MERCURY ASSET MANAGEMENT V I FUNDS INC, N-1A/A, 1999-04-16

MERCURY ASSET MANAGEMENT V I FUNDS INC
N-1A/A, 1999-04-16

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1999

SECURITIES ACT FILE NO. 333-68879
INVESTMENT COMPANY ACT FILE NO. 811-09159

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 1 [X]
(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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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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EXPLANATORY NOTE

Mercury Asset Management V.I. Funds, Inc. (the "Company") is an open-ended
management investment company of which Mercury V.I. U.S. Large Cap Fund is a
series (hereinafter referred to as the "Fund"). Two separate classes of common
stock ("Common Stock"), Class A Common Stock and Class B Common Stock, are
offered for the Fund. This document consists of the prospectus for the Fund, and
a section entitled "Adviser's Historical Performance Data" and an Appendix for
the Class A Common Stock of the Fund, and a separate section entitled "Adviser's
Historical Performance Data" and an Appendix for the Class B Common Stock of the
Fund, each of which constitutes a part of the prospectus for either the Class A
Common Stock of the Fund or the Class B Common Stock of the Fund, as
appropriate. A table of contents may be found in each prospectus.

The investment advisor of the Fund is Mercury Asset Management
International Ltd. (the "Investment Adviser"), an indirect subsidiary of Merrill
Lynch & Co., Inc., a publicly held corporation. The distributor of the Fund is
Mercury Funds Distributor ("MFD"), a division of Princeton Funds Distributor,
Inc.

Both the Class A and Class B shares of the Fund are sold to separate
accounts ("Separate Accounts") of certain insurance companies to fund benefits
under variable annuity contracts ("Variable Annuity Contracts") and/or variable
life insurance contracts (together with the Variable Annuity Contracts, the
"Contracts") issued by such companies. It is currently anticipated that the Fund
will be sold to Merrill Lynch Life Insurance Company ("MLLIC"), ML Life
Insurance Company of New York ("ML of New York"), indirect wholly owned
subsidiaries of Merrill Lynch & Co., Inc., Hartford Life Insurance Company
("Hartford"), The AIG Life Companies (U.S.) ("AIG Life"), American International
Life Assurance Company of New York ("Hartford of NY"), Hartford Life and Annuity
Insurance Company ("Hartford Life and Annuity" and, together with ML of New
York, MLLIC, Hartford, AIG Life, Hartford of NY, Hartford Life and Annuity, and
certain other insurance companies, the "Insurance Companies"). The Separate
Accounts invest in shares of the Fund in accordance with instructions received
from Contract owners. The Contracts are offered by agents of Merrill Lynch Life
Agency, Inc. ("MLLA"), an affiliate of the Investment Adviser, and Contracts
issued by any Insurance Company may be offered by agents associated with that
Insurance Company. MLLIC and ML of New York are also affiliates of the
Investment Adviser.

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Merrill Lynch Logo

Mercury V.I. U.S. Large Cap Fund

OF MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
Artwork to Come

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.
PROSPECTUS - April 15, 1999
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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 Mercury V.I. U.S. Large Cap Fund Invests............ 4
Investment Risks............................................ 5
Appendix and Statement of Additional Information............ 8
Adviser's Historical Performance Data -- Class A............ 8
Adviser's Historical Performance Data -- Class B............ 14

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

APPENDIX

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

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FUND Fund Facts
FACTS
LOGO
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ABOUT THE MERCURY V.I. U.S. LARGE CAP FUND

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

The Mercury V.I. 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 Mercury V.I. U.S.
Large Cap Fund will achieve its goal.

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

The Mercury V.I. 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 Mercury V.I. 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 when its price is less than Mercury V.I. U.S. Large Cap 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 a company with slower earnings growth. The Mercury V.I. 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
Mercury V.I. 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 MERCURY V.I. U.S. LARGE CAP FUND?

As with any mutual fund, the value of the Mercury V.I. U.S. Large Cap Fund's
investments, and, therefore, the value of the Mercury V.I. U.S. Large Cap Fund's
shares, may go up or down. If the value of the Mercury V.I. U.S. Large Cap
Fund's investments goes down, you may lose money. The value changes in the
Mercury V.I. U.S. Large Cap Fund's investments may occur because the U.S. stock
market is rising or falling. At other times, there are specific factors that may
affect the value of a particular investment. The Mercury V.I. 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.

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 Mercury V.I. 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

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

CONTRACT -- The 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 Fund as an
investment option. The contract owner does not become a Fund shareholder.

In addition, because the Fund will invest up to 10% of its assets in securities
of Canadian companies, the Fund will be subject to additional risks. For
example, the 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.

WHO SHOULD INVEST?

The 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 LOGO] About the Details

ABOUT THE PORTFOLIO MANAGEMENT TEAM -- The 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 Fund.

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

HOW THE MERCURY V.I. U.S. LARGE CAP FUND INVESTS

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The Fund's main goal is long-term capital growth. The 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 Fund may also invest up to 10% of
its assets in equity securities of companies located in Canada. In selecting
securities, the Fund emphasizes those securities that Fund management believes
to be undervalued or have good prospects for earnings growth.

The 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 Fund's assets. A company's market capitalization may go up or down due to
market fluctuations. The 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 Fund considers a company to be "located" in the U.S. or Canada if:

- it is legally organized in the U.S. or Canada, or

- 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 Fund management believes a share of the company is worth. 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

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 a company with slower earnings growth. The
Fund's evaluation of the prospects for a company's industry or

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

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 Fund may invest
in debt securities that are issued together with a particular equity security.
The Fund may invest in derivatives for a variety of portfolio management
purposes, including 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 Fund is not required to use derivatives and may
choose not to do so.

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

The Fund will normally invest almost all of its assets as described above. The
Fund may, however, invest in short-term instruments, such as money market
securities and repurchase agreements, to meet redemptions. The Fund may also
reduce its exposure to equity securities by investing without limit in
short-term investments, high quality bonds or derivatives, when the 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 Fund shares. Therefore, the Fund may not achieve its investment
objective.

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

INVESTMENT RISKS
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This section contains a summary discussion of the general risks of investing in
the Fund. As with any mutual fund, there can be no guarantee that the Fund will
meet its goals, or that the Fund's performance will be positive over any period
of time.

STOCK MARKET RISK

Stock market risk is the risk that the U.S. or Canadian stock markets will go
down in value, including the possibility that the U.S. or Canadian stock
markets will go down sharply and unpredictably.

SELECTION RISK

Selection risk is the risk that the investments that Fund management selects
will underperform the stock market or other funds with similar investment
objectives and investment strategies.

CANADIAN INVESTMENT RISK

Canadian investment risk is the risk that the 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

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

and economic developments, and changes in U.S. and Canadian laws relating to
investments in Canada.

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 Fund would like. Restricted securities have contractual or legal
restrictions on their resale and include "private placement" securities that the
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
Fund's assets may be uninvested and not earning returns. The Fund
may miss investment opportunities or be unable to dispose of a
security because of these delays.

FOREIGN SECURITIES RISKS

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

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

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

- The Fund's holdings may be adversely affected by U.S. or foreign
government action.

- International trade barriers or economic sanctions against certain
non-U.S. countries may adversely affect the Fund's holdings.

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

BORROWING AND LEVERAGE

The Fund may borrow for temporary emergency purposes, including to meet
redemptions. Borrowing may exaggerate changes in the net asset value of Fund
shares and the return on the Fund's investments. Borrowing will cost the Fund
interest expense and other fees. These costs may reduce the Fund's return.

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

DERIVATIVES

The 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 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 Fund invests
in derivatives, the investments may not be effective as a hedge against price
movements and can limit potential for growth in 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
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 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.

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 Fund could receive lower
interest payments or experience a reduction in the value of the
derivative to below what the 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 Fund may use the following types of derivative instruments: futures,
forwards and options.

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

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 Fund to sell the securities back to the issuer or a third party at a
time that is disadvantageous to the Fund.

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.

APPENDIX AND STATEMENT OF ADDITIONAL INFORMATION

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Additional information about the Fund is discussed in the Appendix which is a
part of this Prospectus.

If you would like further information about the Fund, including additional
details about how it invests, please see the Statement of Additional
Information.

ADVISER'S HISTORICAL PERFORMANCE DATA -- CLASS A
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The following tables present historical performance data for all accounts that
have been managed by the investment adviser's Mercury affiliates and that have
substantially similar (although not necessarily identical) objectives and
policies to the Fund's. These accounts have been managed using investment styles
and strategies substantially similar to those to be used in managing the Fund.
THESE FIGURES DO NOT REPRESENT THE PERFORMANCE OF THE FUND OR OF A PARTICIPATING
INSURANCE COMPANY SEPARATE ACCOUNT THAT FUNDS YOUR CONTRACT. The Fund is newly
organized and does not yet have a performance record. The 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

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

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
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 under the
Investment Company Act of 1940, as amended, and the Internal
Revenue Code of 1986, as amended (for example, diversification and
liquidity requirements and restrictions on transactions with
affiliates) as the Fund, or to the same types of expenses that the
Fund or a contract owner will pay. These differences might have
adversely affected the performance figures shown below.

- The Fund will calculate its performance using a formula specified
by the Securities and Exchange Commission. Unlike the Fund, some
of the accounts in the historical composite did not value their
assets on a daily basis and, therefore, the Securities and
Exchange Commission formula could not be used. As a result, the
performance figures shown below have been calculated using a
somewhat different formula known as the "Modified Dietz Method."
Although both formulas produce a time weighted rate of return, the
use of the Securities and Exchange Commission formula 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 varies by quarter, beginning with one from July 1,
1990 through January 1, 1996, and increasing to three 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.

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

EXPENSE CAP -- The Fund's investment adviser has agreed to cap the annual
operating expenses of the Fund for one year. This expense cap relates to both
the one-time non-recurring organizational expenses of the Fund and to those
expenses that will continue from year to year.

- The accounts presented were accounted for in various base
currencies other than U.S. dollars. The 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 FUND OR OF A PARTICIPATING INSURANCE
COMPANY SEPARATE ACCOUNT (THAT FUNDS YOUR CONTRACT) THAT INVESTS
IN THE 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.

- 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 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 (except those fees and expenses that are paid by the
investment adviser in connection with that portion of the EXPENSE
CAP that relates to the one-time non-recurring organizational
expenses of the Fund) that the 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
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

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

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 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 Composite Stock Price 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 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
<PAGE> 15

[ABOUT THE DETAILS ICON] About the Details

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

THIS IS NOT THE PERFORMANCE OF EITHER THE FUND OR OF ANY PARTICIPATING INSURANCE
COMPANY SEPARATE ACCOUNT INVESTING IN THE FUND. (This is the performance of
other accounts managed by the investment adviser's affiliates, see above.)

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
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1999 1999 1999 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED:
- ----------------------------------------------------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- ----------------------------------------------------------------------------------------------------------------------------
Class A Fees and Charges 31.1% 35.2% 30.2% 32.7% 29.0% 25.7%
- ----------------------------------------------------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3): 33.4 37.6 32.4 35.0 31.2 27.9
- ----------------------------------------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (4): 18.5 32.4 28.1 29.1 26.2 21.7
- ----------------------------------------------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (5): 13.5 27.1 21.7 23.3 20.3 17.5
- ----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
FOR
EIGHT YEARS
AND
FOR FOR NINE MONTH
SEVEN-YEAR EIGHT-YEAR PERIOD
PERIOD PERIOD ENDED
ENDED ENDED MARCH 31,
MARCH 31, MARCH 31, 1999
1999 1999 (1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED:
- ---------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- ---------------------------------------------------------------------------------
Class A Fees and Charges 23.7% 21.6% 20.4%
- ---------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3): 25.8 23.6 22.5
- ---------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (4): 20.8 19.5 18.7
- ---------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (5): 16.8 16.4 15.8
- ---------------------------------------------------------------------------------
</TABLE>

(1) The investment adviser's affiliates first began managing accounts with
substantially similar objectives and policies to those of the Fund on July
1, 1990.

(2) Reflects the reinvestment of dividends and distributions, and the deduction
of all fees and expenses (except those fees and expenses that are paid by
the investment adviser in connection with that portion of the expense cap
that relates to the one-time non-recurring organizational expenses of the
Fund) that the Fund is projected to pay. To the extent the 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> 16

[ABOUT THE DETAILS ICON] About the Details

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

FOR THE THREE
MONTHS ENDED FOR EACH YEAR ENDED DECEMBER 31,
MARCH 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED: GROSS OF FEES AND
CHARGES (2): 12.2% 34.3% 29.8% 26.8% 46.7%
- -----------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (3): 5.0 28.6 33.4 23.0 37.6
- -----------------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (4): 4.4 23.1 25.4 19.8 31.3
- -----------------------------------------------------------------------------------------------

<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): 5.1% 13.9% 13.1% 28.7% (6.9%)
- -----------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (3): 0.8 10.6 7.7 30.5 (6.0)
- -----------------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES
NOT INCLUDE SALES CHARGES) (4): (1.7) 11.2 8.6 37.4 (8.5)
- -----------------------------------------------------------------------------------------------
</TABLE>

(1) The investment adviser's affiliates first began managing accounts with
substantially similar objectives and policies to those of the 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> 17

[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:

- 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
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 Fund will calculate its performance using a formula specified
by the Securities and Exchange Commission. Unlike the Fund, some
of the accounts in the historical composite did not value their
assets on a daily basis and therefore, the Securities and Exchange
Commission formula could not be used. As a result, the performance
figures shown below have been calculated using a somewhat
different formula known as the "Modified Dietz Method." Although
both formulas produce a

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

<PAGE> 18
[ABOUT THE DETAILS ICON] About the Details

time weighted rate of return, the use of the Securities
and Exchange Commission formula might have adversely
affected the performance figures shown.

MERCURY V.I. U.S. LARGE CAP FUND 15

<PAGE> 19

[ABOUT THE DETAILS ICON] About the Details

portion of the EXPENSE CAP that relates to the one-time non-
recurring organizational expenses of the Fund) that the 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 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 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 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> 20
[ABOUT THE DETAILS ICON] About the Details

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

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
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1999 1999 1999 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
COMPOSITE OF SIMILAR ACCOUNTS, RECALCULATED:
- ----------------------------------------------------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- ----------------------------------------------------------------------------------------------------------------------------
Class B Fees and Charges 30.9% 35.0% 30.0% 32.5% 28.8% 25.5%
- ----------------------------------------------------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3): 33.4 37.6 32.4 35.0 31.2 27.9
- ----------------------------------------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (4): 18.5 32.4 28.1 29.1 26.2 21.7
- ----------------------------------------------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES NOT INCLUDE SALES
CHARGES) (5): 13.5 27.1 21.7 23.3 20.3 17.5
- ----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
FOR
EIGHT YEARS
AND
FOR FOR NINE MONTH
SEVEN-YEAR EIGHT-YEAR PERIOD
PERIOD PERIOD ENDED
ENDED ENDED MARCH 31,
MARCH 31, MARCH 31, 1999
1999 1999 (1)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
COMPOSITE OF SIMILAR ACCOUNTS, RECALCULATED:
- -------------------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- -------------------------------------------------------------------------------------------
Class B Fees and Charges 23.5% 21.4% 20.3%
- -------------------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3): 25.8 23.6 22.5
- -------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX (4): 20.8 19.5 18.7
- -------------------------------------------------------------------------------------------
LIPPER GROWTH FUNDS AVERAGE (DOES NOT INCLUDE SALES
CHARGES) (5): 16.8 16.4 15.8
- -------------------------------------------------------------------------------------------
</TABLE>

(1) The investment adviser's affiliates first began managing accounts with
substantially similar objectives and policies to those of the Fund on 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> 21

[ABOUT THE DETAILS ICON] About the Details

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

(1) The investment adviser's affiliates first began managing accounts with
substantially similar objectives and policies to those of the 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> 22

[THE MANAGEMENT TEAM ICON] The Management Team

MANAGEMENT OF THE
MERCURY V.I. U.S. LARGE CAP FUND

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

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

The senior investment professionals in the group that have managed the Fund's
portfolio since the 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, 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 Fund.

Mercury and its affiliates manage portfolios with over $515 billion in assets
(as of March 1999) for individuals and institutions seeking investments
worldwide. This amount includes assets managed for its affiliates. The advisory
agreement between the 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 0.65% of the Fund's average daily
net assets.

Fund Asset Management, L.P., an affiliate of Mercury, will manage all or a
portion of the Fund's 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.

MERCURY V.I. U.S. LARGE CAP FUND 19

<PAGE> 23

[THE MANAGEMENT TEAM ICON] The Management Team

The 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 Fund. All
portfolio investments would then be made at the level of the underlying mutual
fund and the 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 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 Fund's expenses would increase rather than decrease if it
converts to this structure. The directors of the Fund have the authority to make
the change to a "master/feeder" structure without first holding a vote of the
Fund's shareholders if they believe it is in the best interests of the Fund to
do so.

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

<PAGE> 24

<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. U.S. Large Cap Fund. For simplicity, this Appendix uses the term
"Fund" to refer to Mercury V.I. U.S. Large Cap Fund and any future series of
Mercury Asset Management V.I. Funds.

TABLE OF CONTENTS

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

22
MERCURY ASSET MANAGEMENT V.I. FUNDS

ACCOUNT CHOICES ICON
TO LEARN MORE ICON
<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.

The Fund's investment adviser has agreed to cap the annual operating expenses of
the Mercury V.I. U.S. Large Cap Fund to 1.25% of the average net assets of the
Fund's Class A shares. This expense cap will be in place through April 2000.

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.
Each Fund's 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 next one calculated after a purchase or
redemption order is placed. 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. Securities and assets for which market quotations are not readily
available are generally valued at fair value as determined in good faith by or
under the direction of the Board of Directors.

A- 2
MERCURY ASSET MANAGEMENT V.I. FUNDS

<PAGE> 3
[ACCOUNT CHOICES ICON] Account Choices

DIVIDENDS -- ordinary income and capital gains paid with respect to Fund shares.
Dividends from a Fund are automatically reinvested in additional shares of that
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 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, which requires it to satisfy
certain conditions relating to the diversification of its assets and the nature
and distribution of its income. 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. In addition, each Fund intends to limit
the type of its shareholders and to meet the standards for diversification of
assets as necessary to satisfy the tax rules that apply to the separate accounts
that invest in that Fund.

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.

MERCURY ASSET MANAGEMENT V.I. FUNDS 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 Fund management or other Fund service providers
do not properly address this problem before January 1, 2000. Fund management
expects to have addressed this problem before then, and does not anticipate that
the services it provides will be adversely affected. Each Fund's 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 MERCURY ASSET MANAGEMENT V.I. FUNDS
<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
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536

TRANSFER AGENT
Financial Data Services, Inc.
P.O. Box 44062
Jacksonville, Florida 32232-4062
(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
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109

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

MERCURY ASSET MANAGEMENT V.I. FUNDS A-5
<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. You may obtain these reports at no cost by calling 1-888-763-2260.

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 may request a free copy by writing or calling
the Transfer Agent at the address and telephone number indicated on the inside
back cover of this 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 may also contact the insurance company that issued their contract.

You may contact the Fund at 1-888-763-2260 if you have any questions.

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 FROM THE
INFORMATION CONTAINED IN THIS PROSPECTUS.

Investment Company Act File #811-09159.

CODE #19057-0499

<PAGE> 25

<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. U.S. Large Cap Fund. For simplicity, this Appendix uses the term
"Fund" to refer to Mercury V.I. U.S. Large Cap Fund and any future series of
Mercury Asset Management V.I. 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 ASSET MANAGEMENT V.I. FUNDS

<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.

Class B shares of a Fund pay distribution fees of 0.15% per year on an ongoing
basis. These fees are paid under a distribution plan that the Fund has adopted
under Rule 12b-1 under the Investment Company Act of 1940, as amended. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees increase the cost of your investment. Class B shareholders have no
other option. The money from the distribution fees is used to cover the costs of
the sale and distribution of the Fund's Class B shares.

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.

The Fund's investment adviser has agreed to cap the annual operating expenses of
the Mercury V.I. U.S. Large Cap Fund to 1.40% of the average net assets of the
Fund's Class B shares. This expense cap will be in place through April 2000.

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

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

A- 2

MERCURY ASSET MANAGEMENT V.I. FUNDS

<PAGE> 3
[ACCOUNT CHOICES ICON] Account Choices

DIVIDENDS -- ordinary income and capital gains paid with respect to Fund shares.
Dividends from a Fund are automatically reinvested in additional shares of that
Fund as they are paid.

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. Securities and assets for which market quotations are not readily
available are generally valued at fair value as determined in good faith by or
under the direction of the Board of Directors.

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

MERCURY ASSET MANAGEMENT V.I. FUNDS 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 MERCURY ASSET MANAGEMENT V.I. FUNDS

<PAGE> 5
[THE MANAGEMENT TEAM ICON] The Management Team

<TABLE>
<S> <C>
INVESTMENT ADVISER

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

ADMINISTRATOR

Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536

TRANSFER AGENT

Financial Data Services, Inc.
P.O. Box 44062
Jacksonville, Florida 32232-4062
(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

Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109

COUNSEL

Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022
</TABLE>

MERCURY ASSET MANAGEMENT V.I. FUNDS

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

SHAREHOLDER REPORTS

STATEMENT OF ADDITIONAL INFORMATION

You may contact the Fund at 1-888-763-2260 if you have any questions.

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

Investment Company Act File #811-09159.

CODE #19057-0499

<PAGE> 26

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 "Mercury V.I. U.S. Large Cap Fund" or
a "Fund") is a series of Mercury Asset Management V.I. Funds, Inc. (the
"Corporation" or "Mercury"). The Mercury V.I. U.S. Large Cap Fund is an open-end
diversified management investment company (commonly known as a mutual fund). The
investment objective of the Mercury V.I. U.S. Large Cap Fund is long-term
capital growth. The Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund will be achieved.

The Mercury V.I. 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 (the "Participating Insurance Companies") to
fund benefits under variable annuity and/or variable life insurance contracts
(the "Contracts"). Certain Participating Insurance Companies may be affiliates
of Mercury Asset Management International Ltd. ("Mercury International" or the
"Investment Adviser"). The rights of Participating Insurance Companies as
shareholders of the Mercury V.I. U.S. Large Cap Fund should be distinguished
from the rights of a Contract owner, which are set forth in the Contract. A
Contract owner has an interest solely in the Contract and not in the shares of
the Mercury V.I. U.S. Large Cap Fund. The relevant Contract is described in the
prospectus of the Participating Insurance Company that issues the Contract. The
prospectus of the Participating Insurance Company that issues the Contract
describes the various fees and charges in connection with the separate account
and the Contract, and the benefits provided by the Contract. That prospectus
also describes the relationship between the Contract and increases or decreases
in the net asset value of shares of the Mercury V.I. U.S. Large Cap Fund and any
distributions on such shares. 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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund,
dated April 15, 1999 (the "Prospectus"), which has been filed with the
Securities and Exchange Commission (the "Commission"), and can be obtained,
without charge, by calling the Mercury V.I. U.S. Large Cap Fund at (888)
763-2260 or writing to the Fund at the address listed above. The Prospectus may
also be obtained from the Participating Insurance Company that issued your
Contract. For information on obtaining the Prospectus from the Participating
Insurance Company that issued your Contract, 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 April 15, 1999.

