEAR FIVE-YEAR SIX-YEAR
PERIOD PERIOD PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED:
- ----------------------------------------------------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- ----------------------------------------------------------------------------------------------------------------------------
Class B Fees and Charges % % % % % %
- ----------------------------------------------------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3):
- ----------------------------------------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (4):
- ----------------------------------------------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (5):
- ----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
FOR
EIGHT YEARS
AND
FOR FOR MONTH
SEVEN-YEAR EIGHT-YEAR PERIOD
PERIOD PERIOD ENDED
ENDED ENDED (1)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED:
- ----------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- ----------------------------------------------------------------------------------
Class B Fees and Charges % % %
- ----------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3):
- ----------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (4):
- ----------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (5):
- ----------------------------------------------------------------------------------
</TABLE>

(1) The investment adviser and its affiliates first begun managing accounts with
substantially similar objectives and policies to those of the U.S. Large Cap
Fund or July 1, 1990.

(4) An unmanaged index comprised of common stock prices. No 12b-1 fees or
advisory fees, and no other expenses (e.g., custody or brokerage fees) are
reflected in the total returns of the Index. Index returns reflect
reinvestment of net dividends and distributions.

MERCURY V.I. U.S. LARGE CAP FUND 17
<PAGE> 20
[ABOUT THE DETAILS ICON] About the Details

TOTAL RETURNS ON AN ANNUAL BASIS
- --------------------------------------------------------------------------------

THIS IS NOT THE PERFORMANCE OF EITHER THE U.S. LARGE CAP FUND OR OF ANY
PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT INVESTING IN THE FUND.

(1) The investment adviser and its affiliates first began managing accounts with
substantially similar objectives and policies to those of the U.S. Large Cap
Fund on July 1, 1990.

(3) An unmanaged index comprised of common stock prices. No 12b-1 fees or
advisory fees, and no other expenses (e.g., custody or brokerage fees) are
reflected in the total returns of the Index. Index returns reflect
reinvestment of net dividends and distributions.

18 MERCURY V.I. U.S. LARGE CAP FUND
<PAGE> 21
The Management Team [THE MANAGEMENT TEAM ICON]

MANAGEMENT OF THE U.S. LARGE CAP FUND
- --------------------------------------------------------------------------------

Mercury Asset Management International Ltd. manages the U.S. Large Cap Fund's
investments under the overall supervision of the U.S. Large Cap Fund's Board of
Directors. The investment adviser has the responsibility for making all
investment decisions for the U.S. Large Cap Fund.

The senior investment professionals in the group that have managed the U.S.
Large Cap Fund's portfolio since the U.S. Large Cap Fund started operations
include:

Garrett Fish has been employed as an investment professional by the investment
adviser or its Mercury affiliates since 1997. Mr. Fish was employed at Jardine
Fleming Hong Kong as a U.S. fund manager from 1994 to 1997. From 1991 to 1993
Mr. Fish was an account manager at Aetna Capital Management in the U.S.

Andrew J. Hudson, Director of Mercury Asset Management. He has been employed as
an investment professional by the investment adviser or its Mercury affiliates
since 1992.

Michael Morony has been employed as an investment professional by the investment
adviser or its Mercury affiliates since 1997. Mr. Morony worked for Threadneedle
Investment Managers from 1992 to 1997. Mr. Morony is primarily responsible for
the day-to-day management of the U.S. Large Cap Fund.

Mercury and its affiliates manage portfolios with over [$483] billion in assets
(as of [October] 1998) for individuals and institutions seeking investments
worldwide. This amount includes assets managed for its affiliates. The advisory
agreement between the U.S. Large Cap Fund and the investment adviser gives the
investment adviser the responsibility for making all investment decisions.

The investment adviser is paid at the rate of % of the U.S. Large Cap
Fund's average daily net assets.

The investment adviser has hired Fund Asset Management, L.P., an affiliate, to
manage daily cash assets. The Fund does not pay any incremental fee for this
service, although Mercury may make payments to Fund Asset Management, L.P. Fund
Asset Management, L.P. will also provide administrative services to the U.S.
Large Cap Fund.

The U.S. Large Cap Fund may in the future invest all of its assets in another
mutual fund that has the same investment objective and fundamental policies as
the U.S. Large Cap Fund. All portfolio investments would then be made at the
level of the underlying mutual fund and the U.S. Large Cap Fund's investment
results would correspond directly to that fund's investment results. This type
of mutual fund structure is sometimes referred to as a "master/feeder"
structure. If other entities also invest in the underlying fund, this could
enable the U.S. Large Cap Fund to realize economies of scale by investing
through an entity with more assets (the underlying fund). However, there are
additional costs involved in operating a "master/feeder" structure. If these
additional costs are not offset as a result of economies of scale, it is
possible that the U.S. Large

MERCURY V.I. U.S. LARGE CAP FUND 19
<PAGE> 22
The Management Team [THE MANAGEMENT TEAM ICON]

Cap Fund's expenses would increase rather than decrease if it converts to this
structure. The directors of the U.S. Large Cap Fund have the authority to make
the change to a "master/feeder" structure without first holding a vote of the
U.S. Large Cap Fund's shareholders if they believe it is in the best interests
of the U.S. Large Cap Fund to do so.

20 MERCURY V.I. U.S. LARGE CAP FUND
<PAGE> 23

<PAGE> 1

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
- --------------------------------------------------------------------------------

APPENDIX

This Appendix constitutes a part of the Prospectus for the Class A shares of
Mercury V.I. Pan-European Growth Fund and Mercury V.I. U.S. Large Cap Fund. For
simplicity, this Appendix uses the term "Fund" to refer to each of these Funds.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
[ACCOUNT CHOICES ICON]

ACCOUNT CHOICES
- ------------------------------------------------------------------
Fund Shares................................................. A-2
How to Buy and Sell Shares.................................. A-2
How Shares are Priced....................................... A-2
Dividends, Capital Gains and Taxes.......................... A-3

[TO LEARN MORE ICON]

TO LEARN MORE
- ------------------------------------------------------------------
Shareholder Reports.....................................Back Cover
Statement of Additional Information.....................Back Cover
</TABLE>

MERCURY V.I. PAN-EUROPEAN GROWTH FUND
<PAGE> 2
[ACCOUNT CHOICES ICON] Account Choices

NET ASSET VALUE -- the market value in U.S. dollars of a Fund's total assets
after deducting liabilities, divided by the number of shares outstanding.

FUND SHARES
- --------------------------------------------------------------------------------

Each Fund offers two classes of shares, Class A and Class B. This Prospectus
describes the Class A shares only. The participating insurance company decides
which share class will support a contract. Each share class represents an
ownership interest in the same investment portfolio.

Each Fund's shares are distributed by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.

After a Fund commences operations, participating insurance companies can
purchase Fund shares on each business day.

HOW TO BUY AND SELL SHARES
- --------------------------------------------------------------------------------

The Funds do not offer their shares to the general public. Only separate
accounts established by participating insurance companies can buy Fund shares.
The Funds' investment adviser is affiliated with two participating insurance
companies. Participating insurance companies issue variable annuity and/or
variable life insurance contracts and use Fund shares to support these
contracts. When this prospectus refers to Fund shareholders, it is referring to
the participating insurance companies.

Contract owners have certain rights under their contract, but do not have any
direct interest in Fund shares. A separate prospectus describes the contract and
its additional fees and charges. That prospectus also describes how changes in a
Fund's net asset value and distributions on Fund shares affect benefits under a
contract.

HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------

Shares are sold and redeemed at their NET ASSET VALUE. A Fund calculates its net
asset value (generally by using market quotations) each day the New York Stock
Exchange is open, fifteen minutes after the close of business on the Exchange
(the Exchange generally closes at 4:00 p.m. Eastern time). The net asset value
used in determining share price is the one calculated after a purchase or
redemption order is received. Net asset value is generally calculated by valuing
each security at its closing price for the day. A Fund's investments may be
traded on non-U.S. securities exchanges that close many hours before the New
York Stock Exchange. Events that could affect securities prices that occur
between these times normally are not reflected in that Fund's net asset value.
Non-U.S. securities sometimes trade on days that the New York Stock Exchange is
closed. As a result, a Fund's net asset value may change on days when a
participating insurance company will not be able to purchase or redeem a Fund's
shares. If an event occurs after the close of a non-U.S. exchange that is likely
to significantly affect a Fund's net asset value, "fair value" pricing may be
used. This means that a Fund may value its foreign holdings at prices other than
their last closing prices, and that Fund's net asset value will reflect this.
Securities and assets for which market quotations are not readily available are
also valued at fair value as determined in good faith by or under the direction
of the Board of Directors.

A-2

<PAGE> 3

[ACCOUNT CHOICES ICON] Account Choices

DIVIDENDS -- income paid to shareholders. Dividends are reinvested in additional
shares of a Fund as they are paid.

DISTRIBUTIONS -- capital gains paid to shareholders. Distributions are
reinvested in a Fund as they are paid.

DIVIDENDS, CAPITAL GAINS AND TAXES
- --------------------------------------------------------------------------------

A Fund will distribute any net investment income and any net realized long or
short-term capital gains at least annually. A Fund may also pay a special
distribution at the end of the calendar year to comply with federal tax
requirements. DIVIDENDS and DISTRIBUTIONS from a Fund are reinvested
automatically in shares of that Fund at net asset value.

Each Fund intends to continue to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended. As long as each Fund is qualified
as a regulated investment company, it will not be subject to federal income tax
on the earnings that it distributes to its shareholders.

For information regarding the federal income tax treatment of a contract and
distributions to the separate accounts of the participating insurance companies,
see the separate prospectus for the contracts.

A-3

<PAGE> 4
[THE MANAGEMENT TEAM ICON] The Management Team

A NOTE ABOUT YEAR 2000

Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). A Fund could be adversely affected
if the computer systems used by the investment adviser or other Fund service
providers do not properly address this problem before January 1, 2000. The
investment adviser expects to have addressed this problem before then, and does
not anticipate that the services it provides will be adversely affected. The
Funds' other service providers have told the administrator that they also expect
to resolve the Year 2000 Problem, and the administrator will continue to monitor
the situation as the year 2000 approaches. However, if the problem has not been
fully addressed, each Fund could be negatively affected. The Year 2000 Problem
could also have a negative impact on the companies in which a Fund invests, and
this could hurt that Fund's investment returns.

The Year 2000 Problem may also adversely affect the participating insurance
companies and the contracts that they offer. For more information, see the
separate contract prospectus.

A-4
<PAGE> 5

[THE MANAGEMENT TEAM ICON] The Management Team

INVESTMENT ADVISER
Mercury Asset Management International Ltd.
33 King William Street
London EC4R 9AS
England

ADMINISTRATOR AND SUB-ADVISER
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536

TRANSFER AGENT
Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
(888-763-2260)

INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400

DISTRIBUTOR
Mercury Funds Distributor,
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081

CUSTODIAN
[to come]

COUNSEL
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022

<PAGE> 6
[TO LEARN MORE ICON] To Learn More

SHAREHOLDER REPORTS

Additional information about a Fund's investments is available in that Fund's
annual and semi-annual reports to shareholders. In a Fund's annual report you
will find a discussion of the relevant market conditions and investment
strategies that significantly affected that Fund's performance during its last
fiscal year.

STATEMENT OF ADDITIONAL INFORMATION

Each Fund's Statement of Additional Information contains further information
about that Fund and is incorporated by reference (legally considered to be part
of that Fund's Prospectus).

Each Fund's shares are sold to insurance company separate accounts to support
variable annuity and/or variable life insurance contracts. For copies of each
Fund's shareholder reports or Statement of Additional Information, contract
owners should contact the insurance company that issued their contract.

Information about each Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet Site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS
AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.

Investment Company Act File # .

CODE #
(C) Mercury Asset Management International Ltd.

<PAGE> 24

<PAGE> 1

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
- --------------------------------------------------------------------------------

APPENDIX

This Appendix constitutes a part of the Prospectus for the Class B shares of
Mercury V.I. Pan-European Growth Fund and Mercury V.I. U.S. Large Cap Fund. For
simplicity, this Appendix uses the term "Fund" to refer to each of these Funds.

TABLE OF CONTENTS

[ACCOUNT CHOICES ICON]

[TO LEARN MORE ICON]

MERCURY V.I. PAN-EUROPEAN GROWTH FUND
<PAGE> 2
[ACCOUNT CHOICES ICON] Account Choices

NET ASSET VALUE -- the market value in U.S. dollars of a Fund's total assets
after deducting liabilities, divided by the number of shares outstanding.

FUND SHARES
- --------------------------------------------------------------------------------

Each Fund offers two classes of shares, Class A and Class B. This Prospectus
describes the Class B shares only. The participating insurance company decides
which share class will support a contract. Each share class represents an
ownership interest in the same investment portfolio.

Each Fund's shares are distributed by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.

After a Fund commences operations, participating insurance companies can
purchase Fund shares on each business day.

HOW TO BUY AND SELL SHARES
- --------------------------------------------------------------------------------

HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------

A-2

<PAGE> 3

[ACCOUNT CHOICES ICON] Account Choices

DIVIDENDS -- income paid to shareholders. Dividends are reinvested in additional
shares of a Fund as they are paid.

DISTRIBUTIONS -- capital gains paid to shareholders. Distributions are
reinvested in a Fund as they are paid.

DIVIDENDS, CAPITAL GAINS AND TAXES
- --------------------------------------------------------------------------------

A-3

<PAGE> 4
[THE MANAGEMENT TEAM ICON] The Management Team

A NOTE ABOUT YEAR 2000

The Year 2000 Problem may also adversely affect the participating insurance
companies and the contracts that they offer. For more information, see the
separate contract prospectus.

A-4
<PAGE> 5

[THE MANAGEMENT TEAM ICON] The Management Team

INVESTMENT ADVISER
Mercury Asset Management International Ltd.
33 King William Street
London EC4R 9AS
England

ADMINISTRATOR AND SUB-ADVISER
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536

TRANSFER AGENT
Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
(888-763-2260)

INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400

DISTRIBUTOR
Mercury Funds Distributor,
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081

CUSTODIAN
[to come]

COUNSEL
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022

<PAGE> 6
[TO LEARN MORE ICON] To Learn More

SHAREHOLDER REPORTS

STATEMENT OF ADDITIONAL INFORMATION

Each Fund's Statement of Additional Information contains further information
about that Fund and is incorporated by reference (legally considered to be part
of that Fund's Prospectus).

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS
AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.

Investment Company Act File # .

CODE #
(C) Mercury Asset Management International Ltd.

<PAGE> 25

STATEMENT OF ADDITIONAL INFORMATION

MERCURY V.I. U.S. LARGE CAP FUND
of Mercury Asset Management V.I. Funds, Inc.

P.O. Box 9011, Princeton, New Jersey 08543-9011
Phone No. (888) 763-2260

------------------------

Mercury V.I. U.S. Large Cap Fund (the "U.S. Large Cap Fund" or a "Fund") is
a series of Mercury Asset Management V.I. Funds, Inc. (the "Corporation" or
"Mercury"). The U.S. Large Cap Fund is an open-end diversified investment
company (commonly known as a mutual fund). The investment objective of the U.S.
Large Cap Fund is long-term capital growth. The U.S. Large Cap Fund seeks to
achieve this objective through investments primarily in a diversified portfolio
of equity securities of large cap companies located in the U.S. The U.S. Large
Cap Fund may also invest up to 10% of its assets in equity securities of
companies located in Canada. There can be no assurance that the investment
objective of the U.S. Large Cap Fund will be achieved.

The U.S. Large Cap Fund does not offer its shares to the general public.
Shares are sold only to separate accounts established by participating insurance
companies ("Participating Insurance Companies") to fund benefits under variable
annuity or variable life insurance contracts (the "Contracts"). The
Participating Insurance Companies will redeem shares to the extent necessary to
provide benefits under the respective Contracts or for such other purposes as
consistent with the respective Contracts. The U.S. Large Cap Fund's distributor
is Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc.

------------------------

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the U.S. Large Cap Fund, dated
, 1999 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission (the "Commission"). The Prospectus may be obtained from
the Participating Insurance Company that issued your Contract. For information
on obtaining the Prospectus see the separate prospectus describing the Contract.
This Statement of Additional Information incorporates by reference the
Prospectus.

