<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
Commission File Nos. 33-34562; 33-60288
ML LIFE INSURANCE COMPANY OF NEW YORK
(Exact name of Registrant as specified in its charter)
New York 16-1020455
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
717 Fifth Avenue
New York, New York 10022
----------------------------------------
(Address of Principal Executive Offices)
1 (800) 333-6524
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(Registrant's telephone no. including area code)
Securities registered pursuant to Section 12(b) or 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No _____
-----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Common 220,000
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DOCUMENTS INCORPORATED BY REFERENCE
Preliminary Prospectus included in Post-Effective Amendment
No. 1 to the Registrant's registration statement on Form S-1, filed March 31,
1994, pursuant to the Securities Act of 1933, File No. 33-60288 -- incorporated
by reference into Parts I and II of this report on Form 10-K.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION J(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
<PAGE> 2
PART I
Item 1. Business.
The Registrant is an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc., a corporation whose common stock is traded on the
New York Stock Exchange. The information set forth under the caption "A.
History and Business" in the preliminary prospectus contained in Registrant's
registration statement filed March 31, 1994, pursuant to the Securities Act of
1933, File No. 33-60288 (the "Prospectus"), is incorporated herein by
reference.
Item 2. Properties.
The information set forth under the caption "J. Properties" in
the Prospectus is incorporated herein by reference.
Item 3. Legal Proceedings.
The information set forth under the caption "Legal
Proceedings" in the Prospectus is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
Information called for by this item is omitted pursuant to
General Instruction J. of Form 10-K.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Registrant is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc., which is the sole record holder of Registrant's shares.
Therefore, there is no public trading market for Registrant's common stock.
The Registrant has declared no cash dividends on its common stock at any time
during the two most recent fiscal years. Under laws applicable to insurance
companies domiciled in the State of New York, the Registrant's ability to pay
dividends on its common stock is restricted. See Note 5 to the Registrant's
financial statements.
Item 6. Selected Financial Data.
Information called for by this item is omitted pursuant to General
Instruction J. of Form 10-K.
Item 7. Management's Narrative Analysis of Results of
Operations.
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The information set forth under the caption "C. Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Prospectus is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements of Registrant are set forth in Part IV
hereof and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
Information called for by items 10 through 13 of this part is omitted
pursuant to General Instruction J. of Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements and Exhibits.
(1) The following financial statements of the Registrant are filed as
part of this report:
a. Independent Auditors' Report dated February 28, 1994.
b. Balance Sheets at December 31, 1993 and 1992.
c. Statements of Earnings for the Years Ended December 31, 1993,
1992 and 1991.
d. Statements of Stockholder's Equity for the Years Ended December
31, 1993, 1992 and 1991.
e. Statements of Cash Flows for the Years Ended December 31, 1993,
1992 and 1991.
f. Notes to Financial Statements for the Years Ended December 31,
1993, 1992 and 1991.
(2) The following exhibits are filed as part of this report as
indicated below:
3.1 Certificate of Amendment and Restatement of Charter of Royal
Tandem Life Insurance Company. (In-
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<PAGE> 4
corporated by reference to Exhibit 3(a) to the
Registrant's registration statement on Form S-1,
File No. 33-34562, filed April 26, 1990.)
3.2 By-Laws of Royal Tandem Life Insurance Company.
(Incorporated by reference to Exhibit 3(b) to the
Registrant's registration statement on Form S-1, File
No. 33-34562, filed April 26, 1990.)
3.3 Certificate of Amendment of the Charter of ML Life
Insurance Company of New York. (Incorporated by
reference to Exhibit 3(c) to Post-Effective Amendment
No. 3 to the Registrant's registration statement on
Form S-1, File No. 33-34562, filed March 30, 1992.)
3.4 By-Laws of ML Life Insurance Company of New York.
(Incorporated by reference to Exhibit 3(d) to Post-
Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No.
33-34562, filed March 30, 1992.)
4.1 Modified Guaranteed Annuity Contract. (Incorporated
by reference to Exhibit 4(a) to Pre-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-34562, filed
October 16, 1990.)
4.2 Modified Guaranteed Annuity Contract Application.
(Incorporated by reference to Exhibit 4(b) to Pre-
Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-34562, filed October 16, 1990.)
4.3 Qualified Retirement Plan Endorsement. (Incorporated
by reference to Exhibit 4(c) to Pre-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-34562, filed
October 16, 1990.)
4.4 IRA Endorsement. (Incorporated by reference to
Exhibit 4(d) to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1,
File No. 33-34562, filed October 16, 1990.)
4.5 Company Name Change Endorsement. (Incorporated by
reference to Exhibit 4(e) to Post-Effective Amendment
No. 3 to the Registrant's registration statement on
Form S-1, File No. 33-34562, filed March 30, 1992.)
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<PAGE> 5
4.6 IRA Endorsement, MLNY009 (Incorporated by reference
to Exhibit 4(d)(2) to Post-Effective Amendment No. 1
to the Registrant's registration statement on Form
S-1, File No. 33-60288, filed March 31, 1994).
10.1 General Agency Agreement between Royal Tandem Life
Insurance Company and Merrill Lynch Life Agency Inc.
(Incorporated by reference to Exhibit 10(a) to
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-34562, filed October 16, 1990.)
10.2 Investment Management Agreement by and between Royal
Tandem Life Insurance Company and Equitable Capital
Management Corporation. (Incorporated by reference
to Exhibit 10(b) to Pre-Effective Amendment No. 1 to
the Registrant's registration statement on Form S-1,
File No. 33-34562, filed October 16, 1990.)
10.3 Shareholders' Agreement by and among The Equitable
Life Assurance Society of the United States and
Merrill Lynch & Co., Inc. and Tandem Financial Group,
Inc. (Incorporated by reference to Exhibit 10(c) to
Pre- Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-34562, filed October 16, 1990.)
10.4 Service Agreement by and between Royal Tandem Life
Insurance Company and Tandem Financial Group, Inc.
(Incorporated by reference to Exhibit 10(d) to
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-34562, filed October 16, 1990.)
10.5 Service Agreement by and between Tandem Financial
Group, Inc. and Merrill Lynch & Co., Inc.
(Incorporated by reference to Exhibit 10(e) to
Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-34562, filed October 16, 1990.)
10.6 Form of Investment Management Agreement by and
between Royal Tandem Life Insurance Company and
Merrill Lynch Asset Management, Inc. (Incorporated
by reference to Exhibit 10(f) to Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-34562, filed March
7, 1991.)
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10.7 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 Exhibit 10(g) to Post-Effective
Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-34562, filed March
30, 1992.)
10.8 Indemnity Agreement between ML Life Insurance Company
of New York and Merrill Lynch Life Agency, Inc.
(Incorporated by reference to Exhibit 10(h) to
Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No.
33-34562, filed March 30, 1992.)
10.9 Amended General Agency Agreement between ML Life
Insurance Company of New York and Merrill Lynch Life
Agency, Inc. (Incorporated by reference to Exhibit
10(i) to Post-Effective Amendment No. 3 to the
Registrant's registration statement on Form S-1, File
No. 33-34562, filed March 30, 1992.)
10.10 Amended Management Agreement between ML Life
Insurance Company of New York and Merrill Lynch Asset
Management, Inc. (Incorporated by reference to
Exhibit 10(j) to the Registrant's registration
statement on Form S-1, File No. 33-60288, filed March
30, 1993.)
25.1 Power of attorney of Frederick J.C. Butler.
(Incorporated by reference to Exhibit 25(a) to
Post-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-60288, filed March 31, 1994.)
25.2 Power of attorney of Michael P. Cogswell.
(Incorporated by reference to Exhibit 25(b) to
Post-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-60288, filed March 31, 1994.)
25.3 Power of attorney of Sandra K. Cox. (Incorporated by
reference to Exhibit 25(c) to Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60288, filed March
31, 1994.)
25.4 Power of attorney of Joseph E. Crowne. (Incorporated
by reference to Exhibit 25(d) to Post-Effective
Amendment No. 1 to the Registrant's
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<PAGE> 7
registration statement on Form S-1, File No.
33-60288, filed March 31, 1994.)
25.5 Power of attorney of David M. Dunford. (Incorporated
by reference to Exhibit 25(e) to Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60288, filed March
31, 1994.)
25.6 Power of attorney of John C.R. Hele. (Incorporated
by reference to Exhibit 25(f) to Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60288, filed March
31, 1994.)
25.7 Power of attorney of Robert L. Israeloff.
(Incorporated by reference to Exhibit 25(g) to
Post-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-60288, filed March 31, 1994.)
25.8 Power of attorney of Allen N. Jones. (Incorporated
by reference to Exhibit 25(h) to Post Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60288, filed March
31, 1994.)
25.9 Power of attorney of Cynthia L. Kahn. (Incorporated
by reference to Exhibit 25(i) to Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60288, filed March
31, 1994.)
25.10 Power of attorney of Robert A. King. (Incorporated
by reference to Exhibit 25(j) to Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60288, filed March
31, 1994.)
25.11 Power of attorney of Irving M. Pollack.
(Incorporated by reference to Exhibit 25(k) to
Post-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-60288, filed March 31, 1994.)
25.12 Power of attorney of Barry G. Skolnick.
(Incorporated by reference to Exhibit 25(l) to
Post-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-1, File No.
33-60288, filed March 31, 1994.)
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25.13 Power of attorney of William A. Wilde. (Incorporated
by reference to Exhibit 25(m) to Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60288, filed March
31, 1994.)
25.14 Power of attorney of Anthony J. Vespa. (Incorporated
by reference to Exhibit 25(n) to Post-Effective
Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60288, filed March
31, 1994.)
28.1 Preliminary prospectus contained in Post-Effective
Amendment No. 1 to the Registrant's registration
statement, filed on March 31, 1994, pursuant to the
Securities Act of 1933, File No. 33-60288.
(3) Not applicable.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter
of the fiscal year ended December 31, 1993.
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INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheets at December 31, 1993 and 1992 . . . . . . . . . . . . . . . . .
Statements of Earnings for the Years Ended December 31,
1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statements of Stockholder's Equity for the Years Ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . .
Statements of Cash Flows for the Years Ended December 31,
1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Financial Statements for the Years Ended December 31,
1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
ML Life Insurance Company of New York
--------------------------------------
(Registrant)
Date: March 29, 1994 By: /s/ Joseph E. Crowne
---------------- ------------------------------------
Joseph E. Crowne
Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Anthony J. Vespa March 29, 1994
- --------------------- Chairman of the Board, President --------------------
Anthony J. Vespa and Chief Executive Officer
/s/ Joseph E. Crowne March 29, 1994
- --------------------- Director, Senior Vice President, --------------------
Joseph E. Crowne Chief Financial Officer, Chief
Actuary and Treasurer
/s/ Barry G. Skolnick March 29, 1994
- --------------------- Director, Senior Vice President --------------------
Barry G. Skolnick and General Counsel*
/s/ David M. Dunford March 29, 1994
- --------------------- Director and Senior Vice --------------------
David M. Dunford President
/s/ John C.R. Hele
- --------------------- March 29, 1994
John C.R. Hele Director and Senior --------------------
Vice President
/s/ Michael P. Cogswell
- --------------------- March 29, 1994
Michael P. Cogswell Director, Vice --------------------
President and Senior
Counsel
</TABLE>
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<TABLE>
<S> <C> <C>
/s/ Frederick J.C. Butler March 29, 1994
- --------------------- Director --------------------
Frederick J.C. Butler
/s/ Sandra K. Cox March 29, 1994
- --------------------- Director --------------------
Sandra K. Cox
/s/ Robert L. Israeloff March 29, 1994
- --------------------- Director --------------------
Robert L. Israeloff
/s/ Allen N. Jones March 29, 1994
- --------------------- Director --------------------
Allen N. Jones
/s/ Cynthia L. Kahn March 29, 1994
- --------------------- Director --------------------
Cynthia L. Kahn
/s/ Robert A. King March 29, 1994
- --------------------- Director --------------------
Robert A. King
/s/ Irving M. Pollack March 29, 1994
- --------------------- Director --------------------
Irving M. Pollack
/s/ William A. Wilde March 29, 1994
- --------------------- Director --------------------
William A. Wilde
</TABLE>
*Signing in his own capacity and as Attorney-in-Fact.
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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.
No annual report covering the Registrant's last fiscal year or proxy
material has been or will be sent to Registrant's security holder.
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
3.1 Certificate of Amendment and Restatement Incorporated by reference to Exhibit 3(a)
of Charter of Royal Tandem Life Insurance to the Registrant's registration statement
Company. on Form S-1, File No. 33-34562, filed
April 26, 1990.
3.2 By-Laws of Royal Tandem Life Insurance Incorporated by reference to Exhibit 3(b)
Company. to the Registrant's registration statement
on Form S-1, File No. 33-34562, filed
April 26, 1990.
3.3 Certificate of Amendment of the Charter of Incorporated by reference to Exhibit 3(c)
ML Life Insurance Company of New York. to Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed March
30, 1992.
3.4 By-Laws of ML Life Insurance Company of Incorporated by reference to Exhibit 3(d)
New York. to Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed March
30, 1992.
4.1 Modified Guaranteed Annuity Contract. Incorporated by reference to Exhibit 4(a)
to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
</TABLE>
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<TABLE>
<S> <C> <C>
4.2 Modified Guaranteed Annuity Contract Incorporated by reference to Exhibit 4(b)
Application. to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
4.3 Qualified Retirement Plan Endorsement. Incorporated by reference to Exhibit 4(c)
to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
4.4 IRA Endorsement. Incorporated by reference to Exhibit 4(d)
to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
4.5 Company Name Change Endorsement. Incorporated by reference to Exhibit 4(e)
to Post-Effective Amendment No. 3 to the
Registrant's registration statement on
Form S-1, File No. 33-34562, filed March
30, 1992.
4.6 IRA Endorsement, MLNY009. Incorporated by reference to Exhibit
4(d)(2) to Post-Effective Amendment No. 1
to the Registrant's registration statement
on Form S-1, File No. 33-60288, filed
March 31, 1994.
10.1 General Agency Agreement between Royal Incorporated by reference to Exhibit 10(a)
Tandem Life Insurance Company and to Pre-Effective Amendment No. 1 to the
Registrant's
</TABLE>
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<TABLE>
<S> <C> <C>
Merrill Lynch Life Agency Inc. registration statement on Form S-1, File
No. 33-34562, filed October 16, 1990.
10.2 Investment Management Agreement by and Incorporated by reference to Exhibit 10(b)
between Royal Tandem Life Insurance to Pre-Effective Amendment No. 1 to the
Company and Equitable Capital Management Registrant's registration statement on
Corporation. Form S-1, File No. 33-34562, filed October
16, 1990.
10.3 Shareholders' Agreement by and among The Incorporated by reference to Exhibit 10(c)
Equitable Life Assurance Society of the to Pre-Effective Amendment No. 1 to the
United States and Merrill Lynch & Co., Registrant's registration statement on
Inc. and Tandem Financial Group, Inc. Form S-1, File No. 33-34562, filed October
16, 1990.
10.4 Service Agreement by and between Royal Incorporated by reference to Exhibit 10(d)
Tandem Life Insurance Company and Tandem to Pre-Effective Amendment No. 1 to the
Financial Group, Inc. Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
10.5 Service Agreement by and between Tandem Incorporated by reference to Exhibit 10(e)
Financial Group, Inc. and Merrill Lynch & to Pre-Effective Amendment No. 1 to the
Co., Inc. Registrant's registration statement on
Form S-1, File No. 33-34562, filed October
16, 1990.
10.6 Form of Investment Management Agreement by Incorporated by reference to Exhibit 10(f)
and between Royal Tandem Life Insurance to Post-Effective Amendment No. 1 to the
Company and Merrill Lynch Asset Registrant's registration statement on
Management, Inc. Form S-1, File No. 33-34562, filed March
7, 1991.
</TABLE>
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<TABLE>
<S> <C> <C>
10.7 Assumption Reinsurance Agreement between Incorporated by reference to Exhibit 10(g)
Merrill Lynch Life Insurance Company, to Post-Effective Amendment No. 3 to the
Tandem Insurance Group, Inc. and Royal Registrant's registration statement on
Tandem Life Insurance Company and Family Form S-1, File No. 33-34562, filed March
Life Insurance Company. 30, 1992.
10.8 Indemnity Agreement between ML Life Incorporated by reference to Exhibit 10(h)
Insurance Company of New York and Merrill to Post-Effective Amendment No. 3 to the
Lynch Life Agency, Inc. Registrant's registration statement on
Form S-1, File No. 33-34562, filed March
30, 1992.
10.9 Amended General Agency Agreement between Incorporated by reference to Exhibit 10(i)
ML Life Insurance Company of New York and to Post-Effective Amendment No. 3 to the
Merrill Lynch Life Agency, Inc. Registrant's registration statement on
Form S-1, File No. 33-34562, filed March
30, 1992.
10.10 Amended Management Agreement between ML Incorporated by reference to Exhibit 10(j)
Life Insurance Company of New York and to the Registrant's registration statement
Merrill Lynch Asset Management, Inc. on Form S-1, File No. 33-60288, filed
March 30, 1993.
25.1 Power of attorney of Frederick J.C. Incorporated by reference to Exhibit 25(a)
Butler. to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
</TABLE>
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<TABLE>
<S> <C> <C>
25.2 Power of attorney of Michael P. Cogswell. Incorporated by reference to Exhibit 25(b)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.3 Power of attorney of Sandra K. Cox. Incorporated by reference to Exhibit 25(c)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.4 Power of attorney of Joseph E. Crowne. Incorporated by reference to Exhibit 25(d)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.5 Power of attorney of David M. Dunford. Incorporated by reference to Exhibit 25(e)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.6 Power of attorney of John C.R. Hele. Incorporated by reference to Exhibit 25(f)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
</TABLE>
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<TABLE>
<S> <C> <C>
25.7 Power of attorney of Robert L. Israeloff. Incorporated by reference to Exhibit 25(g)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.8 Power of attorney of Allen N. Jones. Incorporated by reference to Exhibit 25(h)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.9 Power of attorney of Cynthia L. Kahn. Incorporated by reference to Exhibit 25(i)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.10 Power of attorney of Robert A. King. Incorporated by reference to Exhibit 25(j)
to Post-Effective Amendment No. 1 the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.11 Power of attorney of Irving M. Pollack. Incorporated by reference to Exhibit 25(k)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
</TABLE>
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<TABLE>
<S> <C> <C>
25.12 Power of attorney of Barry G. Skolnick. Incorporated by reference to Exhibit 25(l)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.13 Power of attorney of William A. Wilde. Incorporated by reference to Exhibit 25(m)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
25.14 Power of Attorney of Anthony J. Vespa. Incorporated by reference to Exhibit 25(n)
to Post-Effective Amendment No. 1 to the
Registrant's registration statement on
Form S-1, File No. 33-60288, filed March
31, 1994.
