Exhibit 17(m)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
OF MERCURY V.I. FUNDS, INC.
ANNUAL REPORT
DECEMBER 31, 2002
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Annual Report -- December 31, 2002
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
The Fund invests primarily in a diversified portfolio of equity securities of
large cap companies that Fund management selects from among those included in
the Xxxxxxx 1000 Growth Index. Our investment process attempts to add value
through both security selection and portfolio construction. The Fund's security
selection involves the use of quantitative selection criteria, including
earnings momentum, earnings surprise and valuation. These criteria are input
into a proprietary quantitative model and are subject to selective fundamental
overrides. Portfolio construction consists of an optimization process with risk
management controlling style, capitalization, sector and individual security
selection.
FISCAL YEAR IN REVIEW
For the 12-month period ended December 31, 2002, the Fund's Class A Shares had a
total return of -23.39%. On a relative basis, the Fund was ahead of its
benchmark, the Xxxxxxx 1000 Growth Index, which returned -27.88% for the same
period. The Fund's relative outperformance was primarily the result of stock
selection, particularly in consumer discretionary, consumer staples, financials,
health care and industrials.
2002 turned out to be an erratic year for the economy as its fits and starts
confused investors. Our belief is that the resilient U.S. consumer, supported by
modest job growth and real wage gains, is likely to support -- but perhaps not
lead -- the U.S. economy. As such, we increased our relative weightings in
health care and materials, and reduced our relative weightings in industrials
and information technology. Our largest purchases included Xxxxxx Xxx, Merck &
Co., Inc., Xxxxxxx's Stores and XXXXXXXX Xxxxxxxxxxxx, while our largest sales
included Capital One Financial Corporation, Intel Corporation, Xxxxxx Xxxxxx
Companies Inc. and The TJX Companies. We continue to concentrate on sectors and
stocks with near-term earnings deliverability and reasonable valuations. As a
result, we are above benchmark weights in consumer discretionary and health care
and below benchmark weights in information technology and financials. We remain
tilted toward the lower end of the permissible capitalization range,
anticipating continued outperformance of mid and large cap securities relative
to mega cap securities.
MARKET OUTLOOK
We believe that after a third consecutive annual decline in equity markets,
equity investors could experience positive returns in 2003. With the end of the
recession, a decline in interest rates, and a nice improvement in profitability
supported by stunning productivity improvement, 2002 could have been a good year
for financial markets. However, issues surrounding economic uncertainty,
corporate governance and geopolitics (including Iraq) caused investors to sell
stocks again as the equity market decline surpassed that of the 1970s in both
duration and magnitude. Only the 1930s decline during the Great Depression was
worse. After three years of decline, stocks should benefit from stimulative
fiscal and monetary policy and somewhat more reasonable valuations, especially
when compared to cash and Treasury bonds. This same stimulative activity is
likely to cause a backup in interest rates in the second half of the year at
both the short and long ends of the interest rate curve. In the early months of
2003, the significant uncertainty surrounding Iraq is likely to be
resolved -- we hope -- in a positive way.
We believe that October 2002 marked the low for equity prices for this cycle.
Higher equity prices are supported by an accommodative monetary policy, low
inflation, improving profitability, improved valuation levels, and a stimulative
fiscal policy. However, the magnitude of any rise is likely to be limited by
high debt levels, absolute valuation levels, and sub-par economic and earnings
growth. Our belief is that interest rates have seen their trough and will
experience modest upward pressure during the second half of 2003. While
volatility is likely to continue, we believe that over the next five to ten
years, we will experience an "8-5-2" world: 8% return for stocks, 5% for bonds,
and 2% for
1
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Annual Report -- December 31, 2002
--------------------------------------------------------------------------------
cash. If this forecast is realized, then equity market averages will not
experience new highs until the next decade. Inside the markets, we expect that
the phrase "a stock picker's market" will be more true than usual. Again, it is
likely that intelligent trading and tactical asset allocation will be rewarded.
IN CONCLUSION
We appreciate your investment in Xxxxxxx Xxxxx Large Cap Growth V.I. Fund, and
we look forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Xxxxx X. Xxxxx
Xxxxx X. Xxxxx
Director and President
/s/ Xxxxxx X. Xxxx, Xx.
Xxxxxx X. Xxxx, Xx.
Senior Vice President and Portfolio Manager
January 17, 2003
2
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Performance Information as of December 31, 2002
--------------------------------------------------------------------------------
TOTAL RETURN BASED ON A $10,000 INVESTMENT
--------------------------------------------------------------------------------
[LARGE CAP GROWTH V.I. FUND]
XXXXXXX XXXXX LARGE CAP GROWTH
V.I. FUND+--CLASS A SHARES* XXXXXXX 1000 GROWTH INDEX++
------------------------------ ---------------------------
4/30/99** 10000.00 10000.00
12/99 12094.00 12504.00
12/00 10165.00 9700.00
12/01 9218.00 7719.00
12/02 7062.00 5567.00
* Assuming transaction costs and other operating expenses, including advisory
fees.