MERCURY ASSET MANAGEMENT INTERNATIONAL LTD. -- INVESTMENT ADVISER
MERCURY FUNDS DISTRIBUTOR -- DISTRIBUTOR

------------------------

The date of this Statement of Additional Information is , 1999.
<PAGE> 26

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.......................... 2
Investment Restrictions................................... 7
Appendix.................................................... A-1
Management of the Funds..................................... A-2
Directors and Officers.................................... A-2
Compensation of Directors................................. A-2
Administration Arrangements............................... A-2
Management and Advisory Arrangements...................... A-3
Code of Ethics............................................ A-4
Purchase of Shares.......................................... A-5
Redemption of Shares........................................ A-5
Portfolio Transactions and Brokerage........................ A-5
Determination of Net Asset Value............................ A-6
Dividends, Distributions and Taxes.......................... A-8
Dividends and Distributions............................... A-8
Taxes..................................................... A-8
Other Tax Matters......................................... A-8
Performance Data............................................ A-8
General Information......................................... A-9
Description of Shares..................................... A-9
Independent Auditors...................................... A-9
Custodian................................................. A-9
Transfer Agent............................................ A-10
Legal Counsel............................................. A-10
Reports to Shareholders................................... A-10
Additional Information.................................... A-10
Annex A..................................................... Annex A-1
Annex B..................................................... Annex B-1
</TABLE>

CODE #
(C) Mercury Asset Management International Ltd.
<PAGE> 27

INVESTMENT OBJECTIVES AND POLICIES

The investment objective of the U.S. Large Cap Fund is long-term capital
growth. This is a fundamental policy and cannot be changed without shareholder
approval. The U.S. Large Cap Fund tries to achieve its goal by investing
primarily in a diversified portfolio of equity securities of large cap companies
located in the U.S. The U.S. Large Cap Fund may also invest up to 10% of its
assets in equity securities of companies of any market capitalization located in
Canada. Reference is made to "How the U.S. Large Cap Fund Invests" and
"Investment Risks" in the Prospectus for a discussion of the investment
objective and policies of, and the risks associated with an investment in, the
U.S. Large Cap Fund. There can be no guarantee that the U.S. Large Cap Fund's
investment objective will be achieved.

The U.S. Large Cap Fund may in the future invest all of its assets in
another mutual fund that has the same investment objective and fundamental
policies as the U.S. Large Cap Fund. All portfolio investments would then be
made at the level of the underlying mutual fund and the U.S. Large Cap Fund's
investment results would correspond directly to that fund's investment results.
This type of mutual fund structure is sometimes referred to as a "master/feeder"
structure. If other entities also invest in the underlying fund, this could
enable the U.S. Large Cap Fund to realize economies of scale by investing
through an entity with more assets (the underlying fund). However, there are
additional costs involved in operating a "master/feeder" structure. If these
additional costs are not offset as a result of economies of scale, it is
possible that the U.S. Large Cap Fund's expenses would increase rather than
decrease if it converts to this structure. The Directors of the U.S. Large Cap
Fund have the authority to make the change to a "master/feeder" structure
without first holding a vote of the U.S. Large Cap Fund's shareholders if they
believe it is in the best interests of the U.S. Large Cap Fund to do so.

For purposes of the U.S. Large Cap Fund's investment objective, an issuer
ordinarily will be considered to be located in the country under the laws of
which it is organized or where the primary trading market of its securities is
located. The U.S. Large Cap Fund, however, may also consider a company to be
located in a country, without reference to its domicile or to the primary
trading market of its securities, when at least 50% of its non-current assets,
capitalization, gross revenues or profits in any one of the two most recent
fiscal years represents (directly or indirectly through subsidiaries) assets or
activities located in such country. The U.S. Large Cap Fund also may consider
closed-end investment companies to be located in the country or countries in
which they primarily make their portfolio investments.

While it is the policy of the U.S. Large Cap Fund generally not to engage
in trading for short-term gains, Mercury Asset Management International Ltd.
("Mercury International" or the "Investment Adviser") will effect portfolio
transactions without regard to holding period if, in its judgment, such
transactions are advisable in light of a change in circumstances of a particular
company or within a particular industry or in general market, economic or
financial conditions.

The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on non-U.S. investments by U.S. investors such
as the U.S. Large Cap Fund. If such restrictions should be reinstituted, it
might become necessary for the U.S. Large Cap Fund to invest all or
substantially all of its assets in U.S. securities. In such event, the U.S.
Large Cap Fund would review its investment objective or fundamental policies to
determine whether changes are appropriate. Any changes in the investment
objective or fundamental policies set forth under "Investment Restrictions"
below would require the approval of the holders of a majority of the U.S. Large
Cap Fund's outstanding voting securities.

The U.S. Large Cap Fund's ability and decisions to purchase or sell
portfolio securities may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Under present conditions, the
Investment Adviser does not believe that these considerations will have any
significant effect on its portfolio strategy, although there can be no assurance
in this regard.

The U.S. Large Cap Fund may invest in the securities of non-U.S. issuers in
the form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") or other securities convertible
into securities of non-U.S. issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted.

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<PAGE> 28

However, they would generally be subject to the same risks as the securities
into which they may be converted (as more fully described in the Prospectus and
below). ADRs are receipts typically issued by an American bank or trust company
that evidence ownership of underlying securities issued by a non-U.S.
corporation. EDRs are receipts issued in Europe that evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world that
evidence a similar ownership arrangement. Generally, ADRs, in registered form,
are designed for use in the U.S. securities markets, and EDRs, in bearer form,
are designed for use in European securities markets. GDRs are tradeable both in
the United States and Europe and are designed for use throughout the world. The
U.S. Large Cap Fund may invest in unsponsored ADRs, EDRs and GDRs. The issuers
of unsponsored ADRs, EDRs and GDRs are not obligated to disclose material
information in the United States, and therefore, there may be no correlation
between such information and the market value of such securities.

The U.S. Large Cap Fund's investment objective and policies are described
in "How the U.S. Large Cap Fund Invests" in the Prospectus. Certain types of
securities in which the U.S. Large Cap Fund may invest and certain investment
practices that the U.S. Large Cap Fund may employ are discussed more fully
below.

Investing in Canada. While the U.S. Large Cap Fund will invest at least
65% of its total assets in large cap companies located in the United States, it
may invest up to 10% or less of its assets in Canada. Canadian securities are
sensitive to conditions within Canada, but also tend to follow the U.S. market.
The country's economy relies strongly on the production and processing of
natural resources, and foreign trade. The Canadian government has attempted to
reduce restrictions against foreign investment, and its recent trade agreements
with the United States and Mexico are expected to increase trade; however, these
reforms could be reversed. Demand by many citizens in the Province of Quebec for
secession from Canada may significantly impact the Canadian economy.

Foreign Security Risks. The U.S. Large Cap Fund defines companies located
in the U.S. or Canada broadly. As a result, the U.S. Large Cap Fund's
investments may include companies organized, traded or having substantial
operations outside the U.S. or Canada. This may expose the U.S. Large Cap Fund
to risks associated with foreign investments. Foreign investments involve
certain risks not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, different legal systems and the existence or possible imposition
of exchange controls or other U.S. or non-U.S. governmental laws or restrictions
applicable to such investments. Securities prices in different countries are
subject to different economic, financial and social factors. Because the U.S.
Large Cap Fund may invest in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency exchange rates may
affect the value of securities in the portfolio and the unrealized appreciation
or depreciation of investments insofar as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand in the
foreign exchange markets. These forces are, in turn, affected by international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. With respect to certain countries,
there may be the possibility of expropriation of assets, confiscatory taxation,
high rates of inflation, political or social instability or diplomatic
developments that could affect investment in those countries. In addition,
certain investments may be subject to non-U.S. withholding taxes.

Debt Securities. The U.S. Large Cap Fund may hold convertible debt
securities, non-convertible securities and preferred securities. The U.S. Large
Cap Fund has established no rating criteria for the debt securities in which it
may invest. Therefore, the U.S. Large Cap Fund may invest in debt securities
either (a) rated in one of the top four rating categories by a nationally
recognized statistical rating organization or unrated but in the Investment
Adviser's judgment, possess similar credit characteristics ("investment grade
securities") or (b) rated below the top four rating categories or that are
unrated but, in the Investment Adviser's judgment, possess similar credit
characteristics ("high yield securities"). The Investment Adviser considers
ratings as one of several factors in its independent credit analysis of issuers.

Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn

3
<PAGE> 29

or a sustained period of rising interest rates, issuers of high yield securities
may be more likely to experience financial stress, especially if such issuers
are highly leveraged. High yield securities tend to be more volatile than higher
rated fixed income securities and adverse economic events may have a greater
impact on the prices of high yield securities than on higher rated fixed income
securities. The issuer's ability to service its debt obligations also may be
adversely affected by specific issuer developments or the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holder of high yield securities because such securities may be
unsecured and may be subordinated to other creditors of the issuer.

High yield securities frequently have call or redemption features that
would permit the issuer to repurchase such securities from the U.S. Large Cap
Fund. If a call were exercised by an issuer during a period of declining
interest rates, the U.S. Large Cap Fund likely would have to replace such called
security with a lower yielding security, thus decreasing the net investment
income for the U.S. Large Cap Fund and dividends to shareholders.

The U.S. Large Cap Fund may have difficulty disposing of certain high yield
securities because there may be a thin trading market for such securities.
Because not all dealers maintain markets in all high yield securities, there is
no established retail secondary market for many of these securities, and the
U.S. Large Cap Fund anticipates that such securities could be sold only to a
limited number of dealers or institutional investors. To the extent that a
secondary trading market for high yield securities does exist, it is generally
not as liquid as the secondary market for higher rated securities. Reduced
secondary market liquidity may have an adverse impact on market price and the
U.S. Large Cap Fund's ability to dispose of particular issues when necessary to
meet the U.S. Large Cap Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain securities also may make it more
difficult for the U.S. Large Cap Fund to obtain accurate market quotations for
purposes of valuing the Fund's portfolio. Market quotations are generally
available on many high yield securities only from a limited number of dealers
and may not necessarily represent firm bids of such dealer or prices for actual
sales.

Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. To the extent the U.S. Large
Cap Fund holds high yield securities, factors adversely affecting the market
value of high yield securities are likely to adversely affect the U.S. Large Cap
Fund's net asset value. In addition, the U.S. Large Cap Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
on a portfolio holding or participate in the restructuring of the obligation.

Borrowing. The U.S. Large Cap Fund may borrow from banks (as defined in
the Investment Company Act) in amounts up to 33 1/3% of its total assets
(including the amount borrowed), and may borrow up to an additional 5% of its
total assets for temporary purposes. The U.S. Large Cap Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities and may purchase securities on margin to the extent
permitted by applicable law. Subject to these limits, the U.S. Large Cap Fund
may use borrowing to enable it to meet redemptions.

The use of leverage by the U.S. Large Cap Fund creates an opportunity for
greater total return, but, at the same time, creates special risks. For example,
leveraging may exaggerate changes in the net asset value of U.S. Large Cap Fund
shares and in the yield on the U.S. Large Cap Fund's portfolio. Although the
principal of such borrowings will be fixed, the U.S. Large Cap Fund's assets may
change in value during the time the borrowings are outstanding. Borrowings will
create interest expenses for the U.S. Large Cap Fund which can exceed the income
from the assets purchased with the borrowings. To the extent the income or
capital appreciation derived from securities purchased with borrowed funds
exceeds the interest the U.S. Large Cap Fund will have to pay on the borrowings,
the U.S. Large Cap Fund's return will be greater than if leverage had not been
used. Conversely, if the income or capital appreciation from the securities
purchased with such borrowed funds is not sufficient to cover the cost of
borrowing, the return to the U.S. Large Cap Fund will be less than if leverage
had not been used, and therefore the amount available for distribution to
shareholders as dividends and other distributions will be reduced. In the latter
case, the Investment Adviser in its best

4
<PAGE> 30

judgment nevertheless may determine to maintain the U.S. Large Cap Fund's
leveraged position if it expects that the benefits to the Fund's shareholders of
maintaining the leveraged position will outweigh the current reduced return.

Illiquid or Restricted Securities. The U.S. Large Cap Fund may invest up
to 15% of its net assets in securities that lack an established secondary
trading market or otherwise are considered illiquid. Liquidity of a security
relates to the ability to dispose easily of the security and the price to be
obtained upon disposition of the security, which may be less than would be
obtained for a comparable more liquid security. Illiquid securities may trade at
a discount from comparable, more liquid investments. Investment of the U.S.
Large Cap Fund's assets in illiquid securities may restrict the ability of the
U.S. Large Cap Fund to dispose of its investments in a timely fashion and for a
fair price as well as its ability to take advantage of market opportunities. The
risks associated with illiquidity will be particularly acute where the U.S.
Large Cap Fund's operations require cash, such as when the U.S. Large Cap Fund
redeems shares or pays dividends, and could result in the U.S. Large Cap Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.

The U.S. Large Cap Fund may invest in securities that are "restricted
securities." Restricted securities have contractual or legal restrictions on
their resale and include "private placement" securities that the U.S. Large Cap
Fund may buy directly from the issuer. Restricted securities may be neither
listed on an exchange nor traded in other established markets. Privately placed
securities may or may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. As a
result of the absence of a public trading market, privately placed securities
may be more difficult to value than publicly traded securities and may be less
liquid, or illiquid, and therefore may be subject to the risks associated with
illiquid securities, as described in the preceding paragraph. Some restricted
securities, however, may be liquid. In addition, issuers whose securities are
not publicly traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their securities were publicly
traded. If any privately placed securities held by the U.S. Large Cap Fund are
required to be registered under the securities laws of one or more jurisdictions
before being resold, the U.S. Large Cap Fund may be required to bear the
expenses of registration. Certain of the U.S. Large Cap Fund's investments in
private placements may consist of direct investments and may include investments
in smaller, less-seasoned issuers, which may involve greater risks. These
issuers may have limited product lines, markets or financial resources, or they
may be dependent on a limited management group. In making investments in such
securities, the U.S. Large Cap Fund may obtain access to material nonpublic
information which may restrict the U.S. Large Cap Fund's ability to conduct
portfolio transactions in such securities.

144A Securities. The U.S. Large Cap Fund may purchase restricted
securities that can be offered and sold to "qualified institutional buyers"
under Rule 144A under the Securities Act. The Board of Directors has determined
to treat as liquid Rule 144A securities that are either (i) freely tradable in
their primary markets offshore or (ii) non-investment grade debt securities
which the U.S. Large Cap Fund's management determines are as liquid as publicly
registered non-investment grade debt securities. The Board of Directors has
adopted guidelines and delegated to the U.S. Large Cap Fund's management the
daily function of determining and monitoring liquidity of restricted securities.
The Board of Directors, however, will retain sufficient oversight and be
ultimately responsible for the determinations. Since it is not possible to
predict with assurance exactly how this market for restricted securities sold
and offered under Rule 144A will develop, the Board of Directors will carefully
monitor investments in these securities. This investment practice could have the
effect of increasing the level of illiquidity in the U.S. Large Cap Fund to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these securities.

Other Special Considerations. The U.S. Large Cap Fund may make short-term
investments, purchase high quality bonds or buy or sell derivatives, to reduce
exposure to equity securities when the U.S. Large Cap Fund believes it is
advisable to do so (on a temporary defensive basis). Short-term investments and
temporary defensive positions may limit the potential for growth in the value of
shares of the U.S. Large Cap Fund.

Sovereign Debt. The U.S. Large Cap Fund may invest more than 5% of its
assets in debt obligations ("sovereign debt") issued or guaranteed by non-U.S.
governments or their agencies and instrumentalities

5
<PAGE> 31

("governmental entities"). Investment in sovereign debt may involve a high
degree of risk that the governmental entity that controls the repayment of
sovereign debt may not be able or willing to repay the principal and/or interest
when due in accordance with the terms of such debt. A governmental entity's
willingness or ability to repay principal and interest due in a timely manner
may be affected by, among other factors, its cash flow situation, the extent of
its foreign reserves, the availability of sufficient foreign exchange on the
date a payment is due, the relative size of the debt service burden to the
economy as a whole.