<PAGE> 27

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.......................... 2
Insurance Law Restrictions................................ 9
Other Considerations...................................... 9
Investment Restrictions................................... 9
General Information Relating to the Mercury V.I. U.S. Large
Cap Fund.................................................. 11
Description of Shares..................................... 11
Appendix.................................................... A-1
Management of the Funds..................................... A-2
Directors and Officers.................................... A-2
Composition of Directors.................................. A-3
Management and Advisory Arrangements...................... A-3
Code of Ethics............................................ A-5
Purchase of Shares.......................................... A-5
Distribution Agreements................................... A-5
Distribution Plans........................................ A-6
Redemption of Shares........................................ A-7
Portfolio Transactions and Brokerage........................ A-7
Determination of Net Asset Value............................ A-8
Dividends and Taxes......................................... A-9
Dividends................................................. A-9
Taxes..................................................... A-9
Performance Data............................................ A-10
General Information......................................... A-11
Independent Auditors...................................... A-11
Custodian................................................. A-11
Transfer Agent............................................ A-11
Legal Counsel............................................. A-11
Reports to Shareholders................................... A-11
Additional Information.................................... A-11
Annex A..................................................... Annex A-1
Annex B..................................................... Annex B-1
</TABLE>

CODE #
(C) Mercury Asset Management International Ltd.
<PAGE> 28

INVESTMENT OBJECTIVES AND POLICIES

The goal (that is, investment objective) of the Mercury V.I. U.S. Large Cap
Fund is long-term capital growth. This is a fundamental policy and cannot be
changed without shareholder approval. The Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund.
There can be no guarantee that the Mercury V.I. U.S. Large Cap Fund's investment
objective will be achieved.

The Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund. All portfolio
investments would then be made at the level of the underlying mutual fund and
the Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. U.S.
Large Cap Fund's expenses would increase rather than decrease if it converts to
this structure. The Directors of the Mercury V.I. U.S. Large Cap Fund have the
authority to make the change to a "master/feeder" structure without first
holding a vote of the Fund's shareholders if they believe it is in the best
interests of the Mercury V.I. U.S. Large Cap Fund to do so.

For purposes of the Mercury V.I. U.S. Large Cap Fund's policy to invest in
the U.S. and Canada, 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 Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund generally
not to engage in trading for short-term gains, 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 Mercury V.I. U.S. Large Cap Fund. If such restrictions should be
reinstituted, it might become necessary for the Mercury V.I. U.S. Large Cap Fund
to invest all or substantially all of its assets in U.S. securities. In such
event, the Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund's outstanding voting
securities.

The Mercury V.I. 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.

2
<PAGE> 29

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

Investing in Canada. While the Mercury V.I. 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% 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 Mercury V.I. U.S. Large Cap Fund defines
companies located in the U.S. or Canada broadly. As a result, the Mercury V.I.
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
Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund may hold convertible
and non-convertible debt securities, and preferred securities. The Mercury V.I.
U.S. Large Cap Fund has established no rating criteria for the debt securities
in which it may invest. Therefore, the Mercury V.I. 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

3
<PAGE> 30

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.

Debt securities are subject to interest rate and credit risk. Interest rate
risk is the risk that when interest rates go up, the value of debt instruments
generally goes down. 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. Credit risk is the risk that the issuer will be unable
to pay the interest or principal when due. The degree of credit risk depends on
both the financial condition of the issuer and the terms of the obligation.

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 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 Mercury V.I. U.S.
Large Cap Fund. If a call were exercised by an issuer during a period of
declining interest rates, the Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund and dividends
to shareholders.

The Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund's ability to
dispose of particular issues when necessary to meet the 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 Mercury V.I. 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 dealers 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 Mercury
V.I. 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 Mercury V.I. U.S. Large Cap Fund's net asset value. In addition, the
Mercury V.I. 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.

Convertible Securities. Convertible securities entitle the holder to
receive interest payments paid on corporate debt securities or the dividend
preference on a preferred stock until such time as the convertible security
matures or is redeemed or until the holder elects to exercise the conversion
privilege.

The characteristics of convertible securities include the potential for
capital appreciation as the value of the underlying common stock increases, the
relatively high yield received from dividend or interest payments as compared to
common stock dividends and decreased risks of decline in value relative to the
underlying common stock due to their fixed-income nature. As a result of the
conversion feature, however, the interest

4
<PAGE> 31

rate or dividend preference on a convertible security is generally less than
would be the case if the securities were issued in non-convertible form.

In analyzing convertible securities, the Investment Adviser will consider
both the yield on the convertible security and the potential capital
appreciation that is offered by the underlying common stock.

Convertible securities are issued and traded in a number of securities
markets. Even in cases where a substantial portion of the convertible securities
held by the Mercury V.I. U.S. Large Cap Fund are denominated in U.S. dollars,
the underlying equity securities may be quoted in the currency of the country
where the issuer is domiciled. With respect to a convertible security
denominated in a currency different from that of the underlying equity security,
the conversion price may be based on a fixed exchange rate established at the
time the security is issued. As a result, fluctuations in the exchange rate
between the currency in which the debt security is denominated and the currency
in which the share price is quoted will affect the value of the convertible
security.

Apart from currency considerations, the value of a convertible security is
influenced by both the yield of non-convertible securities of comparable issuers
and by the value of the underlying common stock. The value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." To the
extent interest rates change, the investment value of the convertible security
typically will fluctuate. However, at the same time, the value of the
convertible security will be influenced by its "conversion value," which is the
market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price of the
common stock the conversion value is substantially below the investment value of
the convertible security, the price of the convertible security is governed
principally by its investment value.

To the extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common stock
while holding a fixed-income security.

Holders of convertible securities generally have a claim on the assets of
the issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may be subject to
redemption at the option of the issuer at a price established in the charter
provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by the Mercury
V.I. U.S. Large Cap Fund is called for redemption, the Fund will be required to
redeem the security, convert it into the underlying common stock or sell it to a
third party. Certain convertible debt securities may provide a put option to the
holder which entitles the holder to cause the security to be redeemed by the
issuer at a premium over the stated principal amount of the debt security under
certain circumstances.

Borrowing and Leverage. The Mercury V.I. 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 Mercury V.I. 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, and may use
borrowing to enable it to meet redemptions.

The use of leverage by the Mercury V.I. 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
Mercury V.I. U.S. Large Cap Fund shares and in the yield on the Fund's
portfolio. Although the principal of such borrowings will be fixed, the Mercury
V.I. 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
Mercury V.I. 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
Mercury V.I. U.S. Large Cap Fund will have to pay on the borrowings, the Mercury
V.I. U.S.

5
<PAGE> 32

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 Mercury V.I. 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 judgment nevertheless may determine to
maintain the Mercury V.I. 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 Mercury V.I. 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 Mercury
V.I. U.S. Large Cap Fund's assets in illiquid securities may restrict the
ability of the 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 Mercury
V.I. U.S. Large Cap Fund's operations require cash, such as when the Fund
redeems shares or pays dividends, and could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the sale of illiquid
investments.

The Mercury V.I. 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
Mercury V.I. 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
Mercury V.I. U.S. Large Cap Fund are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Mercury
V.I. U.S. Large Cap Fund may be required to bear the expenses of registration.
Certain of the Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund may obtain access to material
nonpublic information which may restrict the Fund's ability to conduct portfolio
transactions in such securities.

144A Securities. The Mercury V.I. 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 of 1933, as amended, (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 Mercury V.I.
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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these securities.

6
<PAGE> 33

Other Special Considerations. The Mercury V.I. U.S. Large Cap Fund may
invest without limit in short-term investments, high quality bonds or
derivatives, to reduce exposure to equity securities when the Mercury V.I. 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 Mercury V.I. U.S. Large Cap
Fund and may reduce the level of current income.

Sovereign Debt. The Mercury V.I. 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 ("governmental
entities"). Investment in sovereign debt involves 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 Mercury V.I. 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 may be 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 Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund may lend
securities with a value not exceeding 33 1/3% of its total assets. In return,
the Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund. Alternatively,
if securities are delivered to the Mercury V.I. U.S. Large Cap Fund as
collateral, the Fund and the borrower negotiate a rate for the loan premium to
be received by the Mercury V.I. U.S. Large Cap Fund for lending its portfolio
securities. In either event, the total yield on the Mercury V.I. U.S. Large Cap
Fund's portfolio is increased by loans of its portfolio securities. The Mercury
V.I. 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 Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. 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 Mercury
V.I. U.S. Large Cap Fund's return may be affected by currency fluctuations. The
Mercury V.I. 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

7
<PAGE> 34

transferred to the purchaser. The Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund but only constitute collateral
for the seller's obligation to pay the repurchase price. Therefore, the Mercury
V.I. 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 Mercury V.I. 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 Mercury V.I. 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.

Warrants. The Mercury V.I. 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 Mercury V.I.
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 Mercury V.I. U.S.
Large Cap Fund may purchase or sell securities that it is entitled to receive on
a when-issued basis. The Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund at an
established price with payment and delivery taking place in the future. The
Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund is purchasing securities
in these transactions, the Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund's purchase
price. The Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund may
enter into standby commitment agreements. These agreements commit the Mercury
V.I. 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 Mercury V.I. 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 Mercury
V.I. U.S. Large Cap Fund is paid a commitment fee, regardless of whether or not
the security is ultimately issued. The Mercury V.I. 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
Mercury V.I. U.S. Large Cap Fund. The Mercury V.I. 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 Mercury V.I. 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.

8
<PAGE> 35

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
Mercury V.I. 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 Mercury V.I. 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.

INSURANCE LAW RESTRICTIONS

In order for shares of the Mercury V.I. U.S. Large Cap Fund to remain
eligible investments for the separate accounts of Participating Insurance
Companies, it may be necessary, from time to time, for the Fund to limit its
investments in certain types of securities in accordance with the insurance laws
or regulations of the various states in which the Contracts are sold.

The New York insurance law requires that investments of the Mercury V.I.
U.S. Large Cap Fund be made with the degree of care of an "ordinarily prudent
person." The Investment Adviser believes that compliance with this standard will
not have any negative impact on the performance of the Mercury V.I. U.S. Large
Cap Fund.

OTHER CONSIDERATIONS

The Investment Adviser will use its best efforts to assure that the Mercury
V.I. U.S. Large Cap Fund complies with certain investment limitations of the
Internal Revenue Service to assure favorable income tax treatment for the
Contracts. It is not expected that such investment limitations will materially
affect the ability of the Mercury V.I. U.S. Large Cap Fund to achieve its
investment objective.

INVESTMENT RESTRICTIONS

The Corporation has adopted the following restrictions and policies
relating to the investment of the Mercury V.I. U.S. Large Cap Fund's assets and
its activities. The fundamental restrictions set forth below may not be changed
with respect to the Mercury V.I. 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 of 1940, as amended, (the
"Investment Company Act") means the 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 Mercury V.I. 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 Mercury
V.I. U.S. Large Cap Fund may not:

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

2. Invest more than 25% of its total 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 Mercury V.I. 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.

9
<PAGE> 36

4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. 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
Mercury V.I. U.S. Large Cap Fund may borrow up to an additional 5% of its
total assets for temporary purposes, (iii) the Mercury V.I. 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
Mercury V.I. U.S. Large Cap Fund may purchase securities on margin to the
extent permitted by applicable law. The Mercury V.I. U.S. Large Cap Fund
may not pledge its assets other than to secure such borrowings or, to the
extent permitted by the Mercury V.I. 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
Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund may do so in
accordance with applicable law and the Mercury V.I. 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 Mercury V.I. 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 Mercury V.I.
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 Mercury V.I. U.S. Large Cap Fund will not purchase
shares of any registered open-end investment company or registered unit
investment trust, in reliance on Section 12(d)(1)(F) or (G) (the "fund of
funds" provisions) of the Investment Company Act, at any time the Mercury
V.I. 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 Mercury V.I.
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 Mercury V.I. 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

10
<PAGE> 37

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.

If a percentage restriction on the investment or use of assets set forth
above is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.

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 Mercury V.I. 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 Mercury V.I. 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 Mercury V.I.
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 Mercury V.I. U.S. Large Cap Fund that are illiquid or are not otherwise
readily marketable. However, if the OTC option is sold by the Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. 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 Mercury V.I. 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"), the Mercury V.I. 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 Mercury V.I. U.S. Large Cap Fund may purchase from an
underwriting syndicate of which Merrill Lynch is a member.

GENERAL INFORMATION RELATING TO THE MERCURY V.I. U.S. LARGE CAP FUND

DESCRIPTION OF SHARES

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

Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Directors (to the
extent hereinafter provided) and on other matters submitted to vote of
shareholders, except that Class B shareholders, whose shares bear distribution
expenses as provided below, shall have exclusive voting rights with respect to
matters relating to such distribution expenditures. Voting rights are not
cumulative, so that the holders of more than 50% of the shares voting in the
election of Directors can, if they choose to do so, elect all the Directors of
the Corporation, in which event the holders of the

11
<PAGE> 38

remaining shares are unable to elect any person as a Director. No amendment may
be made to the Articles of Incorporation without the affirmative vote of a
majority of the outstanding shares of the Corporation.

There normally will be no meeting of shareholders for the purpose of
electing Directors unless and until such time as less than a majority of the
Directors holding office have been elected by the shareholders, at which time
the Directors then in office will call a shareholders' meeting for the election
of Directors. Shareholders may, in accordance with the terms of the Articles of
Incorporation, cause a meeting of shareholders to be held for the purpose of
voting on the removal of Directors. Also, the Corporation will be required to
call a special meeting of shareholders in accordance with the requirements of
the Investment Company Act to seek approval of new management and advisory
arrangements, of a material increase in distribution fees or of a change in
fundamental policies, objectives or restrictions. Except as set forth above, the
Directors shall continue to hold office and appoint successor Directors. Each
issued and outstanding share is entitled to participate equally in dividends and
distributions declared and in net assets upon liquidation or dissolution
remaining after satisfaction of outstanding liabilities. Shares issued are
fully-paid and non-assessable by the Corporation or the Mercury V.I. U.S. Large
Cap Fund. Voting rights for Directors are not cumulative.

Merrill Lynch Life Insurance Company ("MLLIC") will provide the initial
capital for the Mercury V.I. U.S. Large Cap Fund by purchasing shares of the
Fund. Such shares will be acquired for investment and can be disposed of only by
redemption. To the extent the organizational expenses of the Corporation are
paid by the Corporation they will be expensed and immediately charged to the net
asset value. See "Determination of Net Asset Value" in the Appendix to this
Statement of Additional Information.

MLLIC, an insurance company organized under the laws of Arkansas, is
located at 425 West Capital Avenue, Suite 1800, Little Rock, Arkansas
72201-3525. MLLIC, an affiliate of Mercury International, is a wholly owned
subsidiary of Merrill Lynch Insurance Group Incorporated ("MLIG"), a holding
company. MLIG is a "controlling person," as defined in the Investment Company
Act, of MLLIC because of its power to exercise a controlling influence over its
management policies.

Prior to the offering of the Mercury V.I. U.S. Large Cap Fund's shares,
MLLIC will be the Fund's sole shareholder and deemed a controlling person of the
Mercury V.I. U.S. Large Cap Fund.

12
<PAGE> 39

<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. U.S. Large Cap Fund. This
Appendix uses the term "Fund" to refer to Mercury V.I. U.S. Large Cap Fund and
any future series of Mercury Asset Management V.I. Funds.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds..................................... A-2
Directors and Officers.................................... A-2
Compensation of Directors................................. A-3
Management and Advisory Arrangements...................... A-3
Code of Ethics............................................ A-5
Purchase of Shares.......................................... A-5
Distribution Agreements................................... A-5
Distribution Plans........................................ A-6
Redemption of Shares........................................ A-7
Portfolio Transactions and Brokerage........................ A-7
Determination of Net Asset Value............................ A-8
Dividends and Taxes......................................... A-9
Dividends................................................. A-9
Taxes..................................................... A-9
Performance Data............................................ A-10
General Information......................................... A-11
Independent Auditors...................................... A-11
Custodian................................................. A-11
Transfer Agent............................................ A-11
Legal Counsel............................................. A-11
Reports to Shareholders................................... A-11
Additional Information.................................... A-11
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 six individuals, four 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.

JEFFREY M. PEEK (52) -- Director and President(1)(2) -- President of
Merrill Lynch Asset Management L.P. ("MLAM") and FAM since 1997; President and
Director of Princeton Services, Inc. ("Princeton Services") since 1997;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1997;
Co-Head of Merrill Lynch Investment Banking Division from March 1997 to December
1997; Director of Merrill Lynch Global Securities Research and Economics
Division from 1995 to 1997; Head of Merrill Lynch Global Industries Group from
1993 to 1995.

TERRY K. GLENN (58) -- Director and Executive Vice President(1)(2) --
Executive Vice President of MLAM and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President of Princeton Funds
Distributor, Inc. since 1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.

DAVID O. BEIM (58) -- Director (2) -- 410 Uris Hall, Columbia University,
New York, New York 10027. Professor of Columbia University since 1991; Chairman
of Outward Bound USA since 1997; Chairman of Wave Hill, Inc. since 1980.

JAMES T. FLYNN (59) -- Director(2) -- 340 East 72nd Street, New York, New
York 10021. Chief Financial Officer of J.P. Morgan & Co. Inc. from 1990 to 1995
and an employee of J.P. Morgan in various capacities from 1967 to 1995.

W. CARL KESTER (47) -- Director(2) -- Harvard Business School, Morgan Hall
393, Soldiers Field, Boston, Massachusetts 02163. James R. Williston Professor
of Business Administration of Harvard University Graduate School of Business
since 1997; MBA Class of 1958 Professor of Business Administration of Harvard
University Graduate School of Business Administration from 1981 to 1997;
Independent Consultant since 1978.

KAREN P. ROBARDS (48) -- Director (2) -- Robards & Company, 173 Riverside
Drive, New York, New York 10024. President of Robards & Company, a financial
advisory firm, for more than five years; Director of Enable Medical Corp. since
1996; Director of Cine Muse Inc. since 1996; Director of the Cooke Center for
Learning and Development, a not for profit organization, since 1993.

PETER JOHN GIBBS (40) -- Senior Vice President(1)(2) -- 33 King William
Street, London, EC4R 9AS, England. Chairman of Mercury Asset Management
International Ltd. since 1998; Director of Mercury Asset Management Ltd. since
1993; Director of Mercury Asset Management International Channel Islands Ltd.
since 1997.

DONALD C. BURKE (38) -- Treasurer and Vice President (1)(2) -- Senior Vice
President and Treasurer of MLAM and FAM since 1999; Senior Vice President and
Treasurer of Princeton Services since 1999; Vice President of Princeton Funds
Distributor, Inc. since 1999; First Vice President of MLAM and FAM from 1997 to
1999; Director of Taxation of MLAM and FAM since 1990; Vice President of MLAM
and FAM from 1990 to 1997.

A-2
<PAGE> 3

LORRAINE D. MANDEL (50) -- Secretary (1)(2) -- Director (Legal Advisory) of
MLAM since 1998; Second Vice President and Assistant General Counsel of General
Reinsurance Corporation from 1992 to 1998.

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

(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, 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 (nine 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 the Funds, a fee of $3,000
per year plus $500 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
$1,000 annually for service to the Funds.

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>
David O. Beim.................... $6,000 None $10,000
James T. Flynn................... $6,000 None $49,000
W. Carl Kester................... $6,000 None $49,000
Karen P. Robards................. $6,000 None $10,000
</TABLE>

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

(1) In addition to the Corporation, the Directors served on other Mercury and
Affiliates-Advised Funds as follows: Mr. Beim (2 registered investment
companies consisting of 10 portfolios); Mr. Flynn (4 registered investment
companies consisting of 16 portfolios); Mr. Kester (4 registered investment
companies consisting of 16 portfolios); and Ms. Robards (2 registered
investment companies consisting of 10 portfolios).

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 the Mercury V.I. U.S. Large
Cap Fund monthly compensation at the annual rate of 0.65% of the average daily
net assets of the Mercury V.I. U.S. Large Cap Fund. The Investment Adviser has
agreed to limit the annual operating expenses of the Mercury V.I. U.S. Large Cap
Fund to 1.25% and 1.40% of the Mercury V.I. U.S. Large Cap Fund's average net
assets with respect to the Class A shares and Class B shares, respectively.
These expense limits will be in place through April 2000.

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

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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
Participating Insurance Companies), 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 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 Investment Adviser or any sub-adviser, or of an affiliate of the Investment
Adviser or of 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 Participating Insurance
Companies 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 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 of the Investment Adviser or an affiliate when one or more
clients of the Investment Adviser or an affiliate are selling the same security.
If purchases or sales of securities arise for consideration at or about the same
time that would involve a Fund or other clients or funds for which the
Investment Adviser or an affiliate acts as manager, 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 an affiliate 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 or policies.

The Corporation 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 all or a portion of
each Fund's daily cash assets. The Corporation has agreed to use its reasonable
best efforts to cause the Investment Adviser to pay to 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.

The Investment Adviser has entered into administrative services agreements
with certain Participating Insurance Companies, including Participating
Insurance Companies that may be affiliates of the Investment Adviser, pursuant
to which the Investment Adviser compensates such Participating Insurance
Companies for administrative responsibilities relating to the Corporation which
are performed by such Participating Insurance Companies.

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, the partners of FAM, are "controlling persons" of
FAM

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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.

PURCHASE OF SHARES

Reference is made to "Account Choices -- 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 bear the expenses of the ongoing distribution fees
and 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
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.
Each Fund's 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.

Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc.
("MFD" or the "Distributor"), 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.

DISTRIBUTION AGREEMENTS

The Corporation has entered into distribution agreements (each, a
"Distribution Agreement") with the Distributor with respect to the sale of the
Corporation's shares to the Distributor for resale to Participating Insurance
Companies' separate accounts. Such shares will be sold at their respective net
asset values and therefore will involve no sales charge. The Distributor is an
affiliate of the Investment Adviser.

Each Distribution Agreement is subject to the same renewal requirements and
termination provisions as the Advisory Agreements described above.

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DISTRIBUTION PLANS

Reference is made to "Account Choices -- Fund Shares" in the Appendix to
the Prospectus for certain information with respect to the distribution plan for
Class B shares pursuant to Rule 12b-1, under the Investment Company Act, of a
Fund (each a "Distribution Plan") with respect to the distribution fees paid by
each Fund with respect to such class.

Each Distribution Plan permits the Corporation to pay to each Participating
Insurance Company that enters into an agreement with the Corporation to provide
distribution related services to Contract owners, a distribution fee relating to
the Class B shares accrued daily and paid monthly, at the annual rate of 0.15%
of the average daily net assets of the Class B shares of each Fund held by such
Participating Insurance Company. Such services include, but are not limited to,
(a) the printing and mailing of Fund prospectuses, statements of additional
information, any supplements thereto and shareholder reports for prospective
Contract owners, (b) services relating to the development, preparation, printing
and mailing of Corporation advertisements, sales literature and other
promotional materials describing and/or relating to the Corporation and
including materials intended for use within the Participating Insurance Company
or for broker-dealer only use or retail use, (c) holding seminars and sales
meetings designed to promote the distribution of the Class B shares of the
Funds, (d) obtaining information and providing explanations to Contract owners
regarding the investment objectives and policies and other information about the
Corporation and its Funds, including the performance of the Funds, (e) training
sales personnel regarding the Corporation and the Funds, (f) compensating sales
personnel in connection with the allocation of cash values and premiums of the
Contract owners to the Corporation, (g) providing personal services and/or
maintenance of the accounts of the Contract owners with respect to Class B
shares of the Funds attributable to such accounts, and (h) financing any other
activity that the Corporation's Board of Directors determines is primarily
intended to result in the sale of Class B shares.

A Fund has no obligation with respect to distribution related expenses
incurred by the Distributor or Participating Insurance Companies in connection
with the Class B shares, and there is no assurance that the Directors of the
Corporation will approve the continuance of the Distribution Plans from year to
year. However, the Distributor intends to seek annual continuation of the
Distribution Plans. In their review of the Distribution Plans, the Directors
will be asked to take into consideration expenses incurred in connection with
the distribution of each Fund's Class B shares separately.