28.1 Preliminary prospectus contained in Post-
Effective Amendment No. 1 to the
Registrant's registration statement, filed
March 31, 1994, pursuant to the Securities
Act of 1933, File No. 33-60288.
</TABLE>
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<PAGE> 1
Exhibit 28.1
<PAGE> 2
PROSPECTUS
MAY 1, 1994
ML NY ASSET ISM
INDIVIDUAL MODIFIED GUARANTEED ANNUITY CONTRACT
ISSUED BY
ML LIFE INSURANCE COMPANY OF NEW YORK
Home Office: 717 Fifth Avenue; New York, New York 10022
Phone: (800) 333-6524
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
The contract described in this Prospectus (the "Contract") is issued by ML Life
Insurance Company of New York ("ML of New York") 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 contract 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 contract owner. ML of New York may
offer Guarantee Periods of from one to ten years. ML of New York reserves the
right at any time to decrease or increase the number of Guarantee Periods
offered. An individual considering an investment should check with his or her
Financial Consultant to determine the availability of Guarantee Periods. At the
end of any Guarantee Period the accumulated value may be reinvested for one or
more new Guarantee Periods at the current interest rates then offered by ML of
New York. 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 CONTRACT OWNER'S ACCOUNT VALUES.
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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.
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TABLE OF CONTENTS
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DEFINITIONS............................................................................ 3
CAPSULE SUMMARY OF THE CONTRACT........................................................ 5
ML LIFE INSURANCE COMPANY OF NEW YORK.................................................. 8
DESCRIPTION OF THE CONTRACT............................................................ 8
A. GENERAL....................................................................... 8
B. PREMIUMS...................................................................... 8
C. SELECTING THE GUARANTEE PERIOD................................................ 8
D. SUBACCOUNT AND ACCOUNT VALUES................................................. 9
E. SUBACCOUNT TRANSFERS.......................................................... 9
F. FIXING NEW GUARANTEED INTEREST RATES.......................................... 10
G. WITHDRAWALS................................................................... 10
H. MARKET VALUE ADJUSTMENT....................................................... 11
I. WITHDRAWAL CHARGE............................................................. 12
J. PAYMENT ON DEATH.............................................................. 13
K. ANNUITY PROVISIONS............................................................ 14
L. OTHER PROVISIONS.............................................................. 16
DISTRIBUTION OF THE CONTRACTS.......................................................... 17
FEDERAL TAX CONSIDERATIONS............................................................. 18
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 PROVISIONS............................. 22
MORE INFORMATION ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK........................... 23
A. HISTORY AND BUSINESS.......................................................... 23
B. SELECTED FINANCIAL DATA....................................................... 24
C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................................................... 24
D. REINSURANCE................................................................... 29
E. CONTRACT OWNER ACCOUNT BALANCES............................................... 29
F. INVESTMENTS................................................................... 29
G. COMPETITION................................................................... 29
H. CERTAIN AGREEMENTS............................................................ 30
I. EMPLOYEES..................................................................... 30
J. PROPERTIES.................................................................... 31
K. STATE REGULATION.............................................................. 31
DIRECTORS AND EXECUTIVE OFFICERS....................................................... 32
EXECUTIVE COMPENSATION................................................................. 33
LEGAL PROCEEDINGS...................................................................... 36
LEGAL MATTERS.......................................................................... 36
EXPERTS................................................................................ 36
REGISTRATION STATEMENT................................................................. 36
FINANCIAL STATEMENTS OF ML LIFE INSURANCE COMPANY OF NEW YORK.......................... 37
APPENDIX............................................................................... A-1
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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 on whose continuation of life annuity payments may depend.
annuitant's beneficiary: The person to whom payment is to be made upon the death
of the annuitant.
annuity: A series of predetermined periodic payments.
annuity date: The date shown in the Contract on which payment of an annuity
under the Contract will commence.
beneficiary: The person to whom payment is to be made on the death of the
contract owner or annuitant. There may be both a contract owner's beneficiary
and an annuitant's beneficiary if the owner is not an annuitant.
co-annuitant: If two persons are named as annuitants in the Contract, each is a
co-annuitant. In that case, "annuitant" means the co-annuitants, and death of
the annuitant refers to the death of the last co-annuitant.
Contract: The Contract described in and offered by this Prospectus.
contract anniversary: Each anniversary of the contract date.
contract date: The date on which a Contract is issued.
contract owner: The person to whom a Contract is issued.
contracts owner's beneficiary: A natural person to whom ownership of the
Contract passes upon the contract owner's death and to whom payment is to be
made on the death of the contract owner.
contract year: The year starting on the contract 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.
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 at the annuity
date, except under certain circumstances. In addition, a Market Value Adjustment
is applied in the event of payment on the death of the contract owner or
annuitant prior to the annuity date unless the combined Market Value Adjustments
of all affected subaccounts would reduce the contract owner's account value.
(See "Market Value Adjustment" on page 11.)
Maximum Guarantee Period Option: An option to have subaccount values
automatically transferred to a subaccount with a Guarantee Period equal to the
longest Guarantee Period then offered by ML of New York which (i) does not
exceed the length of the contract owner's longest Guarantee Period immediately
prior to transfer and (ii) ends on or prior to the annuity date. If the contract
owner's annuity date is less than one year from the date of transfer, the
subaccount value will be transferred to a subaccount with a one year Guarantee
Period.
Maximum Surrender Factors: Factors used in limiting the withdrawal charge.
Maximum Surrender Factors are: 10% in contract year 1; 9% in contract year 2; 8%
in contract year 3; 7% in contract year 4; 6% in contract year 5; 5% in contract
year 6; 4% in contract year 7; 3% in contract year 8; 2% in contract year 9; 1%
in contract year 10; and 0% in contract years 11 and later.
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 full withdrawal,
annuitization or the payment of death benefits upon the death of the contract
owner or annuitant prior to the annuity date.
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nonqualified contract: A Contract issued in connection with a nonqualified plan.
nonqualified plan: A retirement plan other than a qualified plan.
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 corresponding to the end of the Guarantee
Period of a subaccount.
subaccount: An account maintained under a Contract corresponding to a specified
interest rate and Guarantee Period selected by the contract owner.
subaccount value: An amount equal to that part of a single premium allocated by
the contract owner to a subaccount, or any reinvestment in a subaccount, plus
credited interest, as adjusted for any prior withdrawals and any prior Market
Value Adjustments and withdrawal charges.
withdrawal charge: A charge deducted from 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 an individual modified guaranteed annuity contract
(the "Contract") issued by ML of New York. The Contract may be purchased by or
on behalf of any person acceptable to ML of New York (each, a "contract owner").
The Contract sets forth the contract owner's rights and benefits thereunder.
Values and benefits provided under the Contract, including annuity payments, are
funded by the general assets of ML of New York.
The Contract may be issued pursuant to nonqualified retirement plans or plans
qualifying for special tax treatment as "H.R. 10" plans, Individual Retirement
Annuities or Accounts, corporate pension and profit-sharing plans or Section 457
deferred compensation ("Section 457") plans.
APPLICATION AND PREMIUMS
The applicant must complete and return a Contract application to ML of New
York's Home Office. ML of New York reserves the right to reject any application.
The Contract permits the payment of a single premium. The minimum single premium
is $5,000.
THE SUBACCOUNTS
One or more subaccounts are maintained under the Contract. The minimum amount
which may be allocated to a subaccount is $5,000. A subaccount with a specified
Renewal Date is established for each specified interest rate and Guarantee
Period selected by the contract owner. A Guarantee Period is the period of years
for which a rate of interest is guaranteed. ML of New York may offer Guarantee
Periods of from one to ten years. ML of New York reserves the right at any time
to decrease or increase the number of guarantee periods offered, but no
Guarantee Period will exceed ten years. An individual considering an investment
should check with his or her Financial Consultant to determine the availability
of Guarantee Periods.
On a subaccount's Renewal Date, a contract owner's subaccount value for that
Guarantee Period will be transferred to one or more subaccounts designated by
the contract owner. If ML of New York does not receive notice from the contract
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 unless the Maximum Guarantee Period
Option is chosen. If the Maximum Guarantee Period Option has been chosen, the
subaccount value will be transferred to a new subaccount with a Guarantee Period
equal to the longest Guarantee Period then offered by ML of New York which (i)
does not exceed the length of the contract owner's longest Guarantee Period
immediately prior to transfer and (ii) ends on or prior to the annuity date.
CHARGES
ML of New York 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. The
withdrawal charge is equal to six months of interest on the amount withdrawn
based on the guaranteed interest rate of the subaccount from which the
withdrawal is made. In no event, however, will the withdrawal charge during the
first contract year exceed 10% of the amount withdrawn, declining by one
percentage point during each contract year thereafter. No withdrawal charge is
imposed in connection with withdrawals made after the end of the tenth contract
year. In addition, no charge is made for a withdrawal from a subaccount at the
Renewal Date if ML of New York receives written notice of the withdrawal from
the contract owner within 30 days prior to the Renewal Date. Also, no withdrawal
charge is imposed in the event of payment upon the death of a contract owner or
annuitant or upon the commencement of annuity payments. Premium taxes, if any,
will be deducted from the net account value at the annuity date.
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MARKET VALUE ADJUSTMENT
A Market Value Adjustment is applied to any withdrawal from a subaccount prior
to its Renewal Date. It will also be applied at the annuity date with respect to
any subaccount with an annuity date which is prior to the Renewal Date, unless
(i) the combined Market Value Adjustments of all affected subaccounts would
reduce the contract owner's account value and (ii) annuity payments will be made
for at least ten years or a life contingency or life expectancy annuity option
has been chosen. In addition, a Market Value Adjustment will be applied in the
event of payment upon the death of the contract owner or annuitant 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
12 and may be positive or negative.
ANNUITY PAYMENTS
Annuity payments will start on the annuity date. The contract owner selects the
annuity date and an annuity payment option in the application. The contract
owner may select a different annuity date or annuity payment option later.
On the annuity date, the net account value, less any applicable premium taxes,
is multiplied by ML of New York's then current annuity purchase rates to
determine the amount of each annuity payment. The net account value is the sum
of all net subaccount values. In determining the net account value, a Market
Value Adjustment may be applied. If the net account value on the annuity date is
less than $2,000, ML of New York 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" on page 19. If
any annuity payment would be less than $20, ML of New York may change the
frequency of payments to intervals that will result in payments of at least $20.
PAYMENT ON DEATH
If either the contract owner or the annuitant (if other than the owner) dies
prior to the annuity date, ML of New York will pay to the contract owner's
beneficiary or annuitant's beneficiary, as applicable, the greater of the
account value or the net account value on the date of death plus interest until
the date of payment at an annual rate determined by ML of New York from time to
time. In determining the net account value, no withdrawal charge will be
applied.
If the contract owner dies after the annuity date, any amounts remaining unpaid
will be paid to the contract owner's beneficiary pursuant to the same method of
distribution in force at the date of death. If the annuitant dies after the
annuity date, the annuitant's beneficiary 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.
WITHDRAWALS
The contract owner may withdraw all or part of the net account value prior to
the earlier of the annuity date or the death of the annuitant. For partial
withdrawals, the amount withdrawn must be at least $500, the remaining
subaccount value, after adjustment for any Market Value Adjustment and
withdrawal charge, must be at least $1,000, and the remaining account value must
be at least $5,000. Withdrawals from qualified plans may be restricted. (See
"Qualified Plans" on page 21.) Withdrawals may have federal income tax
consequences, including a 10% penalty tax on the amount withdrawn. (See "Federal
Tax Considerations" on page 18.)
REPORTS TO CONTRACT OWNERS
At least once each year prior to the annuity date, contract owners will be sent
a report outlining the owner's account value, subaccount values, Guarantee
Periods, withdrawal charges and Market Value Adjustments, if any, applied during
the year. The report will not include financial statements.
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FREE LOOK RIGHT
When the contract owner receives the Contract, it should be reviewed carefully
to make sure it is what the contract owner intended to purchase. Generally,
within ten days after the contract 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. The Contract must be delivered to ML of New York's Home Office or to
the Financial Consultant who sold it for a refund to be made. ML of New York
will then refund to the contract owner all premiums paid into the Contract. The
Contract will then be deemed void from the beginning.
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ML LIFE INSURANCE COMPANY OF NEW YORK
ML Life Insurance Company of New York ("ML of New York") is a stock life
insurance company organized under the laws of the state of New York in 1973. ML
of New York 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.
ML of New York's Home Office address and phone number are 717 Fifth Avenue, New
York, New York 10022, (800) 333-6524.
All communications concerning the Contract should be addressed to ML of New
York's Home Office.
DESCRIPTION OF THE CONTRACT
A. GENERAL
The Contract is an individual contract which may be issued to any applicant
acceptable to ML of New York. The Contract may be issued in connection with
either qualified or nonqualified plans. Qualified plans include "H.R. 10" plans,
Individual Retirement Annuities or Accounts, corporate pension and
profit-sharing plans and Section 457 deferred compensation plans.
Any applicant may purchase a Contract by completing an application and
forwarding payment of the single premium to ML of New York's Home Office. The
application is subject to ML of New York's acceptance. The rights and benefits
of a contract owner are set forth in the Contract. Provisions of any qualified
plan in connection with which the Contract is issued, however, may restrict a
person's eligibility to own the Contract, the minimum or maximum amount of the
single premium, and the owner's ability to exercise the rights and/or receive
the benefits provided under the Contract.
B. PREMIUMS
A Contract will be issued in consideration for the single premium paid by the
contract owner. The single premium must be at least $5,000. If the amount of the
single premium is more than $500,000, ML of New York reserves the right to limit
the amount of the premium. The premium will be allocated to one or more
subaccounts as selected by the contract owner. The minimum allocation to a
subaccount is $5,000. ML of New York will confirm its receipt of the payment and
the subaccounts established for each contract owner.
The Contract does not permit the payment of additional premiums. An application
for a separate Contract must accompany each single premium.
C. SELECTING THE GUARANTEE PERIOD
The contract owner may select one or more Guarantee Periods for the single
premium or portion thereof. ML of New York may offer Guarantee Periods of from
one to ten years. ML of New York reserves the right at any time to decrease or
increase the number of Guarantee Periods offered, but no Guarantee Period
offered will exceed ten years. An individual considering an investment should
check with his or her Financial Consultant to determine the availability of
Guarantee Periods. ML of New York will establish a subaccount corresponding to
each guaranteed interest rate and Guarantee Period selected. Once a Guarantee
Period has been selected, it cannot be changed. Each subaccount will have a
Renewal Date corresponding to the end of the applicable Guarantee Period. The
contract owner may not transfer amounts from one subaccount to another prior to
the end of a Guarantee Period. The contract owner may, however, withdraw amounts
from a subaccount, subject to the restrictions described below and a Market
Value Adjustment and withdrawal charge. (See "Market Value Adjustment" on page
11 and "Withdrawal Charge" on page 12.) Withdrawals may have federal income tax
consequences, including a 10% penalty on amounts withdrawn. (See "Federal Tax
Considerations" on page 18.)
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D. SUBACCOUNT AND ACCOUNT VALUES
A contract owner's account value is the sum of all of his or her subaccount
values. Each subaccount value is equal to the amount the contract owner
allocated to the subaccount (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 thereto at the guaranteed rate, as adjusted for any prior
withdrawals, Market Value Adjustments or withdrawal charges. ML of New York
offers a guaranteed interest rate for each subaccount. The contract owner is
credited with the guaranteed interest rate in effect on the date ML of New York
receives his or her premium or reinvestment. The guaranteed interest rate will
be credited to the subaccount daily (except on a February 29th) to yield the
quoted guaranteed interest rate. Interest will be compounded annually on each
contract anniversary.
E. SUBACCOUNT TRANSFERS
At the end of a subaccount's Guarantee Period, the contract owner may transfer
amounts in that subaccount to one or more new subaccounts with new Guarantee
Periods of any length then offered by ML of New York. Interest rates for the
subaccounts to which transfers are made are guaranteed to be the same as the
initial guaranteed interest rates being offered at the time of transfer on new
Contracts. In the event that no such guaranteed interest rate is available, the
guaranteed interest rate will be determined in the manner described in
"Alternative Guaranteed Interest Rate" on page 16. Transfers may not be made
other than at the end of the applicable Guarantee Period.
ML of New York will notify the contract owner of his or her right to transfer
amounts to new subaccounts at least 30 days prior to the end of the Guarantee
Period. Prior to the end of the Guarantee Period the contract owner may advise
ML of New York of the new subaccounts to which the subaccount value is to be
transferred. 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. If timely instructions are not received, ML of
New York will transfer the subaccount value to a new subaccount with a one year
Guarantee Period, unless the Maximum Guarantee Period Option has been chosen by
the contract owner. Subject to contractual and federal tax restrictions, the
contract owner may change his 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" on page 15.)
