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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1997
REGISTRATION NO. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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MERRILL LYNCH LIFE INSURANCE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ARKANSAS
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
6312
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
91-1325756
(I.R.S. EMPLOYER IDENTIFICATION NO.)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(609) 282-1429
(ADDRESS INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------
BARRY G. SKOLNICK, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
MERRILL LYNCH LIFE INSURANCE COMPANY
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(609) 282-1429
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPY TO:
STEPHEN E. ROTH, ESQ.
KIMBERLY J. SMITH, ESQ.
SUTHERLAND, ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
Approximate date of commencement of proposed sale to the public: As soon after
the effective date of this Registration Statement as is practicable.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed
Title of each class Amount Proposed maximum
of securities to be to be maximum offering aggregate offering Amount of
registered registered price per unit price* registration fee
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<S> <C> <C> <C> <C>
Single Premium $14,500 ** $14,500 $500
Modified Guaranteed
Annuity Contracts
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</TABLE>
* Estimated solely for the purpose of determining the registration fee.
** The securities are not issued in predetermined amounts or units.
The Registrant hereby amends this Registration Statement under the Securities
Act of 1933 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 this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE> 3
PROSPECTUS
AUGUST___, 1997
RATEMAX (SM)
SINGLE PREMIUM MODIFIED GUARANTEED ANNUITY CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
Home Office: Little Rock, Arkansas 72201
Service Center: P.O. Box 44222, Jacksonville, Florida 32231-4222
4804 Deer Lake Drive East, Jacksonville, Florida 32246
Phone: (800) 535-5549
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
The contract described in this Prospectus (the "Contract") is issued by Merrill
Lynch Life Insurance Company ("Merrill Lynch Life") and is designed to provide
annuity payments in connection with retirement plans that may or may not
qualify for special federal income tax treatment under the Internal Revenue
Code. The Contract permits owners to make a single premium payment to be
accumulated at a guaranteed rate or rates of interest depending upon the
guarantee period or periods selected by the owner. Guarantee periods of three
and five years are currently available. At the end of any guarantee period,
the subaccount value may be reinvested for one or more new guarantee periods at
the interest rates then offered by Merrill Lynch Life. A WITHDRAWAL MADE PRIOR
TO THE END OF A GUARANTEE PERIOD WILL BE SUBJECT TO A MARKET VALUE ADJUSTMENT,
WHICH COULD HAVE THE EFFECT OF EITHER INCREASING OR DECREASING THE OWNER'S
ACCOUNT VALUE, AND A WITHDRAWAL CHARGE. AS A GENERAL RULE, IF INTEREST RATES
GO UP, THE MARKET VALUE ADJUSTMENT WILL OPERATE TO DECREASE SUBACCOUNT VALUE;
IF INTEREST RATES GO DOWN, THE MARKET VALUE ADJUSTMENT WILL OPERATE TO INCREASE
SUBACCOUNT VALUE.
THE PURCHASE OF THIS CONTRACT INVOLVES CERTAIN RISKS. BECAUSE IT IS A MODIFIED
GUARANTEED ANNUITY, THE CONTRACT IS SUBJECT TO A MARKET VALUE ADJUSTMENT IF,
PRIOR TO THE END OF A SELECTED GUARANTEE PERIOD, FUNDS ARE WITHDRAWN OR THE
CONTRACT IS SURRENDERED, THE CONTRACT IS ANNUITIZED, OR A DEATH BENEFIT BECOMES
PAYABLE. EXCEPT IN CONNECTION WITH PAYMENT OF A DEATH BENEFIT, A MARKET VALUE
ADJUSTMENT COULD HAVE THE EFFECT OF DECREASING THE ACCOUNT VALUE. THEREFORE,
UNDER ANY OF THE CONDITIONS DESCRIBED ABOVE, OWNERS COULD LOSE A SUBSTANTIAL
PORTION OF THE MONEY THEY HAVE INVESTED. PROSPECTIVE INVESTORS SHOULD CONSIDER
THEIR INCOME NEEDS BEFORE PURCHASING A CONTRACT.
ALL WITHDRAWALS FROM AND SURRENDERS OF A CONTRACT ARE SUBJECT TO INCOME TAX,
AND IF TAKEN BEFORE AGE 59 1/2, MAY ALSO BE SUBJECT TO A 10% FEDERAL PENALTY
TAX.
OWNERS SHOULD NOTE THAT THIS IS AN INTEGRATED ANNUITY CONTRACT FOR INTERNAL
REVENUE CODE PURPOSES. THEREFORE, IN DETERMINING THE EXTENT TO WHICH A
WITHDRAWAL IS SUBJECT TO TAX, THE ENTIRE ACCOUNT VALUE, NOT JUST THE VALUE OF
THE SUBACCOUNT FROM WHICH THE WITHDRAWAL IS MADE, WILL BE TAKEN INTO
CONSIDERATION.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Merrill Lynch Life's Annual Report on Form 10-K for the year ended December 31,
1996, and its Quarterly Reports on Form 10-Q for the periods ended March 31,
1997 and June 30, 1997, are incorporated herein by reference.
All documents or reports filed by Merrill Lynch Life pursuant to Section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the date hereof and prior to the termination of the
offering of the securities offered hereby shall be deemed to be incorporated by
reference in this prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed
to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified and superseded, to constitute a part of this prospectus.
Merrill Lynch Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically
pursuant to EDGAR under CIK No. 0000845091. The SEC maintains a web site that
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC. The address of
the site is http://www.sec.gov.
Merrill Lynch Life will provide without charge to each person to whom this
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than exhibits not specifically incorporated by reference into the text
of such documents). Requests for such documents should be directed to Merrill
Lynch Life's Service Center.
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Registrant 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 in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
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TABLE OF CONTENTS
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PAGE
<S> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 4
CAPSULE SUMMARY OF THE CONTRACT . . . . . . . . . . . 6
MERRILL LYNCH LIFE INSURANCE COMPANY . . . . . . . . 9
DESCRIPTION OF THE CONTRACT . . . . . . . . . . . . . 9
A. GENERAL . . . . . . . . . . . . . . . . . . 9
B. PREMIUMS . . . . . . . . . . . . . . . . . . 9
C. SELECTING THE GUARANTEE PERIOD . . . . . . . 9
D. SUBACCOUNT AND ACCOUNT VALUES . . . . . . . 10
E. SUBACCOUNT TRANSFERS . . . . . . . . . . . . 10
F. DETERMINING GUARANTEED INTEREST RATES . . . 11
G. WITHDRAWALS . . . . . . . . . . . . . . . . 11
H. MARKET VALUE ADJUSTMENT . . . . . . . . . . 12
I. WITHDRAWAL CHARGE . . . . . . . . . . . . . 14
J. PAYMENT ON DEATH . . . . . . . . . . . . . . 14
K. ANNUITY PROVISIONS . . . . . . . . . . . . . 16
L. OTHER PROVISIONS . . . . . . . . . . . . . . 18
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . 20
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . 20
PREMIUM TAXES . . . . . . . . . . . . . . . . . . . . 27
EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974 PROVISIONS . . . . . . . . . . . . . . . 27
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . 27
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . 27
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . 27
REGISTRATION STATEMENT . . . . . . . . . . . . . . . 28
APPENDIX A . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
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No person has been authorized to give any information or to make any
representation other than that contained in this Prospectus in connection with
the offer contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized. This
Prospectus does not constitute an offer of, or solicitation of an offer to
acquire, any Contracts thereunder offered by this Prospectus in any
jurisdiction to anyone to whom it is unlawful to make such an offer or
solicitation in such jurisdiction.
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DEFINITIONS
account value: The sum of all subaccount values.
annuitant: The person whose age determines when the Contract
must be annuitized, and for certain life annuity
options, when payments stop.
annuity date: The date on which annuity payments under the Contract
will commence.
beneficiary: The person to whom payment is to be made upon the
death of the owner.
business day: A day that Merrill Lynch Life is open for business.
Contract: The Contract described in and offered by this
Prospectus.
contract anniversary: Each anniversary of the issue date.
contract year: The year starting on the issue date or a contract
anniversary and ending on the day immediately prior
to the next contract anniversary.
guarantee period: The period of years for which a rate of interest is
guaranteed to be credited to a subaccount.
issue date: The date on which a Contract is issued.
market value adjustment: A positive or negative adjustment made to subaccount
value. It is applied on withdrawal of all or part of
the subaccount value prior to the end of the
guarantee period. If the annuity date is prior to
the end of a guarantee period, the market value
adjustment is also applied upon annuitization. In
addition, a market value adjustment is applied in the
event of payment on the death of the owner prior to
the annuity date, unless the combined market value
adjustments of all affected subaccounts would reduce
the account value. (See "Market Value Adjustment.")
MVA interest rates: The interest rates used in the calculation of any
market value adjustment. (See "Market Value
Adjustment.")
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net account value: The sum of all net subaccount values.
net subaccount value: The subaccount value after adjustment for any market
value adjustment and withdrawal charge applied in
connection with a withdrawal, annuitization, or the
payment of death benefits on the death of the owner
prior to the annuity date.
nonqualified contract: A Contract issued in connection with a nonqualified
plan.
nonqualified plan: A retirement plan other than a qualified plan.
owner: The individual to whom a Contract has been issued and
who is entitled to exercise all rights under the
Contract.
qualified contract: A Contract issued in connection with a qualified
plan.
qualified plan: A retirement plan that receives favorable tax
treatment under Section 401, 403, 404, 408, 457, or
any similar provision of the Internal Revenue Code.
renewal date: The contract anniversary immediately following the
last day of the guarantee period of a subaccount.
subaccount: An account maintained for an owner corresponding to a
specified interest rate and guarantee period selected
by the owner.
subaccount value: An amount equal to that part of a single premium or
account value allocated or transferred to a
subaccount, plus credited interest, as adjusted for
any prior withdrawals, market value adjustments, and
withdrawal charges.
withdrawal charge: A charge deducted from the subaccount value upon a
withdrawal made prior to the end of a guarantee
period.
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CAPSULE SUMMARY OF THE CONTRACT
THE CONTRACT
This Prospectus describes a single premium modified guaranteed annuity contract
(the "Contract") issued by Merrill Lynch Life. Values and benefits provided
under the Contract, including annuity payments, are funded by the general
account assets of Merrill Lynch Life.
The Contract may be issued pursuant to nonqualified retirement plans or plans
qualifying for special tax treatment as Individual Retirement Annuities or
Individual Retirement Accounts ("IRAs") or Simplified Employee Pensions
("SEPs").
APPLICATION AND PREMIUMS
To apply for a contract, an applicant must provide certain information to a
Merrill Lynch Life Financial Consultant for submission to Merrill Lynch Life.
In certain circumstances, an applicant may be required to complete and return a
written Contract application. Merrill Lynch Life reserves the right to reject
any application. The minimum single premium is $25,000.
THE SUBACCOUNTS
One or more subaccounts are maintained for each owner. The minimum which may
be allocated to a subaccount is $5,000. A subaccount is established for each
specified guaranteed interest rate and guarantee period selected by the owner.
A guarantee period is the period of years for which a rate of interest is
guaranteed. Currently, the owner may select guarantee periods of three and
five years (a one year guarantee period is also available at renewal only).
Merrill Lynch Life, at its discretion, may offer additional guarantee periods
not to exceed ten years.
On the renewal date, the subaccount value for a maturing subaccount will be
transferred to one or more subaccounts designated by the owner. If Merrill
Lynch Life does not receive timely notice from the owner designating the
subaccounts to which the subaccount value is to be transferred, the subaccount
value will be transferred automatically to a subaccount with a one year
guarantee period. Under current administrative policy, Merrill Lynch Life
provides owners with a five business day period after the renewal date to
designate the subaccount or subaccounts to which subaccount value is to be
transferred. Subaccount values may not be transferred to another subaccount in
full or in part prior to the end of the guarantee period.
CHARGES
Merrill Lynch Life makes no deductions from each single premium. Except for
the market value adjustment described below, the only charge made is a
withdrawal charge in the event all or part of a net subaccount value is
withdrawn. However, no withdrawal charge is made for a withdrawal at the end
of a guarantee period if Merrill Lynch Life receives written notice of the
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<PAGE> 9
withdrawal prior to (or, under current administrative policy, within five
business days after) the renewal date. The withdrawal charge is equal to the
withdrawal rate of six percent multiplied by the amount of the withdrawal being
taken from a subaccount (if part of net subaccount value is withdrawn), or the
net subaccount value multiplied by the withdrawal charge rate (if the contract
is being surrendered). No withdrawal charge is imposed in the event of payment
upon the death of the owner or, currently, upon annuitization. Premium taxes,
if any, will be deducted from the net account value at the annuity date. In
those jurisdictions that do not allow an insurance company to reduce its
current taxable premium income by the amount of any withdrawal, surrender, or
death benefit paid, Merrill Lynch Life will also deduct a charge for these
taxes on any withdrawal, surrender, or death benefit effected under a Contract.
MARKET VALUE ADJUSTMENT
A market value adjustment is applied to any withdrawal from a subaccount prior
to the end of its guarantee period. It will also be applied upon annuitization
if the annuity date is prior to the end of the guarantee period for that
subaccount. In addition, a market value adjustment will be applied in the
event of payment upon the death of the owner prior to the annuity date, unless
the combined effect of the market value adjustments of all affected subaccounts
would reduce the account value. The amount of the market value adjustment is
determined in accordance with the formula set forth on page 13 and may be
positive or negative.
ANNUITY PAYMENTS
Annuity payments will start on the annuity date. For nonqualified contracts,
at issue, the annuity date is the date of the annuitant's 85th birthday and the
annuity payment option is a life annuity with a 10 year guarantee. For
qualified contracts, at issue, the annuity date is the date the annuitant
attains age 70 1/2 and the annuity payment option is a life annuity with a 10
year guarantee. AN OWNER MAY CHANGE THE ANNUITY PAYMENT OPTION OR THE ANNUITY
DATE AT ANY TIME PRIOR TO THE ANNUITY DATE.
On the annuity date, the net account value, less any applicable premium taxes,
is multiplied by Merrill Lynch Life's then current annuity purchase rates to
determine the amount of annuity payments. Currently, withdrawal charges do not
apply upon annuitization. However, Merrill Lynch Life reserves the right to
apply the withdrawal charge to any subaccount on annuitization if the annuity
date is prior to the end of the guarantee period for that subaccount. The net
account value is the sum of all net subaccount values. In determining net
subaccount value, a market value adjustment will be applied if the annuity date
is prior to the end of the guarantee period for that subaccount. If the net
account value on the annuity date is less than $5,000, Merrill Lynch Life may
pay the net account value in a lump sum in lieu of annuity payments. For tax
consequences of a lump sum payment, see "Federal Tax Considerations -- Partial
Withdrawals and Surrenders." If any annuity payment would be less than $50,
Merrill Lynch Life may change the frequency of payments to intervals that will
result in payments of at least $50.
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<PAGE> 10
PAYMENT ON DEATH
If an owner dies prior to the annuity date, Merrill Lynch Life will pay to the
beneficiary the account value plus any positive market value adjustment as of
the date of payment. If the annuitant dies prior to the annuity date and the
owner is not the annuitant, the owner may designate a new annuitant.
If the annuitant dies after the annuity date and the annuitant is not also the
owner, the owner may choose either to have any unpaid guaranteed amounts
remaining continue to be paid for the amount or period guaranteed or to receive
the present value of the remaining guaranteed payments in a lump sum. If an
owner dies after the annuity date and while guaranteed amounts remain unpaid,
the present value may be paid in a lump sum to the beneficiary, if the
beneficiary so elects.
WITHDRAWALS
The owner may withdraw all or part of the net account value upon notice to
Merrill Lynch Life received prior to the earlier of the annuity date or the
death of the owner. For partial withdrawals, the withdrawal must be at least
$500, the remaining subaccount value of each subaccount, after adjustment for
any market value adjustment and withdrawal charge, must be at least $5,000, and
the remaining account value must be at least $15,000. Withdrawals from
qualified plans may be restricted. (See "Qualified Plans.") Withdrawals are
subject to income tax, and prior to age 59 1/2 may also be subject to a 10%
federal penalty tax. (See "Federal Tax Considerations -- Penalty Tax on
Certain Withdrawals.")
REPORTS TO OWNERS
At least once each year prior to the annuity date, owners will be sent a report
outlining their account value, subaccount values, and current guaranteed
interest rates for the subaccounts. The report will not include Merrill Lynch
Life financial statements.
FREE LOOK RIGHT
When the owner receives the Contract, it should be reviewed carefully to make
sure it is what the owner intended to purchase. Generally, within ten days
after the owner receives the Contract, he or she may return it for a refund.
Some states allow a longer period of time to return the Contract. For a refund
to be made, the Contract must be delivered to Merrill Lynch Life's Service
Center or to the Financial Consultant who sold it. Merrill Lynch Life will
then refund to the owner all premiums paid into the Contract. The Contract
will then be deemed void from the beginning.
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MERRILL LYNCH LIFE INSURANCE COMPANY
Merrill Lynch Life Insurance Company ("Merrill Lynch Life") is a stock life
insurance company organized under the laws of the State of Washington in 1986
and redomesticated under the laws of the State of Arkansas in 1991. Merrill
Lynch Life is an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill Lynch"), a corporation whose common stock is traded on the New York
Stock Exchange.
Merrill Lynch Life's home office is in Little Rock, Arkansas. The Service
Center's address and phone number are P.O. Box 44222, Jacksonville, Florida
32231-4222, (800) 535-5549.
All communications concerning the Contract should be addressed to Merrill Lynch
Life's Service Center.
DESCRIPTION OF THE CONTRACT
A. GENERAL
The Contract is a single premium modified guaranteed annuity contract. The
Contract may be issued in connection with either qualified or nonqualified
plans. Qualified plans include IRAs and SEPs.
A prospective purchaser may become an owner by providing certain information
and forwarding payment of a single premium to Merrill Lynch Life's Service
Center. (Purchasers will be asked to confirm in writing the information
provided.) Applicants may be required to complete and return a written
Contract application in certain circumstances, such as when the Contract is
being issued to replace, or in exchange for, another annuity contract. An
application is subject to Merrill Lynch Life's acceptance. The rights and
benefits of an owner are summarized in the Contract.
B. PREMIUMS
A Contract will be issued in exchange for a single premium of at least $25,000.
If the amount of any single premium is more than $500,000, Merrill Lynch Life
reserves the right to limit the amount of the premium. The premium will be
allocated to one or more subaccounts as selected by the owner. The minimum
allocation to a subaccount is $5,000. Merrill Lynch Life will confirm its
receipt of the payment and the subaccounts established for the payment. The
Contract does not permit the payment of additional premiums.
C. SELECTING THE GUARANTEE PERIOD
The owner may select one or more guarantee periods for the single premium or
portion thereof. Merrill Lynch Life has discretion to determine the number of
guarantee periods it will offer.
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<PAGE> 12
Currently, it offers guarantee periods of three and five years (a one year
guarantee period is also available at renewal only). Merrill Lynch Life will
establish a subaccount corresponding to each guarantee period selected and
applicable specified interest rate. Once a guarantee period has been selected,
it cannot be changed. Amounts cannot be transferred from one subaccount to
another prior to the end of the guarantee period. The owner may, however,
withdraw amounts from a subaccount, subject to certain restrictions, a market
value adjustment, and a withdrawal charge. (See "Withdrawals," "Market Value
Adjustment," and "Withdrawal Charge.") Withdrawals may have federal income tax
consequences, including a 10% penalty on amounts withdrawn. (See "Federal Tax
Considerations -- In General.")
D. SUBACCOUNT AND ACCOUNT VALUES
An owner's account value is the sum of all of his or her subaccount values.
Each subaccount value is equal to the amount the owner allocated or transferred
to the subaccount (either as part of the single premium or as part of the
reinvestment of subaccount value at the end of a guarantee period), plus the
interest credited at the guaranteed rate, as adjusted for any prior
withdrawals, market value adjustments, and withdrawal charges. Merrill Lynch
Life offers a guaranteed interest rate for each subaccount. The owner is
credited with the guaranteed interest rate in effect on the date Merrill Lynch
Life receives his or her premium or on the renewal date, as applicable. The
daily simple interest rate will be computed by dividing the applicable
guaranteed interest rate for a subaccount by 365. This rate will be applied to
the last contract anniversary subaccount value with adjustments for subsequent
withdrawals and credited to the subaccount daily (except on a February 29th) to
yield the quoted guaranteed interest rate. Through this formula, interest will
be compounded only annually on each contract anniversary.
E. SUBACCOUNT TRANSFERS
On each subaccount's renewal date, the owner may transfer amounts in that
subaccount to one or more subaccounts with guarantee periods of any length then
offered by Merrill Lynch Life. The amount transferred will be credited with
the interest rate in effect on the renewal date for the subaccount to which the
amount is transferred. The guaranteed interest rate for transferred subaccount
value may not be the same as the guaranteed interest rate available for initial
allocation of a single premium for a guarantee period of the same duration.
Merrill Lynch Life will notify the owner of his or her right to transfer
amounts to new subaccounts at least 30 days, but not more than 60 days, prior
to the renewal date of a subaccount. Prior to the renewal date, the owner may
advise Merrill Lynch Life of the new subaccount or subaccounts to which the
subaccount value is to be transferred at the end of the guarantee period.
TRANSFERS CANNOT BE MADE TO A GUARANTEE PERIOD WITH A DURATION THAT WILL EXTEND
BEYOND THE ANNUITY DATE. The minimum amount that can be transferred to any one
subaccount is the lesser of (i) $5,000 or (ii) the total subaccount value at
the time of transfer. No withdrawal charge or market value adjustment is
applied in connection with such transfers. SUBACCOUNT VALUES MAY NOT BE
TRANSFERRED TO ANOTHER SUBACCOUNT IN FULL OR IN PART PRIOR TO
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<PAGE> 13
THE END OF THE GUARANTEE PERIOD. Under current administrative procedures, if
instructions are not received prior to the renewal date, then on the renewal
date, Merrill Lynch Life will transfer the subaccount value to a new subaccount
with a one-year guarantee period. However, if instructions are received by the
fifth business day after the renewal date, then as of the renewal date, Merrill
Lynch Life will transfer the subaccount value to the subaccount or subaccounts
selected by the owner. If instructions have not been received by the fifth
business day after the renewal date, the subaccount value will remain in the
subaccount with a one-year guarantee period. Subject to contractual and
federal tax restrictions, the owner may change his or her annuity date so that
the guarantee period of the new subaccount will end on or prior to the annuity
date. (See "Annuity Provisions -- Change of Annuity Date or Annuity Option.")
F. DETERMINING GUARANTEED INTEREST RATES
Merrill Lynch Life has no specific formula for establishing the guaranteed
interest rates for the different guarantee periods. The determination made
will be influenced by, but not necessarily correspond to, interest rates
available on fixed income investments which Merrill Lynch Life may acquire with
the amounts it receives as premiums under the Contracts. These amounts will be
invested primarily in investment-grade fixed income securities including:
securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the United
States Government; debt securities that have an investment grade, at the time
of purchase, within the four highest grades assigned by Moody's Investor
Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A
or BBB), or any other nationally recognized rating service; mortgage-backed
securities collateralized by real estate mortgage loans, or securities
collateralized by other assets, that are insured or guaranteed by the Federal
Home Loan Mortgage Association, the Federal National Mortgage Association, or
the Government National Mortgage Association, or that have an investment grade
at the time of purchase within the four highest grades described above; other
debt instruments; commercial paper; and cash or cash equivalents. Owners will
have no direct or indirect interest in these investments. Merrill Lynch Life
will also consider other factors in determining the guaranteed rates, including
regulatory and tax requirements, sales commissions and administrative expenses
borne by Merrill Lynch Life, general economic trends, and competitive factors.
MERRILL LYNCH LIFE'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION OF THE
GUARANTEED RATES IT DECLARES. MERRILL LYNCH LIFE CANNOT PREDICT OR GUARANTEE
THE LEVEL OF FUTURE INTEREST RATES.
G. WITHDRAWALS
Subject to certain conditions, an owner may withdraw all or part of his or her
net account value prior to the earlier of the annuity date or the death of the
owner, upon written notice received at Merrill Lynch Life's Service Center
before the annuity date. Withdrawals are subject to income tax, and prior to
age 59 1/2 may also be subject to a 10% federal penalty tax. (See "Federal Tax
Considerations -- In General.") For full withdrawals, the withdrawal notice
must be accompanied by the Contract.
