<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 7, 1994
REGISTRATION NO. 33-60288
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
POST EFFECTIVE AMENDMENT NO. 3
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ML LIFE INSURANCE COMPANY OF NEW YORK
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
6312
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
16-1020455
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
100 CHURCH STREET, 11TH FLOOR
NEW YORK, NEW YORK 10080-6511
(212) 602-8250
(ADDRESS INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
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BARRY G. SKOLNICK, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
ML LIFE INSURANCE COMPANY OF NEW YORK
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(609) 282-1429
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
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COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
If any of the Securities that have been registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus contained
herein also relates to Registration Statement No. 33-34562.
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ML LIFE INSURANCE COMPANY OF NEW YORK
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CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(b)
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION
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<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover of
Prospectus................................. Capsule Summary of the Contract; Table of
Contents
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Outside Front Cover Page; Capsule Summary
of the Contract; Definitions
4. Use of Proceeds............................ Investments Supporting the Contracts
5. Determination of Offering Price............ Not Applicable
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Distribution of the Contracts
9. Description of Securities to be
Registered................................. Capsule Summary of the Contract;
Description of the Contract
10. Interest of Named Experts and Counsel...... Legal Matters
11. Information with Respect to the
Registrant................................. ML Life Insurance Company of New York;
Federal Income Taxes; More Information
About ML Life Insurance Company of New
York; Directors and Executive Officers;
Legal Proceedings
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Part II, Item 14
</TABLE>
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PROSPECTUS
DECEMBER , 1994
ML NY ASSET I(SM)
INDIVIDUAL MODIFIED GUARANTEED ANNUITY CONTRACT
ISSUED BY
ML LIFE INSURANCE COMPANY OF NEW YORK
Home Office: 100 Church Street, 11th Floor; New York, New York 10080-6511
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.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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............................................................. 13
J. PAYMENT ON DEATH.............................................................. 14
K. ANNUITY PROVISIONS............................................................ 15
L. OTHER PROVISIONS.............................................................. 16
DISTRIBUTION OF THE CONTRACTS.......................................................... 18
FEDERAL TAX CONSIDERATIONS............................................................. 18
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 PROVISIONS............................. 23
MORE INFORMATION ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK........................... 23
A. HISTORY AND BUSINESS.......................................................... 23
B. SELECTED FINANCIAL DATA....................................................... 26
C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................................................... 26
D. REINSURANCE................................................................... 31
E. CONTRACT OWNER ACCOUNT BALANCES............................................... 31
F. INVESTMENTS................................................................... 31
G. COMPETITION................................................................... 32
H. CERTAIN AGREEMENTS............................................................ 32
I. EMPLOYEES..................................................................... 33
J. PROPERTIES.................................................................... 33
K. STATE REGULATION.............................................................. 33
DIRECTORS AND EXECUTIVE OFFICERS....................................................... 35
EXECUTIVE COMPENSATION................................................................. 36
LEGAL PROCEEDINGS...................................................................... 39
LEGAL MATTERS.......................................................................... 39
EXPERTS................................................................................ 39
REGISTRATION STATEMENT................................................................. 39
FINANCIAL STATEMENTS OF ML LIFE INSURANCE COMPANY OF NEW YORK.......................... 40
APPENDIX............................................................................... A-1
</TABLE>
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No person has been authorized to give any information or to make any
representation other than that contained in this Prospectus in connection with
the offer contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized. This
Prospectus does not constitute an offer of, or solicitation of an offer to
acquire, any Contracts thereunder offered by this Prospectus in any jurisdiction
to anyone to whom it is unlawful to make such an offer or solicitation in such
jurisdiction.
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DEFINITIONS
account value: The sum of all subaccount values.
annuitant: The person 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 may be applied at the annuity
date. 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.
nonqualified contract: A Contract issued in connection with a nonqualified plan.
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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, currently, upon annuitization. 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. For Contracts issued after regulatory approval has been
obtained, it will also be applied at the annuity date with respect to any
subaccount if the annuity date is prior to the Renewal Date for that subaccount.
However, for Contracts issued before regulatory approval has been obtained, a
Market Value Adjustment will not be applied at the annuity date if (i) 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. Currently, withdrawal charges do
not apply upon annuitization. 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 20. 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.)
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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.