In their consideration of each Distribution Plan, the Directors must
consider all factors they deem relevant, including information as to the
benefits of the Distribution Plan to each Fund and its Class B shareholders.
Each Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of such Fund, as defined in the Investment Company Act (the
"Independent Directors") shall be committed to the discretion of the Independent
Directors then in office. In approving each Distribution Plan in accordance with
Rule 12b-1, the Independent Directors concluded that there is reasonable
likelihood that such Distribution Plan will benefit the applicable Fund and its
Class B shareholders. Each Distribution Plan can be terminated at any time,
without penalty, by the vote of a majority of the Independent Directors or by
the vote of the holders of a majority of the outstanding Class B shares of the
applicable Fund. A Distribution Plan cannot be amended to increase materially
the amount to be spent by a Fund without the approval of the related Class B
shareholders, and all material amendments are required to be approved by the
vote of Directors, including a majority of the Independent Directors who have no
direct or indirect financial interest in such Distribution Plan, cast in person
at a meeting called for that purpose. Rule 12b-1 further requires that the Fund
preserve copies of each Distribution Plan and any report made pursuant to such
plan for a period of not less than six years from the date of such Distribution
Plan or such report, the first two years in an easily accessible place.

The Corporation may reject any order to buy shares and may suspend the
offering of its shares at any time.

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REDEMPTION OF SHARES

The Corporation is required to redeem for cash all shares of a Fund upon
receipt of a written request in proper form. The redemption price is the net
asset value per share next determined after the initial receipt of proper notice
of redemption. The value of shares at the time of redemption may be more or less
than their cost, depending on the net asset value of a Fund's shares at such
time.

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.

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.

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.

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<PAGE> 8

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%.
A high rate of portfolio turnover results in correspondingly higher brokerage
commission expenses.

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
of shares outstanding at such time. Expenses, including the fees payable to the
Participating Insurance Companies, and the advisory fees payable 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 generally 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
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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.

DIVIDENDS AND TAXES

DIVIDENDS

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 dividend
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 is treated as a separate entity for federal income tax purposes
and 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 (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.
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). If any Fund should fail to
qualify as a RIC in any year, then that Fund would incur corporate federal
income tax upon its taxable income for that year (with no deduction for
distributions to shareholders), and its distributions will generally be taxable
as ordinary dividend income to its shareholders, and each Participating
Insurance Company separate account invested therein would fail to satisfy the
diversification requirements of section 817(h) of the Code (see below), with the
result that the variable life insurance and/or variable annuity contracts
supported by that account would no longer be eligible for tax deferral.

In addition to satisfying the diversification requirements applicable to
RICs, each Fund intends to diversify its assets as required by section 817(h) of
the Code and the regulations thereunder. These regulations place certain
limitations both on the investments of the Fund and on the type of Fund
shareholders. If a Fund fails to comply with these requirements, Contracts that
invest in the Fund will not be entitled to the favorable treatment granted to
annuity, endowment or life insurance contracts under the Code.

Dividends paid by a Fund from its ordinary income and distributions of a
Fund's net realized capital gains are includable in the respective Participating
Insurance Company's gross income. Distributions of a Fund's net realized
long-term capital gains retain their character as long-term capital gains in the
hands of the Participating Insurance Companies if certain requirements are met.
The tax treatment of such dividends and distributions depends on the respective
Participating Insurance Company's tax status. To the extent that income of the
Corporation represents dividends on common or preferred stock, rather than
interest income, its distributions to the Participating Insurance Companies will
be eligible for the present 70% dividends received deduction applicable in the
case of a life insurance company as provided in the Code. See the separate
prospectus for the Contracts for a description of the respective Participating
Insurance Company's tax status and the charges which may be made to cover any
taxes attributable to the separate account. Not later than 60

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days after the end of each calendar year, the Corporation will send to the
Participating Insurance Companies a written notice required by the Code
designating the amount and character of any distributions made during such year.

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

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 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 things, 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 the index, such as standard deviation and
beta. As with other performance data, 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 advertisement or other materials other applicable measures of
performance and may also make references to awards that may be given to the
Investment Adviser.

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GENERAL INFORMATION

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

Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, 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.

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.
------------------------

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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. A Fund is not required to engage in
hedging transactions and may choose not to do so.

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, including interest rates
(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 interest rate 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> 13

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> 14

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. A Fund will only engage in futures and
options transactions from time to time. A Fund is under no obligation to use
such transactions and may not do so.

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> 15

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> 16

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> 17

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> 18

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> 19

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> 20

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 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> 21

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> 22

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> 23

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 IBCA, 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> 24

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> 25

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> 26
<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> 40

PART C. OTHER INFORMATION

ITEM 23. EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
1(a) -- Articles of Incorporation of Registrant.(1)
1(b) -- Amended Articles of Incorporation of Registrant.
2 -- By-Laws of Registrant.(1)
3 -- Instrument Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.
4(a) -- Form of Investment Advisory Agreement between Registrant and
Mercury Asset Management International Ltd.
4(b) -- Form of Sub-Advisory Agreement between Registrant and Fund
Asset Management, L.P.
5(a) -- Form of Class A Distribution Agreement between Registrant
and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(b) -- Form of Class B Distribution Agreement between Registrant
and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
6 -- Not Applicable.
7 -- Form of Custody Agreement between Registrant and Brown
Brothers Harriman & Co.
8(a) -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between Registrant
and Financial Data Services, Inc.
8(b) -- Form of 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.(2)
8(c) -- Form of License Agreement relating to Use of Name among
Mercury Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.
8(d) -- Form of Participation Agreement between Registrant and a
participating insurance company.
8(e) -- Form of Expense Cap Agreement between Mercury Asset
Management International, Ltd. and Registrant.
9 -- Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel for Registrant.
10 -- Consent of Deloitte & Touche, LLP, independent auditors for
the Registrant.
11 -- Not Applicable.
12 -- Not Applicable.
13 -- Form of Class B Distribution Plan and Class B Plan
Sub-Agreement.
14 -- Not Applicable.
15(a) -- Rule 18f-3 Plan.
15(b) -- Power of Attorney.
</TABLE>

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

(1) Incorporated by reference to identically numbered exhibit to Registrant's
initial Registration Statement on Form N-1A (File No. 333-68879).

(2) Incorporated by reference to Exhibit No. 8(c) to Pre-Effective Amendment No.
1 of Mercury Pan-European Growth Fund of Mercury Asset Management Funds,
Inc.'s Registration Statement on Form N-1A (File No. 333-56205).

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

The Registrant will sell shares of its series, Mercury V.I. U.S. Large Cap
Fund to Merrill Lynch Life Insurance Company ("MLLIC"). Except that all of the
Registrant's shares will be held by separate accounts of participating insurance
companies, the Registrant is not controlled by or under common control with any
other person.

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.

C-1
<PAGE> 41

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 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 8 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

C-2
<PAGE> 42

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.

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
January 1997 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
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
Debra Ann Searle.......................... 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.

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

Forum House Limited; Grosvenor Alternate Partner Limited; Grosvenor General
Partner Limited; Grosvenor Ventures Limited; Grosvenor Venture Managers Limited;
33 King William Street, Ltd.; Mercury Asset Management Employee Trust Co. Ltd.;
Mercury Asset Management Finance Ltd.; Mercury Asset Management Group Ltd;
Mercury Asset Management Group Services Ltd; Mercury Asset Management Holdings
Ltd.; Mercury Asset Management International Ltd.; Mercury Asset Management No.
1 Limited; Mercury Asset Management Ltd.; Mercury Asset Management Pension
Trustee Co. Ltd.; Mercury Fund Managers Limited; Mercury Financial Services
Ltd.; Mercury Investment Management Limited; Mercury Investment Services Ltd.;
Mercury Investment Trust Managers 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; Third Grosvenor Limited; Wimco
Nominees Ltd.; Toll Company; SNC International (Holdings) Limited; SNC
Securities Limited; SNCS Limited; Storey Saver Limited; Merrill Lynch Private
Capital Limited; Merrill Lynch, Pierce, Fenner & Smith (Brokers & Dealers)
Limited; Merrill Lynch, Pierce, Fenner & Smith Limited; Mership Nominees
Limited; ML Europe Property Ltd.; ML Invest Holdings Limited; ML Invest Limited;
N.Y. Nominees Limited; Paramount Nominees Limited; Prismbond Limited; RNML
Limited; S.N.C. Nominees Limited; Sealion Nominees Limited; Smith Bros (Services
& Leasing) Limited; Smith Bros Nominees Limited; Smith Bros Participations
Limited; Smith Bros PLC; SNC Corporate Finance Limited; SNC Financial Services;
McIntosh Services (UK) Limited; Merrill Lynch (UK) Pension Plan Trustees
Limited; Merrill Lynch Capital Markets Bank Limited; Merrill Lynch Equities
Limited; Merrill Lynch Europe Funding; Merrill Lynch Europe Holdings Limited;
Merrill Lynch Europe PLC; Merrill Lynch Financial Services Limited; Merrill
Lynch Gilts (Nominees) Limited; Merrill Lynch Gilts Holdings Limited; Merrill
Lynch Gilts Investments Limited; Merrill Lynch Gilts Limited; Merrill Lynch
Group Holdings

C-3
<PAGE> 43

Limited; Merrill Lynch International; Merrill Lynch International Bank Limited;
Merrill Lynch Investment Services Limited; Merrill Lynch Investments Limited;
Merrill Lynch Limited; Merrill Lynch Nominees Limited; Merrill Lynch Private
Capital Limited; Benson Nominees Limited; C.P.W. Limited; Capital Markets;
Chetwynd Nominees Limited; Citygale Nominees Limited; CLO Funding Limited; and
McIntosh Services (UK) Limited.

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 has been engaged
since January 1997 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
Jeffrey M. Peek..................... President President of MLAM; President and
Director of Princeton Services, Inc.
("Princeton Services"); Executive Vice
President of Merrill Lynch & Co., Inc.
(" ML & Co."); Managing Director and
Co-Head of the Investment Banking
Division of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill
Lynch") in 1997; Senior Vice President
and Director of the Global Securities
and Economics division of Merrill Lynch
from 1995 to 1997.
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
Financial Data Services, Inc.;
President of Princeton Administrators,
L.P.
Donald C. Burke..................... Senior Vice President Senior Vice President and Treasurer of
and Treasurer MLAM since 1999; Senior Vice President
and Treasurer of Princeton Services;
Vice President and Treasurer of
Princeton Funds Distributor, Inc.;
First Vice President of MLAM from 1997
to 1999; Vice President of MLAM from
1990 to 1997; Director of Taxation of
MLAM since 1990.
</TABLE>

C-4
<PAGE> 44

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH FAM PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------- ---------------------------------------
<S> <C> <C>
Michael G. Clark.................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Mark A. Desario..................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
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
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
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
Brian A. Murdock.................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Director of Princeton Funds
Distributor, Inc.
Gregory D. Upah..................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>

Mr. Glenn is President and Mr. Burke is Treasurer of all or substantially
all of the investment companies described in the following two paragraphs. Mr.
Glenn is a director of such companies. Messrs. Giordano, 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

C-5
<PAGE> 45

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, 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
Insured Fund II, Inc., MuniHoldings California Insured Fund, Inc., MuniHoldings
California Insured Fund II, Inc., MuniHoldings California Insured Fund III,
Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings Michigan
Insured Fund, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York
Insured Fund, Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings
New York Insured Fund III, Inc., MuniHoldings Florida Insured Fund, MuniHoldings
Florida Insured Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings
Florida Insured Fund IV, MuniHoldings New Jersey Insured Fund, Inc.,
MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New Jersey Insured
Fund III, Inc., MuniHoldings Pennsylvania Insured Fund, 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.

C-6
<PAGE> 46

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
V.I. U.S. Large Cap Fund of Mercury Asset Management Funds, Inc.; Mercury
Global Balanced Fund of Mercury Asset Management Funds, Inc.; Summit Cash
Reserves 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
Michael G. Clark..................... Director and Treasurer 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
James T. Fatseas..................... Vice President None
Debra W. Landsman-Yaros.............. Vice President None
Michelle T. Lau...................... Vice President None
Donald C. Burke...................... Vice President Vice President and 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, Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109;

(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.

C-7
<PAGE> 47

ITEM 29. MANAGEMENT SERVICES.

Other than as set forth under the caption "Management of the Mercury V.I.
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-8
<PAGE> 48

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 Pre-Effective Amendment to the 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 15th day of April, 1999.

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

Registrant

By: /s/ TERRY K. GLENN

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

Terry K. Glenn, Executive Vice
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>

* President and Director April 15, 1999
- -------------------------------------------- (Principal Executive Officer)
Jeffrey M. Peek

/s/ TERRY K. GLENN Director and Executive Vice
- -------------------------------------------- President
Terry K. Glenn

* Director
- --------------------------------------------
David O. Beim

* Director
- --------------------------------------------
James T. Flynn

* Director
- --------------------------------------------
W. Carl Kester
* Director
- --------------------------------------------
Karen P. Robards
* Treasurer (Principal Financial
- -------------------------------------------- Accounting Officer) and Vice
Donald C. Burke President

*By /s/ TERRY K. GLENN
----------------------------------------

(Terry K. Glenn, Attorney-in-Fact) April 15, 1999
</TABLE>

* This amendment has been signed by each of the persons
so indicated by the undersigned as Attorney-in-Fact.

C-9
<PAGE> 49

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1(b) Amended Articles of Incorporation of Registrant
4(a) Form of Investment Advisory Agreement between Registrant and
Mercury Asset Management International Ltd.
4(b) Form of Sub-Advisory Agreement between Registrant and Fund
Asset Management, L.P.
5(a) Form of Class A Distribution Agreement between Registrant
and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(b) Form of Class B Distribution Agreement between Registrant
and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
7 Form of Custody Agreement between Registrant and Brown
Brothers Harriman & Co.
8(a) Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between Registrant
and Financial Data Services, Inc.
8(c) Form of License Agreement relating to Use of Name among
Mercury Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.
8(d) Form of Participation Agreement between Registrant and a
participating insurance company.
8(e) Form of Expense Cap Agreement between Mercury Asset
Management International, Ltd. and Registrant.
9 Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel for Registrant.
10 Consent of Deloitte & Touche, LLP, independent auditors for
the Registrant.
13 Form of Class B Distribution Plan and Class B Plan
Sub-Agreement.
15(a) Rule 18f-3 Plan.
15(b) Power of Attorney.
</TABLE>

C-10

<PAGE> 1
EXHIBIT 1(b)

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

ARTICLES OF AMENDMENT

TO THE ARTICLES OF INCORPORATION

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC., a Maryland corporation having
its principal Maryland office c/o CSC Lawyers Incorporating Service Company, 11
E. Chase Street, Baltimore, MD 21202 (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:

FIRST: The charter of the Corporation is hereby amended by
deleting Article II, Section (2) in its entirety and inserting the following in
lieu thereof:

"(2) To hold, invest and reinvest its assets in securities, and in
connection therewith, without limiting the foregoing, to hold part or all
of its assets (a) in cash and/or (b) in shares of another corporation
known in the investment company industry as a master fund in a
master/feeder structure, which corporation holds securities and other
assets for investment purposes (the "Master Fund")."

SECOND: The charter of the Corporation is hereby further amended by
adding the following provision as Article II, Section (5), and renumbering
Article II, Sections (5) and (6) thereof as Article II, Sections (6) and (7),
respectively:

"(5) To transfer all or substantially all the assets of the Corporation
(or the assets of any series thereof) to the Master Fund, in exchange for
shares in the Master Fund or for such other consideration as permitted by
the General Laws of the State of Maryland and the Investment Company Act
of 1940, as amended (all without the vote or consent of the stockholders
of the Corporation), and all such actions, regardless of the frequency
with which they are pursued, shall be deemed in furtherance of the
ordinary, usual and customary business of the Corporation."

THIRD: The charter of the Corporation is hereby further amended by
adding the following provision as Article IV, Section (2) (iv):

"(iv) The shares of capital stock of the Corporation shall have no
voting rights in connection with the transfer of all or substantially all
the assets of the Corporation (or the assets of any series thereof) to
the Master Fund in exchange for shares in such Master Fund or for such
other consideration as permitted by the General Laws of the State of
Maryland and the Investment Company Act of 1940, as amended."

FOURTH: The charter of the Corporation is hereby further amended by
deleting Article IV, Section (5) in its entirety and inserting the following in
lieu thereof:

<PAGE> 2

"(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Sections
(2), (4) and (5) and Article IV, Section (2)(iv) 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 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."

FIFTH: The charter of the Corporation is hereby further amended by
adding the following provision as Article V, Section (9):

"(9) 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 is
vested with the sole power, to the exclusion of the stockholders, upon
the affirmative vote of the majority of the entire Board of Directors, to
transfer all or substantially all the assets of the Corporation (or the
assets of any series thereof) to the Master Fund in exchange for shares
in such Master Fund or for such other consideration as permitted by the
General Laws of the State of Maryland and the Investment Company Act of
1940, as amended."

SIXTH: The foregoing amendments have been effected in the manner
and by the vote required by the Corporation's charter and the laws of the State
of Maryland. The amendments were approved by a majority of the entire Board of
Directors of the Corporation; and at the time of approval by the Board of
Directors there were no shares of stock of the Corporation entitled to vote on
the matter either outstanding or subscribed for.

SEVENTH: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.

EIGHTH: The authorized capital stock of the Corporation has not
been increased by these Articles of Amendment.

- 2 -
<PAGE> 3

The President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief, the matters set forth in these Articles of Amendment
with respect to the authorization and approval of the amendment of the
Corporation's charter are true in all material respects, and that this statement
is made under the penalties for perjury.

IN WITNESS WHEREOF, MERCURY ASSET MANAGEMENT V.I. FUNDS, INC. has caused
these Articles of Amendment to be signed in its name and on its behalf by its
President, a duly authorized officer of the Corporation, and attested by its
Secretary as of the 23rd day of March, 1999.

MERCURY ASSET MANAGEMENT V.I.
FUNDS, INC.

By: /s/ MICHAEL J. HENNEWINKEL
----------------------------------
Name: Michael J. Hennewinkel
Title: President

ATTEST:

/s/ LORRAINE D. MANDEL
- -----------------------------
Name: Lorraine D. Mandel
Title: Secretary

- 3 -

<PAGE> 1
EXHIBIT 4(a)

INVESTMENT ADVISORY AGREEMENT

AGREEMENT made as of ____________, 1999 by and between MERCURY ASSET
MANAGEMENT V.I. FUNDS, INC., a Maryland corporation (hereinafter referred to as
the "Corporation") on behalf of its series MERCURY V.I. U.S. LARGE CAP FUND (the
"Fund") and MERCURY ASSET MANAGEMENT INTERNATIONAL LTD., a corporation organized
under the laws of England and Wales (hereinafter referred to as the "Investment
Adviser").

W I T N E S S E T H:

WHEREAS, the Corporation is engaged in business as an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and

WHEREAS, the Directors of the Corporation (the "Directors") are
authorized to establish separate series relating to separate portfolios of
securities, each of which may offer separate classes of shares; and

WHEREAS, the Directors have established and designated the Fund as a
series of the Corporation; and

WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940 and regulated by the
Investment Management Regulatory Organization, a self-regulating organization
recognized under the Financial Services Act of 1986 of the United Kingdom
(hereinafter referred to as "IMRO"), and the conduct of its investment business
is regulated by IMRO; and

<PAGE> 2

WHEREAS, the Corporation desires to retain the Investment Adviser to
provide management and investment advisory services to the Fund in the manner
and on the terms hereinafter set forth; and

WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Fund on the terms and conditions hereafter
set forth;

NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Corporation and the Investment Adviser hereby agree
as follows:

ARTICLE I
DUTIES OF THE INVESTMENT ADVISER

The Corporation hereby employs the Investment Adviser to act as a manager
and investment adviser of the Fund and to furnish, or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to the policies of, review by and overall control of the Directors, for
the period and on the terms and conditions set forth in this Agreement. The
Investment Adviser hereby accepts such employment and agrees during such period,
at its own expense, to render, or arrange for the rendering of, such services
and to assume the obligations herein set forth for the compensation provided for
herein. The Investment Adviser and its affiliates shall for all purposes herein
be deemed to be independent contractors and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the
Corporation or the Fund in any way or otherwise be deemed agents of the
Corporation or the Fund.

(a) Management Services. The Investment Adviser shall perform (or
arrange for the performance by affiliates of) the management and administrative
services necessary for the operation of the Corporation and the Fund. The
Investment Adviser shall provide the Corporation and the

2
<PAGE> 3

Fund with office space, facilities, equipment and necessary personnel and such
other services as the Investment Adviser, subject to review by the Directors,
shall from time to time determine to be necessary or useful to perform its
obligations under this Agreement. The Investment Adviser shall also, on behalf
of the Corporation and the Fund, conduct relations with custodians,
depositories, transfer agents, dividend disbursing agents, other shareholder
servicing agents, accountants, attorneys, underwriters, insurance companies,
brokers and dealers, corporate fiduciaries, insurers, banks and such other
persons in any such other capacity deemed to be necessary or desirable. The
Investment Adviser shall generally monitor the Corporation's and the Fund's
compliance with investment policies and restrictions as set forth in the
Registration Statement of the Fund filed with the Securities and Exchange
Commission under the Investment Company Act, as amended from time to time (the
"Registration Statement"). The Investment Adviser shall make reports to the
Directors of its performance of obligations hereunder and furnish advice and
recommendations with respect to such other aspects of the business and affairs
of the Fund as it shall determine to be desirable.

(b) Investment Advisory Services. The Investment Adviser shall provide
(or arrange for affiliates to provide) the Corporation with such investment
research, advice and supervision as the latter may from time to time consider
necessary for the proper supervision of the assets of the Fund, shall furnish
continuously an investment program for the Fund and shall determine from time to
time which securities shall be purchased, sold or exchanged and what portion of
the assets of the Fund shall be held in the various securities and other
financial instruments in which the Fund invests or cash, subject always to the
restrictions of the Articles of Incorporation and By-Laws of the Corporation, as
amended from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objectives, investment policies and
investment

3
<PAGE> 4

restrictions as the same are set forth in the Fund's current Registration
Statement. The Investment Adviser shall make decisions for the Corporation as to
the manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall be exercised.
Should the Directors at any time, however, make any definite determination as to
investment policy and notify the Investment Adviser thereof in writing, the
Investment Adviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked. The Investment Adviser shall take, on behalf of the Fund, all
actions which it deems necessary to implement the investment policies determined
as provided above, and in particular to place all orders for the purchase or
sale of the Fund's portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end, the Investment Adviser is authorized as
the agent of the Corporation to give instructions to the custodian of the Fund
as to deliveries of securities and payments of cash for the account of the Fund.
In connection with the selection of such brokers or dealers and the placing of
such orders with respect to assets of the Fund, the Investment Adviser is
directed at all times to seek to obtain execution and price within the policy
guidelines determined by the Directors and set forth in the then current
Registration Statement. Subject to this requirement and the provisions of the
Investment Company Act, the Securities Exchange Act of 1934, as amended, and
other applicable provisions of law, the Investment Adviser may select brokers or
dealers with which it or the Corporation is affiliated.

(c) Affiliated Sub-Advisers. In carrying out its responsibilities
hereunder, the Investment Adviser may employ, retain or otherwise avail itself
of the services of other persons or entities including without limitation,
affiliates of the Investment Adviser, on such terms as the Investment Adviser
shall determine to be necessary, desirable or appropriate. However, if the
Investment

4
<PAGE> 5

Adviser chooses to retain or avail itself of the services of another person or
entity to manage assets of the Fund, such other person or entity must be (i) an
affiliate of the Investment Adviser, (ii) retained at the Investment Adviser's
own cost and expense, and (iii) retained subject to the requirements of Section
15 of the Investment Company Act. Retention of one or more affiliated
sub-advisers, or the employment or retention of other persons or entities to
perform services, shall in no way reduce the responsibilities or obligations of
the Investment Adviser under this Agreement and the Investment Adviser shall be
responsible for all acts and omissions of such affiliated sub-advisers, or other
persons or entities, in connection with the performance of the Investment
Adviser's duties hereunder.

ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES

(a) The Investment Adviser. The Investment Adviser assumes and shall
pay, or cause its affiliate to pay, for maintaining the staff and personnel
necessary to perform its obligations under this Agreement, and shall, at its own
expense, provide the office space, facilities and necessary personnel which it
is obligated to provide under Article I hereof. The Investment Adviser shall
pay, or cause its affiliate to pay, compensation of all Officers of the
Corporation and all Directors of the Corporation who are affiliated persons of
the Investment Adviser or any sub-adviser, or of an affiliate of the Investment
Adviser or any sub-adviser.

(b) The Corporation. The Corporation assumes and shall pay or cause to
be paid all other expenses of the Corporation and the Fund (except for the
expenses paid by certain insurance companies (the "Participating Insurance
Companies") including, without limitation: taxes, expenses for legal and
auditing services, costs of printing proxies, shareholder reports, copies of the

5
<PAGE> 6

Registration Statement, charges of the custodian, any sub-custodian and transfer
agent, expenses of portfolio transactions, expenses of redemption of shares,
Securities and Exchange Commission fees, expenses of registering the shares
under Federal, state and foreign 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 the 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 Fund. It is also understood that the Corporation shall
reimburse the Investment Adviser or an affiliate of the Investment Adviser for
its costs in providing accounting services to the Corporation and the Fund. Each
Participating Insurance Company will pay certain of the expenses of the Fund
incurred in connection with the continuous offering of shares of beneficial
interest of the Fund.

ARTICLE III
COMPENSATION OF THE INVESTMENT ADVISER

Management and Investment Advisory Fee. For the services rendered, the
facilities furnished and expenses assumed by the Investment Adviser, the Fund
shall pay to the Investment Adviser at the end of each calendar month a fee
based upon the average daily value of the net assets of the Fund, as determined
and computed in accordance with the description of the determination of net
asset value contained in the Registration Statement, at the annual rate of 0.65%
of the average daily net assets of the Fund, commencing on the day following
effectiveness hereof. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a

6
<PAGE> 7

manner consistent with the calculation of the fee as set forth above. Payment of
the Investment Adviser's compensation for the preceding month shall be made as
promptly as possible after completion of the computations contemplated above.
During any period when the determination of net asset value is suspended by the
Directors, the net asset value of a share as of the last business day prior to
such suspension shall for this purpose be deemed to be the net asset value at
the close of each succeeding business day until it is again determined.

ARTICLE IV
LIMITATION OF LIABILITY OF THE INVESTMENT ADVISER

The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Corporation and the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder. As used
in this Article IV, the term "Investment Adviser" shall include any affiliates
of the Investment Adviser performing services for the Corporation or the Fund
contemplated hereby and partners, directors, officers and employees of the
Investment Adviser and such affiliates.

ARTICLE V
ACTIVITIES OF THE INVESTMENT ADVISER

The services of the Investment Adviser to the Corporation and the Fund
are not to be deemed to be exclusive, and the Investment Adviser and each
affiliate is free to render services to others. It is understood that Directors,
officers, employees and shareholders of the Corporation and the Fund are or may
become interested in the Investment Adviser and its affiliates, as directors,
officers, employees, partners and shareholders or otherwise, and that the
Investment Adviser and directors,

7
<PAGE> 8

officers, employees, partners and shareholders of the Investment Adviser and its
affiliates are or may become similarly interested in the Corporation or the Fund
as shareholders or otherwise.

ARTICLE VI
INVESTMENT ADVISER STATEMENTS PURSUANT TO IMRO RULES

Any complaints concerning the Investment Adviser should be in writing
addressed to the attention of the Managing Director of the Investment Adviser.
The Corporation has the right to obtain from the Investment Adviser a copy of
the IMRO complaints procedure and to approach IMRO and the Investment Ombudsman
directly.

The Investment Adviser may make recommendations, subject to the
investment restrictions referred to in Article I herein, regarding Investments
Not Readily Realisable (as that term is used in the IMRO Rules) or investments
denominated in a currency other than British pound sterling. There can be no
certainty that market makers will be prepared to deal in unlisted or thinly
traded securities and an accurate valuation may be hard to obtain. The value of
investments recommended by the Investment Adviser may be subject to exchange
rate fluctuations which may have favorable or unfavorable effects on
investments.

The Investment Adviser may make recommendations, subject to the
investment restrictions referred to in Article I herein, regarding options,
futures or contracts for differences. Markets can be highly volatile and such
investments carry a high degree of risk of loss exceeding the original
investment and any margin on deposit.

ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT

This Agreement shall become effective as of the date first above written,
and shall remain in force for two years thereafter and thereafter, but only so
long as such continuance is specifically

8
<PAGE> 9

approved at least annually by (i) the Directors, or by the vote of a majority of
the outstanding voting securities of the Fund, and (ii) a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by the vote of a majority of the outstanding voting
securities of the Fund, or by the Investment Adviser, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.

ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT

This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.

ARTICLE IX
DEFINITIONS OF CERTAIN TERMS

The terms "vote of majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.

9
<PAGE> 10

ARTICLE X
GOVERNING LAW

This Agreement shall be construed in accordance with laws of the State of
New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.

ARTICLE XI
LIMITATION OF OBLIGATIONS OF THE FUND

The obligations of the Fund shall be limited to the assets of the Fund,
shall be separate from the obligations of any other series of the Corporation,
and the Fund shall not be liable for the obligations of any other series of the
Corporation.

10
<PAGE> 11

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written. This Agreement may be executed by
the parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.

MERCURY ASSET MANAGEMENT V.I.
FUNDS, INC. on behalf of its series,
MERCURY V.I. U.S. LARGE CAP FUND

By:
-----------------------------
Name:
Title:

MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD.

By:
-----------------------------
Name:
Title:

<PAGE> 1
EXHIBIT 4(b)

SUB-ADVISORY AGREEMENT

AGREEMENT made as of ____________, 1999, by and between MERCURY ASSET
MANAGEMENT V.I. FUNDS, INC., a Maryland corporation (hereinafter referred to as
the "Corporation") on behalf of its series MERCURY V.I. U.S. LARGE CAP FUND (the
"Fund"), and FUND ASSET MANAGEMENT, L.P., a Delaware limited partnership
(hereinafter referred to as "FAM").

W I T N E S S E T H:

WHEREAS, the Directors have established and designated the Fund as a
series of the Corporation; and

WHEREAS, FAM is engaged principally in rendering investment advisory
services and is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended; and

WHEREAS, the Corporation, on behalf of the Fund, has entered into an
investment advisory agreement (the "MAM Advisory Agreement"), dated ______,
1999, with Mercury Asset Management International Ltd. (hereinafter referred to
as "MAM") pursuant to which

<PAGE> 2

MAM will provide investment advisory and management services to the Corporation
and the Fund; and

WHEREAS, FAM is willing to provide investment advisory services to the
Fund with respect to all or a portion of the daily cash position of the Fund on
the terms and conditions hereinafter set forth;

NOW THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Corporation and FAM hereby agree as follows:

ARTICLE I

Duties of FAM

The Corporation hereby employs FAM to act as an investment adviser for
all or a portion of the daily cash position of the Fund and to furnish, or
arrange for affiliates to furnish, certain investment advisory services with
respect to such portion of the Fund, as described below, subject to the policies
of, review by and overall control of the Directors of the Corporation, for the
period and on the terms and conditions set forth in this Agreement. FAM hereby
accepts such employment and agrees during such period, at its own expense, to
render, or arrange for the rendering of, such services and to assume the
obligations herein set forth for the compensation, to be paid by MAM, provided
for herein. FAM and its affiliates shall for all purposes herein be deemed to be
independent contractors and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Corporation or Fund in
any way or otherwise be deemed agents of the Corporation or Fund.

2
<PAGE> 3

FAM shall provide (or arrange for affiliates to provide) the Corporation
with such investment research, advice and supervision as the latter may from
time to time consider necessary for the proper management of all or a portion of
the daily cash position of the Fund from time to time managed by FAM. All advice
and recommendations provided by FAM shall be subject to the restrictions of the
Articles of Incorporation and By-Laws of the Corporation, as amended from time
to time, the provisions of the Investment Company Act and the statements
relating to the Fund's investment objectives, investment policies and investment
restrictions as the same are set forth in the Fund's current Registration
Statement.

ARTICLE II

Allocation of Charges and Expenses

FAM assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement and shall pay all
compensation of officers of the Corporation and all Directors of the Corporation
who are affiliated persons of FAM to the extent not otherwise paid by MAM.

ARTICLE III

Compensation of FAM

For the services rendered, the facilities furnished and expenses assumed
by FAM, the Corporation shall cause MAM to pay to FAM at the end of each
calendar month a fee of at least $1.00 or another amount to be determined from
time to time by MAM and FAM, but in no event in excess of the amount that MAM
actually receives for providing services to the Corporation and the Fund
pursuant to the MAM Advisory Agreement.

3
<PAGE> 4

ARTICLE IV

Limitation of Liability of FAM

FAM shall not be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in the
performance of services rendered hereunder with respect to the Corporation and
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its obligations
and duties hereunder. As used in this Article IV, the term "FAM" shall include
any affiliates of FAM performing services for the Corporation contemplated
hereby and partners, directors, officers and employees of FAM and such
affiliates.

ARTICLE V

Activities of FAM

The services of FAM to the Corporation and the Fund are not to be deemed
to be exclusive, and FAM and any person controlled by or under common control
with FAM (for purposes of this Article V referred to as "affiliates") is free to
render services to others. It is understood that Directors, officers, employees
and shareholders of the Corporation and Fund are or may become interested in FAM
and its affiliates, as directors, officers, partners, employees and
shareholders, and that FAM and its affiliates are or may become similarly
interested in the Corporation or Fund.

4
<PAGE> 5

ARTICLE VI

Duration and Termination of this Agreement

This Agreement shall become effective as of the date first above written,
and shall remain in force until the date of termination of the Advisory
Agreement (but not later than two years after the effective date of this
Agreement) and thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Directors of the Corporation, or by the
vote of a majority of the outstanding voting securities of the Fund, and (ii) a
majority of those Directors who are not parties to this Agreement or interested
persons of any such party cast in person at a meeting called for the purpose of
voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by FAM, on sixty days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment. Any termination shall be without prejudice to the completion of
transactions already initiated.

ARTICLE VII

Amendments of this Agreement

This Agreement may be amended by the parties only if such amendment is
approved in compliance with the requirements of the Investment Company Act and
the rules and regulations thereunder.

5
<PAGE> 6

ARTICLE VIII

Definitions of Certain Terms

The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.

ARTICLE IX

Governing Law

This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company Act.
To the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.

ARTICLE X

Limitation of Obligations of the Fund

6
<PAGE> 7

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written. This Agreement may be executed by
the parties hereto in any number of counterparts, all of which together shall
constitute one and the same instrument.

MERCURY ASSET MANAGEMENT
V.I. FUNDS, INC. on behalf of its series
MERCURY V.I. U.S. LARGE CAP FUND

By:
----------------------------------
Name:
Title:

FUND ASSET MANAGEMENT, L.P.
By: PRINCETON SERVICES, INC., ITS
GENERAL PARTNER

By:
----------------------------------
Name:
Title:

<PAGE> 1
EXHIBIT 5(a)

CLASS A SHARES
DISTRIBUTION AGREEMENT

AGREEMENT made as of ____________, 1999 between MERCURY ASSET MANAGEMENT
V.I. FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of its
series MERCURY V.I. U.S. LARGE CAP FUND (the "Fund") and MERCURY FUNDS
DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").

W I T N E S S E T H :

WHEREAS, the Directors have established and designated the Fund as a
series of the Corporation, offering separate classes of shares of common stock,
as described above; and

WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously to separate accounts ("Separate Accounts") of certain
insurance companies (the "Participating Insurance Companies"); and

WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and

<PAGE> 2

WHEREAS, the Corporation and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of Class A
shares of common stock in the Fund (the "Class A Shares") to Separate Accounts
of Participating Insurance Companies;

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor. The Corporation hereby
appoints the Distributor as the Fund's principal underwriter and distributor to
sell the Class A Shares to the Separate Accounts of Participating Insurance
Companies and hereby agrees during the term of this Agreement to sell the Class
A Shares to the Distributor upon the terms and conditions herein set forth.

Section 2. Exclusive Nature of Duties. The Distributor shall be the
Fund's exclusive representative to act as principal underwriter and distributor
of the Class A Shares, except that:

a. The Corporation may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of the Class A
Shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell the Class A Shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.

b. The exclusive rights granted to the Distributor to purchase Class A
Shares from the Fund shall not apply to Class A Shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the Fund's

2
<PAGE> 3

acquisition by purchase or otherwise of all (or substantially all) the assets or
the outstanding Class A shares of any such company.

c. Such exclusive rights also shall not apply to Class A Shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.

d. Such exclusive rights also shall not apply to Class A Shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege, if
any, afforded redeeming shareholders or to any other Class A Shares as shall be
agreed between the Corporation and the Distributor from time to time.

Section 3. Purchase of Class A Shares from the Corporation.

a. The Fund will offer its Class A Shares and the Distributor shall have
the right to buy from the Corporation the Class A Shares needed, but not more
than the Class A Shares needed (except for clerical errors in transmission) to
fill unconditional orders for Class A Shares placed with the Distributor by the
Participating Insurance Companies on behalf of their respective Separate
Accounts. The price that the Distributor shall pay for the Class A Shares so
purchased from the Fund shall be the net asset value, determined as set forth in
Section 3(c) hereof.

b. The Class A Shares are to be resold by the Distributor to the
respective Separate Accounts of Participating Insurance Companies at net asset
value, as set forth in Section 3(c) hereof.

c. The net asset value of the Class A Shares shall be determined by the
Corporation or any agent of the Corporation in accordance with the method set
forth in the Fund's current prospectus and statement of additional information
and guidelines established by the Directors.

3
<PAGE> 4

d. The Corporation shall have the right to suspend the sale of Class A
Shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Corporation shall also have the right to
suspend the sale of Class A Shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event
that, in the judgment of the Corporation, makes it impracticable or inadvisable
to sell the Class A Shares.

e. The Corporation, or any agent of the Corporation designated in writing
by the Corporation, shall be promptly advised of all purchase orders for Class A
Shares received by the Distributor. Any order may be rejected by the
Corporation; provided, however, that the Corporation will not arbitrarily or
without reasonable cause refuse to accept or confirm orders for the purchase of
Class A Shares. The Corporation (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and, upon receipt by the Corporation
(or its agent) of payment therefor, will deliver deposit receipts or
certificates for such Class A Shares pursuant to the instructions of the
Distributor. Payment shall be made to the Corporation in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Corporation (or its agent).

Section 4. Repurchase or Redemption of Class A Shares by the Corporation.

a. Any of the outstanding Class A Shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class A Shares so
tendered in accordance with its obligations as set forth in Article VI of the
Corporation's Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the current prospectus
and statement of additional information relating to the Fund. The price to be

4
<PAGE> 5

paid to redeem or repurchase the Class A Shares shall be equal to the net asset
value calculated in accordance with the provisions of Section 3(c) hereof, less
any other charge(s), if any, set forth in the current prospectus and statement
of additional information relating to the Fund. All payments by the Fund
hereunder shall be made in the manner set forth below.

The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor in New York
Clearing House funds on or before the seventh business day subsequent to its
having received the notice of redemption in proper form.

b. Redemption of Class A Shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is closed,
when trading on said Exchange is suspended, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value of the net assets
of the Fund, or during any other period when the Securities and Exchange
Commission, by order, so permits.

Section 5. Duties of the Corporation.

a. The Corporation shall furnish to the Distributor copies of all
information, financial statements and other papers that the Distributor may
reasonably request for use in connection with the distribution of Class A
Shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Corporation by independent
public accountants. The Corporation shall make available to the Distributor such
number of copies of

5
<PAGE> 6

the Fund's current prospectus and statement of additional information as the
Distributor shall reasonably request.

b. The Corporation shall take, from time to time, but subject to any
necessary approval of the Fund's Class A shareholders, all necessary action to
fix the number of authorized Class A Shares and such steps as may be necessary
to register the same under the Securities Act of 1933, as amended (the
"Securities Act"), to the end that there will be available for sale such number
of Class A Shares as the Distributor reasonably may be expected to sell.

c. The Corporation shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class A Shares for sale under the
securities laws of such states as the Distributor and the Corporation may
approve. Any such qualification may be withheld, terminated or withdrawn by the
Corporation at any time in its discretion. As provided in Section 7(b) hereof,
the expense of qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Corporation in
connection with such qualification.

d. The Corporation will furnish, in reasonable quantities upon request by
the Distributor, copies of the Fund's annual and interim reports.

Section 6. Duties of the Distributor.

a. The Distributor shall devote reasonable time and effort to effect
sales of Class A Shares but shall not be obligated to sell any specific number
of Class A Shares. The services of the Distributor to the Corporation hereunder
are not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other

6
<PAGE> 7

investment companies so long as the performance of its obligations hereunder is
not impaired thereby.

b. In selling the Class A Shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all Federal and
state laws and regulations and the regulations of the National Association of
Securities Dealers, Inc. (the "NASD"), relating to the sale of such securities.
Neither the Distributor nor any other person is authorized by Corporation to
give any information or to make any representations, other than those contained
in the current registration statement or related prospectus and statement of
additional information and any sales literature specifically approved by the
Corporation.

c. The Distributor shall require each Participating Insurance Company to
which it sells, and which purchases, Class A Shares on behalf of such
Participating Insurance Company's Separate Accounts, to enter into a
Distribution Plan Sub-Agreement with the Corporation, substantially in the form
attached to the Distribution Plan adopted by the Corporation and agreed to by
the Distributor, in accordance with Rule 12b-1 under the Investment Company Act,
which authorizes the payment of a distribution fee to each such Participating
Insurance Company.

Section 7. Payment of Expenses.

a. The Fund shall bear all costs and expenses of the Fund, as incurred,
including fees and disbursements of its counsel and auditors, in connection
with the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and interim reports and proxy materials to
Class A shareholders (including but not limited to the expense of setting in
type any such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).

b. The Fund shall bear the cost and expenses of qualification of the
Class A Shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Corporation as a broker or
dealer in such states of the United States or other jurisdictions as shall be
selected by the Corporation and the Distributor pursuant to Section 5(c)

7
<PAGE> 8

hereof and the cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such qualification
pursuant to Section 5(c) hereof.

Section 8. Indemnification.

a. The Corporation shall, for the account of the Fund, indemnify and hold
harmless the Distributor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class A Shares, which
may be based upon the Securities Act, or on any other statute or at common law,
on the ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to the Fund's Class A shareholders,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the

8
<PAGE> 9

Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve it
from any liability that it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Fund will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Fund elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses, as
incurred, of any additional counsel retained by them, but in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses, as incurred, of any counsel
retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issuance or sale of any of the Class A
Shares.

b. The Distributor shall indemnify and hold harmless the Corporation and
each of its Directors and officers, the Fund, and each person, if any, who
controls the Corporation against

9
<PAGE> 10

any loss, liability, claim, damage or expense, as incurred, described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to Class A shareholders. In case any
action shall be brought against the Corporation or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Corporation, and the
Corporation and each person so indemnified shall have the rights and duties
given to the Distributor by the provisions of subsection (a) of this Section 8.

Section 9. Duration and Termination of this Agreement. This
Agreement shall become effective as of the date first above written and shall
remain in force for two years and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding Class A voting securities of the
Fund and (ii) by the vote of a majority of those Directors who are not parties
to this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding Class A
voting securities of the Fund, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.

10
<PAGE> 11

Section 10. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding Class A voting securities
of the Fund and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.

Section 11. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.

11
<PAGE> 12

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC., on behalf of its series,
MERCURY V.I. U.S. LARGE CAP FUND

By:
-----------------------------------
Name:
Title:

MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.

By:
-----------------------------------
Name:
Title:

<PAGE> 1
EXHIBIT 5(b)

CLASS B SHARES
DISTRIBUTION AGREEMENT

W I T N E S S E T H :

WHEREAS, the Directors have established and designated the Fund as a
series of the Corporation, offering separate classes of shares of common stock,
as described above; and

WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and

<PAGE> 2

WHEREAS, the Corporation and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of Class B
shares of common stock in the Fund (the "Class B Shares") to Separate Accounts
of Participating Insurance Companies;

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor. The Corporation hereby
appoints the Distributor as the Fund's principal underwriter and distributor to
sell the Class B Shares to the Separate Accounts of Participating Insurance
Companies and hereby agrees during the term of this Agreement to sell the Class
B Shares to the Distributor upon the terms and conditions herein set forth.

Section 2. Exclusive Nature of Duties. The Distributor shall be the
Fund's exclusive representative to act as principal underwriter and distributor
of the Class B Shares, except that:

a. The Corporation may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of the Class B
Shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell the Class B Shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.

b. The exclusive rights granted to the Distributor to purchase Class B
Shares from the Fund shall not apply to Class B Shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the Fund's

2
<PAGE> 3

acquisition by purchase or otherwise of all (or substantially all) the assets or
the outstanding Class B shares of any such company.

c. Such exclusive rights also shall not apply to Class B Shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.

d. Such exclusive rights also shall not apply to Class B Shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege, if
any, afforded redeeming shareholders or to any other Class B Shares as shall be
agreed between the Corporation and the Distributor from time to time.

Section 3. Purchase of Class B Shares from the Corporation.

a. The Fund will offer its Class B Shares and the Distributor shall have
the right to buy from the Corporation the Class B Shares needed, but not more
than the Class B Shares needed (except for clerical errors in transmission) to
fill unconditional orders for Class B Shares placed with the Distributor by the
Participating Insurance Companies on behalf of their respective Separate
Accounts. The price that the Distributor shall pay for the Class B Shares so
purchased from the Fund shall be the net asset value, determined as set forth in
Section 3(c) hereof.

b. The Class B Shares are to be resold by the Distributor to the
respective Separate Accounts of Participating Insurance Companies at net asset
value, as set forth in Section 3(c) hereof.

c. The net asset value of the Class B Shares shall be determined by the
Corporation or any agent of the Corporation in accordance with the method set
forth in the Fund's current prospectus and statement of additional information
and guidelines established by the Directors.

3
<PAGE> 4

d. The Corporation shall have the right to suspend the sale of Class B
Shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Corporation shall also have the right to
suspend the sale of Class B Shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event
that, in the judgment of the Corporation, makes it impracticable or inadvisable
to sell the Class B Shares.

e. The Corporation, or any agent of the Corporation designated in writing
by the Corporation, shall be promptly advised of all purchase orders for Class B
Shares received by the Distributor. Any order may be rejected by the
Corporation; provided, however, that the Corporation will not arbitrarily or
without reasonable cause refuse to accept or confirm orders for the purchase of
Class B Shares. The Corporation (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and, upon receipt by the Corporation
(or its agent) of payment therefor, will deliver deposit receipts or
certificates for such Class B Shares pursuant to the instructions of the
Distributor. Payment shall be made to the Corporation in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Corporation (or its agent).

Section 4. Repurchase or Redemption of Class B Shares by the Corporation.

a. Any of the outstanding Class B Shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class B Shares so
tendered in accordance with its obligations as set forth in Article VI of the
Corporation's Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the current prospectus
and statement of additional information relating to the Fund. The price to be

4
<PAGE> 5

paid to redeem or repurchase the Class B Shares shall be equal to the net asset
value calculated in accordance with the provisions of Section 3(c) hereof, less
any other charge(s), if any, set forth in the current prospectus and statement
of additional information relating to the Fund. All payments by the Fund
hereunder shall be made in the manner set forth below.

b. Redemption of Class B Shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is closed,
when trading on said Exchange is suspended, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value of the net assets
of the Fund, or during any other period when the Securities and Exchange
Commission, by order, so permits.