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Partial withdrawals must be at least $500, and each net subaccount value
remaining after the withdrawal must be at least $5,000, unless the entire
subaccount value is withdrawn. The remaining account value must be at least
$15,000. Otherwise, the partial withdrawal will not be permitted. The owner
must specify the subaccounts from which the partial withdrawal is to be made.
If the owner does not specify, the partial withdrawal will be made from the
subaccount with the shortest period of time remaining in its guarantee period
until that subaccount has been depleted, from the subaccount with the next
shortest period of time remaining in its guarantee period until that subaccount
has been depleted, and so forth, continuing until the amount of the partial
withdrawal has been reached.
The amount of the withdrawal will be paid to the owner, and any market value
adjustment will be made to, and any withdrawal charge will be deducted from,
the subaccounts from which the withdrawal is made. Immediately after a partial
withdrawal, the value of the subaccount from which a withdrawal is taken will
equal the subaccount value prior to the withdrawal, plus or minus any
applicable market value adjustment, minus any applicable withdrawal charge, and
minus the amount withdrawn. In the case of a request to withdraw the entire
amount from a subaccount, the owner receives the net subaccount value (which
reflects any adjustments to the subaccount value for the withdrawal charge and
market value adjustment applied in connection with such withdrawal). On a full
withdrawal, the subaccount value is reduced by the amount withdrawn as well as
any applicable withdrawal charge, and the market value adjustment is applied,
thereby reducing the subaccount value to zero. (See "Market Value Adjustment"
and "Withdrawal Charge.") See Appendix A and Appendix B for examples showing
the effect of the withdrawal charge and market value adjustment on the amount
of withdrawals.
H. MARKET VALUE ADJUSTMENT
The Contract provides for the imposition of a market value adjustment,
determined by application of the formula described below, in three
circumstances:
- - Whenever the owner makes a withdrawal from a subaccount, other than
one made at, and for which Merrill Lynch Life has received written
notice prior to, the end of the guarantee period for that subaccount;
- - To subaccount value upon annuitization, if the annuity date is prior
to the end of the guarantee period for that subaccount; and
- - In the event of payment upon the death of the owner prior to the
annuity date, unless the combined market value adjustments of all
affected subaccounts would reduce the account value.
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The amount of the market value adjustment is determined from the
following formula:
n/365
1 + B
A X [1 - (-----) ]
1 + C
where "A" is (i) the amount withdrawn from the net subaccount value, in the
case of a partial withdrawal; or (ii) the net subaccount
value, in the case of a full withdrawal, death benefit
payment, or annuitization;
"B" is the MVA interest rate in effect at the time the market value
adjustment is being applied for a subaccount with a guarantee
period for a duration of years represented by "n/365," whether
or not those durations are currently offered under the
Contract. "n/365" is determined by straight-line
interpolation if n/365 is not a whole number (if n/365 is less
than 1, we will assume "B" is equal to the MVA interest rate
for a one-year guarantee period);
"C" is the MVA interest rate in effect for the subaccount on the
issue date or the last renewal date; and
"n" is the remaining number of days in the guaranteed period of the
subaccount from which the withdrawal is made or to which the
adjustment is applied.
MVA Interest Rates. The MVA interest rate for each subaccount to which premium
or account value is allocated will be specified in notices sent to contract
owners at issue and renewal, respectively. Like guaranteed interest rates, MVA
interest rates will be declared by Merrill Lynch Life's management in its sole
discretion, and Merrill Lynch Life cannot predict or guarantee the level of
future MVA interest rates, which may be greater or less than guaranteed
interest rates declared concurrently for the same guarantee period duration.
Merrill Lynch Life determines MVA interest rates based on rates on Treasury
bonds with durations appropriate to effectuate Merrill Lynch Life's
asset-liability matching program with respect to its obligations under the
Contracts. In general, the use of MVA interest rates by Merrill Lynch Life to
calculate any market value adjustment is intended to preclude certain factors
not related to market interest rates per se, such as changes in mortality
assumptions, or the use of increased current rates for competitive or other
non-market related factors, from affecting the size or direction of any market
value adjustment.
The market value adjustment will depend on the relationship, at the time the
market value adjustment is being applied, between (i) the MVA interest rate
established at issue or renewal for the subaccount from which a withdrawal or
payment is being made, to (ii) the MVA interest rate in effect for a time
period equal to the remaining duration of the guarantee period of the
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subaccount from which the withdrawal or payment is being made. Neither the
guaranteed interest rate for the subaccount from which a withdrawal or payment
is being made, nor any guaranteed interest rate in effect at the time of
withdrawal or payment, is used to determine the market value adjustment.
AS A GENERAL RULE, IF INTEREST RATES GO UP, THE MARKET VALUE ADJUSTMENT WILL
OPERATE TO DECREASE YOUR SUBACCOUNT VALUE; IF INTEREST RATES GO DOWN, THE
MARKET VALUE ADJUSTMENT WILL OPERATE TO INCREASE YOUR SUBACCOUNT VALUE.
Because of the market value adjustment provision of the Contract, the owner
bears the investment risk that the MVA interest rates in effect at the time the
owner makes a withdrawal from a subaccount or starts receiving annuity payments
may be higher than the MVA interest rate of the subaccount to which the market
value adjustment is applied. The result is that the owner's subaccount value
may be substantially reduced.
Appendix A contains additional information about the operation of the market
value adjustment, including examples illustrating the application of the market
value adjustment in the context of full withdrawals from a hypothetical
subaccount.
I. WITHDRAWAL CHARGE
A withdrawal charge is imposed if the owner makes a withdrawal from a
subaccount other than at the end of a subaccount's guarantee period. No
withdrawal charge is imposed if a withdrawal is made at the end of the
guarantee period for a subaccount where written notice was received at Merrill
Lynch Life's Service Center prior to (or, under current administrative
procedures, within five business days after) the renewal date. Currently,
withdrawal charges do not apply upon annuitization. However, Merrill Lynch
Life reserves the right to apply the withdrawal charge on annuitization to any
subaccount if the annuity date is prior to the end of the guarantee period for
that subaccount. The withdrawal charge rate is equal to six percent for the
duration of each initial and renewal guarantee period. For partial withdrawals
from a subaccount, withdrawal charges are determined by multiplying the amount
of the withdrawal being taken from a subaccount by the withdrawal charge rate
applicable to the guarantee period for that subaccount, or six percent. For a
full withdrawal of a subaccount, the amount received is the net subaccount
value, which reflects adjustments for the withdrawal charge and any market
value adjustment. For a partial withdrawal, the withdrawal charge will be
deducted from the remaining value of the subaccounts from which the withdrawal
was made. Withdrawal charges do not apply to annuity payments or to any payment
made due to the death of the owner. Withdrawal charges apply when a full
withdrawal occurs on an annuity date which does not correspond to the renewal
date of a guarantee period. Appendix B contains examples which illustrate the
calculation of withdrawal charges for a hypothetical subaccount.
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J. PAYMENT ON DEATH
Death Prior to the Annuity Date. Subject to the rights of an owner's surviving
spouse in certain circumstances (described below), if an owner dies prior to
the annuity date, Merrill Lynch Life will pay the death benefit to the
beneficiary. The death benefit is equal to the sum of each subaccount value
after market value adjustment; but if the combined effect of the market value
adjustments applied to each subaccount would not be positive, no market value
adjustment is made. No withdrawal charge will be applied. Payment will be
made upon receipt by Merrill Lynch Life of proof of the death of an owner
(e.g., a certified copy of the death certificate), and, subject to the special
rules applicable to any owner's death (discussed below), will be made in a lump
sum unless an annuity option is chosen. If no annuity option is chosen by the
60th day following receipt of the certified death certificate, Merrill Lynch
Life reserves the right to automatically pay the death benefit in a lump sum.
In the event of an owner's death, the death benefit generally must be
distributed within five years of the death of the owner. The beneficiary may,
however, elect to receive the death benefit pursuant to an annuity option under
which payments commence within one year of the owner's death and do not extend
beyond the life or life expectancy of the beneficiary. If the beneficiary is
the surviving spouse of the deceased owner, he or she may choose to receive
payments under any of the annuity options of the Contract. (See "Annuity
Provisions.") For IRAs, any annuity option chosen by a beneficiary must meet
the requirements of the Internal Revenue Code. If the surviving spouse of a
deceased owner is the beneficiary, the spouse may choose to become the owner
and to continue the Contract in force on the same terms as before the owner's
death, in which event no death benefit is paid upon the death of the deceased
owner, and the spouse thereafter shall be the owner and the beneficiary, until
a new beneficiary is named. If the Contract has more than one owner, the date
of death of the owner will be deemed to occur when the first owner dies.
If the annuitant dies prior to the annuity date and the owner is not the
annuitant, the owner may designate a new annuitant. If a new annuitant is not
designated, the owner will be the annuitant, provided the owner is an
individual. If the owner is not an individual, the death of the annuitant will
be treated as the death of the owner.
If a beneficiary does not survive the owner, the estate or heirs of the
beneficiary have no rights under the Contract. If no beneficiary survives the
owner, payment will be made to the owner's estate.
If the owner is not an individual, the annuitant as determined in accordance
with Section 72(s) of the Internal Revenue Code (i.e., the individual the
events in the life of whom are of primary importance in affecting the timing or
amount of distributions under the Contract) will be treated as the owner for
purposes of these distribution requirements, and the death of the annuitant
will be treated as the death of the owner.
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Death After the Annuity Date. If the annuitant dies after the annuity date and
the annuitant is not also the owner, the owner may choose either to have any
guaranteed amounts remaining unpaid continue to be paid for the amount or
period guaranteed or to receive the present value of the remaining guaranteed
payments in a lump sum. If an owner dies after the annuity date and while
guaranteed amounts remain unpaid, the present value may be paid in a lump sum
to the beneficiary, if the beneficiary so elects. Present values will be
computed at the interest rate that was used to compute the amount of the
initial annuity payment.
K. ANNUITY PROVISIONS
General. Annuity payments will be paid to the annuitant and will commence on
the annuity date. The owner may or may not be the annuitant. The owner
designates the annuitant when purchasing the Contract, and may later change the
annuitant upon written notice to Merrill Lynch Life, unless the owner is not an
individual.
The amount of annuity payments, other than payments made pursuant to the
qualified plan option, will be determined by applying the net account value at
the annuity date, less any premium taxes, to the annuity option chosen using
Merrill Lynch Life's then current annuity rates. Currently, withdrawal charges
do not apply upon annuitization. However, Merrill Lynch Life reserves the
right to apply the withdrawal charge on annuitization to any subaccount if the
annuity date is prior to the end of the guarantee period for that subaccount.
Current annuity rates are guaranteed to be no less favorable than the minimum
guaranteed annuity rates shown in the annuity tables contained in the Contract
and will not be based on an interest rate of less than three percent. Premium
taxes imposed by states and local jurisdictions currently range from 0% to 5%
depending on the tax treatment of the Contract. In determining the net account
value, a market value adjustment will be applied to any subaccount if the
annuity date is prior to the end of the guarantee period for that subaccount.
Annuity Date and Annuity Options. For nonqualified contracts, at issue, the
annuity date will be the annuitant's 85th birthday and the annuity option will
be a life annuity with a 10 year guarantee. For qualified contracts, at issue,
the annuity date will be the date the annuitant attains age 70 1/2 and the
annuity option will be a life annuity with a 10 year guarantee. THE OWNER MAY
CHANGE THE ANNUITY DATE OR THE ANNUITY OPTION ON WRITTEN NOTICE RECEIVED AT
MERRILL LYNCH LIFE'S SERVICE CENTER (OR BY TELEPHONE, ONCE A PROPER
AUTHORIZATION FORM IS SUBMITTED TO THE SERVICE CENTER) AT ANY TIME PRIOR TO THE
ANNUITY DATE. Merrill Lynch Life currently permits owners to select an
annuity date that is any day of a calendar month. It may not be later than the
annuitant's 85th birthday. Changes of the annuity date are subject to federal
tax restrictions. (See "Federal Tax Considerations.")
Annuity Options. The owner may select any one of the following annuity options
or any other option satisfactory to the owner and Merrill Lynch Life. For
qualified contracts, certain restrictions may apply.
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PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made
until the net account value applied under this option, adjusted for interest
credits and prior annuity payments, is exhausted. The period over which
payments are made must be at least five years.
PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The
period must be at least five years.
*LIFE ANNUITY: Payments will be made for the life of the annuitant. Payments
will cease with the last payment due prior to the annuitant's death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: Payments will be
made for the guaranteed period chosen (10 or 20 years) and as long thereafter
as the annuitant lives.
LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be
made until the sum of the annuity payments equals the net account value applied
under this option, and as long thereafter as the annuitant lives.
*JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes
of the annuitant and a designated second person. Payments will continue as
long as either is living.
QUALIFIED PLAN OPTION: This option is available only under qualified
contracts. Payments may be based on (a) the life expectancy of the annuitant,
(b) the joint life expectancy of the annuitant and his or her spouse, or (c)
the life expectancy of the surviving spouse if the annuitant dies before the
annuity date. Payments will be made annually. Each payment will be equal to
the net account value on the first day of the calendar year divided by
applicable current life expectancy based on Internal Revenue Service
regulations. Each subsequent payment will be made on the anniversary of the
annuity date. Interest will be credited at Merrill Lynch Life's then current
rate for this option. The rate will not be less than three percent. On death
of the measuring life or lives, any unpaid net account value will be paid to
the beneficiary in a lump sum.
*THESE OPTIONS ARE LIFE ANNUITIES UNDER WHICH IT IS POSSIBLE FOR THE ANNUITANT
TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE ANNUITANT (OR THE ANNUITANT AND A
DESIGNATED SECOND PERSON) DIES AFTER THE FIRST PAYMENT, OR TO RECEIVE ONLY TWO
ANNUITY PAYMENTS IF THE ANNUITANT (OR THE ANNUITANT AND A DESIGNATED SECOND
PERSON) DIES AFTER THE SECOND PAYMENT, AND SO ON. ACCORDINGLY, YOU SHOULD
CAREFULLY CONSIDER WHETHER THESE OPTIONS WILL MEET YOUR FINANCIAL NEEDS.
Minimum Annuity Payments. Annuity payments will be made monthly beginning on
the annuity date unless the owner chooses less frequent payments or the
qualified plan option, provided that
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if any payment would be less than $50, Merrill Lynch Life may change the
frequency so payments are at least $50 each. If the net account value to be
applied at the annuity date is less than $5,000, Merrill Lynch Life may elect
to pay that amount in a lump sum. (For tax consequences of a lump sum payment,
see "Federal Tax Considerations.")
Annuity Rates. Annuity rates will be no less favorable than those shown in the
annuity tables contained in the Contract and will not be based on an interest
rate of less than three percent. Those tables show the minimum guaranteed
amount of each monthly payment for each $1,000 applied according to the age and
sex of the annuitant at the annuity date. The tables are based on the 1983
Table "a" projected forward to 1995 for Individual Annuity Valuation, set back
one year, with interest at three percent. When required by law, Merrill Lynch
Life will use annuity tables that do not differentiate on the basis of sex.
The Contract contains a formula for adjusting the age of the annuitant based on
the annuity date for purposes of determining minimum monthly annuity payments.
If the annuity date is prior to the year 2000, there is no age adjustment. If
the annuity date is between the years 2000 and 2009, the annuitant's age is
reduced by one year. For each decade thereafter, the annuitant's age is
reduced one additional year. The maximum age adjustment is four years.
An age adjustment results in a reduction in the minimum monthly annuity
payments that would otherwise be made. Therefore, if the rates Merrill Lynch
Life is using are the minimum rates shown in the annuity tables contained in
the Contract, it may be advantageous for the owner to designate an annuity date
that immediately precedes the date on which an age adjustment would occur under
the Contract. For example, the annuity payment rates in the annuity tables for
an annuitant with an annuity date in the year 2010 are the same as those for an
annuity date twelve months earlier, even though the annuitant is one year
older, because the new decade results in the annuitant's age being reduced by
an additional year. Current annuity rates, unlike the guaranteed rates, do not
involve any age adjustment.
Proof of Age, Sex and Survival. Merrill Lynch Life may require satisfactory
proof of the age, sex, or survival of any person on whose continued life any
payment under the Contract depends.
Misstatement of Age or Sex. If the age or sex of an annuitant is misstated,
annuity payments will be adjusted to reflect the correct age and sex. Any
amount overpaid as the result of such misstatement will be deducted from
subsequent payments until recovered. Any amount underpaid will be paid in full
with the next payment due. Interest on the overpayment will be charged at the
rate of four percent per year. Interest on an underpayment will be paid at the
rate of four percent per year.
L. OTHER PROVISIONS
Beneficiary. The beneficiary is the person or persons named in the Contract
application to whom payment is to be made upon the death of the owner. Unless
a beneficiary has been irrevocably
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designated, the beneficiary may be changed while the owner is alive. The
change of a beneficiary who was named by the owner irrevocably may only be made
with the written consent of the beneficiary. The beneficiary has no ownership
rights under the Contract. The estate or heirs of a beneficiary who dies prior
to the owner have no rights under the Contract. However, if a beneficiary
survives the owner but dies before the Contract's proceeds are distributed, the
estate or heirs of such beneficiary are entitled to that portion of the
Contract's proceeds that would otherwise have been paid to such beneficiary.
If no beneficiary survives the owner, payment will be made to the owner's
estate. Certain restrictions may apply in the case of qualified contracts.
Assignment. Upon notice to Merrill Lynch Life, the owner may make a collateral
assignment of his or her rights under the Contract by transferring the Contract
to a creditor as a security for a debt. If the Contract is issued pursuant to
a qualified plan, the owner's rights under the Contract may not be assigned,
pledged, or transferred, unless permitted by law. A collateral assignment does
not change ownership of the Contract. The rights of a collateral assignee have
priority over the rights of a beneficiary. No amounts payable under the
Contract to a payee other than the owner may be assigned by that payee, nor
will they be subject to the claims of creditors or to legal process, except to
the extent permitted by law. A collateral assignment may have federal income
tax consequences. (See "Federal Tax Considerations -- Transfers, Assignments,
or Exchanges of a Contract.")
Notices and Elections. Generally, to be effective, all notices, changes, and
choices the owner makes under the Contract must be in writing, signed by the
proper party, and received at Merrill Lynch Life's Service Center. However, an
owner (and, once a proper authorization form is submitted to Merrill Lynch
Life's Service Center, an owner's Financial Consultant) may select by telephone
the subaccounts to which the subaccount value at the end of a guarantee period
is to be transferred and may also select by telephone the subaccounts from
which any partial withdrawals are to be made. In addition, choices regarding
changes of annuity date may also be made by telephone. Notices, changes, and
choices relating to beneficiaries, ownership, and the annuitant will take
effect as of the date signed unless Merrill Lynch Life has already acted in
reliance on the prior status. Changes relating to annuity date will take
effect as of the date received, unless Merrill Lynch Life has already acted in
reliance on the prior status.
Amendment of the Contract. Merrill Lynch Life may amend the Contracts at any
time as may be necessary to conform to any applicable law, regulation, or
ruling issued by a government agency or court.
Deferral of Payments. All sums payable by Merrill Lynch Life are payable at
its Service Center. Merrill Lynch Life may require return of a Contract prior
to making payment. Merrill Lynch Life may defer payments of partial or full
withdrawals for up to six months.
Free Look Right. When the owner receives the Contract, it should be reviewed
carefully to make sure it is what the owner intended to purchase. Generally,
within ten days after the owner receives the Contract, he or she may return it
for a refund. Some states allow a longer period of
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time to return the Contract. The Contract must be delivered to Merrill Lynch
Life's Service Center or to the Financial Consultant who sold it for a refund
to be made. Merrill Lynch Life will then refund to the owner all premiums paid
into the Contract. The Contract will then be deemed void from the beginning.
If an owner exercises his or her free look right, that owner may not submit
another application with the same annuitant for ninety days.
Guarantee of Contracts. The federal government or its instrumentalities do not
guarantee the Contracts. Merrill Lynch Life backs the guarantees associated
with the Contracts.
DISTRIBUTION OF THE CONTRACTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is the principal
underwriter of the Contract. It was organized in 1958 under the laws of the
state of Delaware and is registered as a broker-dealer under the Securities
Exchange Act of 1934. It is a member of the National Association of Securities
Dealers, Inc. ("NASD"). MLPF&S' principal business address is World Financial
Center, 250 Vesey Street, New York, New York 10281.
Contracts are sold by registered representatives (Financial Consultants) of
MLPF&S who are also licensed through various Merrill Lynch Life Agencies
("MLLA") as insurance agents for Merrill Lynch Life. Merrill Lynch Life has
entered into a distribution agreement with MLPF&S and companion sales
agreements with MLLA through which agreements the Contracts are sold and the
Financial Consultants are compensated by MLLA and/or MLPF&S. The maximum
commission paid to a Financial Consultant in connection with sale of a contract
is 1.13% of each premium. In addition, the maximum compensation paid to a
Financial Consultant for each renewal is 0.23% of account value reinvested,
payable annually. Commissions may be paid in the form of non-cash
compensation.
The maximum commission Merrill Lynch Life will pay to the applicable insurance
agency to be used to pay commissions to Financial Consultants is 2.5% of each
premium. In addition, the maximum compensation Merrill Lynch Life will pay to
the applicable insurance agency to be used to pay compensation to Financial
Consultants for reinvestment is 0.4% of subaccount value reinvested, payable
annually.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The following discussion is general and is not intended as tax advice.
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This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction. This discussion is based upon Merrill Lynch Life's understanding
of the present federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
the continuation of the present federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
MERRILL LYNCH LIFE DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY
CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACTS.
The Contract may be purchased on a nonqualified tax basis ("nonqualified
contract") or purchased and used in connection with certain plans qualifying
for favorable tax treatment ("qualified contract"). The qualified contracts
are designed for use by individuals whose premium payment is comprised solely
of contributions under Individual Retirement Annuities or Accounts (IRAs) and
Simplified Employee Pensions (SEPs) under Sections 408(a), 408(b), and 408(k)
of the Internal Revenue Code, and/or proceeds from retirement plans which are
intended to qualify as plans entitled to special income tax treatment under
Sections 401, 403, 404, 408, or 457 of the Internal Revenue Code. The ultimate
effect of federal income taxes on the amounts held under a Contract, on annuity
payments, and on the economic benefit to the owner, the annuitant, or the
beneficiary depends on the type of retirement plan, on the tax and employment
status of the individual concerned, and on Merrill Lynch Life's tax status. In
addition, certain requirements must be satisfied in purchasing a qualified
contract with proceeds from a tax qualified plan and receiving distributions
from a qualified contract in order to continue receiving favorable tax
treatment. Therefore, purchasers of qualified contracts should seek competent
legal and tax advice regarding the suitability of a Contract for their
situation, the applicable requirements, and the tax treatment of the rights and
benefits of a Contract. The following discussion assumes that qualified
contracts are purchased with proceeds from and/or contributions under
retirement plans that qualify for the intended special federal income tax
treatment.
TAXATION OF MERRILL LYNCH LIFE
Merrill Lynch Life is taxed as a life insurance company under Part I of
Subchapter L of the Internal Revenue Code. The assets underlying the Contracts
will be owned by Merrill Lynch Life. The income earned on such assets will be
income to Merrill Lynch Life.
TAX STATUS OF THE CONTRACT
Merrill Lynch Life believes that the Contract will be treated as an annuity
contract and that Merrill Lynch Life will be treated as owning the assets
supporting the Contract for federal
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income tax purposes. Merrill Lynch Life, however, reserves the right to modify
the Contract as necessary to prevent the contract owner from being considered
the owner of the assets supporting the Contract for federal tax purposes.
Furthermore, in order to be treated as an annuity contract for federal income
tax purposes, Section 72(s) of the Internal Revenue Code requires any
nonqualified contract to provide that (a) if any owner dies on or after the
annuity commencement date but prior to the time the entire interest in the
Contract has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that owner's death; and (b) if any owner dies prior to the
annuity commencement date, the entire interest in the Contract will be
distributed within five years after the date of the owner's death. These
requirements will be considered satisfied as to any portion of the owner's
interest which is payable to or for the benefit of a "designated beneficiary"
and which is distributed over the life of such "designated beneficiary" or over
a period not extending beyond the life expectancy of that beneficiary, provided
that such distributions begin within one year of that owner's death. The
owner's "designated beneficiary" (referred to herein as the "beneficiary") is
the person designated by such owner as a beneficiary and to whom the owner's
interest in the Contract passes by reason of death and must be a natural
person. However, if the beneficiary is the surviving spouse of the owner, the
Contract may be continued with the surviving spouse as the new owner. Solely
for purposes of applying the provisions of Section 72(s) of the Code, when
nonqualified contracts are held by other than a natural person, the death of
the annuitant is treated as the death of the owner.