** Commencement of operations.
+ The Fund invests primarily in a diversified portfolio of equity securities of
large cap companies located in the United States that Fund management believes
are undervalued or have good prospects for earnings growth.
++ This unmanaged Index measures the performance of those Xxxxxxx 1000 companies
with higher price-to-book ratios and higher forecasted growth values.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN*
----------------------------------------------------------------------
CLASS A SHARES % RETURN
----------------------------------------------------------------------
One Year Ended 12/31/02 -23.39%
----------------------------------------------------------------------
Inception (4/30/99) to 12/31/02 - 9.04%
----------------------------------------------------------------------
--------------------------------------------------------------------------------
RECENT PERFORMANCE RESULTS
-------------------------------------------------------------------------------------------------------------
6-MONTH 12-MONTH SINCE INCEPTION
AS OF DECEMBER 31, 2002 TOTAL RETURN TOTAL RETURN TOTAL RETURN
-------------------------------------------------------------------------------------------------------------
Class A Shares* -12.42% -23.39% -29.38%
-------------------------------------------------------------------------------------------------------------
Xxxxxxx 1000 Growth Index** - 8.97% -27.88% -44.33%
-------------------------------------------------------------------------------------------------------------
* Total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. Insurance-related
fees and expenses are not reflected in these returns. The Fund commenced
operations on April 30, 1999.
** This unmanaged Index measures the performance of those Xxxxxxx 1000 companies
with higher price-to-book ratios and higher forecasted growth values.
Past results shown should not be considered a representation of future
performance.
3
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Schedule of Investments as of December 31, 2002
--------------------------------------------------------------------------------
SHARES PERCENT OF
INDUSTRY* HELD COMMON STOCKS VALUE NET ASSETS
--------------------------------------------------------------------------------------------------------------------------
BANKS 9,500 Commerce Bancorp, Inc. $ 410,305 0.9%
16,100 New York Community Bancorp, Inc. 464,968 1.0
----------- -----
875,273 1.9
--------------------------------------------------------------------------------------------------------------------------
BEVERAGES 24,100 Coca-Cola Enterprises Inc. 523,452 1.2
15,700 +Constellation Brands, Inc. (Class A) 372,247 0.8
----------- -----
895,699 2.0
--------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 13,100 +Xxxxxxx River Laboratories International, Inc. 504,088 1.1
--------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES 11,900 +Apollo Group, Inc. (Class A) 523,600 1.2
& SUPPLIES 11,200 +Career Education Corporation 448,000 1.0
24,000 +CheckFree Corp 382,320 0.8
10,400 Deluxe Corporation 437,840 1.0
9,800 +Education Management Corporation 367,990 0.8
13,900 H & R Block, Inc. 558,780 1.2
----------- -----
2,718,530 6.0
--------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS 9,000 +Cisco Systems, Inc. 117,810 0.3
EQUIPMENT 20,300 +XXXXXXXX Xxxxxxxxxxxx 737,499 1.6
----------- -----
855,309 1.9
--------------------------------------------------------------------------------------------------------------------------
COMPUTERS & 40,800 +Dell Computer Corporation 1,091,808 2.4
PERIPHERALS 8,800 +Lexmark International Group, Inc. (Class A) 532,400 1.2
----------- -----
1,624,208 3.6
--------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & 9,800 +Xxxxxx Engineering Group Inc. 348,880 0.8
ENGINEERING
--------------------------------------------------------------------------------------------------------------------------
CONTAINERS & 9,700 Ball Corporation 496,543 1.1
PACKAGING
--------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS 12,200 Xxxxxx Xxx 784,826 1.7
9,200 Freddie Mac 543,260 1.2
----------- -----
1,328,086 2.9
--------------------------------------------------------------------------------------------------------------------------
ELECTRONIC 12,500 +Xxxxxx Scientific International Inc. 376,000 0.8
EQUIPMENT & INSTRUMENTS 12,300 +Xxxxxx Micro Inc. (Class A) 151,905 0.4
----------- -----
527,905 1.2
--------------------------------------------------------------------------------------------------------------------------
FOOD & DRUG 11,600 +Performance Food Group Company 393,704 0.9
RETAILING 9,800 +Whole Foods Market, Inc. 516,558 1.1
5,300 Xxxx-Xxxxx Stores, Inc. 80,984 0.2
----------- -----
991,246 2.2
--------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS 13,600 Xxxxxxx Company 466,072 1.1
24,500 Xxxx Xxx Corporation 551,495 1.2
----------- -----
1,017,567 2.3
--------------------------------------------------------------------------------------------------------------------------
HEALTH CARE 12,800 DENTSPLY International Inc. 475,008 1.0
EQUIPMENT & SUPPLIES 9,200 Diagnostic Products Corporation 355,304 0.8
18,000 +Guidant Corporation 555,300 1.2
8,100 Stryker Corporation 543,672 1.2
10,600 +Varian Medical Systems, Inc. 525,760 1.2
----------- -----
2,455,044 5.4
--------------------------------------------------------------------------------------------------------------------------
HEALTH CARE 12,900 +Accredo Health, Incorporated 454,725 1.0
PROVIDERS & SERVICES 19,400 +AdvancePCS 429,904 0.9
29,200 +Caremark Rx, Inc. 474,500 1.0
19,800 +DaVita, Inc. 488,466 1.1
9,100 +Express Scripts, Inc. (Class A) 437,528 1.0
8,700 +Xxxxx Xxxxxx, Inc. 391,500 0.9
14,800 +Lincare Holdings Inc. 465,608 1.0
19,600 Omnicare, Inc. 467,068 1.0