Holders of sovereign debt, including the U.S. Large Cap Fund, may be
requested to participate in the rescheduling of such debt and to extend further
loans to governmental entities. There is no bankruptcy proceeding by which
sovereign debt on which a governmental entity has defaulted may be collected in
whole or in part.

The sovereign debt instruments in which the U.S. Large Cap Fund may invest
involve great risk and are deemed to be the equivalent in terms of quality to
high yield/high risk securities discussed above and are subject to many of the
same risks as such securities. Similarly, the U.S. Large Cap Fund may have
difficulty disposing of certain sovereign debt obligations because there may be
a thin trading market for such securities.

Securities Lending. The U.S. Large Cap Fund may lend securities with a
value not exceeding 33 1/3% of its total assets. In return, the U.S. Large Cap
Fund receives collateral in an amount equal to at least 100% of the current
market value of the loaned securities in cash or securities issued or guaranteed
by the U.S. Government. If cash collateral is received by the U.S. Large Cap
Fund, it is invested in short-term money market securities, and a portion of the
yield received in respect of such investment is retained by the U.S. Large Cap
Fund. Alternatively, if securities are delivered to the U.S. Large Cap Fund as
collateral, the U.S. Large Cap Fund and the borrower negotiate a rate for the
loan premium to be received by the U.S. Large Cap Fund for lending its portfolio
securities. In either event, the total yield on the U.S. Large Cap Fund's
portfolio is increased by loans of its portfolio securities. The U.S. Large Cap
Fund may receive a flat fee for its loans. The loans are terminable at any time
and the borrower, after notice, is required to return borrowed securities within
five business days. The U.S. Large Cap Fund may pay reasonable finder's,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the U.S. Large Cap Fund could
experience delays and costs in gaining access to the collateral and could suffer
a loss to the extent the value of the collateral falls below the market value of
the borrowed securities.

Repurchase Agreements. The U.S. Large Cap Fund may invest in securities
pursuant to repurchase agreements. Repurchase agreements may be entered into
only with a member bank of the Federal Reserve System or primary dealer in U.S.
Government securities or an affiliate thereof. Under such agreements, the bank
or primary dealer or an affiliate thereof agrees, upon entering into the
contract, to repurchase the security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This insulates
the U.S. Large Cap Fund from fluctuations in the market value of the underlying
security during such period, although, to the extent the repurchase agreement is
not denominated in U.S. dollars, the U.S. Large Cap Fund's return may be
affected by currency fluctuations. The U.S. Large Cap Fund may not invest more
than 15% of its total assets in repurchase agreements maturing in more than
seven days (together with other illiquid securities). Repurchase agreements may
be construed to be collateralized loans by the purchaser to the seller secured
by the securities transferred to the purchaser. The U.S. Large Cap Fund will
require the seller to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during the term of the
repurchase agreement. In the event of default by the seller under a repurchase
agreement construed to be a collateralized loan, the underlying securities are
not owned by the U.S. Large Cap Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the U.S. Large Cap
Fund may suffer time delays and incur costs or possible losses in connection
with the disposition of the collateral. In the event of a default under such a
repurchase agreement, instead of the contractual fixed rate of return, the rate
of return to the U.S. Large Cap Fund shall be dependent upon intervening
fluctuations of the market value of such security and the accrued interest on
the security. In such event, the U.S. Large Cap Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform.

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<PAGE> 32

Warrants. The U.S. Large Cap Fund may invest in warrants, which are
securities permitting, but not obligating, the warrant holder to subscribe for
other securities. Buying a warrant does not make the U.S. Large Cap Fund a
shareholder of the underlying stock. The warrant holder has no right to
dividends or votes on the underlying stock. A warrant does not carry any right
to assets of the issuer, and for this reason investment in warrants may be more
speculative than other equity-based investments.

When-Issued Securities and Forward Commitments. The U.S. Large Cap Fund
may purchase or sell securities that it is entitled to receive on a when-issued
basis. The U.S. Large Cap Fund may also purchase or sell securities through a
forward commitment. These transactions involve the purchase or sale of
securities by the U.S. Large Cap Fund at an established price with payment and
delivery taking place in the future. The U.S. Large Cap Fund enters into these
transactions to obtain what is considered an advantageous price to the Fund at
the time of entering into the transaction. The U.S. Large Cap Fund has not
established any limit on the percentage of its assets that may be committed in
connection with these transactions. When the U.S. Large Cap Fund is purchasing
securities in these transactions, the U.S. Large Cap Fund maintains a segregated
account with its custodian of cash, cash equivalents, U.S. Government securities
or other liquid securities in an amount equal to the amount of its purchase
commitments.

There can be no assurance that a security purchased on a when-issued basis
will be issued, or a security purchased or sold through a forward commitment
will be delivered. The value of securities in these transactions on the delivery
date may be more or less than the U.S. Large Cap Fund's purchase price. The U.S.
Large Cap Fund may bear the risk of a decline in the value of the security in
these transactions and may not benefit from an appreciation in the value of the
security during the commitment period.

Standby Commitment Agreements. The U.S. Large Cap Fund may enter into
standby commitment agreements. These agreements commit the U.S. Large Cap Fund,
for a stated period of time, to purchase a stated amount of securities which may
be issued and sold to the U.S. Large Cap Fund at the option of the issuer. The
price of the security is fixed at the time of the commitment. At the time of
entering into the agreement the U.S. Large Cap Fund is paid a commitment fee,
regardless of whether or not the security is ultimately issued. The U.S. Large
Cap Fund will enter into such agreements for the purpose of investing in the
security underlying the commitment at a price that is considered advantageous to
the U.S. Large Cap Fund. The U.S. Large Cap Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and will limit its
investment in such commitments so that the aggregate purchase price of
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at the time of the
commitment. The U.S. Large Cap Fund will maintain a segregated account with its
custodian of cash, cash equivalents, U.S. Government securities or other liquid
securities in an aggregate amount equal to the purchase price of the securities
underlying the commitment.

There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the U.S.
Large Cap Fund may bear the risk of a decline in the value of such security and
may not benefit from an appreciation in the value of the security during the
commitment period.

The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of the U.S. Large Cap Fund's net
asset value. The cost basis of the security will be adjusted by the amount of
the commitment fee. In the event the security is not issued, the commitment fee
will be recorded as income on the expiration date of the standby commitment.

INVESTMENT RESTRICTIONS

The Corporation has adopted the following restrictions and policies
relating to the investment of the U.S. Large Cap Fund's assets and its
activities. The fundamental restrictions set forth below may not be changed with
respect to the U.S. Large Cap Fund without the approval of the holders of a
majority of the Fund's outstanding voting securities (which for this purpose and
under the Investment Company Act means the

7
<PAGE> 33

lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). Provided that none of the following restrictions shall
prevent the U.S. Large Cap Fund from investing all of its assets in shares of
another registered investment company with the same investment objective (in a
master/feeder structure), the U.S. Large Cap Fund may not:

1. Make any investment inconsistent with the U.S. Large Cap Fund's
classification as a diversified company under the Investment Company Act.

2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).

3. Make investments for the purpose of exercising control or
management. Investments by the U.S. Large Cap Fund in wholly-owned
investment entities created under the laws of certain countries will not be
deemed the making of investments for the purpose of exercising control or
management.

4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the U.S. Large Cap Fund may invest in securities
directly or indirectly secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein.

5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
governmental obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances, repurchase agreements or any
similar instruments shall not be deemed to be the making of a loan, and
except further that the U.S. Large Cap Fund may lend its portfolio
securities, provided that the lending of portfolio securities may be made
only in accordance with applicable law and the guidelines set forth in the
U.S. Large Cap Fund's Prospectus and Statement of Additional Information,
as they may be amended from time to time.

6. Issue senior securities to the extent such issuance would violate
applicable law.

7. Borrow money, except that (i) the U.S. Large Cap Fund may borrow
from banks (as defined in the Investment Company Act) in amounts up to
33 1/3% of its total assets (including the amount borrowed), (ii) the U.S.
Large Cap Fund may borrow up to an additional 5% of its total assets for
temporary purposes, (iii) the U.S. Large Cap Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (iv) the U.S. Large Cap Fund may purchase
securities on margin to the extent permitted by applicable law. The U.S.
Large Cap Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the U.S. Large Cap Fund's
investment policies as set forth in its Prospectus and Statement of
Additional Information, as they may be amended from time to time, in
connection with hedging transactions, short sales, when-issued and forward
commitment transactions and similar investment strategies.

8. Underwrite securities of other issuers except insofar as the U.S.
Large Cap Fund technically may be deemed an underwriter under the
Securities Act of 1933, as amended (the "Securities Act"), in selling
portfolio securities.

9. Purchase or sell commodities or contracts on commodities, except to
the extent that the U.S. Large Cap Fund may do so in accordance with
applicable law and the U.S. Large Cap Fund's Prospectus and Statement of
Additional Information, as they may be amended from time to time, and
without registering as a commodity pool operator under the Commodity
Exchange Act.

In addition, the Corporation has adopted non-fundamental restrictions that
may be changed by the Board of Directors without shareholder approval. Like the
fundamental restrictions, none of the non-fundamental restrictions, including
but not limited to restriction (a) below, shall prevent the U.S. Large Cap Fund
from investing all of its assets in shares of another registered investment
company with the same investment objective (in a master/feeder structure). Under
the non-fundamental investment restrictions, the U.S. Large Cap Fund may not:

(a) Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, the U.S. Large Cap Fund will not purchase shares of any
registered open-end investment company or registered unit investment trust,
in reliance on

8
<PAGE> 34

Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of the
Investment Company Act, at any time the U.S. Large Cap Fund's shares are
owned by another investment company that is part of the same group of
investment companies as the U.S. Large Cap Fund.

(b) Make short sales of securities or maintain a short position,
except to the extent permitted by applicable law. The U.S. Large Cap Fund
currently does not intend to engage in short sales, except short sales
"against the box."

(c) Invest in securities that cannot be readily resold because of
legal or contractual restrictions or that cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities that mature
within seven days or securities that the Directors of the Corporation have
otherwise determined to be liquid pursuant to applicable law. Securities
purchased in accordance with Rule 144A under the Securities Act (which are
restricted securities that can be resold to qualified institutional buyers,
but not to the general public) and determined to be liquid by the Directors
are not subject to the limitations set forth in this investment
restriction.

The staff of the Commission has taken the position that purchased
over-the-counter ("OTC") options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Corporation has adopted an
investment policy pursuant to which the U.S. Large Cap Fund will not purchase or
sell OTC options (including OTC options on futures contracts) if, as a result of
such transaction, the sum of the market value of OTC options currently
outstanding that are held by the U.S. Large Cap Fund, the market value of the
underlying securities covered by OTC call options currently outstanding that
were sold by the Fund and margin deposits on the U.S. Large Cap Fund's existing
OTC options on futures contracts exceeds 15% of the net assets of the Fund taken
at market value, together with all other assets of the U.S. Large Cap Fund that
are illiquid or are not otherwise readily marketable. However, if the OTC option
is sold by the U.S. Large Cap Fund to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and if the Fund has
the unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the U.S. Large Cap Fund will treat as
illiquid such amount of the underlying securities as is equal to the repurchase
price less the amount by which the option is "in-the-money" (i.e., current
market value of the underlying securities minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price that is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money." This policy as to OTC options is
not a fundamental policy of the U.S. Large Cap Fund and may be amended by the
Directors without the approval of the shareholders. However, the Directors will
not change or modify this policy prior to the change or modification by the
Commission staff of its position.

Portfolio securities of the U.S. Large Cap Fund generally may not be
purchased from, sold or loaned to the Investment Adviser or its affiliates or
any of their directors, general partners, officers or employees, acting as
principal, unless pursuant to a rule or exemptive order under the Investment
Company Act.

Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Investment Adviser and Fund Asset
Management, L.P. ("FAM" or the "Administrator"), the U.S. Large Cap Fund is
prohibited from engaging in certain transactions involving Merrill Lynch, the
Investment Adviser, or any of its affiliates, except for brokerage transactions
permitted under the Investment Company Act involving only usual and customary
commissions or transactions pursuant to an exemptive order under the Investment
Company Act. See "Portfolio Transactions and Brokerage" in the Appendix to this
Statement of Additional Information. Rule 10f-3 under the Investment Company Act
sets forth conditions under which the U.S. Large Cap Fund may purchase from an
underwriting syndicate of which Merrill Lynch is a member.

9
<PAGE> 35

<PAGE> 1

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

APPENDIX

This Appendix constitutes a part of the Statement of Additional Information
for the Class A and Class B shares of Mercury V.I. Pan-European Growth Fund and
Mercury V.I. U.S. Large Cap Fund. This Appendix uses the term "Fund" to refer to
each of these Funds.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds..................................... A-2
Directors and Officers.................................... A-2
Compensation of Directors................................. A-2
Administration Arrangements............................... A-2
Management and Advisory Arrangements...................... A-3
Code of Ethics............................................ A-4
Purchase of Shares.......................................... A-5
Redemption of Shares........................................ A-5
Portfolio Transactions and Brokerage........................ A-5
Determination of Net Asset Value............................ A-6
Dividends, Distributions and Taxes.......................... A-8
Dividends and Distributions............................... A-8
Taxes..................................................... A-8
Other Tax Matters......................................... A-8
Performance Data............................................ A-8
General Information......................................... A-9
Description of Shares..................................... A-9
Independent Auditors...................................... A-9
Custodian................................................. A-9
Transfer Agent............................................ A-10
Legal Counsel............................................. A-10
Reports to Shareholders................................... A-10
Additional Information.................................... A-10
Annex A..................................................... Annex A-1
Annex B..................................................... Annex B-1
</TABLE>

A-1
<PAGE> 2

MANAGEMENT OF THE FUNDS

DIRECTORS AND OFFICERS

The Directors of the Corporation consist of individuals, of whom
are not "interested persons" of the Corporation as defined in the Investment
Company Act. The Directors are responsible for the overall supervision of the
operations of each Fund and perform the various duties imposed on the directors
of investment companies by the Investment Company Act. Information about the
Directors and executive officers of the Corporation, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.

[TO BE FILED BY AMENDMENT]
- ---------------
(1) Interested person, as defined in the Investment Company Act, of each Fund.

(2) Such Director or officer is a trustee, director or officer of other
investment companies for which the Investment Adviser, or the Funds'
sub-adviser and administrator, FAM, or their affiliates, acts as investment
adviser.

[As of the date of this Statement of Additional Information, the officers
and Directors of the Corporation as a group ( persons) owned an aggregate of
less than 1% of the outstanding shares of common stock of ML & Co. and owned an
aggregate of less than 1% of the outstanding shares of any Fund.]

COMPENSATION OF DIRECTORS

The Corporation expects to pay each Director not affiliated with the
Investment Adviser or FAM or with an affiliate of the Investment Adviser or FAM
(each a "non-affiliated Director"), for service to each Fund, a fee of $
per year plus $ per in-person meeting attended, together with such
individual's actual out-of-pocket expenses relating to attendance at meetings.
The Corporation also expects to compensate members of the Audit and Nominating
Committee, which consists of all of the non-affiliated Directors, at the rate of
$ annually for service to each Fund.

The following table sets forth the aggregate compensation the Corporation
expects to pay to the non-affiliated Directors for their first full fiscal year
and the aggregate compensation paid by all investment companies advised by
Mercury International, FAM, or their affiliates ("Mercury and Affiliates-Advised
Funds") to the non-affiliated Directors for the calendar year ended December 31,
1998.

<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
FUNDS AND
PENSION OR RETIREMENT MERCURY AND
BENEFITS ACCRUED AS AFFILIATES-ADVISED
AGGREGATE COMPENSATION PART OF FUNDS' FUNDS PAID TO
NAME OF DIRECTOR FROM FUNDS EXPENSES DIRECTORS(1)
---------------- ---------------------- --------------------- -----------------------
<S> <C> <C> <C>

</TABLE>

- ---------------
(1) In addition to the Corporation, the Directors served on other Mercury and
Affiliates-Advised Funds as follows:

ADMINISTRATION ARRANGEMENTS

The Corporation on behalf of each Fund has entered into an administration
agreement with FAM as Administrator (each, an "Administration Agreement"). The
Administrator receives for its services to each

A-2
<PAGE> 3

Fund monthly compensation at the annual rate of % of the average daily net
assets of the Pan-European Growth Fund, and % of the average daily net
assets of the U.S. Large Cap Fund.