Section 5. Duties of the Corporation.

a. The Corporation shall furnish to the Distributor copies of all
information, financial statements and other papers that the Distributor may
reasonably request for use in connection with the distribution of Class B
Shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Corporation by independent
public accountants. The Corporation shall make available to the Distributor such
number of copies of

5
<PAGE> 6

the Fund's current prospectus and statement of additional information as the
Distributor shall reasonably request.

b. The Corporation shall take, from time to time, but subject to any
necessary approval of the Fund's Class B shareholders, all necessary action to
fix the number of authorized Class B Shares and such steps as may be necessary
to register the same under the Securities Act of 1933, as amended (the
"Securities Act"), to the end that there will be available for sale such number
of Class B Shares as the Distributor reasonably may be expected to sell.

c. The Corporation shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class B Shares for sale under the
securities laws of such states as the Distributor and the Corporation may
approve. Any such qualification may be withheld, terminated or withdrawn by the
Corporation at any time in its discretion. As provided in Section 7(b) hereof,
the expense of qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Corporation in
connection with such qualification.

d. The Corporation will furnish, in reasonable quantities upon request by
the Distributor, copies of the Fund's annual and interim reports.

Section 6. Duties of the Distributor.

a. The Distributor shall devote reasonable time and effort to effect
sales of Class B Shares but shall not be obligated to sell any specific number
of Class B Shares. The services of the Distributor to the Corporation hereunder
are not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other

6
<PAGE> 7

investment companies so long as the performance of its obligations hereunder is
not impaired thereby.

b. In selling the Class B Shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all Federal and
state laws and regulations and the regulations of the National Association of
Securities Dealers, Inc. (the "NASD"), relating to the sale of such securities.
Neither the Distributor nor any other person is authorized by Corporation to
give any information or to make any representations, other than those contained
in the current registration statement or related prospectus and statement of
additional information and any sales literature specifically approved by the
Corporation.

c. The Distributor shall require each Participating Insurance Company to
which it sells, and which purchases, Class B Shares on behalf of such
Participating Insurance Company's Separate Accounts, to enter into a
Distribution Plan Sub-Agreement with the Corporation, substantially in the form
attached to the Distribution Plan adopted by the Corporation and agreed to by
the Distributor, in accordance with Rule 12b-1 under the Investment Company Act,
which authorizes the payment of a distribution fee to each such Participating
Insurance Company.

Section 7. Payment of Expenses.

a. The Fund shall bear all costs and expenses of the Fund, as incurred,
including fees and disbursements of the Fund's counsel and auditors, in
connection with the preparation and filing of any required registration
statements and/or prospectuses and statements of additional information under
the Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to Class B shareholders (including but not limited to the
expense of setting in type any such registration

7
<PAGE> 8

statements, prospectuses, statements of additional information, annual or
interim reports or proxy materials).

b. The Fund shall bear the cost and expenses of qualification of the
Class B Shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Corporation as a broker or
dealer in such states of the United States or other jurisdictions as shall be
selected by the Corporation and the Distributor pursuant to Section 5(c) hereof
and the cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such qualification
pursuant to Section 5(c) hereof.

Section 8. Indemnification.

8
<PAGE> 9

any such controlling persons to be deemed to protect such Distributor or any
such controlling persons thereof against any liability to the Fund or its
security holders to which the Distributor or any such controlling persons would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of the reckless
disregard of their obligations and duties under this Agreement; or (ii) is the
Fund to be liable under its indemnity agreement contained in this paragraph with
respect to any claim made against the Distributor or any such controlling
persons, unless the Distributor or such controlling persons, as the case may be,
shall have notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have received notice
of such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve it from any liability that it may have to the
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume the
defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses, as incurred, of any additional counsel retained by them,
but in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons, defendant
or defendants in

9
<PAGE> 10

the suit, for the reasonable fees and expenses, as incurred, of any counsel
retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issuance or sale of any of the Class B
Shares.

b. The Distributor shall indemnify and hold harmless the Corporation and
each of its Directors and officers, the Fund, and each person, if any, who
controls the Corporation against any loss, liability, claim, damage or expense,
as incurred, described in the foregoing indemnity contained in subsection (a) of
this Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Fund in writing by or
on behalf of the Distributor for use in connection with the registration
statement or related prospectus and statement of additional information, as from
time to time amended, or the annual or interim reports to Class B shareholders.
In case any action shall be brought against the Corporation or any person so
indemnified, in respect of which indemnity may be sought against the
Distributor, the Distributor shall have the rights and duties given to the
Corporation, and the Corporation and each person so indemnified shall have the
rights and duties given to the Distributor by the provisions of subsection (a)
of this Section 8.

Section 9. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force for two years and thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or by the vote of a
majority of the outstanding Class B voting securities of the Fund and (ii) by
the vote of a majority of those Directors who are not parties to this Agreement

10
<PAGE> 11

or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding Class B
voting securities of the Fund, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.

Section 10. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding Class B voting securities
of the Fund and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.

11
<PAGE> 12

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC., on behalf of its series,
MERCURY V.I. U.S. LARGE CAP FUND

By:
-----------------------------------
Name:
Title:

MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.

By:
-----------------------------------
Name:
Title:

<PAGE> 1
EXHIBIT 7

AGREEMENT BETWEEN

BROWN BROTHERS HARRIMAN & CO.

AND

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

<PAGE> 2

CUSTODIAN AGREEMENT

AGREEMENT made this _____ day of 1999, between MERCURY ASSET MANAGEMENT
V.I. FUNDS, INC. (the "Fund") and each of its Portfolios listed in Appendix B
attached hereto as said Exhibit may from time to time be revised (collectively,
the "Series" individually, a "Series") and Brown Brothers Harriman & Co. (the
"Custodian");

WITNESSETH: That in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:

1. The Fund hereby employs and appoints the Custodian as a custodian
for the term and subject to the provisions of this Agreement. The Custodian
shall not be under any duty or obligation to require the Fund to deliver to it
any securities or funds owned by the Fund and shall have no responsibility or
liability for or on account of securities or funds not so delivered. The Fund
will deposit with the Custodian copies of the Certificate of Incorporation and
By-Laws (or comparable documents) of the fund and all amendments thereto, and
copies of such votes and other proceedings of the Fund as may be necessary for
or convenient to the Custodian in the performance of its duties.

2. Except for securities and funds held by subcustodians appointed
pursuant to the provisions of Section 3, hereof, the Custodian shall have and
perform the following powers and duties:

A. Safekeeping - To keep safely the securities of the Fund that have
been delivered to the Custodian and from time to time to receive delivery of
securities for safekeeping.

B. Manner of Holding Securities - To hold securities of the Fund (1)
by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form, or (2) in book-entry
form by a Securities System (as said term is defined in Section 2S).

C. Registered Name; Nominee - To hold registered securities of the
Fund (1) in the
<PAGE> 3

name or any nominee name of the Custodian or the Fund, or in the name or any
nominee name of any agent appointed pursuant to Section 5E, or (2) in street
certificate form, so-called, and in any case with or without any indication or
fiduciary capacity.

D. Purchases - Upon receipt of Proper Instructions, as defined in Section
V on Page 14, insofar as funds are available for the purpose, to pay for and
receive securities purchased for the account of the Fund, payment being made
only upon receipt of the securities (1) by the Custodian, or (2) by a clearing
corporation of a national securities exchange of which the Custodian is a
member, or (3) by a Securities System. However, (i) in the case of repurchase
agreements entered into by the Fund, the Custodian may release funds to a
Securities System or to a Subcustodian prior to the receipt of advice from the
Securities System or Subcustodian that the securities underlying such repurchase
agreement have been transferred by book entry into the Account (as defined in
Section2S) of the Custodian maintained with such Securities System or
Subcustodian, so long as such payment instructions to Securities System or
Subcustodian include a requirement that delivery is only against payment of
securities, and (ii) in the case of time deposits, call account, deposits,
currency deposits, and other deposits, contracts or options pursuant to Sections
2K, 2L and 2M, the Custodian may make payment therefor without receiving an
instrument evidencing said deposit so long as such payment instructions detail
specific securities to be acquired.

E. Exchanges - Upon receipt of proper instructions, to exchange
securities held by it for the account of the Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares, change
of par value, conversion or other event, and to deposit any such securities in
accordance with the terms of any reorganization or protective plan. Without such
instructions, the Custodian may surrender securities in temporary form for
definitive securities, may surrender securities for transfer into a name or
nominee name as permitted in Section 2C, and may surrender securities for a
different number of certificates or instruments representing the same number of
shares or same principal amount of indebtedness,
<PAGE> 4

provided the securities to be issued are to be delivered to the Custodian and
further provided custodian shall at the time of surrendering securities or
instruments receive a receipt or other evidence of ownership thereof.

F. Sales of Securities - Upon receipt of proper instructions, to make
delivery of securities which have been sold for the account of the Fund, but
only against payment therefor (1) in cash, by a certified check, bank cashier's
check, bank credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a national securities exchange of
which the Custodian is a member, or (3) by credit to the account of the
Custodian or an Agent of the Custodian with a Securities System.

G. Depositary Receipts - Upon receipt of proper instructions, to instruct
a subcustodian appointed pursuant to Section 3 hereof (a "Subcustodian") or an
agent of the Custodian appoint pursuant to Section 5E hereof (an "Agent") to
surrender securities to the depositary used by an issuer of American Depositary
Receipts or International Depositary Receipts (hereinafter collectively referred
to as "ADRs") for such securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to the Subcustodian
or Agent that the depositary has acknowledged receipt of instructions to issue
with respect to such securities ADRs in the name of the Custodian, or a nominee
of the Custodian, for delivery to the Custodian in Boston, Massachusetts, or at
such other place as the Custodian may from time to time designate.

Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a Subcustodian or an Agent.

H. Exercise of Rights; Tender Offers - Upon timely receipt of proper
instructions, to deliver to the issuer or trustee thereof, or to the agent of
either, warrants, puts, calls, rights or
<PAGE> 5

similar securities for the purpose of being exercised or sold, provided that the
new securities and cash, if any, acquired by such action are to be delivered to
the Custodian, and, upon receipt of proper instructions, to deposit securities
upon invitations for tenders of securities, provided that the consideration is
to be paid or delivered or the tendered securities are to be returned to the
Custodian.

I. Stock Dividends, Rights, Etc. - To receive and collect all stock
dividends, rights and other items of like nature; and to deal with the same
pursuant to proper instructions relative thereto.

J. Borrowings - Upon receipt of proper instructions, to deliver
securities of the Fund to lenders or their agents as collateral for borrowings
effected by the Fund, provided that such borrowed money is payable to or upon
the Custodian's order as Custodian for the Fund.

K. Demand Deposit Bank Accounts - To open and operate an account or
accounts in the name of the Fund on the Custodian's books subject only to draft
or order by the Custodian. All funds received by the Custodian from or for the
account of the Fund shall be deposited in said account(s). The responsibilities
of the Custodian to the Fund for deposits accepted on the Custodian's books
shall be that of a U.S. bank for a similar deposit.

If and when authorized by proper instructions, the Custodian may open and
operate an additional account(s) in such other banks or trust companies as may
be designated by the Fund in such instructions (any such bank or trust company
so designated by the Fund being referred to hereafter as a "Banking
Institution"), provided that such account(s) shall be in the name of the
Custodian for account of the Fund and subject only to the Custodian's draft or
order. Such accounts may be opened with Banking Institutions in the United
States and in other countries and may be denominated in either U.S. Dollars or
other currencies as the Fund may determine. All such deposits shall be deemed to
be portfolio securities of the Fund and accordingly the responsibility of the
Custodian therefore shall be the same as and neither lesser nor greater than the
Custodian's responsibility in respect of other portfolio securities of the Fund.
<PAGE> 6

L. Interest Bearing Call or Time Deposits - To place interest bearing
fixed term and call deposits with such banks and in such amounts as the Fund may
authorize pursuant to proper instructions. Such deposits may be placed with the
Custodian or with Subcustodians or other Banking Institutions as the Fund may
determine. Deposits may be denominated in U.S. Dollars or other currencies and
need not be evidenced by the issuance or delivery of a certificate to the
Custodian, provided that the Custodian shall include in its records with respect
to the assets of the Fund, appropriate notation as to the amount and currency of
each such deposit, the accepting Banking Institution, and other appropriate
details. Such deposits, other than those placed with the Custodian, shall be
deemed portfolio securities of the Fund and the responsibilities of the
Custodian therefor shall be the same as those for demand deposit bank accounts
placed with other banks, as described in Section K of this agreement. The
responsibility of the Custodian for such deposits accepted on the Custodian's
books shall be that of a U.S. bank for a similar deposit.

M. Foreign Exchange Transactions and Futures Contracts - Pursuant to
proper instructions, to enter into foreign exchange contracts or options to
purchase and sell foreign currencies for spot and future delivery on behalf and
for the account of the Fund. Such transactions may be undertaken by the
Custodian with such Banking Institutions, including the Custodian and
Subcustodian(s) as principals, as approved and authorized by the Fund. Foreign
exchange contracts and options other than those executed with the custodian,
shall be deemed to be portfolio securities of the Fund and the responsibilities
of the Custodian therefor shall be the same as those for demand deposit bank
accounts placed with other banks as described in Section 2-K of this agreement.
Upon receipt of proper instructions, to receive and retain confirmations
evidencing the purchase or sale of a futures contract or an option on a futures
contract by the Fund; to deposit and maintain in a segregated account, for the
benefit of any futures commission merchant or to pay such futures commission
merchant, assets designated by the Fund as initial, maintenance or variation
"margin" deposits intended to secure the Fund's performance of its obligations
under any futures contracts purchased or sold or any options on futures
contracts

<PAGE> 7

written by the Fund, in accordance with the provisions of any agreement or
agreements among any of the Fund, the Custodian and such futures commission
merchant, designated to comply with the rules of the Commodity Futures Trading
Commission and/or any contract market, or any similar organization or
organizations, regarding such margin deposits; and to release and/or transfer
assets in such margin accounts only in accordance with any such agreements or
rules.

N. Stock Loans - Upon receipt of proper instructions to deliver
securities of the Fund, in connection with loans of securities by the Fund, to
the borrower thereof upon the receipt of the cash collateral, if any, for such
borrowing. In the event U.S. Government securities are to be used as collateral,
the Custodian will not release the securities to be loaned until it has received
confirmation that such collateral has been delivered to the Custodian. The
Custodian and Fund understand that the timing of receipt of such confirmation
will normally require that the delivery of securities to be loaned will be made
one day after receipt of the U.S. Government collateral.

O. Collections - To collect, receive and deposit in said account or
accounts all income and other payments with respect to the securities held
hereunder, and to execute ownership and other certificates and affidavits for
all federal and state tax purposes in connection with receipt of income or other
payments with respect to securities of the Fund or in connection with transfer
or securities, and pursuant to proper instructions to take such other actions
with respect to collection or receipt of funds or transfer of securities which
involve an investment decision.

P. Dividends, Distributions and Redemptions - Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from the Fund's
shareholder servicing agent or agent with comparable duties (the "Shareholder
Servicing Agent") (given by such person or persons and in such manner on behalf
of the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities to the Shareholder Servicing Agent
or otherwise apply funds or securities, insofar as available, for the payment of
dividends or other
<PAGE> 8

distributions to Fund shareholders. Upon receipt of proper instructions from the
Fund, or upon receipt of instructions from the Shareholder Servicing Agent
(given by such person or persons and in such manner on behalf of the Shareholder
Servicing Agent as the Fund shall have authorized), the Custodian shall release
funds or securities, insofar as available, to the Shareholder Servicing Agent or
as such Agent shall otherwise instruct for payment to Fund shareholders who have
delivered to such Agent a request for repurchase or redemption of their shares
of capital stock of the Fund.

Q. Proxies, Notices, Etc. - Promptly to deliver or mail to the Fund all
forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, and upon receipt of proper instructions, to execute
and deliver or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor its nominee shall
vote upon any of such securities or execute any proxy to vote thereon or give
any consent to take any other actions with respect thereto (except as otherwise
herein provided) unless ordered to do so by proper instructions.

R. Bills - Upon receipt of proper instructions from the Administrator, to
pay or cause to be paid, insofar as funds are available for the purpose, bills,
statements, or other obligations of the Fund.

S. Deposit of Fund Assets in Securities Systems - The Custodian may
deposit and/or maintain securities owned by the Fund in (i) The Depository Trust
Company, (ii) any book-entry system as provided in Subpart O of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, or the book-entry
regulations of federal agencies substantially in the form of Subpart O, or (iii)
any other domestic clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 which acts
as a securities depository and whose use the Fund has previously approved in
writing (each of the foregoing being referred to in this Agreement as a
"Securities System"). Utilization of a
<PAGE> 9

Securities System shall be in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:

1) The Custodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Custodian (provided that
any such agent shall be qualified to act as a custodian of the Fund pursuant to
the Investment Company Act of 1940 and the rules and regulations thereunder), in
a Securities System provided that such securities are represented in an account
("Account") of the Custodian or such Agent in the Securities System which shall
not include any assets of the Custodian or Agent other than assets held as a
fiduciary, custodian, or otherwise for customers;

2) The records of the Custodian with respect to securities of the Fund
which are maintained in a Securities System shall identify by book-entry those
securities belonging to the Fund;

3) The Custodian shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall Transfer securities sold for the
account of the Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices from the Securities
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by the Custodian or an Agent as referred to
above, and be provided to the Fund at its request. The Custodian shall furnish
the Fund confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the Securities System
for the account of the Fund on the next business day;

4) The Custodian shall provide the Fund with any report obtained by the
Custodian
<PAGE> 10

or any Agent as referred to above on the Security System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Securities System; and the Custodian and such Agents shall send to the
Fund such reports on their own systems of internal accounting control as the
Fund may reasonably request from time to time.

5) At the written request of the Fund, the Custodian will terminate the
use of any such Securities System on behalf of the Fund as promptly as
practicable.

T. Other Transfers - Upon receipt of Proper Instructions, to deliver
securities, funds and other property of the Fund to a Subcustodian or another
custodian of the Fund; and, upon receipt of proper instructions, to make such
other disposition of securities, funds or other property of the Fund in a manner
other than or for purposes other than as enumerated elsewhere in this Agreement,
provided that the instructions relating to such disposition shall include a
statement of the purpose for which the delivery is to be made, the amount of
securities to be delivered and the name of the person or persons to whom
delivery is to be made.

U. Investment Limitations - In performing its duties generally, and more
particularly in connection with the purchase, sale and exchange of securities
made by or for the Fund, the Custodian may assume unless and until notified in
writing to the contrary that proper instructions received by it are not in
conflict with or in any way contrary to any provisions of the Fund's Certificate
of Incorporation or By-Laws (or comparable documents) or votes or proceedings of
the shareholders or Directors of the Fund. The Custodian shall in no event be
liable to the Fund and shall be indemnified by the Fund for any violation which
occurs in the course of carrying out instructions given by the Fund of any
investment limitations to which the Fund is subject or other limitations with
respect to the Fund's powers to make expenditures, encumber securities, borrow
or take similar actions affecting its portfolio.

V. Proper Instructions - Proper instructions shall mean a tested
telex from the Fund or a written request, direction, instruction or
certification signed or initialed on behalf of the Fund by two or more persons
as the Board of Directors of the Fund shall have from time to time
<PAGE> 11

authorized, provided, however, that no such instructions directing the delivery
of securities or the payment of funds to an authorized signatory of the Fund
shall be signed by such person. Those persons authorized to give proper
instructions may be identified by the Board of Directors by name, title or
position and will include at least one officer empowered by the Board to name
other individuals who are authorized to give proper instructions on behalf of
the Fund. Telephonic or other oral instructions given by any one of the above
persons will be considered proper instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. Oral instructions will be
confirmed by tested telex or in writing in the manner set forth above but the
lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions. The Fund authorizes the
Custodian to tape record any and all telephonic or other oral instructions given
to the Custodian by or on behalf of the Fund (including any of its officers,
Directors, employees or agents) and will deliver to the Custodian a similar
authorization from any investment manager or adviser or person or entity with
similar responsibilities which is authorized to give proper instructions on
behalf of the Fund to the Custodian. Proper instructions may relate to specific
transactions or to types or classes of transactions, and may be in the form of
standing instructions.

Proper instructions may include communications effected directly between
electro-mechanical or electronic devices or systems, in addition to tested
telex, provided that the Fund and the Custodian agree to the use of such device
or system.

3. Securities, funds and other property of the Fund may be held by
subcustodians appointed pursuant to the provisions of this Section 3 (a
"Subcustodian"). The Custodian may, at any time and from time to time, appoint
any bank or trust company (meeting the requirements of a custodian or a foreign
custodian under the Investment Company Act of 1940 and the rules and regulations
thereunder) to act as a Subcustodian for the Fund, provided that the Fund shall
have approved in writing (1) any such bank or trust company and the subcustodian
agreement to be
<PAGE> 12

entered into between such bank or trust company and the Custodian, and (2) if
the subcustodian is a bank organized under the laws of a country other than the
United States, the holding of securities, cash and other property of the Fund in
the country in which it is proposed to utilize the services of such
subcustodian. Upon such approval by the Fund, the Custodian is authorized on
behalf of the Fund to notify each Subcustodian of its appointment as such. The
Custodian may, at any time in its discretion, remove any bank or trust company
that has been appointed as a Subcustodian but will promptly notify the Fund of
any such action.

Those Subcustodians, their offices or branches which the Fund has
approved to date are set forth on Appendix A hereto. Such Appendix shall be
amended from time to time as Subcustodians, branches or offices are changed,
added or deleted. The Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be held at a
location not listed on Appendix A, in order that there shall be sufficient time
for the Fund to give the approval required by the preceding paragraph and for
the Custodian to put the appropriate arrangements in place with such
Subcustodian pursuant to such subcustodian agreement.

Although the Fund does not intend to invest in a country before the
foregoing procedures have been completed, in the event that an investment is
made prior to approval, if practical, such security shall be removed to an
approved location or if not practical such security shall be held by such agent
as the Custodian may appoint. In such event, the Custodian shall be liable to
the Fund for the actions of such agent if and only to the extent the Custodian
shall have recovered from such agent for any damages caused the Fund by such
agent and provided that the Custodian shall pursue its rights against such
agent.

In the event that any Subcustodian appointed pursuant to the provisions
of this Section 3 fails to perform any of its obligations under the terms and
conditions of the applicable subcustodian agreement, the Custodian shall use its
best efforts to cause such Subcustodian to perform such obligations. In the
event that the Custodian is unable to cause such Subcustodian
<PAGE> 13

to perform fully its obligations thereunder, the Custodian shall forthwith upon
the Fund's request terminate such Subcustodian and, if necessary or desirable,
appoint another subcustodian in accordance with the provisions of this Section
3. At the election of the Fund, it shall have the right to enforce, to the
extent permitted by the subcustodian agreement and applicable law, the
Custodian's rights against any such Subcustodian for loss or damage caused the
Fund by such Subcustodian.

At the written request of the Fund, the Custodian will terminate any
subcustodian Appointed pursuant to the provisions of this Section 3 in
accordance with the termination provisions under the applicable subcustodian
agreement. The Custodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder except upon the prior written approval
of the Fund.

In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the Fund of such claim. No more than thirty days
after written notice to the Fund of the Custodian's intention to make such
payment, the Fund will reimburse the Custodian the amount of such payment except
in respect of any negligence or misconduct of the Custodian.

4. The Custodian may assist generally in the preparation of reports to
Fund shareholders and others, audits of accounts, and other ministerial matters
of like nature.

5. A. The Custodian shall not be liable for any action taken or omitted
in reliance upon proper instructions believed by it to be genuine or upon any
other written notice, request, direction, instruction, certificate or other
instrument believed by it to be genuine and signed by the proper party or
parties. The Chairman of the Board of the Fund shall certify to the Custodian
the names, signatures and scope of authority of all persons authorized to give
proper instructions or any other such notice, request, direction instruction,
certificate or instrument on behalf of the Fund, the names and signatures of the
officers of the Fund, the name and address of the Shareholder Servicing Agent,
and any resolutions, votes, instructions or directions of the
<PAGE> 14

Fund's Board of Directors or shareholders. Such certificate may be accepted and
relied upon by the Custodian as conclusive evidence of the facts set forth
therein and may be considered in full force and effect until receipt of a
similar certificate to the contrary.