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 100 Church Street,
11th Floor, New York, New York 10080-6511, (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 13.) Withdrawals
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may have federal income tax consequences, including a 10% penalty on amounts
withdrawn. (See "Federal Tax Considerations" on page 18.)
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
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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.
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 3% 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 contract owner or 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
10
<PAGE> 13
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 13.) The tables which appear in the Appendix
illustrate the effect of a full withdrawal from a subaccount on the subaccount
value.
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, for Contracts issued after regulatory approval has been obtained, a
Market Value Adjustment will be applied at the annuity date to any subaccount if
the annuity date is prior to the end of the Guarantee Period for that
subaccount. However, for Contracts issued before regulatory approval has been
obtained, a Market Value Adjustment will not be applied at the annuity date if
(i) 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. Contract owners should refer to their contracts to determine when a
Market Value Adjustment will be applied.
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.
11
<PAGE> 14
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. 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 n/365
A X [ 1- ( -------- ) ]
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 (if n/365 is less than 1, we will assume B is
equal to the rate for a one-year Guarantee Period); "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.
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<PAGE> 15
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
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.
Currently withdrawal charges do not apply upon annuitization. However, ML of New
York reserves the right to apply the withdrawal charge on annuitization to any
subaccount if the annuity date is prior to the end of the Guarantee Period for
that subaccount. Withdrawal charges also 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).
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<PAGE> 16
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. 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
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
contract owner and 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.
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<PAGE> 17
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. Currently, withdrawal charges do not
apply upon annuitization. Current annuity rates are guaranteed to be no less
favorable than the minimum guaranteed annuity rates shown in the annuity tables
contained in the Contract. 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, for Contracts
issued after regulatory approval has been obtained, a Market Value Adjustment
will be applied to any subaccount if the annuity date is prior to the end of the
Guarantee Period for that subaccount. However, for Contracts issued before
regulatory approval has been obtained, a Market Value Adjustment will not be
applied at the annuity date if (i) combined Market Value Adjustments of all
affected Subaccounts would reduce the contract holder'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.
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 or an annuity option, 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
15
<PAGE> 18
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 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 in a lump sum. (For tax
consequences of a lump sum payment, see "Federal Tax Considerations--Partial
Withdrawals and Surrenders" on page 20.)
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" projected forward to 1995 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.
Misstatement of Age or Sex. If the age or sex of an annuitant is misstated,
annuity payments will be adjusted to reflect the correct age and sex. Any amount
overpaid as the result of such misstatement will be deducted from the next
payments due. Any amount underpaid will be paid in full with the next payment
due.
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
16
<PAGE> 19
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 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 21.)
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. ML of New York will not be liable for following
telephone instructions that it reasonably believes to be genuine. 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.
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
17
<PAGE> 20
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
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.
18
<PAGE> 21
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 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
19
<PAGE> 22
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
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.
20
<PAGE> 23
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.
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
21
<PAGE> 24
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
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.
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<PAGE> 25
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.
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.
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<PAGE> 26
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
September 30, 1994, approximately 1,899 agents of MLLA were authorized to act
for ML of New York.
RECENT DEVELOPMENTS
The following information on Recent Developments should be read in conjunction
with the accompanying unaudited financial statements and notes thereto, in
addition to the 1993 Financial Statements and Notes to Financial Statements and
the Management's Discussion and Analysis of Financial Condition and Results of
Operations contained herein. The condensed financial statements for the nine
months ended September 30, 1994 contained in this Prospectus are unaudited;
however, in the opinion of management of ML of New York, all adjustments
(consisting only of normal recurring accruals) necessary for a fair statement of
the results of operations have been included. Results for the nine months ended
September 30, 1994 and 1993 are not necessarily indicative of annual results.
Income Statement Information
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net Investment Income.............................................. $24,900 $39,834
Earnings Before Federal Income Tax................................. $ 4,667 $ 1,018
Net Earnings....................................................... $ 3,719 $ 911
</TABLE>
Balance Sheet Information
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Total Assets........................................................ $ 940,493 $ 1,045,313
Stockholder's Equity................................................ $ 94,164 $ 92,776
</TABLE>
Business Overview
ML of New York's 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 fees charged to variable life insurance and variable annuity contract
owners. 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 inforce contracts.
Life insurance and annuity deposits received in the first nine months of 1994
increased $22.1 million to $45.8 million, when compared to the same period in
1993. The increase was primarily attributable to a increase in sales of ML of
New York's variable annuity product.