Each Administration Agreement obligates the Administrator to provide
certain administrative services to the Corporation and the applicable Fund and
to pay, or cause its affiliates to pay, for maintaining its staff and personnel
and to provide office space, facilities and necessary personnel for the
Corporation. The Administrator is also obligated to pay, or cause its affiliate
to pay, the fees of those Officers and Directors who are affiliated persons of
the Administrator or any of its affiliates. The Corporation pays, or causes to
be paid, all other expenses incurred in the operation of the Corporation and the
applicable Fund (except to the extent paid by Mercury Funds Distributor, a
division of Princeton Funds Distributor, Inc. ("MFD" or the "Distributor")),
including, among other things, taxes, expenses for legal and auditing services,
costs of printing proxies, shareholder reports and prospectuses and statements
of additional information, charges of the Custodian, any Sub-custodian and
Financial Data Services, Inc. (the "Transfer Agent"), expenses of portfolio
transactions, expenses of redemption of shares, Commission fees, expenses of
registering the shares under federal, state or non-U.S. laws, fees and actual
out-of-pocket expenses of Directors who are not affiliated persons of the
Administrator, or of an affiliate of the Administrator, accounting and pricing
costs (including the daily calculation of net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Corporation or the applicable Fund.
The Distributor will pay certain of the expenses of a Fund incurred in
connection with the continuous offering of its shares. Accounting services are
provided to the Corporation and each Fund by the Administrator, and the
Corporation reimburses the Administrator for its costs in connection with such
services.

Duration and Termination. Unless earlier terminated as described below,
each Administration Agreement will remain in effect for two years from its
effective date. Thereafter, it will remain in effect from year to year with
respect to a Fund if approved annually (a) by the Board of Directors and (b) by
a majority of the Directors who are not parties to such contract or interested
persons (as defined in the Investment Company Act) of any such party. Such
contract is not assignable and may be terminated with respect to any Fund
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the applicable Fund.

MANAGEMENT AND ADVISORY ARRANGEMENTS

The Corporation on behalf of each Fund has entered into an investment
advisory agreement with Mercury International as Investment Adviser (each, an
"Advisory Agreement"). As discussed in ["The Management Team"] in the
Prospectus, the Investment Adviser receives for its services to a Fund monthly
compensation at the annual rate of % of the average daily net assets of the
Pan-European Growth Fund, and % of the average daily net assets of the U.S.
Large Cap Fund.

[Each Advisory Agreement obligates the Investment Adviser to provide
investment advisory services and to pay, or cause its affiliate to pay, for
maintaining its staff and personnel and to provide office space, facilities and
necessary personnel for the Corporation. The Investment Adviser is also
obligated to pay, or cause its affiliate to pay, the fees of all Officers and
Directors who are affiliated persons of the Investment Adviser or any
sub-adviser or of an affiliate of the Investment Adviser or any sub-adviser. The
Corporation pays, or causes to be paid, all other expenses incurred in the
operation of each Fund and the Corporation (except to the extent paid by the
Distributor), including, among other things, taxes, expenses for legal and
auditing services, costs of printing proxies, shareholder reports, copies of the
Registration Statement, charges of the Custodian, any Sub-custodian and Transfer
Agent, expenses of portfolio transactions, expenses of redemption of shares,
Commission fees, expenses of registering the shares under federal, state or
non-U.S. laws, fees and actual out-of-pocket expenses of Directors who are not
affiliated persons of the Investment Adviser or any sub-adviser, or of an
affiliate of the Investment Adviser or any sub-adviser, accounting and pricing
costs (including the daily calculation of net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Corporation or any Fund. The
Distributor will pay certain of the expenses of a Fund incurred in connection
with the continuous offering of its shares. Accounting services are provided to
the Corporation by the Investment Adviser or an affiliate of the

A-3
<PAGE> 4

Investment Adviser, and the Corporation reimburses the Investment Adviser or an
affiliate of the Investment Adviser for its costs in connection with such
services.]

Securities held by a Fund of the Corporation may also be held by, or be
appropriate investments for, other funds or investment advisory clients for
which the Investment Adviser or its affiliates act as an adviser. Because of
different objectives or other factors, a particular security may be bought for
one or more clients when one or more clients are selling the same security. If
purchases or sales of securities by the Investment Adviser for the Funds or
other funds for which it acts as investment adviser or for its advisory clients
arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Investment Adviser or its affiliates
during the same period may increase the demand for securities being purchased or
the supply of securities being sold, there may be an adverse effect on price.

Mercury International is located at 33 King William Street, London EC4R
9AS, England. Mercury International's intermediate parent company is Mercury
Asset Management Group Ltd. a London-based holding company of a group engaged in
the provision of investment management and advisory services globally. The
ultimate parent of Mercury Asset Management Group Ltd. is ML & Co., a financial
services holding company. ML & Co. is a controlling person of Mercury
International as defined under the Investment Company Act because of its power
to exercise a controlling influence over its management of policies.

The Investment Adviser has entered into sub-advisory agreements (each, a
"Sub-Advisory Agreement") with FAM with respect to each Fund, pursuant to which
FAM provides investment advisory services with respect to each Fund's daily cash
assets. The Investment Adviser pays FAM a fee in an amount to be determined from
time to time by the Investment Adviser and FAM but in no event in excess of the
amount that the Investment Adviser actually receives for providing services to
the Corporation and the Funds pursuant to the Advisory Agreements.

FAM is located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
FAM, an affiliate of Mercury International, is a wholly owned subsidiary of ML &
Co., a financial services holding company and the parent of Merrill Lynch. ML &
Co. and Princeton Services, Inc., the partners of FAM, are "controlling persons"
of FAM as defined under the Investment Company Act because of their power to
exercise a controlling influence over its management or policies.

Duration and Termination. Unless earlier terminated as described below,
each Advisory Agreement and Sub-Advisory Agreement will each remain in effect
for two years from its effective date. Thereafter, they will remain in effect
from year to year if approved annually (a) by the Board of Directors or by a
majority of the outstanding shares of a Fund and (b) by a majority of the
Directors who are not parties to such contract or interested persons (as defined
in the Investment Company Act) of any such party. Such contract is not
assignable and may be terminated with respect to any Fund without penalty on 60
days' written notice at the option of either party thereto or by the vote of the
shareholders of that Fund.

CODE OF ETHICS

The Board of Directors of the Corporation, the Investment Adviser, and FAM
have each adopted a Code of Ethics under Rule 17j-1 of the Investment Company
Act (together the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Investment Adviser and FAM and, as
described below, impose additional, more onerous, restrictions on fund
investment personnel. Among other substantive restrictions, the Codes contain
reporting and preclearance requirements for employees of the Investment Adviser
and FAM and provide for trading "blackout periods" that prohibit trading by
decision making access persons (those who recommend or determine which
securities transactions the Corporation undertakes) of the Corporation within
periods of trading by the Corporation in the same (or equivalent) security.

A-4
<PAGE> 5

PURCHASE OF SHARES

Reference is made to "Fund Shares" in the Appendix to the Prospectus for
certain information as to the purchase of Fund shares.

Each Fund offers two classes of shares, Class A and Class B. The
Participating Insurance Company decides which share class will support a
Contract. Each Class A and Class B share of a Fund represents an identical
interest in the investment portfolio of that Fund, and has the same rights,
except that Class B shares have exclusive voting rights with respect to the Rule
12b-1 distribution plan adopted with respect to such class pursuant to which the
account maintenance and/or distribution fees are paid.

The Funds do not offer their shares to the general public. Only separate
accounts established by Participating Insurance Companies can buy Fund shares.
The Funds' investment adviser is affiliated with two Participating Insurance
Companies. Participating Insurance Companies issue Contracts and use Fund shares
to support these Contracts. When this Statement of Additional Information refers
to Fund shareholders, it is referring to the Participating Insurance Companies.

Contract owners have certain rights under their Contract, but do not have
any direct interest in Fund shares. A separate prospectus describes the Contract
and its additional fees and charges. It also describes how changes in a Fund's
net asset value and distributions on Fund shares affect benefits under a
Contract.

MFD, an affiliate of the Investment Adviser and of Merrill Lynch, with
offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536 (mailing
address: P. O. Box 9081, Princeton, New Jersey 08543-9081) acts as Distributor
for each Fund.

The Corporation reserves the right to suspend the offering of its shares at
any time.

REDEMPTION OF SHARES

The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange (the "NYSE") is restricted as
determined by the Commission or during which the NYSE is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists, as defined by the Commission, as a result of which disposal of
portfolio securities or determination of the net asset value of a Fund is not
reasonably practicable, and for such other periods as the Commission may by
order permit for the protection of shareholders of that Fund.

The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending in part on the net asset value of such shares at
such time.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Investment Adviser is responsible for making each Fund's portfolio
decisions, placing that Fund's brokerage business, evaluating the reasonableness
of brokerage commissions and negotiating the amount of any commissions paid
subject to a policy established by the Corporation's Directors and officers. The
Corporation has no obligation to deal with any broker or group of brokers in the
execution of transactions in portfolio securities. Orders for transactions in
portfolio securities are placed for the Corporation with a number of brokers and
dealers, including affiliates of the Investment Adviser. In placing orders, it
is the policy of the Corporation to obtain the most favorable net results,
taking into account various factors, including price, commissions, if any, size
of the transaction and difficulty of execution. Where applicable, the Investment
Adviser surveys a number of brokers and dealers in connection with proposed
portfolio transactions and selects the broker or dealer that offers the
Corporation the best price and execution or other services that are of benefit
to the Corporation. Securities firms also may receive brokerage commissions on
transactions including covered call options written by the Corporation and the
sale of underlying securities upon the exercise of such options. In addition,
consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc.

A-5
<PAGE> 6

("NASD") and policies established by the Directors, the Investment Adviser may
consider sales of shares of a Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Corporation.

Brokers who provide supplemental investment research to the Investment
Adviser may receive orders for transactions by the Corporation. Such
supplemental research services ordinarily consist of assessments and analyses of
the business or prospects of a company, industry or economic sector. Information
so received will be in addition to and not in lieu of the services required to
be performed by the Investment Adviser under each Advisory Agreement. If in the
judgment of the Investment Adviser the Corporation will be benefited by
supplemental research services, the Investment Adviser is authorized to pay
brokerage commissions to a broker furnishing such services in excess of
commissions that another broker may have charged for effecting the same
transaction. The expenses of the Investment Adviser will not necessarily be
reduced as a result of the receipt of such supplemental information, and the
Investment Adviser may use such information in servicing its other accounts.

The Corporation invests in certain securities traded in the
over-the-counter market and, where possible, deals directly with dealers who
make a market in the securities involved, except in those circumstances in which
better prices and execution are available elsewhere. Under the Investment
Company Act, persons affiliated with the Corporation are prohibited from dealing
with the Corporation as principal in purchase and sale of securities. Since
transactions in the over-the-counter market usually involve transactions with
dealers acting as principal for their own accounts, affiliated persons of the
Corporation, including Merrill Lynch, will not serve as the Corporation's dealer
in such transactions. However, affiliated persons of the Corporation may serve
as its broker in over-the-counter transactions conducted on an agency basis.

Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as
amended, Merrill Lynch may execute transactions for the Corporation on the floor
of any U.S. national securities exchange provided that prior authorization of
such transactions is obtained and Merrill Lynch furnishes a statement to the
Corporation at least annually setting forth the compensation it has received in
connection with such transactions.

The Directors of the Corporation have considered the possibility of
recapturing for the benefit of the Corporation brokerage commissions, dealer
spreads and other expenses of possible portfolio transactions, such as
underwriting commissions, by conducting such portfolio transactions through
affiliated entities, including Merrill Lynch. For example, brokerage commissions
received by Merrill Lynch could be offset against the management fee paid by the
Corporation to the Investment Adviser. After considering all factors deemed
relevant, the Directors made a determination not to seek such recapture. The
Directors will reconsider this matter from time to time.

The portfolio turnover rate is calculated by dividing the lesser of a
Fund's annual sales or purchases of portfolio securities (exclusive of purchases
or sales of securities whose maturities at the time of acquisition were one year
or less) by the monthly average value of the securities in the portfolio during
the year. The portfolio turnover rate is generally anticipated to be under 100%.

DETERMINATION OF NET ASSET VALUE

Reference is made to "How Shares are Priced" in the Appendix to the
Prospectus concerning the determination of net asset value.

The net asset value of the shares of a Fund is determined once daily Monday
through Friday as of 15 minutes after the close of business on the NYSE on each
day the NYSE is open for trading (a "Pricing Day"). The close of business on the
NYSE is generally 4:00 p.m., Eastern time. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
on the day of valuation. The NYSE is not open for trading on New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value is computed by dividing the value of the securities held by a Fund plus
any cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by the total number
A-6
<PAGE> 7

of shares outstanding at such time. Expenses, including the fees payable to the
Administrator and the Distributor, and the advisory fees payable indirectly by
each Fund to the Investment Adviser, are accrued daily.

Portfolio securities, including ADRs, EDRs or GDRs, that are traded on
stock exchanges are valued at the last sale price (regular way) on the exchange
on which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available ask price for short
positions. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the authority of
the Board of Directors as the primary market. Securities traded in the OTC
market are valued at the last available bid price in the OTC market prior to the
time of valuation. Portfolio securities that are traded both in the OTC market
and on a stock exchange are valued according to the broadest and most
representative market. Short positions in securities traded on the OTC market
are valued at the last available ask price in the OTC market prior to the time
of valuation. When a Fund writes a call option, the amount of the premium
received is recorded on the books of that Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon the last sale price in
the case of exchange-traded options or, in the case of options traded in the OTC
market, the last asked price. Options purchased by a Fund are valued at their
last sale price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last bid price. Other investments,
including financial futures contracts and related options, are stated at market
value. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Corporation. Such valuations and
procedures will be reviewed periodically by the Board of Directors.

Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of each Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that will not be reflected in the computation of a Fund's net asset value.
If events materially affecting the value of such securities occur during such
period, then those securities will be valued at their fair value as determined
in good faith by the Directors.

A-7
<PAGE> 8

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Reference is made to "Dividends, Capital Gains and Taxes" in the Appendix
to the Prospectus.

Each Fund intends to distribute all its net investment income, if any.
Dividends from such net investment income will be paid at least annually. All
net realized capital gains, if any, will be distributed to each Fund's
shareholders annually. From time to time, a Fund may declare a special
distribution at or about the end of the calendar year in order to comply with a
Federal income tax requirement that certain percentages of its ordinary income
and capital gains be distributed during the calendar year. Dividends and
distributions of a Fund will be automatically reinvested in shares of that Fund
at net asset value.

TAXES

Each Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as a
Fund so qualifies, that Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains that it distributes to shareholders. Each Fund intends to
distribute substantially all of such income.

OTHER TAX MATTERS

Each Fund intends to qualify for and elect the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as a Fund so qualifies, that Fund will
not be subject to Federal income tax on the part of its net ordinary income and
net realized capital gains that it distributes to shareholders. Each Fund
intends to distribute substantially all of such income. To qualify for this
treatment, each Fund must, among other things, (a) derive at least 90% of its
gross income (without offset for losses from the sale or other disposition of
securities or foreign currencies) from dividends, interest, payments with
respect to securities loans gains from the sale or other disposition of
securities or foreign currencies and certain financial futures, options and
forward contracts; and (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the value of its assets is
represented by cash, U.S. Government securities and other securities limited in
respect of any one issuer to an amount no greater than 5% of its assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities).
------------------------

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.

For information regarding the federal income tax treatment of a Contract
and distributions to the separate accounts of the Participating Insurance
Companies, see the separate prospectus for the Contracts.