The Maximum Guarantee Period Option may be selected at any time prior to the end
of a Guarantee Period. If it has been chosen, at the end of a subaccount's
Guarantee Period the subaccount value will be transferred to a new subaccount
with a Guarantee Period equal to the longest Guarantee Period then offered by ML
of New York which (i) does not exceed the length of the contract owner's longest
Guarantee Period immediately prior to transfer and (ii) ends on or prior to the
contract owner's annuity date. Under this option, if the subaccount value cannot
be transferred to the longest Guarantee Period in which the contract owner's
account value is invested immediately prior to transfer because the Renewal Date
of that subaccount would occur after the contract owner's annuity date, the
subaccount value will be transferred to a subaccount with the next longest
Guarantee Period then offered by ML of New York with a Renewal Date on or prior
to the contract owner's annuity date. For example, assume that the Maximum
Guarantee Period Option is chosen, that a transfer occurs on March 1, 1995, that
the contract owner's annuity date is on August 1, 2000, and that the longest
Guarantee Period in which the contract owner's account value is invested is five
years. If ML of New York is then offering a five year Guarantee Period, the
subaccount value will be transferred to a subaccount with a five year Guarantee
Period, since the Renewal Date of that Guarantee Period will end prior to August
1, 2000. If, however, the longest Guarantee Period in which the contact owner's
account value is invested is six years or more, the subaccount value will be
transferred to a subaccount with a five year Guarantee Period (or, if ML of New
York is not then offering a five year Guarantee Period, the longest Guarantee
Period of less than five years then offered by ML of New York) since a
subaccount with a Guarantee Period of six years would end after August 1, 2000.
If the contract owner's annuity date is less than one year from the date of
transfer, ML of New York will transfer the subaccount value to a subaccount with
a one year Guarantee Period.
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F. FIXING GUARANTEED INTEREST RATES
ML of New York does not have a 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 ML of New York 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 investments; commercial paper; and cash or
cash equivalents. Contract owners will have no direct or indirect interest in
these investments. ML of New York will also consider other factors in
determining the guaranteed rates, including regulatory and tax requirements,
sales commissions and administrative expenses borne by ML of New York, general
economic trends and competitive factors. ML OF NEW YORK'S MANAGEMENT WILL MAKE
THE FINAL DETERMINATION OF THE GUARANTEED RATES IT DECLARES. ML OF NEW YORK
CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE INTEREST RATES. However, no
subaccount will ever have a guaranteed interest rate of less than 4% per year.
G. WITHDRAWALS
Subject to certain conditions, a contract owner may withdraw all or part of his
or her net account value or net subaccount value prior to the earlier of the
annuity date or death of the annuitant upon written notice received at ML of New
York's Home Office before the annuity date. Withdrawals may have federal income
tax consequences, including a 10% penalty tax. (See "Federal Tax Considerations"
on page 18.) For full withdrawal, the withdrawal notice must be accompanied by
the Contract. Under qualified plans, withdrawals may be permitted only in
circumstances specified in the plan, the consent of the contract owner's spouse
may be required, and under certain Section 401 plans withdrawals attributable to
contributions made pursuant to a salary reduction agreement may be made only
after the contract owner reaches age 59 1/2 and in other limited circumstances.
(See "Qualified Plans" on page 21.)
Partial withdrawals must be at least $500, and the net subaccount value
remaining after the withdrawal must be at least $1,000, unless the entire
subaccount value is withdrawn. The remaining account value must be at least
$5,000. Otherwise, the partial withdrawal will not be permitted. The contract
owner must specify the subaccounts from which the withdrawal is to be made. If
two or more subaccounts from which the withdrawal is to be made have the same
Guarantee Period, the contract owner must first withdraw from the subaccount
with the shortest period of time remaining in its Guarantee Period until that
subaccount has been depleted.
The amount of the withdrawal will be paid to the contract 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 subaccount value 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 contract 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). Upon such 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" on page 11 and
"Withdrawal Charge" on page 12.) The tables which appear in the Appendix
illustrate the effect of a full withdrawal from a subaccount on the subaccount
value.
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ML of New York will send the contract owner a notice at least 45 days, but not
more than 75 days, prior to the Renewal Date of a subaccount. This notice will
inform the contract owner that he or she must notify ML of New York in writing
within 30 days prior to the Renewal Date if the owner intends to make a
withdrawal from the subaccount without application of a Market Value Adjustment
or withdrawal charge on the Renewal Date.
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. First, whenever a contract owner makes a withdrawal from a
subaccount, other than one made at, and for which ML of New York has received
written notice prior to, the end of such subaccount's Guarantee Period, a Market
Value Adjustment will be made.
Second, a Market Value Adjustment will be applied at the annuity date with
respect to any subaccount having a Guarantee Period not ending on or prior to
the annuity date, except that no Market Value Adjustment will be made if (i) the
combined Market Value Adjustments of all affected subaccounts would reduce the
contract owner's account value and (ii) annuity payments will be made for at
least ten years or a life contingency or life expectancy annuity option has been
chosen. Thus, if at the annuity date a Market Value Adjustment, when applied to
all subaccounts, would increase the contract owner's account value, it will be
made with the result that the amount of the annuity payments payable to the
contract owner will be increased. If the Market Value Adjustment would reduce
the contract owner's account value, it will be made only if the contract owner
elects an annuity option providing for payments of less than ten years and not
involving a life contingency or life expectancy.
Third, a Market Value Adjustment is applied in the event of payment upon the
death of the contract owner or the annuitant prior to the annuity date unless
the combined Market Value Adjustments of all affected subaccounts would reduce
the contract owner's account value.
Because of the Market Value Adjustment provision of the Contract, the contract
owner bears the investment risk that the guaranteed interest rates offered by ML
of New York at the time the contract owner makes a withdrawal from a subaccount
or starts receiving annuity payments may be higher than the guaranteed interest
rate of the subaccount to which the Market Value Adjustment is applied, with the
result that the contract owner's subaccount value may be substantially reduced.
The Market Value Adjustment will depend on the remaining time in the Guarantee
Period of the subaccount from which the withdrawal is made or to which the
adjustment is being applied and on the relationship between the guaranteed
interest rate of the subaccount from which the withdrawal or payment, as
applicable, is made to the current guaranteed interest rates offered at the time
the Market Value Adjustment is applied. The Appendix contains tables which
illustrate the application of the Market Value Adjustment in the context of full
withdrawals from a hypothetical subaccount. The Market Value Adjustment may
result in either an increase or decrease in subaccount value, depending on the
relationship of (1) the current guaranteed interest rate for a period equal to
the time remaining in the subaccount, which rate is interpolated from the rates
currently offered by ML of New York for subaccounts with Guarantee Periods
closest to such period, to (2) the guaranteed interest rate for the subaccount.
If the current guaranteed interest rate of (1) above is lower than the
guaranteed rate of (2), application of the Market Value Adjustment will result
in an increase in subaccount value; if (1) is higher than (2), application of
the Market Value Adjustment will result in a decrease in subaccount value. If
the adjustment is positive, the additional amount will be credited to the
subaccount. If negative, the amount of the adjustment will be deducted from the
subaccount value and will be retained by ML of New York for its own benefit.
The amount of the Market Value Adjustment is based on the relationship of the
current guaranteed interest rates offered at the time the Market Value
Adjustment is applied to the guaranteed interest rate credited to the subaccount
from which the withdrawal or payment, as applicable, is made. If the remaining
period of time in the Guarantee Period is a whole number of years, ML of New
York uses the guaranteed interest rate currently offered by it for a Guarantee
Period equal to the number of remaining years. If the remaining period of time
in the Guarantee Period is not a whole number of years, the interest rate is
derived from the guaranteed interest rates currently offered for the Guarantee
Periods nearest the remaining period of time.
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<PAGE> 13
This derivation is by straight line interpolation, except where the remaining
period of time is less than one year, in which case ML of New York uses the
current guaranteed rate for a Guarantee Period of one year. For example, if the
remaining period is 5.75 years, the interpolated guaranteed interest rate will
be equal to the sum of one-fourth of the five year rate and three-fourths of the
six year rate. If the five year rate were 4.6% and the six year rate were 4.8%,
the interpolated rate would be 4.75% (4.6% times .25 plus 4.8% times .75).
The Market Value Adjustment is determined from the following formula:
1 + B
A X { 1- ( -------- ) n/365 }
1 + C
where "A" is (i) the amount withdrawn from the subaccount, in the case of a
partial withdrawal, or (ii) the net subaccount value, in the case of (a) a full
withdrawal from a subaccount, (b) a payment made due to the death of the
contract owner or annuitant prior to the annuity date or (c) annuitization; "B"
is the current guaranteed interest rate that ML of New York is offering for a
subaccount with a Guaranteed Period of a duration of years equal to "n"/365 or
that is interpolated for "n"/365 based on the guaranteed interest rates offered
for subaccounts nearest "n"/365; "C" is the guaranteed interest rate for the
subaccount; and "n" is the remaining number of days in the Guarantee Period of
the subaccount from which the withdrawal is made or to which the adjustment is
applied. In the event that no current guaranteed interest rate is then being
offered, "B" will be determined as described in "Alternative Guaranteed Interest
Rate" on page 16.
For example, assume that a withdrawal of $20,000 is made from a subaccount with
2,099 days (5.75 years) remaining in the Guarantee Period and a guaranteed
interest rate of 4.5%. Assume also that the current guaranteed interest rates
for Guarantee Periods of 5 and 6 years are 4.6% and 4.8%, respectively. "B" is
equal to 4.75%, the sum of 4.8% times .75 and 4.6% times .25. To calculate the
Market Value Adjustment, ML of New York divides the sum of 1.00 and "B," 1.0475,
by the sum of 1.00 and the guaranteed interest rate for the affected subaccount,
1.045. The resulting figure, 1.0023923, is then taken to the "n"/365 power, or
5.75 (2,099/365), which is 1.0138341. 1.0138341 is subtracted from 1.00 and the
resulting figure, -.0138344, is multiplied by the amount of the withdrawal,
$20,000, to give -$276.69. Since this figure is a negative number, it is
subtracted from the remaining subaccount value, together with any applicable
withdrawal charge. If "B" had been 4.25%, instead of 4.75%, the Market Value
Adjustment would have been +$273.56, which amount would have been added to the
remaining subaccount value.
The greater the difference in interest rates, the greater the effect of the
Market Value Adjustment. If in the above example "B" had been 7%, 8% and 9%, the
Market Value Adjustment would have been -$2,912.27, -$4,171.18, and -$5,486.70,
respectively. The Market Value Adjustment is also affected by the remaining
period in the Guarantee Period of the subaccount from which the withdrawal is
made, which is "n" in the formula. Thus, if in the first example above "n"/365
were 2.5 or 1.5, the Market Value Adjustment would have been -$119.83 or
- -$71.81, respectively. Tables showing the impact of the Market Value Adjustment
and withdrawal charge on hypothetical contracts are set forth in the Appendix.
I. WITHDRAWAL CHARGE
A withdrawal charge is imposed if the contract owner makes a withdrawal from a
subaccount other than at the Renewal Date of a subaccount where prior written
notice is received at ML of New York's Home Office. Subject to the maximum
charges described below, the withdrawal charge is equal to one-half of the
guaranteed interest rate, based on the guaranteed interest rate of the
subaccount from which the withdrawal is made, multiplied by the amount
withdrawn. If a withdrawal results in distribution of the full net subaccount
value, the withdrawal charge is based on the net subaccount value and reflected
in the net subaccount value. Thus, if the guaranteed interest rate is 5% per
year, the withdrawal charge will be 2.5% of the amount withdrawn. In no event,
however, will the amount of the withdrawal charge assessed in connection with a
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<PAGE> 14
withdrawal made in a contract year exceed the product of the amount withdrawn
and the applicable Maximum Surrender Factor, as set forth below:
<TABLE>
<CAPTION>
CONTRACT YEAR FACTOR
------------- ------
<S> <C>
1................................................................ 10%
2................................................................ 9%
3................................................................ 8%
4................................................................ 7%
5................................................................ 6%
6................................................................ 5%
7................................................................ 4%
8................................................................ 3%
9................................................................ 2%
10............................................................... 1%
11 and later..................................................... 0%
</TABLE>
In the case of a full withdrawal, the withdrawal charge is reflected in the net
subaccount value distributed to the contract owner. In the case of a partial
withdrawal, the withdrawal charge will be deducted from the remaining subaccount
value of the subaccounts from which the withdrawal is made.
Withdrawal charges do not apply to annuity payments, any payment made due to the
death of the annuitant or contract owner or any withdrawal made from a
subaccount on its Renewal Date if ML of New York receives written notice of the
withdrawal at its Home Office within 30 days prior to the Renewal Date.
The application of the withdrawal charge may be illustrated by the following
example. Assume a partial withdrawal of $7,000 made from two subaccounts, one
with a Guarantee Period of five years and a guaranteed interest rate of 4.5%,
the other with a Guarantee Period of three years and a guaranteed interest rate
of 4%, and each having a subaccount Value of $5,000. Assume further that the
contract owner directs that the partial withdrawal should be taken from the
subaccount having the five year Guarantee Period to the maximum extent possible
and the remainder taken from the subaccount having the three year Guarantee
Period. Assume also that the Market Value Adjustment applied to the five year
Guarantee Period operates to reduce its value by 22.75% and that the adjustment
applied to the three year Guarantee Period operates to reduce its value by 17%.
The maximum withdrawal that can be taken from the subaccount with the five year
Guarantee Period is $4,000, since the Market Value Adjustment applied to the
$4,000 withdrawal reduces the subaccount value by $910 (22.75% of $4,000) and
the withdrawal charge of $90 (4.5% divided by 2, times $4,000) exhausts the
remaining subaccount value. The remaining portion of the requested withdrawal,
$3,000, is deducted from the subaccount with the three year Guarantee Period.
Also deducted from that subaccount are the Market Value Adjustment applicable to
the $3,000 withdrawal, $510 (17% of $3,000), and the withdrawal charge, $60 (4%
divided by 2 times $3,000), resulting in a remaining subaccount value of $1,430.
If, however, a $3,000 withdrawal were made in the tenth contract year, the
applicable Maximum Surrender Factor (1%) would be less than one-half of the
guaranteed interest rate (4% divided by 2, or 2%). The withdrawal charge,
therefore, would be $30 (1% of $3,000).
J. PAYMENT ON DEATH
Death Prior to the Annuity Date. Subject to the rights of a contract owner's
surviving spouse in certain circumstances (described below), if the contract
owner or the annuitant (under a Contract where the owner is not an annuitant)
dies prior to the annuity date, ML of New York will pay to the contract owner's
beneficiary or the annuitant's beneficiary, as applicable, the greater of the
account value or the net account value on the date of death (the "death
benefit"). Interest will be credited on that value from the date of death until
the date of payment at a rate determined by ML of New York in its discretion. If
the contract owner designates a co-annuitant, the death of the annuitant occurs
when both annuitants are deceased. In determining the net account value, no
withdrawal charge will be applied. Payment will be made upon receipt by ML of
New York of proof of the death of the contract owner or annuitant, as
applicable, and, subject to the special rules
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<PAGE> 15
applicable to any contract owner's death (discussed below), will be made in a
lump sum unless an annuity option is chosen.
In the event of a contract owner's death, the death benefit generally must be
distributed within five years of the death of the contract owner. The contract
owner's beneficiary may, however, elect to receive the death benefit pursuant to
a payment option under which payments commence within one year of the contract
owner's death and which does not extend beyond the life expectancy of the
beneficiary. In addition, if the surviving spouse of a deceased contract owner
is the contract owner's beneficiary, such spouse may choose to become the
contract owner and to continue the Contract in force on the same terms as before
the contract owner's death, in which event no death benefit is paid upon the
death of the deceased contract owner, and the spouse thereafter shall be the
annuitant. If the Contract names more than one contract owner, the death of the
contract owner will be deemed to occur when the first contract owner dies.
If the contract owner is not the annuitant, the contract owner may irrevocably
elect, prior to the annuitant's death and prior to the annuity date, to continue
the Contract in force in the event of the annuitant's death prior to the annuity
date on the same terms as before the annuitant's death. If the contract owner
makes this election, no death benefit is paid upon the death of the annuitant,
and the person designated by the contract owner at the time of the election
shall become the annuitant upon the death of the original annuitant prior to the
annuity date. This option is available only if the contract owner is a natural
person or the Contract is issued in connection with a plan entitled to special
tax treatment under Sections 401 or 408 of the Internal Revenue Code.
If a beneficiary does not survive the contract owner or annuitant, as
applicable, the estate or heirs of the beneficiary have no rights under the
Contract. If no beneficiary survives the contract owner or annuitant, payment
will be made to the owner, if living, and if the contract owner is not living,
to the owner's estate.
If the contract owner is not an individual, the primary 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
contract owner for purposes of these distribution requirements, and any change
in the primary annuitant will be treated as the death of the contract owner.
Death After the Annuity Date. If the contract owner dies after the annuity
date, any amounts remaining unpaid will be paid at least as rapidly as under the
same method of distribution in force at the date of death. If the annuitant dies
after the annuity date, the annuitant's beneficiary 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. (See "Annuity Provisions" below.) The present value will
be determined using the interest rate on which annuity payments were determined,
and will be less than the sum of the remaining guaranteed payments. If the
annuitant's beneficiary dies while guaranteed amounts remain unpaid, the present
value of the remaining payments will be paid in a lump sum to the beneficiary's
estate.
K. ANNUITY PROVISIONS
General. Annuity payments will be paid to the contract owner and will commence
on the annuity date. The contract owner may or may not be the annuitant. The
contract owner designates the annuitant in the Contract application, and may
change the annuitant upon written notice to ML of New York. The contract owner
may also designate a co-annuitant, in which case the death of the annuitant is
deemed to occur when both co-annuitants are deceased.
The amount of monthly 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 ML
of New York's then current annuity rates. Those rates are guaranteed to be no
less favorable than the minimum guaranteed annuity rates shown in the annuity
tables contained in the Contract. No premium taxes are currently imposed by the
State of New York, but ML of New York cannot guarantee that such taxes will not
be assessed in the future. In determining the net account value, a Market
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<PAGE> 16
Value Adjustment will be applied to any subaccount if the annuity date is prior
to the end of the Guarantee Period for that subaccount unless (1) the combined
effect of the Market Value Adjustments applied to all affected subaccounts would
reduce the account value and (2) annuity payments under the option selected will
be made for at least ten years or a life contingency or life expectancy annuity
option has been chosen.