14,300 +Oxford Health Plans, Inc. 521,235 1.2
7,900 UnitedHealth Group Incorporated 659,650 1.5
10,700 +Universal Health Services, Inc. (Class B) 482,570 1.1
8,500 +WellPoint Health Networks Inc. 604,860 1.3
----------- -----
5,877,614 13.0
--------------------------------------------------------------------------------------------------------------------------
4
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Schedule of Investments as of December 31, 2002 (Continued)
--------------------------------------------------------------------------------
SHARES PERCENT OF
INDUSTRY* HELD COMMON STOCKS VALUE NET ASSETS
--------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS 17,400 +GTECH Holdings Corporation $ 484,764 1.1%
& LEISURE 12,700 +Xxxxxx'x Entertainment, Inc. 502,920 1.1
7,100 +International Game Technology 539,032 1.2
14,300 +MGM Mirage Inc. 471,471 1.0
14,900 +Mandalay Resort Group 456,089 1.0
----------- -----
2,454,276 5.4
--------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES 6,200 Lennar Corporation 319,920 0.7
3,800 +Mohawk Industries, Inc. 216,410 0.5
1,500 +NVR, Inc. 488,250 1.1
14,700 Xxxxxx Rubbermaid Inc. 445,851 1.0
----------- -----
1,470,431 3.3
--------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS 12,900 Church & Xxxxxx Co., Inc. 392,547 0.9
8,900 The Clorox Company 367,125 0.8
9,800 The Dial Corporation 199,626 0.4
13,200 The Procter & Xxxxxx Company 1,134,408 2.5
----------- -----
2,093,706 4.6
--------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL 70,500 General Electric Company 1,716,675 3.8
CONGLOMERATES
--------------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & 8,300 Polaris Industries, Inc. 486,380 1.1
PRODUCTS
--------------------------------------------------------------------------------------------------------------------------
MACHINERY 18,100 +AGCO Corporation 400,010 0.9
--------------------------------------------------------------------------------------------------------------------------
METALS & MINING 14,600 United States Steel Corporation 191,552 0.4
--------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL 11,400 Wal-Mart Stores, Inc. 575,814 1.3
--------------------------------------------------------------------------------------------------------------------------
OIL & GAS 20,600 Ocean Energy Inc. 411,382 0.9
--------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 6,400 +Forest Laboratories, Inc. 628,608 1.4
17,300 Xxxxxxx & Xxxxxxx 929,183 2.1
22,000 Merck & Co., Inc. 1,245,420 2.8
37,400 Pfizer Inc. 1,143,318 2.5
16,800 +Xxxxxx Pharmaceuticals, Inc. 474,936 1.0
----------- -----
4,421,465 9.8
--------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & 16,900 Intel Corporation 262,964 0.6
PRODUCTS
--------------------------------------------------------------------------------------------------------------------------
SOFTWARE 8,100 +Electronic Arts Inc. 402,651 0.9
8,100 Fair, Xxxxx and Company, Incorporated 345,870 0.8
10,300 +Intuit Inc. 483,379 1.1
30,700 +Microsoft Corporation 1,587,497 3.5
12,700 +Symantec Corporation 514,350 1.1
----------- -----
3,333,747 7.4
--------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL 26,700 +AutoNation, Inc. 335,352 0.7
7,300 +AutoZone, Inc. 515,745 1.1
9,600 +CDW Computer Centers, Inc. 420,960 0.9
24,600 +Xxxxx's FAS, Inc. 465,186 1.0
17,400 Lowe's Companies, Inc. 652,500 1.5
15,300 +Xxxxxxx's Stores 478,890 1.1
28,200 +PETsMART, Inc. 483,066 1.1
24,900 Pier 1 Imports, Inc. 471,357 1.0
11,800 Xxxx Stores, Inc. 499,848 1.1
21,700 +Staples, Inc. 396,459 0.9
16,400 +Xxxxxxxx-Sonoma, Inc. 445,260 1.0
----------- -----
5,164,623 11.4
--------------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & 15,300 +Coach, Inc. 503,676 1.1
LUXURY GOODS 13,400 +Xxxxx Apparel Group, Inc. 474,896 1.1
----------- -----
978,572 2.2
--------------------------------------------------------------------------------------------------------------------------
5
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Schedule of Investments as of December 31, 2002 (Concluded)
--------------------------------------------------------------------------------
SHARES PERCENT OF
INDUSTRY* HELD COMMON STOCKS VALUE NET ASSETS
--------------------------------------------------------------------------------------------------------------------------
WIRELESS 24,200 +Nextel Communications, Inc. (Class A) $ 275,396 0.6%
TELECOMMUNICATIONS 107,300 +Sprint Corp. (PCS Group) 469,974 1.1
----------- -----
SERVICES 745,370 1.7
--------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST -- $45,972,015)............ 45,222,959 100.2
--------------------------------------------------------------------------------------------------------------------------
PARTNERSHIP
INTEREST SHORT-TERM SECURITIES
--------------------------------------------------------------------------------------------------------------------------
$122,374 Xxxxxxx Xxxxx Liquidity Series, LLC Cash Sweep Series
II** $ 122,374 0.3
--------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES (COST -- $122,374)....... 122,374 0.3
--------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST -- $46,094,389).............. 45,345,333 100.5
LIABILITIES IN EXCESS OF OTHER ASSETS................ (245,582) (0.5)
----------- -----
NET ASSETS........................................... $45,099,751 100.0%
=========== =====
--------------------------------------------------------------------------------------------------------------------------
+ Non-income producing security.
* For Fund compliance purposes, "Industry" means any one or more of the industry
sub-classifications used by one or more widely recognized market indexes or
ratings group indexes, and/or as defined by Fund management. This definition
may not apply for purposes of this report, which may combine such industry