The nonqualified contracts contain provisions which are intended to comply with
the requirements of Section 72(s) of the Internal Revenue Code, although no
regulations interpreting these requirements have yet been issued. Merrill
Lynch Life intends to review such provisions and modify them if necessary to
assure that they comply with the requirements of Internal Revenue Code Section
72(s) when clarified by regulation or otherwise.
Other rules may apply to qualified contracts.
THE FOLLOWING DISCUSSION ASSUMES THAT THE CONTRACTS WILL QUALIFY AS ANNUITY
CONTRACTS FOR FEDERAL INCOME TAX PURPOSES.
FEDERAL TAXES
a. In General
Section 72 of the Internal Revenue Code governs taxation of annuities in
general. Merrill Lynch Life believes that an owner who is a natural person
generally is not taxed on increases in the value of a Contract until
distribution occurs by withdrawing all or part of the account value (e.g.,
partial withdrawals and surrenders) or as annuity payments under the annuity
option elected. For this purpose, the assignment, pledge, or agreement to
assign or pledge any portion of the account
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<PAGE> 25
value (and in the case of a qualified contract, any portion of an interest in
the qualified plan) generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single sum payment or an annuity)
is taxable as ordinary income. Additionally, certain transfers of a Contract
for less than full and adequate consideration, such as a gift, will generate
tax on the excess of the net account value over the owner's "investment in the
contract" (discussed below).
An owner in any annuity contract who is not a natural person generally must
include in income any increase in the excess of the Contract's account value
over the "investment in the contract" during the taxable year. There are some
exceptions to this rule and a prospective owner that is not a natural person
may wish to discuss these with a competent tax adviser.
The following discussion generally applies to Contracts whose owners are
natural persons.
b. Partial Withdrawals and Surrenders
In the case of a partial withdrawal or surrender under a qualified contract,
under Section 72(e) of the Internal Revenue Code a ratable portion of the
amount received is taxable, generally based on the ratio of the "investment in
the contract" to the owner's total accrued benefit or balance under the
retirement plan. The "investment in the contract" generally equals the
portion, if any, of any premium payments paid by or on behalf of any individual
under a Contract which was not excluded from the individual's gross income.
For Contracts issued in connection with qualified plans, a owner's "investment
in the contract" can be zero. Special tax rules may be available for certain
distributions under qualified contracts.
In the case of a partial withdrawal under a nonqualified contract before the
annuity date, under Internal Revenue Code Section 72(e) amounts received are
generally first treated as taxable income to the extent that the account value
immediately before the partial withdrawal (increased by the net excess, if any,
of the sum of all market value adjustments that increase any subaccount value
over the sum of all market value adjustments that decrease any subaccount value
which result from the partial withdrawal) exceeds the "investment in the
contract" at that time. Any additional amount withdrawn is not taxable.
IT IS IMPORTANT TO NOTE THAT THE CONTRACT IS AN INTEGRATED ANNUITY CONTRACT AND
THAT THEREFORE IN DETERMINING THE EXTENT TO WHICH A WITHDRAWAL FROM ONE
SUBACCOUNT IS TAXABLE, THE ACCOUNT VALUE AND "INVESTMENT IN THE CONTRACT" FOR
THE ENTIRE CONTRACT, NOT JUST THE SUBACCOUNT FROM WHICH THE WITHDRAWAL IS MADE,
WILL BE TAKEN INTO ACCOUNT.
In the case of a surrender under a nonqualified contract, under Section 72(e)
amounts received are generally treated as taxable income to the extent the net
amount received exceeds the "investment in the contract" at that time.
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<PAGE> 26
c. Annuity Payments
Although tax consequences may vary depending on the annuity option elected
under the Contract, under Internal Revenue Code Section 72(b), generally gross
income does not include that part of any amount received as an annuity under an
annuity contract that bears the same ratio to such amount as the investment in
the contract bears to the expected return at the annuity date. In this respect
(prior to recovery of the investment in the contract), there is generally no
tax on the amount of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of the annuity
payments for the term of the payments; however, the remainder of each income
payment is taxable. In all cases, after the "investment in the contract" is
recovered, the full amount of any additional annuity payments is taxable.
d. Penalty Tax on Certain Withdrawals
In the case of a distribution under a nonqualified contract, there may be
imposed a federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions: (1)
made on or after the date on which the owner attains age 59 1/2; (2) made as a
result of death or disability of the owner; (3) received in substantially equal
periodic payments over the life or life expectancy of the owner (or joint life
or life expectancy of the owner and a designated beneficiary). In certain
circumstances, other exceptions may apply. Other tax penalties may apply to
certain distributions under a qualified contract.
e. Taxation of Death Benefit Proceeds
Amounts may be distributed from a Contract because of the death of the owner
or, if the owner is not an individual, the annuitant. Generally, such amounts
are includable in the income of the recipient as follows: (1) if distributed in
a lump sum, they are taxed in the same manner as a full surrender of the
Contract, as described above, or (2) if distributed under an annuity option,
they are taxed in the same manner as annuity payments, as described above.
f. Transfers, Assignments, or Exchanges of a Contract
A transfer of ownership of a Contract, the designation of an annuitant, payee
or other beneficiary who is not also the owner, or the exchange of a Contract
(or this Contract along with one or more other annuity contracts) for one or
more new annuity contracts may result in certain tax consequences to the owner
that are not discussed herein. An owner contemplating any such transfer,
assignment, or exchange of a Contract should contact a competent tax adviser
with respect to the potential tax effects of such a transaction.
g. Multiple Contracts
All nonqualified annuity contracts that are issued by Merrill Lynch Life (or
its affiliates) to the same owner during any calendar year are treated as one
annuity Contract for purposes of
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<PAGE> 27
determining the amount includable in gross income under Section 72(e) of the
Internal Revenue Code. In addition, the Treasury Department has specific
authority to issue regulations that prevent the avoidance of Section 72(e)
through the serial purchase of annuity Contracts or otherwise. Congress has
also indicated that the Treasury Department may have authority to treat the
combination purchase of an immediate annuity Contract and a separate deferred
annuity Contract as a single annuity Contract under its general authority to
prescribe rules as may be necessary to enforce the income tax laws.
h. Withholding
Unless the owner elects to the contrary, the taxable portion of any amounts
received under the Contract will be subject to withholding to meet federal and
state income tax obligations. The rate of withholding on annuity payments will
generally be determined on the basis of the withholding certificate filed by
the owner with Merrill Lynch Life. If no such certificate is filed, the owner
will be treated, for purposes of determining the withholding rate, as a married
person with three exemptions.
The rate of withholding on all other payments made under the Contract, such as
amounts received upon withdrawals, will generally be 10%. Thus, if the owner
fails to elect that there be no withholding, Merrill Lynch Life will withhold
from every withdrawal or annuity payment the appropriate percentage of the
amount of the payment that is taxable. Merrill Lynch Life will provide the
owner with forms and instructions concerning the right to elect that no amount
be withheld from payments. Generally, there will be no withholding for taxes
until payments are actually received under the Contract.
i. Possible Changes in Taxation
In past years, legislation has been proposed that would have adversely modified
the federal taxation of certain annuities. For example, one such proposal
would have changed the tax treatment of nonqualified annuities that did not
have "substantial life contingencies" by taxing income as it is credited to the
annuity. Although, as of the date of this prospectus, Congress is not actively
considering any legislation regarding the taxation of annuities, there is
always the possibility that the tax treatment of annuities could change by
legislation or other means (such as Internal Revenue Service regulation,
revenue rulings, judicial decisions, etc.). Moreover, it is also possible that
any change could be retroactive (that is, effective prior to the date of the
change).
j. Other Tax Consequences
As noted above, the foregoing discussion of the federal income tax consequences
under the Contract is not exhaustive and special rules are provided with
respect to other tax situations not discussed in this Prospectus. Further, the
federal income tax consequences discussed herein reflect Merrill Lynch Life's
understanding of current law and the law, or its interpretation by the
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<PAGE> 28
Internal Revenue Service, may change. Federal estate and state and local
income, estate, inheritance, and other tax consequences of ownership or receipt
of distributions under a Contract depend on the individual circumstances of
each owner or recipient of the distribution. A competent tax adviser should be
consulted for further information.
QUALIFIED PLANS
The Contract is designed for use with several types of qualified plans. These
retirement plans, described briefly below, may permit the purchase of the
Contracts to accumulate retirement savings under the plans. Adverse tax or
other legal consequences to the plan, to the owner, or to both may result if
the Contract is assigned or transferred to any individual as a means to provide
benefit payments, unless the plan complies with all legal requirements
applicable to such benefits prior to transfer of the Contract. The tax rules
applicable to owners in qualified plans, including restrictions on
contributions and benefits, taxation of distributions, and any tax penalties,
vary according to the type of plan and the terms and conditions of the plan
itself. Various tax penalties may apply to: contributions in excess of
specified limits; aggregate distributions in excess of $150,000 annually
(except in 1997, 1998, and 1999), as increased from time to time to reflect
increases in the cost of living; distributions that do not satisfy specified
requirements; and certain other transactions with respect to qualified plans.
Therefore, no attempt is made to provide more than general information about
the use of the Contracts with the various types of qualified plans. Owners,
annuitants, and beneficiaries are cautioned that the rights of any person to
any benefits under qualified plans may be subject to the terms and conditions
of the plans themselves, regardless of the terms and conditions of the
Contract. Some retirement plans are subject to distribution and other
requirements that are not incorporated into Merrill Lynch Life's administration
procedures. Owners and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. When issued in connection with a
qualified plan, a Contract will be amended as necessary to conform to the
requirements of the Internal Revenue Code.
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to individual retirement programs known as an IRAs. Employers may
establish SEPs to provide IRA contributions on behalf of their employees.
Also, distributions from certain other types of qualified plans may be "rolled
over" on a tax-deferred basis into an IRA. Sales of the Contracts for use with
or as IRAs may be subject to special disclosure requirements of the Internal
Revenue Service. Purchasers of the Contract for use with or as IRAs will be
provided with supplemental information required by the Internal Revenue Service
or other appropriate agency. Such purchasers will have the right to revoke
their purchase within 7 days of the earlier of the establishment of the IRA or
their purchase. Purchasers should seek competent advice as to the suitability
of the Contract for use with or as IRAs.
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<PAGE> 29
Restrictions under Qualified Contracts
Other restrictions with respect to the election, commencement, or distribution
of benefits may apply under qualified contracts or under the terms of the plans
in respect of which qualified contracts are issued.
PREMIUM TAXES
Various states, municipalities and jurisdictions impose a premium tax on
annuity premiums when they are received by an insurance company. In other
jurisdictions, a premium tax is paid on the account value on the annuity date.
Merrill Lynch Life will pay these taxes when due, and a charge for any premium
taxes imposed by a state, local government or jurisdiction will be deducted
from account value on the annuity date. Premium tax rates vary from
jurisdiction to jurisdiction and currently range from 0% to 5%. Premium tax
rates are subject to change by law, administrative interpretations, or court
decisions. Premium tax amounts will depend on, among other things, the owner's
state or jurisdiction of residence, Merrill Lynch Life's status within that
state or jurisdiction, and the premium tax laws of that state or jurisdiction.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 PROVISIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes fiduciary, prohibited transaction, and other requirements with respect
to employee benefit plans to which it applies. In certain circumstances these
requirements may be applicable to the management of an insurance company
account. Merrill Lynch Life believes that the account established for the
Contracts is a guaranteed contract separate account within the meaning of
Prohibited Transaction Class Exemption 81-82 and that assets attributed to the
account will not be treated as "plan assets" under regulations promulgated by
the Department of Labor. Prior to purchasing a Contract, however, the
fiduciary responsible for investments of a plan subject to ERISA should become
fully informed regarding the relevant terms of the Contract, including the
market value adjustment and withdrawal charge, and should take account of the
anticipated liquidity needs of the plan in determining whether to purchase the
Contract.
LEGAL PROCEEDINGS
There is no material pending litigation to which Merrill Lynch Life is a party
or of which any of its property is the subject, and there are no legal
proceedings contemplated by any governmental authorities against Merrill Lynch
Life of which it has any knowledge.
-27-
<PAGE> 30
LEGAL MATTERS
The organization of Merrill Lynch Life, its authority to issue the Contracts,
and the validity of the form of the Contracts have been passed upon by Barry G.
Skolnick, Merrill Lynch Life's Senior Vice President and General Counsel.
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to federal securities laws.
EXPERTS
The financial statements of Merrill Lynch Life as of December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996
incorporated by reference into this Prospectus have been audited by ___________
_____, independent auditors, as stated in their report appearing herein, and
have been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing. __________________
_____________'s principal business address is
___________________________________. Other financial statements incorporated
by reference into this Prospectus are unaudited.
REGISTRATION STATEMENT
The registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 that relate to the Contract. This
Prospectus does not contain all of the information in the registration
statement as permitted by Securities and Exchange Commission regulations. The
omitted information can be obtained from the Securities and Exchange
Commission's principal office in Washington, D.C., upon payment of a prescribed
fee.
-28-
<PAGE> 31
APPENDIX A
MARKET VALUE ADJUSTMENT ILLUSTRATIONS
A. DISCUSSION
Relationship Between MVA Interest Rates. The market value
adjustment may result in either an increase or decrease in subaccount value,
and depends on the relationship, at the time the market value adjustment is
being applied, between (i) the MVA interest rate established at issue or
renewal for the subaccount from which a withdrawal or payment is being made, to
(ii) the MVA interest rate in effect for a time period equal to the remaining
duration of the guarantee period of the subaccount from which the withdrawal or
payment is being made. If (i) above is lower than (ii), application of the
market value adjustment will result in an decrease in subaccount value; if (i)
is higher than (ii), application of the market value adjustment will result in
an increase in subaccount value. Neither the guaranteed interest rate for the
subaccount from which a withdrawal or payment is being made, nor any guaranteed
interest rate in effect at the time of withdrawal or payment, is used to
determine the market value adjustment.
Remaining Period of Time in a Guarantee Period. In order to
determine (ii) above, if the remaining period of time in the guarantee period
is a whole number of years, Merrill Lynch Life uses the current MVA interest
rate in effect for that time period. If the remaining period of time in the
guarantee period is not a whole number of years, the current MVA interest rate
is derived by straight line interpolation (see below). If the remaining period
of time is less than one year, Merrill Lynch Life uses the current MVA interest
rate in effect for a guarantee period of one year. For example, if the
remaining period is 4.75 years, the interpolated MVA interest rate will be
equal to the sum of one-fourth of the four year rate and three-fourths of the
five year rate. If the four year MVA interest rate were 5.8% and the five year
MVA interest rate were 6.0%, the interpolated rate would be 5.95% (5.8% times
0.25 plus 6.0% times 0.75).
B. MARKET VALUE ADJUSTMENT FORMULA
As discussed in the prospectus, the market value adjustment is
determined by the following formula:
n/365
1 + B
A x [1 - (-----) ]
1 + C
Where:
"n" is the remaining number of days in the guaranteed period of the
subaccount from which the withdrawal is made or to which the
adjustment is applied;
A-1
<PAGE> 32
"A" is (i) the amount withdrawn from the net subaccount value, in the
case of a partial withdrawal; or (ii) the net subaccount
value, in the case of a full withdrawal, death benefit
payment, or annuitization;
"B" is the MVA interest rate in effect at the time the market value
adjustment is being applied for a subaccount with a guarantee
period for a duration of years represented by "n/365," whether
or not those durations are currently offered under the
Contract ("n/365" is determined as described above if "n/365"
is not a whole number); and
"C" is the MVA interest rate in effect for the subaccount on the
issue date or the last renewal date.
C. EXAMPLES
1. MVA Interest Rates Increase. Assume a $10,000 partial
withdrawal is made from a five year guarantee period
subaccount with three years (1,095 days) remaining in its
guarantee period and an MVA interest rate at issue of 6.2%.
Assume that the MVA interest rate currently in effect (at the
time of the withdrawal) for a three year guarantee period is
8.2%. Based on these facts, the following values would be
assigned to the market value adjustment formula described
above:
n = 1,095 C = .062
A = $10,000 B = .082
Using these assigned values, the market value adjustment would
equal -$575.68 (as calculated below). Since this figure is a
negative number, it is subtracted from the remaining
subaccount value, together with any applicable withdrawal
charge.
1,095/365
1 + .082
$10,000 x [1 - (--------) ] = -$575.68
1 + .062
2. MVA Interest Rates Decrease. Based on the same facts as
example one, assume instead that the MVA interest rate
currently in effect (at the time of the withdrawal) for a
three year guarantee period is 4.2%. Based on these facts,
the following values would be assigned to the market value
adjustment formula described above:
n = 1,095 C = .062
A = $10,000 B = .042
A-2
<PAGE> 33
Using these assigned values, the market value adjustment would
equal $554.40 (as calculated below). Since this figure is a
positive number, it is added to the remaining subaccount
value. The subaccount value, however, will be reduced by any
applicable withdrawal charge.
1,095/365
1 + .042
$10,000 x [1 - (--------) ] = $554.40
1 + .062
C. IMPACT ON ACCOUNT VALUE
The tables below are designed to show the impact of the market value
adjustment and withdrawal charge on a single premium of $25,000,
assuming a full withdrawal at the end of each year shown. Table 1
assumes the premium is allocated to a subaccount with a 5 year
guarantee period with a guaranteed rate of interest of 5.4% and an MVA
interest rate at issue of 6.0%. Table 2 assumes premium is allocated
to a subaccount with a 3 year guarantee period with a guaranteed rate
of interest of 5.1% and an MVA interest rate at issue of 5.9%. The
market value adjustments are based on interpolated current MVA
interest rates ("B" in the market value adjustment formula) of 4.0%,
6.0%, and 8.0% in the 5 year guarantee period table (see Table 1
below) and 3.9%, 5.9%, and 7.9% in the 3 year guarantee period table
(see Table 2 below). The net subaccount values shown in the tables
are the maximum amounts available as cash withdrawals. Although the
withdrawal charge is in each case a fixed percentage of the amount
withdrawn, the actual amount of the withdrawal charge that would apply
for full withdrawals at the end of each year would vary as a result of
the market value adjustment, which is imposed before the withdrawal
charge on full withdrawals. Values shown in the tables have been
rounded to the nearest dollar. As a result, the figures under the net
subaccount value columns may not precisely equal amounts set forth in
the subaccount value, plus the market value adjustment, less the
withdrawal charge columns.
A-3
<PAGE> 34
TABLE 1
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Assumed Guaranteed Interest Rate = 5.4%
Assumed Issue MVA Interest Rate = 6.0%
---------------------------------------------------------------------------------------------
Market Value Adjustments, Withdrawal Charges and Net Subaccount Value Based On
Interpolated Current MVA Interest Rates of:
---------------------------------------------------------------------------------------------
4.0% 6.0% 8.0%
- ----------------------------------------------------------------------------------------------------------------------
Market Net Market Net Market Net
End of Sub- Value With- Sub- Value With- Sub- Value With- Sub-
Certificate account Adjust- drawal account Adjust- drawal account Adjust- drawal account
Year Value ment Charge Value ment Charge Value ment Charge Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,350 1,959 1,602 26,707 0 1,492 24,858 -1,798 1,390 23,162
2 27,773 1,536 1,659 27,650 0 1,572 26,201 -1,433 1,491 24,849
3 29,273 1,070 1,718 28,625 0 1,657 27,616 -1,015 1,599 26,658
4 30,853 559 1,778 29,634 0 1,746 29,107 -540 1,716 28,598
5 32,519 0 0 32,519 0 0 32,519 0 0 32,519
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Assumed Guaranteed Interest Rate = 5.1%
Assumed Issue MVA Interest Rate = 5.9%
----------------------------------------------------------------------------------------------
Market Value Adjustments, Withdrawal Charges and Net Subaccount Value Based On
Interpolated Current MVA Rates of:
----------------------------------------------------------------------------------------------
3.9% 5.9% 7.9%
- -----------------------------------------------------------------------------------------------------------------------
Market Net Market Net Market Net
End of Sub- Value With- Sub- Value With- Sub- Value With- Sub-
Certificate account Adjust- drawal account Adjust- drawal account Adjust- drawal account
Year Value ment Charge Value ment Charge Value ment Charge Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,275 961 1,542 25,695 0 1,487 24,788 -912 1,436 23,927
2 27,615 501 1,591 26,524 0 1,563 26,052 -483 1,536 25,596
3 29,023 0 0 29,023 0 0 29,023 0 0 29,023
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The formulas used in determining the amounts shown in the above tables are as
follows:
(1) Net subaccount value = Subaccount Value
------------------------------------------
n/365
1 + Current MVA Interest Rate
0.06 + (-----------------------------)
1 + Issue MVA Interest Rate
A-4
<PAGE> 35
Where "n" is the number of days remaining in the guaranteed
period of the subaccount, but not less than 365.
(2) withdrawal charge = net subaccount value x 0.06
(3) market value adjustment =
n/365
1 + Current MVA Interest Rate
net subaccount value x [1 -(-----------------------------) ]
1 + Issue MVA Interest Rate
(4) "n" is the number of days remaining in the guarantee period of
the subaccount, but not less than 365.
A-5
<PAGE> 36
APPENDIX B
EXAMPLES OF WITHDRAWAL CHARGE CALCULATION
The two examples below assume that a single premium of $25,000 has
been paid under the Contract. The premium is allocated to a subaccount with a
5 year guarantee period with a guaranteed rate of interest of 6.0% and an MVA
interest rate at issue of 6.2%. Example 1 assumes a partial withdrawal of
$5,000 is taken at the end of the third certificate year. Example 2 assumes a
full withdrawal is taken at the end of the third certificate year. The MVA
interest rate at the time of the withdrawal for a subaccount with the
appropriate duration ("B" in the market value adjustment formula) is assumed to
be 8.2% in both examples.
EXAMPLE 1: PARTIAL WITHDRAWAL
Because of interest earned at the guaranteed rate of 6.0%, at the end
of the third certificate year the subaccount value will be equal to
$29,775.40. For a $5,000 partial withdrawal, the withdrawal charge
would be equal to the withdrawal charge rate multiplied by the partial
withdrawal amount:
0.06 x $5,000 = $300.00
The $300.00 withdrawal charge would be deducted from the remaining
subaccount value. In addition to a withdrawal charge, a market value
adjustment of $190.10 would be deducted from the remaining subaccount
value. Therefore, after the partial withdrawal, the remaining
subaccount value would be $24,285.30 ($29,775.40 - $5,000 - $300 -
$190.10). For more information on the market value adjustment, see
Appendix A.
EXAMPLE 2: FULL WITHDRAWAL
As before, because of interest earned at the guaranteed rate of 6.0%,
at the end of the third certificate year the subaccount value will be
equal to $29,775.40. In order to determine the withdrawal charge on a
full withdrawal of subaccount value, the net subaccount value must
first be calculated. In this example, the net subaccount value will
be equal to:
Subaccount Value 29,775.40
- ------------------------------------------ = ----------------- = $27,117.37
n/365 2
1 + Current MVA Interest Rate 1 + .082
0.06 + (-----------------------------) 0.06 + (--------)
1 + Issue MVA Interest Rate 1 + .062
The withdrawal charge would then be equal to the withdrawal charge
rate multiplied by the net subaccount value:
0.06 x $27,117.37 = $1,627.04
B-1
<PAGE> 37
On a full withdrawal, the withdrawal charge would be deducted from the
amount withdrawn. In addition to a withdrawal charge, a market value
adjustment of $1,030.99 would be deducted from the withdrawal amount.
Therefore, the net subaccount value of $ 27,117.37 would be paid on a
full withdrawal ($29,775.40 - $1,627.04 - $1,030.99). For more
information on the market value adjustment, see Appendix A.