PERFORMANCE DATA

From time to time a Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective Contract owners. Total return is based on a Fund's historical
performance and is not intended to indicate future performance. Average annual
total return is determined separately for Class A and Class B shares in
accordance with a formula specified by the Commission.

Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the

A-8
<PAGE> 9

redeemable value of such investment at the end of each period. Average annual
total return is computed assuming all dividends and distributions are reinvested
and taking into account all applicable recurring and nonrecurring expenses. The
total return quotations may be of limited use for comparative purposes because
they will not reflect charges imposed on the Contracts by the Participating
Insurance Companies, which, if included, would decrease total return.

A Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges will not be included. Actual annual or
annualized total return data generally will be lower than average annual total
return data since the average rates of return reflect compounding of return;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time.

On occasion, a Fund may compare its performance to, among other indices,
the Standard & Poor's 500 Index, the Value Line Composite Index, the Dow Jones
Industrial Average, the MSCI Europe (if applicable) or other published indices
or to data contained in publications such as Lipper Analytical Services, Inc.,
Morningstar Publications, Inc. ("Morningstar"), other competing universes, Money
Magazine, U.S. News & World Report, Business Week, Forbes Magazine, Fortune
Magazine and CDA Investment Technology, Inc. When comparing its performance to a
market index, a Fund may refer to various statistical measures derived from the
historic performance of that Fund and index, such as standard deviation and
beta. As with other performance comparisons should not be considered reflective
of a Fund's relative performance for any future period. From time to time, a
Fund may include its Morningstar risk-adjusted performance rating in
advertisements or supplemental sales literature. A Fund may from time to time
quote in advertisements or other materials other applicable measures of
performance and may also make reference to awards that may be given to the
Investment Adviser.

GENERAL INFORMATION

DESCRIPTION OF SHARES

The Corporation is a Maryland corporation incorporated on December 7, 1998.
It has an authorized capital of 800,000,000 shares of Common Stock, par value
$.0001 per share, divided into 200,000,000 shares of each of Class A and Class B
shares for each of its series.

[DESCRIPTION OF INITIAL CAPITAL]

INDEPENDENT AUDITORS

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, have
been selected as the independent auditors of each Fund. The independent auditors
are responsible for auditing the annual financial statements of the Fund.

CUSTODIAN

, acts as the Custodian of each Fund's
assets. Under its contract with the Funds, the custodian is authorized to
establish separate accounts in foreign currencies and to cause foreign
securities owned by each Fund to be held in its offices outside the United
States and with certain foreign banks and securities depositories. The custodian
is responsible for safeguarding and controlling each Fund's cash and securities,
handling the receipt and delivery of securities and collecting interest and
dividends on each Fund's investments.

A-9
<PAGE> 10

TRANSFER AGENT

Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, which is a wholly owned subsidiary of ML & Co., acts as each
Fund's Transfer Agent pursuant to a transfer agency, dividend disbursing agency
and shareholder servicing agency agreement (the "Transfer Agency Agreement").
The Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts.

LEGAL COUNSEL

Swidler Berlin Shereff Friedman, LLP, 919 Third Avenue, New York, New York
10022, is counsel for the Funds.

REPORTS TO SHAREHOLDERS

Each Fund sends to its shareholders at least semi-annually reports showing
that Fund's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year, shareholders will receive Federal income
tax information regarding dividends and capital gains distributions.

ADDITIONAL INFORMATION

The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Corporation has filed with the Commission,
Washington, D.C., under the Securities Act and the Investment Company Act, to
which reference is hereby made.
- ------------------------

A-10
<PAGE> 11

ANNEX A

INVESTMENT POLICIES INVOLVING THE USE OF INDEXED
SECURITIES, OPTIONS, FUTURES, SWAPS AND FOREIGN EXCHANGE

Each Fund is authorized to use certain derivative instruments, including
indexed and inverse securities, options, futures, and swaps, and to purchase and
sell foreign exchange, as described below. Such instruments are referred to
collectively herein as "Strategic Instruments."

Although certain risks are involved in options and futures transactions (as
defined below in "Risk Factors in Options, Futures and Currency Instruments"),
the Investment Adviser believes that, because each Fund will generally engage in
these transactions, if at all, for hedging purposes, including anticipatory
hedges (other than options on securities that may be used to seek increased
return), the options and futures portfolio strategies of a Fund will not subject
that Fund to the risks frequently associated with the speculative use of options
and futures transactions. While a Fund's use of hedging strategies is intended
to reduce the volatility of the net asset value of Fund shares, that Fund's net
asset value will fluctuate. There can be no assurance that a Fund's hedging
transactions will be effective. Furthermore, each Fund will engage in hedging
activities, if at all, only from time to time and may not necessarily be
engaging in hedging activities when movements in the equity markets, interest
rates or currency exchange rates occur.

INDEXED AND INVERSE SECURITIES

A Fund may invest in securities the potential return of which is based on
the change in particular measurements of value or rate (an "index"). As an
illustration, a Fund may invest in a debt security that pays interest and
returns principal based on the change in the value of a securities index or a
basket of securities, or based on the relative changes of two indices. In
addition, a Fund may invest in securities the potential return of which is based
inversely on the change in an index. For example, a Fund may invest in
securities that pay a higher rate of interest when a particular index decreases
and pay a lower rate of interest (or do not fully return principal) when the
value of the index increases. If a Fund invests in such securities, it may be
subject to reduced or eliminated interest payments or loss of principal in the
event of an adverse movement in the relevant index or indices. Furthermore,
where such a security includes a contingent liability, in the event of such an
adverse movement, a Fund may be required to pay substantial additional margin to
maintain the position.

Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal payable
increases or decreases at a rate that is a multiple of the changes in the
relevant index. As a consequence, the market value of such securities may be
substantially more volatile than the market values of other debt securities.
Each Fund believes that indexed and inverse securities may provide portfolio
management flexibility that permits a Fund to seek enhanced returns, hedge other
portfolio positions or vary the degree of portfolio leverage with greater
efficiency than would otherwise be possible under certain market conditions.

OPTIONS ON SECURITIES AND SECURITIES INDICES

Purchasing Options. Each Fund is authorized to purchase put options on
equity securities held in its portfolio or securities indices the performance of
which is substantially replicated by securities held in its portfolio. When a
Fund purchases a put option, in consideration for an upfront payment (the
"option premium") that Fund acquires a right to sell to another party specified
securities owned by the Fund at a specified price (the "exercise price") on or
before a specified date (the "expiration date"), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a put option limits a Fund's risk of loss in the event of a decline in the
market value of the portfolio holdings underlying the put option prior to the
option's expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases, however, a Fund
will lose the option premium and will consequently realize a lower return on the
portfolio holdings than would have been realized without the purchase of the
put.
Annex A-1
<PAGE> 12

Each Fund is also authorized to purchase call options on securities it
intends to purchase or securities indices the performance of which substantially
replicates the performance of the types of securities it intends to purchase.
When a Fund purchases a call option, in consideration for the option premium
that Fund acquires a right to purchase from another party specified securities
at the exercise price on or before the expiration date, in the case of an option
on securities, or to receive from another party a payment based on the amount a
specified securities index increases beyond a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a call option may protect a Fund from having to pay more for a security as a
consequence of increases in the market value for the security during a period
when the Fund is contemplating its purchase, in the case of an option on a
security, or attempting to identify specific securities in which to invest in a
market a Fund believes to be attractive, in the case of an option on an index
(an "anticipatory hedge"). In the event a Fund determines not to purchase a
security underlying a call option, however, that Fund may lose the entire option
premium.

Each Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.

Writing Options. Each Fund is authorized to write (i.e., sell) call
options on securities held in its portfolio or securities indices the
performance of which is substantially replicated by securities held in its
portfolio. When a Fund writes a call option, in return for an option premium
that Fund is legally obligated to sell specified securities owned by the Fund at
the exercise price on or before the expiration date, in the case of an option on
securities, or to pay to another party an amount based on any gain in a
specified securities index beyond a specified level on or before the expiration
date, in the case of an option on a securities index, however much the exercise
price exceeds the market price. Each Fund may write call options to earn income,
through the receipt of option premiums. In the event the party to which a Fund
has written an option fails to exercise its rights under the option because the
value of the underlying securities is less than the exercise price, that Fund
will partially offset any decline in the value of the underlying securities
through the receipt of the option premium. By writing a call option, however, a
Fund limits its ability to sell the underlying securities, and gives up the
opportunity to profit from any increase in the value of the underlying
securities beyond the exercise price, while the option remains outstanding.

Each Fund may also write put options on securities or securities indices.
When a Fund writes a put option, in return for an option premium that Fund gives
another party the right to sell to the Fund a specified security at the exercise
price on or before the expiration date, in the case of an option on a security,
or agrees to pay to another party an amount based on any decline in a specified
securities index below a specified level on or before the expiration date, in
the case of an option on a securities index. Each Fund may write put options to
earn income, through the receipt of option premiums. In the event the party to
which a Fund has written an option fails to exercise its right under the option
because the value of the underlying securities is greater than the exercise
price, that Fund will profit by the amount of the option premium. By writing a
put option, however, a Fund will be obligated to purchase the underlying
security at a price that may be higher than the market value of the security at
the time of exercise as long as the put option is outstanding, in the case of an
option on a security, or make a cash payment reflecting any decline in the
index, in the case of an option on an index. Accordingly, when a Fund writes a
put option it is exposed to a risk of loss in the event the value of the
underlying securities falls below the exercise price, which loss potentially may
substantially exceed the amount of option premium received by the Fund for
writing the put option. A Fund will write a put option on a security or a
securities index only if the Fund would be willing to purchase the security at
the exercise price for investment purposes (in the case of an option on a
security) or is writing the put in connection with trading strategies involving
combinations of options -- for example, the sale and purchase of options with
identical expiration dates on the same security or index but different exercise
prices (a technique called a "spread").

Each Fund is also authorized to sell put or call options in connection with
closing out call or put options it has previously purchased.

Other than with respect to closing transactions, each Fund will write only
call or put options that are "covered." A put option will be considered covered
if a Fund has segregated assets with respect to such option

Annex A-2
<PAGE> 13

in the manner described in "Risk Factors in Options, Futures and Currency
Instruments" below. A call option will be considered covered if a Fund owns the
securities it would be required to deliver upon exercise of the option (or, in
the case of an option on a securities index, securities that substantially
correlate with the performance of such index) or owns a call option, warrant or
convertible instrument that is immediately exercisable for, or convertible into,
such security.

Types of Options. Each Fund may engage in transactions in options on
securities or securities indices, on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and the
seller, but generally do not require the parties to post margin and are subject
to greater risk of counterparty default. See "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Strategic Instruments" below.

FUTURES

Each Fund may engage in transactions in futures and options thereon.
Futures are standardized, exchange-traded contracts that obligate a purchaser to
take delivery, and a seller to make delivery, of a specific amount of a
commodity at a specified future date at a specified price. No price is paid upon
entering into a futures contract. Rather, upon purchasing or selling a futures
contract a Fund is required to deposit collateral ("margin") equal to a
percentage (generally less than 10%) of the contract value with the Futures
Commission Merchants (the "FCM") effecting the Fund's exchanges or in a
third-party account with that Fund's Custodian. Each day thereafter until the
futures position is closed, a Fund will pay additional margin representing any
loss experienced as a result of the futures position the prior day or be
entitled to a payment representing any profit experienced as a result of the
futures position the prior day. Whether the margin is deposited with the FCM or
with the Custodian, the margin may be deemed to be in the FCM's custody, and,
consequently, in the event of default due to the FCM's bankruptcy, the margin
may be subject to pro rata treatment as the FCM's assets, which could result in
potential losses to a Fund and its shareholders. Even if a transaction is
profitable, a Fund may not get back the same assets which were deposited as
margin or may receive payment in cash.

The sale of a futures contract limits a Fund's risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the future's contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, a Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.

The purchase of a futures contract may protect a Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when that Fund was attempting to identify specific
securities in which to invest in a market that Fund believes to be attractive.
In the event that such securities decline in value or that Fund determines not
to complete an anticipatory hedge transaction relating to a futures contract,
however, that Fund may realize a loss relating to the futures position.

Each Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying commodity
is a currency or securities or interest rate index) purchased or sold for
hedging purposes (including anticipatory hedges). Each Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent that Fund from being deemed a "commodity pool" under regulations of the
Commodity Futures Trading Commission.

SWAPS

Each Fund is authorized to enter into equity swap agreements, which are OTC
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified equity security, basket of equity
securities or equity index in return for periodic payments based on a fixed or
variable interest rate or the change in market value of a different equity
security, basket of equity securities or equity index.
Annex A-3
<PAGE> 14

Swap agreements may be used to obtain exposure to an equity or market without
owning or taking physical custody of securities.

Each Fund will enter into a swap transaction only if, immediately following
the time that Fund enters into the transaction, the aggregate notional principal
amount of swap transactions to which that Fund is a party would not exceed 5% of
the Fund's net assets.

FOREIGN EXCHANGE TRANSACTIONS

Each Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively, "Currency
Instruments") for purposes of hedging against the decline in the value of
currencies in which its portfolio holdings are denominated against the U.S.
dollar.

Forward foreign exchange transactions are OTC contracts to purchase or sell
a specified amount of a specified currency or multinational currency unit at a
price and future date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than future, settlement.
Each Fund will enter into foreign exchange transactions only for purposes of
hedging either a specific transaction or a portfolio position. A Fund may enter
into a foreign exchange transaction for purposes of hedging a specific
transaction by, for example, purchasing a currency needed to settle a security
transaction at a future date or selling a currency in which that Fund has
received or anticipates receiving a dividend or distribution. A Fund may enter
into a foreign exchange transaction for purposes of hedging a portfolio position
by selling forward a currency in which a portfolio position of that Fund is
denominated or by purchasing a currency in which the Fund anticipates acquiring
a portfolio position in the near future. A Fund may also hedge portfolio
positions through currency swaps, which are transactions in which one currency
is simultaneously bought for a second currency on a spot basis and sold for the
second currency on a forward basis.

Each Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through use of currency futures or options thereon.
Currency futures are similar to forward foreign exchange transactions except
that futures are standardized, exchange-traded contracts. See "Futures" above.

Each Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through the use of currency options. Currency options
are similar to options on securities, but in consideration for an option premium
the writer of a currency option is obligated to sell (in the case of a call
option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. A Fund may, however, hedge a currency by entering into a
transaction in a Currency Instrument denominated in a currency other than the
currency being hedged (a "cross-hedge"). A Fund will only enter into a
cross-hedge if the Investment Adviser believes that (i) there is a demonstrably
high correlation between the currency in which the cross-hedge is denominated
and the currency being hedged, and (ii) executing a cross-hedge through the
currency in which the cross-hedge is denominated will be significantly more
cost-effective or provide substantially greater liquidity than executing a
similar hedging transaction by means of the currency being hedged.

A Fund will not speculate in Currency Instruments. Accordingly, no Fund
will hedge a currency in excess of the aggregate market value of the securities
that it owns (including receivables for unsettled securities sales), or has
committed to or anticipates purchasing, which are denominated in such currency.

Risk Factors in Hedging Foreign Currency Risks. While each Fund's use of
Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of a Fund's shares, the net asset value of
each Fund's shares will fluctuate. Moreover, although Currency Instruments will
be used with the intention of hedging against adverse currency movements,
transactions in Currency Instruments involve the risk that anticipated currency
movements may not be accurately predicted and a Fund's hedging strategies may be
ineffective. To the extent that a Fund hedges against anticipated currency
movements that do not occur, that Fund may realize losses, and decrease its
total return, as the result of its hedging transactions. Furthermore, a Fund
will only engage in hedging activities from time to time and may not be engaging
in hedging activities when movements in currency exchange rates occur. It may
not be possible for a Fund to

Annex A-4
<PAGE> 15

hedge against currency exchange rate movements, even if correctly anticipated,
in the event that (i) the currency exchange rate movement is so generally
anticipated that a Fund is not able to enter into a hedging transaction at an
effective price, or (ii) the currency exchange rate movement relates to a market
with respect to which Currency Instruments are not available or in which their
availability is limited (such as certain emerging markets) and it is not
possible to engage in effective foreign currency hedging.