sub-classifications for reporting ease. These industry classifications are
unaudited.
** Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
-------------------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY NET COST INCOME
-------------------------------------------------------------------------------------------------
Xxxxxxx Xxxxx Liquidity Series, LLC Cash Sweep Series II $122,374 $122,374 $427
-------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
6
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Statement of Assets and Liabilities as of December 31, 2002
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost -- $46,094,389)...... $ 45,345,333
Cash........................................................ 17,797
Receivables:
Securities sold........................................... $ 1,458,080
Dividends................................................. 24,063
Capital shares sold....................................... 377
Interest.................................................. 227 1,482,747
------------
Prepaid expenses............................................ 1,553
------------
Total assets.............................................. 46,847,430
------------
LIABILITIES:
Payables:
Securities purchased...................................... 1,559,913
Capital shares redeemed................................... 132,836
Investment adviser........................................ 26,027 1,718,776
------------
Accrued expenses............................................ 28,903
------------
Total liabilities......................................... 1,747,679
------------
NET ASSETS:
Net assets.................................................. $ 45,099,751
============
NET ASSETS CONSIST OF:
Class A Shares of Common Stock, $.0001 par value,
200,000,000 shares authorized+............................ $ 653
Paid-in capital in excess of par............................ 67,857,605
Accumulated realized capital losses on investments -- net... $(22,009,451)
Unrealized depreciation on investments -- net............... (749,056)
------------
Total accumulated losses -- net............................. (22,758,507)
------------
NET ASSETS.................................................. $ 45,099,751
============
NET ASSET VALUE:
Class A -- Based on net assets of $45,099,751 and 6,525,732
shares outstanding........................................ $ 6.91
============
+ The Fund is also authorized to issue 200,000,000 Class B Shares.
See Notes to Financial Statements.
7
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Statement of Operations for the Year Ended December 31, 2002
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................... $ 283,024
Interest.................................................... 4,441
------------
Total income................................................ 287,465
------------
EXPENSES:
Investment advisory fees.................................... $299,330
Professional fees........................................... 92,342
Printing and shareholder reports............................ 43,957
Accounting services......................................... 35,062
Custodian fees.............................................. 30,643
Directors' fees and expenses................................ 27,240
Transfer agent fees......................................... 4,017
Registration fees........................................... 1,150
Pricing fees................................................ 835
Other....................................................... 8,078
--------
Total expenses before reimbursement......................... 542,654
Reimbursement of expenses................................... (161)
--------
Total expenses after reimbursement.......................... 542,493
------------
Investment loss -- net...................................... (255,028)
------------
REALIZED & UNREALIZED LOSS ON INVESTMENTS -- NET:
Realized loss from investments -- net....................... (7,568,199)
Change in unrealized appreciation/depreciation on
investments -- net........................................ (4,683,967)
------------
Total realized and unrealized loss on investments -- net.... (12,252,166)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(12,507,194)
============
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Statements of Changes in Net Assets as of December 31, 2002
--------------------------------------------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
INCREASE (DECREASE) IN NET ASSETS: 2002 2001
--------------------------------------------------------------------------------------------
OPERATIONS:
Investment loss -- net...................................... $ (255,028) $ (138,960)
Realized loss on investments -- net......................... (7,568,199) (13,241,519)
Change in unrealized appreciation/depreciation on
investments -- net........................................ (4,683,967) 8,382,143
------------ ------------
Net decrease in net assets resulting from operations........ (12,507,194) (4,998,336)
------------ ------------
DIVIDENDS TO SHAREHOLDERS:
Investment income -- net:
Class A................................................... -- (12,146)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders.............................................. -- (12,146)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Increase in net assets derived from net capital share
transactions.............................................. 9,739,419 1,573,335
------------ ------------
NET ASSETS:
Total decrease in net assets................................ (2,767,775) (3,437,147)
Beginning of year........................................... 47,867,526 51,304,673
------------ ------------
End of year................................................. $ 45,099,751 $ 47,867,526
============ ============
See Notes to Financial Statements.