Selection of Annuity Date and Annuity Options. The contract owner may select
the annuity date and an annuity option in the Contract application. If the
contract owner does not select an annuity date, the annuity date will be the
first day of the next month after the annuitant's 75th birthday and the annuity
option will be a life annuity with a 10-year guarantee. The annuity date must be
the first day of a calendar month. It may not be later than the first day of the
next month after the annuitant's 85th birthday. (For qualified Contracts, the
annuity date generally may not be later than April 1 of the year after the year
in which the annuitant attains age 70 1/2.)
Change of Annuity Date or Annuity Option. The contract owner may change the
annuity date or the annuity option on written notice received at ML of New
York's Home Office at least 30 days prior to the annuity date. Changes of the
annuity date are subject to federal tax restrictions. (See "Federal Tax
Considerations" on page 18.)
Annuity Options. The contract owner may select any one of the following annuity
options or any other option satisfactory to the contract owner and ML of New
York. For qualified Contracts, certain restrictions may apply.
PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount chosen will be made
until the net account value applied under this option is exhausted. The period
over which payments are made must be at least 5 years.
PAYMENTS FOR A FIXED PERIOD: Payments will be made for the period chosen. The
period must be at least 5 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
issued in connection with plans qualified under Section 401(a), 403, 404, 408 or
457 of the Internal Revenue Code. 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 as of the annuity date, plus
credited interest and minus aggregate annuity payments previously made, in each
case as of 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 ML of New York's then current rate for this option.
The rate will not be less than that shown in the Contract. 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 CONTRACT
OWNER 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
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<PAGE> 17
THE ANNUITANT AND A DESIGNATED SECOND PERSON) DIES AFTER THE SECOND PAYMENT, AND
SO ON.
Minimum Annuity Payments. Annuity payments will be made monthly unless the
contract owner chooses less frequent payments or the qualified plan option;
provided that if any payment would be less than $20, ML of New York may change
the frequency so payments are at least $20 each. If the net account value to be
applied at the annuity date is less than $2,000 ($3,500 for certain qualified
Contracts), ML of New York may elect to pay that amount (not less than the
account value) in a lump sum. (For tax consequences of a lump sum payment, see
"Federal Tax Considerations--Partial Withdrawals and Surrenders" on page 19.)
Annuity Rates. Annuity rates will be no less favorable than those shown in the
annuity tables contained in the Contract. 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" for Individual Annuity Valuation with current mortality
adjustments. When required by law, ML of New York 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 ML of New York is using
are the minimum rates shown in the annuity tables contained in the Contract, it
may be advantageous for the contract 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. ML of New York may require satisfactory proof
of the age, sex or survival of any person on whose continued life any payment
under the Contract depends.
L. OTHER PROVISIONS
Alternative Guaranteed Interest Rate. In the event that a current guaranteed
interest rate is not offered (i) upon transfer at the end of a Guarantee Period
or (ii) when a Market Value Adjustment is applied, the interest rate used will
be equal to the yield to maturity on Stripped United States Treasury Bills with
a maturity date in the same month (or, if unavailable, the next nearest
following month) as of the Renewal Date of the subaccount to which the transfer
is made or to which a Market Value Adjustment is applied. Such yield to maturity
is defined as the yield to maturity published in The Wall Street Journal
(Eastern Edition) on the date of such transfer or on which such Market Value
Adjustment is applied. If the yield to maturity is not published on such date,
the yield to maturity published on the most recent date immediately preceding
the date of the transfer or on which the Market Value Adjustment is applied will
be used.
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 contract owner
or annuitant. If the contract owner is not the annuitant, the contract owner may
name one beneficiary to receive payment on death of the contract owner (the
contract owner's beneficiary) and a different beneficiary to receive payment on
the death of the annuitant (the annuitant's beneficiary). The contract owner's
beneficiary must be a natural person. If the contract owner is the annuitant,
the contract owner may name only one beneficiary. Unless a beneficiary has been
irrevocably designated, the contract owner's beneficiary may be changed while
the owner is alive, and the annuitant's beneficiary may be changed while the
annuitant is alive. The change of a beneficiary who was named by the contract
owner irrevocably may only be made with the consent of the beneficiary. The
estate or heirs of a beneficiary who dies prior to the owner or annuitant have
no rights under the Contract. If no beneficiary
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<PAGE> 18
survives the contract owner or annuitant, payment will be made to the contract
owner, if living, or to the contract owner's estate if the contract owner has
died. Certain restrictions apply in the case of qualified Contracts.
Assignment. A collateral assignment by the contract owner of his or her rights
under the Contract as security for a debt is prohibited. The Contract may be
assigned upon written notice to ML of New York prior to the annuity date,
however, other than as collateral or security for a loan. If the Contract is
issued pursuant to a qualified plan, the contract owner's rights under the
Contract may not be assigned, pledged or transferred, unless permitted by law.
ML of New York assumes no responsibility for the validity of any such assignment
or for any actions taken by it prior to receipt of written notice of an
assignment. An assignment of the Contract may have federal income tax
consequences. (See "Federal Tax Considerations--Transfers, Assignments, or
Exchanges of a Contract" on page 20.)
Notices and Elections. All notices, changes and choices made by the contract
owner under the Contract must be in writing and signed by the proper party, or
given in another manner acceptable to ML of New York, and received at ML of New
York's Home Office to be effective. The selection of subaccounts in which the
subaccount value at the end of a Guarantee Period is to be invested or from
which partial withdrawals are to be made may be made by telephone. In addition,
choices regarding the Maximum Guarantee Period Option, pursuant to which ML of
New York transfers subaccount values in the absence of instructions from a
contract owner, may be made by telephone. ML of New York will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
These procedures may include, but are not limited to, possible recording of
telephone calls and obtaining appropriate identification before effecting any
telephone transactions. In the absence of reasonable procedures, ML of New York
may be liable for any losses due to unauthorized or fraudulent instructions.
Notices, changes and choices relating to beneficiaries will take effect as of
the date signed unless ML of New York has already acted in reliance on the prior
status.
Amendment of Contract. ML of New York may amend the Contract at any time, as
may be necessary to conform to any applicable law, regulation or ruling issued
by a government agency.
Deferral of Payments. All sums payable by ML of New York are payable at its
Home Office. ML of New York may require return of a Contract prior to making
payment. Payments of partial or full withdrawals may be deferred for up to six
months. ML of New York will pay interest at a rate of at least 4% per year, or
such higher rate as may be required by state law on payments deferred for more
than 10 days.
Free Look Right. When the contract owner receives the Contract, it should be
reviewed carefully to make sure it is what the contract owner intended to
purchase. Generally within ten days after the contract 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. The Contract must be delivered to ML of
New York's Home Office or to the Financial Consultant who sold it for a refund
to be made. ML of New York will then refund to the contract owner all premiums
paid into the Contract. The Contract will then be deemed void from the
beginning. If a contract owner exercises his or her free look right, that
contract owner may not submit another application with the same annuitant for
ninety days.
Guarantee of Contracts. The federal government or its instrumentalities does
not guarantee the Contracts. ML of New York 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 Merrill Lynch Life Agency, Inc. ("MLLA"),
as insurance agents for ML of New York. ML of New York has entered into a
distribution agreement with MLPF&S and a companion sales agreement with MLLA
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<PAGE> 19
through which agreements the Contracts are sold and the Financial Consultants
are compensated by MLLA and/or MLPF&S. The maximum commission paid to the
Financial Consultant is 3.2% of each premium. In addition, the maximum
compensation paid to the Financial Consultant for each reinvestment through the
tenth Contract Year is 2.8% of premium reinvested. The maximum additional
compensation paid to the Financial Consultant in each year beyond the tenth
Contract Year that the Contract remains in force is .28% of the account value.
Commissions may be paid in the form of non-cash compensation.
The maximum commission ML of New York will pay to MLLA to be used to pay
commissions to Financial Consultants is 3.5% of each premium.
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.
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 ML of New York'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.
ML OF NEW YORK 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 non-qualified tax basis ("non-qualified
Contract") or purchased and used in connection with plans qualifying for
favorable tax treatment ("qualified Contract"). The qualified Contracts were
designed for use by individuals whose premium payment is comprised solely of
proceeds from and/or contributions under retirement plans which are intended to
qualify as plans entitled to special income tax treatment under Section 401(a),
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 contract 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 ML of New York'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 ML OF NEW YORK
ML of New York 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 ML of New York. The income earned on such assets will be income to ML of New
York.
TAX STATUS OF THE CONTRACT
ML of New York believes that the Contract will be treated as an annuity contract
and that ML of New York will be treated as owning the assets supporting the
Contract for federal income tax purposes. ML of New
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York, however, reserves the right to modify the Contracts 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
non-qualified Contract to provide that (a) if any contract 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 contract owner's death; and (b) if any contract
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 contract
owner's death. These requirements will be considered satisfied as to any portion
of the contract 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 contract owner's death. The contract owner's "designated
beneficiary" (referred to herein as the "contract owner's beneficiary") is the
person designated by such owner as a beneficiary and to whom the contract
owner's interest in the Contract passes by reason of death and must be a natural
person. However, if the contract owner's "designated beneficiary" is the
surviving spouse of the contract owner, the Contract may be continued with the
surviving spouse as the new contract owner. Solely for purposes of applying the
provisions of Section 72(s) of the Code, when non-qualified Contracts are held
by other than a natural person, the death of the annuitant is treated as the
death of the contract owner.
The non-qualified 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. ML of New York
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 TAX CONSIDERATIONS
a. In General
Section 72 of the Internal Revenue Code governs taxation of annuities in
general. ML of New York believes that a contract 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 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.
The owner of 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" (discussed below) 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 owned by 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 participant'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
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<PAGE> 21
Contracts issued in connection with qualified plans, the "investment in the
contract" can be zero. Special tax rules may be available for certain
distributions from qualified Contracts.
In the case of a partial withdrawal under a non-qualified 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 non-qualified 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.
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 pursuant to a non-qualified 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 contract owner attains age 59 1/2; (2) made as
a result of death or disability of the contract owner; (3) received in
substantially equal periodic payments over the life or life expectancy of the
contract owner (or joint life or life expectancy of the contract 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 contract
owner, the annuitant, or the co-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 contract owner, or the exchange of a
Contract may result in certain tax consequences to the owner that are not
discussed herein. A contract 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.
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<PAGE> 22
g. Multiple Contracts
All non-qualified annuity contracts entered into after October 21, 1988 that are
issued by ML of New York (or its affiliates) to the same owner during any
calendar year are treated as one annuity contract for purposes of 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
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. As of January 1, 1993, ML of New York is generally required to
withhold on distributions under qualified Contracts.
i. 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 ML of New York's understanding
of current law and the law, or its interpretation by the 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 contract 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 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 participant 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 contract 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, 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. Contract 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 ML of New York's administration procedures. Owners,
participants, and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are brief descriptions of the
various types of qualified plans in connection with which ML of New York will
issue a Contract. 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.
H.R. 10 Plans
The Self-Employed Individuals' Tax Retirement Act of 1962, as amended, commonly
referred to as "H.R. 10," permits self-employed individuals to establish
qualified plans for themselves and their employees. In order to establish such a
plan, a plan document, often in prototype form preapproved by the Internal
21
<PAGE> 23
Revenue Service, is adopted and implemented by or for the self-employed person.
Purchasers of Contracts for use with H.R. 10 Plans should seek competent advice
regarding the suitability of the proposed plan documents and of the Contract to
their specific needs.
Individual Retirement Annuities and Individual Retirement Accounts
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to an individual retirement program known as an Individual Retirement
Annuity or Individual Retirement Account (each hereinafter referred to as
"IRA"). 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.
Corporate Pension and Profit Sharing Plans
Section 401(a) of the Internal Revenue Code permits corporate employers to
establish various types of retirement plans for employees. Such retirement plans
may permit the purchase of the Contracts in order to provide benefits under the
plans. Corporate employers intending to use the Contracts in connection with
such plans should seek competent advice.
Section 457 Deferred Compensation ("Section 457") Plans
Under Section 457 of the Internal Revenue Code, employees and independent
contractors who perform services for tax-exempt employers may participate in a
Section 457 plan of their employer allowing them to defer part of their salary
or other compensation. The amount deferred and any income on such amount will
not be taxable until paid or otherwise made available to the employee.
The maximum amount that can be deferred under a Section 457 plan in any tax year
is ordinarily one-third of the employee's includable compensation, up to $7,500.
Includable compensation means earnings for services rendered to the employer
which is includable in the employee's gross income, but excluding any
contributions under the Section 457 plan or a Tax-Sheltered Annuity. During the
last three years before an individual attains normal retirement age additional
"catch-up" deferrals are permitted.
The deferred amounts will be used by the employer to purchase the Contracts.
Contracts will be issued to the employer, and all account values will be subject
to the claims of the employer's creditors. The employee has no rights or vested
interest in the Contract and is only entitled to payment in accordance with the
Section 457 plan provisions. Present federal income tax law does not allow
tax-free transfers or rollovers for amounts accumulated in a Section 457 plan
except for transfers to other Section 457 plans in certain limited cases.
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. ML of New York 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.
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<PAGE> 24
MORE INFORMATION ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK
A. HISTORY AND BUSINESS
ML of New York is a stock life insurance company organized under the laws of the
State of New York on November 28, 1973. ML of New York (originally named "Agway
Life Insurance Company") was purchased by The Equitable Life Assurance Society
of the United States ("The Equitable") for $9.5 million on May 21, 1986 and
renamed Royal Tandem Life Insurance Company. On September 11, 1991, Royal Tandem
Life Insurance Company changed its name to ML Life Insurance Company of New
York.
Prior to 1987, ML of New York was engaged in the business of issuing
non-participating whole life and term life insurance contracts. During 1987, ML
of New York entered into various agreements with Monitor Life Insurance Company
of New York ("Monitor") whereby Monitor initially coinsured and administered,
effective March 5, 1987, and then ultimately assumed, effective July 31, 1987,
ML of New York's ordinary non-participating individual life insurance and
annuity business.
On July 31, 1987, The Equitable sold 25% of its common stock interest in ML of
New York to Merrill Lynch & Co., Inc. ("Merrill Lynch") for approximately $3
million. Immediately following the sale, The Equitable and Merrill Lynch
simultaneously contributed their respective interests in the common stock of ML
of New York to the capital of Tandem Financial Group, Inc. ("TFG"). On October
11, 1989, Merrill Lynch purchased all of the shares of capital stock of TFG
owned by The Equitable for $86.3 million, and TFG became a wholly owned
subsidiary of Merrill Lynch. On September 6, 1990, TFG changed its name to
Merrill Lynch Insurance Group, Inc. ("MLIG"). ML of New York and its affiliate
Merrill Lynch Life Insurance Company ("Merrill Lynch Life") are direct wholly
owned subsidiaries of MLIG.
On November 14, 1990, ML of New York and Tandem Insurance Group, Inc. ("Tandem
Insurance," a life insurance company now merged with and into Merrill Lynch
Life) entered into an indemnity reinsurance and assumption agreement. Pursuant
to this agreement, on December 31, 1990, ML of New York and Tandem Insurance
reinsured on a 100% indemnity basis all variable life insurance policies (the
"reinsured policies") issued by Monarch Life Insurance Company ("Monarch Life")
and sold through affiliates of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"). As a result, ML of New York became obligated to
reimburse Monarch Life for its net amount at risk with regard to the reinsured
policies. In connection with the indemnity reinsurance, assets of approximately
$65 million supporting general account reserves were transferred from Monarch
Life to ML of New York.
On various dates through April 22, 1991, ML of New York and Tandem Insurance
assumed the reinsured policies wherever permitted by appropriate regulatory
authorities, replacing Monarch Life. In connection with the assumption, assets
and reserves associated with the reinsured policies of approximately $290
million were transferred to ML of New York, of which approximately $261 million
are held in the ML of New York Variable Life Separate Account. The aggregate
face amount of the reinsured policies assumed by ML of New York was
approximately $700 million.
Information pertaining to contract owner deposits, contract owner account
balances, and capital contributions can be found in ML of New York's financial
statements which are contained herein.
ML of New York is currently licensed to conduct life insurance and annuity
business in 9 states. It currently sells its annuity products and variable life
insurance products only in the state of New York. During 1993, annuity and life
insurance sales were made principally in New York (92%, as measured by total
contract owner deposits).
ML of New York's life insurance and annuity products will be sold only by
licensed agents through Merrill Lynch Life Agency Inc. ("MLLA") which is a
wholly owned subsidiary of MLPF&S, pursuant to a general agency agreement by and
between ML of New York and MLLA. Sales are made by career life insurance agents
whose sole responsibility is the sale and servicing of insurance, and by
Financial Consultants of MLPF&S who are also licensed as insurance agents. At
December 31, 1993, approximately 2,520 agents of MLLA were authorized to act for
ML of New York.
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B. SELECTED FINANCIAL DATA
The following selected financial data for ML of New York should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
FOR THE PERIODS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net investment income.... $ 50,661 $ 65,378 $ 69,965 $ 62,445 $ 48,833
Earnings (Loss) Before
Federal Income Tax..... $ 2,400 $ 368 $ (4,915) $ 3,658 $ 2,511
Net Earnings (Loss)...... $ 1,808 $ 191 $ (3,221) $ 2,430 $ 1,643
Total Assets............. $1,045,313 $1,102,688 $1,136,537 $772,697 $635,662
Stockholder's Equity..... $ 92,776 $ 92,247 $ 90,631 $ 67,409 $ 48,700
</TABLE>
C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Financial Statements and Notes
to Financial Statements included herein.
Business Environment
The current business environment remains challenging for the life insurance
industry. Major modifications to state regulations based on model laws of the
National Association of Insurance Commissioners ("NAIC"), and the process of
NAIC state accreditation are being debated and implemented by the NAIC.
Competition remains keen as innovative products are introduced to the
marketplace. Interest rates have fallen over the previous three years reaching
historically low levels during 1993. Additionally, during 1993, increases in
both corporate and individual federal income tax rates were adopted.