B-2
<PAGE> 38
PROSPECTUS
AUGUST___, 1997
RATEMAX (SM)
SINGLE PREMIUM MODIFIED GUARANTEED ANNUITY CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
Home Office: Little Rock, Arkansas 72201
Service Center: P.O. Box 44222, Jacksonville, Florida 32231-4222
4804 Deer Lake Drive East, Jacksonville, Florida 32246
Phone: (800) 535-5549
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
The contract described in this Prospectus (the "Contract") is issued by Merrill
Lynch Life Insurance Company ("Merrill Lynch Life") and is designed to provide
annuity payments in connection with retirement plans that may or may not
qualify for special federal income tax treatment under the Internal Revenue
Code. This Prospectus describes Contracts offered by Merrill Lynch Life only
in Pennsylvania and ___________.
The Contract permits owners to make a single premium payment to be accumulated
at a guaranteed rate or rates of interest depending upon the guarantee period
or periods selected by the owner. The minimum guaranteed rate of interest is
3.0%. Guarantee periods of three and five years are currently available. At
the end of any guarantee period, the subaccount value may be reinvested for one
or more new guarantee periods at the interest rates then offered by Merrill
Lynch Life. A WITHDRAWAL MADE PRIOR TO THE END OF A GUARANTEE PERIOD WILL BE
SUBJECT TO A MARKET VALUE ADJUSTMENT, WHICH COULD HAVE THE EFFECT OF EITHER
INCREASING OR DECREASING THE OWNER'S ACCOUNT VALUE, AND A WITHDRAWAL CHARGE.
AS A GENERAL RULE, IF INTEREST RATES GO UP, THE MARKET VALUE ADJUSTMENT WILL
OPERATE TO DECREASE SUBACCOUNT VALUE; IF INTEREST RATES GO DOWN, THE MARKET
VALUE ADJUSTMENT WILL OPERATE TO INCREASE SUBACCOUNT VALUE.
THE PURCHASE OF THIS CONTRACT INVOLVES CERTAIN RISKS. BECAUSE IT IS A MODIFIED
GUARANTEED ANNUITY, THE CONTRACT IS SUBJECT TO A MARKET VALUE ADJUSTMENT IF,
PRIOR TO THE END OF A SELECTED GUARANTEE PERIOD, FUNDS ARE WITHDRAWN OR THE
CONTRACT IS SURRENDERED, THE CONTRACT IS ANNUITIZED, OR A DEATH BENEFIT BECOMES
PAYABLE. EXCEPT IN CONNECTION WITH PAYMENT OF A DEATH BENEFIT, A MARKET VALUE
ADJUSTMENT COULD HAVE THE EFFECT OF DECREASING THE ACCOUNT VALUE. THEREFORE,
UNDER ANY OF THE CONDITIONS DESCRIBED ABOVE, OWNERS COULD LOSE A SUBSTANTIAL
PORTION OF THE MONEY THEY HAVE INVESTED. PROSPECTIVE INVESTORS SHOULD CONSIDER
THEIR INCOME NEEDS BEFORE PURCHASING A CONTRACT.
ALL WITHDRAWALS FROM AND SURRENDERS OF A CONTRACT ARE SUBJECT TO INCOME TAX,
AND IF TAKEN BEFORE AGE 59 1/2, MAY ALSO BE SUBJECT TO A 10% FEDERAL PENALTY
TAX.
OWNERS SHOULD NOTE THAT THIS IS AN INTEGRATED ANNUITY CONTRACT FOR INTERNAL
REVENUE CODE PURPOSES. THEREFORE, IN DETERMINING THE EXTENT TO WHICH A
WITHDRAWAL IS SUBJECT TO TAX, THE ENTIRE ACCOUNT VALUE, NOT JUST THE VALUE OF
THE SUBACCOUNT FROM WHICH THE WITHDRAWAL IS MADE, WILL BE TAKEN INTO
CONSIDERATION.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 39
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Merrill Lynch Life's Annual Report on Form 10-K for the year ended December 31,
1996, and its Quarterly Reports on Form 10-Q for the periods ended March 31,
1997 and June 30, 1997, are incorporated herein by reference.
All documents or reports filed by Merrill Lynch Life pursuant to Section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the date hereof and prior to the termination of the
offering of the securities offered hereby shall be deemed to be incorporated by
reference in this prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed
to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified and superseded, to constitute a part of this prospectus.
Merrill Lynch Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically
pursuant to EDGAR under CIK No. 0000845091. The SEC maintains a web site that
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC. The address of
the site is http://www.sec.gov.
Merrill Lynch Life will provide without charge to each person to whom this
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than exhibits not specifically incorporated by reference into the text
of such documents). Requests for such documents should be directed to Merrill
Lynch Life's Service Center.
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Registrant 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 in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
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<PAGE> 40
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 4
CAPSULE SUMMARY OF THE CONTRACT . . . . . . . . . . . 6
MERRILL LYNCH LIFE INSURANCE COMPANY . . . . . . . . 9
DESCRIPTION OF THE CONTRACT . . . . . . . . . . . . . 9
A. GENERAL . . . . . . . . . . . . . . . . . . 9
B. PREMIUMS . . . . . . . . . . . . . . . . . . 9
C. SELECTING THE GUARANTEE PERIOD . . . . . . . 9
D. SUBACCOUNT AND ACCOUNT VALUES . . . . . . . 10
E. SUBACCOUNT TRANSFERS . . . . . . . . . . . . 10
F. DETERMINING GUARANTEED INTEREST RATES . . . 11
G. WITHDRAWALS . . . . . . . . . . . . . . . . 11
H. MARKET VALUE ADJUSTMENT . . . . . . . . . . 12
I. WITHDRAWAL CHARGE . . . . . . . . . . . . . 14
J. PAYMENT ON DEATH . . . . . . . . . . . . . . 14
K. ANNUITY PROVISIONS . . . . . . . . . . . . . 16
L. OTHER PROVISIONS . . . . . . . . . . . . . . 18
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . 20
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . 20
PREMIUM TAXES . . . . . . . . . . . . . . . . . . . . 27
EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974 PROVISIONS . . . . . . . . . . . . . . . 27
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . 27
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . 27
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . 27
REGISTRATION STATEMENT . . . . . . . . . . . . . . . 28
APPENDIX A . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
- ---------------
No person has been authorized to give any information or to make any
representation other than that contained in this Prospectus in connection with
the offer contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized. This
Prospectus does not constitute an offer of, or solicitation of an offer to
acquire, any Contracts thereunder offered by this Prospectus in any
jurisdiction to anyone to whom it is unlawful to make such an offer or
solicitation in such jurisdiction.
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<PAGE> 41
DEFINITIONS
account value: The sum of all subaccount values.
annuitant: The person whose age determines when the Contract
must be annuitized, and for certain life annuity
options, when payments stop.
annuity date: The date on which annuity payments under the Contract
will commence.
beneficiary: The person to whom payment is to be made upon the
death of the owner.
business day: A day that Merrill Lynch Life is open for business.
Contract: The Contract described in and offered by this
Prospectus.
contract anniversary: Each anniversary of the issue date.
contract year: The year starting on the issue date or a contract
anniversary and ending on the day immediately prior
to the next contract anniversary.
guarantee period: The period of years for which a rate of interest is
guaranteed to be credited to a subaccount.
issue date: The date on which a Contract is issued.
market value adjustment: A positive or negative adjustment made to subaccount
value. It is applied on withdrawal of all or part of
the subaccount value prior to the end of the
guarantee period. If the annuity date is prior to
the end of a guarantee period, the market value
adjustment is also applied upon annuitization. In
addition, a market value adjustment is applied in the
event of payment on the death of the owner prior to
the annuity date, unless the combined market value
adjustments of all affected subaccounts would reduce
the account value. (See "Market Value Adjustment.")
MVA interest rates: The interest rates used in the calculation of any
market value adjustment. (See "Market Value
Adjustment.")
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<PAGE> 42
net account value: The sum of all net subaccount values.
net subaccount value: The subaccount value after adjustment for any market
value adjustment and withdrawal charge applied in
connection with a withdrawal, annuitization, or the
payment of death benefits on the death of the owner
prior to the annuity date.
nonqualified contract: A Contract issued in connection with a nonqualified
plan.
nonqualified plan: A retirement plan other than a qualified plan.
owner: The individual to whom a Contract has been issued and
who is entitled to exercise all rights under the
Contract.
qualified contract: A Contract issued in connection with a qualified
plan.
qualified plan: A retirement plan that receives favorable tax
treatment under Section 401, 403, 404, 408, 457, or
any similar provision of the Internal Revenue Code.
renewal date: The contract anniversary immediately following the
last day of the guarantee period of a subaccount.
subaccount: An account maintained for an owner corresponding to a
specified interest rate and guarantee period selected
by the owner.
subaccount value: An amount equal to that part of a single premium or
account value allocated or transferred to a
subaccount, plus credited interest, as adjusted for
any prior withdrawals, market value adjustments, and
withdrawal charges.
withdrawal charge: A charge deducted from the subaccount value upon a
withdrawal made prior to the end of a guarantee
period.
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<PAGE> 43
CAPSULE SUMMARY OF THE CONTRACT
THE CONTRACT
This Prospectus describes a single premium modified guaranteed annuity contract
(the "Contract") issued by Merrill Lynch Life. Values and benefits provided
under the Contract, including annuity payments, are funded by the general
account assets of Merrill Lynch Life.
The Contract may be issued pursuant to nonqualified retirement plans or plans
qualifying for special tax treatment as Individual Retirement Annuities or
Individual Retirement Accounts ("IRAs") or Simplified Employee Pensions
("SEPs").
APPLICATION AND PREMIUMS
To apply for a contract, an applicant must provide certain information to a
Merrill Lynch Life Financial Consultant for submission to Merrill Lynch Life.
In certain circumstances, an applicant may be required to complete and return a
written Contract application. Merrill Lynch Life reserves the right to reject
any application. The minimum single premium is $25,000.
THE SUBACCOUNTS
One or more subaccounts are maintained for each owner. The minimum which may
be allocated to a subaccount is $5,000. A subaccount is established for each
specified guaranteed interest rate and guarantee period selected by the owner.
The minimum guaranteed rate of interest is 3.0%. A guarantee period is the
period of years for which a rate of interest is guaranteed. Currently, the
owner may select guarantee periods of three and five years (a one year
guarantee period is also available at renewal only). Merrill Lynch Life, at
its discretion, may offer additional guarantee periods not to exceed ten years.
On the renewal date, the subaccount value for a maturing subaccount will be
transferred to one or more subaccounts designated by the owner. If Merrill
Lynch Life does not receive timely notice from the owner designating the
subaccounts to which the subaccount value is to be transferred, the subaccount
value will be transferred automatically to a subaccount with a one year
guarantee period. Under current administrative policy, Merrill Lynch Life
provides owners with a five business day period after the renewal date to
designate the subaccount or subaccounts to which subaccount value is to be
transferred. Subaccount values may not be transferred to another subaccount in
full or in part prior to the end of the guarantee period.
CHARGES
Merrill Lynch Life makes no deductions from each single premium. Except for
the market value adjustment described below, the only charge made is a
withdrawal charge in the event all or part of a net subaccount value is
withdrawn. However, no withdrawal charge is made for a
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<PAGE> 44
withdrawal at the end of a guarantee period if Merrill Lynch Life receives
written notice of the withdrawal prior to (or, under current administrative
policy, within five business days after) the renewal date. The withdrawal
charge is equal to the withdrawal rate of six percent multiplied by the amount
of the withdrawal being taken from a subaccount (if part of net subaccount
value is withdrawn), or the net subaccount value multiplied by the withdrawal
charge rate (if the contract is being surrendered). No withdrawal charge is
imposed in the event of payment upon the death of the owner or, currently, upon
annuitization. Premium taxes, if any, will be deducted from the net account
value at the annuity date. In those jurisdictions that do not allow an
insurance company to reduce its current taxable premium income by the amount of
any withdrawal, surrender, or death benefit paid, Merrill Lynch Life will also
deduct a charge for these taxes on any withdrawal, surrender, or death benefit
effected under a Contract.
MARKET VALUE ADJUSTMENT
A market value adjustment is applied to any withdrawal from a subaccount prior
to the end of its guarantee period. It will also be applied upon annuitization
if the annuity date is prior to the end of the guarantee period for that
subaccount. In addition, a market value adjustment will be applied in the
event of payment upon the death of the owner prior to the annuity date, unless
the combined effect of the market value adjustments of all affected subaccounts
would reduce the account value. The amount of the market value adjustment is
determined in accordance with the formula set forth on page 13 and may be
positive or negative.
ANNUITY PAYMENTS
Annuity payments will start on the annuity date. For nonqualified contracts,
at issue, the annuity date is the date of the annuitant's 85th birthday and the
annuity payment option is a life annuity with a 10 year guarantee. For
qualified contracts, at issue, the annuity date is the date the annuitant
attains age 70 1/2 and the annuity payment option is a life annuity with a 10
year guarantee. AN OWNER MAY CHANGE THE ANNUITY PAYMENT OPTION OR THE ANNUITY
DATE AT ANY TIME PRIOR TO THE ANNUITY DATE.
On the annuity date, the net account value, less any applicable premium taxes,
is multiplied by Merrill Lynch Life's then current annuity purchase rates to
determine the amount of annuity payments. Currently, withdrawal charges do not
apply upon annuitization. However, Merrill Lynch Life reserves the right to
apply the withdrawal charge to any subaccount on annuitization if the annuity
date is prior to the end of the guarantee period for that subaccount. The net
account value is the sum of all net subaccount values. In determining net
subaccount value, a market value adjustment will be applied if the annuity
date is prior to the end of the guarantee period for that subaccount. If the
net account value on the annuity date is less than $5,000, Merrill Lynch Life
may pay the net account value in a lump sum in lieu of annuity payments. For
tax consequences of a lump sum payment, see "Federal Tax Considerations --
Partial Withdrawals and Surrenders." If any annuity payment would be less
than $50, Merrill Lynch
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<PAGE> 45
Life may change the frequency of payments to intervals that will result in
payments of at least $50.
PAYMENT ON DEATH
If an owner dies prior to the annuity date, Merrill Lynch Life will pay to the
beneficiary the account value plus any positive market value adjustment as of
the date of payment. If the annuitant dies prior to the annuity date and the
owner is not the annuitant, the owner may designate a new annuitant.
If the annuitant dies after the annuity date and the annuitant is not also the
owner, the owner may choose either to have any unpaid guaranteed amounts
remaining continue to be paid for the amount or period guaranteed or to receive
the present value of the remaining guaranteed payments in a lump sum. If an
owner dies after the annuity date and while guaranteed amounts remain unpaid,
the present value may be paid in a lump sum to the beneficiary, if the
beneficiary so elects.
WITHDRAWALS
The owner may withdraw all or part of the net account value upon notice to
Merrill Lynch Life received prior to the earlier of the annuity date or the
death of the owner. For partial withdrawals, the withdrawal must be at least
$500, the remaining subaccount value of each subaccount, after adjustment for
any market value adjustment and withdrawal charge, must be at least $5,000, and
the remaining account value must be at least $15,000. Withdrawals from
qualified plans may be restricted. (See "Qualified Plans.") Withdrawals are
subject to income tax, and prior to age 59 1/2 may also be subject to a 10%
federal penalty tax. (See "Federal Tax Considerations -- Penalty Tax on
Certain Withdrawals.")
REPORTS TO OWNERS
At least once each year prior to the annuity date, owners will be sent a report
outlining their account value, subaccount values, and current guaranteed
interest rates for the subaccounts. The report will not include Merrill Lynch
Life financial statements.
FREE LOOK RIGHT
When the owner receives the Contract, it should be reviewed carefully to make
sure it is what the owner intended to purchase. Generally, within ten days
after the owner receives the Contract, he or she may return it for a refund.
Some states allow a longer period of time to return the Contract. For a refund
to be made, the Contract must be delivered to Merrill Lynch Life's Service
Center or to the Financial Consultant who sold it. Merrill Lynch Life will
then refund to the owner all premiums paid into the Contract. The Contract
will then be deemed void from the beginning.
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<PAGE> 46
MERRILL LYNCH LIFE INSURANCE COMPANY
Merrill Lynch Life Insurance Company ("Merrill Lynch Life") is a stock life
insurance company organized under the laws of the State of Washington in 1986
and redomesticated under the laws of the State of Arkansas in 1991. Merrill
Lynch Life is an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill Lynch"), a corporation whose common stock is traded on the New York
Stock Exchange.
Merrill Lynch Life's home office is in Little Rock, Arkansas. The Service
Center's address and phone number are P.O. Box 44222, Jacksonville, Florida
32231-4222, (800) 535-5549.
All communications concerning the Contract should be addressed to Merrill Lynch
Life's Service Center.
DESCRIPTION OF THE CONTRACT
A. GENERAL
The Contract is a single premium modified guaranteed annuity contract. The
Contract may be issued in connection with either qualified or nonqualified
plans. Qualified plans include IRAs and SEPs.
A prospective purchaser may become an owner by providing certain information
and forwarding payment of a single premium to Merrill Lynch Life's Service
Center. (Purchasers will be asked to confirm in writing the information
provided.) Applicants may be required to complete and return a written
Contract application in certain circumstances, such as when the Contract is
being issued to replace, or in exchange for, another annuity contract. An
application is subject to Merrill Lynch Life's acceptance. The rights and
benefits of an owner are summarized in the Contract.
B. PREMIUMS
A Contract will be issued in exchange for a single premium of at least $25,000.
If the amount of any single premium is more than $500,000, Merrill Lynch Life
reserves the right to limit the amount of the premium. The premium will be
allocated to one or more subaccounts as selected by the owner. The minimum
allocation to a subaccount is $5,000. Merrill Lynch Life will confirm its
receipt of the payment and the subaccounts established for the payment. The
Contract does not permit the payment of additional premiums.
C. SELECTING THE GUARANTEE PERIOD
The owner may select one or more guarantee periods for the single premium or
portion thereof. Merrill Lynch Life has discretion to determine the number of
guarantee periods it will offer.
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<PAGE> 47
Currently, it offers guarantee periods of three and five years (a one year
guarantee period is also available at renewal only). Merrill Lynch Life will
establish a subaccount corresponding to each guarantee period selected and
applicable specified interest rate, which will not be less than 3.0%. Once a
guarantee period has been selected, it cannot be changed. Amounts cannot be
transferred from one subaccount to another prior to the end of the guarantee
period. The owner may, however, withdraw amounts from a subaccount, subject to
certain restrictions, a market value adjustment, and a withdrawal charge. (See
"Withdrawals," "Market Value Adjustment," and "Withdrawal Charge.")
Withdrawals may have federal income tax consequences, including a 10% penalty
on amounts withdrawn. (See "Federal Tax Considerations -- In General." )
D. SUBACCOUNT AND ACCOUNT VALUES
An owner's account value is the sum of all of his or her subaccount values.
Each subaccount value is equal to the amount the owner allocated or transferred
to the subaccount (either as part of the single premium or as part of the
reinvestment of subaccount value at the end of a guarantee period), plus the
interest credited at the guaranteed rate, as adjusted for any prior
withdrawals, market value adjustments, and withdrawal charges. Merrill Lynch
Life offers a guaranteed interest rate for each subaccount. The minimum
guaranteed rate of interest is 3.0%. The owner is credited with the guaranteed
interest rate in effect on the date Merrill Lynch Life receives his or her
premium or on the renewal date, as applicable. The daily simple interest rate
will be computed by dividing the applicable guaranteed interest rate for a
subaccount by 365. This rate will be applied to the last contract anniversary
subaccount value with adjustments for subsequent withdrawals and credited to
the subaccount daily (except on a February 29th) to yield the quoted guaranteed
interest rate. Through this formula, interest will be compounded only annually
on each contract anniversary.
E. SUBACCOUNT TRANSFERS
On each subaccount's renewal date, the owner may transfer amounts in that
subaccount to one or more subaccounts with guarantee periods of any length then
offered by Merrill Lynch Life. The amount transferred will be credited with
the interest rate in effect on the renewal date for the subaccount to which the
amount is transferred. The guaranteed interest rate for transferred subaccount
value may not be the same as the guaranteed interest rate available for initial
allocation of a single premium for a guarantee period of the same duration.
Merrill Lynch Life will notify the owner of his or her right to transfer
amounts to new subaccounts at least 30 days, but not more than 60 days, prior
to the renewal date of a subaccount. Prior to the renewal date, the owner may
advise Merrill Lynch Life of the new subaccount or subaccounts to which the
subaccount value is to be transferred at the end of the guarantee period.
TRANSFERS CANNOT BE MADE TO A GUARANTEE PERIOD WITH A DURATION THAT WILL EXTEND
BEYOND THE ANNUITY DATE. The minimum amount that can be transferred to any one
subaccount is the lesser of (i) $5,000 or (ii) the total subaccount value at
the time of transfer. No withdrawal charge or market value adjustment is
applied in connection with such transfers.
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<PAGE> 48
SUBACCOUNT VALUES MAY NOT BE TRANSFERRED TO ANOTHER SUBACCOUNT IN FULL OR IN
PART PRIOR TO THE END OF THE GUARANTEE PERIOD. Under current administrative
procedures, if instructions are not received prior to the renewal date, then on
the renewal date, Merrill Lynch Life will transfer the subaccount value to a
new subaccount with a one-year guarantee period. However, if instructions are
received by the fifth business day after the renewal date, then as of the
renewal date, Merrill Lynch Life will transfer the subaccount value to the
subaccount or subaccounts selected by the owner. If instructions have not been
received by the fifth business day after the renewal date, the subaccount value
will remain in the subaccount with a one-year guarantee period. Subject to
contractual and federal tax restrictions, the owner may change his or her
annuity date so that the guarantee period of the new subaccount will end on or
prior to the annuity date. (See "Annuity Provisions -- Change of Annuity Date
or Annuity Option.")
F. DETERMINING GUARANTEED INTEREST RATES
The guaranteed interest rate for a guarantee period will not be less than 3.0%.
Merrill Lynch Life has no specific formula for establishing the guaranteed
interest rates for the different guarantee periods. The determination made
will be influenced by, but not necessarily correspond to, interest rates
available on fixed income investments which Merrill Lynch Life may acquire with
the amounts it receives as premiums under the Contracts. These amounts will be
invested primarily in investment-grade fixed income securities including:
securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the United
States Government; debt securities that have an investment grade, at the time
of purchase, within the four highest grades assigned by Moody's Investor
Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A
or BBB), or any other nationally recognized rating service; mortgage-backed
securities collateralized by real estate mortgage loans, or securities
collateralized by other assets, that are insured or guaranteed by the Federal
Home Loan Mortgage Association, the Federal National Mortgage Association, or
the Government National Mortgage Association, or that have an investment grade
at the time of purchase within the four highest grades described above; other
debt instruments; commercial paper; and cash or cash equivalents. Owners will
have no direct or indirect interest in these investments. Merrill Lynch Life
will also consider other factors in determining the guaranteed rates, including
regulatory and tax requirements, sales commissions and administrative expenses
borne by Merrill Lynch Life, general economic trends, and competitive factors.
MERRILL LYNCH LIFE'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION OF THE
GUARANTEED RATES IT DECLARES. MERRILL LYNCH LIFE CANNOT PREDICT OR GUARANTEE
THE LEVEL OF FUTURE INTEREST RATES EXCEPT THAT NO SUCH RATE WILL BE LESS THAN
3.0%.
G. WITHDRAWALS
Subject to certain conditions, an owner may withdraw all or part of his or her
net account value prior to the earlier of the annuity date or the death of the
owner, upon written notice received at Merrill Lynch Life's Service Center
before the annuity date. Withdrawals are subject to income tax, and prior to
age 59 1/2 may also be subject to a 10% federal penalty tax. (See "Federal Tax
- 11 -
<PAGE> 49
Considerations -- In General.") For full withdrawals, the withdrawal notice
must be accompanied by the Contract.
Partial withdrawals must be at least $500, and each net subaccount value
remaining after the withdrawal must be at least $5,000, unless the entire
subaccount value is withdrawn. The remaining account value must be at least
$15,000. Otherwise, the partial withdrawal will not be permitted. The owner
must specify the subaccounts from which the partial withdrawal is to be made.
If the owner does not specify, the partial withdrawal will be made from the
subaccount with the shortest period of time remaining in its guarantee period
until that subaccount has been depleted, from the subaccount with the next
shortest period of time remaining in its guarantee period until that subaccount
has been depleted, and so forth, continuing until the amount of the partial
withdrawal has been reached.