So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement.

The Custodian shall be entitled, at the expense of the Fund, (but only to
the extent such expenses are reasonable) to receive and act upon advice of
counsel (who may be counsel for the Fund) on all matters, and the Custodian
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.

B. With respect to the portfolio securities, cash and other property of
the Fund held by a Securities System, the Custodian shall be liable to the Fund
only for any loss or damage to the Fund resulting from use of the Securities
System if caused by any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or from any failure of
the Custodian or any such agent to enforce effectively such rights as it may
have against the Securities System.

C. The Custodian shall be liable to the Fund for any loss or damage to
the Fund caused by or resulting from the acts or omissions of any Subcustodian
if such acts or omissions would be deemed to be negligence, gross negligence or
willful misconduct hereunder if such acts or omissions were those of the
Custodian taken or omitted by the Custodian in the country in which the
Subcustodian is operating. The Custodian shall also be liable to the Fund for
its own negligence in transmitting any instructions received by it from the Fund
and for its own negligence in connection with the delivery of any securities or
funds held by it to any Subcustodian.

D. Except as may otherwise be set forth in this Agreement with respect to
particular matters, the Custodian shall be held only to the exercise of
reasonable care and diligence in
<PAGE> 15

carrying out the provisions of this Agreement, provided that the Custodian shall
not thereby be required to take any action which is in contravention of any
applicable law. However, nothing herein shall exempt the Custodian from
liability due to its own negligence or willful misconduct. The Fund agrees to
indemnify and hold harmless the Custodian and its nominees from all claims and
liabilities (including reasonable counsel fees) incurred or assessed against it
or its nominees in connection with the performance of this Agreement, except
such as may arise from its or its nominee's breach of the relevant standard of
conduct set forth in this Agreement. Without limiting the foregoing
indemnification obligation of the Fund, the Fund agrees to indemnify the
Custodian and its nominees against any liability the Custodian or such nominee
may incur by reason of taxes assessed to the Custodian or such nominee or other
costs, liability or expense incurred by the Custodian or such nominee resulting
directly or indirectly from the fact that portfolio securities or other property
of the Fund is registered in the name of the Custodian or such nominee.

In order that the indemnification provisions contained in this
Paragraph 5-C shall apply, however, it is understood that if in any case the
Fund may be asked to indemnify or hold the Custodian harmless, the Fund shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Custodian will use all
reasonable care to identify and notify the Fund promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against the Fund. The Fund shall have the option to
defend the Custodian against any claim which may be the subject of this
indemnification, and in the event that the Fund so elects it will so notify the
Custodian, and thereupon the Fund shall take over complete defense of the claim,
and the Custodian shall in such situation initiate no further legal or other
expenses for which it shall seek indemnification under this Paragraph 5-C. The
Custodian shall in no case confess any claim or make any compromise in any case
in which the Fund will be asked to indemnify the Custodian except with the
Fund's prior written consent.
<PAGE> 16

It is also understood that the Custodian shall not be liable for any loss
involving any securities, currencies, deposits or other property of the Fund,
whether maintained by it, a Subcustodian, an agent of the Custodian or a
Subcustodian, a Securities System, or a Banking Institution, or a loss arising
from a foreign currency transaction or contract, resulting from a Sovereign
Risk. A "Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution; or any
other similar act or event beyond the Custodian's control.

E. The Custodian shall be entitled to receive reimbursement from the Fund
on demand, in the manner provided in Section 6, for its cash disbursements,
expenses and charges (including the fees and expenses of any Subcustodian or any
Agent) in connection with this Agreement, but excluding salaries and usual
overhead expenses.

F. The Custodian may at any time or times in its discretion appoint (and
may at any time remove) any other bank or trust company as its agent (an
"Agent") to carry out such of the provisions of this Agreement as the Custodian
may from time to time direct, provided, however, that the appointment of such
Agent (other than an Agent appointed pursuant to the third paragraph of Section
3) shall not relieve the Custodian of any of its responsibilities under this
agreement.

G. Upon request, the Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.

6. The Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the Custodian and
the Fund. Such fee,
<PAGE> 17

together with all amounts for which the Custodian is to be reimbursed in
accordance with Section 5D, shall be billed to the Fund in such a manner as to
permit payment by a direct cash payment to the Custodian.

7. This Agreement shall continue in full force and effect until
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid, to the other party, such termination to take effect not sooner
than seventy five (75) days after the date of such delivery or mailing. In the
event of termination the Custodian shall be entitled to receive prior to
delivery of the securities, funds and other property held by it all accrued fees
and unreimbursed expenses the payment of which is contemplated by Sections 5D
and 6, upon receipt by the Fund of a statement setting forth such fees and
expenses.

In the event of the appointment of a successor custodian, it is agreed
that the funds and securities owned by the Fund and held by the Custodian or any
Subcustodian shall be delivered to the successor custodian, and the Custodian
agrees to cooperate with the Fund in execution of documents and performance of
other actions necessary or desirable in order to substitute the successor
custodian for the Custodian under this Agreement.

8. This Agreement constitutes the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof. No provision of
this Agreement may be amended or terminated except by a statement in writing
signed by the party against which enforcement of the amendment or termination is
sought.

In connection with the operation of this Agreement, the Custodian and the
Fund may agree in writing form time to time on such provisions interpretative of
or in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. No interpretative or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.

9. This instrument is executed and delivered in The Commonwealth of
Massachusetts and shall be governed by and construed according to the laws of
said
<PAGE> 18

Commonwealth.

10. Notices and other writings delivered or mailed postage prepaid to the
Fund addressed to the Fund in care of Mercury Asset Management International
Limited, 33 King William Street, London EC4R 9AS England or to such other
address as the Fund may have designated to the Custodian in writing, or to the
Custodian at 40 Water Street, Boston, Massachusetts 02109, Attention: Manager,
Securities Department, or to such other address as the Custodian may have
designated to the Fund in writing, shall be deemed to have been properly
delivered or given hereunder to the respective addressee.

11. This Agreement shall be binding on and shall inure to the benefit of
the Fund and the Custodian and their respective successors and assigns, provided
that neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.

12. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original. This Agreement shall become effective when
one or more counterparts have been signed and delivered by each of the parties.
<PAGE> 19

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.

MERCURY ASSET MANAGEMENT BROWN BROTHERS HARRIMAN & CO.
V.I. FUNDS, INC.

By: By:
---------------------------- -----------------------------
Name: Name: W. Casey Gildea
Title: Title: Manager
<PAGE> 20

APPENDIX "B"

CUSTODIAN AGREEMENT

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

and
BROWN BROTHERS HARRIMAN & CO.

Dated as of ___________________________, 1999

The following is a list of Series for which the Custodian shall serve under a
Custodian Agreement dated as of _______________________________, 1999 (the
"Agreement").

MERCURY V.I. PAN-EUROPEAN GROWTH FUND
MERCURY V.I. U. S. LARGE CAP FUND

IN WITNESS WHEREOF, each of the parties hereto has caused this Appendix to be
executed in its name and on behalf of each such Fund.

MERCURY ASSET MANAGEMENT BROWN BROTHERS HARRIMAN & CO.
V. I. FUNDS, INC.

By: By:
---------------------------- --------------------------------
Name: Name: W. Casey Gildea
Title: Title: Manager

<PAGE> 1
EXHIBIT 8(a)

TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY AND
SHAREHOLDER SERVICING AGENCY AGREEMENT

THIS AGREEMENT, made as of ______________, 1999 by and between MERCURY
ASSET MANAGEMENT V.I. FUNDS, INC., a Maryland corporation (the "Corporation"),
on behalf of itself and each of its series listed on Exhibit A (each, a "Fund")
and FINANCIAL DATA SERVICES, INC., a Florida corporation ("FDS").

WITNESSETH:

WHEREAS, the Corporation wishes to appoint FDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds upon,
and subject to, the terms and provisions of this Agreement, and FDS is desirous
of accepting such appointment upon, and subject to, such terms and provisions;

NOW, THEREFORE, in consideration of mutual covenants contained in this
Agreement, the Corporation and FDS agree as follows:

1. APPOINTMENT OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.

(a) The Corporation hereby appoints FDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds upon,
and subject to, the terms and provisions of this Agreement.

<PAGE> 2

(b) FDS hereby accepts the appointment as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Funds, and agrees to
act as such upon, and subject to, the terms and provisions of this Agreement.

2. DEFINITIONS.

(a) In this Agreement:

(I) The term "Act" means the Investment Company Act of 1940
as amended from time to time and any rule or regulation thereunder;

(II) The term "Account" means any account of a Shareholder;

(III) The term "application" means an application made by a
shareholder or prospective shareholder respecting the opening of an Account;

(IV) The term "MFD" means Mercury Funds Distributor, a
division of Princeton Funds Distributor, Inc., a Delaware corporation;

(V) The term "Participating Insurance Company" means an
insurance company that issues variable annuity and/or variable life insurance
contracts that may be funded by shares of the Funds pursuant to a participation
agreement with the Corporation;

(VI) The term "Officer's Instruction" means an instruction
in writing given on behalf of the Funds to FDS, and signed on behalf of the
Funds by the President, any Vice President, the Secretary or the Treasurer of
the Corporation;

(VII) The term "Prospectus" means the Prospectus and the
Statement of Additional Information of the relevant Fund as from time to time in
effect;

(VIII) The term "Shareholder" means a holder of record of
Shares;

-2-
<PAGE> 3

(IX) The term "Shares" means shares of stock of the
Corporation irrespective of class or series.

3. DUTIES OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.

(a) Subject to the succeeding provisions of the Agreement, FDS
hereby agrees to perform the following functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Funds;

(I) Issuing, transferring and redeeming Shares;

(II) Opening, maintaining, servicing and closing Accounts;

(III) Acting as agent for the Funds' Shareholders upon the
terms and subject to the conditions contained in the Prospectus;

(IV) Exchanging the investment of an investor into, or
from, the shares of other open-end investment companies or other series
portfolios of the Corporation, if any, if and to the extent permitted by the
Prospectus or by the prospectus of the Participating Insurance Company that
issued the insurance contracts that may be funded by shares of the Funds, at the
direction of such investor;

(V) Processing redemptions; (VI) Examining and approving
legal transfers;

(VII) Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to, procedures and
conditions adopted by the Funds;

(VIII) Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;

-3-
<PAGE> 4

(IX) Acting as agent for the Corporation, furnishing such
appropriate periodic statements relating to Accounts, together with additional
enclosures, including appropriate income tax information and income tax forms
duly completed, as required by applicable law;

(X) Acting as agent for the Corporation, mailing annual,
semi-annual and quarterly reports prepared by or on behalf of the Funds, and
mailing new Prospectuses upon their issue to Shareholders as required by
applicable law;

(XI) Furnishing such periodic statements of transactions
effected by FDS, reconciliations, balances and summaries as the Funds may
reasonably request;

(XII) Maintaining such books and records relating to
transactions effected by FDS as are required by the Act, or by any other
applicable provision of law, rule or regulation, to be maintained by the
Corporation or its transfer agent with respect to such transactions, and
preserving, or causing to be preserved, any such books and records for such
periods as may be required by any such law, rule or regulation and as may be
agreed upon from time to time between FDS and the Corporation. In addition, FDS
agrees to maintain and preserve master files and historical computer tapes on a
daily basis in multiple separate locations a sufficient distance apart to ensure
preservation of at least one copy of such information;

(XIII) Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and other appropriate
forms as required by applicable law with respect to dividends and distributions,
in each case, if any; and

(XIV) Reinvesting dividends for full and fractional Shares
and disbursing cash dividends, as applicable.

-4-
<PAGE> 5

(b) FDS agrees to act as proxy agent in connection with the
holding of annual, if any, and special meetings of Shareholders, mailing such
notices, proxies and proxy statements in connection with the holding of such
meetings as may be required by applicable law, receiving and tabulating votes
cast by proxy and communicating to the Corporation the results of such
tabulation accompanied by appropriate certificates, and preparing and furnishing
to the Corporation certified lists of Shareholders as of such date, in such form
and containing such information as may be required by the Corporation.

(c) FDS agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of FDS under this
Agreement with respect to Accounts.

(d) FDS agrees to furnish to the Corporation such information and
at such intervals as is necessary for the Funds to comply with the registration
and/or the reporting requirements (including applicable escheat laws) of the
Securities and Exchange Commission, Blue Sky authorities or other governmental
authorities.

(e) FDS agrees to provide to the Corporation such information as
may reasonably be required to enable the Funds to reconcile the number of
outstanding Shares between FDS's records and the account books of the
Corporation.

(f) Notwithstanding anything in the foregoing provisions of this
paragraph, FDS agrees to perform its functions thereunder subject to such
modification (whether in respect of particular cases or in any particular class
of cases) as may from time to time be contained in an Officer's Instruction.

-5-
<PAGE> 6

4. COMPENSATION.

The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.

5. RIGHT OF INSPECTION.

FDS agrees that it will, in a timely manner, make available to, and
permit, any officer, accountant, attorney or authorized agent of the Corporation
to examine and make transcripts and copies (including photocopies and computer
or other electronical information storage media and print-outs) of any and all
of its books and records which relate to any transaction or function performed
by FDS under or pursuant to this Agreement.

6. CONFIDENTIAL RELATIONSHIP.

FDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Corporation, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Corporation by
way of an Officer's Instruction.

7. INDEMNIFICATION.

The Corporation shall indemnify and hold FDS harmless from any loss,
costs, damage and reasonable expenses, including reasonable attorney's fees
(provided that such attorney is appointed with the Corporation's consent, which
consent shall not be unreasonably withheld) incurred by it resulting from any
claim, demand, action or suit in connection with the performance of its duties
hereunder, provided that this indemnification shall not apply to actions or
omissions of

-6-
<PAGE> 7

FDS in cases of willful misconduct, failure to act in good faith or negligence
by FDS, its officers, employees or agents, and further provided that prior to
confessing any claim against it which may be subject to this indemnification,
FDS shall give the Corporation reasonable opportunity to defend against said
claim in its own name or in the name of FDS. An action taken by FDS upon any
Officer's Instruction reasonably believed by it to have been properly executed
shall not constitute willful misconduct, failure to act in good faith or
negligence under this Agreement.

8. REGARDING FDS.

(a) FDS hereby agrees to hire, purchase, develop and maintain such
dedicated personnel, facilities, equipment, software, resources and capabilities
as may be reasonably determined by the Corporation to be necessary for the
satisfactory performance of the duties and responsibilities of FDS. FDS warrants
and represents that its officers and supervisory personnel charged with carrying
out its functions as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Corporation possess the special skill and technical
knowledge appropriate for that purpose. FDS shall at all times exercise due care
and diligence in the performance of its functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Corporation. FDS agrees
that, in determining whether it has exercised due care and diligence, its
conduct shall be measured by the standard applicable to persons possessing such
special skill and technical knowledge.

(b) FDS warrants and represents that it is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent under all applicable laws and that it will immediately notify
the Corporation of any revocation of such

-7-
<PAGE> 8

authority or permission or of the commencement of any proceeding or other action
which may lead to such revocation.

9. TERMINATION.

(a) This Agreement shall become effective as of the date first
above written and shall remain in force for two years thereafter and shall
thereafter continue from year to year. This Agreement may be terminated by the
Corporation or FDS (without penalty to the Corporation or FDS) provided that the
terminating party gives the other party written notice of such termination at
least sixty (60) days in advance, except that the Corporation may terminate this
Agreement immediately upon written notice to FDS if the authority or permission
of FDS to act as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent has been revoked or if any proceeding or other action which the
Corporation reasonably believes will lead to such revocation has been commenced.

(b) Upon termination of this Agreement, FDS shall deliver all
unissued and canceled stock certificates, if any, representing Shares remaining
in its possession, and all Shareholder records, books, stock ledgers,
instruments and other documents (including computerized or other electronically
stored information) made or accumulated in the performance of its duties as
Transfer Agent, Disbursing Agent and Shareholder Servicing Agent for the
Corporation along with a certified locator document clearly indicating the
complete contents therein, to such successor as may be specified in a notice of
termination or Officer's Instruction; and the Corporation assumes all
responsibility for failure thereafter to produce any paper, record or document
so delivered and identified in the locator document, if and when required to be
produced.

-8-
<PAGE> 9

10. AMENDMENT.

Except to the extent that the performance by FDS or its functions under
this Agreement may from time to time be modified by an Officer's Instruction,
this Agreement may be amended or modified only by further written agreement
between the parties.

11. GOVERNING LAW.

This Agreement shall be governed by the laws of the State of New York.

-9-
<PAGE> 10

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year above
written.

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

By:
------------------------------------
Name:
Title:

FINANCIAL DATA SERVICES, INC.

By:
------------------------------------
Name:
Title:

-10-
<PAGE> 11

SCHEDULE OF FEES
Pursuant to Paragraph 4
of the
Transfer Agency, Dividend Disbursing
Agency and Shareholder Servicing
Agency Agreement
between
Mercury Asset Management V.I. Funds, Inc.
and
Financial Data Services, Inc.

1. Annualized shareholder Servicing Fee

In consideration of the performance of services by Financial Data
Services, Inc., Mercury Asset Management V.I. Funds, Inc. agrees to pay
Financial Data Services, Inc. the sum of $___________, annually. Payment
of this fee will be remitted to Financial Data Services, Inc. on a
monthly basis.

2. Out-of-Pocket Expenses

Reimbursement for reasonable out-of-pocket expenses incurred in
connection with this Agreement and its performance hereunder, including,
but not limited to, postage and supplies.

Statements of accrued account charges and incurred out-of-pocket charges in
connection with each Fund, shall be sent monthly by FDS to the Corporation at
its principal place of business and thereafter shall be promptly satisfied by
the Corporation.

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

By:
--------------------------------------
Name:
Title:

FINANCIAL DATA SERVICES, INC.

By:
--------------------------------------
Name:
Title:

-11-

<PAGE> 1
EXHIBIT 8(c)

LICENSE AGREEMENT RELATING TO USE OF NAME

AGREEMENT made as of ______________, 1999 by and between MERCURY ASSET
MANAGEMENT INTERNATIONAL LTD., a corporation organized under the laws of England
and Wales ("Mercury International") and MERCURY ASSET MANAGEMENT GROUP LTD., a
corporation organized under the laws of England and Wales ("Mercury Group")
(Mercury International and Mercury Group are hereinafter together referred to as
"Mercury") and MERCURY ASSET MANAGEMENT V.I. FUNDS, INC., a Maryland corporation
(the "Corporation"), on its own behalf and on behalf of its currently existing
series, and on behalf of each series of the Corporation that may be formed in
the future (the "Funds").

W I T N E S S E T H :

WHEREAS, Mercury International was originally incorporated under the laws
of England and Wales on March 12, 1981 under the name "Eighty-Ninth Shelf
Trading Company Limited", changed on May 20, 1981 to "Aetna Warburg Investment
Management Limited," which changed on October 1, 1981 to "Warburg Investment
Management International Ltd." and on July 27, 1995 it changed to "Mercury Asset
Management International Ltd." and Mercury Group was incorporated under the laws
of England and Wales on March 12, 1981 under the corporate name "Warburg
Investment Management Ltd." which was changed on April 14, 1986 to "Mercury
Warburg Investment Management Ltd.," changed on October 1, 1986 to "Mercury
Asset Management Holdings Ltd." on March 3, 1987 to Mercury Asset Management
plc" and was reregistered as a private limited company under the name "Mercury
Asset Management Group Ltd." on March 9, 1998, and have used such names at all
times thereafter;

<PAGE> 2

WHEREAS, the Corporation was incorporated under the laws of the State of
Maryland on December 4, 1998; and

WHEREAS, the Corporation desires to qualify as a foreign corporation
under the laws of the State of New York and has requested Mercury to give its
consent to the use of the word "Mercury" or the words "Mercury Asset Management"
in its name and in the name of each Fund;

NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, Mercury and the Corporation hereby agree as follows:

1. Mercury hereby grants the Corporation a non-exclusive license to
use the word "Mercury" or the words "Mercury Asset Management" in its corporate
name and in the name of the Funds.

2. Mercury hereby consents to the qualification of the Corporation as
a foreign corporation under the laws of the State of New York with the word
"Mercury" or the words "Mercury Asset Management" in its corporate name and in
the name of the Funds and agrees to execute such formal consents as may be
necessary in connection with such filing.

3. The non-exclusive license hereinabove referred to has been given
and is given by Mercury on the condition that it may at any time, in its sole
and absolute discretion, withdraw the non-exclusive license to the use of the
word "Mercury" or the words "Mercury Asset Management" in the names of the
Corporation and of the Funds; and, as soon as practicable after receipt by the
Corporation of written notice of the withdrawal of such non-exclusive license,
and in no event later than ninety days thereafter, the Corporation will change
its name and the name of the Funds so that such names will not thereafter
include the word "Mercury," the words "Mercury Asset Management" or any
variation thereof.

2
<PAGE> 3

4. Mercury reserves and shall have the right to grant to any other
company, including without limitation any other investment company, the right to
use the word "Mercury," the words "Mercury Asset Management" or variations
thereof in its name and no consent or permission of the Corporation shall be
necessary; but, if required by an applicable law of any state, the Corporation
will forthwith grant all requisite consents.

5. The Corporation will not grant to any other company the right to
use a name similar to that of the Corporation or the Funds or Mercury without
the written consent of Mercury.

6. Regardless of whether the Corporation and/or the Funds should
hereafter change their names and eliminate the word "Mercury," the words
"Mercury Asset Management" or any variation thereof from such names, the
Corporation hereby grants to Mercury the right to cause the incorporation of
other corporations or the organization of voluntary associations which may have
names similar to that of the Corporation and/or the Funds or to that to which
the Corporation and/or the Funds may change their names and own all or any
portion of the shares of such other corporations or associations and to enter
into contractual relationships with such other corporations or associations,
subject to any requisite approval of a majority of each Fund's shareholders and
the Securities and Exchange Commission and subject to the payment of a
reasonable amount to be determined at the time of use, and the Corporation
agrees to give and execute such formal consents or agreements as may be
necessary in connection therewith.

7. This Agreement may be amended at any time by a writing signed by
the parties hereto. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and understandings, whether written or oral, with
respect thereto.

3
<PAGE> 4

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written. This Agreement may be executed by the
parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.

MERCURY ASSET MANAGEMENT INTERNATIONAL LTD.

By:
------------------------------------------
Name:
Title:

MERCURY ASSET MANAGEMENT GROUP LTD.

By:
------------------------------------------
Name:
Title:

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

By:
------------------------------------------
Name:
Title:

<PAGE> 1
EXHIBIT 8(d)

FUND PARTICIPATION AGREEMENT

THIS AGREEMENT is made as of _________, 1999, between Mercury Asset
Management V.I. Funds, Inc., a Maryland corporation (the "Fund"), on behalf of
its series as described below, and _________________, a life insurance company
organized and domiciled under the laws of the state of _________________ (the
"Insurance Company"), on its own behalf and on behalf of each segregated asset
account of the Insurance Company set forth on Schedule A as attached hereto, as
such schedule may be amended from time to time (the "Accounts," as used herein,
the term "Account" shall, where applicable, be deemed to include any sub-account
of an Account).