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<PAGE> 27
During 1994, approximately $228.0 million of fixed deferred annuity liabilities
will reach the expiration of their interest rate guarantee period. This
represents approximately 44% of ML of New York's policy liabilities and accruals
as of the beginning of 1994. During the first nine months of 1994, approximately
$192.0 million of these fixed deferred annuity liabilities reached the
expiration of their interest rate guarantee period. At the expiration of an
interest rate guarantee period, the contract owner has an option to either
surrender 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 the first nine months of 1994 and for the year ended
December 31, 1993:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
AMOUNT % AMOUNT %
------ --- ------ ---
(DOLLARS IN MILLIONS)
-------------------------------
<S> <C> <C> <C> <C>
Renewed with an adjustment to the applicable interest crediting
rate......................................................... $ 23 12% $ 76 25%
Exchanged into either the variable annuity product or the
market value adjusted annuity product offered by ML of New
York......................................................... 96 50% 101 33%
Surrendered.................................................... 73 38% 127 42%
------ --- ------ ---
Total.......................................................... $192 100% $304 100%
====== === ====== ===
</TABLE>
The rates of renewal, exchange and surrender experienced are consistent with
management's expectations. For 1995 and 1996, fixed deferred annuity liabilities
which will reach the expiration of their interest rate guarantee period will
decline significantly from the 1993 and 1994 levels to $45.0 million and $8.0
million, respectively.
To fund all business activities, ML of New York maintains a high quality and
liquid investment portfolio. As of September 30, 1994, ML of New York's invested
assets and cash equivalents less policy loans consisted of approximately 66%
liquid or readily marketable securities.
As of September 30, 1994, approximately $28.8 million (9.4%) of ML of New York's
fixed maturity securities, were 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 BBB or higher (or similar
rating agency), 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.
Results of Operations
For the nine month periods ended September 30, 1994 and 1993, ML of New York
reported net earnings of $3.7 million and $0.9 million, respectively.
Net investment income and interest credited to policyholders' account balances
for the nine months ended September 30, 1994 as compared to the same period in
1993 have declined by approximately $14.9 million and $17.6 million,
respectively, resulting in a net increase in interest spread of $2.7 million.
This increase in interest spread is primarily attributable to the adjustment of
the guaranteed interest crediting rate on those contracts which have reached the
end of their interest rate guarantee period and were renewed at the prevailing
rate.
Net realized investment gains (losses) declined $6.5 million for the nine months
ended September 30, 1994 as compared to the same period in 1993. The decline was
a result of dispositions resulting in substantially reduced net realized
investment gains during the current nine month period as compared to the same
period during 1993. During the first nine months of 1994, interest rates rose
from the historically low levels reached during 1993 generally reducing the fair
value of the fixed maturity securities portfolio.
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<PAGE> 28
Policy charge revenue increased $1.9 million during the current nine month
period as compared to the same period during 1993. This is primarily
attributable to an 124% increase in policyholders' account balances, as compared
to December 31, 1993, of the variable annuity product.
Amortization of deferred policy acquisition costs decreased approximately $4.2
million during the nine months ended September 30, 1994 as compared to the same
period in 1993. ML of New York adjusts the amortization of deferred policy
acquisition costs based on realized investment gains recognized on normal
dispositions in ML of New York's investment portfolios. The decline in realized
investment gains during the current nine month period as compared to the same
period during 1993 contributed to the reduction in amortization of deferred
acquisition costs. Additionally, contributing to the decrease in amortization is
a decline in fixed annuity contracts inforce partially offset by the increase in
the variable annuity contracts inforce.
Insurance expenses and taxes decreased approximately $1.5 million during the
current nine month period as compared to the same period during 1993. The
reduction in expenses is attributable to operational efficiencies and the
completion during 1993 of certain policy administration system enhancements.
ML of New York's effective federal income tax rate increased from 11% during the
first nine months of 1993 to 20% for the same period during 1994. During the
first nine months of 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 deferred tax benefit. During
the first nine months of 1994, ML of New York recorded a $0.6 million reduction
to prior years tax liabilities during the current period.
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. For additional information see "Recent Developments" on page 24.
<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. For additional information see "Recent
Developments" on page 24.
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
26
<PAGE> 29
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 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 29). 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
27
<PAGE> 30
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.