The amount of the withdrawal will be paid to the owner, and any market value
adjustment will be made to, and any withdrawal charge will be deducted from,
the subaccounts from which the withdrawal is made. Immediately after a partial
withdrawal, the value of the subaccount from which a withdrawal is taken will
equal the subaccount value prior to the withdrawal, plus or minus any
applicable market value adjustment, minus any applicable withdrawal charge, and
minus the amount withdrawn. In the case of a request to withdraw the entire
amount from a subaccount, the owner receives the net subaccount value (which
reflects any adjustments to the subaccount value for the withdrawal charge and
market value adjustment applied in connection with such withdrawal). On a full
withdrawal, the subaccount value is reduced by the amount withdrawn as well as
any applicable withdrawal charge, and the market value adjustment is applied,
thereby reducing the subaccount value to zero. (See "Market Value Adjustment"
and "Withdrawal Charge.") See Appendix A and Appendix B for examples showing
the effect of the withdrawal charge and market value adjustment on the amount
of withdrawals.
H. MARKET VALUE ADJUSTMENT
The Contract provides for the imposition of a market value adjustment,
determined by application of the formula described below, in three
circumstances:
- - Whenever the owner makes a withdrawal from a subaccount, other than
one made at, and for which Merrill Lynch Life has received written
notice prior to, the end of the guarantee period for that subaccount;
- - To subaccount value upon annuitization, if the annuity date is prior
to the end of the guarantee period for that subaccount; and
- - In the event of payment upon the death of the owner prior to the
annuity date, unless the combined market value adjustments of all
affected subaccounts would reduce the account value.
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<PAGE> 50
The amount of the market value adjustment is determined from the following
formula:
n/365
1 + B
A X [1 - (-----) ]
1 + C
where "A" is (i) the amount withdrawn from the net subaccount value, in the
case of a partial withdrawal; or (ii) the net subaccount
value, in the case of a full withdrawal, death benefit
payment, or annuitization;
"B" is the MVA interest rate in effect at the time the market value
adjustment is being applied for a subaccount with a guarantee
period for a duration of years represented by "n/365," whether
or not those durations are currently offered under the
Contract. "n/365" is determined by straight-line
interpolation if n/365 is not a whole number (if n/365 is less
than 1, we will assume "B" is equal to the MVA interest rate
for a one-year guarantee period);
"C" is the MVA interest rate in effect for the subaccount on the
issue date or the last renewal date; and
"n" is the remaining number of days in the guaranteed period of the
subaccount from which the withdrawal is made or to which the
adjustment is applied.
MVA Interest Rates. The MVA interest rate for each subaccount to which premium
or account value is allocated will be specified in notices sent to contract
owners at issue and renewal, respectively. Like guaranteed interest rates, MVA
interest rates will be declared by Merrill Lynch Life's management in its sole
discretion, and Merrill Lynch Life cannot predict or guarantee the level of
future MVA interest rates, which may be greater or less than guaranteed
interest rates declared concurrently for the same guarantee period duration.
Merrill Lynch Life determines MVA interest rates based on rates on Treasury
bonds with durations appropriate to effectuate Merrill Lynch Life's
asset-liability matching program with respect to its obligations under the
Contracts. In general, the use of MVA interest rates by Merrill Lynch Life to
calculate any market value adjustment is intended to preclude certain factors
not related to market interest rates per se, such as changes in mortality
assumptions, or the use of increased current rates for competitive or other
non-market related factors, from affecting the size or direction of any market
value adjustment.
The market value adjustment will depend on the relationship, at the time the
market value adjustment is being applied, between (i) the MVA interest rate
established at issue or renewal for the subaccount from which a withdrawal or
payment is being made, to (ii) the MVA interest rate in effect for a time
period equal to the remaining duration of the guarantee period of the
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<PAGE> 51
subaccount from which the withdrawal or payment is being made. Neither the
guaranteed interest rate for the subaccount from which a withdrawal or payment
is being made, nor any guaranteed interest rate in effect at the time of
withdrawal or payment, is used to determine the market value adjustment.
AS A GENERAL RULE, IF INTEREST RATES GO UP, THE MARKET VALUE ADJUSTMENT WILL
OPERATE TO DECREASE YOUR SUBACCOUNT VALUE; IF INTEREST RATES GO DOWN, THE
MARKET VALUE ADJUSTMENT WILL OPERATE TO INCREASE YOUR SUBACCOUNT VALUE.
Because of the market value adjustment provision of the Contract, the owner
bears the investment risk that the MVA interest rates in effect at the time the
owner makes a withdrawal from a subaccount or starts receiving annuity payments
may be higher than the MVA interest rate of the subaccount to which the market
value adjustment is applied. The result is that the owner's subaccount value
may be substantially reduced.
Appendix A contains additional information about the operation of the market
value adjustment, including examples illustrating the application of the market
value adjustment in the context of full withdrawals from a hypothetical
subaccount.
I. WITHDRAWAL CHARGE
A withdrawal charge is imposed if the owner makes a withdrawal from a
subaccount other than at the end of a subaccount's guarantee period. No
withdrawal charge is imposed if a withdrawal is made at the end of the
guarantee period for a subaccount where written notice was received at Merrill
Lynch Life's Service Center prior to (or, under current administrative
procedures, within five business days after) the renewal date. Currently,
withdrawal charges do not apply upon annuitization. However, Merrill Lynch
Life reserves the right to apply the withdrawal charge on annuitization to any
subaccount if the annuity date is prior to the end of the guarantee period for
that subaccount. The withdrawal charge rate is equal to six percent for the
duration of each initial and renewal guarantee period. For partial withdrawals
from a subaccount, withdrawal charges are determined by multiplying the amount
of the withdrawal being taken from a subaccount by the withdrawal charge rate
applicable to the guarantee period for that subaccount, or six percent. For a
full withdrawal of a subaccount, the amount received is the net subaccount
value, which reflects adjustments for the withdrawal charge and any market
value adjustment. For a partial withdrawal, the withdrawal charge will be
deducted from the remaining value of the subaccounts from which the withdrawal
was made. Withdrawal charges do not apply to annuity payments or to any payment
made due to the death of the owner. Withdrawal charges apply when a full
withdrawal occurs on an annuity date which does not correspond to the renewal
date of a guarantee period. Appendix B contains examples which illustrate the
calculation of withdrawal charges for a hypothetical subaccount.
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J. PAYMENT ON DEATH
Death Prior to the Annuity Date. Subject to the rights of an owner's surviving
spouse in certain circumstances (described below), if an owner dies prior to
the annuity date, Merrill Lynch Life will pay the death benefit to the
beneficiary. The death benefit is equal to the sum of each subaccount value
after market value adjustment; but if the combined effect of the market value
adjustments applied to each subaccount would not be positive, no market value
adjustment is made. No withdrawal charge will be applied. Payment will be
made upon receipt by Merrill Lynch Life of proof of the death of an owner
(e.g., a certified copy of the death certificate), and, subject to the special
rules applicable to any owner's death (discussed below), will be made in a lump
sum unless an annuity option is chosen. If no annuity option is chosen by the
60th day following receipt of the certified death certificate, Merrill Lynch
Life reserves the right to automatically pay the death benefit in a lump sum.
In the event of an owner's death, the death benefit generally must be
distributed within five years of the death of the owner. The beneficiary may,
however, elect to receive the death benefit pursuant to an annuity option under
which payments commence within one year of the owner's death and do not extend
beyond the life or life expectancy of the beneficiary. If the beneficiary is
the surviving spouse of the deceased owner, he or she may choose to receive
payments under any of the annuity options of the Contract. (See "Annuity
Provisions.") For IRAs, any annuity option chosen by a beneficiary must meet
the requirements of the Internal Revenue Code. If the surviving spouse of a
deceased owner is the beneficiary, the spouse may choose to become the owner
and to continue the Contract in force on the same terms as before the owner's
death, in which event no death benefit is paid upon the death of the deceased
owner, and the spouse thereafter shall be the owner and the beneficiary, until
a new beneficiary is named. If the Contract has more than one owner, the date
of death of the owner will be deemed to occur when the first owner dies.
If the annuitant dies prior to the annuity date and the owner is not the
annuitant, the owner may designate a new annuitant. If a new annuitant is not
designated, the owner will be the annuitant, provided the owner is an
individual. If the owner is not an individual, the death of the annuitant will
be treated as the death of the owner.
If a beneficiary does not survive the owner, the estate or heirs of the
beneficiary have no rights under the Contract. If no beneficiary survives the
owner, payment will be made to the owner's estate.
If the owner is not an individual, the annuitant as determined in accordance
with Section 72(s) of the Internal Revenue Code (i.e., the individual the
events in the life of whom are of primary importance in affecting the timing or
amount of distributions under the Contract) will be treated as the owner for
purposes of these distribution requirements, and the death of the annuitant
will be treated as the death of the owner.
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Death After the Annuity Date. If the annuitant dies after the annuity date and
the annuitant is not also the owner, the owner may choose either to have any
guaranteed amounts remaining unpaid continue to be paid for the amount or
period guaranteed or to receive the present value of the remaining guaranteed
payments in a lump sum. If an owner dies after the annuity date and while
guaranteed amounts remain unpaid, the present value may be paid in a lump sum
to the beneficiary, if the beneficiary so elects. Present values will be
computed at the interest rate that was used to compute the amount of the
initial annuity payment.
K. ANNUITY PROVISIONS
General. Annuity payments will be paid to the annuitant and will commence on
the annuity date. The owner may or may not be the annuitant. The owner
designates the annuitant when purchasing the Contract, and may later change the
annuitant upon written notice to Merrill Lynch Life, unless the owner is not an
individual.
The amount of annuity payments, other than payments made pursuant to the
qualified plan option, will be determined by applying the net account value at
the annuity date, less any premium taxes, to the annuity option chosen using
Merrill Lynch Life's then current annuity rates. Currently, withdrawal charges
do not apply upon annuitization. However, Merrill Lynch Life reserves the
right to apply the withdrawal charge on annuitization to any subaccount if the
annuity date is prior to the end of the guarantee period for that subaccount.
Current annuity rates are guaranteed to be no less favorable than the minimum
guaranteed annuity rates shown in the annuity tables contained in the Contract
and will not be based on an interest rate of less than three percent. Premium
taxes imposed by states and local jurisdictions currently range from 0% to 5%
depending on the tax treatment of the Contract. In determining the net account
value, a market value adjustment will be applied to any subaccount if the
annuity date is prior to the end of the guarantee period for that subaccount.
Annuity Date and Annuity Options. For nonqualified contracts, at issue, the
annuity date will be the annuitant's 85th birthday and the annuity option will
be a life annuity with a 10 year guarantee. For qualified contracts, at issue,
the annuity date will be the date the annuitant attains age 70 1/2 and the
annuity option will be a life annuity with a 10 year guarantee. THE OWNER MAY
CHANGE THE ANNUITY DATE OR THE ANNUITY OPTION ON WRITTEN NOTICE RECEIVED AT
MERRILL LYNCH LIFE'S SERVICE CENTER (OR BY TELEPHONE, ONCE A PROPER
AUTHORIZATION FORM IS SUBMITTED TO THE SERVICE CENTER) AT ANY TIME PRIOR TO THE
ANNUITY DATE. Merrill Lynch Life currently permits owners to select an
annuity date that is any day of a calendar month. It may not be later than the
annuitant's 85th birthday. Changes of the annuity date are subject to federal
tax restrictions. (See "Federal Tax Considerations.")
Annuity Options. The owner may select any one of the following annuity options
or any other option satisfactory to the owner and Merrill Lynch Life. For
qualified contracts, certain restrictions may apply.
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PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made
until the net account value applied under this option, adjusted for interest
credits and prior annuity payments, is exhausted. The period over which
payments are made must be at least five years.
PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The
period must be at least five years.
*LIFE ANNUITY: Payments will be made for the life of the annuitant. Payments
will cease with the last payment due prior to the annuitant's death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: Payments will be
made for the guaranteed period chosen (10 or 20 years) and as long thereafter
as the annuitant lives.
LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE: Payments will be
made until the sum of the annuity payments equals the net account value applied
under this option, and as long thereafter as the annuitant lives.
*JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes
of the annuitant and a designated second person. Payments will continue as
long as either is living.
QUALIFIED PLAN OPTION: This option is available only under qualified
contracts. Payments may be based on (a) the life expectancy of the annuitant,
(b) the joint life expectancy of the annuitant and his or her spouse, or (c)
the life expectancy of the surviving spouse if the annuitant dies before the
annuity date. Payments will be made annually. Each payment will be equal to
the net account value on the first day of the calendar year divided by
applicable current life expectancy based on Internal Revenue Service
regulations. Each subsequent payment will be made on the anniversary of the
annuity date. Interest will be credited at Merrill Lynch Life's then current
rate for this option. The rate will not be less than three percent. On death
of the measuring life or lives, any unpaid net account value will be paid to
the beneficiary in a lump sum.
*THESE OPTIONS ARE LIFE ANNUITIES UNDER WHICH IT IS POSSIBLE FOR THE ANNUITANT
TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE ANNUITANT (OR THE ANNUITANT AND A
DESIGNATED SECOND PERSON) DIES AFTER THE FIRST PAYMENT, OR TO RECEIVE ONLY TWO
ANNUITY PAYMENTS IF THE ANNUITANT (OR THE ANNUITANT AND A DESIGNATED SECOND
PERSON) DIES AFTER THE SECOND PAYMENT, AND SO ON. ACCORDINGLY, YOU SHOULD
CAREFULLY CONSIDER WHETHER THESE OPTIONS WILL MEET YOUR FINANCIAL NEEDS.
Minimum Annuity Payments. Annuity payments will be made monthly beginning on
the annuity date unless the owner chooses less frequent payments or the
qualified plan option, provided that
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if any payment would be less than $50, Merrill Lynch Life may change the
frequency so payments are at least $50 each. If the net account value to be
applied at the annuity date is less than $5,000, Merrill Lynch Life may elect
to pay that amount in a lump sum. (For tax consequences of a lump sum payment,
see "Federal Tax Considerations.")
Annuity Rates. Annuity rates will be no less favorable than those shown in the
annuity tables contained in the Contract and will not be based on an interest
rate of less than three percent. Those tables show the minimum guaranteed
amount of each monthly payment for each $1,000 applied according to the age and
sex of the annuitant at the annuity date. The tables are based on the 1983
Table "a" projected forward to 1995 for Individual Annuity Valuation, set back
one year, with interest at three percent. When required by law, Merrill Lynch
Life will use annuity tables that do not differentiate on the basis of sex.
The Contract contains a formula for adjusting the age of the annuitant based on
the annuity date for purposes of determining minimum monthly annuity payments.
If the annuity date is prior to the year 2000, there is no age adjustment. If
the annuity date is between the years 2000 and 2009, the annuitant's age is
reduced by one year. For each decade thereafter, the annuitant's age is
reduced one additional year. The maximum age adjustment is four years.
An age adjustment results in a reduction in the minimum monthly annuity
payments that would otherwise be made. Therefore, if the rates Merrill Lynch
Life is using are the minimum rates shown in the annuity tables contained in
the Contract, it may be advantageous for the owner to designate an annuity date
that immediately precedes the date on which an age adjustment would occur under
the Contract. For example, the annuity payment rates in the annuity tables for
an annuitant with an annuity date in the year 2010 are the same as those for an
annuity date twelve months earlier, even though the annuitant is one year
older, because the new decade results in the annuitant's age being reduced by
an additional year. Current annuity rates, unlike the guaranteed rates, do not
involve any age adjustment.
Proof of Age, Sex and Survival. Merrill Lynch Life may require satisfactory
proof of the age, sex, or survival of any person on whose continued life any
payment under the Contract depends.
Misstatement of Age or Sex. If the age or sex of an annuitant is misstated,
annuity payments will be adjusted to reflect the correct age and sex. Any
amount overpaid as the result of such misstatement will be deducted from
subsequent payments until recovered. Any amount underpaid will be paid in full
with the next payment due. Interest on the overpayment will be charged at the
rate of four percent per year. Interest on an underpayment will be paid at the
rate of four percent per year.
L. OTHER PROVISIONS
Beneficiary. The beneficiary is the person or persons named in the Contract
application to whom payment is to be made upon the death of the owner. Unless
a beneficiary has been irrevocably
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designated, the beneficiary may be changed while the owner is alive. The
change of a beneficiary who was named by the owner irrevocably may only be made
with the written consent of the beneficiary. The beneficiary has no ownership
rights under the Contract. The estate or heirs of a beneficiary who dies prior
to the owner have no rights under the Contract. However, if a beneficiary
survives the owner but dies before the Contract's proceeds are distributed, the
estate or heirs of such beneficiary are entitled to that portion of the
Contract's proceeds that would otherwise have been paid to such beneficiary.
If no beneficiary survives the owner, payment will be made to the owner's
estate. Certain restrictions may apply in the case of qualified contracts.
Assignment. Upon notice to Merrill Lynch Life, the owner may make a collateral
assignment of his or her rights under the Contract by transferring the Contract
to a creditor as a security for a debt. If the Contract is issued pursuant to
a qualified plan, the owner's rights under the Contract may not be assigned,
pledged, or transferred, unless permitted by law. A collateral assignment does
not change ownership of the Contract. The rights of a collateral assignee have
priority over the rights of a beneficiary. No amounts payable under the
Contract to a payee other than the owner may be assigned by that payee, nor
will they be subject to the claims of creditors or to legal process, except to
the extent permitted by law. A collateral assignment may have federal income
tax consequences. (See "Federal Tax Considerations -- Transfers, Assignments,
or Exchanges of a Contract.")
Notices and Elections. Generally, to be effective, all notices, changes, and
choices the owner makes under the Contract must be in writing, signed by the
proper party, and received at Merrill Lynch Life's Service Center. However, an
owner (and, once a proper authorization form is submitted to Merrill Lynch
Life's Service Center, an owner's Financial Consultant) may select by telephone
the subaccounts to which the subaccount value at the end of a guarantee period
is to be transferred and may also select by telephone the subaccounts from
which any partial withdrawals are to be made. In addition, choices regarding
changes of annuity date may also be made by telephone. Notices, changes, and
choices relating to beneficiaries, ownership, and the annuitant will take
effect as of the date signed unless Merrill Lynch Life has already acted in
reliance on the prior status. Changes relating to annuity date will take
effect as of the date received, unless Merrill Lynch Life has already acted in
reliance on the prior status.
Amendment of the Contract. Merrill Lynch Life may amend the Contracts at any
time as may be necessary to conform to any applicable law, regulation, or
ruling issued by a government agency or court.
Deferral of Payments. All sums payable by Merrill Lynch Life are payable at
its Service Center. Merrill Lynch Life may require return of a Contract prior
to making payment. Merrill Lynch Life may defer payments of partial or full
withdrawals for up to six months.
Free Look Right. When the owner receives the Contract, it should be reviewed
carefully to make sure it is what the owner intended to purchase. Generally,
within ten days after the owner receives the Contract, he or she may return it
for a refund. Some states allow a longer period of
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time to return the Contract. The Contract must be delivered to Merrill Lynch
Life's Service Center or to the Financial Consultant who sold it for a refund
to be made. Merrill Lynch Life will then refund to the owner all premiums paid
into the Contract. The Contract will then be deemed void from the beginning.
If an owner exercises his or her free look right, that owner may not submit
another application with the same annuitant for ninety days.
Guarantee of Contracts. The federal government or its instrumentalities do not
guarantee the Contracts. Merrill Lynch Life backs the guarantees associated
with the Contracts.
DISTRIBUTION OF THE CONTRACTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is the principal
underwriter of the Contract. It was organized in 1958 under the laws of the
state of Delaware and is registered as a broker-dealer under the Securities
Exchange Act of 1934. It is a member of the National Association of Securities
Dealers, Inc. ("NASD"). MLPF&S' principal business address is World Financial
Center, 250 Vesey Street, New York, New York 10281.
Contracts are sold by registered representatives (Financial Consultants) of
MLPF&S who are also licensed through various Merrill Lynch Life Agencies
("MLLA") as insurance agents for Merrill Lynch Life. Merrill Lynch Life has
entered into a distribution agreement with MLPF&S and companion sales
agreements with MLLA through which agreements the Contracts are sold and the
Financial Consultants are compensated by MLLA and/or MLPF&S. The maximum
commission paid to a Financial Consultant in connection with sale of a contract
is 1.13% of each premium. In addition, the maximum compensation paid to a
Financial Consultant for each renewal is 0.23% of account value reinvested,
payable annually. Commissions may be paid in the form of non-cash
compensation.
The maximum commission Merrill Lynch Life will pay to the applicable insurance
agency to be used to pay commissions to Financial Consultants is 2.5% of each
premium. In addition, the maximum compensation Merrill Lynch Life will pay to
the applicable insurance agency to be used to pay compensation to Financial
Consultants for reinvestment is 0.4% of subaccount value reinvested, payable
annually.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The following discussion is general and is not intended as tax advice.
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This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction. This discussion is based upon Merrill Lynch Life's understanding
of the present federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
the continuation of the present federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
MERRILL LYNCH LIFE DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY
CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACTS.
The Contract may be purchased on a nonqualified tax basis ("nonqualified
contract") or purchased and used in connection with certain plans qualifying
for favorable tax treatment ("qualified contract"). The qualified contracts
are designed for use by individuals whose premium payment is comprised solely
of contributions under Individual Retirement Annuities or Accounts (IRAs) and
Simplified Employee Pensions (SEPs) under Sections 408(a), 408(b), and 408(k)
of the Internal Revenue Code, and/or proceeds from retirement plans which are
intended to qualify as plans entitled to special income tax treatment under
Sections 401, 403, 404, 408, or 457 of the Internal Revenue Code. The ultimate
effect of federal income taxes on the amounts held under a Contract, on annuity
payments, and on the economic benefit to the owner, the annuitant, or the
beneficiary depends on the type of retirement plan, on the tax and employment
status of the individual concerned, and on Merrill Lynch Life's tax status. In
addition, certain requirements must be satisfied in purchasing a qualified
contract with proceeds from a tax qualified plan and receiving distributions
from a qualified contract in order to continue receiving favorable tax
treatment. Therefore, purchasers of qualified contracts should seek competent
legal and tax advice regarding the suitability of a Contract for their
situation, the applicable requirements, and the tax treatment of the rights and
benefits of a Contract. The following discussion assumes that qualified
contracts are purchased with proceeds from and/or contributions under
retirement plans that qualify for the intended special federal income tax
treatment.
TAXATION OF MERRILL LYNCH LIFE
Merrill Lynch Life is taxed as a life insurance company under Part I of
Subchapter L of the Internal Revenue Code. The assets underlying the Contracts
will be owned by Merrill Lynch Life. The income earned on such assets will be
income to Merrill Lynch Life.
TAX STATUS OF THE CONTRACT
Merrill Lynch Life believes that the Contract will be treated as an annuity
contract and that Merrill Lynch Life will be treated as owning the assets
supporting the Contract for federal
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income tax purposes. Merrill Lynch Life, however, reserves the right to modify
the Contract as necessary to prevent the contract owner from being considered
the owner of the assets supporting the Contract for federal tax purposes.
Furthermore, in order to be treated as an annuity contract for federal income
tax purposes, Section 72(s) of the Internal Revenue Code requires any
nonqualified contract to provide that (a) if any owner dies on or after the
annuity commencement date but prior to the time the entire interest in the
Contract has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that owner's death; and (b) if any owner dies prior to the
annuity commencement date, the entire interest in the Contract will be
distributed within five years after the date of the owner's death. These
requirements will be considered satisfied as to any portion of the owner's
interest which is payable to or for the benefit of a "designated beneficiary"
and which is distributed over the life of such "designated beneficiary" or over
a period not extending beyond the life expectancy of that beneficiary, provided
that such distributions begin within one year of that owner's death. The
owner's "designated beneficiary" (referred to herein as the "beneficiary") is
the person designated by such owner as a beneficiary and to whom the owner's
interest in the Contract passes by reason of death and must be a natural
person. However, if the beneficiary is the surviving spouse of the owner, the
Contract may be continued with the surviving spouse as the new owner. Solely
for purposes of applying the provisions of Section 72(s) of the Code, when
nonqualified contracts are held by other than a natural person, the death of
the annuitant is treated as the death of the owner.
The nonqualified contracts contain provisions which are intended to comply with
the requirements of Section 72(s) of the Internal Revenue Code, although no
regulations interpreting these requirements have yet been issued. Merrill
Lynch Life intends to review such provisions and modify them if necessary to
assure that they comply with the requirements of Internal Revenue Code Section
72(s) when clarified by regulation or otherwise.
Other rules may apply to qualified contracts.