WITNESSETH:

WHEREAS, the Fund has, or by May 1, 1999, will have, an effective
registration statement with the Securities and Exchange Commission ("SEC") to
register itself as an open - end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and to register the
offer and sale of its shares under the Securities Act of 1933, as amended (the
"1933 Act"); and

WHEREAS, the Fund desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and/or variable
annuity contracts to be offered by insurance companies that have entered into
participation agreements with the Fund (the "Participating Insurance
Companies"); and

WHEREAS, Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Underwriter") is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), is a
member in good standing of The National Association of Securities Dealers, Inc.
(the "NASD") and acts as principal underwriter of the shares of the Fund; and

WHEREAS, the capital stock of the Fund is divided into several series of
shares, each series representing an interest in a particular managed portfolio
of securities and other assets; and

WHEREAS, each series of the Fund is divided into Class A shares (the
"Class A Shares") and Class B shares (the "Class B Shares"), which represent
identical ownership rights with respect to each series' portfolio of securities
and other assets, except that the Class B Shares exclusively bear certain
expenses relating to distribution-related services incurred in connection with
the Class B Shares; and

WHEREAS, the several series of shares of the Fund offered by the Fund to
the Insurance Company and the Accounts are set forth on Schedule B attached
hereto (each, a "Portfolio," and collectively, the "Portfolios"); and

1
<PAGE> 2

WHEREAS, the Fund has received, or will receive, an order from the SEC
granting Participating Insurance Companies and their Accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) and of the 1940 Act, and
Rules 6e-2(b)(15) and 6-e3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies and certain qualified pension and retirement plans (the
"Shared Fund Exemptive Order"); and

WHEREAS, Mercury Asset Management International Ltd. including any
successor, (the "Adviser") is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, any applicable state securities
laws and is regulated by the Investment Management Regulatory Organization, a
self-regulating organization recognized under the Financial Services Act of 1986
of the United Kingdom ("IMRO"), and acts as the Fund's investment adviser; and

WHEREAS, the Insurance Company has registered or will register under the
1933 Act certain variable life insurance policies and/or variable annuity
contracts funded or to be funded through one or more of the Accounts which
policies or contracts are set forth on Schedule A attached hereto, as it may be
amended from time to time (the "Contracts"); and

WHEREAS, the Insurance Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and

WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in one or more of
the Portfolios (the "Shares") on behalf of the Accounts to fund the Contracts,
and the Fund intends to sell such Shares to the relevant Accounts at such
Shares' net asset value.

NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:

ARTICLE 1
SALE OF THE FUND SHARES

1.1 Subject to Section 1.3 of this Agreement, the Fund shall cause the
Underwriter to make Shares of the Portfolios available to the Accounts at such
Shares' most recent net asset value provided to the Insurance Company prior to
receipt of such purchase order by the Fund (or the Underwriter as its agent), in
accordance with the operational procedures mutually agreed to by the Underwriter
and the Insurance Company from time to time and the provisions of the then
current prospectus of the Fund. Shares of a particular Portfolio of the Fund
shall be ordered in such quantities and at such times as determined by the
Insurance Company to be necessary to meet the requirements of the Contracts. The
Board of Directors of the Fund (the "Board") may refuse to sell Shares of any
Portfolio to any person (including the Insurance Company and the

2
<PAGE> 3

Accounts), or suspend or terminate the offering of Shares of any Portfolio if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.

1.2 Subject to Section 1.3 of this Agreement, the Fund will redeem any
full or fractional Shares of any Portfolio when requested by the Insurance
Company on behalf of an Account at such Shares' most recent net asset value
provided to the Insurance Company prior to receipt by the Fund (or the
Underwriter as its agent) of the request for redemption, as established in
accordance with the operational procedures mutually agreed to by the Underwriter
and the Insurance Company from time to time and the provisions of the then
current prospectus of the Fund. The Fund shall make payment for such Shares in
the manner established from time to time by the Fund, but in no event shall
payment be delayed for a greater period than is permitted by the 1940 Act
(including any Rule or order of the SEC thereunder).

1.3 The Fund shall accept purchase and redemption orders resulting
from investment in and payments under the Contracts on each Business Day,
provided that such orders are received prior to 9:00 a.m. Eastern Time on such
Business Day and reflect instructions received by the Insurance Company from
Contract holders in good order prior to the time the net asset value of each
Portfolio is priced in accordance with its prospectus (such Portfolio's
"valuation time") on the prior Business Day. Any purchase or redemption order
for Shares received, on any Business Day, after such Portfolio's valuation time
on such Business Day shall be deemed received prior to 9:00 a.m. on the next
succeeding Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates the net
asset value of its Portfolios pursuant to the rules of the SEC. Purchase and
redemption orders shall be provided by the Insurance Company to the Underwriter
as agent for the Fund in such written or electronic form (including facsimile)
as may be mutually acceptable to the Insurance Company and the Underwriter. The
Underwriter may reject purchase and redemption orders that are not in proper
form. In the event that the Insurance Company and the Underwriter agree to use a
form of written or electronic communication which is not capable of recording
the time, date and recipient of any communication and confirming good
transmission, the Insurance Company agrees that it shall be responsible (i) for
confirming with the Underwriter that any communication sent by the Insurance
Company was in fact received by the Underwriter in proper form, and (ii) for the
effect of any delay in the Underwriter's receipt of such communication in proper
form. The Fund and its agents shall be entitled to rely, and shall be fully
protected from all liability in acting, upon the instructions of the persons
named in the list of authorized individuals attached hereto as Schedule C, or
any subsequent list of authorized individuals provided to the Fund or its agents
by the Insurance Company in such form, without being required to determine the
authenticity of the authorization or the authority of the persons named therein.

1.4 Purchase orders that are transmitted to the Fund in accordance
with Section 1.3 of this Agreement shall be paid for no later than 12:00 noon
Eastern Time on the same Business

3
<PAGE> 4

Day that the Fund receives notice of the order. Payments shall be made in
federal funds transmitted by wire. In the event that the Insurance Company shall
fail to pay in a timely manner for any purchase order validly received by the
Underwriter on behalf of the Fund pursuant to Section 1.3 of this Agreement
(whether or not such failure is the fault of the Insurance Company), the
Insurance Company shall hold the Fund harmless from any losses reasonably
sustained by the Fund as the result of acting in reliance on such purchase
order.

1.5 Issuance and transfer of the Fund's Shares will be by book entry
only. Share certificates will not be issued to the Insurance Company or to any
Account. Shares ordered from the Fund will be recorded in the appropriate title
for each Account.

1.6 The Fund shall furnish prompt notice to the Insurance Company of
any income, dividends or capital gain distribution payable on Shares of any
Portfolio. The Insurance Company hereby elects to receive all such income
dividends and capital gain distributions as are payable on a Portfolio's Shares
in additional Shares of that Portfolio. The Fund shall notify the Insurance
Company of the number of Shares so issued as payment of such dividends and
distributions.

1.7 The Fund shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon as reasonably
practical after such net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:30 p.m.,
Eastern Time.

1.8 The Insurance Company agrees that it will not take any action to
operate any Account as a management investment company under the 1940 Act
without the Fund's and the Underwriter's prior written consent.

1.9 The Fund agrees that its Shares will be sold only to Participating
Insurance Companies and their separate accounts. No Shares of any Portfolio will
be sold directly to the general public. The Insurance Company agrees that Fund
Shares will be used only for the purposes of funding the Contracts and Accounts
listed in Schedule A, as such schedule may be amended from time to time.

1.10 The Fund agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.11 and
Article 4 of this Agreement.

1.11 So long as it shall be the intention of the Fund to maintain the
net asset value per share of any Portfolio at $1.00, on any day on which (a) the
net asset value per share of the Shares is determined, (b) the Adviser
determines, in the manner described in the then current prospectus of the Fund,
that the net income of such Portfolio on such day is negative, and (c) the
Adviser delivers a certificate to the Insurance Company setting forth the
reduction in the number of outstanding Shares to be effected as described in the
then current prospectus of the Fund in

4
<PAGE> 5

connection with such determination, the Insurance Company, on behalf of itself
and the Accounts, agrees to return to the Fund its pro rata share of the number
of Shares to be reduced and agrees that, upon delivery by the Adviser to the
Insurance Company of such certificate, (a) the Insurance Company's ownership
interest in the Shares so to be returned shall immediately cease, (b) such
Shares shall be deemed to have been canceled and to be no longer outstanding,
and (c) all rights in respect of such Shares shall cease.

ARTICLE 2
OBLIGATIONS OF THE PARTIES

2.1 The Fund shall prepare and be responsible for filing with the SEC
and any state securities regulators requiring such filing, all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Fund. The Fund shall bear the costs of registration and
qualification of its Shares, preparation and filing of the documents listed in
this Section 2.1 and all taxes to which an issuer is subject on the issuance and
transfer of its shares.

2.2 At least annually, the Fund or its designee shall provide the
Insurance Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios) for the Shares as the Insurance Company may
reasonably request for distribution to existing Contract owners whose Contracts
are funded by such Shares. The Fund or its designee shall provide the Insurance
Company, at the Insurance Company's expense, with as many copies of the current
prospectus for the Shares as the Insurance Company may reasonably request for
distribution to prospective purchasers of Contracts. If requested by the
Insurance Company in lieu thereof, the Fund or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set in
type) and other assistance as is reasonably necessary in order for the parties
hereto once each year (or more frequently if the prospectus for the Shares is
supplemented or amended) to have the prospectus for the Contracts and the
prospectus for the Shares printed together in one document. The expenses of such
printing shall be borne by the Insurance Company. In the event the Insurance
Company requests that the Fund or its designee provide the Fund's prospectus in
a "camera ready" format, the Fund shall be responsible solely for providing the
prospectus in the format in which it is accustomed to formatting prospectuses
and shall bear the expense of providing the prospectus in such format (e.g.,
typesetting expenses), and the Insurance Company shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses.

2.3 The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Fund or its
designee. The Fund or its designee, at its expense, shall print and provide such
statement of additional information to the Insurance Company (or a master of
such statement suitable for duplication by the Insurance Company) for
distribution to any owner of a Contract funded by the Shares. The Fund or its
designee, at the Insurance Company's expense, shall print and provide such
statement to the Insurance Company

5
<PAGE> 6

(or a master of such statement suitable for duplication by the Insurance
Company) for distribution to a prospective purchaser who requests such
statement.

2.4 The Fund or its designee shall provide the Insurance Company free
of charge copies, if and to the extent applicable to the Shares, of the Fund's
proxy materials, reports to Shareholders and other communications to
Shareholders in such quantity as the Insurance Company shall reasonably require
for distribution to Contract owners.

2.5 The Insurance Company shall furnish, or cause to be furnished, to
the Fund or its designee, a copy of each prospectus for the Contracts or
statement of additional information for the Contracts in which a Portfolio, the
Fund or the Adviser is named prior to the filing of such document with the SEC.
The Insurance Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which a Portfolio, the Fund or the Adviser is named, at least five Business Days
prior to its use. No such prospectus, statement of additional information or
material shall be used if the Fund or its designee reasonably objects to such
use within five Business Days after receipt of such material.

2.6 At the request of the Fund or its designee, the Insurance Company
shall furnish, or shall cause to be furnished, to the Fund or its designee
copies of the following reports:

(a) the Insurance Company's annual statement (prepared under
statutory accounting principles ("statutory")) and annual report
(prepared under generally accepted accounting principles ("GAAP"), if
any);

(b) the Insurance Company's quarterly statements (statutory and
GAAP, if any);

(c) any financial statement, proxy statement, notice or report
of the Insurance Company relating to the Portfolio(s) sent to
shareholders and/or policyholders:

(d) any registration statement (without exhibits) and financial
reports of the Insurance Company relating to the Portfolio(s) filed with
the SEC or any state insurance regulator; and

(e) any other public report submitted to the Insurance Company
by independent accountants in connection with any annual, interim or
special audit made by them of the books of the Insurance Company relating
to the Portfolio(s).

2.7 The Insurance Company shall not give any information or make any
representations or statements on behalf of a Portfolio or the Fund or concerning
any of them or the Adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from the
registration statement or prospectus for the Fund Shares (as such registration
statement and prospectus may be amended or supplemented from

6
<PAGE> 7

time to time), or in materials approved by the Fund or its designee for
distribution, including sales literature or other promotional materials, except
with the written permission of the Fund or its designee.

2.8 The Fund shall not give any information or make any
representations or statements on behalf of the Insurance Company or concerning
the Insurance Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in materials
approved by the Insurance Company for distribution including sales literature or
other promotional materials, except with the written permission of the Insurance
Company.

2.9 The Insurance Company shall amend the registration statement of
the Contracts under the 1933 Act and registration statement for each Account
under the 1940 Act from time to time as required in order to effect the
continuous offering of the Contracts or as may otherwise be required by
applicable law. The Insurance Company shall register and qualify the Contracts
for sale to the extent required by applicable securities laws and insurance laws
of the various states.

2.10 The Insurance Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably probable that such Contract would be a "modified endowment contract,"
as that term is defined in Section 7702A of the Internal Revenue Code of 1986,
as amended (the "Code"), will identify such Contract as a modified endowment
contract (or policy).

2.11 Solely with respect to Contracts and Accounts that are subject to
the 1940 Act, so long as, and to the extent that, the SEC interprets the 1940
Act to require pass-through voting privileges for variable policy owners: (a)
the Insurance Company will provide pass-through voting privileges to owners of
Contracts or policies whose cash values are invested, through the Accounts, in
Shares of the Fund; (b) the Fund shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Insurance
Company shall be responsible for assuring that the Accounts calculate voting
privileges in the manner established by the Fund; (c) with respect to each
Account, the Insurance Company will vote Shares of the Fund held by the Account
and for which no timely voting instructions from Contract or policy owners are
received, as well as Shares held by the Account that are owned by the Insurance
Company for its general account, in the same proportion as the Insurance Company
votes Shares held by the Account for which timely voting instructions are
received from Contract or policy owners; and (d) the Insurance Company and its
agents will in no way recommend or oppose or interfere with the solicitation of
proxies for Fund Shares held by Contract owners without the prior written
consent of the Fund, which consent may be withheld in the Fund's sole
discretion.

7
<PAGE> 8

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

3.1 The Insurance Company represents and warrants that it is an
insurance company duly organized and in good standing under the laws of the
State of _______________________ and has established each Account as a
segregated asset account under such law on the date set forth in Schedule A.

3.2 The Insurance Company represents and warrants that it has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.

3.3 The Insurance Company represents and warrants that the issuance of
the Contracts will be registered under the 1933 Act prior to any issuance or
sale of the Contracts; the Contracts will be issued and sold in compliance in
all material respects with all applicable federal and state laws; and the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements.

3.4 The Insurance Company represents and warrants that the Contracts
are currently and at the time of issuance will be treated as annuity contracts
or life insurance policies, whichever is appropriate, under applicable
provisions of the Code. The Insurance Company shall make every effort to
maintain such treatment and shall notify the Fund and the Underwriter
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.

3.5 The Fund represents and warrants that it is duly organized and
validly existing under the laws of the State of Maryland.

3.6 The Fund represents and warrants that the sale of the Fund Shares
offered and sold pursuant to this Agreement will be registered under the 1933
Act and that the Fund is registered under the 1940 Act. The Fund shall use its
best efforts to amend its registration statement relating to each Portfolio
under the 1933 Act and the 1940 Act from time to time as required in order to
affect the continuous offering of its Shares. The Insurance Company shall advise
the Fund of any state requirements to register Shares for sale in such states.
If the Fund determines that state filings are appropriate, the Fund shall use
its best efforts to make such filings in accordance with the laws of all fifty
states, the District of Columbia, Virgin Islands and Puerto Rico and such other
jurisdictions reasonably requested by the Insurance Company.

3.7 The Fund represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in section
817(h) of the Code and the rules and regulations thereunder.

8
<PAGE> 9

3.8 The Fund represents and warrants that Fund officers, directors,
and employees are covered by a fidelity bond in the form and amount required by
Rule 17(g)(1) under the 1940 Act.

ARTICLE 4
POTENTIAL CONFLICTS

4.1 The parties acknowledge that the Fund's Shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the Contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of Contract
owners. The Board shall promptly inform the Insurance Company if they determine
that an irreconcilable material conflict exists and the implications thereof.

4.2 The Insurance Company agrees to promptly report any potential or
existing conflicts of which it is aware to the Board. The Insurance Company will
assist the Board in carrying out their responsibilities under the Shared Fund
Exemptive Order by providing the Board with all information reasonably necessary
for the Board to consider any issues raised including, but not limited to,
information as to a decision by the Insurance Company to disregard Contract
owner voting instructions.

4.3 If it is determined by a majority of the Board, or a majority of
the Fund's Directors who are not affiliated with the Adviser or the Underwriter
(the "Disinterested Directors"), that a material irreconcilable conflict exists
that affects the interests of Contract owners, the Insurance Company shall, in
cooperation with other Participating Insurance Companies whose Contract owners
are also affected, at its expense and to the extent reasonably practicable (as
determined by the Board), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, which steps could include: (a)
withdrawing the assets allocable to some or all of the Accounts from the Fund or
any Portfolio, and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question of whether or not such segregation should be implemented to a vote of
all affected Contracts owners and, as appropriate, segregating the assets of any
appropriate group (i.e, annuity contract owners, life insurance contract owners,
or variable contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected Contract

9
<PAGE> 10

owners the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.

4.4 If a material irreconcilable conflict arises because of a decision
by the Insurance Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Insurance Company may be required, at the Fund's election, to withdraw the
affected Account's or Accounts' investment in the Fund and terminate this
Agreement with respect to such Account(s); provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
Disinterested Board. Any such withdrawal and termination must take place within
30 days after the Fund gives written notice that this provision is being
implemented, subject to applicable law but in any event consistent with the
terms of the Shared Fund Exemptive Order. Until the end of such 30-day period,
the Fund shall continue to accept and implement orders by the Insurance Company
for the purchase and redemption of Shares of the Fund.

4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's (or Accounts') investment in the
Fund and terminate this Agreement with respect to such Account(s) within 30 days
after the Fund informs the Insurance Company in writing that it has determined
that such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the Disinterested Directors. Until the end of such 30-day period,
the Fund shall continue to accept and implement orders by the Insurance Company
for the purchase and redemption of Shares of the Fund.

4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the Disinterested Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Insurance Company be required to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
Contract owners materially adversely affected by the irreconcilable material
conflict. In the event that the Board determines that any proposed action does
not adequately remedy any irreconcilable material conflict, then the Insurance
Company will withdraw the affected Account's (or Accounts') investment in the
Fund and terminate this Agreement with respect to such Account(s) within 30 days
after the Board informs the Insurance Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall,
subject to applicable law but in any event consistent with the terms of the
Shared Fund Exemptive Order, be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
Disinterested Directors.

4.7 The Insurance Company shall at least annually submit to the Board
such reports, materials or data as the Board may reasonably request so that the
Board may fully carry out the

10
<PAGE> 11

duties imposed upon them by the Shared Fund Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Board.

4.8 If and to the extent that (a) Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the application for the Shared Fund Exemptive
Order) on terms and conditions materially different from those contained in the
application for the Shared Fund Exemptive Order, or (b) the Shared Fund
Exemptive Order is granted on terms and conditions that differ from those set
forth in this Article 4, then the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary (a) to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such rules are applicable, or (b) to conform this Article 4 to the
terms and conditions contained in the Shared Fund Exemptive Order, as the case
may be.

4.9 Each Portfolio may, in the future, operate as a "feeder" in a
"master/feeder" structure. As a "feeder," a Portfolio would invest all of its
assets in another open-end registered investment company that has the same
investment objective and fundamental policies as such Portfolio (the "master"
fund), and other "feeder" funds may also invest in the "master" fund. If and to
the extent a Portfolio operates as a "feeder" in a "master/feeder" structure,
then the parties hereto shall monitor the entire "master/feeder" structure for
the matters contained in this Article 4 as if the entire "master/feeder"
structure were described herein.

ARTICLE 5
INDEMNIFICATION

5.1 Indemnification by the Insurance Company. The Insurance Company
agrees to indemnify and hold harmless the Fund and each of its Directors,
officers, employees and agents and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act (collectively the "Indemnified
Parties" for purposes of this Article 5) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the indemnifying party) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which such Indemnified Parties may become subject
under any statute or regulation, or common law or otherwise, insofar as such
Losses:

(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved by the
Insurance Company on behalf of the Contracts or Accounts (or any
amendment or supplement to any of the foregoing) (collectively,
"Insurance Company Documents" for the purposes of this Article 5), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
indemnity shall not

11
<PAGE> 12

apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Insurance
Company by or on behalf of the Fund for use in Insurance Company
Documents or otherwise for use in connection with the sale of the
Contracts or Shares; or

(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Fund Documents (as defined in Section 5.2(a) below)) or
wrongful conduct of the Insurance Company or persons under its control,
with respect to the sale or acquisition of the Contracts or Shares; or

(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Fund Documents or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Fund by or
on behalf of the Insurance Company; or

(d) in the event the Insurance Company has adjusted or changed
the format of the Fund's prospectus, arise out of or result from any such
adjustment or change, including without limitation, any alteration of
text; or

(e) arise out of or result from any failure by the Insurance
Company to provide the services or furnish the materials required under
the terms of this Agreement; or

(f) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Insurance Company.

5.2 Indemnification by the Fund. The Fund agrees to indemnify and hold
harmless the Insurance Company and each of its directors, officers, employees
and agents and each person, if any, who controls the Insurance Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Article 5) against any and all Losses, to which
such Indemnified Parties may become subject under any statute or regulation, or
at common law or otherwise, insofar as such Losses:

(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Fund (or any amendment or
supplement thereto) or in sales literature approved by the Fund (but
solely with respect to statements regarding the Fund), (collectively,
"Fund Documents" for the purposes of this Article 5), or arise out of or
are based upon the

12
<PAGE> 13

omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and was accurately derived from
written information furnished to the Fund by or on behalf of the
Insurance Company for use in Fund Documents or otherwise for use in
connection with the sale of the Contracts or Shares; or

(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Insurance Company Documents) or wrongful conduct of the Fund
or persons under its control, with respect to the sale or acquisition of
the Contracts or Shares; or

(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Insurance Company
Documents or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance
upon and accurately derived from written information furnished to the
Insurance Company by or on behalf of the Fund; or

(d) arise out of or result from any failure by the Fund to
provide the services or furnish the materials required under the terms of
this Agreement; or

(e) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Fund.

5.3 Neither the Insurance Company nor the Fund shall be liable under
the indemnification provisions of Section 5.1 or 5.2, as applicable, with
respect to any Losses incurred or assessed against any Indemnified Party to the
extent such Losses arise out of or result from such Indemnified Party's willful
misfeasance, bad faith or negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.

5.4 Neither the Insurance Company nor the Fund shall be liable under
the indemnification provisions of Section 5.1 or 5.2, as applicable, with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the party against whom indemnification is sought in
writing within a reasonable time after the summons, or other first written
notification giving information of the nature of the claim shall have been
served upon or otherwise received by such Indemnified Party (or after such
Indemnified Party shall have received notice of service upon or other
notification to any designated agent), but failure to notify the party against
whom indemnification is sought of any such claim shall not relieve that party

13
<PAGE> 14

from any liability that it may have to the Indemnified Party in the absence of
Sections 5.1 and 5.2.

5.5 In case any such action is brought against the Indemnified
Parties, the indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof other
than reasonable costs of investigation.

ARTICLE 6
TERMINATION

6.1 This Agreement may be terminated by either party for any reason by
six (6) months' advance written notice to the other party, and may be terminated
by the Fund pursuant to Sections 6.2 through 6.4 below upon written notice to
the Insurance Company, and by the Insurance Company pursuant to Section 6.5
below upon written notice to the Fund.

6.2 This Agreement may be terminated at the option of the Fund upon
institution of formal proceedings against the Insurance Company by the NASD, the
SEC, the insurance department of any state, or any other regulatory body
regarding the Insurance Company's duties under this Agreement or related to the
sale of the Contracts, the operation of the Account, the administration of the
Contracts or the purchase of the Shares, or an expected or anticipated ruling,
judgment or outcome that would, in the Fund's reasonable judgment, materially
impair the Insurance Company's ability to meet and perform the Insurance
Company's obligations and duties hereunder.

6.3 This Agreement may be terminated at the option of the Fund if the
Contracts cease to qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify.