Both the increase in the marginal individual income tax rates and the current
interest rate environment have resulted in individual investors seeking higher
tax deferred returns than are currently available with traditional interest
sensitive products. The insurance industry has responded with variable life
insurance and variable annuity products that provide insurance features similar
to those of traditional interest sensitive products, but with the opportunity to
achieve comparatively higher returns through diversified investing in mutual
funds.
The current interest rate environment has spurred debt refinancings in both the
institutional and individual sectors. Directly related to this refinancing
activity has been an increased use of the call feature on corporate bonds and
accelerated principal repayments of mortgage-backed securities. Holders of these
securities have reinvested cash proceeds into the historically low yield curve.
This effect, coupled with the increase in the corporate federal income tax rate,
will contribute adversely to net earnings in the industry.
Summary
During 1991, ML of New York changed its strategic marketing emphasis from sales
of fixed interest rate life insurance and annuity products to sales of variable
life, variable annuity and market value adjusted annuity products. Beginning in
1991 and continuing into 1993, ML of New York developed both variable life
insurance and variable annuity products and proceeded to obtain regulatory
approvals to market these products. ML of New York began sales of its variable
annuity product during the fourth quarter of 1992 in the State of New York.
Deposits received from the sales of this product were $114 million and $1
million for 1993 and 1992, respectively. For 1993, approximately $83 million of
deposits were a result of internal transfers from ML of New York's fixed rate
annuity products. The remaining change in sales volume is reflective of the
product being available in more jurisdictions in 1993 as compared to 1992, and
the popularity of variable annuity products during 1993.
During 1993 and 1992, ML of New York had approximately $304 million and $160
million, respectively, of fixed deferred annuities which reached the expiration
of their interest rate guarantee periods. At the expiration
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<PAGE> 26
of an interest rate guarantee period, the contract owner has an option to either
surrender the contract without incurring a surrender charge, or to "renew" with
an adjustment of the interest crediting rate to the prevailing rate at the time
of renewal. ML of New York has offered those contract owners electing to
surrender the opportunity to exchange their contract for either a variable
annuity or market value adjusted annuity contract. The following table
summarizes the contract owners' selections for 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---------------- ----------------
AMOUNT % AMOUNT %
------ ----- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Renewed with an adjustment to the applicable interest
crediting rate........................................... $ 76 25% $ 24 15%
Exchanged into either the variable annuity product or the
market value adjusted annuity product.................... 101 33% 40 25%
Surrendered................................................ 127 42% 96 60%
------ ----- ------ -----
Total...................................................... $304 100% $160 100%
------ ----- ------ -----
------ ----- ------ -----
</TABLE>
The rates of renewal, exchange and surrender experienced are consistent with
management's projections. The increase in contracts exchanging into ML of New
York's available annuity products is primarily attributable to the variable
annuity product being available for the entire year in 1993 and only during the
fourth quarter during 1992. The increase in renewals during 1993 as compared to
1992 is attributable to the minimum contractual rate available on the fixed
deferred annuity products approximating or exceeding the crediting rates
available on ML of New York's market value adjusted annuity product.
During 1994, ML of New York has $228 million of fixed deferred annuities which
will reach the expiration of their interest rate guarantee periods (See
"Liquidity and Capital Resources," page 26). ML of New York is anticipating
increases in sales volume of its variable annuity and variable life insurance
products. Partially offsetting these increases is an anticipated decrease in
sales volume of ML of New York's market value adjusted annuity.
Effective December 31, 1993, ML of New York has adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115") (See Note 1 of the Notes to Financial
Statements). SFAS No. 115 requires that certain invested assets be carried at
estimated fair value with the difference between fair value and amortized cost
being recorded in stockholder's equity as a component of net unrealized gain
(loss). The Securities and Exchange Commission has additionally announced that
companies should adjust other assets and liabilities that would be adjusted had
the unrealized holding gains or losses been realized with corresponding credits
or charges reported directly to stockholder's equity. The effect of adopting
SFAS No. 115 was a $17 million increase in the carrying value of fixed maturity
securities offset by a $1 million decrease in equity securities, a $1 million
decrease in deferred policy acquisition charges and a $16 million increase in
policyholders' account balances. The impact of SFAS No. 115 on stockholder's
equity was a reduction of $1 million. These adjustments will ultimately be
recorded in the statement of earnings at the time of sale of the investments or
withdrawal of the contract owners' liability. Additionally, normal amortization
of deferred policy acquisition costs will be unaffected.
FINANCIAL CONDITION
At December 31, 1993, ML of New York's assets were $1.045 billion, or $58
million lower than the $1.103 billion at December 31, 1992. The adoption of SFAS
No. 115 increased assets by $15 million as of December 31, 1993. The decrease in
assets was primarily attributable to surrenders of ML of New York's fixed rate
annuity product partially offset by increased sales of ML of New York's variable
annuity product . As ML of New York strategically changes its marketing efforts
from the sale of fixed rate products to the sale of variable products, ML of New
York's assets will be reallocated between the general account and its separate
account. As of December 31, 1993 and 1992, ML of New York's percentage of
separate accounts assets to total assets was 39% and 25%, respectively. ML of
New York anticipates that the percentage of separate accounts assets to total
assets will continue to increase.
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<PAGE> 27
ML of New York maintains a conservative investment portfolio. ML of New York's
investment in equity securities and mortgages are significantly below the
industry average. ML of New York has no investments in real estate.
Additionally, ML of New York's investment in non-investment grade fixed maturity
securities approximates the industry average. The following schedule identifies
ML of New York's general account invested assets by type:
<TABLE>
<S> <C>
Investment Grade Fixed Maturity Securities........................................... 76%
Policy Loans......................................................................... 13%
Non-Investment Grade Fixed Maturity Securities....................................... 7%
Mortgage Loans on Real Estate........................................................ 3%
Equity Securities.................................................................... 1%
-----
100%
-----
-----
</TABLE>
ML of New York's investment in collateralized mortgage obligations ("CMO") and
mortgage-backed securities ("MBS") accounts for approximately 34% and 47% of ML
of New York's investment in fixed maturity securities as of December 31, 1993
and 1992, respectively. At December 31, 1993 and 1992, approximately 55% and
72%, respectively, of ML of New York's CMO and MBS holdings were fully
collateralized by the Government National Mortgage Association, the Federal
National Mortgage Association or the Federal Home Loan Mortgage Corporation. ML
of New York held at December 31, 1993 and 1992 approximately $5 million and $7
million, respectively, of principal only strips, interest only strips and
residuals. CMO and MBS securities are structured to allow the investor to
determine, within certain limits, the amount of interest rate risk, prepayment
risk and default risk which the investor is willing to accept. It is the level
of risk that the investor is willing to accept that determines the degree to
which the yields on CMOs and MBS securities will exceed the yields which can be
obtained from similarly rated corporate securities.
The historical low interest rate environment has resulted in ML of New York
experiencing increases in both calls of corporate bonds and accelerated
principal repayments of mortgage-backed securities during both 1993 and 1992.
During 1993 approximately $238 million or 53% of proceeds from disposal of bonds
was attributable to calls and mortgage backed security repayments. The net cash
inflows from the investment portfolios, including interest, calls, repayments
and maturities, have been reinvested at lower yields than the investments from
which the cash inflow was generated.
As of December 31, 1993, ML of New York had 10,138 life insurance and annuity
contracts in-force with interest rate guarantees. The estimated average rate of
interest credited on behalf of contract owners was 7.04% during 1993. The
liabilities related to insurance contracts with interest rate guarantees were
supported by invested assets with an estimated effective yield of 8.03% during
1993.
Liquidity and Capital Resources
ML of New York's liquidity requirements include the payment of sales commissions
and other underwriting expenses and the funding of its contractual obligations
for the life insurance and annuity contracts it has in force. ML of New York has
developed and utilizes a cash flow projection system and regularly performs
asset/liability duration matching in the management of its asset and liability
portfolios.
As previously noted, during 1994, ML of New York will have $228 million of fixed
deferred annuities reaching the expiration of their interest rate guarantee
periods. ML of New York anticipates that approximately 80% of these liabilities
will either externally surrender or exchange into ML of New York's variable
annuity or market value adjusted annuity products. In either circumstance, ML of
New York will require cash to fund the surrender benefit or the transfer of the
liability to a separate account. During 1991, in anticipation of the liquidity
needs required to fund the surrenders and exchanges experienced during 1993 and
1992 and anticipated for 1994, ML of New York initiated a program whereby the
duration of its investment portfolio was shortened and the quality of the
investment portfolio improved. This program was substantially completed during
1991.
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<PAGE> 28
ML of New York anticipates funding the cash requirements of the projected policy
surrenders and exchanges utilizing cash from operations, normal investment
maturities and anticipated calls and repayments, consistent with 1992 and 1993.
As of December 31, 1993 ML of New York had $353 million of cash, short-term
investments and investment grade publicly-traded bonds which could be liquidated
if funds were required.
In order to continue to market life insurance and annuity products, ML of New
York must meet or exceed the statutory capital and surplus requirements of the
insurance departments of the states in which it conducts business. Statutory
accounting practices differ from generally accepted accounting principles in two
major respects: under statutory accounting practices, the acquisition costs of
new business are charged to expense; and the required additions to statutory
reserves for new business in some cases may initially exceed the statutory
revenues attributable to such business. These practices result in a reduction of
statutory income and surplus at the time of recording new business.
The NAIC has developed and implemented, effective December 31, 1993, the Risk
Based Capital ("RBC") adequacy monitoring system. The RBC calculates the amount
of adjusted capital which a life insurance company should have based upon that
company's risk profile. The NAIC has established four different levels of
regulatory action with respect to the RBC adequacy monitoring system. Each of
these levels may be triggered if an insurer's total adjusted capital is less
than a corresponding level of RBC. (See Note 5 of the Notes to Financial
Statements for a complete explanation of these levels.) As of December 31, 1993,
based on the RBC formula, ML of New York's total adjusted capital level was 245%
of the minimum amount of capital required to avoid regulatory action.
ML of New York believes that it will be able to fund the capital and surplus
requirements of projected new business from current statutory earnings and
existing statutory capital and surplus. If sales of new business significantly
exceeds projections, ML of New York may have to look to its parent and other
affiliated companies to provide the capital or borrowings necessary to support
its current marketing efforts. ML of New York's future marketing efforts could
be hampered should its parent and/or affiliates be unwilling to commit
additional funding.
Results of Operations
ML of New York's gross earnings are principally derived from two sources: the
net income from investment of fixed rate life insurance and annuity contract
owner deposits less interest credited to contract owners, commonly known as
spread; and the charges imposed on variable life insurance and variable annuity
contracts. The costs associated with acquiring contract owner deposits are
amortized over the period in which ML of New York anticipates holding those
funds. In addition, ML of New York incurs expenses associated with the
maintenance of in-force contracts.
1993 compared to 1992
ML of New York reported net earnings of $1.8 million and $0.2 million for 1993
and 1992, respectively.
Net investment income and interest credited to policyholders' account balances
for 1993 as compared to 1992 have declined by approximately $14.7 million and
$13.4 million, respectively, resulting in a net decline in interest spread of
$1.3 million. The decline in interest spread is attributable to the low interest
rate environment and a declining block of fixed rate life insurance and annuity
contracts, partially offset by adjustment of the guaranteed interest crediting
rate to the prevailing rate on those contracts which have reached the end of
their interest rate guarantee period.
ML of New York experienced net realized investment gains of $6.1 million during
1993 as compared to net realized investment losses of $(0.4) million for the
same period during 1992. Approximately $0.5 million of the increase in net
realized investment gains was attributable to sales of investments to fund
surrenders of ML of New York's market value adjusted annuity product. During
1992, ML of New York recorded a $1.0 million loss on the disposal of a mortgage
loan. There was a $2.4 million period to period reduction in the amount of
valuation allowances established for invested assets. The remaining $2.6 million
increase in realized investment gains is attributable to normal trading activity
in ML of New York's investment portfolios.
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<PAGE> 29
Policy charge revenue increased approximately $0.7 million during 1993 as
compared to 1992 primarily as a result of an increase in the number of variable
annuity contracts in-force due to current sales volume.
The market value adjustment expense is attributable to ML of New York's market
value adjusted annuity product. This contract provision results in a market
value adjustment to the cash surrender value of those contracts which are
surrendered before the expiration of their interest rate guarantee period. Due
to the decline in interest rates, this market value adjustment has resulted in
an expense to ML of New York. ML of New York's market value adjusted annuity has
experienced an increase in surrenders during 1993 as compared to 1992. Many of
these contract owners have exchanged their contracts for variable annuity
contracts sold by ML of New York or its competitors. The increase in surrender
activity has resulted in the $0.6 million increase in the market value
adjustment expense. Offsetting this expense were net realized investment gains
attributable to the sale of investments to fund the surrenders.
Policy benefits increased approximately $1.2 million from $0.6 million for 1992
to $1.7 million for 1993 due to a period to period change in mortality
experience. ML of New York's reinsurance and risk retention programs have
remained unchanged between 1993 and 1992.
ML of New York adjusts the amortization of deferred policy acquisition costs
based on realized investment gains recognized on normal trading activity in ML
of New York's investment portfolios. The $1.3 million increase in amortization
of deferred policy acquisition costs is primarily attributable to the increase
during 1993 in realized investment gains.
Insurance expenses and taxes increased approximately $0.7 million during 1993 as
compared to 1992 as a result of expenses associated with increased levels of
contract holder activity. As previously discussed both sales of the Company's
variable annuity contract and surrender activity of the Company's fixed
annuities have increased substantially during the current year as compared to
1992.
During 1993 the Federal corporate income tax rate was increased from 34% to 35%.
The increased rate was utilized in revaluing the deferred tax asset and resulted
in a $0.2 million increase in the deferred tax benefit.
1992 compared to 1991
ML of New York recorded net earnings of $0.2 million for 1992 as compared to a
net loss of $3.2 million for 1991.
Earnings for 1992 improved as compared to 1991 principally as a result of a $9.3
million decrease in net realized investment losses. The variance in net realized
investment losses between 1992 and 1991 is primarily a result of the valuation
allowances and write-downs on investments taken during 1991 on ML of New York's
investment portfolios.
Offsetting the improvement in realized investment losses was a $4.7 million
decrease in net investment income. The decline in net investment income was
attributable to multiple factors including the 1991 shortening of the investment
portfolio duration, the reduction in total investments as a result of contract
surrenders, and the current interest rate environment.
Interest credited to contract owners' account balances was essentially the same
from 1992 and 1991 because of the timing of the acquisition of contract owner
deposits and contract owner withdrawals. During 1991, approximately 50% of the
growth in contract owner liabilities occurred during the fourth quarter. In
addition, contract owner liabilities continued to grow into the first quarter
1992. Contract owner withdrawals and the adjustment of the interest crediting
rate on contracts renewing were concentrated in the last six months of 1992.
The increase in amortization of deferred policy acquisition costs was a result
of the increased level of contract surrenders and contract exchanges during 1992
as compared to 1991.
During 1992 and 1991, ML of New York underwrote life insurance and annuity
products of approximately $6.0 million and $23.4 million, respectively. The
decrease was attributable to management's decision to significantly de-emphasize
sales of fixed rate products. As discussed previously, the product development
and
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<PAGE> 30
regulatory approvals for the variable products were not completed until fourth
quarter 1992. The unavailability of the variable products during most of 1992
significantly impacted ML of New York's marketing efforts for that period.
Segment Information
ML of New York's operations consist of one business segment, which is the sale
of life insurance and annuity products. ML of New York is not dependent upon any
single customer, and no single customer accounted for more than 10% of its
revenues during 1993.
Inflation
ML of New York's operations have not been materially impacted by inflation and
changing prices during the preceding three years.
D. REINSURANCE
Portions of life insurance risks are reinsured with other companies. ML of New
York has reinsurance agreements with a number of other insurance companies for
individual life insurance. The maximum retention on any one life is $500,000.
E. CONTRACT OWNER ACCOUNT BALANCES
ML of New York records on its books liabilities for life insurance and annuity
products which are equal to the full accumulation value of such contracts plus a
mortality provision for life insurance products, which will be sufficient to
meet ML of New York's contract obligations at their maturities or in the event
of a contract owner's death.
F. INVESTMENTS
ML of New York makes investments in accordance with investment guidelines that
take into account investment quality, liquidity, and diversification, and
invests primarily in investment-grade fixed income assets such as
mortgage-backed securities, collateralized mortgage obligations and corporate
debentures. At December 31, 1993, invested assets totaling $557 million
consisted of $459 million in fixed maturity securities available for sale, $73
million in policy loans, $18 million in commercial mortgages, and $7 million in
equity securities. Approximately 60% of ML of New York's invested assets and
cash and cash equivalents consists of liquid or readily marketable securities.
At December 31, 1993 approximately $118 million was invested in fixed maturity
securities rated BBB by Standard and Poor's (or similar rating agency). Fixed
maturity securities rated BBB may have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity of the issuers to make principal and interest payments than is
the case with higher rated fixed maturity securities.
At December 31, 1993, approximately 8.4 or $39 million of ML of New York's fixed
maturity securities were invested in securities considered non-investment grade.
ML of New York defines non-investment grade as unsecured corporate debt
obligations which do not have a rating equivalent to Standard and Poor's (or
similar rating agency) BBB or higher, and are not guaranteed by an agency of the
federal government. Non-investment grade securities are speculative and are
subject to significantly greater risks related to the creditworthiness of the
issuers and the liquidity of the market for such securities. ML of New York
carefully selects, and closely monitors, such investments.
G. COMPETITION
ML of New York is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
marketing insurance products. There are approximately
29
<PAGE> 31
2,100 stock, mutual and other types of insurers in the life insurance business
in the United States, a number of which are substantially larger than ML of New
York.
H. CERTAIN AGREEMENTS
Investment Management Agreements
ML of New York has entered into an investment management agreement with Merrill
Lynch Asset Management, L.P. ("MLAM"), a subsidiary of Merrill Lynch, pursuant
to which MLAM provides investment management and related accounting services
with respect to ML of New York's publicly traded investments. ML of New York
pays a fee to MLAM for these services. ML of New York paid reimbursements of
$265,000, $339,000 and $286,000 during 1993, 1992 and 1991, respectively, to
MLAM for such services.