THE FOLLOWING DISCUSSION ASSUMES THAT THE CONTRACTS WILL QUALIFY AS ANNUITY
CONTRACTS FOR FEDERAL INCOME TAX PURPOSES.
FEDERAL TAXES
a. In General
Section 72 of the Internal Revenue Code governs taxation of annuities in
general. Merrill Lynch Life believes that an owner who is a natural person
generally is not taxed on increases in the value of a Contract until
distribution occurs by withdrawing all or part of the account value (e.g.,
partial withdrawals and surrenders) or as annuity payments under the annuity
option elected. For this purpose, the assignment, pledge, or agreement to
assign or pledge any portion of the account
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value (and in the case of a qualified contract, any portion of an interest in
the qualified plan) generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single sum payment or an annuity)
is taxable as ordinary income. Additionally, certain transfers of a Contract
for less than full and adequate consideration, such as a gift, will generate
tax on the excess of the net account value over the owner's "investment in the
contract" (discussed below).
An owner in any annuity contract who is not a natural person generally must
include in income any increase in the excess of the Contract's account value
over the "investment in the contract" during the taxable year. There are some
exceptions to this rule and a prospective owner that is not a natural person
may wish to discuss these with a competent tax adviser.
The following discussion generally applies to Contracts whose owners are
natural persons.
b. Partial Withdrawals and Surrenders
In the case of a partial withdrawal or surrender under a qualified contract,
under Section 72(e) of the Internal Revenue Code a ratable portion of the
amount received is taxable, generally based on the ratio of the "investment in
the contract" to the owner's total accrued benefit or balance under the
retirement plan. The "investment in the contract" generally equals the
portion, if any, of any premium payments paid by or on behalf of any individual
under a Contract which was not excluded from the individual's gross income.
For Contracts issued in connection with qualified plans, a owner's "investment
in the contract" can be zero. Special tax rules may be available for certain
distributions under qualified contracts.
In the case of a partial withdrawal under a nonqualified contract before the
annuity date, under Internal Revenue Code Section 72(e) amounts received are
generally first treated as taxable income to the extent that the account value
immediately before the partial withdrawal (increased by the net excess, if any,
of the sum of all market value adjustments that increase any subaccount value
over the sum of all market value adjustments that decrease any subaccount value
which result from the partial withdrawal) exceeds the "investment in the
contract" at that time. Any additional amount withdrawn is not taxable.
IT IS IMPORTANT TO NOTE THAT THE CONTRACT IS AN INTEGRATED ANNUITY CONTRACT AND
THAT THEREFORE IN DETERMINING THE EXTENT TO WHICH A WITHDRAWAL FROM ONE
SUBACCOUNT IS TAXABLE, THE ACCOUNT VALUE AND "INVESTMENT IN THE CONTRACT" FOR
THE ENTIRE CONTRACT, NOT JUST THE SUBACCOUNT FROM WHICH THE WITHDRAWAL IS MADE,
WILL BE TAKEN INTO ACCOUNT.
In the case of a surrender under a nonqualified contract, under Section 72(e)
amounts received are generally treated as taxable income to the extent the net
amount received exceeds the "investment in the contract" at that time.
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c. Annuity Payments
Although tax consequences may vary depending on the annuity option elected
under the Contract, under Internal Revenue Code Section 72(b), generally gross
income does not include that part of any amount received as an annuity under an
annuity contract that bears the same ratio to such amount as the investment in
the contract bears to the expected return at the annuity date. In this respect
(prior to recovery of the investment in the contract), there is generally no
tax on the amount of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of the annuity
payments for the term of the payments; however, the remainder of each income
payment is taxable. In all cases, after the "investment in the contract" is
recovered, the full amount of any additional annuity payments is taxable.
d. Penalty Tax on Certain Withdrawals
In the case of a distribution under a nonqualified contract, there may be
imposed a federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions: (1)
made on or after the date on which the owner attains age 59 1/2; (2) made as a
result of death or disability of the owner; (3) received in substantially equal
periodic payments over the life or life expectancy of the owner (or joint life
or life expectancy of the owner and a designated beneficiary). In certain
circumstances, other exceptions may apply. Other tax penalties may apply to
certain distributions under a qualified contract.
e. Taxation of Death Benefit Proceeds
Amounts may be distributed from a Contract because of the death of the owner
or, if the owner is not an individual, the annuitant. Generally, such amounts
are includable in the income of the recipient as follows: (1) if distributed in
a lump sum, they are taxed in the same manner as a full surrender of the
Contract, as described above, or (2) if distributed under an annuity option,
they are taxed in the same manner as annuity payments, as described above.
f. Transfers, Assignments, or Exchanges of a Contract
A transfer of ownership of a Contract, the designation of an annuitant, payee
or other beneficiary who is not also the owner, or the exchange of a Contract
(or this Contract along with one or more other annuity contracts) for one or
more new annuity contracts may result in certain tax consequences to the owner
that are not discussed herein. An owner contemplating any such transfer,
assignment, or exchange of a Contract should contact a competent tax adviser
with respect to the potential tax effects of such a transaction.
g. Multiple Contracts
All nonqualified annuity contracts that are issued by Merrill Lynch Life (or
its affiliates) to the same owner during any calendar year are treated as one
annuity Contract for purposes of
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determining the amount includable in gross income under Section 72(e) of the
Internal Revenue Code. In addition, the Treasury Department has specific
authority to issue regulations that prevent the avoidance of Section 72(e)
through the serial purchase of annuity Contracts or otherwise. Congress has
also indicated that the Treasury Department may have authority to treat the
combination purchase of an immediate annuity Contract and a separate deferred
annuity Contract as a single annuity Contract under its general authority to
prescribe rules as may be necessary to enforce the income tax laws.
h. Withholding
Unless the owner elects to the contrary, the taxable portion of any amounts
received under the Contract will be subject to withholding to meet federal and
state income tax obligations. The rate of withholding on annuity payments will
generally be determined on the basis of the withholding certificate filed by
the owner with Merrill Lynch Life. If no such certificate is filed, the owner
will be treated, for purposes of determining the withholding rate, as a married
person with three exemptions.
The rate of withholding on all other payments made under the Contract, such as
amounts received upon withdrawals, will generally be 10%. Thus, if the owner
fails to elect that there be no withholding, Merrill Lynch Life will withhold
from every withdrawal or annuity payment the appropriate percentage of the
amount of the payment that is taxable. Merrill Lynch Life will provide the
owner with forms and instructions concerning the right to elect that no amount
be withheld from payments. Generally, there will be no withholding for taxes
until payments are actually received under the Contract.
i. Possible Changes in Taxation
In past years, legislation has been proposed that would have adversely modified
the federal taxation of certain annuities. For example, one such proposal
would have changed the tax treatment of nonqualified annuities that did not
have "substantial life contingencies" by taxing income as it is credited to the
annuity. Although, as of the date of this prospectus, Congress is not actively
considering any legislation regarding the taxation of annuities, there is
always the possibility that the tax treatment of annuities could change by
legislation or other means (such as Internal Revenue Service regulation,
revenue rulings, judicial decisions, etc.). Moreover, it is also possible that
any change could be retroactive (that is, effective prior to the date of the
change).
j. Other Tax Consequences
As noted above, the foregoing discussion of the federal income tax consequences
under the Contract is not exhaustive and special rules are provided with
respect to other tax situations not discussed in this Prospectus. Further, the
federal income tax consequences discussed herein reflect Merrill Lynch Life's
understanding of current law and the law, or its interpretation by the
- 25 -
<PAGE> 63
Internal Revenue Service, may change. Federal estate and state and local
income, estate, inheritance, and other tax consequences of ownership or receipt
of distributions under a Contract depend on the individual circumstances of
each owner or recipient of the distribution. A competent tax adviser should be
consulted for further information.
QUALIFIED PLANS
The Contract is designed for use with several types of qualified plans. These
retirement plans, described briefly below, may permit the purchase of the
Contracts to accumulate retirement savings under the plans. Adverse tax or
other legal consequences to the plan, to the owner, or to both may result if
the Contract is assigned or transferred to any individual as a means to provide
benefit payments, unless the plan complies with all legal requirements
applicable to such benefits prior to transfer of the Contract. The tax rules
applicable to owners in qualified plans, including restrictions on
contributions and benefits, taxation of distributions, and any tax penalties,
vary according to the type of plan and the terms and conditions of the plan
itself. Various tax penalties may apply to: contributions in excess of
specified limits; aggregate distributions in excess of $150,000 annually
(except in 1997, 1998, and 1999), as increased from time to time to reflect
increases in the cost of living; distributions that do not satisfy specified
requirements; and certain other transactions with respect to qualified plans.
Therefore, no attempt is made to provide more than general information about
the use of the Contracts with the various types of qualified plans. Owners,
annuitants, and beneficiaries are cautioned that the rights of any person to
any benefits under qualified plans may be subject to the terms and conditions
of the plans themselves, regardless of the terms and conditions of the
Contract. Some retirement plans are subject to distribution and other
requirements that are not incorporated into Merrill Lynch Life's administration
procedures. Owners and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. When issued in connection with a
qualified plan, a Contract will be amended as necessary to conform to the
requirements of the Internal Revenue Code.
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to individual retirement programs known as an IRAs. Employers may
establish SEPs to provide IRA contributions on behalf of their employees.
Also, distributions from certain other types of qualified plans may be "rolled
over" on a tax-deferred basis into an IRA. Sales of the Contracts for use with
or as IRAs may be subject to special disclosure requirements of the Internal
Revenue Service. Purchasers of the Contract for use with or as IRAs will be
provided with supplemental information required by the Internal Revenue Service
or other appropriate agency. Such purchasers will have the right to revoke
their purchase within 7 days of the earlier of the establishment of the IRA or
their purchase. Purchasers should seek competent advice as to the suitability
of the Contract for use with or as IRAs.
- 26 -
<PAGE> 64
Restrictions under Qualified Contracts
Other restrictions with respect to the election, commencement, or distribution
of benefits may apply under qualified contracts or under the terms of the plans
in respect of which qualified contracts are issued.
PREMIUM TAXES
Various states, municipalities and jurisdictions impose a premium tax on
annuity premiums when they are received by an insurance company. In other
jurisdictions, a premium tax is paid on the account value on the annuity date.
Merrill Lynch Life will pay these taxes when due, and a charge for any premium
taxes imposed by a state, local government or jurisdiction will be deducted
from account value on the annuity date. Premium tax rates vary from
jurisdiction to jurisdiction and currently range from 0% to 5%. Premium tax
rates are subject to change by law, administrative interpretations, or court
decisions. Premium tax amounts will depend on, among other things, the owner's
state or jurisdiction of residence, Merrill Lynch Life's status within that
state or jurisdiction, and the premium tax laws of that state or jurisdiction.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 PROVISIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes fiduciary, prohibited transaction, and other requirements with respect
to employee benefit plans to which it applies. In certain circumstances these
requirements may be applicable to the management of an insurance company
account. Merrill Lynch Life believes that the account established for the
Contracts is a guaranteed contract separate account within the meaning of
Prohibited Transaction Class Exemption 81-82 and that assets attributed to the
account will not be treated as "plan assets" under regulations promulgated by
the Department of Labor. Prior to purchasing a Contract, however, the
fiduciary responsible for investments of a plan subject to ERISA should become
fully informed regarding the relevant terms of the Contract, including the
market value adjustment and withdrawal charge, and should take account of the
anticipated liquidity needs of the plan in determining whether to purchase the
Contract.
LEGAL PROCEEDINGS
There is no material pending litigation to which Merrill Lynch Life is a party
or of which any of its property is the subject, and there are no legal
proceedings contemplated by any governmental authorities against Merrill Lynch
Life of which it has any knowledge.
- 27 -
<PAGE> 65
LEGAL MATTERS
The organization of Merrill Lynch Life, its authority to issue the Contracts,
and the validity of the form of the Contracts have been passed upon by Barry G.
Skolnick, Merrill Lynch Life's Senior Vice President and General Counsel.
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to federal securities laws.
EXPERTS
The financial statements of Merrill Lynch Life as of December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996
incorporated by reference into this Prospectus have been audited by __________
_________, independent auditors, as stated in their report appearing herein,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing. _________________
______'s principal business address is _____________________________________
______________. Other financial statements incorporated by reference into
this Prospectus are unaudited.
REGISTRATION STATEMENT
The registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 that relate to the Contract. This
Prospectus does not contain all of the information in the registration
statement as permitted by Securities and Exchange Commission regulations. The
omitted information can be obtained from the Securities and Exchange
Commission's principal office in Washington, D.C., upon payment of a prescribed
fee.
- 28 -
<PAGE> 66
APPENDIX A
MARKET VALUE ADJUSTMENT ILLUSTRATIONS
A. DISCUSSION
Relationship Between MVA Interest Rates. The market value
adjustment may result in either an increase or decrease in subaccount value,
and depends on the relationship, at the time the market value adjustment is
being applied, between (i) the MVA interest rate established at issue or
renewal for the subaccount from which a withdrawal or payment is being made, to
(ii) the MVA interest rate in effect for a time period equal to the remaining
duration of the guarantee period of the subaccount from which the withdrawal or
payment is being made. If (i) above is lower than (ii), application of the
market value adjustment will result in an decrease in subaccount value; if (i)
is higher than (ii), application of the market value adjustment will result in
an increase in subaccount value. Neither the guaranteed interest rate for the
subaccount from which a withdrawal or payment is being made, nor any guaranteed
interest rate in effect at the time of withdrawal or payment, is used to
determine the market value adjustment.
Remaining Period of Time in a Guarantee Period. In order to
determine (ii) above, if the remaining period of time in the guarantee period
is a whole number of years, Merrill Lynch Life uses the current MVA interest
rate in effect for that time period. If the remaining period of time in the
guarantee period is not a whole number of years, the current MVA interest rate
is derived by straight line interpolation (see below). If the remaining period
of time is less than one year, Merrill Lynch Life uses the current MVA interest
rate in effect for a guarantee period of one year. For example, if the
remaining period is 4.75 years, the interpolated MVA interest rate will be
equal to the sum of one-fourth of the four year rate and three-fourths of the
five year rate. If the four year MVA interest rate were 5.8% and the five year
MVA interest rate were 6.0%, the interpolated rate would be 5.95% (5.8% times
0.25 plus 6.0% times 0.75).
B. MARKET VALUE ADJUSTMENT FORMULA
As discussed in the prospectus, the market value adjustment is
determined by the following formula:
n/365
1 + B
A x [1 - (-----) ]
1 + C
Where:
"n" is the remaining number of days in the guaranteed period of the
subaccount from which the withdrawal is made or to which the
adjustment is applied;
A-1
<PAGE> 67
"A" is (i) the amount withdrawn from the net subaccount value, in the
case of a partial withdrawal; or (ii) the net subaccount
value, in the case of a full withdrawal, death benefit
payment, or annuitization;
"B" is the MVA interest rate in effect at the time the market value
adjustment is being applied for a subaccount with a guarantee
period for a duration of years represented by "n/365," whether
or not those durations are currently offered under the
Contract ("n/365" is determined as described above if "n/365"
is not a whole number); and
"C" is the MVA interest rate in effect for the subaccount on the
issue date or the last renewal date.
C. EXAMPLES
1. MVA Interest Rates Increase. Assume a $10,000 partial
withdrawal is made from a five year guarantee period
subaccount with three years (1,095 days) remaining in its
guarantee period and an MVA interest rate at issue of 6.2%.
Assume that the MVA interest rate currently in effect (at the
time of the withdrawal) for a three year guarantee period is
8.2%. Based on these facts, the following values would be
assigned to the market value adjustment formula described
above:
n = 1,095 C = .062
A = $10,000 B = .082
Using these assigned values, the market value adjustment would
equal -$575.68 (as calculated below). Since this figure is a
negative number, it is subtracted from the remaining
subaccount value, together with any applicable withdrawal
charge.
1,095/365
1 + .082
$10,000 x [1 - (--------) ] = -$575.68
1 + .062
2. MVA Interest Rates Decrease. Based on the same facts as
example one, assume instead that the MVA interest rate
currently in effect (at the time of the withdrawal) for a
three year guarantee period is 4.2%. Based on these facts,
the following values would be assigned to the market value
adjustment formula described above:
n = 1,095 C = .062
A = $10,000 B = .042
A-2
<PAGE> 68
Using these assigned values, the market value adjustment would
equal $554.40 (as calculated below). Since this figure is a
positive number, it is added to the remaining subaccount
value. The subaccount value, however, will be reduced by any
applicable withdrawal charge.
1,095/365
1 + .042
$10,000 x [1 - (--------) ] = $544.40
1 + .062
C. IMPACT ON ACCOUNT VALUE
The tables below are designed to show the impact of the market value
adjustment and withdrawal charge on a single premium of $25,000,
assuming a full withdrawal at the end of each year shown. Table 1
assumes the premium is allocated to a subaccount with a 5 year
guarantee period with a guaranteed rate of interest of 5.4% and an MVA
interest rate at issue of 6.0%. Table 2 assumes premium is allocated
to a subaccount with a 3 year guarantee period with a guaranteed rate
of interest of 5.1% and an MVA interest rate at issue of 5.9%. The
market value adjustments are based on interpolated current MVA
interest rates ("B" in the market value adjustment formula) of 4.0%,
6.0%, and 8.0% in the 5 year guarantee period table (see Table 1
below) and 3.9%, 5.9%, and 7.9% in the 3 year guarantee period table
(see Table 2 below). The net subaccount values shown in the tables
are the maximum amounts available as cash withdrawals. Although the
withdrawal charge is in each case a fixed percentage of the amount
withdrawn, the actual amount of the withdrawal charge that would apply
for full withdrawals at the end of each year would vary as a result of
the market value adjustment, which is imposed before the withdrawal
charge on full withdrawals. Values shown in the tables have been
rounded to the nearest dollar. As a result, the figures under the net
subaccount value columns may not precisely equal amounts set forth in
the subaccount value, plus the market value adjustment, less the
withdrawal charge columns.
A-3
<PAGE> 69
TABLE 1
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Assumed Guaranteed Interest Rate = 5.4%
Assumed Issue MVA Interest Rate = 6.0%
---------------------------------------------------------------------------------------------
Market Value Adjustments, Withdrawal Charges and Net Subaccount Value Based On
Interpolated Current MVA Interest Rates of:
---------------------------------------------------------------------------------------------
4.0% 6.0% 8.0%
---------------------------------------------------------------------------------------------
Market Net Market Net Market Net
End of Sub- Value With- Sub- Value With- Sub- Value With- Sub-
Certificate account Adjust- drawal account Adjust- drawal account Adjust- drawal account
Year Value ment Charge Value ment Charge Value ment Charge Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,350 1,959 1,602 26,707 0 1,492 24,858 -1,798 1,390 23,162
2 27,773 1,536 1,659 27,650 0 1,572 26,201 -1,433 1,491 24,849
3 29,273 1,070 1,718 28,625 0 1,657 27,616 -1,015 1,599 26,658
4 30,853 559 1,778 29,634 0 1,746 29,107 -540 1,716 28,598
5 32,519 0 0 32,519 0 0 32,519 0 0 32,519
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Assumed Guaranteed Interest Rate = 5.1%
Assumed Issue MVA Interest Rate = 5.9%
---------------------------------------------------------------------------------------------
Market Value Adjustments, Withdrawal Charges and Net Subaccount Value Based On
Interpolated Current MVA Rates of:
---------------------------------------------------------------------------------------------
3.9% 5.9% 7.9%
---------------------------------------------------------------------------------------------
Market Net Market Net Market Net
End of Sub- Value With- Sub- Value With- Sub- Value With- Sub-
Certificate account Adjust- drawal account Adjust- drawal account Adjust- drawal account
Year Value ment Charge Value ment Charge Value ment Charge Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,275 961 1,542 25,695 0 1,487 24,788 -912 1,436 23,927
2 27,615 501 1,591 26,524 0 1,563 26,052 -483 1,536 25,596
3 29,023 0 0 29,023 0 0 29,023 0 0 29,023
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The formulas used in determining the amounts shown in the above tables are as
follows:
(1) Net subaccount value = Subaccount Value
------------------------------------------
n/365
1 + Current MVA Interest Rate
0.06 + (-----------------------------)
1 + Issue MVA Interest Rate
A-4
<PAGE> 70
Where "n" is the number of days remaining in the guaranteed
period of the subaccount, but not less than 365.
(2) withdrawal charge = net subaccount value x 0.06
(3) market value adjustment =
n/365
1 + Current MVA Interest Rate
net subaccount value x [1 - (-----------------------------) ]
1 + Issue MVA Interest Rate
(4) "n" is the number of days remaining in the guarantee period of
the subaccount, but not less than 365.
A-5
<PAGE> 71
APPENDIX B
EXAMPLES OF WITHDRAWAL CHARGE CALCULATION
The two examples below assume that a single premium of $25,000 has
been paid under the Contract. The premium is allocated to a subaccount with a
5 year guarantee period with a guaranteed rate of interest of 6.0% and an MVA
interest rate at issue of 6.2%. Example 1 assumes a partial withdrawal of
$5,000 is taken at the end of the third certificate year. Example 2 assumes a
full withdrawal is taken at the end of the third certificate year. The MVA
interest rate at the time of the withdrawal for a subaccount with the
appropriate duration ("B" in the market value adjustment formula) is assumed to
be 8.2% in both examples.
EXAMPLE 1: PARTIAL WITHDRAWAL
Because of interest earned at the guaranteed rate of 6.0%, at the end
of the third certificate year the subaccount value will be equal to
$29,775.40. For a $5,000 partial withdrawal, the withdrawal charge
would be equal to the withdrawal charge rate multiplied by the partial
withdrawal amount:
0.06 x $5,000 = $300.00
The $300.00 withdrawal charge would be deducted from the remaining
subaccount value. In addition to a withdrawal charge, a market value
adjustment of $190.10 would be deducted from the remaining subaccount
value. Therefore, after the partial withdrawal, the remaining
subaccount value would be $24,285.30 ($29,775.40 - $5,000 - $300 -
$190.10). For more information on the market value adjustment, see
Appendix A.
EXAMPLE 2: FULL WITHDRAWAL
As before, because of interest earned at the guaranteed rate of 6.0%,
at the end of the third certificate year the subaccount value will be
equal to $29,775.40. In order to determine the withdrawal charge on a
full withdrawal of subaccount value, the net subaccount value must
first be calculated. In this example, the net subaccount value will
be equal to:
Subaccount Value 29,775.40
- ------------------------------------------ = ----------------- = $27,117.37
n/365 2
1 + Current MVA Interest Rate 1 + .082
0.06 + (-----------------------------) 0.06 + (--------)
1 + Issue MVA Interest Rate 1 + .062
The withdrawal charge would then be equal to the withdrawal charge
rate multiplied by the net subaccount value:
0.06 x $27,117.37 = $1,627.04
B-1
<PAGE> 72
On a full withdrawal, the withdrawal charge would be deducted from the
amount withdrawn. In addition to a withdrawal charge, a market value
adjustment of $1,030.99 would be deducted from the withdrawal amount.
Therefore, the net subaccount value of $27,117.37 would be paid on a
full withdrawal ($29,775.40 - $1,627.04 - $1,030.99). For more
information on the market value adjustment, see Appendix A.
B-2
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the issuance and distribution of the Contracts,
other than any underwriting discounts and commissions, are as follows:
Securities and Exchange Commission Registration Fees . . $ 500.00
Printing and engraving . . . . . . . . . . . . . . . . . 15,000.00
Accounting fees and expenses . . . . . . . . . . . . . . 10,000.00
Legal fees and expenses . . . . . . . . . . . . . . . . 35,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 10,000.00
---------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . $ 70,500.00
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following provisions regarding the Indemnification of Directors and
Officers of the Registrant are applicable:
AMENDED AND RESTATED BY-LAWS OF MERRILL LYNCH LIFE INSURANCE COMPANY, ARTICLE
VI
Sections 1, 2, 3 and 4--Indemnification of Directors, Officers,
Employees and Incorporators
Section 1. Actions Other Than by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Corporation) by reason of the fact
that he is or was a director, officer or employee of the Corporation, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or
<PAGE> 74
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer or employee of the Corporation, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the Court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other Court
shall deem proper.
Section 3. Right to Indemnification. To the extent that a director, officer or
employee of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 1 and 2 of
this Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 4. Determination of Right to Indemnification. Any indemnification
under Sections 1 and 2 of this Article (unless ordered by a Court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, or employee is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 1 and 2 of this Article. Such determination
shall be made (i) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders.