RISK FACTORS IN OPTIONS, FUTURES, AND CURRENCY INSTRUMENTS

Use of Strategic Instruments for hedging purposes involves the risk of
imperfect correlation in movements in the value of the Strategic Instruments and
the value of the instruments being hedged. If the value of the Strategic
Instruments moves more or less than the value of the hedged instruments, a Fund
will experience a gain or loss that will not be completely offset by movements
in the value of the hedged instruments.

Each Fund intends to enter into transactions involving Strategic
Instruments only if there appears to be a liquid secondary market for such
instruments or, in the case of illiquid instruments traded in OTC transactions,
such instruments satisfy the criteria set forth below under "Additional Risk
Factors of OTC Transactions; Limitations on the Use of OTC Strategic
Instruments." However, there can be no assurance that, at any specific time,
either a liquid secondary market will exist for a Strategic Instrument or a Fund
will otherwise be able to sell such instrument at an acceptable price.
Therefore, it may not be possible to close a position in a Strategic Instrument
without incurring substantial losses, if at all.

Certain transactions in Strategic Instruments (e.g., forward foreign
exchange transactions, futures transactions, sales of put options) may expose a
Fund to potential losses that exceed the amount originally invested by that Fund
in such instruments. When a Fund engages in such a transaction, that Fund will
deposit in a segregated account at its custodian liquid securities with a value
at least equal to the Fund's exposure, on a mark-to-market basis, to the
transaction (as calculated pursuant to requirements of the Commission). Such
segregation will ensure that a Fund has assets available to satisfy its
obligations with respect to the transactions, but will not limit the Fund's
exposure to loss.

ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS

Certain Strategic Instruments traded in OTC markets, including indexed
securities, swaps and OTC options, may be substantially less liquid than other
instruments in which the Fund may invest. The absence of liquidity may make it
difficult or impossible for a Fund to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for
the Fund to ascertain a market value for such instruments. Each Fund will
therefore acquire illiquid OTC instruments (i) if the agreement pursuant to
which the instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the Investment Adviser
anticipates a Fund can receive on each business day at least two independent
bids or offers, unless a quotation from only one dealer is available, in which
case that dealer's quotation may be used.

The staff of the Commission has taken the position that purchased OTC
options and the assets underlying written OTC options are illiquid securities.
Each Fund has therefore adopted an investment policy pursuant to which no Fund
will purchase or sell OTC options (including OTC options on futures contracts)
if, as a result of such transactions, the sum of the market value of OTC options
currently outstanding that are held by a Fund, the market value of the
securities underlying OTC call options currently outstanding that have been sold
by that Fund and margin deposits on the Fund's outstanding OTC options exceeds
15% of the total assets of the Fund, taken at market value, together with all
other assets of the Fund that are deemed to be illiquid or are otherwise not
readily marketable. However, if an OTC option is sold by a Fund to a dealer in
U.S. government securities recognized as a "primary dealer" by the Federal
Reserve Bank of New York and the Fund has the unconditional contractual right to
repurchase such OTC option at a predetermined price, then that Fund will treat
as illiquid such amount of the underlying securities as equal to the repurchase
price less the amount by which the option is "in-the-money" (i.e., current
market value of the underlying security minus the option's exercise price).

Annex A-5
<PAGE> 16

Because Strategic Instruments traded in OTC markets are not guaranteed by
an exchange or clearing corporation and generally do not require payment of
margin, to the extent that a Fund has unrealized gains in such instruments or
has deposited collateral with its counterparty, that Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
Each Fund will attempt to minimize the risk that a counterparty will default by
engaging in transactions in Strategic Instruments traded in OTC markets only
with financial institutions that have a credit rating of AA- or better from
Standard & Poor's, Aa3 or better from Moody's, or AA or better from Fitch.

ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS

No Fund may use any Strategic Instrument to gain exposure to an asset or
class of assets that it would be prohibited by its investment restrictions from
purchasing directly.

Annex A-6
<PAGE> 17

ANNEX B

RATINGS OF FIXED INCOME SECURITIES

DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC.'S CORPORATE DEBT RATINGS

<TABLE>
<S> <C>
Aaa Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present that make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment sometime
in the future.
Baa Bonds that are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may
be very moderate, and therefore not well safeguarded during
both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal
payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa Bonds that are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.
Ca Bonds that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C Bonds that are rated C are the lowest rated bonds, and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
</TABLE>

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic category.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act, as
amended.

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act, nor does it represent that
any specific

Annex B-1
<PAGE> 18

note is a valid obligation of a rated issuer or issued in conformity with any
applicable law. Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:

Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:

- Leading market positions in well-established industries

- High rates of return on funds employed

- Conservative capitalization structures with moderate reliance on
debt and ample asset protection

- Broad margins in earnings coverage of fixed financial charges and
higher internal cash generation

- Well established access to a range of financial markets and assured
sources of alternate liquidity

Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternative liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.

DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS

Because of the fundamental differences between preferred stocks and bonds,
a variation of the bond rating symbols is being used in the quality ranking of
preferred stocks. The symbols, presented below, are designed to avoid comparison
with bond quality in absolute terms. It should always be borne in mind that
preferred stocks occupy a junior position to bonds within a particular capital
structure and that these securities are rated within the universe of preferred
stocks.

Annex B-2
<PAGE> 19

Preferred stock rating symbols and their definitions are as follows:

<TABLE>
<S> <C>
aaa An issue that is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend impairment
within the universe of preferred stocks.
aa An issue that is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is
reasonable assurance that earnings and asset protection will
remain relatively well maintained in the foreseeable future.
a An issue that is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are judged
to be somewhat greater than in the "aaa" and "aa"
classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue that is rated "baa" is considered to be medium
grade, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be
questionable over any great length of time.
ba An issue that is rated "ba" is considered to have
speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in
this class.
b An issue that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
caa An issue that is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport
to indicate the future status of payments.
ca An issue that is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payment.
c This is the lowest rated class of preferred or preference
stock. Issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
</TABLE>

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S CORPORATE DEBT RATINGS

A Standard & Poor's corporate or municipal rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligers such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.

The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and (3)
protection

Annex B-3
<PAGE> 20

afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.

<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest-rated issues
only in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher-rated
categories.
</TABLE>

Debt rated BB, B, CCC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

<TABLE>
<S> <C>
BB Debt rated BB has less near-term vulnerability to default
than other speculative grade debt. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions that could lead to
inadequate capacity to meet timely interest and principal
payment. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B Debt rated B has a greater vulnerability to default but
presently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or
willingness to pay interest or repay principal. The B rating
category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial
and economic conditions to meet timely payments of interest
and repayments of principal. In the event of adverse
business, financial or economic conditions, it is not likely
to have the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied B or B-
rating.
CC The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC
rating.
C The rating C is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC- debt
rating. The C rating may be used to cover a situation where
a bankruptcy petition has been filed but debt service
payments are continued.
CI The rating CI is reserved for income bonds on which no
interest is being paid.
D Debt rated D is in default. The D rating is assigned on the
day an interest or principal payment is missed. The D rating
also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
</TABLE>

Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.

Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no

Annex B-4
<PAGE> 21

comment on the likelihood or risk of default upon failure of such completion.
The investor should exercise judgment with respect to such likelihood and risk.

<TABLE>
<S> <C>
L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is insured by the Federal
Savings & Loan Insurance Corp. or the Federal Deposit
Insurance Corp. and interest is adequately collateralized.
* Continuance of the rating is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement
or closing documentation confirming investments and cash
flows.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
</TABLE>

Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA," "AA," "A," "BBB," commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The four categories are as
follows:

<TABLE>
<S> <C>
A Issues assigned this highest rating are regarded as having
the greatest capacity for timely payment. Issues in this
category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as
high as for issues designated "A-1."
A-3 Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat
more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only adequate
capacity for timely payment. However, such capacity may be
damaged by changing conditions or short-term adversities.
C This rating is assigned to short-term debt obligations with
a doubtful capacity for payment.
D This rating indicates that the issue is either in default or
is expected to be in default upon maturity.
</TABLE>

The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.

DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS

A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will

Annex B-5
<PAGE> 22

normally not be higher than the bond rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.

The preferred stock ratings are based on the following considerations:

<TABLE>
<S> <C>
I. Likelihood of payment-capacity and willingness of the issuer
to meet the timely payment of preferred stock dividends and
any applicable sinking fund requirements in accordance with
the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors'
rights.
AAA This is the highest rating that may be assigned by Standard
& Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock
obligations.
AA A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the "A"
category.
BB, Preferred stock rated "BB," "B," and "CCC" are regarded, on
B, balance, as predominantly speculative with respect to the
CCC issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely
have some quality and protection characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is
currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue in default
on debt instruments.
</TABLE>

NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.

PLUS (+) or MINUS (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.

The preferred stock ratings are not a recommendation to purchase or sell a
security, inasmuch as market price is not considered in arriving at the rating.
Preferred stock ratings are wholly unrelated to Standard & Poor's earnings and
dividend rankings for common stocks.

The ratings are based on current information furnished to Standard & Poor's
by the issuer, and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information.

DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S ("FITCH") INVESTMENT GRADE BOND
RATINGS

Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

Annex B-6
<PAGE> 23

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and of any
guarantor, as well as the economic and political environment that might affect
the issuer's future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.

Bonds carrying the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

<TABLE>
<S> <C>
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse
changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and
therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
</TABLE>

Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.

<TABLE>
<S> <C>
NR Indicates that Fitch does not rate the specific issue.
CONDITIONAL A conditional rating is premised on the successful
completion of a project or the occurrence of a specific
event.
SUSPENDED A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for
rating purposes.
WITHDRAWN A rating will be withdrawn when an issue matures or is
called or refinanced and, at Fitch's discretion, when an
issuer fails to furnish proper and timely information.
FITCHALERT Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and
the likely direction of such change. These are designated as
"Positive" indicating a potential upgrade, "Negative," for
potential downgrade, or "Evolving," where ratings may be
raised or lowered. FitchAlert is relatively short-term, and
should be resolved within 12 months.
</TABLE>

Annex B-7
<PAGE> 24

Ratings Outlook: An outlook is used to describe the most likely direction
of any rating change over the intermediate term. It is described as "Positive"
or "Negative." The absence of a designation indicates a stable outlook.

DESCRIPTION OF FITCH SPECULATIVE GRADE BOND RATINGS

Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.

<TABLE>
<S> <C>
BB Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time
by adverse economic changes. However, business and financial
alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if
not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic
environment.
CC Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD Bonds are in default on interest and/or principal payments.
DD Such bonds are extremely speculative and should be valued on
D the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
</TABLE>

PLUS (+) or MINUS (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.

DESCRIPTION OF FITCH INVESTMENT GRADE SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

Fitch short-term ratings are as follows:

<TABLE>
<S> <C>
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated "F-1+."
</TABLE>

Annex B-8
<PAGE> 25
<TABLE>
<S> <C>
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned
"F-1+" and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse
changes could cause these securities to be rated below
investment grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D Default. Issues assigned this rating are in actual or
imminent payment default.
LOC The symbol "LOC" indicates that the rating is based on a
letter of credit issued by a commercial bank.
</TABLE>

Annex B-9

<PAGE> 36

PART C. OTHER INFORMATION

ITEM 23. EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
1 -- Articles of Incorporation of Registrant.
2 -- By-Laws of Registrant.
3 -- Instrument Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.
4 -- Investment Advisory Agreement between Registrant and Mercury
Asset Management International Ltd.(1)
5(a) -- Class A Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.(1)
5(b) -- Class B Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.(1)
6 -- None.
7 -- Custody Agreement between Registrant and .(1)
8(a) -- Administration Agreement between Registrant and Mercury
Asset Management International Ltd.(1)
8(b) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc.(1)
8(c) -- License Agreement relating to Use of Name among Mercury
Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Mercury Funds Distributor, a
division of Princeton Funds Distributor, Inc.(1)
8(d) -- License Agreement relating to Use of Name among Mercury
Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.(1)
8(e) -- Participation Agreement between Registrant and various
participating insurance companies.(1)
9 -- Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel for Registrant.(1)
10 -- Consent of Deloitte & Touche, LLP, independent auditors for
the Registrant.(1)
11 -- None.
12 -- Certificate of Mercury Asset Management International
Ltd.(1)
13 -- Class B Distribution Plan and Class B Plan Sub-Agreement.(1)
14 -- Not Applicable.
15(a) -- Rule 18f-3 Plan.(1)
15(b) -- Powers of Attorney for Officers and Directors.(1)
</TABLE>

- ---------------
(1) To be filed by amendment.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

[Prior to the effective date of this Registration Statement, the Registrant
will sell shares of each Series of Registrant to Mercury Asset Management
International Ltd. ("Mercury International").]

ITEM 25. INDEMNIFICATION.

Reference is made to Article V of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws and Section 2-418 of the Maryland General
Corporation Law.

Article VI of the By-Laws provides that each officer and Director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the Maryland General Corporation Law, except that such indemnity shall not
protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by

C-1
<PAGE> 37

the Registrant to indemnify such person must be based upon the reasonable
determination by special legal counsel in a written opinion or the vote of a
quorum of the Directors who are neither "interested persons," as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties
to the proceeding ("non-party independent Directors"), after review of the
facts, that such officer or Director is not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.

Each officer and Director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the Maryland General Corporation Law without a preliminary
determination as to his or her ultimate entitlement to indemnification (except
as set forth below); provided, however, that the person seeking indemnification
shall provide to the Registrant a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Registrant has
been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Registrant for his undertaking; (b) the Registrant is
insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent Directors, or independent legal counsel in a
written opinion, shall determine, based on a review of facts readily available
to the Registrant at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.

The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his activities as officer or
Director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or Director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.

The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or Director of the Registrant.

In Section [9] of the Distribution Agreement relating to the securities
being offered hereby, the Registrant agrees to indemnify the Distributor and
each person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, as amended (the "Act"), against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus
and Statement of Additional Information.

Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

C-2
<PAGE> 38

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Set forth below is a list of each executive officer and partner of the
adviser indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
September, 1996 for his own account or in the capacity of director, officer,
partner or trustee.

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------- ----------------------------------
<S> <C> <C>
Peter John Gibbs.......................... Chairman Director of Mercury Asset
Management Ltd.; and Director of
Mercury Asset Management [TO BE
UPDATED] International Channel
Islands Ltd.
Carol Consuelo Brooke..................... Deputy Chairman Director of Mercury Asset
Management Ltd.
David Morris Fitzgerald Scott............. Director Director of Corporation of St.
Lawrence College
Helen Margaret Perkins.................... Secretary None
John Eric Nelson.......................... Director None
Steve Warner Golann....................... Director None
</TABLE>

Set forth below is a list of the name and principal business address of any
company for which a person listed above serves in the capacity of director,
officer, employee, partner or trustee. The address of each, unless otherwise
stated is 33 King William Street, London, England EC4R 9AS.

Mrs. Brooke also serves as director of the following companies:

Munich London Investment Management Ltd.; Benenden School (Kent) Ltd.,
Cranbrook Kent, TN17 4AA; and Mercury Asset Management Pension Trustee Co. Ltd.

Mr. Gibbs also serves as director of Mercury Asset Management Limited
(Australia).

Mrs. Perkins also serves as officer of the following companies:

Grosvenor Alternate Partner Limited; Grosvenor General Partner Limited;
Grosvenor Ventures Limited; Grosvenor Venture Investment Advisers Limited;
Mercury Asset Management Finance Ltd.; Mercury Asset Management Group Ltd;
Mercury Asset Management Group Services Ltd; Mercury Asset Management No. 1
Limited; Mercury Asset Management Pension Trustee Co. Ltd.; Mercury Executor &
Trustee Co. Ltd.; Mercury (Finance) Ltd; Mercury Fund Investment Advisers
Limited; Mercury Financial Services Ltd.; Mercury Investment Management Limited;
Mercury Investment Services Ltd.; Mercury Investment Trust Investment Advisers
Ltd.; Mercury Life Assurance Company Ltd; Mercury Life Limited; Mercury Life
Nominees Ltd.; Mercury Private Equity Holdings Ltd; Mercury Rowan Mullens Ltd.;
Munich London Investment Management Ltd.; Mercury Private Equity MUST 3 Limited;
Seligman Trust Limited; Third Grosvenor Limited; and Wimco Nominees Ltd.