8
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Financial Highlights
--------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE
BEEN DERIVED FROM INFORMATION PROVIDED IN THE CLASS A
FINANCIAL STATEMENTS. ---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD
------------------------------------ APRIL 30, 1999+ TO
INCREASE (DECREASE) IN NET ASSET VALUE: 2002 2001 2000 DECEMBER 31, 1999
-------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 9.02 $ 9.95 $ 12.03 $ 10.00
-------- -------- -------- --------
Investment loss -- net...................................... (.04)++++ (.03)++++ --++ --++
Realized and unrealized gain (loss) on investments -- net... (2.07) (.90) (1.93) 2.10
-------- -------- -------- --------
Total from investment operations............................ (2.11) (.93) (1.93) 2.10
-------- -------- -------- --------
Less dividends and distributions:
Investment income -- net.................................. -- --++ -- --
In excess of investment income -- net..................... -- -- --++ (.04)
In excess of realized gain on investments -- net.......... -- -- (.15) (.03)
-------- -------- -------- --------
Total dividends and distributions........................... -- --++ (.15) (.07)
-------- -------- -------- --------
Net asset value, end of period.............................. $ 6.91 $ 9.02 $ 9.95 $ 12.03
======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.......................... (23.39%) (9.32%) (15.95%) 20.94%++
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement.............................. 1.18% 1.15% 1.21% 1.25%*
======== ======== ======== ========
Expenses.................................................... 1.18% 1.15% 1.34% 2.83%*
======== ======== ======== ========
Investment loss -- net...................................... (.55%) (.29%) (.02%) (.07%)*
======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).................... $ 45,100 $ 47,868 $ 51,305 $ 24,014
======== ======== ======== ========
Portfolio turnover.......................................... 133.57% 172.49% 75.08% 37.25%
======== ======== ======== ========
* Annualized.
** Total investment returns exclude insurance-related fees and expenses. If
applicable, the Fund's Investment Adviser waived a portion of its management
fee. Without such waiver, the Fund's performance would have been lower.
+ Commencement of operations.
++ Amount is less than $.01 per share.
++ Aggregate total investment return.
++++ Based on average shares outstanding.
See Notes to Financial Statements.
9
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Notes to Financial Statements
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Xxxxxxx Xxxxx Large Cap Growth V.I. Fund (the "Fund") (formerly Xxxxxxx Xxxxx
Large Cap Growth Focus Fund) is a series of Mercury V.I. Funds, Inc. (the
"Corporation"). The Fund is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management investment company. The Fund's
financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America, which may require the use of
management accruals and estimates. The Fund offers two classes of shares. Class
A and Class B Shares have equal voting, dividend, liquidation and other rights,
except that only shares of the respective classes are entitled to vote on
matters concerning only that class and Class B Shares bear certain expenses
related to the distribution of such shares. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments -- Portfolio securities that are traded on stock
exchanges are valued at the last sale price 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. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. 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
that are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair market value, as
determined in good faith by or under the direction of the Fund's Board of
Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
- Financial futures contracts -- The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
- Options -- The Fund is authorized to purchase and write call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
10
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
- Forward foreign exchange contracts -- The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or Fund positions. The contract is marked-to-market daily and the
change in market value is recorded by the Fund as an unrealized gain or loss.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value at the time it was opened and the value at the
time it was closed.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(d) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(e) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax difference of $255,028 has been
reclassified between paid-in capital in excess of par and accumulated net
investment loss. This reclassification has no effect on net assets or net asset
value per share.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"), an indirect, wholly-owned subsidiary of Xxxxxxx Xxxxx
& Co., Inc. ("ML & Co.").
FAM is responsible for the management of the Fund's investments and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .65% of the average daily value of the Fund's net assets. For
the year ended December 31, 2002, FAM reimbursed the Fund in the amount of $161.