BY-LAWS OF MERRILL LYNCH & CO., INC.,
Section 2--Indemnification by Corporation
Any persons serving as an officer, director or trustee of a corporation, trust,
or other enterprise, including the Registrant, at the request of Merrill Lynch
are entitled to indemnification from Merrill Lynch, to the fullest extent
authorized or permitted by law, for liabilities with respect to actions taken
or omitted by such persons in any capacity in which such persons serve Merrill
Lynch or such other corporation, trust, or other enterprise. Any action
initiated by any such person for which indemnification is provided shall be
approved by the Board of Directors of Merrill Lynch prior to such initiation.
DIRECTORS' AND OFFICERS' INSURANCE
Merrill Lynch has purchased from Corporate Officers' and Directors' Assurance
Company directors' and officers' liability insurance policies which cover, in
addition to the indemnification described above, liabilities for which
indemnification is not provided under the By-Laws. The
<PAGE> 75
Company will pay an allocable portion of the insurance premium paid by Merrill
Lynch with respect to such insurance policy.
ARKANSAS BUSINESS CORPORATION LAW
In addition, Section 4-26-814 of the Arkansas Business Corporation Law
generally provides that a corporation has the power to indemnify a director or
officer of the corporation, or a person serving at the request of the
corporation as a director or officer of another corporation or other enterprise
against any judgments, amounts paid in settlement, and reasonably incurred
expenses in a civil or criminal action or proceeding if the director or officer
acted in good faith in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation (or, in the case of a criminal
action or proceeding, if he or she in addition had no reasonable cause to
believe that his or her conduct was unlawful).
ITEM 16. EXHIBITS.
(a)
Exhibits.
1(a) Underwriting Agreement Between Merrill Lynch Life Insurance Company
and Merrill Lynch, Pierce, Fenner & Smith Incorporated. (To be
filed by amendment.)
2(a) Merrill Lynch Life Insurance Company Board of Directors Resolution
in Connection With the Merger Between Merrill Lynch Life Insurance
Company and Tandem Insurance Group, Inc. (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 4 to Form S-1
Registration No. 33-26322, Filed September 5, 1991.)
2(b) Plan and Agreement of Merger Between Merrill Lynch Life Insurance
Company and Tandem Insurance Group, Inc. (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 4 to Form S-1
Registration No. 33-26322, Filed September 5, 1991.)
3(a) Articles of Incorporation of Merrill Lynch Life Insurance Company
(Incorporated by Reference to Registrant's Form S-1 Registration No.
33-26322, Filed January 3, 1989.)
3(b) By-Laws of Merrill Lynch Life Insurance Company (Incorporated by
Reference to Registrant's Form S-1 Registration No. 33-26322, Filed
January 3, 1989.)
3(c) Articles of Amendment, Restatement and Redomestication of the Articles
of Incorporation of Merrill Lynch Life Insurance Company (Incorporated
by Reference to Registrant's Form S-1 Registration No. 33-46827,
Filed March 30, 1992.)
3(d) Amended and Restated By-laws of Merrill Lynch Life Insurance Company
(Incorporated by Reference to Registrant's Form S-1 Registration No.
33-46827, Filed March 30, 1992.)
4(a) Modified Guaranteed Annuity Contract
4(b) Application for Modified Guaranteed Annuity Contract
5 Opinion of Barry G. Skolnick, Esq. and Consent to its use as to the
legality of the securities being registered (To be filed by amendment).
10(a) Management Services Agreement Between Merrill Lynch Life Insurance
Company and Family Life Insurance Company (Incorporated by Reference
to Registrant's Form S-1 Registration No. 33-26322, Filed January 3,
1989.)
10(b) General Agency Agreement Between Merrill Lynch Life Insurance and
Merrill Lynch Life Agency, Inc. (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration
No. 33-26322, Filed February 23, 1989.)
<PAGE> 76
10(c) Amended Service Agreement Between Merrill Lynch Life Insurance Company
and Merrill Lynch Insurance Group, Inc. (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration
No. 33-60290, Filed March 31, 1994.)
10(d) Indemnity Reinsurance Agreement Between Merrill Lynch Life Insurance
Company and Family Life Insurance Group (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 2 to Form S-1 Registration
No. 33-26322, Filed March 13, 1991.)
10(e) Amendment No. 1 to Indemnity Reinsurance Agreement Between Merrill
Lynch Life Insurance Company and Family Life Insurance Group
(Incorporated by Reference to Registrant's Post-Effective Amendment
No. 3 to Form S-1 Registration No. 33-26322, Filed April 24, 1991.)
10(f) Assumption Reinsurance Agreement Between Merrill Lynch Life Insurance
Company, Tandem Insurance Group, Inc. and Royal Tandem Life Insurance
Company and Family Life Insurance Company (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 4 to Form S-1 Registration
No. 33-26322, Filed September 5, 1991.)
10(g) Amended General Agency Agreement Between Merrill Lynch Life Insurance
Company and Merrill Lynch Life Agency Inc. (Incorporated by Reference
to Registrant's Form S-1 Registration No. 33-46827, Filed March 30,
1992.)
10(h) Indemnity Agreement Between Merrill Lynch Life Insurance Company and
Merrill Lynch Life Agency Inc. (Incorporated by Reference to
Registrant's Form S-1 Registration No. 33-46827, Filed March 30, 1992.)
10(i) Management Agreement Between Merrill Lynch Life Insurance Company and
Merrill Lynch Asset Management, Inc. (Incorporated by Reference to
Registrant's Form S-1 Registration No. 33-46827, Filed March 30, 1992.)
23(a) Written Consent of Sutherland, Asbill & Brennan LLP (To be filed by
amendment).
23(b) Written Consent of Deloitte & Touche LLP, independent auditors
(To be filed by amendment).
24(a) Power of Attorney from Joseph E. Crowne. (Incorporated by Reference to
Registrant's Form S-1 Registration No. 33-58303, Filed March 29, 1995.)
24(b) Power of Attorney from David M. Dunford. (Incorporated by Reference to
Registrant's Form S-1 Registration No. 33-58303, Filed March 29, 1995.)
24(c) Power of Attorney from Barry G. Skolnick. (Incorporated by Reference to
Registrant's Form S-1 Registration No. 33-58303, Filed March 29, 1995.)
24(d) Power of Attorney from Anthony J. Vespa. (Incorporated by Reference to
Registrant's Form S-1 Registration No. 33-58303, Filed March 29, 1995.)
24(e) Power of Attorney from Gail R. Farkas. (Incorporated by Reference to
Registrant's Form S-1 Registration No. 33-58303, Filed March 26, 1996.)
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
<PAGE> 77
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Plainsboro, State of New Jersey, on this 13th day of
August, 1997.
ATTEST: MERRILL LYNCH LIFE
INSURANCE COMPANY
(Registrant)
/s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
- ---------------------------------------- -------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on this 13th day of August, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board, President,
- ---------------------------------------------------- and Chief Executive Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief
- ---------------------------------------------------- Financial Officer, Chief Actuary, and
Joseph E. Crowne, Jr. Treasurer
* Director, Senior Vice President, and
- ---------------------------------------------------- Chief Investment Officer
David M. Dunford
* Director and Senior Vice President
- ----------------------------------------------------
Gail R. Farkas
*By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior
- ---------------------------------------------------- Vice President, General Counsel and
Barry G. Skolnick Attorney-in-Fact
</TABLE>
<PAGE> 79
EXHIBIT INDEX
(a) Exhibits.
EXHIBIT DESCRIPTION PAGE
------- ----------- ----
[S] [C]
4(a) Modified Guaranteed Annuity Contract
4(b) Application for Modified Guaranteed Annuity
Contract
<PAGE> 1
SINGLE PREMIUM
MODIFIED GUARANTEED ANNUITY CONTRACT
issued by
MERRILL LYNCH LIFE INSURANCE COMPANY
A Stock Life Insurance Company
HOME OFFICE
Little Rock, Arkansas 72201
SERVICE CENTER
P.O. Box 44222
Jacksonville, Florida 32231-4222
1-800-535-5549
Merrill Lynch Life Insurance Company (hereafter referred to as "we" or "us")
agrees to pay annuity benefits as provided in this Contract. Payments will be
made starting on the Annuity Date. The amount of the single premium for this
Contract is shown on the Contract Schedule Page.
A detailed description of this Contract and the Market Value Adjustment has
been filed with the insurance department of the jurisdiction in which this
Contract is delivered.
RIGHT TO EXAMINE CONTRACT
IF FOR ANY REASON YOU ARE NOT SATISFIED WITH THIS CONTRACT, YOU MAY CANCEL IT
BY RETURNING THE CONTRACT TO US OR YOUR FINANCIAL CONSULTANT WITHIN 10 DAYS
AFTER YOU RECEIVE IT. IF YOU DO, WE WILL REFUND THE PREMIUM THAT WAS PAID AND
THE CONTRACT WILL BE VOID.
THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT THAT MAY RESULT IN BOTH UPWARD
AND DOWNWARD ADJUSTMENTS IN CASH SURRENDER BENEFITS AND THE AMOUNT PAID AT
ANNUITIZATION AND THAT MAY RESULT IN AN UPWARD ADJUSTMENT IN DEATH BENEFITS.
NO ADJUSTMENTS ARE MADE AT THE END OF A GUARANTEE PERIOD.
READ YOUR CONTRACT CAREFULLY. THIS IS A LEGAL CONTRACT BETWEEN YOU AND MERRILL
LYNCH LIFE INSURANCE COMPANY.
President Secretary
Single Premium Modified Guaranteed Annuity.
Death Benefit Before Annuity Date. Non-Participating.
Account Value Subject to Market Value Adjustment.
ML-MGA-003 SPECIMEN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
CONTRACT SCHEDULE ...................................................... 3
DEFINITIONS ............................................................ 4
1. GENERAL PROVISIONS ............................................... 6
2. SUB-ACCOUNTS ..................................................... 8
3. CONTRACT VALUES .................................................. 8
4. MARKET VALUE ADJUSTMENT .......................................... 9
5. WITHDRAWALS ..................................................... 10
6. PAYMENT AT DEATH OF OWNER ....................................... 10
7. DEATH OF ANNUITANT WHO IS NOT AN OWNER .......................... 11
8. ANNUITY PROVISIONS .............................................. 11
9. ANNUITY OPTIONS ................................................. 12
10. ANNUITY OPTIONS TABLES .......................................... 14
</TABLE>
- 2 -
ML-MGA-003 SPECIMEN
<PAGE> 3
CONTRACT SCHEDULE
<TABLE>
<S> <C>
MERRILL LYNCH LIFE INSURANCE COMPANY Contract Number: R970123456
Service Center: Issue Date: August 1, 1997
P.O. Box 44222 Current Date: August 10, 1997
Jacksonville, FL 32231-4222
1-800-535-5549 Financial Consultant:
JOE BROKER
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
OWNER INFORMATION ANNUITANT INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OWNER NAME: JOHN Q. CLIENT ANNUITANT: Jane M. Client
OWNER AGE: 55 SEX: M OWNER AGE: 53 SEX: F
CO-OWNER NAME: JANE M. CLIENT ANNUITY DATE: SEPTEMBER 1, 2002
CO-OWNER AGE: 53 SEX: F ANNUITY OPTION:
LIFE WITH 10 YEAR CERTAIN
OWNER ADDRESS: 123 Maple Street
Suite 1234
Anytown, US 12345-1234
BENEFICIARY: SURVIVING SPOUSE
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CONTRACT INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONTRACT TYPE: MODIFIED GUARANTEED ANNUITY
PLAN: NON-QUALIFIED
SINGLE PREMIUM: $100,000.00
INITIAL PREMIUM ALLOCATION:
Initial Guaranteed
Guarantee Period Amount Allocated Interest Rate Renewal Date
---------------- ---------------- ------------- ------------
3-Year $35,000.00 7.00% 08/01/2000
5-Year $65,000.00 8.00% 08/01/2002
1-Year Available at Renewal Date only
- ----------------------------------------------------------------------------------------------------------------------------------
WITHDRAWAL CHARGE RATE: 6% for duration of each initial and renewal
Guarantee Period shown above
MINIMUM WITHDRAWAL AMOUNT: $500
MINIMUM REMAINING NET SUB-ACCOUNT VALUE: $5,000
MINIMUM REMAINING ACCOUNT VALUE: $15,000
</TABLE>
- 3 -
ML-MGA-003 SPECIMEN
<PAGE> 4
DEFINITIONS
1. ACCOUNT VALUE: The sum of all Sub-Account Values. See Section 3.2.
2. ANNUITANT: The person whose age determines the latest possible
Annuity Date. Payments under certain annuity options stop when the
Annuitant dies.
3. ANNUITY: A series of predetermined periodic payments. See Section 8.
4. ANNUITY DATE: The date shown on the Contract Schedule on which
annuity payments are to start. The Annuity Date can be no later than
the Annuitant's 85th birthday for non-qualified contracts. See
Section 8.1.
5. BENEFICIARY: The person to whom payment is to be made upon the death
of the Owner.
6. CONTRACT ANNIVERSARY: Each anniversary of the Issue Date.
7. CONTRACT YEAR: A year starting on the Issue Date or Contract
Anniversary and ending with the day just prior to the next Contract
Anniversary.
8. ISSUE DATE: The date shown on the Contract Schedule as the date the
Contract was issued.
9. GUARANTEED INTEREST RATE: The interest rate that we will credit a
Sub-Account for a specified Guarantee Period.
10. GUARANTEE PERIOD: The period for which we guarantee to credit a
specified interest rate for a Sub-Account. See Section 2.2.
11. MARKET VALUE ADJUSTMENT ("MVA"): An adjustment that may be made to a
Sub-Account Value. The adjustment may be either a deduction from or
an addition to the Sub-Account Value. See Sections 4, 5.1, 6.1 and
8.3.
12. MVA INTEREST RATES: The interest rates used in the calculation of the
Market Value Adjustment. See Section 4.2.
13. NET ACCOUNT VALUE: The sum of all Net Sub-Account Values. Upon
annuitization the Net Account Value will reflect deductions for
premium taxes, if any. See Section 8.3.
14. NET SUB-ACCOUNT VALUE: Sub-Account Value as adjusted for any Market
Value Adjustment and Withdrawal Charge applied in connection with a
withdrawal, annuitization, or the payment of death benefits upon the
death of the Owner prior to the Annuity Date.
15. OWNER: The person entitled to exercise all rights under the Contract.
In this Contract, "you" means Owner.
- 4 -
ML-MGA-003 SPECIMEN
<PAGE> 5
16. RENEWAL DATE: The Contract Anniversary immediately following the last
day of the Guarantee Period of a Sub-Account.
17. SUB-ACCOUNT: Your single premium will be allocated to one or more
Sub-Accounts as directed by you. Each Sub-Account will correspond to
a specified Guaranteed Interest Rate and Guarantee Period. See
Section 2. The initial allocation of your single premium is shown in
the Contract Schedule.
18. SUB-ACCOUNT VALUE: An amount equal to that part of your single
premium or Account Value allocated or transferred to a Sub-Account
plus credited interest, as adjusted for any prior withdrawals, Market
Value Adjustments and Withdrawal Charges. See Section 3.1.
19. WITHDRAWAL CHARGE: A charge deducted from any Sub-Account from which
a withdrawal is made prior to the end of a Guarantee Period. See
Section 5.2.
- 5 -
ML-MGA-003 SPECIMEN
<PAGE> 6
1. GENERAL PROVISIONS
1.1 BENEFICIARY: A Beneficiary is the person designated by you in writing
to receive payment on death under Section 6 or Section 9.
Generally, you may change the Beneficiary while you are alive.
You may also name a Beneficiary irrevocably. You may change an
irrevocable Beneficiary only with such Beneficiary's written consent.
The Beneficiary has no ownership rights under this Contract.
If a Beneficiary does not survive you, the estate or heirs of such
Beneficiary have no rights under this Contract. However, if a
Beneficiary survives you but dies before the Contract's proceeds are
distributed, the estate or heirs of such Beneficiary are entitled to
that portion of the Contract's proceeds that would otherwise have been
paid to such Beneficiary. If no Beneficiary survives you, payment
will be made to your estate.
1.2 OWNERSHIP OF CONTRACT: Unless another Owner is named by the
purchaser, the purchaser is the Owner. An Owner's age must be less
than 85 years. If the Owner of the Contract is not an individual,
then the Annuitant's age must be less than 85 years.
Upon notice to us you may assign the Contract to a new Owner. The
assignment terminates all prior Beneficiary designations. A new
Owner's age must be less than 85 years.
Only spouses may be co-owners. The Beneficiary of the co-owner's
spouse must be the surviving spouse. The age of the oldest co-owner
must be less than 85 years. Ownership rights must be exercised by the
co-owners jointly. Co-owners are deemed to be joint tenants with
right of survivorship unless they indicate otherwise.
1.3 COLLATERAL ASSIGNMENT: Upon notice to us, you may make a collateral
assignment of your rights under this Contract to a creditor as
security for a debt. The rights of an assignee have priority over the
rights of a Beneficiary.
No amounts payable under this Contract to a payee other than you may
be assigned by that payee, nor will they be subject to the claims of
creditors or to legal process, except to the extent permitted by law.
1.4 NOTICES, CHANGES AND CHOICES: To be effective, all notices, changes
and choices you make under the Contract must be in writing, signed and
received by us at our Service Center, except that the following may be
made by telephone:
a. Notices regarding transfers of Sub-Account Values under
Section 2.4.
b. Specifications of Sub-Accounts for withdrawals under Section
5.1.
c. Change of Annuity Date, unless the Annuitant is over 70 1/2
and the Contract has been issued under an IRA or a qualified
plan.
- 6 -
ML-MGA-003 SPECIMEN
<PAGE> 7
We are not responsible for the validity of any notices, changes or
choices. When recorded by us, changes relating to beneficiaries,
ownership and the Annuitant will take effect as of the date signed by
you, unless we have already acted in reliance on the prior status.
Changes relating to Annuity Date will take effect as of the date
received by us unless we have already acted in reliance on the prior
status.
We will mail a notice to you at least 30 days but not more than 60
days prior to the Renewal Date of a Sub-Account. This notice will
inform you that we require notification from you prior to the Renewal
Date if you wish to receive a withdrawal or make a transfer from that
Sub-Account as of the Renewal Date (without a Market Value Adjustment
or Withdrawal Charge). See Sections 4.1 and 5.2.
1.5 MISSTATEMENT OF AGE OR SEX: If the age or sex of the Annuitant is
misstated, annuity payments will be adjusted to reflect the correct
age and sex. Any amount we have overpaid as the result of such
misstatement will be deducted from subsequent payments made by us
under this Contract until recovered. Interest on the overpayment will
be charged at the rate of 4% per year. Any amount we have underpaid
will be paid in full with the next payment made by us under this
Contract. We will pay interest on the underpayment at the rate of 4%
per year.
1.6 PROOF OF AGE, SEX, OR SURVIVAL: We may require satisfactory proof of
age, sex or survival of any person on whose continued life any payment
under this Contract depends.
1.7 INCONTESTABILITY: We will not contest this Contract.
1.8 THE CONTRACT: The Contract and any endorsements or riders are the
entire Contract. It is issued in consideration of the payment of the
single premium. Only our President, a Vice President, Secretary or
Assistant Secretary may change the Contract. Any change must be in
writing.
1.9 NONPARTICIPATING: This Contract is nonparticipating. It does not
share in our surplus.
1.10 PAYMENTS: All sums payable to or by us are payable at our Service
Center. We may require return of this Contract prior to making
payment. We may defer payments of partial or full withdrawals for up
to 6 months.
1.11 REPORTS: Prior to the Annuity Date we will furnish you with a report
at least once each year. It will show your Account Value, Sub-Account
Values and current Sub-Account Guaranteed Interest Rates.
1.12 COMPLIANCE WITH STATE AND FEDERAL LAW: We reserve the right to change
the provisions of the Contract to conform to any applicable law,
regulation or ruling issued by a government, agency thereof or court.
1.13 TAX QUALIFICATION: The Contract is intended to qualify as an annuity
contract for federal income tax purposes. To that end, the provisions
of the Contract are to be interpreted to ensure or maintain such tax
qualifications, notwithstanding any other provisions to the contrary.
Distributions under the Contract shall be made in a time and manner
necessary to maintain such qualification under
- 7 -
ML-MGA-003 SPECIMEN
<PAGE> 8
the applicable provisions of the Internal Revenue Code including, in
the case of an Owner who is not an individual, the requirement to
distribute the entire interest in the Contract upon any change of the
Annuitant. For this purpose, the entire interest in the Contract is
the Net Account Value.
We reserve the right to amend the Contract to reflect any
clarifications that may be needed or are appropriate to maintain such
qualification or to conform the Contract to any applicable changes in
the tax qualification requirements.
2. SUB-ACCOUNTS
2.1 SUB-ACCOUNT: Your single premium will be allocated to one or more
Sub-Accounts as chosen by you.
2.2 AVAILABLE GUARANTEE PERIODS: Guarantee Periods currently offered by
us are shown on the Contract Schedule. We may at our discretion offer
additional Guarantee Periods not to exceed 10 years.
2.3 TRANSFERS OF SUB-ACCOUNT VALUE PRIOR TO RENEWAL DATE: Sub-Account
Values may not be transferred to another Sub-Account in full or in
part prior to the end of the Guarantee Period.
2.4 TRANSFERS OF SUB-ACCOUNT VALUE AT RENEWAL DATE: Upon notice to us
prior to the end of the current Guarantee Period, the Sub-Account
Value will be transferred at the end of the Guarantee Period to one or
more Sub-Accounts as chosen by you. See Section 1.4. Transfers
cannot be made to a Guarantee Period with a duration that will extend
beyond the Annuity Date or the Annuitant's 85th birthday, if no
Annuity Date has been chosen. If no notice is received from you, the
Sub-Account Value will be automatically transferred to the Sub-Account
for the one-year Guarantee Period.
3. CONTRACT VALUES
3.1 SUB-ACCOUNT VALUE: An amount equal to that part of your single
premium or Account Value allocated or transferred to a Sub-Account
plus credited interest, as adjusted for any prior withdrawals, Market
Value Adjustments and Withdrawal Charges.
3.2 ACCOUNT VALUE: The current Account Value at any time prior to the
Annuity Date is equal to the sum of all Sub-Account Values.
3.3 INTEREST RATES: The daily simple interest rate will be computed by
dividing the applicable Guaranteed Interest Rate for a Sub-Account by
365. This rate will be applied to the last Contract Anniversary
Sub-Account Value with adjustment for subsequent withdrawals to
determine credited interest daily (except on February 29). The
Guaranteed Interest Rate for a Guarantee Period of a specified
duration for a Sub-Account into which Sub-Account Value has been
transferred may not be equal to the Guaranteed Interest Rate available
for a Guarantee Period of the same duration for initial allocation of
a single premium.
- 8 -
ML-MGA-003 SPECIMEN
<PAGE> 9
4. MARKET VALUE ADJUSTMENT
4.1 MARKET VALUE ADJUSTMENT: The Market Value Adjustment may be either
negative or positive. It will be deducted from or added to
Sub-Account Value according to the formula shown in Section 4.2 in any
of the following circumstances:
(a) Upon withdrawal of all or part of a Net Sub-Account Value
prior to the end of the Guarantee Period for that Sub-Account.
(b) Upon annuitization at the Annuity Date if the Annuity Date is
prior to the end of the Guarantee Period for that Sub-Account.
(c) Upon payment of a death benefit prior to the Annuity Date (See
Section 6.1.), except that no Market Value Adjustment is
calculated if the combined Market Value Adjustments applicable
to all affected Sub-Accounts would reduce the Account Value.
A Market Value Adjustment will not be applied upon withdrawal or
annuitization at the end of the Guarantee Period from a Sub-Account if
we receive written notice from you requesting such withdrawal prior to
the end of the Guarantee Period, or if the Annuity Date is at the end
of the Guarantee Period.
4.2 FORMULA: The Market Value Adjustment is determined by the following
formula:
n/365
(1+B)
Ax [1 - ----- ]
(1+C)
Where:
"n" = The remaining number of days in the Guarantee Period.
"A" = The amount withdrawn from the Net Sub-Account Value in the
case of a partial withdrawal; or the Net Sub-Account Value in
the case of a full withdrawal, annuitization or death benefit
paid prior to annuitization.