ML of New York and Equitable Capital Management Corporation ("ECMC"), a
registered investment adviser, were parties to an agreement pursuant to which
ECMC provided investment management and related accounting services to ML of New
York. Under the agreement, ML of New York paid ECMC fees based upon the type of
asset managed. Through the first three quarters of 1990 ECMC provided investment
management services relating to publicly and privately traded securities. During
the fourth quarter of 1990 through 1991, ECMC provided services relating only to
privately traded securities. This agreement was terminated in 1992. ML of New
York paid fees of $50,000 and $167,000 during 1992 and 1991, respectively, to
ECMC for such services.
Mortgage Loan Servicing and Investment Advisory Agreements
ML of New York has entered into a mortgage loan servicing agreement with
Equitable Real Estate Investment Management, Inc. ("EREIM"), a wholly owned
subsidiary of The Equitable, pursuant to which EREIM provides real estate
investment advice and related accounting services to ML of New York. ML of New
York paid fees of $15,000, $55,000 and 35,000 during 1993, 1992, and 1991,
respectively, to EREIM for such services. This agreement was terminated during
1993.
Service Agreement
ML of New York and MLIG are parties to a service agreement pursuant to which
MLIG has agreed to provide certain data processing, legal, actuarial,
management, advertising and other services to ML of New York. Expenses incurred
by MLIG in relation to this service agreement are reimbursed by ML of New York
on an allocated cost basis. Charges billed to ML of New York by MLIG pursuant to
the agreement were $5.7 million, $5.4 million and $5.0 million during 1993, 1992
and 1991, respectively.
General Agency Agreement
In addition, ML of New York has entered into a general agency agreement with
Merrill Lynch Life Agency, Inc. ("MLLA") pursuant to which registered
representatives of MLPF&S who are also ML of New York's licensed insurance
agents solicit applications for contracts issued by ML of New York. MLLA is paid
commissions for the contracts sold by such agents. Commissions paid to MLLA by
ML of New York under the general agency agreement were $4.9 million, $1.5
million and $0.9 million during 1993, 1992 and 1991, respectively. (See
"Distribution of the Contracts" on page 17.)
I. EMPLOYEES
ML of New York, by special agreement with the New York State Insurance
Department, is required to maintain at its principal office in New York
qualified personnel responsible for directing its daily operations including,
without limitation, general administrative services, record keeping, accounting,
underwriting, claims settlement and marketing. ML of New York has 13 such
employees, and the cost of their services is allocated to ML of New York.
Certain officers of ML of New York are also officers of Merrill Lynch Life
Insurance Company and their salaries are allocated between the two companies.
(See "Directors and Executive Officers" on page 32.)
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<PAGE> 32
J. PROPERTIES
ML of New York's principal office is located at 717 Fifth Avenue, New York, New
York, where all of ML of New York's records are maintained. This office space is
leased from MLPF&S. In addition, personnel performing services for ML of New
York pursuant to its Management Services Agreement operate in MLIG office space.
MLIG subleases office space in Jacksonville, Florida to Merrill Lynch Insurance
Group Services, Inc. ("MLIGS"), an affiliate of MLIG. MLIGS also subleases
certain office space in Springfield, Massachusetts from Monarch Life Insurance
Company. MLIG occupies certain office space in Plainsboro, New Jersey through
Merrill Lynch. An allocable share of the cost of each of these premises is paid
by ML of New York through the service agreement with MLIG.
K. STATE REGULATION
ML of New York is subject to the laws of the State of New York governing
insurance companies and to the regulations of the New York State Insurance
Department (the "Department"). A detailed financial statement in the prescribed
form (the "Annual Statement") is filed with the Department each year covering ML
of New York's operations for the preceding year and its financial condition as
of the end of that year. Regulation by the Department includes periodic
examination to determine contract liabilities and reserves so that the
Department may certify that these items are correct. ML of New York's books and
accounts are subject to review by the Department at all times. A full
examination of ML of New York's operations is conducted periodically by the
Department and under the auspices of the National Association of Insurance
Commissioners.
In addition, ML of New York is subject to regulation under the insurance laws of
other jurisdictions in which it operates. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. ML of New York is required to file the Annual Statement
with supervisory agencies in each of the jurisdictions in which it conducts
business, and its operations and accounts are subject to examination by these
agencies at regular intervals.
The National Association of Insurance Commissioners ("NAIC") has approved and
recommended for adoption and implementation several regulatory initiatives
designed to improve the surveillance and financial analysis regarding the
decrease the risk of insolvency of insurance companies in general. These
initiatives include the development and implementation of a risk-based capital
formula for determining adequate levels of capital and surplus. The risk-based
capital formula may be adopted by the various states in which ML of New York is
licensed, but the ultimate context and timing of any statutes and regulations
adopted by the states cannot be determined at this time. It is anticipated that
the new standards will have no significant effect upon ML of New York. For
additional information about the risk-based capital adequacy monitoring system
and ML of New York, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources", page
26.
In addition, many states regulate affiliated groups of insurers, such as ML of
New York and its affiliates, under insurance holding company legislation. Under
such laws, intercompany transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or approval, depending on the size
of the transfers and payments in relation to the financial positions of the
companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for contract owner losses
incurred by other insurance companies which have become insolvent. Most of these
laws provide that an assessment may be excused or deferred if it would threaten
an insurer's own financial strength. For information regarding ML of New York's
estimated liability for future guaranty fund assessments, see Note 8 of Notes to
Financial Statements.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Certain insurance products of ML of New
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<PAGE> 33
York are subject to various federal securities laws and regulations. In
addition, current and proposed federal measures which may significantly affect
the insurance business include regulation of insurance company solvency,
employee benefit regulation, removal of barriers preventing banks from engaging
in the insurance business, tax law changes affecting the taxation of insurance
companies and the tax treatment of insurance products and its impact on the
relative desirability of various personal investment vehicles.
DIRECTORS AND EXECUTIVE OFFICERS
ML of New York's directors and executive officers and their positions with the
Company are as follows:
<TABLE>
<CAPTION>
NAME (AGE) POSITION(S) WITH THE COMPANY
- ------------------------------------------- ------------------------------------------------
<S> <C>
Anthony J. Vespa (52)...................... Chairman of the Board, President, and Chief
Executive Officer
Joseph E. Crowne (47)...................... Director, Senior Vice President, Chief Financial
Officer, Chief Actuary, and Treasurer
Barry G. Skolnick (42)..................... Director, Senior Vice President, General Counsel
and Secretary
Michael P. Cogswell (39)................... Director, Vice President, and Senior Counsel
David M. Dunford (45)...................... Director, Senior Vice President and Chief
Investment Officer
John C.R. Hele (35)........................ Director and Senior Vice President
Frederick J.C. Butler (52)................. Director
Sandra K. Cox (45)......................... Director
Robert L. Israeloff (55)................... Director
Allen N. Jones (51)........................ Director
Cynthia L. Kahn (38)....................... Director
Robert A. King (55)........................ Director
Irving M. Pollack (76)..................... Director
William A. Wilde (51)...................... Director
Robert J. Boucher (48)..................... Senior Vice President, Variable Life
Administration
Melissa Dwyer (30)......................... Vice President
</TABLE>
Each director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and shall have qualified. Some
directors have held various executive positions with insurance company
subsidiaries of the Company's indirect parent, Merrill Lynch & Co., Inc. From
time to time during 1993, legal services were performed by the law firm of
Rogers & Wells for ML of New York. Cynthia L. Kahn is a partner of this law
firm.
The principal positions of the Company's directors and executive officers for
the past five years are listed below:
Mr. Vespa joined ML of New York in February 1994. From February 1991 to February
1994, he held the position of District Director and First Vice President of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From September 1988 to
February 1991, he held the position of Senior Resident Vice President of Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
Mr. Crowne joined ML of New York in June 1991. From January 1989 to May 1991, he
was a Principal with Coopers & Lybrand.
Mr. Skolnick joined ML of New York in November 1989. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in July 1984. Since May 1992, he has held
the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and First
Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Prior to
May 1992, he held the position of Senior Counsel of Merrill Lynch & Co., Inc.
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<PAGE> 34
Mr. Dunford joined ML of New York in July 1990. He joined Merrill Lynch, Pierce,
Fenner & Smith Incorporated in September 1989. Prior to September 1989, he held
the position of President of Travelers Investment Management Co.
Mr. Butler joined ML of New York in April 1991. Since November 1991 he has held
the position of Chairman of Butler, Chapman & Co., Inc. Prior to April 1991, he
served as Managing Director of the Investment Banking Division of Merrill Lynch
& Co., Inc.
Mr. Cogswell has been with ML of New York since November of 1990. Prior to
November of 1990, he was an Assistant Counsel of UNUM Life Insurance Company.
Ms. Cox joined ML of New York in February 1991. Prior to February 1991, she
served as Annuity Product Manager with Merrill Lynch Life Agency Inc.
Mr. Hele joined ML of New York in September 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in August 1988.
Mr. Israeloff joined ML of New York in April 1991. Since 1964, he has been
Chairman and Executive Partner of Israeloff, Trattner & Co., CPAs, P.C., a
public accounting firm.
Mr. Jones joined ML of New York in June 1992. Since May 1992, he has held the
position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. From June 1992 to February 1994, he held the position of Chairman
of the Board, President, and Chief Executive Officer of ML of New York. From
January 1992 to June 1992, he held the position of First Vice President of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From January 1991 to January
1992, he held the position of District Director of Merrill Lynch, Pierce, Fenner
& Smith Incorporated. Prior to January 1991, he held the position of Senior
Regional Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Ms. Kahn joined ML of New York in November 1993. She is a partner at the law
firm of Rogers & Wells. She has been associated with Rogers & Wells since 1984.
Mr. King joined ML of New York in April 1991. Since February 1991, he has been
Vice President for Finance at Marymount College, Tarrytown, New York. From March
1973 until February 1991, he served as Managing Director of Merrill Lynch
Capital Markets.
Mr. Pollack joined ML of New York in April 1991. In 1980, he retired from the
Securities and Exchange Commission after thirty years of service, and having
served as an SEC Commissioner from 1974 to 1980. Since 1980, he has practiced
law and been a private consultant in the securities and capital markets fields.
Mr. Wilde joined ML of New York in March 1991. He joined Merrill Lynch, Pierce,
Fenner & Smith Incorporated in 1976. Since 1985, he has been a Director and Vice
President of Merrill Lynch Life Agency Inc.
Mr. Boucher joined ML of New York in May 1992. Prior to May 1992, he held the
position of Vice President of Monarch Financial Services, Inc. (formerly Monarch
Resources, Inc.).
Ms. Dwyer has been with ML of New York since July 1990. Prior to July 1990, she
held the position of Supervisor of Tandem Financial Group, Inc.
No shares of ML of New York are owned by any of its directors or officers, as it
is a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc. The
directors and officers of ML of New York, both individually and as a group, own
less than one percent of the outstanding shares of common stock of Merrill Lynch
& Co., Inc.
EXECUTIVE COMPENSATION
Certain executive officers and directors of ML of New York are also executive
officers and directors of Merrill Lynch Life Insurance Company ("Merrill Lynch
Life"), and the salaries of all such individuals are allocated between ML of New
York and Merrill Lynch Life.
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<PAGE> 35
COMPENSATION TABLES AND OTHER INFORMATION
The following tables set forth information with respect to the former Chief
Executive Officer of ML of New York. Annual Salary and Bonus for the next four
most highly compensated executive officers did not exceed $100,000 for the
fiscal year ended December 31, 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------
AWARDS(1) PAYOUTS
----------------------- ---------
RESTRICTED LONG-TERM
ANNUAL COMPENSATION STOCK SECURITIES INCENTIVE ALL OTHER
NAME AND ----------------------- AWARDS UNDERLYING PLAN COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS (2)(3)(4) OPTIONS PAYOUTS SATION
- ---------------------------------------- ---- ------ ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Allen N. Jones 1993 $6,300 $26,100 $ 7,975 368 $ 0 $ 893(5)
Chairman of the Board, 1992 0 35,162 10,580 632 0 0
President and Chief
Executive Officer
(June 1992 through February 1994)
</TABLE>
(1) Awards were made in January or February of the succeeding fiscal year for
performance in the year indicated.
(2) Amounts shown are for awards granted in February 1994 for performance in
1993, and in February 1993 for performance in 1992. Awards shown include
equal number of Restricted Shares and Restricted Units. All awards have been
valued for this table using closing prices of Merrill Lynch & Co. Common
Stock on the Consolidated Transaction Reporting System on the dates of grant
of such awards; the closing price on February 1, 1994, the date of the grant
for performance in 1993, was $43.875. Such shares and units generally have
four year vesting periods, but can vest earlier upon the achievement of
specific cumulative after-tax return on equity ("Cumulative ROE") goals.
Specifically, shares and units granted in February 1994 may vest at the end
of the 1995 or 1996 fiscal year upon the achievement of a Cumulative ROE of
60%; shares and units granted in February 1993 may vest at the end of the
1994 or the 1995 fiscal year upon the achievement of a Cumulative ROE of
45%.
(3) Dividends are paid on unvested Restricted Shares and dividend equivalents
are paid on unvested Restricted Units. Such dividends and dividend
equivalents are equal in amount to the dividends paid on shares of Merrill
Lynch & Co. Common Stock.
(4) The number and value of Restricted Shares and Restricted Units held by the
Chief Executive Officer named in the table as of December 31, 1993 is as
follows: Mr. Jones (158 shares and 158 units -- $13,272). These amounts do
not include Restricted Shares and Restricted Units awarded in 1994 for
performance in 1993.
(5) Amount shown for 1993 consists of the following: (i) contributions made in
1993 by ML of New York to account of employee under the 401(k) Savings &
Investment Plan ($63); and (ii) allocations made in 1993 to account of
employee under the defined contribution retirement program (including
allocations and cash payments made because of limitations imposed by the
Internal Revenue Code) ($830).
34
<PAGE> 36
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
FISCAL OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME YEAR(1) GRANTED FISCAL YEAR ($ PER SHARE) DATE(2) VALUE(3)
- ---------------------- ------- ---------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Allen N. Jones 1993 368 .01% $40.625 1/26/2004 $4,339
</TABLE>
- ---------------
(1) Reflects awards made in January 1994 for performance in 1993. Does not
include awards made in January 1993 for performance in 1992; these awards
were reflected in ML Life of NY's Prospectus for the Contracts dated May 1,
1993.
(2) All options are exercisable as follows: 25% after one year, 50% after two
years, 75% after three years, and 100% after four years.
(3) Valued using a modified Black-Scholes option pricing model. The exercise
price of each option ($40.625) is equal to the average of the high and low
prices on the Consolidated Transaction Reporting System of a share of
Merrill Lynch & Co. Common Stock on January 26, 1994, the date of grant. The
assumptions used for the variables in the model were: 27% volatility (which
is the volatility of the Common Stock for the 36 months preceding grant); a
6.03% risk-free rate of return (which is the yield as of January 26, 1994
(the date of grant) on a U.S. Strip Treasury zero-coupon bond expiring in
February 2004); a 2% dividend yield (which was the dividend yield on the
date of grant); and a 10-year option term (which is the term of the option
when granted). A discount of 25% was applied to the option value yielded by
the model to reflect the non-transferability of employee options. The actual
gain executives will realize on the options will depend on the future price
of the Common Stock and cannot be accurately forecast by application of an
option pricing model.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allen N. Jones 0 $0 0 0 $ 0 $ 0
</TABLE>
Directors of ML of New York who are also officers of ML of New York receive no
compensation in connection with their service as directors of ML of New York. ML
of New York pays to each director who is not also an officer of ML of New York a
fee of $500 per meeting. In addition, ML of New York reimburses expenses of
directors related to their service as directors of ML of New York. ML of New
York paid fees of $6,000 to Mr. Butler, $6,000 to Mr. Israeloff, $1,500 to Ms.
Kahn, $12,000 to Mr. King, $10,500 to Mr. Maslin, and $6,000 to Mr. Pollack,
each a director who was not an officer of ML of New York, for services rendered
to ML of New York in 1993. Total expense reimbursements in 1993 were $616.10.
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<PAGE> 37
LEGAL PROCEEDINGS
There is no material pending litigation to which ML of New York 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 ML of New York of which it
has any knowledge.
LEGAL MATTERS
The organization of ML of New York, its authority to issue the Contracts, and
the validity of the form of the Contracts have been passed upon by Barry G.
Skolnick, ML of New York's Senior Vice President and General Counsel.
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on certain
matters relating to federal securities laws.
EXPERTS
The financial statements of ML of New York for each of the three years in the
period ended December 31, 1993, included in this Prospectus have been audited by
Deloitte & Touche, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing. Deloitte & Touche's
principal business address is 1633 Broadway, New York, New York 10019-6754.
REGISTRATION STATEMENT
Registration statements have 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
statements 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.
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<PAGE> 38
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
ML Life Insurance Company of New York:
We have audited the accompanying balance sheets of ML Life
Insurance Company of New York (the "Company"), a wholly-owned
subsidiary of Merrill Lynch Insurance Group, Inc., as of December
31, 1993 and 1992 and the related statements of earnings,
stockholder's equity and cash flows for each of the three years
in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1993 and 1992 and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the
Company changed its method of accounting for certain
investments in debt and equity securities to conform with
Statement of Financial Accounting Standards No. 115.