Set forth below is a list of each executive officer and director of Fund
Asset Management, L.P. ("FAM") indicating each business, profession, vocation or
employment of a substantial nature in which each such person

C-3
<PAGE> 39

has been engaged since September, 1996 for his own account or in the capacity of
director, officer, partner or trustee.

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH FAM PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------- ---------------------------------------
<S> <C> <C>
ML & Co............................. Limited Partner Financial Services Holding Company;
Limited Partner of Merrill Lynch Asset
Management, L.P. ("MLAM")
Fund Asset Management, Inc.......... Limited Partner Investment Advisory Service
Princeton Services.................. General Partner General Partner of MLAM
Arthur Zeikel....................... Chairman Chairman of MLAM; President of MLAM and
FAM from 1977 to 1997; Chairman and
Director of Princeton Services;
President of Princeton Services from
1993 to 1997; Executive Vice President
of Merrill Lynch & Co., Inc. ("ML &
Co.")
Jeffrey M. Peek..................... President President of MLAM; President and
Director of Princeton Services;
Executive Vice President of ML & Co.
Terry K. Glenn...................... Executive Vice Executive Vice President of MLAM;
President Executive Vice President and Director
of Princeton Services; President and
Director of Princeton Funds
Distributor, Inc.; Director of FDS;
President of Princeton Administrators,
L.P.
Linda L. Federici................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Vincent R. Giordano................. Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Elizabeth A. Griffin................ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Norman R. Harvey.................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Michael J. Hennewinkel.............. Senior Vice Senior Vice President, Secretary and
President, Secretary General Counsel of MLAM; Senior Vice
and General Counsel President of Princeton Services
Philip L. Kirstein.................. Senior Vice President Senior Vice President of MLAM; Senior
Vice President, General Counsel,
Director and Secretary of Princeton
Services [TO BE UPDATED]
</TABLE>

C-4
<PAGE> 40

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH FAM PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------- ---------------------------------------
<S> <C> <C>
Ronald M. Kloss..................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Debra W. Landsman-Yaros............. Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Vice President of Princeton Funds
Distributor, Inc.
Stephen M.M. Miller................. Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President
of Princeton Services
Joseph T. Monagle, Jr. ............. Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Michael L. Quinn.................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch, Pierce,
Fenner & Smith Incorporated from 1989
to 1995
Brian A. Murdock.................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Director of Princeton Funds
Distributor, Inc.
Gerald M. Richard................... Senior Vice President Senior Vice President and Treasurer of
and Treasurer MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of Princeton
Funds Distributor, Inc.
Gregory D. Upah..................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Ronald L. Welburn................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>

Mr. Zeikel is President, Mr. Glenn is Executive Vice President and Mr.
Richard is Treasurer of all or substantially all of the investment companies
described in the following two paragraphs. Mr. Zeikel is a director of
substantially all such companies, and Mr. Glenn is an officer of such companies.
Messrs. Giordano, Harvey, Kirstein, and Monagle are officers of one or more of
such companies.

FAM, located at P.O. Box 9011, Princeton, New Jersey 08543-9011, an
affiliate of the Investment Adviser, acts as the investment adviser for the
following open-end registered investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund,

C-5
<PAGE> 41

Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund,
Inc. and The Municipal Fund Accumulation Program, Inc.; and the following
closed-end investment companies: Apex Municipal Fund, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies
Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund
2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings Insured Fund Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York
Insured Fund II, Inc., MuniHoldings New York Fund, Inc., MuniHoldings Florida
Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida Insured
Fund III, MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey
Insured Fund II, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield
Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California
Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield
Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured
Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund,
Inc., MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II,
Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield
Quality Fund II, Inc., Senior High Income Portfolio, Inc., and Worldwide
DollarVest Fund, Inc.

MLAM, located at P.O. Box 9011, Princeton, New Jersey 08543-9011, acts as
investment adviser for the following open-end registered investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill
Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Ready Assets Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Series
Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch
Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch
Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and
Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLAM);
and for the following closed-end registered investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate
Fund, Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy
Portfolio and Merrill Lynch Basic Value Equity Portfolio, two investment
portfolios of EQ Advisors Trust.

ITEM 27. PRINCIPAL UNDERWRITERS.

(a) Mercury Funds Distributor, a division of Princeton Funds Distributor,
Inc. ("MFD") acts as the principal underwriter for the Registrant and for each
of the following open-end investment companies:

Mercury Gold and Mining Fund of Mercury Asset Management Funds, Inc.;
Mercury International Fund of Mercury Asset Management Funds, Inc.; Mercury
Japan Capital Fund of Mercury Asset Management Funds, Inc.; Mercury
Pan-European Growth Fund of Mercury Asset Management Funds, Inc.; Mercury
U.S. Large Cap Fund of Mercury Asset Management Funds, Inc.; Summit Cash
Reserves

C-6
<PAGE> 42

Fund of Financial Institutions Series Trust; and Mercury V.I. Pan-European
Growth Fund of Mercury Asset Management V.I. Funds, Inc.

A separate division of Princeton Funds Distributor, Inc. acts as the
principal underwriter of other investment companies.

(b) Set forth below is information concerning each director and officer of
MFD. The principal business address of each such person is Box 9081, Princeton,
New Jersey 08543-9081, except that the address of Messrs. Crook, Aldrich, Breen,
Fatseas and Wasel is One Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665.

<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH THE DISTRIBUTOR WITH REGISTRANT
---- --------------------- ------------------------
<S> <C> <C>
Terry K. Glenn........................... President and Director Executive Vice President
Brian A. Murdock......................... Director None
Thomas J. Verage......................... Director None
Robert W. Crook.......................... Senior Vice President None
Michael J. Brady......................... Vice President None
William M. Breen......................... Vice President None
Michael G. Clark......................... Vice President None
James T. Fatseas......................... Vice President None
Debra W. Landsman-Yaros.................. Vice President None
Michelle T. Lau.......................... Vice President None
Gerald M. Richard........................ Vice President and Treasurer Treasurer
Salvatore Venezia........................ Vice President None
William Wasel............................ Vice President None
Robert Harris............................ Secretary None
</TABLE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of:

(1) the registrant, Mercury Asset Management V.I. Funds, Inc., 800 Scudders
Mill Road, Plainsboro, New Jersey 08536;

(2) the transfer agent, Financial Data Services, Inc., 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484;

(3) the custodian, ;

(4) the investment adviser, Mercury Asset Management International Ltd., 33
King William Street, London EC4R 9AS, England; and

(5) the sub-adviser and administrator, Fund Asset Management, L.P., 800
Scudders Mill Road, Plainsboro, New Jersey 08536.

ITEM 29. MANAGEMENT SERVICES.

Other than as set forth under the caption "Management of the U.S. Large Cap
Fund" in the Prospectus constituting Part A of the Registration Statement and
under "Management of the Funds -- Management and Advisory Arrangements" in the
Appendix to the Statement of Additional Information constituting Part B of the
Registration Statement, the Registrant is not party to any management related
service contract.

ITEM 30. UNDERTAKINGS.

None.

C-7
<PAGE> 43

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Plainsboro, and State of New
Jersey, on the 14th day of December, 1998.

MERCURY V.I. U.S. LARGE CAP FUND OF
MERCURY ASSET MANAGEMENT V.I.
FUNDS, INC.

Registrant

By: /s/ MICHAEL J. HENNEWINKEL

------------------------------------
Michael J. Hennewinkel, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>

/s/ MICHAEL J. HENNEWINKEL President and Director December 14, 1998
- ---------------------------------------- (Principal Executive Officer)
Michael J. Hennewinkel

/s/ LORRAINE MANDEL Treasurer (Principal Financial December 14, 1998
- ---------------------------------------- Accounting Officer)
Lorraine Mandel

/s/ ROBERT E. PUTNEY, III Director December 14, 1998
- ----------------------------------------
Robert E. Putney, III
</TABLE>

C-8
<PAGE> 44

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
1 Articles of Incorporation of Registrant
2 By-Laws of Registrant
</TABLE>

C-9

<PAGE> 1
Exhibit 1

ARTICLES OF INCORPORATION
MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

THE UNDERSIGNED, Judith L. Shandling, whose post office address is
Swidler Berlin Shereff Friedman, LLP, 919 Third Avenue, New York, New York
10022, being at least eighteen years of age, does hereby act as an incorporator,
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.

ARTICLE I
NAME

The name of the corporation is Mercury Asset Management V.I. Funds,
Inc. (the "Corporation").

ARTICLE II
PURPOSES AND POWERS

The purpose or purposes for which the Corporation is formed, the
powers, rights and privileges that the Corporation shall be authorized to
exercise and enjoy, and the business or objects to be transacted, carried on and
promoted by it are as follows:

(1) To conduct and carry on business of an investment company of the
management type.

(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.

(3) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or kind
of consideration now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation, as its Board of Directors may
determine; provided, however, that the value of the consideration per share to
be received by the Corporation upon the sale or other disposition of any shares
of its capital stock shall not be less than the net asset value per share of
such capital stock outstanding at the time of such event.

(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its issued or unissued capital stock
of any class or series, as its Board of Directors may determine, in any
<PAGE> 2
manner and to the extent now or hereafter permitted by the General Laws of the
State of Maryland and by these Articles of Incorporation.

(5) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.

(6) The Corporation shall be authorized to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing purposes, powers, rights and privileges, shall not
be deemed to exclude any powers, rights or privileges so granted or conferred.

ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT

The post office address of the principal office of the Corporation in
the State of Maryland is c/o CSC Lawyers Incorporating Service Company, 11 E.
Chase Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is CSC Lawyers Incorporating Service Company, a
corporation of this State, and the post office address of the resident agent is
11 E. Chase Street, Baltimore, Maryland 21202.

ARTICLE IV
CAPITAL STOCK

(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Eight Hundred Million (800,000,000) shares, of
the par value of One Hundredth of One Cent ($.0001) per share, and of the
aggregate par value of Eighty Thousand Dollars ($80,000). The capital stock
initially consists of two series, known as Mercury V.I. Pan-European Growth Fund
and Mercury V.I. U.S. Large Cap Fund (collectively, the "Series", and each, a
"Series"). Each Series shall consist, until further changed, of Four Hundred
Million (400,000,000) shares. The shares of each Series shall consist, until
further changed, of two classes of shares designated Class A shares and Class B
shares (the "Classes"). Each Class of each Series shall consist, until further
changed, of Two Hundred Million (200,000,000) shares.

(2) Unless otherwise expressly provided in the charter of the
Corporation, the Class A and Class B shares of each Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities of that Series) and each share of a particular Series shall have
identical voting, dividend, liquidation and other rights; provided, however,
that notwithstanding anything in the charter of the Corporation to the contrary:

2
<PAGE> 3
(i) The Class A and Class B shares may be issued and sold
subject to such different sales loads or charges, whether
initial, deferred or contingent, or any combination thereof,
as the Board of Directors may from time to time establish in
accordance with the Investment Company Act of 1940, as
amended, and other applicable law.

(ii) Liabilities of a Series which are determined by or under
the supervision of the Board of Directors to be attributable
to a particular Class of that Series may be charged to that
Class and appropriately reflected in the net asset value of,
or dividends payable on, the shares of that Class of the
Series.

(iii) The Class A and Class B shares of a particular Series
may have such different exchange and conversion rights as the
Board of Directors shall provide in compliance with the
Investment Company Act of 1940, as amended.

(3) The Board of Directors may classify and reclassify any unissued
shares of capital stock, of any class or series, into one or more additional or
other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any existing class or series.

(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class or series of capital stock shall be
entitled to dividends and distributions in such amounts and at such times as may
be determined by the Board of Directors, and the dividends and distributions
paid with respect to the various classes or series of capital stock may vary
among such classes and series. Dividends on a class or series may be declared or
paid only out of the net assets of that class or series. Expenses related to the
distribution of, and other identified expenses that should properly be allocated
to, the shares of a particular class or series of capital stock may be charged
to and borne solely by such class or series and the bearing of expenses solely
by a class or series of capital stock may be appropriately reflected (in a
manner determined by the Board of Directors) and cause differences in the net
asset value attributable to, and the dividend, redemption and liquidation rights
of, the shares of each class or series of capital stock.

(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Sections (2) and
(4) hereof and including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that (a) as to any matter with respect to which a separate vote of any

3
<PAGE> 4
class or series is required by the Investment Company Act of 1940, as amended,
and in effect from time to time, or any rules, regulations or orders issued
thereunder, or by the Maryland General Corporation Law, such requirement as to a
separate vote by that class or series shall apply in lieu of a general vote of
all classes and series as described above, (b) in the event that the separate
vote requirements referred to in (a) above apply with respect to one or more
classes or series, then, subject to paragraph (c) below, the shares of all other
classes and series not entitled to a separate class vote shall vote as a single
class, and (c) as to any matter which does not affect the interest of a
particular class or series, such class or series shall not be entitled to any
vote and only the holders of shares of the affected classes and series, if any,
shall be entitled to vote.

(6) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all classes
or series of capital stock of the Corporation (or of any class or series
entitled to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized (subject to the requirements of the
Investment Company Act of 1940, as amended, and in effect from time to time, and
any rules, regulations and orders issued thereunder) to take such action upon
the concurrence of a majority of the votes entitled to be cast by holders of
capital stock of the Corporation (or a majority of the votes entitled to be cast
by holders of a class or series entitled to vote thereon as a separate class or
series).

(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, subject to compliance with the requirements of the Investment
Company Act of 1940, as amended, the Board of Directors shall have the authority
to provide that holders of shares of any class or series shall have the right to
convert or exchange said shares into shares of one or more other classes or
series in accordance with such requirements and procedures as may be established
by the Board of Directors.

(8) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of each class or
series of capital stock of the Corporation shall be entitled, after payment or
provision for payment of the debts and other liabilities of the Corporation, to
share ratably in the remaining net assets of the Corporation applicable to that
class or series.

(9) Any fractional shares shall carry proportionately all the rights of
a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends; provided, however, that the Corporation shall not be
required to issue share certificates for such fractional shares.

(10) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of stockholders,

4
<PAGE> 5
except with respect to any matter which requires approval by a separate vote of
one or more classes of stock, in which case the presence in person or by proxy
of the holders of shares entitled to cast one-third of the votes entitled to be
cast by each class entitled to vote as a separate class shall constitute a
quorum.

(11) All persons who shall acquire stock in the Corporation, of any
class or series, shall acquire the same subject to the provisions of the charter
and By-Laws of the Corporation. Any reference to "shares," "stock" or "shares of
stock" in these Articles of Incorporation shall be deemed to refer, unless the
context otherwise requires, to the shares of each separate class and/or series.
As used in the charter of the Corporation, the terms "charter" and "Articles of
Incorporation" shall mean and include the Articles of Incorporation of the
Corporation as amended, supplemented and restated from time to time by Articles
of Amendment, Articles Supplementary, Articles of Restatement or otherwise.

(12) The Board of Directors may classify and reclassify any issued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely affect
the rights of holders of such issued shares. The Board's authority pursuant to
this paragraph shall include, but not be limited to, the power to vary among all
the holders of a particular class or series (a) the length of time shares must
be held prior to reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such Holding
Period(s) is determined and (c) the class or series into which the particular
class or series is being reclassified; provided, however, that, subject to the
first sentence of this section, with respect to holders of the Corporation's
shares issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s) (the "First Holding Period
Prospectus"), the Holding Period(s), the manner in which the time for such
Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's prospectus or statement of additional information in effect at the
time such shares, which are the subject of the reclassification, were issued.

(13) (a) Each series of capital stock of the Corporation shall relate
to a separate portfolio of investments. All shares of stock in each series shall
be identical except that there may be variations between the different series as
to the purchase price, determination of net asset value, designations,
preferences, conversion or other rights, voting powers, restrictions, special
and relative rights and limitations as to dividends and on liquidation,
qualifications or terms or conditions of redemption of such shares of stock.