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.
28
<PAGE> 31
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.
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 in
excess 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.
29
<PAGE> 32
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.
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.
30
<PAGE> 33
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 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
31
<PAGE> 34
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 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
$160,000, $265,000, $339,000 and $286,000 during the nine months ended September
30, 1994 and the years ended December 31, 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.
32
<PAGE> 35
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 $3.2 million, $5.7 million, $5.4 million and $5.0 million
during the nine months ended September 30, 1994 and the years ended December 31,
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 $4.6 million, $4.9
million, $1.5 million and $0.9 million during the nine months ended September
30, 1994 and the years ended December 31, 1993, 1992 and 1991, respectively.
(See "Distribution of the Contracts" on page 18.)
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 10 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 35.)
J. PROPERTIES
ML of New York's principal office is located at 100 Church Street, 11th Floor,
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. Merrill Lynch Insurance Group Services, Inc. ("MLIGS"), an
affiliate of MLIG owns office space in Jacksonville, Florida. 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
33
<PAGE> 36
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 adopted 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. Insurance companies are required to calculate their risk-based capital
in accordance with this formula and to include the results in their Annual
Statement. It is anticipated that these 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 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.
34
<PAGE> 37
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. Since February 1994, he has
held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. 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.
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.
35
<PAGE> 38
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.
36
<PAGE> 39
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) ($830).
37
<PAGE> 40
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
FISCAL OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME YEAR(1) GRANTED FISCAL YEAR ($ 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.
38
<PAGE> 41
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 as of December 31, 1993 and 1992 and
for each of the three years in the period ended December 31, 1993, included in
this Prospectus have been audited by Deloitte & Touche LLP, 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. Other financial statements included in the
Prospectus are unaudited. Deloitte & Touche LLP's principal business address is
Two World Financial Center, New York, New York 10281-1433.
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.
39
<PAGE> 42
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- ----------------------------------------------------------------------------
BALANCE SHEETS
(Dollars in Thousands) (Unaudited)
============================================================================
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
- ------ 1994 1993
------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair
value (amortized cost: 1994 - $314,060; 1993 - $442,008) $ 307,027 $ 458,916
Equity securities available for sale, at estimated fair value
(cost: 1994 - $3,987; 1993 - $8,387) 4,926 7,195
Mortgage loans on real estate 7,939 17,627
Policy loans on insurance contracts 75,827 73,380
------------ -------------
Total Investments 395,719 557,118
CASH AND CASH EQUIVALENTS 8,371 27,464
ACCRUED INVESTMENT INCOME 7,951 10,164
DEFERRED POLICY ACQUISITION COSTS 29,036 24,036
FEDERAL INCOME TAXES - CURRENT 2,029 0
FEDERAL INCOME TAXES - DEFERRED 10,391 10,468
REINSURANCE RECEIVABLES 479 1,685
OTHER ASSETS 8,816 3,765
SEPARATE ACCOUNTS ASSETS 477,701 410,613
------------- -------------
TOTAL ASSETS $ 940,493 $ 1,045,313
============= =============
</TABLE>
See notes to financial statements (Continued)
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- -------------------------------------------------------------------------------
BALANCE SHEETS
(Concluded) (Dollars in Thousands) (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY September 30, December 31,
- ------------------------------------ 1994 1993
------------- -------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 353,581 $ 523,382
Claims and claims settlement expenses 2,322 5,614
------------- -------------
Total policy liabilities and accruals 355,903 528,996
OTHER POLICYHOLDER FUNDS 2,846 1,200
OTHER LIABILITIES 4,438 5,641
FEDERAL INCOME TAXES - CURRENT 0 864
PAYABLE TO AFFILIATES - NET 5,441 5,223
SEPARATE ACCOUNTS LIABILITIES 477,701 410,613
------------- -------------
Total Liabilities 846,329 952,537
------------- -------------
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 12,216 8,497
Net unrealized investment loss (3,258) (927)
------------- -------------
Total Stockholder's Equity 94,164 92,776
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 940,493 $ 1,045,313