FAM has agreed to limit the annual operating expenses of the Fund to 1.25% and
1.40% of the Fund's average net assets with respect to the Class A Shares and
Class B Shares, respectively.
For the year ended December 31, 2002, the Fund reimbursed FAM $2,799 for certain
accounting services.
Certain officers and/or directors of the Corporation are officers and/or
directors of FAM, PSI, and/or ML & Co.
11
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 2002 were $71,089,686 and $61,475,266, respectively.
Net realized losses for the year ended December 31, 2002 and net unrealized
losses as of December 31, 2002 were as follows:
REALIZED UNREALIZED
LOSSES LOSSES
---------------------------------------------------------------------------------------
Long-term investments....................................... $(7,568,139) $(749,056)
Short-term investments...................................... (60) --
----------- ---------
Total investments........................................... $(7,568,199) $(749,056)
=========== =========
As of December 31, 2002, net unrealized depreciation for Federal income tax
purposes aggregated $1,727,654, of which $2,407,996 related to appreciated
securities and $4,135,650 related to depreciated securities. At December 31,
2002, the aggregate cost of investments for Federal income tax purposes was
$47,072,987.
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares were as follows:
DOLLAR
CLASS A SHARES FOR THE YEAR ENDED DECEMBER 31, 2002 SHARES AMOUNT
---------------------------------------------------------------------------------------
Shares sold................................................. 2,237,991 $17,777,989
Shares redeemed............................................. (1,018,291) (8,038,570)
---------- -----------
Net increase................................................ 1,219,700 $ 9,739,419
========== ===========
DOLLAR
CLASS A SHARES FOR THE YEAR ENDED DECEMBER 31, 2001 SHARES AMOUNT
---------------------------------------------------------------------------------------
Shares sold................................................. 1,248,220 $11,493,873
Shares issued to shareholders in reinvestment of
dividends................................................. 1,326 12,147
---------- -----------
Total issued................................................ 1,249,546 11,506,020
Shares redeemed............................................. (1,099,442) (9,932,685)
---------- -----------
Net increase................................................ 150,104 $ 1,573,335
========== ===========
5. SHORT-TERM BORROWINGS:
The Fund, along with certain other funds managed by FAM and its affiliates, is a
party to a credit agreement with Bank One, N.A. and certain other lenders.
Effective November 29, 2002, in conjunction with the renewal for one year at the
same terms, the total commitment was reduced from $1,000,000,000 to
$500,000,000. The Fund may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The Fund may
borrow up to the maximum amount allowable under the Fund's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Fund pays a commitment fee of .09% per
annum based on the Fund's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50% or a base
rate as determined by Bank One, N.A. The Fund did not borrow under the credit
agreement during the year ended December 31, 2002.
12
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Notes to Financial Statements (Concluded)
--------------------------------------------------------------------------------
6. DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the fiscal years ended December
31, 2002 and December 31, 2001 was as follows:
12/31/2002 12/31/2001
-------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income........................................... $ -- $12,146
------- -------
Total taxable distributions................................. $ -- $12,146
======= =======
As of December 31, 2002, the components of accumulated losses on a tax basis
were as follows:
--------------------------------------------------------------------------
Undistributed ordinary income -- net........................ $ --
Undistributed long-term capital gains -- net................ --
------------
Total undistributed earnings -- net......................... --
Capital loss carryforward................................... (19,848,993)*
Unrealized losses -- net.................................... (2,909,514)**
------------
Total accumulated losses -- net............................. $(22,758,507)
============
--------------------------------------------------------------------------
* On December 31, 2002, the Fund had a net capital loss carryforward of
$19,848,993, of which $11,984,238 expires in 2009 and $7,864,755 expires in
2010. This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the tax deferral of losses on wash sales and the
deferral of post-October capital losses for tax purposes.
13
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
Independent Auditors' Report
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND OF
MERCURY V.I. FUNDS, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Xxxxxxx Xxxxx Large Cap Growth V.I. Fund
(formerly Xxxxxxx Xxxxx Large Cap Growth Focus Fund) of Mercury V.I. Funds, Inc.
as of December 31, 2002, the related statements of operations for the year then
ended and changes in net assets for each of the years in the two-year period
then ended and the financial highlights for each of the periods presented. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at December 31, 2002 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Xxxxxxx Xxxxx Large
Cap Growth V.I. Fund of Mercury V.I. Funds, Inc. as of December 31, 2002, the
results of its operations, the changes in its net assets and the financial
highlights for the respectively stated periods in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 20, 2003
14
--------------------------------------------------------------------------------
XXXXXXX XXXXX LARGE CAP GROWTH V.I. FUND
OFFICERS AND DIRECTORS
--------------------------------------------------------------------------------
INTERESTED DIRECTOR
----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
POSITION(S) HELD PRINCIPAL OCCUPATION(S) OVERSEEN
NAME, ADDRESS & AGE WITH FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS BY DIRECTOR
----------------------------------------------------------------------------------------------------------------------------------
Xxxxx X. Xxxxx* President and 1999 to present Chairman, Americas Region 117 Funds
P.O. Box 9011 Director since 2001 and Executive 162 Portfolios
Princeton, New Jersey 08543-9011 Vice President since 1983
Age: 62 of Fund Asset Management
("FAM") and Xxxxxxx Xxxxx
Investment Managers, L.P.