"B" = The MVA Interest Rate in effect at the time the Market Value
Adjustment is being applied for a Sub-Account with a Guarantee
Period for a duration of years represented by "n/365", whether
or not those durations are currently offered under the
Contract. When n/365 is not a whole number, we determine B by
straight-line interpolation. If n/365 is less than 1, we will
assume B is equal to the MVA Interest Rate for a one-year
Guarantee Period.
"C" = The MVA Interest Rate in effect for the Sub-Account on the
Issue Date or the last Renewal Date.
- 9 -
ML-MGA-003 SPECIMEN
<PAGE> 10
5. WITHDRAWALS
5.1 WITHDRAWALS: You may withdraw all or part of the Net Account Value
upon notice to us received prior to the earlier of the Annuity Date or
the death of the Owner. See Section 1.4. For full withdrawal this
Contract must be surrendered at our Service Center.
For partial withdrawals, you must specify the Sub-Accounts from which
the withdrawal is to be made. If you do not specify, then the
withdrawal will be made from the Sub-Account with the shortest period
of time remaining in its Guarantee Period until that Sub-Account has
been depleted. The minimum amount of a withdrawal, the minimum amount
remaining in a Sub-Account (unless the full amount in a Sub-Account is
withdrawn) after adjustment for any current Market Value Adjustment
and Withdrawal Charge and the minimum remaining Account Value are
shown on the Contract Schedule. See Section 1.4.
5.2 WITHDRAWAL CHARGE: A Withdrawal Charge will be deducted from the
Sub-Account from which a withdrawal is made prior to the end of a
Guarantee Period. For partial withdrawals from a Sub-Account,
Withdrawal Charges are determined by multiplying the amount of the
withdrawal being taken from a Sub-Account by the Withdrawal Charge
Rate applicable to the Guarantee Period for that Sub-Account as shown
on the Contract Schedule. For a full withdrawal of a Sub-Account, the
amount received is the Net Sub-Account Value, which reflects
adjustments for the Withdrawal Charge and any Market Value Adjustment.
The Withdrawal Charge equals the Net Sub-Account Value multiplied by
the Withdrawal Charge Rate for the applicable Guarantee Period shown
on the Contract Schedule.
Withdrawal Charges apply when a full withdrawal occurs on an Annuity
Date which does not correspond to the Renewal Date of a Guarantee
Period.
Withdrawal Charges do not apply to:
(a) Death payments under Section 6,
(b) Annuity payments under Section 8, or
(c) Withdrawal at the end of the Guarantee Period from a
Sub-Account if we receive written notice from you requesting
such withdrawal prior to the end of the Guarantee Period. See
Section 1.4.
6. PAYMENT AT DEATH OF OWNER
6.1 DEATH PRIOR TO ANNUITY DATE: On the death of any Owner prior to the
Annuity Date, we will pay your Beneficiary an amount equal to the
Account Value plus any positive Market Value Adjustment as of the date
of payment. See Section 4.l(c). Subject to Section 6.2 and 6.3 such
payments will be made in a lump sum unless an annuity option is
chosen.
- 10 -
ML-MGA-003 SPECIMEN
<PAGE> 11
6.2 CONTRACT CONTINUATION OPTION: If the surviving spouse of the deceased
Owner is the Beneficiary, such spouse may choose to continue this
Contract in force on the same terms as before such Owner's death, and
the spouse shall thereafter become the "new" Owner and the Beneficiary
until a new Beneficiary is named.
6.3 ANNUITY OPTION: If the Beneficiary is the surviving spouse of the
deceased Owner, he or she may choose to receive payments under any of
the annuity options of this Contract. For any other Beneficiary, the
only options available are those that provide for full payment of such
Owner's interest in the Contract:
(a) Within five years of the date of such Owner's death;
(b) Over the lifetime of such Beneficiary of this Contract; or
(c) Over a period that does not exceed the life expectancy of such
Beneficiary of this Contract as defined by Internal Revenue
Service regulations.
Subparagraphs (b) and (c) apply only to individuals, and such payments
must start within one year of the date of such Owner's death. For
IRAs, any annuity option chosen must meet the requirements of the
Internal Revenue Code.
6.4 OWNER NOT AN INDIVIDUAL: If the Owner is not an individual, the
Annuitant will be treated as Owner for the purposes of Section 6, and
the death of the Annuitant will be treated as the death of the Owner.
6.5 MULTIPLE OWNERS: Where the Contract names more than one Owner, the
date of death of the Owner will be deemed to be the date of the first
Owner to die.
6.6 DEATH AFTER ANNUITY DATE: See Section 9.8
7. DEATH OF ANNUITANT WHO IS NOT AN OWNER
7.1 If the Annuitant dies prior to the Annuity Date and the Owner is not
the Annuitant, the Owner may designate a new Annuitant. If one is not
designated, the Owner will be the Annuitant, provided that the Owner
is an individual. If the Owner is not an individual, the death of the
Annuitant will be treated as the death of the Owner. See Section 6.
8. ANNUITY PROVISIONS
8.1 ANNUITY DATE: The Annuity Date may not be later than the Annuitant's
85th birthday. If you have not chosen an Annuity Date, it will be the
date of the Annuitant's 85th birthday. The Annuitant may be changed
prior to the Annuity Date unless the Contract Owner is not an
individual. If the Contract has been issued under a qualified plan,
and you have not chosen an Annuity Date, it will be the date the
Annuitant reaches age 70 1/2. You may change the Annuity Date at any
time prior to the Annuity Date.
- 11 -
ML-MGA-003 SPECIMEN
<PAGE> 12
8.2 ANNUITY OPTIONS: If you have not chosen an annuity option described
in Section 9, Option 4 (Life Annuity with Payments Guaranteed for 10
years) will apply. You may change options at any time prior to the
Annuity Date. An option not set forth in the Contract may be chosen
if acceptable to us.
8.3 AMOUNT OF ANNUITY PAYMENTS: Charges made by us for any premium taxes
will be deducted from your Net Account Value as of the Annuity Date.
A Market Value Adjustment will not be applied if the Annuity Date
corresponds to the Renewal Date of a Guarantee Period. The remaining
Net Account Value will be applied to the annuity option chosen at our
current annuity rates, which will be furnished on request. The rates
will assume interest of not less than 3%. They will not be less
favorable than those shown in the annuity tables in this Contract. If
on the Annuity Date we then have a more favorable annuity purchase
rate, we will use that rate. The annuity purchase rate we use shall
be at least as favorable to you as that available in any single
premium annuity contract then offered by us to the same class of
annuitants.
The tables show the minimum guaranteed amount of each monthly payment
for each $1,000 so applied, according to age and sex at the Annuity
Date. The tables are based on the 1983 Table "a" projected forward to
1995 for Individual Annuity Valuation, set back one year, with
interest at 3%. See Section 10.
8.4 MINIMUM ANNUITY PAYMENT: If the Net Account Value to be applied at
the Annuity Date is less than $5,000, we may pay such amount in a lump
sum. If any payment would be less than $50, we may change the
frequency so payments are at least $50 each.
9. ANNUITY OPTIONS
9.1 OPTION 1 - PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount
chosen will be made until the Net Account Value applied under this
option, adjusted for interest credits and prior annuity payments is
exhausted. Interest will be credited at the rate at which we offer
this option. The term over which such payments are made must be at
least 5 years.
9.2 OPTION 2 - PAYMENTS FOR A FIXED PERIOD: Payments will be made for the
period chosen. The period must be at least 5 years.
9.3 OPTION 3 - LIFE ANNUITY: Payments will be made for the life of the
Annuitant. Payments will cease with the last payment due prior to the
Annuitant's death.
9.4 OPTION 4 - LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS:
Payments will be made for the guaranteed period chosen (10 or 20
years) and as long thereafter as the Annuitant lives.
9.5 OPTION 5 - LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE:
Payments will be made until the sum of the annuity payments equals the
Net Account Value applied under this option, and as long thereafter as
the Annuitant lives.
- 12 -
ML-MGA-003 SPECIMEN
<PAGE> 13
9.6 OPTION 6 - JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made
during the lifetimes of the Annuitant and a designated second person.
Upon death of one, payments will continue in the same amount for the
life of the other person.
9.7 OPTION 7 - QUALIFIED PLAN OPTION: Annuity payments may be based on
(a) your life expectancy, (b) the joint life expectancy of you and
your spouse, or (c) the life expectancy of your surviving spouse if
you die before the Annuity Date. Payments will be made annually.
Each annual payment will be equal to the Net Account Value on the
first day of that calendar year divided by the applicable current life
expectancy, as defined by Internal Revenue Service regulations. Each
subsequent payment will be made on the anniversary of the Annuity
Date. Interest will be credited at our current rate for this option.
The rate will not be less than 3%. On death of the measuring life or
lives prior to full distribution of the Net Account Value, the
remaining Net Account Value will be paid to the Beneficiary in a lump
sum.
9.8 DEATH AFTER ANNUITY DATE: On the death of the Annuitant while
guaranteed amounts remain unpaid under Option 1, 2, 4, or 5, the Owner
may choose either:
(a) To have payments continue for the amount or period guaranteed,
or
(b) To receive the present value of the remaining guaranteed
payments in a lump sum.
If an Owner dies while guaranteed amounts remain unpaid, the present
value may be paid in a lump sum to the Beneficiary, if the Beneficiary
so elects.
Present values will be computed at the interest rate that was used to
compute the amount of the initial annuity payment.
9.9 PAYMENT: Except for Option 7 (Qualified Plan Option), payments will
be made monthly beginning on the Annuity Date, but prior to the
Annuity Date you may choose a less frequent payment interval instead.
The amount of each payment on an annual, semiannual or quarterly basis
will be not less than the monthly payment computed from the annuity
tables in the Contract multiplied by the appropriate factor:
<TABLE>
<CAPTION>
Annual Semiannual Quarterly
------ ---------- ---------
<S> <C> <C>
11.839 5.963 2.993
</TABLE>
- 13 -
ML-MGA-003 SPECIMEN
<PAGE> 14
10. ANNUITY OPTION TABLES
MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER
OPTION
OPTION 2 (Payments for a Fixed Period)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years Each Years Each Years Each Years Each
Payable Payment Payable Payment Payable Payment Payable Payment
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 17.91 9 10.53 13 7.71 17 6.23
6 15.14 10 9.61 14 7.26 18 5.96
7 13.16 11 8.86 15 6.87 19 5.73
8 11.68 12 8.24 16 6.53 20 5.51
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years Guranteed)
and OPTION 5 (Return of Contract Value Guaranteed)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
*Adjusted Life 10 Years 20 Years Return of *Adjusted Life 10 Years 20 Years Return of
Male Age Annuity Guaranteed Guaranteed Net Contract Female Age Annuity Guaranteed Guaranteed Net Contract
Value Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
56 4.62 4.56 4.34 4.37 56 4.19 4.16 4.06 4.05
57 4.72 4.65 4.41 4.45 57 4.27 4.24 4.12 4.12
58 4.83 4.75 4.47 4.53 58 4.35 4.32 4.19 4.19
59 4.94 4.85 4.54 4.61 59 4.44 4.40 4.25 4.26
60 5.06 4.95 4.60 4.70 60 4.54 4.49 4.32 4.34
61 5.19 5.07 4.67 4.80 61 4.64 4.58 4.39 4.42
62 5.33 5.19 4.73 4.90 62 4.74 4.68 4.46 4.50
63 5.47 5.31 4.80 5.00 63 4.86 4.79 4.53 4.59
64 5.63 5.44 4.86 5.11 64 4.98 4.90 4.60 4.69
65 5.80 5.58 4.92 5.23 65 5.11 5.01 4.67 4.79
66 5.98 5.72 4.98 5.35 66 5.25 5.14 4.74 4.89
67 6.17 5.86 5.04 5.48 67 5.40 5.27 4.82 5.00
68 6.37 6.02 5.10 5.61 68 5.55 5.40 4.89 5.12
69 6.59 6.18 5.15 5.75 69 5.72 5.55 4.95 5.25
70 6.82 6.34 5.20 5.90 70 5.91 5.70 5.02 5.38
71 7.07 6.50 5.24 6.06 71 6.11 5.86 5.08 5.52
72 7.34 6.67 5.28 6.22 72 6.32 6.03 5.14 5.66
73 7.62 6.85 5.32 6.39 73 6.56 6.20 5.19 5.82
74 7.92 7.02 5.35 6.57 74 6.81 6.38 5.24 5.99
75 8.24 7.20 5.38 6.76 75 7.08 6.57 5.29 6.16
76 8.58 7.38 5.40 6.97 76 7.37 6.76 5.33 6.35
77 8.95 7.55 5.42 7.17 77 7.69 6.96 5.36 6.55
78 9.35 7.72 5.44 7.39 78 8.03 7.16 5.39 6.75
79 9.77 7.89 5.46 7.63 79 8.40 7.36 5.41 6.98
80 10.22 8.06 5.47 7.87 80 8.80 7.56 5.44 7.21
81 10.71 8.22 5.48 8.13 81 9.23 7.75 5.45 7.45
82 11.22 8.37 5.49 8.40 82 9.70 7.94 5.47 7.71
83 11.77 8.51 5.50 8.68 83 10.21 8.13 5.48 7.98
84 12.35 8.65 5.50 8.97 84 10.76 8.30 5.49 8.27
85 12.97 8.77 5.50 9.29 85 11.35 8.46 5.50 8.57
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 14 -
ML-MGA-003 SPECIMEN
<PAGE> 15
OPTION 6 (Joint and Survivor Life Annuity)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
*Adjusted *Adjusted Male Age *Adjusted
Female Age -------------------------------------------------------------------------------------------- Female Age
50 55 60 65 70 75 80 85
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 3.52 3.60 3.66 3.71 3.74 3.76 3.78 3.78 50
55 3.65 3.77 3.87 3.95 4.01 4.05 4.08 4.09 55
60 3.78 3.94 4.10 4.23 4.34 4.41 4.46 4.49 60
65 3.88 4.10 4.33 4.54 4.72 4.86 4.96 5.02 65
70 3.96 4.23 4.54 4.85 5.15 5.40 5.59 5.72 70
75 4.02 4.34 4.72 5.14 5.59 6.01 6.37 6.64 75
80 4.06 4.41 4.85 5.38 5.99 6.63 7.24 7.76 80
85 4.09 4.46 4.94 5.55 6.30 7.17 8.11 9.01 85
------------------------------------------------------------------------------------------------------------------
</TABLE>
Information for ages not shown will be furnished on request.
*"Adjusted Age" means attained age at last birthday adjusted as follows:
<TABLE>
<CAPTION>
ANNUITY DATE ADJUSTED AGE
------------ ------------
<S> <C>
Before 2000 Actual Age
2000-2009 Subtract 1 year from actual age
2010-2019 Subtract 2 years from actual age
2020-2029 Subtract 3 years from actual age
2030 and after Subtract 4 years from actual age
</TABLE>
- 15 -
ML-MGA-003 SPECIMEN
<PAGE> 16
MERRILL LYNCH LIFE INSURANCE COMPANY
SINGLE PREMIUM MODIFED GUARANTEED ANNUITY.
DEATH BENEFIT BEFORE ANNUITY DATE. NON-PARTICIPATING.
ACCOUNT VALUE SUBJECT TO MARKET VALUE ADJUSTMENT.
- 16 -
ML-MGA-003 SPECIMEN
<PAGE> 1
<TABLE>
<CAPTION>
MERRILL LYNCH APPLICATION FOR SINGLE
Annuities RATEMAX(SM) PREMIUM MODIFIED
GUARANTEED ANNUITY
<S> <C> <C>
1 CONTRACT INFORMATION
- ----------------------------- -------------------------------- --------------------------------------------------------------
MERRILL LYNCH ACCOUNT NUMBER STATE OF PURCHASE WHAT TYPE OF CONTRACTS ARE YOU APPLYING FOR?
NON-QUALIFIED IRA SEP
----- ----- -----
- ----------------------------- -------------------------------- --------------------------------------------------------------
2 OWNER INFORMATION
- ----------------------------------------------------------------- ------------ ---------------------------------------------
FULL NAME (FIRST, MIDDLE INITIAL, LAST) MALE BIRTHDATE (MUST BE UNDER AGE 85)
--
FEMALE (M/D/Y)
--
- ----------------------------------------------------------------- ------------ ---------------------------------------------
- -------------------------------------------- ----------------- --------- ------------ -------------------------------------------
ADDRESS CITY STATE ZIP CODE SOCIAL SECURITY OR TAX ID NUMBER
- -------------------------------------------- ----------------- --------- ------------ -------------------------------------------
3 CO-OWNER INFORMATION - Not available for IRA and SEP contracts.
- ------------------------------------------------------------------------ ------------ ---------------------------------------------
FULL NAME (FIRST, MIDDLE INITIAL, LAST) MALE BIRTHDATE (MUST BE UNDER AGE 85)
--
FEMALE (M/D/Y)
--
- ------------------------------------------------------------------------ ------------ ---------------------------------------------
- -------------------------------------------- ----------------- --------- ------------ -------------------------------------------
ADDRESS CITY STATE ZIP CODE SOCIAL SECURITY OR TAX ID NUMBER
- -------------------------------------------- ----------------- --------- ------------ -------------------------------------------
4 ANNUITANT INFORMATION - Complete only if annuitant is different from the owner named in Section 2.
- ------------------------------------------------------------------------ ------------ ---------------------------------------------
FULL NAME (FIRST, MIDDLE INITIAL, LAST) MALE BIRTHDATE (MUST BE UNDER AGE 85)
--
FEMALE (M/D/Y)
--
- ------------------------------------------------------------------------ ------------ ---------------------------------------------
- -------------------------------------------- ----------------- --------- ------------ -------------------------------------------
ADDRESS CITY STATE ZIP CODE SOCIAL SECURITY OR TAX ID NUMBER
- -------------------------------------------- ----------------- --------- ------------ -------------------------------------------
5 BENEFICIARY INFORMATION - Do not complete this section if the contract is
being purchased in a Merrill Lynch Retirement Plan Account.
- ------------------------------------------------- --------------- -------------------- --------------------------------------------
FULL NAME (FIRST, MIDDLE INITIAL, LAST) RELATIONSHIP BIRTHDATE (M/D/Y) SOCIAL SECURITY OR TAX ID NUMBER
- ------------------------------------------------- --------------- -------------------- --------------------------------------------
FULL NAME (FIRST, MIDDLE INITIAL, LAST) RELATIONSHIP BIRTHDATE (M/D/Y) SOCIAL SECURITY OR TAX ID NUMBER
- ------------------------------------------------- --------------- -------------------- --------------------------------------------
SPECIAL INSTRUCTIONS - Please provide us with additional primary or
continent beneficiaries and distribution of funds between two or more
beneficiaries.
...................................................................................................................................
...................................................................................................................................
...................................................................................................................................
6 INITIAL PREMIUM
- -------------------------------------------- -------------------------------------------- -----------------------------------------
TOTAL INITIAL PREMIUM (MINIMUM $25,000) 3 YR SUB-ACCOUNT (MINIMUM $5,000) 5 YR SUB-ACCOUNT (MINIMUM $5,000)
$ $ $
- -------------------------------------------- -------------------------------------------- -----------------------------------------
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY Page 1 of 3
ML015 (New 7/97)
<PAGE> 2
MERRILL LYNCH APPLICATION FOR SINGLE
Annuities RATEMAX(SM) PREMIUM MODIFIED
GUARANTEED ANNUITY
7 CONTRIBUTIONS FOR IRAS AND SEPS - Complete this section ONLY if you are
purchasing an IRA or SEP contract outside of a Merrill Lynch Retirement
Plan Account. Please indicate the amount of the initial premium and type
of contribution.
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------------- ------------------------------------ --------------------------------
CURRENT YEAR PRIOR YEAR ROLLOVER TRANSFER
$ $ $ $
- -------------------------------- ---------------------------- ------------------------------------ --------------------------------
8 CONTRACT REPLACEMENT INFORMATION - Is any existing annuity or life
insurance contract being (or has any such contract been) surrendered,
lapsed, converted, borrowed against or otherwise reduced in value or
replaced in connection with this annuity?
Is any such action likely to occur?
YES - Please provide details below. State replacement regulations apply. NO - Go to Section 9.
- -------------------------------- ---------------------------- ------------------------------------ --------------------------------
COMPANY CONTACT NUMBER ISSUE DATE (M/D/Y) ORIGINAL PREMIUM
$
- -------------------------------- ---------------------------- ------------------------------------ --------------------------------
9 TELEPHONE TRANSACTIONS - You may elect, change or cancel telephone
authorization at any time. If you elect telephone authorization, you are
authorizing us to accept telephone instructions from the person or
persons you designate below to make transfers among subaccounts, and to
direct withdrawals to your Merrill Lynch account on record.
[ ] YES - you elect telephone authorization giving us permission. [ ] NO - you do not elect telephone authorization.
to accept telephone instructions from: (check all that apply)
[ ] You
[ ] Merrill Lynch Financial Consultant on record
[ ] Other authorized person you designate below
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
FULL NAME (FIRST, MIDDLE INITIAL, LAST)
- ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- --------------------------------------------- ----------------- --------------------
ADDRESS CITY STATE ZIP CODE
- -------------------------------------------- --------------------------------------------- ----------------- --------------------
10 TAX EQUITY AND FISCAL RESPONSIBILITY ACT NOTICE - Withdrawals are subject to
federal income tax withholding unless you choose not to have tax withheld.
Withholding applies only to the taxable portion of your withdrawal. If you
choose not to have tax withheld, or you do not have enough tax withheld, you
may have to pay estimated tax. You may incur penalties under the estimated
tax rules if your withholding and estimated tax payments are not sufficient.
In addition, some states require state taxes to be withheld when federal
taxes are withheld. If you live in one of these states, we will withhold
state taxes as required by your state.
IF YOU DO NOT CHECK A BOX, WE WILL WITHHOLD [ ] No income tax to be withheld.
TAX FROM YOUR WITHDRAWALS AT THE RATE OF 10%. [ ] Income tax to be withheld ______%
(please use whole percentages)
11 OWNER SIGNATURE(S) VERIFIES:
You have read the above statements and represent that they are complete and
true to the best of your knowledge. You have received the current prospectus
for the modified guaranteed annuity contract to which this application
applies. Amounts payable under this contract are subject to a Market Value
Adjustment prior to the dates specified in the contract.
</TABLE>
Page 2 of 3
ML015 (New 7/97)
<PAGE> 3
MERRILL LYNCH APPLICATION FOR SINGLE
ANNUITIES RATEMAX(SM) PREMIUM MODIFIED
GUARANTEED ANNUITY
- -----------------------------------------------------------------------------
UNDER PENALTY OF PERJURY YOU CERTIFY THAT:
YOUR SOCIAL SECURITY OR TAX ID NUMBER INDICATED ON PAGE 1 IS CORRECT.
YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING. (YOU ARE REQUIRED TO CROSS OUT THIS
STATEMENT IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP
WITHHOLDING.)
THE IRS DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER
THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
- -----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER'S SIGNATURE
- ------------------------------------------------------------------------------------------------------------------------------------
CO-OWNER'S SIGNATURE SIGNED AT (CITY/STATE) DATE (M/D/Y)
- ------------------------------------------------------------- ------------------------------------------------------ ---------------
12 FINANCIAL CONSULTANT'S VERIFICATION - The Financial Consultant selling this annuity must complete and sign.
1. Has a current prospectus been given to the client? ______ YES ______ NO
2. Is any existing annuity or life insurance contract being (or had any such contract been) surrendered, lapsed, converted,
or borrowed against or otherwise reduced in value or replaced in connection with this application? Is any such action
likely to occur? ______ Yes ______ No
</TABLE>
<TABLE>
<S> <C>
- ------------------------------------------------------------- ------------------------------- -------------------------------------
FINANCIAL CONSULTANT'S SIGNATURE DATE (M/D/Y) FC NUMBER OR POOL AUTHORIZING FC TELEPHONE NUMBER
FC NUMBER
- ------------------------------------------------------------- ------------------------------- -------------------------------------
===================================================================================================================================
FAX and Mail to: MERRILL LYNCH LIFE INSURANCE COMPANY
Our Mailing Address: P.O. Box 4422
Jacksonville, FL 32244-4222 FAX number: 1-904-218-7204
Overnight Mail Address: 4804 Deer Lake Drive East Telephone number: 1-800-535-5549
Jacksonville, FL 32246 TDD (for the hearing impaired): 1-800-636-0503
===================================================================================================================================
</TABLE>
Page 3 of 3
ML015 (New 7/97)