============= =============
</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 EARNINGS
(Dollars in Thousands) (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1993
------------- -------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 24,900 $ 39,834
Net realized investment gains (losses) (2,148) 4,332
Policy charge revenue 7,630 5,776
------------- -------------
Total Revenues 30,382 49,942
------------- -------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 18,057 35,646
Market value adjustment expense 130 446
Policy benefits (net of reinsurance recoveries: 1994 - $432;
1993 - $575) 1,246 829
Reinsurance premium ceded 836 877
Amortization of deferred policy acquisition costs 2,944 7,121
Insurance expenses and taxes 2,502 4,005
------------- -------------
Total Benefits and Expenses 25,715 48,924
------------- -------------
Earnings Before Federal Income
Tax Provision 4,667 1,018
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current (383) 1,886
Deferred 1,331 (1,779)
------------- -------------
Total Federal Income Tax Provision 948 107
------------- -------------
NET EARNINGS $ 3,719 $ 911
============= =============
</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
(Dollars in Thousands) (Unaudited)
=============================================================================
<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, 1993 $ 2,200 $ 83,006 $ 6,689 $ 352 $ 92,247
Net earnings 0 0 1,808 0 1,808
Net unrealized investment loss 0 0 0 (1,279) (1,279)
---------- ------------ ------------ ------------ -----------
BALANCE, DECEMBER 31, 1993 2,200 83,006 8,497 (927) 92,776
Net earnings 0 0 3,719 0 3,719
Net unrealized investment loss 0 0 0 (2,331) (2,331)
---------- ----------- ------------ ------------ -----------
BALANCE, SEPTEMBER 30, 1994 $ 2,200 $ 83,006 $ 12,216 $ (3,258) $ 94,164
========== =========== ============ ============ ===========
</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 CASH FLOWS
(Dollars in Thousands) (Unaudited)
=============================================================================
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1994 1993
------------- -------------
<S>
OPERATING ACTIVITIES: <C> <C>
Net earnings $ 3,719 $ 911
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 2,944 7,121
Capitalization of policy acquisition costs (6,958) (4,415)
Amortization of fixed maturity securities (262) 1,015
Net realized investment (gains) losses 2,148 (4,332)
Interest credited to policyholders' account balances 18,057 35,646
Provision (benefit) for deferred Federal income tax 1,331 (1,779)
Cash and cash equivalents provided (used) by changes in
operating assets and liabilities:
Accrued investment income 2,213 2,158
Claims and claim settlement expenses (3,292) (907)
Federal income taxes - current (2,893) 2,218
Other policyholder funds 1,646 3,049
Payable to affiliates - net 218 4,825
Change in policy loans (2,447) (4,953)
Other - net (5,051) 5,154
Net cash and cash equivalents provided by ------------- -------------
operating activities 11,373 45,711
------------- -------------
INVESTING ACTIVITIES:
Fixed maturity securities sold 91,690 53,659
Fixed maturity securities matured 79,814 234,208
Fixed maturity securities purchased (45,282) (210,882)
Equity securities available for sale sold 4,955 2,883
Equity securities available for sale purchased (28) (109)
Mortgage loans on real estate principal payments received 9,000 4,384
Net cash and cash equivalents provided by ------------- -------------
investing activities 140,149 84,143
------------- -------------
</TABLE>
See notes to financial statements (continued)
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(Concluded) (Dollars in Thousands) (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1994 1993
------------- ------------
<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 45,800 23,689
Withdrawals (includes transfers to Separate Accounts) (216,415) (190,336)
Net cash and cash equivalents used by financing ------------- -------------
activities (170,615) (166,647)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (19,093) (36,793)
CASH AND CASH EQUIVALENTS:
Beginning of year 27,464 41,122
------------- -------------
End of period $ 8,371 $ 4,329
============= =============
</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
SEPTEMBER 30, 1994
===============================================================================
NOTE 1: BASIS OF PRESENTATION:
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, including variable
life insurance and variable annuities.
The condensed financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, the unaudited financial statements presented herein
include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial
position and the results of operations in accordance with
generally accepted accounting principles for the periods
presented. Results for the nine months ended September
30, 1994 and 1993 are not necessarily indicative of annual
results. To facilitate comparison with the current periods,
certain amounts in the prior periods have been reclassified.
These unaudited financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Company's 1993 Annual Report on Form 10-K ("1993
Report").
The Company paid (recovered) Federal income taxes of $2.5
million and $(0.3) million for the nine months ended September
30, 1994 and 1993, respectively. The Company paid interest on
affiliated borrowings of $0.1 million and $0.3 million for the
nine months ended September 30, 1994 and 1993, respectively.