("MLIM"); President of
Xxxxxxx Xxxxx Mutual Funds
since 1999; President of
FAM Distributors, Inc.
("FAMD") since 1986 and
Director thereof since
1991; Executive Vice
President and Director of
Princeton Services, Inc.
("Princeton Services")
since 1993; President of
Princeton Administrators,
L.P. since 1988; Director
of Financial Data Services,
Inc. since 1985.
-------------------------------- -------------------
OTHER DIRECTORSHIPS
NAME, ADDRESS & AGE HELD BY DIRECTOR
-------------------------------- -------------------
Xxxxx X. Xxxxx* None
P.O. Box 9011
Princeton, New Jersey 08543-9011
Age: 62
--------------------------------------------------------------------------------
* Xx. Xxxxx is a director, trustee or member of an advisory board of certain
other Investment Companies for which FAM or MLIM acts as investment adviser.
Xx. Xxxxx is an "interested person," as described in the Investment Company
Act, of each Fund based on his positions as Chairman (Americas Region) and
Executive Vice President of FAM and MLIM; President of FAMD; Executive Vice
President of Princeton Services; and President of Princeton Administrators,
L.P. The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31, of the year which they
turn 72. As Fund President, Xx. Xxxxx serves at the pleasure of the Board of
Directors.
--------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
----------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
POSITION(S) HELD PRINCIPAL OCCUPATION(S) OVERSEEN
NAME, ADDRESS & AGE WITH FUND LENGTH OF TIME SERVED* DURING PAST 5 YEARS BY DIRECTOR
----------------------------------------------------------------------------------------------------------------------
Xxxxx X. Xxxx Director 1999 to present Professor of Finance 7 Funds
P.O. Box 9095 and Economics at the 13 Portfolios
Princeton, New Jersey 08543-9095 Columbia University
Age: 62 Graduate School of
Business since 1991;
Trustee of Outward
Bound U.S.A. and of
Xxxxxxxx Exeter
Academy; Chairman of
Wave Hill, Inc. since
1980.
----------------------------------------------------------------------------------------------------------------------
Xxxxx X. Xxxxx Director 1999 to present Retired. 7 Funds
P.O. Box 9095 13 Portfolios
Princeton, New Jersey 08543-9095
Age: 63
----------------------------------------------------------------------------------------------------------------------
-------------------------------- ---------------------
OTHER DIRECTORSHIPS
NAME, ADDRESS & AGE HELD BY DIRECTOR
-------------------------------- ---------------------
Xxxxx X. Xxxx None
P.O. Box 9095
Princeton, New Jersey 08543-9095
Age: 62
-----------------------------------------------------------------------------
Xxxxx X. Xxxxx None
P.O. Box 9095
Princeton, New Jersey 08543-9095
Age: 63
---------------------------------------------------------------------------------------------------
15
--------------------------------------------------------------------------------
INDEPENDENT DIRECTORS (CONCLUDED)
----------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND COMPLEX
POSITION(S) HELD PRINCIPAL OCCUPATION(S) OVERSEEN
NAME, ADDRESS & AGE WITH FUND LENGTH OF TIME SERVED* DURING PAST 5 YEARS BY DIRECTOR
----------------------------------------------------------------------------------------------------------------------
Xxxx Xxxxxxx Director 2002 to present General Partner of 7 Funds
P.O. Box 9095 Xxxxxxx, Xxxxxxx van 13 Portfolios
Princeton, New Jersey 08543-9095 Amerongen (investment
Age: 71 banking firm) since
1984.
----------------------------------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxxx Director 2002 to present Managing Partner of 7 Funds
P.O. Box 9095 Xxxxxxx Resources 13 Portfolios
Princeton, New Jersey 08543-9095 Company (private
Age: 71 investment company) and
associated with that
Firm and its
predecessors since
1953.
----------------------------------------------------------------------------------------------------------------------
X. Xxxx Xxxxxx Director 1999 to present Industrial Bank of 7 Funds
P.O. Box 9095 Japan, Professor of 13 Portfolios
Princeton, New Jersey 08543-9095 Finance, Senior
Age: 51 Associate Xxxx and
Chairman of the MBA
Program of Harvard
University Graduate
School of Business
Administration since
1999; Xxxxx X.
Xxxxxxxxx, Professor of
Business Administration
of Harvard University
Graduate School of
Business from 1997 to
1999.