6.4 This Agreement may be terminated by the Fund, at its option, if
the Fund shall determine, in its sole judgment exercised in good faith, that
either (1) the Insurance Company shall have suffered a material adverse change
in its business or financial condition, (2) the Insurance Company shall have
been the subject of material adverse publicity that is likely to have a material
adverse impact upon the business and operations of either the Fund or the
Underwriter, or (3) the Insurance Company breaches any obligation under this
Agreement in a material respect and such breach shall continue unremedied for
thirty (30) days after receipt of notice from the Fund of such breach.

14
<PAGE> 15

6.5 This Agreement may be terminated at the option of the Insurance
Company if (A) if the Internal Revenue Service determines that any Portfolio
fails to qualify as a "Regulated Investment Company" under the Code or fails to
comply with the diversification requirements of Section 817(h) of the Code, or
(B) the Insurance Company shall determine, in its sole judgment exercised in
good faith, that either (1) the Fund or the Underwriter shall have been the
subject of material adverse publicity that is likely to have a material adverse
impact upon the business and operations of the Insurance Company, or (2) the
Fund breaches any obligation under this Agreement in a material respect and such
breach shall continue unremedied for thirty (30) days after receipt of notice
from the Insurance Company of such breach.

6.6 Notwithstanding any termination of this Agreement pursuant to this
Article 6, the Fund and the Underwriter may, at the option of the Fund, continue
to make available additional Fund Shares for so long after the termination of
this Agreement as the Fund desires pursuant to the terms and conditions of this
Agreement as provided in Section 6.7 below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, if the Fund or
Underwriter so elects to make additional Shares available, the owners of the
Existing Contracts or the Insurance Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts.

6.7 In the event of a termination of this Agreement pursuant to this
Article 6, the Fund and the Underwriter shall promptly notify the Insurance
Company whether the Underwriter and the Fund will continue to make Shares
available after such termination; if the Underwriter and the Fund will continue
to make Shares so available, the provisions of this Agreement shall remain in
effect except for Section 6.1 hereof and thereafter either the Fund or the
Insurance Company may terminate the Agreement, as so continued pursuant to this
Section 6.7, upon prior written notice to the other party, such notice to be for
a period that is reasonable under the circumstances but, if given by the Fund,
need not be greater than six months.

6.8 The provisions of Article 5 shall survive the termination of this
Agreement, and the provisions of Article 4 and Sections 2.4 and 2.11 shall
survive the termination of this Agreement so long as Shares of the Fund are held
on behalf of Contract owners in accordance with Section 6.7.

ARTICLE 7
NOTICES

Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.

15
<PAGE> 16

If to the Fund:

Mercury Asset Management V.I. Funds, Inc.
c/o Mercury Asset Management International Ltd.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: General Counsel

If to the Insurance Company:

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

ARTICLE 8
MISCELLANEOUS

8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.

8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.

8.3 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.

8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York,
shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and the
rules, regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant and the terms hereof shall
be interpreted and construed in accordance therewith.

8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the relevant Portfolio(s) of the Fund and that no Director, officer, agent,
or holder of shares of beneficial interest of the Fund shall be personally
liable for any such liabilities. The obligations of each Portfolio shall be
limited to the assets of such Portfolio, shall be separate from the obligations
of any other Portfolio of the Fund, and the Portfolio shall not be liable for
the obligations of any other Portfolio of the Fund.

16
<PAGE> 17

8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, IMRO and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Each party shall use its best efforts to provide the other party with reasonable
notice of any governmental investigation or inquiry relating to this Agreement
or the transactions contemplated hereby of which it has knowledge.

8.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.

8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.

8.9 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.

8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.

8.11 No failure or delay by a party in exercising any right or remedy
under this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise.

17
<PAGE> 18

IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.

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

By:
-------------------------------
Name:
Title:

MERCURY ASSET MANAGEMENT V.I.
FUNDS, INC.

By:
-------------------------------
Name:
Title:

18
<PAGE> 19

SCHEDULE A

Segregated Accounts of _________________________________________
Participating in the
Mercury Asset Management V.I. Funds, Inc.

Name of Separate Account and Contracts Date Established
- -------------------------------------- ----------------

19
<PAGE> 20

SCHEDULE B
SHARE CLASSES AND PORTFOLIOS OF MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
OFFERED TO ACCOUNTS

Mercury V.I. U.S. Large Cap Fund, Class _________

20
<PAGE> 21

SCHEDULE C

Persons Authorized to Act on Behalf of
-------------------------------------------------------------------------

The Fund, the Underwriter and their respective agents are authorized to
rely on instructions from the following individuals on behalf of
________________________________ on its own behalf and on behalf of each
Account:

<TABLE>
<CAPTION>
Name Signature
---- ---------
<S> <C>
------------------------------ ------------------------------

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

------------------------------ ------------------------------
</TABLE>

<PAGE> 1
EXHIBIT 8(e)

EXPENSE CAP AGREEMENT

Agreement made as of this 30th day of April, 1999, between Mercury Asset
Management International Ltd., as investment adviser (the "Adviser") and
Mercury Asset Management V.I. Funds, Inc., on behalf of its portfolio, Mercury
V.I. U.S. Large Cap Fund (the "Portfolio").

WHEREAS, the Adviser wishes to limit expenses of each Class of shares of
the Portfolio and commit to those limits for a period of time; and

WHEREAS, shareholders of the Portfolio will benefit from any expense
limits agreed to by the Adviser.

NOW, THEREFORE, the Portfolio and the Adviser agree to expense limits on
the annual operating expenses of each Class of shares of the Portfolio as
follows:

<TABLE>
<CAPTION>
EXPENSE LIMIT
(AS A PERCENTAGE OF
CLASS AVERAGE NET ASSETS)
----- -------------------

<S> <C>
Class A 1.25%

Class B 1.40%
</TABLE>

This Agreement shall have a term of one year from the date hereof.
Thereafter, this Agreement shall continue for successive one year periods
unless it is terminated by either party upon thirty days prior written notice
to the other party hereto. This Agreement may be amended by a writing signed by
both parties hereto.

IN WITNESS WHEREOF, the parties have signed this agreement as of the day
and year first above written.

MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD.

By:
----------------------------------------
Name:
Title:

MERCURY ASSET MANAGEMENT V.I.
FUNDS, INC., on behalf of Mercury V.I. U.S.
Large Cap Fund

By:
----------------------------------------
Name:
Title:

-1-

<PAGE> 1
EXHIBIT 9

SWIDLER BERLIN SHEREFF FRIEDMAN, LLP

919 THIRD AVENUE
NEW YORK, NY 10022-9998
TELEPHONE (212)758-9500
FACSIMILE (212) 758-9526
WASHINGTON OFFICE
3000 K STREET, NW
WASHINGTON, DC 20007

April 7, 1999

VIA FACSIMILE AND FIRST CLASS MAIL

Mercury Asset Management V.I. Funds, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011

Ladies and Gentlemen:

Mercury Asset Management V.I. Funds, Inc. (the "Corporation"), is
authorized to issue and sell 800,000,000 shares of common stock, par value
$0.0001 per share, of which 400,000,000 shares of common stock (the "Shares")
are designated as Shares of the Mercury V.I. U.S. Large Cap Fund series (the
"Fund"), in the manner and on the terms set forth in the Fund's Registration
Statement on Form N-1A filed with the Securities and Exchange Commission (File
Nos. 811-09159; 333-68879) (the "Registration Statement").

We have, as counsel, participated in various proceedings relating
to the Corporation and to the Shares. We have examined copies, either certified
or otherwise proved to our satisfaction to be genuine, of its Articles of
Incorporation, as amended to date, and By-Laws, as currently in effect, and
other documents relating to its organization and operation. In addition, we have
received a certificate dated April 2, 1999 of the Maryland State Department of
Assessments and Taxation that the Corporation is in good standing under the laws
of the State of Maryland. We have also reviewed the Registration Statement filed
as of the date of this opinion and the documents filed as exhibits thereto. We
are generally familiar with the business affairs of the Corporation.

Based upon the foregoing, it is our opinion that:

1. The Corporation has been duly incorporated and is validly existing
under the laws of the State of Maryland.

2. The Corporation is authorized to issue up to eight hundred million
(800,000,000) shares of common stock, of which 400,000,000 shares
are designated as Shares of the Fund. Under Maryland law, (a) the
number of Shares may be increased or

<PAGE> 2
Mercury Asset Management V.I. Funds, Inc.
April 7, 1999
Page 4

decreased by action of the Board of Directors, and (b) Shares
which are issued and subsequently redeemed by the Corporation are,
by virtue of such redemption, restored to the status of authorized
and unissued Shares.

3. Subject to the effectiveness of the Registration Statement (and
any pre-effective amendment thereto) and in compliance with
applicable state securities laws, upon the issuance of the Shares
for a consideration not less than the par value thereof as
required by Maryland law, and for the net asset value thereof as
required by the Investment Company Act of 1940, as amended, and in
accordance with the terms of the Registration Statement, such
Shares will be legally issued and outstanding and fully paid and
non-assessable.

We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as a part of the Registration Statement and
with any state securities commission where such filing is required. We also
consent to the reference to our firm as counsel in the prospectus and statement
of additional information filed as a part thereof. In giving this consent we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.

We are members of the Bar of the States of New York and Maryland
and do not hold ourselves out as being conversant with the laws of any
jurisdiction other than those of the United States of America and the States of
New York and Maryland.

Very truly yours,

/s/ Swidler Berlin Shereff Friedman, LLP

Swidler Berlin Shereff Friedman, LLP

<PAGE> 1

EXHIBIT 10

INDEPENDENT AUDITORS' CONSENT

Mercury V.I. U.S. Large Cap Fund of
Mercury Asset Management V.I. Funds, Inc.:

We consent to the reference to us in Pre-Effective Amendment No. 1 to
Registration Statement No. 333-68879 under the captions "Independent Auditors"
appearing in such Registration Statement.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Princeton, New Jersey
April 13, 1999

<PAGE> 1
EXHIBIT 13

CLASS B DISTRIBUTION PLAN OF

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

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

PURSUANT TO RULE 12b-1

DISTRIBUTION PLAN made as of the ___ day of ________, 1999, by and
between Mercury Asset Management V.I. Funds, Inc., a Maryland corporation (the
"Corporation"), on behalf of its series, Mercury V.I. U.S. Large Cap Fund (the
"Fund"), and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc., a Delaware corporation (the "Distributor").

W I T N E S S E T H:

WHEREAS, the Corporation intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and

WHEREAS, the Directors have established the Fund as a series of the
Corporation;

WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and

WHEREAS, the Corporation on behalf of the Fund proposes to enter into a
Class B Shares Distribution Agreement with the Distributor, pursuant to which
the Distributor will act as the exclusive distributor and representative of the
Fund in the offer and sale of Class B shares of common stock, par value $0.0001
per share (the "Class B Shares"), of the Fund to separate accounts ("Separate
Accounts") of certain insurance companies (the "Participating Insurance
Companies"); and

WHEREAS, each Participating Insurance Company issues variable annuity
and/or variable life insurance contracts (the "Contracts"); and

WHEREAS, the Corporation on behalf of the Fund desires to adopt this
Class B Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act pursuant to which the Fund will pay a distribution fee
with respect to the Fund's Class B Shares; and

WHEREAS, the Directors of the Corporation have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
Class B shareholders.

<PAGE> 2

NOW, THEREFORE, the Corporation on behalf of the Fund hereby adopts, and
the Distributor hereby agrees to the terms of, the Plan in accordance with Rule
12b-1 under the Investment Company Act on the following terms and conditions:

1. The Corporation hereby authorizes the Distributor to
arrange for the Corporation to enter into Sub-Agreements substantially in the
form attached hereto with Participating Insurance Companies. Each such
Sub-Agreement shall provide that each Participating Insurance Company shall
provide the Distributor with such information as is reasonably necessary to
permit the Distributor to comply with the reporting requirements set forth in
Paragraph 3 hereof.

2. Upon effectiveness of this Plan with respect to the Class B
Shares of the Fund, the Corporation shall pay to each of the Participating
Insurance Companies a distribution fee under the Plan at the end of each month
equal to 0.15% of the average daily net assets of Class B Shares of the Fund
held by such Participating Insurance Company. Such distribution fee shall be
paid to the Participating Insurance Companies as compensation for providing
distribution related services to the Corporation's shareholders, including, but
not limited to the following:

(a) printing and mailing of Corporation prospectuses,
statements of additional information, any supplements thereto and
shareholder reports for prospective Contract holders;

(b) services relating to the development, preparation, printing
and mailing of Corporation advertisements, sales literature and other
promotional materials describing and/or relating to the Corporation and
including materials intended for use within the Participating Insurance
Company, or for broker-dealer only use or retail use;

(d) obtaining information and providing explanations to
Contract holders regarding the investment objectives and policies and
other information about the Corporation and the Fund, including the
performance of the Fund;

(e) training sales personnel regarding the Corporation and the
Fund;

(f) compensating sales personnel in connection with the
allocation of cash values and premiums of the Contract holders to the
Corporation;

(g) providing personal services and/or maintenance of the
accounts of the Contract holders with respect to Class B Shares of the
Fund attributable to such accounts; and

2
<PAGE> 3

(h) financing any other activity that the Corporation's Board
of Directors determines is primarily intended to result in the sale of
the Class B shares.

Only distribution expenditures properly attributable to the sale of Class B
Shares of the Fund will be used to justify any fee paid by the Corporation with
respect to the Fund pursuant to this Plan, and, to the extent that such
expenditures relate to the Fund and any other series of the Corporation, the
expenditures will be allocated between or among the affected series of the
Corporation in a manner deemed appropriate by the Directors of the Corporation.

3. The Distributor shall provide the Corporation for review by
the Board of Directors, and the Directors shall review at least quarterly, a
written report complying with the requirements of Rule 12b-1 regarding the
disbursement of the distribution fee during such period.

4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a) the
Directors of the Corporation and (b) those Directors of the Corporation who are
not "interested persons" of the Corporation, as defined in the Investment
Company Act, and have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast
in person at a meeting or meetings called for the purpose of voting on the Plan
and such related agreements.

5. The Plan shall continue in effect for so long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 4.

6. The Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the
outstanding Class B voting securities of the Fund.

7. The Plan may not be amended to increase materially the rate
of payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class B
voting securities of the Fund, and by the Directors of the Corporation in the
manner provided for in Paragraph 4 hereof, and no material amendment to the Plan
shall be made unless approved in the manner provided for approval and annual
renewal in Paragraphs 4 and 5 hereof.

8. While the Plan is in effect, the selection and nomination
of Directors who are not interested persons, as defined in the Investment
Company Act, of the Corporation shall be committed to the discretion of the
Directors who are not interested persons.

9. The Corporation shall preserve copies of the Plan and any
related agreements and all reports made pursuant to Paragraph 3 hereof, for a
period of not less than six years from the date of the Plan, or the date of such
agreement or report, as the case may be, the first two years in an easily
accessible place.

3
<PAGE> 4

IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the
date first above written.

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC., on behalf of its series,
MERCURY V.I. U.S. LARGE CAP FUND

By:
--------------------------------------------
Name:
Title:

MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.

By:
--------------------------------------------
Name:
Title:

4
<PAGE> 5

CLASS B SHARES
DISTRIBUTION PLAN SUB-AGREEMENT

MERCURY ASSET MANAGEMENT V.I. FUNDS, INC. (the "Corporation"), on behalf
of each of its series set forth on Exhibit A hereto, as such exhibit may be
amended from time to time (each, a "Fund"), and ________________________________
(the "Insurance Company") mutually agree to the arrangements set forth in this
Agreement (the "Agreement") dated as of ______________, 1999.

WHEREAS, the Corporation is an open-end investment company registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"); and

WHEREAS, the Insurance Company issues variable life insurance policies
and/or variable annuity contracts (the "Contracts"); and

WHEREAS, amounts invested in the Contracts by Contract holders are
deposited in separate accounts of the Insurance Company which in turn purchase
Class B Shares of one or more of the Funds of the Corporation, each of which is,
or may be, an investment option offered by the Contracts; and

WHEREAS, the Insurance Company will provide certain services to the
Contract holders; and

WHEREAS, the Insurance Company desires to be compensated for providing
such services to the Contract holders.

NOW, THEREFORE, the parties agree as follows:

1. Services. The Insurance Company shall provide the services listed
below in respect of the Class B Shares of the Corporation's Funds held by the
Insurance Company's separate accounts. Such services include, but are not
limited to, the following:

(a) printing and mailing of Corporation prospectuses,
statements of additional information, any supplements thereto and
shareholder reports for prospective Contract holders;

(b) services relating to the development, preparation, printing
and mailing of Corporation advertisements, sales literature and other
promotional materials describing and/or relating to the Corporation and
including materials intended for use within the Insurance Company, or for
broker-dealer only use or retail use;

<PAGE> 6

(d) obtaining information and providing explanations to
Contract holders regarding the investment objectives and polices and
other information about the Corporation and its Funds, including the
performance of the Funds;

(e) training sales personnel regarding the Corporation and the
Funds;

(f) compensating sales personnel in connection with the
allocation of cash values and premiums of the Contract holders to the
Corporation;

(g) providing personal services and/or maintenance of the
accounts of Contract holders with respect to Class B Shares of the Funds
attributable to such accounts; and

(h) financing any other activity that the Corporation's Board
of Directors determines is primarily intended to result in the sale of
the Class B Shares.

2. Distribution Fee Payments. The Corporation agrees to pay, with
respect to each Fund, to the Insurance Company at the end of each month, an
amount equal to 0.15% of the average daily net asset value of the Class B Shares
of such Fund held by the Insurance Company's separate accounts during that
month.

3. Information Reporting Requirements. The Insurance Company shall
provide Mercury Funds Distributor, Inc. a division of Princeton Funds
Distributor, Inc. (the "Distributor"), at least quarterly, such information as
reasonably requested by the Distributor to enable the Distributor to comply with
the reporting requirements of Rule 12b-1 of the Investment Company Act ("Rule
12b-1") regarding the disbursement of the distribution fee during such period
referred to in Paragraph 2 of the Distribution Plan entered into by the
Corporation and the Distributor pursuant to Rule 12b-1 (the "Plan").

4. Effectiveness of Agreement. This Agreement shall not take effect
until it has been approved, together with any related agreements, by votes of a
majority of both (a) the Board of Directors of the Corporation and (b) those
Directors of the Corporation who are not "interested persons" of the
Corporation, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Agreement and such related
agreements.

5. Continuation of Agreement. The Agreement shall continue in effect
for so long as such continuance is specifically approved at least annually in
the manner provided for approval of this Agreement in Paragraph 4.

-2-
<PAGE> 7

6. Termination of Agreement. This Agreement may be terminated at any
time by vote of a majority of the Rule 12b-1 Directors, or by vote of a majority
of the outstanding Class B voting securities of the Fund.

7. Amendment of Agreement. This Agreement may be amended only upon
mutual agreement of the parties hereto and upon approval by the Directors of the
Corporation in the manner provided for in Paragraph 4 hereof, and no material
amendment to this Agreement shall be made unless approved in the manner provided
for approval and annual renewal in Paragraphs 4 and 5 hereof.

8. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given if
delivered:

(a) to Mercury Asset Management V.I. Funds, Inc., at 800
Scudders Mill Road, Plainsboro, New Jersey 08536, attention: Philip L.
Kirstein; and

(b) to the Insurance Company, at_______________________________
________________________________________________________________________,
attention: _____________________________________________________________.

9. Miscellaneous.

(a) Successors and Assigns. This Agreement shall be binding
upon the parties hereto and their transferees, successors and assigns.
The benefits of and the right to enforce this Agreement shall accrue to
the parties and their transferees, successors and assigns.

(b) Assignment. Neither this Agreement nor any of the rights,
obligations or liabilities of either party hereto shall be assigned
without the written consent of the other party.

(c) Intended Beneficiaries. Nothing in this Agreement shall be
construed to give any person or entity other than the parties hereto any
legal or equitable claim, right or remedy. Rather, this Agreement is
intended to be for the sole and exclusive benefit of the parties hereto.

(d) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
shall together constitute one and the same instrument.

(e) Applicable Law. This Agreement shall be interpreted,
construed, and enforced in accordance with the laws of the State of New
York, without reference to the conflict of law principles thereof.

-3-
<PAGE> 8

(f) Severability. If any portion of this Agreement shall be
found to be invalid or unenforceable by a court of tribunal or regulatory
agency of competent jurisdiction, the remainder shall not be affected
thereby, but shall have the same force and effect as if the invalid or
unenforceable portion had not been inserted.

-4-
<PAGE> 9

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

MERCURY ASSET MANAGEMENT V.I.
FUNDS, INC.

By:
-------------------------------------
Name:
Title:

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

By:
-------------------------------------
Name:
Title:

-5-
<PAGE> 10

Exhibit A

Individual Series of MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.

MERCURY V.I. U.S. LARGE CAP FUND
MERCURY V.I. PAN-EUROPEAN GROWTH FUND

-6-

<PAGE> 1
EXHIBIT 15(a)

PLAN PURSUANT TO RULE 18f-3 UNDER THE INVESTMENT COMPANY ACT

The mutual funds operating pursuant to this Plan (individually a "Fund"
and, collectively, the "Funds") offer Class A Shares and Class B Shares as
follows:

Distribution Fees

Class B Shares bear the expenses of the ongoing distribution fees.

Transfer Agency Expenses

Each Class shall bear any incremental transfer agency cost applicable to
the particular Class.

Voting Rights

Class B has exclusive voting rights on any matter submitted to
shareholders that relates solely to its ongoing distribution fees. Each Class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one Class differ from the interests of any other Class.

Dividends

Dividends paid on each Class will be calculated in the same manner at the
same time and will differ only to the extent that any distribution fee and any
incremental transfer agency cost relates to a particular Class.

Conversion Features

Holders of Class A and Class B Shares will have no conversion features.

Exchange Privileges

Holders of Class A Shares and Class B Shares shall have such exchange
privileges as set forth in each Fund's current prospectus and statement of
additional information, and in the separate current prospectus and statement of
additional information for the contracts that are funded by a Fund. Exchange
privileges may vary among Classes and among holders of a Class.

<PAGE> 2

Other Rights and Obligations

Except as otherwise described above, in all respects, each Class shall
have the same rights and obligations as each other Class.

<PAGE> 1
EXHIBIT 15(b)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose name
appears below hereby nominates, constitutes and appoints Jeffrey M. Peek, Terry
K. Glenn, Stephen M.M. Miller and Donald C. Burke (with full power to each of
them to act alone) his or her true and lawful attorney-in-fact and agent, for
him or her and on his or her behalf and in his or her place and stead in any and
all capacities, to make, execute and sign all amendments and supplements to the
Registration Statement on Form N-1A under the Securities Act of 1933 and the
Investment Company Act of 1940 of MERCURY ASSET MANAGEMENT V.I. FUNDS, INC. (the
"Corporation"), and to file the same with the Securities and Exchange
Commission, and any other regulatory authority having jurisdiction over the
offer and sale of shares of common stock, par value $0.0001 per share, of the
Corporation, and any and all exhibits and other documents requisite in
connection therewith, granting unto said attorneys and each of them, full power
and authority to perform each and every act and thing requisite and necessary to
be done in and about the premises as fully to all intents and purposes as each
of the undersigned himself or herself might or could do.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands this
15th day of April, 1999.

/s/ Jeffrey M. Peek
- ----------------------------------
Jeffrey M. Peek, Director

/s/ Terry K. Glenn
- ----------------------------------
Terry K. Glenn, Director

/s/ David O. Beim
- ----------------------------------
David O. Beim, Director

/s/ James T. Flynn
- ----------------------------------
James T. Flynn, Director

/s/ W. Carl Kester
- ----------------------------------
W. Carl Kester, Director

/s/ Karen P. Robards
- ----------------------------------
Karen P. Robards, Director

/s/ Donald C. Burke
- ----------------------------------
Donald C. Burke, Treasurer