/s/Deloitte & Touche
February 28, 1994
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
ASSETS 1993 1992
---- ----
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1993 - $442,008; 1992 - $63,568) $ 458,916 $ 63,980
Fixed maturity securities to be held to maturity, at amortized cost
(estimated fair value: 1992 - $587,970) 0 570,243
Equity securities available for sale, at estimated fair value
(cost: 1993 - $8,387; 1992 - $9,080) 7,195 9,202
Mortgage loans on real estate 17,627 22,110
Policy loans on insurance contracts 73,380 66,037
------------ ------------
Total Investments 557,118 731,572
CASH AND CASH EQUIVALENTS 27,464 41,122
ACCRUED INVESTMENT INCOME 10,164 14,021
DEFERRED POLICY ACQUISITION COSTS 24,036 27,127
FEDERAL INCOME TAXES - DEFERRED 10,468 7,537
REINSURANCE RECEIVABLES 1,685 187
OTHER ASSETS 3,765 3,397
SEPARATE ACCOUNTS ASSETS 410,613 277,725
------------ ------------
TOTAL ASSETS $ 1,045,313 $ 1,102,688
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1993 1992
---- ----
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 523,382 $ 720,335
Claims and claims settlement expenses 5,614 3,340
------------ ------------
Total policy liabilities and accruals 528,996 723,675
OTHER POLICYHOLDER FUNDS 1,200 71
OTHER LIABILITIES 5,641 1,153
FEDERAL INCOME TAXES - CURRENT 864 691
PAYABLE TO AFFILIATES - NET 5,223 7,146
SEPARATE ACCOUNTS LIABILITIES 410,613 277,705
------------ ------------
Total Liabilities 952,537 1,010,441
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 220,000 shares
authorized, issued and outstanding 2,200 2,200
Additional paid-in capital 83,006 83,006
Retained earnings 8,497 6,689
Net unrealized investment gain (loss) (927) 352
------------ ------------
Total Stockholder's Equity 92,776 92,247
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,045,313 $ 1,102,688
============ ============
</TABLE>
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 50,661 $ 65,378 $ 69,965
Net realized investment gains (losses) 6,131 (434) (9,685)
Policy charge revenue 8,387 7,683 7,162
------------ ------------ ------------
Total Revenues 65,179 72,627 67,442
------------ ------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account
balances 44,425 57,812 57,193
Market value adjustment expense 642 25 2
Policy benefits (reinsurance recoveries: 1993 - $2,192
1992 - $953; 1991 - $455) 1,729 594 839
Reinsurance premium ceded 1,182 1,070 1,179
Amortization of deferred policy acquisition costs 9,523 8,219 7,789
Insurance expenses and taxes 5,278 4,539 5,355
------------ ------------ ------------
Total Benefits and Expenses 62,779 72,259 72,357
------------ ------------ ------------
Earnings (Loss) Before Federal Income
Tax Provision (Benefit) 2,400 368 (4,915)
------------ ------------ ------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 2,842 2,373 6,475
Deferred (2,250) (2,196) (8,169)
------------ ------------ ------------
Total Federal Income Tax Provision (Benefit) 592 177 (1,694)
------------ ------------ ------------
NET EARNINGS (LOSS) $ 1,808 $ 191 $ (3,221)
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1991 $ 2,200 $ 56,289 $ 9,719 $ (799) $ 67,409
Capital contribution 26,717 26,717
Net loss (3,221) (3,221)
Net unrealized investment loss (274) (274)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1991 2,200 83,006 6,498 (1,073) 90,631
Net earnings 191 191
Net unrealized investment gain 1,425 1,425
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1992 2,200 83,006 6,689 352 92,247
Net earnings 1,808 1,808
Net unrealized investment loss (1) (1,279) (1,279)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1993 $ 2,200 $ 83,006 $ 8,497 $ ( 927) $ 92,776
============ ============ ============ ============ ============
</TABLE>
(1) Asset gains less adjustment of policyholders' account balances and
deferred policy acquisition costs (See Note 1).
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ 1,808 $ 191 $ (3,221)
Adjustments to reconcile net earnings (loss) to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 9,523 8,219 7,789
Capitalization of policy acquisition costs (7,252) (2,539) (14,542)
Amortization of fixed maturity securities 918 366 (1,553)
Net realized investment (gains) losses (6,131) 434 9,685
Interest credited to policyholders' account balances 44,425 57,812 57,193
Provision (benefit) for deferred Federal
income tax (2,250) (2,196) (8,169)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 3,857 (27) (1,715)
Policy liabilities and accruals 2,273 448 7,825
Federal income taxes - current 173 873 5,381
Other policyholder funds 1,129 63 (744)
Payable/receivable from affiliates - net (1,923) 10,149 (3,844)
Policy loans (7,343) (12,342) (5,172)
Other, net 2,644 (2,501) 4,941
------------ ------------ ------------
Net cash and cash equivalents provided
by operating activities 41,851 58,950 53,854
------------ ------------ ------------
INVESTING ACTIVITIES:
Fixed maturity securities sold 166,033 177,835 312,618
Fixed maturity securities matured 280,484 195,691 54,073
Fixed maturity securities purchased (251,522) (323,172) (439,134)
Equity securities available for sale purchased (109) (665) (15,176)
Equity securities available for sale sold 2,885 11,886 0
Mortgage loans on real estate principal payments received 4,425 1,000 0
Mortgage loans on real estate acquired 0 (124) (123)
------------ ------------ ------------
Net cash and cash equivalents provided (used) by
investing activities 202,196 62,451 (87,742)
------------ ------------ ------------
</TABLE>
(Continued)
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Concluded) (Dollars In Thousands)
==============================================================================
<TABLE>
<Caption
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Paid in capital from parent $ 0 $ 0 $ 26,717
Policyholders' account balances:
Deposits 33,953 5,985 23,374
Withdrawals (net of transfers to Separate Accounts) (291,658) (105,082) (24,503)
------------ ------------ ------------
Net cash and cash equivalents provided
(used) by financing activities (257,705) (99,097) 25,588
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (13,658) 22,304 (8,300)
CASH AND CASH EQUIVALENTS:
Beginning of year 41,122 18,818 27,118
------------ ------------ ------------
End of year $ 27,464 $ 41,122 $ 18,818
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- -----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
=======================================================================
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: ML Life Insurance Company of New York (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells life insurance and annuity products which
comprise one business segment. The primary products that the
Company currently markets are immediate annuities, market value
adjusted annuities, variable life insurance and variable
annuities. The Company is licensed to sell insurance in nine
states, however, it currently limits its marketing activities
to the State of New York. The Company markets its products
solely through the Merrill Lynch & Co. retail network.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles for
stock life insurance companies.
Revenue Recognition: Revenues for the Company's interest
sensitive life, interest sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholder account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest crediting rates for
the Company's fixed rate products are as follows:
Interest sensitive life products 4.0% - 9.0%
Interest sensitive deferred annuities 4.0% - 9.0%
Immediate annuities 4.0% - 10.0%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are
unreported as of the valuation date.
Reinsurance: Effective during 1992, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 113
"Accounting and Reporting for Reinsurance of Short Duration and
Long Duration Contracts" ("SFAS No. 113") which requires that
reinsurance receivables and prepaid reinsurance premium ceded
be reported as assets. SFAS No. 113 eliminates the practice by
insurance enterprises of reporting assets and liabilities
relating to reinsured contracts net of the effects of
reinsurance. The impact of adopting SFAS No. 113 was not
material.
<PAGE>
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. On life insurance contracts which the Company is
currently marketing, the maximum amount of mortality risk
retained by the Company is $500,000 on a single life.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the
Company. The Company regularly evaluates the financial
condition of its reinsurers so as to minimize its exposure to
significant losses from reinsurer insolvencies. The Company
holds collateral under reinsurance agreements in the form of
letters of credit and amounts withheld totaling $230,000 that
can be drawn upon for delinquent reinsurance recoverables.
As of December 31, 1993, the Company had life insurance in-
force which was ceded to other life insurance companies of
$168,098,000.
Deferred Policy Acquisition Costs: Policy acquisition costs
for life and annuity contracts are deferred and amortized based
on the estimated future gross profits for each group of
contracts. These future gross profit estimates are subject to
periodic evaluation by the Company, with necessary revisions
applied against amortization to date.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, which are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition
costs can also arise from the acquisition or reinsurance of
existing in-force policies from other insurers. These costs
include ceding commissions and professional fees related to the
reinsurance assumed.
Included in deferred policy acquisition costs are those costs
related to the acquisition by assumption reinsurance of
insurance contracts from unaffiliated insurers. The deferred
costs will be amortized in proportion to the future gross
profits over the anticipated life of the acquired insurance
contracts utilizing an interest methodology.
In December 1990, the Company entered into an assumption
reinsurance agreement with a non-affiliated insurer (See Note
6). The acquisition costs relating to this agreement are being
amortized over a twenty-year period using an effective interest
rate of 9.01%. This reinsurance agreement provides for payment
of contingent ceding commissions based upon the persistency and
mortality experience of the insurance contracts assumed. Any
payments made for the contingent ceding commissions will be
capitalized and amortized using an identical methodology as
that used for the initial acquisition costs. The following is
a reconciliation of the acquisition costs for the reinsurance
transaction for the three years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning balance $ 16,925 $ 18,193 $ 3,593
Capitalized amounts 843 533 16,900
Interest accrued 1,478 1,865 1,704
Amortization (3,632) (3,666) (4,004)
------------ ------------ ------------
Ending balance $ 15,614 $ 16,925 $ 18,193
============ ============ ============
</TABLE>
<PAGE>
The following table presents the expected amortization of these
deferred acquisition costs over the next five years. The
amortization may be adjusted based on periodic evaluation of
the expected gross profits on the reinsured policies.
1994 $2,268,000
1995 2,160,000
1996 1,944,000
1997 1,512,000
1998 1,075,000
Investments: Effective December 31, 1993, the Company has
adopted SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). In compliance
with SFAS No. 115, the Company classifies its investments in
fixed maturity securities and equity securities in the
available for sale category. Available for sale securities
include both fixed maturity and equity securities. These
securities may be sold for the Company's general liquidity
needs, asset/liability management strategy, credit dispositions
and investment opportunities. These securities are carried at
estimated fair value with unrealized gains and losses included
in stockholder's equity (net of tax). If a decline in value of a
security is determined by management to be other than temporary,
the carrying value is adjusted to the estimated fair value at the
date of this determination and recorded in the net realized
investment gains (losses) caption of the statement of earnings.
SFAS No. 115 allows securities to be carried at amortized cost
if the Company has both the ability and intent to hold these
securities to maturity. The Company has determined that it can
not guarantee that it will not have the need or opportunity to
sell any particular security in its investment holdings. As
such, the Company did not utilize this classification as of
December 31, 1993. Additionally, SFAS No. 115 requires that
securities held for short-term sale are to be carried at fair
value with the change in fair value being recorded as a
component of the statement of earnings. The Company has no
securities at December 31, 1993 that are held for this purpose.
In compliance with a recent Securities and Exchange Commissions
("SEC") staff announcement, the Company has recorded certain
adjustments to deferred policy acquisition costs and
policyholders' account balances in conjunction with its
adoption of SFAS No. 115. The SEC requires that companies
adjust those assets and liabilities that would have been
adjusted had the unrealized investment gains or losses from
securities classified as available for sale actually been
realized with corresponding credits or charges reported
directly to shareholder's equity. Accordingly, deferred policy
acquisition costs have been decreased by $818,000 and
policyholders' account balances have been increased by
$16,327,000 as of December 31, 1993.
As of December 31, 1992, the Company classified its investments
in fixed maturity securities as either "to be held to maturity"
or "available for sale." Fixed maturity securities to be held
to maturity were stated in the balance sheets at amortized
cost. Fixed maturity securities available for sale were stated
at estimated fair value. The net unrealized gains and losses on
these securities are reflected as a component of stockholder's
equity.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accrued to
the maturity date and interest income is accrued daily.
Realized gains and losses on the sale or maturity of the
investment are determined on the basis of identified cost.
Fixed maturity securities may contain securities which are
considered high yield. The Company defines high yield fixed
maturity securities as unsecured corporate debt obligations
which do not have a rating equivalent to Standard and Poor's
(or similar rating agency) BBB or higher, and are not
guaranteed by an agency of the federal government. Probable
losses are recognized in the period that a decline in value is
determined to be other than temporary.
<PAGE>
Mortgage loans on real estate are stated at unpaid principal
balances net of valuation allowances. Such valuation
allowances are based on the decline in value expected by
management to be realized on in-substance foreclosures of
mortgage loans and on mortgage loans which management believes
may not be collectible in full. In establishing valuation
allowances management considers, among other things, the
estimated fair value of the underlying collateral.
The Company has previously made mortgage loans collateralized
by real estate. The return on and the ultimate recovery of
these loans and investments are generally dependent on the
successful operation, sale or refinancing of the real estate.
In many parts of the country, current real estate markets are
characterized by above-normal vacancy rates, a lack of ready
sources or credit for real estate financing, reduced or
declining real estate values, and similar factors.
The Company employs a system to monitor the effects of current
and expected market conditions and other factors when assessing
the collectability of mortgage loans. When, in management's
judgment, these assets are impaired, appropriate losses are
recorded. Such estimates necessarily include assumptions,
which may include anticipated improvements in selected market
conditions for real estate, which may or may not occur. The
more significant assumptions management considers involve
estimates of the following: lease, absorption and sales rates;
real estate values and rates of return; operating expenses;
inflation; and sufficiency of any collateral independent of the
real estate.
Resulting from the Company's management and valuation of its
mortgage loans on real estate, management believes that the
carrying value approximates the fair value of these
investments.
During 1993 the Financial Accounting Standards Board issued
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"). SFAS No. 114 requires that for impaired
loans, the impairment shall be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral.
Impairments of mortgage loans on real estate are established as
valuation allowances and recorded to net realized investment
gains (losses). SFAS No. 114 must be adopted for fiscal years
beginning after December 15, 1994. The Company has
decided not to early adopt this statement. The Company
estimates that the impact on both financial position and
earnings from adopting SFAS No. 114 would be immaterial.
Policy loans on insurance contracts are stated at unpaid
principal balances. The Company estimates the fair market
value of policy loans as equal to the book value of the loans.
Policy loans are fully collateralized by the account value of
the associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited to the
account value held as collateral is fixed.
Fair Value of Financial Instruments: Beginning in 1992, the
Company adopted SFAS No. 107 "Disclosures about Fair Value of
Financial Instruments", which requires companies to report the
fair value of financial instruments for certain assets and
liabilities both on and off-balance sheet.
Federal Income Taxes: Effective the first quarter 1992, the
Company adopted SFAS No. 109 "Accounting for Income Taxes"
("SFAS No. 109") which requires an asset and liability method
in recording income taxes on all transactions that have been
recognized in the financial statements. SFAS No. 109 provides that
deferred taxes be adjusted to reflect tax rates at which future
tax liabilities or assets are expected to be settled or
realized. Previously, the Company accounted for income taxes
in accordance with SFAS No. 96, "Accounting for Income Taxes."
The effect of adopting SFAS No. 109 was not material.
Separate Accounts: The Separate Accounts are established in
conformity with New York insurance law, the Company's
domiciliary state, and under such law, if and to the extent
provided under the applicable insurance contracts, assets held
in the Separate Accounts equal to the reserves and other
contract liabilities with respect to the Separate Accounts may
not be chargeable with liabilities that arise
<PAGE>
from any other
business of the Company. Separate Accounts assets may be
subject to General Account claims only to the extent the value
of such assets exceeds the Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing
net deposits and accumulated net investment earnings less fees,
held for the benefit of policyholders, are shown as separate
captions in the balance sheets. Assets held in the Separate
Accounts are carried at quoted market value.
The carrying value for Separate Accounts assets and liabilities
approximates the estimated fair value of the underlying assets.
Postretirement Benefits Other Than Pensions: During the fourth
quarter 1992, the Company adopted SFAS No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions "
("SFAS No. 106"). SFAS No. 106 requires the accrual of
postretirement benefits (such as health care benefits) during
the years an employee provides service. Prior to 1992, the
cost of these benefits were expensed on a pay-as-you-go basis
when such cost was allocated from MLIG as a component of the
Company's operating expenses. The effect of adopting SFAS No.
106 was minimal.
Statements of Cash Flows: For the purpose of reporting cash
flows, cash and cash equivalents includes cash on hand and on
deposit and short-term investments with original maturities of
three months or less.
The carrying amounts approximate the estimated fair value of
cash and cash-equivalents.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2: INVESTMENTS
The amortized cost (original cost for equity securities) less
valuation allowances and estimated fair value of investments in
fixed maturity securities and equity securities as of December
31 are:
<TABLE>
<CAPTION>
1993
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 284,710 $ 13,726 $ 3,204 $ 295,232
Mortgage-backed securities 149,834 6,209 216 155,827
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 3,964 349 24 4,289
Obligations of states and political
subdivisions 3,500 68 0 3,568
------------ ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 442,008 $ 20,352 $ 3,444 $ 458,916
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 2,392 $ 106 $ 438 $ 2,060
Non-redeemable preferred stocks 5,995 1,002 1,862 5,135
------------ ------------ ------------ ------------
Total equity securities available for sale $ 8,387 $ 1,108 $ 2,300 $ 7,195
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities to be held to
maturity:
Corporate securities $ 290,905 $ 12,328 $ 2,017 $ 301,216
Mortgage-backed securities 265,840 8,390 951 273,279
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 12,713 298 374 12,637
Obligations of states and political
subdivisions 785 53 0 838
------------ ------------ ------------ ------------
Total fixed maturity securities to be held
to maturity $ 570,243 $ 21,069 $ 3,342 $ 587,970
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 34,312 $ 745 $ 419 $ 34,638
Mortgage-backed securities 29,256 451 365 29,342
------------ ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 63,568 $ 1,196 $ 784 $ 63,980
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 2,488 $ 40 $ 452 $ 2,076
Non-redeemable preferred stocks 6,592 1,131 597 7,126
------------ ------------ ------------ -----------
Total equity securities available for sale $ 9,080 $ 1,171 $ 1,049 $ 9,202
============ ============ ============ ============
</TABLE>
For publicly traded securities, the estimated fair value is
determined using quoted market prices. For securities without
a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach including provisions for credit risk, based upon the
assumption that such securities will be held to maturity. Such
estimated fair values do not necessarily represent the values
for which these securities could have been sold at the dates of
the balance sheets. At December 31, 1993 and 1992,
respectively, securities without a readily ascertainable market
value, having an amortized cost less valuation allowances of
approximately $125,783,000 and $163,829,000, had an estimated
fair value of approximately $131,917,000 and $173,057,000,
respectively.