----------------------------------------------------------------------------------------------------------------------
Xxxxx X. Xxxxxxx Director 1999 to present President of Xxxxxxx & 7 Funds
P.O. Box 9095 Company, a financial 13 Portfolios
Princeton, New Jersey 08543-9095 advisory firm providing
Age: 52 services to companies
in the health care
industry since 1987;
Director of Enable
Medical Corporation
since 1996; Director of
AtriCure, Inc. since
2000; Director of
CineMuse, Inc. from
1996 to 2000;
Co-Founder and Director
of The Xxxxx Center for
Learning and
Development, a non-
profit educational
organization, since
1987.
-------------------------------- ---------------------
OTHER DIRECTORSHIPS
NAME, ADDRESS & AGE HELD BY DIRECTOR
-------------------------------- ---------------------
Xxxx Xxxxxxx None
P.O. Box 9095
Princeton, New Jersey 08543-9095
Age: 71
----------------------------------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxxx Thoratec Laboratories
P.O. Box 9095 Corporation
Princeton, New Jersey 08543-9095
Age: 71
----------------------------------------------------------------------------------------------------------------------
X. Xxxx Xxxxxx Adept Inc.;
P.O. Box 9095 Security Leasing
Princeton, New Jersey 08543-9095 Partners
Age: 51
----------------------------------------------------------------------------------------------------------------------
Xxxxx X. Xxxxxxx None
P.O. Box 9095
Princeton, New Jersey 08543-9095
Age: 52
--------------------------------------------------------------------------------
* The Director's term is unlimited. Directors serve until their resignation,
removal or death, or until December 31, of the year which they turn 72.
--------------------------------------------------------------------------------
16
--------------------------------------------------------------------------------
FUND OFFICERS
-----------------------------------------------------------------------------
POSITION(S) HELD
NAME, ADDRESS & AGE WITH FUND LENGTH OF TIME SERVED*
-----------------------------------------------------------------------------
Xxxxxx X. Xxxxx Vice President 1999 to present
P.O. Box 9011 and Treasurer
Princeton, New Jersey 08543-9011
Age: 42
-----------------------------------------------------------------------------
Xxxxxx X. Xxxx, Xx. Senior Vice 2000 to present
P.O. Box 9011 President
Princeton, New Jersey 08543-9011
Age: 49
-----------------------------------------------------------------------------
Xxxxxxx X. Xxxxxx Secretary 2002 to present
P.O. Box 9011
Princeton, New Jersey 08543-9011
Age: 43
-------------------------------- ------------------------------------------------------------
NAME, ADDRESS & AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
-------------------------------- ------------------------------------------------------------
Xxxxxx X. Xxxxx First Vice President of FAM and MLIM since 1997 and
P.O. Box 9011 Treasurer thereof since 1999; Senior Vice President and
Princeton, New Jersey 08543-9011 Treasurer of Princeton Services since 1999; Vice President
Age: 42 of FAMD since 1999; Director of Taxation of MLIM since 1990.
-----------------------------------------------------------------------------
Xxxxxx X. Xxxx, Xx. President and Global Chief Investment Officer of MLIM and
P.O. Box 9011 member of the Executive Management Committee of ML & Co.,
Princeton, New Jersey 08543-9011 Inc. since 2001; Chief Investment Officer, Senior Vice
Age: 49 President and Co-Head of MLIM Americas from 1999 to 2001;
Chief Investment Officer of Xxxxxxxxxxx Funds, Inc. from
1987 to 1999 and Executive Vice President from 1991 to 1999.
-----------------------------------------------------------------------------
Xxxxxxx X. Xxxxxx Vice President (Legal Advisory) of MLIM since 2000;
P.O. Box 9011 Associate with Xxxxxxxxxxx & Xxxxxxxx LLP from 1997 to 2000.
Princeton, New Jersey 08543-9011
Age: 43
--------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
--------------------------------------------------------------------------------
CUSTODIAN Further information about the Fund's Directors
Brown Brothers Xxxxxxxx & Co. is available in the Fund's Statement of
00 Xxxxx Xxxxxx Additional Information, which can be obtained
Boston, MA 02109-3661 without charge by calling 0-000-XXX-XXXX.
TRANSFER AGENT
Financial Data Services, Inc.
0000 Xxxx Xxxx Xxxxx Xxxx
Xxxxxxxxxxxx, Xxxxxxx 00000-6484
000-000-0000
17
This report is authorized for distribution only to current shareholders of the
Fund. Past performance results shown in this report should not be considered a
representation of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Statements and other information herein are as dated
and are subject to change.
Xxxxxxx Xxxxx Large Cap Growth Focus Fund of
Mercury V.I. Funds, Inc.
Box 9011
Princeton, N.J.
08543-9011
[RECYCLE LOGO] Printed on post-consumer recycled paper #MERCVI1--12/02