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(b) Each series of stock of the Corporation shall have the following
powers, preferences and voting or other special rights, and the qualifications,
restrictions and limitations thereof shall be as follows:

(i) All consideration received by the Corporation for the
issue or sale of stock of each series, together with all
assets in which such consideration is invested or reinvested,
all income, earnings, profits and proceeds received thereon,
including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets, funds or payments derived
from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to the series of stock
with respect to which such assets, payments or funds were
received by the Corporation for all purposes, subject only to
the rights of creditors, and shall be so handled in the books
of account of the Corporation. Such assets, funds and
payments, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets, funds or
payments derived from any reinvestment of such proceeds in
whatever form the same may be, are herein referred to as
"assets belonging to" such series. In the event that there are
any income, earnings, profits, and proceeds thereof, assets,
funds or payments that are not readily identifiable as
belonging to any particular series, the Board of Directors of
the Corporation shall allocate them among any one or more of
the series established and designated from time to time in
such manner and on such basis as the Board of Directors, in
their sole discretion, deem fair and equitable. Each
allocation by the Board of Directors shall be conclusive and
binding on the stockholders of the Corporation of all series
for all purposes.

(ii) The assets belonging to each series of stock shall be
charged with the liabilities in respect of such series, and
also shall be charged with its share of the general
liabilities of the Corporation, in proportion to the asset
value of the respective series determined in accordance with
the Articles of Incorporation of the Corporation. The
determination of the Board of Directors shall be conclusive as
to the amount of liabilities, including accrued expenses and
reserves, as to the allocation of the same to a given series,
and as to whether the same or general assets of the
Corporation are allocable to one or more series.

ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS

(1) The number of directors of the Corporation shall be three, which
number may be increased pursuant to the By-Laws of the Corporation but shall
never be less than three. The names of the directors who shall act until their
successors are duly elected and qualify are:

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Michael J. Hennewinkel
Lorraine Mandel
Robert E. Putney, III

(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, of any
class or series, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable, subject to such limitations as may be
set forth in these Articles of Incorporation or in the ByLaws of the Corporation
or in the General Laws of the State of Maryland.

(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation, of
any class or series, acquired by it after the issue thereof, or otherwise) other
than such right, if any, as the Board of Directors, in its discretion, may
determine.

(4) Each acting and former director and officer of the Corporation
shall be indemnified by the Corporation to the full extent permitted by the
General Laws of the State of Maryland, subject to the requirements of the
Investment Company Act of 1940, as amended. No amendment of these Articles of
Incorporation or repeal of any provision hereof shall limit or eliminate the
benefits provided to directors and officers under this provision in connection
with any act or omission that occurred prior to such amendment or repeal. The
foregoing rights of indemnification shall not be exclusive of any other rights
to which those seeking indemnification may be entitled.

(5) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940, as
amended, no director or officer of the Corporation shall be personally liable to
the Corporation or its security holders for money damages. No amendment of these
Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors and officers under this provision
in connection with any act or omission that occurred prior to such amendment or
repeal.

(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from time
to time any of the By-Laws of the Corporation except any particular By-Law which
is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.

(7) The Board of Directors of the Corporation from time to time may
change the Corporation's name, or change the name or other designation of any
class or series of its stock, without the vote or consent of the stockholders of
the Corporation, in any manner and to the

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<PAGE> 8
extent now or hereafter permitted by the General Laws of the State of Maryland
and by these Articles of Incorporation.

(8) Notwithstanding any other provision of these Articles of
Incorporation or the By-Laws of the Corporation, or the General Laws of the
State of Maryland, the Board of Directors of the Corporation may, upon the
affirmative vote of the majority of the entire Board of Directors and without
the vote or consent of the stockholders, dissolve the Corporation in the manner
otherwise provided by the laws of the State of Maryland.

ARTICLE VI
REDEMPTION

(1) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the redemption
price of such shares as in effect from time to time as may be determined by the
Board of Directors of the Corporation in accordance with the provisions hereof,
subject to the right of the Board of Directors of the Corporation to suspend the
right of redemption of shares of capital stock of the Corporation or postpone
the date of payment of such redemption price in accordance with provisions of
applicable law.

(2) All shares of stock of the Corporation shall be redeemable at the
option of the Corporation. The Board of Directors may by resolution from time to
time authorize the Corporation to require the redemption of all or any part of
the outstanding shares of any class or series upon such terms and conditions as
the Board of Directors, in its discretion, shall deem advisable, and upon the
sending of written notice thereof to each holder whose shares are to be
redeemed.

(3) The redemption price of shares of capital stock of the Corporation
shall be the net asset value thereof as determined by the Board of Directors of
the Corporation from time to time in accordance with the provisions of
applicable law, less such redemption fee or other charge, if any, as may be
fixed by resolution of the Board of Directors of the Corporation. Payment of the
redemption price shall be made in cash by the Corporation at such time and in
such manner as may be determined from time to time by the Board of Directors of
the Corporation.

ARTICLE VII
DETERMINATION BINDING

Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts

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<PAGE> 9
at any time legally available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created, shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged), as
to the price of any security owned by the Corporation or as to any other matters
relating to the issuance, sale, redemption or other acquisition or disposition
of securities or shares of capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors as to whether any
transaction constitutes a purchase of securities on "margin," a sale of
securities "short," or an underwriting or the sale of, or a participation in any
underwriting or selling group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and future, and
shares of the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, if any, that any and all such
determinations shall be binding as aforesaid. No provision of these Articles of
Incorporation shall be effective to (a) require a waiver of compliance with any
provision of the Securities Act of 1933, as amended, or the Investment Company
Act of 1940, as amended, or of any valid rule, regulation or order of the
Securities and Exchange Commission thereunder or (b) protect or purport to
protect any director or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.

ARTICLE VIII
PERPETUAL EXISTENCE

The duration of the Corporation shall be perpetual.

ARTICLE IX
AMENDMENT

The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in any manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding stock
and substantially adversely affects the stockholder's rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.

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IN WITNESS WHEREOF, the undersigned incorporator of Mercury Asset
Management V.I. Funds, Inc. hereby executes the foregoing Articles of
Incorporation and acknowledges the same to be her act and further acknowledges
that, to the best of her knowledge, the matters and facts set forth therein are
true in all material respects under penalties for perjury.

Dated this 4th day of December, 1998

/s/ Judith L. Shandling
-----------------------------
Judith L. Shandling

<PAGE> 1
Exhibit 2

BY-LAWS
OF
MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

ARTICLE I
Offices

Section 1. Principal Office. The principal office of Mercury Asset
Management V.I. Funds, Inc. (the "Corporation") shall be in the City of
Baltimore, State of Maryland.

Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.

Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.

ARTICLE II
Meetings of Stockholders

Section 1. Annual Meeting. So long as the Corporation is registered as
an investment company under the Investment Company Act of 1940, as amended (such
term to include the rules and regulations promulgated under the Investment
Company Act of 1940, as amended, unless otherwise specified or the context
otherwise requires), annual meetings of the stockholders shall not be held,
except where required to be held by the Investment Company Act of 1940, as
amended, or by the Maryland General Corporation Law or when called by the Board
of Directors or by an officer or officers authorized to take such action by the
Board of Directors. If in any calendar year the Corporation is required or
elects to hold an annual meeting, the meeting shall be held on such day, not a
Saturday, Sunday or legal holiday, as the Board of Directors or the officer or
officers calling the meeting may prescribe. At each such annual meeting, the
stockholders shall elect a Board of Directors and transact such other business
as may properly come before the meeting. The provisions of these By-Laws which
contemplate the holding of an annual meeting of stockholders shall be suspended
during any calendar year in which no annual meeting of stockholders is held.

Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the written request of
the holders of at least 10% of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting if they
<PAGE> 2
comply with the applicable requirements of the Maryland General Corporation Law.

Section 3. Place of Meetings. Meetings of the stockholders shall be
held at such place within the United States as the Board of Directors may from
time to time determine.

Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the special meeting, shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.

Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original record date, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken.

Section 5. Quorum. At all meetings of the stockholders, the holders of
shares of stock of the Corporation entitled to cast one-third of the votes
entitled to be cast, present in person or by proxy, shall constitute a quorum
for the transaction of any business, except with respect to any matter which
requires approval by a separate vote of one or more series or classes of stock,
in which case the presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast by each class
entitled to vote as a separate series or class shall constitute a quorum. In the
absence of a quorum no business may be transacted, except that the holders of a
majority of the shares of stock present in person or by proxy and entitled to
vote may adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these By-Laws, until the
holders of the requisite amount of shares of stock shall be so present. At any
such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
The absence from any meeting, in person or by proxy, of holders of the number of
shares of stock of the Corporation in excess of a majority thereof which may be
required by the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Articles of Incorporation, or
these By-Laws, for action upon any given matter shall not prevent action at such
meeting upon any other matter or matters which may properly come before the
meeting, if there shall be present thereat, in person or by proxy, holders of
the number of shares of stock of the Corporation required for action in respect
of such other matter or matters.

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Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, shall act
as chairman of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.

Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.

Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date shall not have been
so fixed, then at the later of (i) the close of business on the day on which
notice of the meeting is mailed or (ii) the thirtieth day before the meeting.

Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders (other than the
election of directors, which shall be by plurality vote) may be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.

If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.

Section 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than
ninety nor less than ten days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time, and
not others, shall be entitled to vote at such meeting and any adjournment
thereof.

Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders,

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appoint one or more inspectors to act at such meeting or any adjournment
thereof. If the inspectors shall not be so appointed or if any of them shall
fail to appear or act, the chairman of the meeting may, and on the request of
any Stockholder entitled to vote thereto shall, appoint inspectors. Each
inspector, before entering upon the discharge of his duties, may be required to
take and sign an oath to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of his ability. The
inspectors may be empowered to determine the number of shares outstanding and
the voting powers of each, the number of shares represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as inspector of an
election of directors. Inspectors need not be stockholders.

Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.

ARTICLE III
Board of Directors

Section 1. General Powers. Except as otherwise provided in the Articles
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Articles of Incorporation or
these By-Laws.

Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the entire Board of Directors; provided, however, that the number of
directors shall in no event be less than three nor more than fifteen. Any
vacancy created by an increase in Directors may be filled in accordance with
Section 6 of this Article III. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration of
his term unless such director is specifically removed pursuant to Section 5 of
this Article III at the time of such decrease.

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Directors need not be stockholders.

Section 3. Election and Term of Directors. Directors shall be elected
annually at a meeting of stockholders held for that purpose; provided, however,
that if no meeting of the stockholders of the Corporation is required to be held
in a particular year pursuant to Section 1 of Article II of these By-Laws,
directors shall be elected at the next meeting held for that purpose. The term
of office of each director shall be from the time of his election and
qualification until the election of directors next succeeding his election and
until his successor shall have been elected and shall have qualified, or until
his death, or until he shall have resigned or until December 31 of the year in
which he shall have reached seventy-two years of age, or until he shall have
been removed as hereinafter provided in these By-Laws, or as otherwise provided
by statute or the Articles of Incorporation.

Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.

Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.

Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, may be filled by a vote of the majority of the Board of Directors then in
office even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than two-thirds of the directors then
holding office shall have been elected by the stockholders of the Corporation.
In the event that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
sixty days, for the purpose of filling said vacancy or vacancies.

Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.

Section 8. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.

Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.

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Section 10. Telephone Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act of 1940, as amended, participation in a meeting by
these means constitutes presence in person at the meeting.

Section 11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.

Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need not state the
purposes of such meeting.

Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or
other applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.

Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.

Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions

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of the Investment Company Act of 1940, as amended, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writings or
writing are filed with the minutes of the proceedings of the Board or committee.

Section 16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.

Section 17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus and Statement of Additional Information of the Corporation,
as filed from time to time with the Securities and Exchange Commission and as
required by the Investment Company Act of 1940, as amended. The Board however,
may delegate the duty of management of the assets and the administration of its
day to day operations to an individual or corporate management company and/or
investment adviser pursuant to a written contract or contracts which have
obtained the requisite approvals, including the requisite approvals of renewals
thereof, of the Board of Directors and/or the stockholders of the Corporation in
accordance with the provisions of the Investment Company Act of 1940, as
amended.

ARTICLE IV
Committees

Section 1. Executive Committee. The Board may, by resolution adopted by
a majority of the entire board, designate an Executive Committee consisting of
two or more of the directors of the corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:

(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;

(b) the filling of vacancies on the Board of Directors;

(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;

(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken by the Board of Directors by the Investment

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Company Act of 1940, as amended;

(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;

(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;

(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and

(h) the approval of any merger or share exchange which does not require
stockholder approval.

The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.

Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.

Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority or
power of the Board in the management of the business or affairs of the
Corporation, except as may be prescribed by the Board.

ARTICLE V
Officers, Agents and Employees

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Section 1. Number, Qualification, Election and Tenure. The officers of
the Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. Such officers shall be elected by the Board of Directors
each year at a meeting of the Board of Directors, each to hold office for the
ensuing year and until his successor shall have been duly elected and shall have
qualified, or until his death, or until he shall have resigned, or have been
removed, as hereinafter provided in these By-Laws. The Board may from time to
time elect, or delegate to the President the power to appoint, such officers
(including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) and such agents, as may be
necessary or desirable for the business of the Corporation. Such officers and
agents shall have such duties and shall hold their offices for such terms as may
be prescribed by the Board or by the appointing authority.

Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.

Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.

Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.

Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.

Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.

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Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He may
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these powers.

Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from time
to time prescribe.

Section 9. Treasurer. The Treasurer shall

(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank or trust company
or member of a national securities exchange as custodian of the property of the
Corporation;

(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;

(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;

(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and

(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.

Section 10. Secretary. The Secretary shall

(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;

(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;

(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation, if any
(unless the seal of the Corporation on such

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certificates shall be a facsimile, as hereinafter provided) and affix and attest
the seal to all other documents to be executed on behalf of the Corporation
under its seal;

(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and

(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.

Section 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.

ARTICLE VI
Indemnification

Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the Maryland General
Corporation Law, except that such indemnity shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. Absent a court determination that an officer or director
seeking indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Corporation to
indemnify such person must be based upon the reasonable determination by special
legal counsel in a written opinion or the vote of a majority of a quorum of the
directors who are neither "interested persons," as defined in Section 2(a)(19)
of the Investment Company Act of 1940, as amended, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the Maryland General Corporation Law without a preliminary
determination as to his or her ultimate entitlement to indemnification (except
as set forth below); provided, however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person

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seeking indemnification shall provide a security in form and amount acceptable
to the Corporation for his undertaking; (b) the Corporation is insured against
losses arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Corporation at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.

The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his activities as
officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.

The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.

ARTICLE VII
Capital Stock

Section 1. Stock Certificates. The Corporation shall not issue stock
certificates.

Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.

Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or

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interest in any such share or shares on the part of any other person.

Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.

Section 5. Lost, Destroyed or Mutilated Certificates. In the event that
the Corporation issues stock certificates, the following section shall apply.
The holder of any certificates representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have been mutilated,
and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.

Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.

Section 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.

ARTICLE VIII
Seal

The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the

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year of its incorporation and the words "Corporate Seal" and "Maryland." Said
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.

ARTICLE IX
Fiscal Year

Unless otherwise determined by the Board, the fiscal year of the
Corporation shall be as determined by the Board of Directors from time to time.

ARTICLE X
Depositories and Custodians

Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.

Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.

ARTICLE XI
Execution of Instruments

Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.

Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer or pursuant
to any procedure approved by the Board of Directors, subject to applicable law.

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ARTICLE XII
Independent Public Accountants

The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act of 1940, as
amended, ratified by the stockholders.

ARTICLE XIII
Annual Statement

The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting, within 120 days after the end
of the fiscal year), be placed on file at the Corporation's principal office.
Each such report shall show the assets and liabilities of the Corporation as of
the close of the annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then invested. Such report
shall also show the Corporation's income and expenses for the period from the
end of the Corporation's preceding fiscal year to the close of the annual or
quarterly period covered by the report and any other information required by the
Investment Company Act of 1940, as amended, and shall set forth such other
matters as the Board or such firm of independent public accountants shall
determine.

ARTICLE XIV
Amendments

These By-Laws or any of them may be amended, altered or repealed by the
Board of Directors. The stockholders shall have no power to make, amend, alter
or repeal By-Laws.