The amortized cost less valuation allowance and estimated fair
value of fixed maturity securities available for sale at
December 31, 1993 by contractual maturity are shown below:
<TABLE>
<CAPTION>
Amortized
Cost Less Estimated
Valuation Fair
Allowances Value
----------- -----------
(In Thousands)
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 15,935 $ 16,257
Due after one year through five years 105,084 110,813
Due after five years through ten years 134,039 136,697
Due after ten years 37,116 39,322 292,174
Mortgage-backed securities 149,834 155,827
------------ ------------
Total fixed maturity securities available
for sale $ 442,008 $ 458,916
============ ============
</TABLE>
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
<PAGE>
The Company's investment in mortgage loans on real estate
consists principally of loans collateralized by commercial real
estate. The largest concentrations of commercial real estate
mortgage loans are for properties located in California
($7,474,000 or 40%) and Maryland ($7,000,000 or 38%).
Net investment income arose from the following sources for the
years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 45,667 $ 59,036 $ 62,924
Equity securities available for sale 113 499 372
Mortgage loans on real estate 1,924 2,309 2,478
Policy loans 3,487 3,029 2,491
Cash equivalents 476 1,034 1,907
Other (144) 1,310 246
------------ ------------ ------------
Gross investment income 51,523 67,217 70,418
Less expenses (862) (1,839) (453)
------------ ------------ ------------
Net investment income $ 50,661 $ 65,378 $ 69,965
============ ============ ============
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances, determined by specific identification for
the years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 4,108 $ 4,069 $ (7,789)
Equity securities available for sale 2,081 (2,710) (1,896)
Mortgage loans on real estate (58) (1,793) 0
------------ ------------ ------------
Net realized investment gains (losses) $ 6,131 $ ( 434) $ (9,685)
============ ============ ============
</TABLE>
Valuation allowances have been established to reflect other than
temporary declines in estimated fair value of the following
classifications of investments as of December 31,:
<TABLE>
<CAPTION>
1993 1992
---- ---
(In Thousands)
<S> <C> <C>
Fixed maturity securities to be held to maturity $ 0 $ 9,119
Fixed maturity securities available for sale 8,881 0
Equity securities available for sale 1,502 1,502
Mortgage loans on real estate 848 790
------------ ------------
$ 11,231 $ 11,411
============ ============
</TABLE>
Proceeds, gains and losses from the sale or maturity of fixed
maturity securities available for sale and held to maturity for
the years ended December 31,:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Proceeds $ 446,517 $ 373,526 $ 366,691
Realized investment gains 4,546 5,469 6,304
Realized investment losses 438 3,206 7,864
</TABLE>
The Company held investments at December 31, 1993 of $4,550,000
which have been non-income producing for the preceding twelve
months.
The Company had investment securities of $1,118,000 and
$645,000 held on deposit with insurance regulatory authorities
at December 31, 1993 and 1992, respectively.
The Company has restructured the terms of certain of its
investments in mortgage loans on real estate in 1993 and
certain of its fixed maturity securities during 1992. The
following table provides the amortized cost less valuation
allowances immediately prior to restructuring, gross interest
income that would have been earned had the loans been current
per their original terms ("Expected Income") and gross interest
income recorded during the year ("Actual Income") and equity
interests which are received in the restructuring:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Fixed maturity securities:
Amortized cost less valuation allowances $ 0 $ 3,073
Expected income 0 678
Actual income 0 117
Equity interest received 0 668
Mortgage loans on real estate:
Amortized cost less valuation allowance $ 5,475 $ 0
Expected income 442 0
Actual Income 411 0
</TABLE>
NOTE 3: FEDERAL INCOME TAXES
The Company is taxed as a life insurance company according to
the Federal Income Tax Reform Act of 1986, as amended. The
Company's tax return is not consolidated with any other entity.
The following is a reconciliation of the provision for income
taxes, computed using the Federal statutory tax rate, with the
provision for income taxes for the three years ended December
31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 840 $ 125 $ (1,671)
Increase (decrease) in income taxes resulting from:
Federal tax rate increase (227)
Other (21) 52 (23)
------------ ------------ ------------
Federal income tax provision (benefit) $ 592 $ 177 $ (1,694)
============ ============ ============
</TABLE>
<PAGE>
The Federal statutory rate for 1993, 1992 and 1991 was 35%, 34%
and 34%, respectively.
The Company provides for deferred income taxes resulting from
temporary differences which arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs $ (1,184) $ (2,094) $ (1,604)
Policyholders' account balances (969) 1,700 (2,768)
Investment adjustments (100) (1,093) (2,055)
Other 3 (709) (1,742)
------------ ------------ ------------
Deferred Federal income tax
provision (benefit) $ (2,250) $ (2,196) $ (8,169)
============ ============ ============
</TABLE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 9,848 $ 8,879
Investment adjustments 5,143 5,043
------------ ------------
Total deferred tax asset 14,991 13,922
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs 4,283 5,467
Net unrealized investment gain (loss) (500) 181
Other 740 737
------------ ------------
Total deferred tax liability 4,523 6,385
------------ ------------
Net deferred tax asset $ 10,468 $ 7,537
============ ============
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
The Company paid Federal income taxes of $2,668,000, $1,500,000
and $1,095,000 in 1993, 1992 and 1991, respectively.
NOTE 4: RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain data processing, legal,
actuarial, management, advertising and other services to the
Company. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by the Company on an allocated cost
basis. Charges billed to the Company by MLIG pursuant to the
agreement were $5,688,000, $5,403,000 and $5,034,000 for the
years ended December 31, 1993, 1992 and 1991 respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM") are
parties to a service agreement whereby MLAM has agreed to provide
certain invested asset management services to the Company. The
<PAGE>
Company pays a fee to MLAM for these services through the MLIG
service agreement.
The Company and Merrill Lynch Trust Company ("ML Trust") are
parties to an agreement whereby the Company retains ML Trust to
hold certain invested assets upon the terms and conditions of the
agreement. ML Trust is paid a fee based on its current fee
schedule.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
Merrill Lynch, Pierce, Fenner and Smith, Inc. ("MLPF&S") who are
the Company's licensed insurance agents, solicit applications for
contracts to be issued by the Company. MLLA is paid commissions
for the contracts sold by such agents. Commissions paid to MLLA
were approximately $4,927,000, $1,469,000 and $864,000 for 1993,
1992 and 1991, respectively. Substantially all of these fees
were capitalized as deferred policy acquisition costs and are
being amortized in accordance with the policy discussed in Note
1.
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company ("Monarch
Life"), the Company borrowed funds from Merrill Lynch & Co. to
partially finance the transaction. As of December 31, 1993 and
1992, the outstanding balance of these loans was approximately
$5,550,000 and $7,200,000, respectively. Approximately
$1,650,000 and $4,600,000 was repaid on these loans during 1993
and 1992, respectively. Interest was calculated on these loans at
LIBOR plus 150 basis points. Intercompany interest paid on these
loans during 1993, 1992 and 1991 was approximately $328,000,
$679,000 and $942,000, respectively.
The Company has entered into certain other marketing and
administrative service agreements with affiliates in connection
with the variable life and annuity policies it sells.
During 1993, 1992 and 1991, the Company assumption reinsured
certain policies previously indemnity reinsured by the Company's
affiliate, Merrill Lynch Life Insurance Company ("MLLIC"), and
directly written by Family Life Insurance Company ("Family
Life"), a former affiliate. These transactions resulted in the
transfer of approximately $11,860,000, $2,000,000 and $19,200,000
of policy reserves during 1993, 1992 and 1991, respectively.
The fair value of the Company's payables to affiliates is
estimated at carrying value. These borrowings are payable on
demand and bear a variable interest rate based on LIBOR.
Total intercompany interest paid was $397,000, $801,000 and
$1,193,000 for 1993, 1992 and 1991, respectively.
NOTE 5: STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
At December 31, 1993 and 1992, $30,125,000 and $56,862,000,
respectively, of retained earnings was available for distribution
to MLIG. Notice of intention to declare a dividend must be filed
with the New York Superintendent of Insurance who may disallow
the payment. No dividends were declared or paid during 1993, 1992
and 1991. Statutory capital and surplus at December 31, 1993 and
1992, was $57,333,000 and $59,062,000, respectively.
During 1991, MLIG contributed capital to the Company of
$26,717,000 to support the underwriting of additional insurance
premiums and deposits. No capital contributions were made during
1993 and 1992.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial statements
by charging policy acquisition costs to expense as incurred,
establishing future policy benefit reserves using different
actuarial assumptions, not providing for deferred taxes and
valuing
<PAGE>
securities on a different basis. The Company's statutory net
income for the years ended December 31, 1993, 1992 and 1991 was
$6,515,000, $10,167,000 and $5,809,000, respectively.
The National Association of Insurance Commissioners ("NAIC")
has developed and implemented, effective December 31,
1993, the Risk Based Capital ("RBC") adequacy monitoring system.
The RBC calculates the amount of adjusted capital which a life
insurance company should have based upon that company's risk
profile. The NAIC has established four different levels of
regulatory action with respect to the RBC adequacy monitoring
system. Each of these levels may be triggered if an insurer's
total adjusted capital is less than a corresponding level of RBC.
These levels are as follows:
For companies with capital levels which are below 100% of
the basic RBC level (company action level) calculated for
that company, the company must submit to the domiciliary
insurance commissioner, and implement, an approved plan to
increase adjusted capital to at least 100% of the basic
RBC.
For companies with capital levels which are below 75% of
the basic RBC level calculated for that company, an
examination of the company will be conducted by the
domiciliary insurance department and as a result of the
findings of the examination, corrective orders may be
issued.
For companies with capital levels which are below 50% of
the basic RBC level (authorized control level) calculated
for that company, the domiciliary insurance commissioner
will have the authority to place the company into
conservatorship or liquidation.
For companies with capital levels which are below 35% of
the basic RBC level calculated for that company, the
domiciliary insurance commissioner will be required to
place the company into conservatorship or liquidation.
As of December 31, 1993, based on the RBC formula, the Company's
total adjusted capital level was 245% of the basic RBC
level.
NOTE 6: REINSURANCE AGREEMENTS
On December 31, 1990, the Company and an affiliate entered into a
100% reinsurance agreement with respect to all variable life
policies issued by Monarch Life and sold through the Merrill
Lynch retail network. As a result of the indemnity provisions of
the agreement, the Company became obligated to reimburse Monarch
Life for its net amount at risk with regard to the reinsured
policies. At the date of acquisition, assets of approximately
$65,000,000 supporting general account reserves, on a statutory
accounting basis, were transferred from Monarch Life to the
Company. This agreement provides for contingent ceding
commission payments to Monarch Life dependent upon the lapse rate
during the five years ending in 1995 and mortality experience
during the ten years ending in 2000. To date, the Company has
paid approximately $24,700,000 to Monarch Life under the terms of
the agreement. As of December 31, 1993, the Company has accrued
$870,000 for such payments.
On various dates during 1992 and 1991, the Company and an
affiliate assumption reinsured substantially all such policies,
wherever permitted by appropriate regulatory authorities. Upon
assumption, the policy liabilities and the underlying assets of
approximately $261,000,000 were transferred to the ML of New York
Variable Life Separate Account ("Account"). As a result of the
assumptions, the Company became directly obligated to the
policyholders, rather than to Monarch Life. Certain contract
owners of the reinsured policies elected to remain with Monarch
Life as permitted under certain state insurance laws. Assets and
liabilities of those policies not assumption reinsured by the
Company or its affiliate have remained with Monarch Life. The
Company and its affiliate have indemnified Monarch Life against
its net amount at risk on such policies. As of December 31,
1993, approximately 23 life insurance policies with $2,820,000
life insurance in force remain under the indemnity reinsurance
agreement.
<PAGE>
During 1992, the Company, along with its affiliates, entered into
an agreement with Monarch Life for the purchase, transfer or
assignment of certain services and assets owned, licensed or
leased by Monarch Life. Additionally, the Company along with its
affiliates were allowed to actively solicit the employment of
individuals employed by Monarch Life, who are required to service
the Company's and its affiliates' variable life insurance
policies and Monarch Life's variable life insurance policies. In
consideration of this, the Company and its affiliate, MLLIC,
transferred title to Monarch Life of certain telecommunications
equipment owned by Merrill Lynch Insurance Group Services, Inc.,
an affiliate of the Company, with a net book value of $1,753,000.
The Company agreed to service Monarch Life's variable life
insurance policies for a period of five years at an annual rate
of $100 per policy. Monarch Life has an option to terminate the
service agreement upon proper notification.
NOTE 7: INTEREST RATE SWAP CONTRACTS
During 1992, the Company terminated all outstanding swap
contracts and recorded no net gains (losses) in connection with
interest rate swap activity.
NOTE 8: COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers who
are licensed to transact business within a state become members
of the state's life insurance guaranty association. These
associations have been established for the protection of
policyholders from loss (within specified limits) as a result of
the insolvency of an insurer. At the time an insolvency occurs,
the guaranty association assesses the remaining members of the
association an amount sufficient to satisfy the insolvent
insurer's policyholder obligations (within specified limits).
Based upon the public information available at this time,
management believes the Company has no material financial
obligations to state guaranty associations.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
<PAGE> 39
APPENDIX
The tables below are designed to show the impact of the Market Value Adjustment
and withdrawal charge on a single premium of $10,000. Table 1 assumes the
premium is allocated to a subaccount with a 10-year Guarantee Period with a
guaranteed rate of interest of 5.25%. Table 2 assumes the premium is allocated
to a subaccount with a 5-year Guarantee Period with a guaranteed rate of 4.5%.
The Market Value Adjustments are based on interpolated current interest rates
(defined in the Contract as "B") of 4%, 5.25% and 7.25% in the 10 year guarantee
table and 4%, 4.5% and 6.5% in the 5 year guarantee table. The net subaccount
values shown in the tables are the maximum amount available as cash withdrawals.
Although the withdrawal charge is in each case a fixed percentage of the amount
withdrawn, the amount of the charge for withdrawals made at the end of each year
varies as a result of the Market Value Adjustment. Values shown in the tables
have been rounded to the nearest dollar, and therefore 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.
TABLE 1
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
MARKET VALUE ADJUSTMENTS, WITHDRAWAL CHARGES AND NET SUBACCOUNT VALUE BASED ON
INTERPOLATED CURRENT INTEREST RATES OF:
---------------------------------------------------------------------------------------------
4.00% 5.25% 7.25%
- --------------------------------------------------------------------------------------------------------------------------------
END OF MARKET WITH- NET SUB MARKET WITH- NET SUB MARKET WITH- NET SUB
CERT. SUB ACC. VALUE DRAWAL ACCOUNT VALUE DRAWAL ACCOUNT VALUE DRAWAL ACCOUNT
YEAR VALUE ADJUST. CHARGE VALUE ADJUST. CHARGE VALUE ADJUST. CHARGE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,525 1,161 299 11,387 -0- 269 10,256 (1,605) 228 8,692
2 11,078 1,080 311 11,846 -0- 283 10,794 (1,514) 245 9,318
3 11,659 989 324 12,324 -0- 298 11,361 (1,407) 262 9,990
4 12,271 887 337 12,822 -0- 314 11,957 (1,281) 281 10,710
5 12,915 773 350 13,339 -0- 330 12,585 (1,133) 301 11,481
6 13,594 648 364 13,877 -0- 348 13,246 (963) 323 12,308
7 14,307 508 379 14,437 -0- 366 13,941 (767) 346 13,194
8 15,058 355 394 15,019 -0- 385 14,673 (543) 371 14,144
9 15,849 187 314 15,721 -0- 311 15,538 (290) 305 15,254
10 16,681 -0- -0- 16,681 -0- -0- 16,681 -0- -0- 16,681
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
MARKET VALUE ADJUSTMENTS, WITHDRAWAL CHARGES AND NET SUBACCOUNT VALUE BASED ON
INTERPOLATED CURRENT INTEREST RATES OF:
---------------------------------------------------------------------------------------------
4.00% 4.50% 6.50%
- ---------------------------------------------------------------------------------------------------------------------------------
END OF WITH- NET SUB MARKET WITH- NET SUB MARKET WITH- NET SUB
CERT. SUB ACC. MARKET VALUE DRAWAL ACCOUNT VALUE DRAWAL ACCOUNT VALUE DRAWAL ACCOUNT
YEAR VALUE ADJUST. CHARGE VALUE ADJUST. CHARGE VALUE ADJUST. CHARGE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,450 198 234 10,414 -0- 230 10,220 (748) 214 9,489
2 10,920 155 244 10,831 -0- 240 10,680 (591) 227 10,102
3 11,412 108 253 11,266 -0- 251 11,161 (416) 242 10,754
4 11,925 56 264 11,718 -0- 262 11,663 (219) 258 11,448
5 12,462 -0- -0- 12,462 -0- -0- 12,462 -0- -0- 12,462
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The formulas used in determining the amounts shown in the above tables are as
follows:
<TABLE>
<S> <C>
Subaccount Value
1 + Current Interest Rate
(1) Net Subaccount Value = Withdrawal Factor + ( ------------------------------- ) n/365
1 + Guaranteed Interest Rate
</TABLE>
A-1
<PAGE> 40
(2) Withdrawal Charge = Net Subaccount Value X Withdrawal Factor
(3) Market Value Adjustment = Net 1 + Current Interest Rate
Subaccount Value X { 1- (-------------------------) n/365 }
1 + Guaranteed Interest Rate
(4) Withdrawal Factor is the Lessor of:
(a) Guaranteed Interest Rate
------------------------
2
or
(b) 10% in Contract Year 1,
9% in Contract Year 2,
8% in Contract Year 3,
7% in Contract Year 4,
6% in Contract Year 5,
5% in Contract Year 6,
4% in Contract Year 7,
3% in Contract Year 8,
2% in Contract Year 9,
1% in Contract Year 10,
0% in Contract Year 11 and later
(5) "n" is the number of days remaining in the Guarantee Period of the
subaccount, but not less than 365.
A-2