NOTE 2. STATUTORY ACCOUNTING PRACTICES:
The Company maintains its statutory accounting records in
conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of New York and the
National Association of Insurance Commissioners. Statutory
capital and surplus at September 30, 1994 and December 31, 1993,
was $66.7 million and $57.3 million, respectively. For the nine
months ended September 30, 1994 and 1993, statutory net income
was $3.7 million and $4.8 million, respectively.
40
<PAGE> 43
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.
* * * * * *
41
<PAGE> 44
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 n/365
(1) Net Subaccount Value = Withdrawal Factor + ( ------------------------------- )
1 + Guaranteed Interest Rate
</TABLE>
A-1
<PAGE> 45
(2) Withdrawal Charge = Net Subaccount Value X Withdrawal Factor
<TABLE>
<S> <C>
1 + Current Interest Rate n/365
(3) Market Value Adjustment = Net [ 1- ( ------------------------------- ) ]
Subaccount Value X 1 + Guaranteed Interest Rate
</TABLE>
(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
<PAGE> 46
PART II
INFORMATION NOT REQUIRED IN A PROSPECTUS
<PAGE> 47
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following provisions regarding the Indemnification of Directors and Officers
of the Registrant are applicable:
AMENDED AND RESTATED BY-LAWS OF ML LIFE INSURANCE COMPANY OF NEW YORK, ARTICLE
VII
Section 7.1--Indemnification of Directors, Officers, Employees and Incorporators
To the extent permitted by New York law, directors, officers, employees and
incorporators (i) shall be indemnified by the Company for liabilities and
expenses incurred by such person by reason of the fact that he, his testator, or
intestate serves or served in such capacity and (ii) may be indemnified by the
Company for liabilities and expenses incurred by such person, by reason of the
fact that he, his testator, or intestate serves or served as a director,
officer, employee or incorporator of another corporation at the request of the
Company.
BY-LAWS OF MERRILL LYNCH & CO., INC.,
Section 2--Indemnification by Corporation
Any persons serving as an officer, director or trustee of a corporation, trust
or other enterprise, including the Registrant, at the request of Merrill Lynch
are entitled to indemnification from Merrill Lynch, to the fullest extent
authorized or permitted by law, for liabilities with respect to actions taken or
omitted by such persons in any capacity in which such persons serve Merrill
Lynch or such other corporation, trust or other enterprise. Any action initiated
by any such person for which indemnification is provided shall be approved by
the Board of Directors of Merrill Lynch prior to such initiation.
DIRECTORS' AND OFFICERS' INSURANCE
Merrill Lynch has purchased from Corporate Officers' and Directors' Assurance
Company directors' and officers' liability insurance policies which cover, in
addition to the indemnification described above, liabilities for which
indemnification is not provided under the By-Laws. The Company will pay an
allocable portion of the insurance premium paid by Merrill Lynch with respect to
such insurance policy.
NEW YORK BUSINESS CORPORATION LAW
In addition, Sections 722, 723 and 724 of the New York Business Corporation Law
generally provide that a corporation has the power (and in some instances the
obligation) to indemnify a director or officer of the corporation, or a person
serving at the request of the corporation as a director or officer of another
corporation or other enterprise against any judgments, amounts paid in
settlement, and reasonably incurred expenses in a civil or criminal action or
proceeding if the director or officer acted in good faith in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation (or, in the case of a criminal action or proceeding, if he or she in
addition had no reasonable cause to believe that his or her conduct was
unlawful).
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
II-1
<PAGE> 48
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<S> <C>
1 Underwriting Agreement Between ML Life Insurance Company of New York and
Merrill Lynch Pierce, Fenner & Smith Incorporated (Incorporated by Reference
to Registrant's Form S-1 Registration No. 33-34562, Filed April 26, 1990.)
3(a) Certificate of Amendment and Restatement of Charter of Royal Tandem Life
Insurance Company (Incorporated by Reference to Registrant's Form S-1
Registration No. 33-34562, Filed April 26, 1990.)
3(b) By-Laws of Royal Tandem Life Insurance Company (Incorporated by Reference to
Registrant's Form S-1 Registration No. 33-34562, Filed April 26, 1990.)
3(c) Amended Charter of ML Life Insurance Company of New York (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 3 to Form S-1
Registration No. 33-34562, Filed March 30, 1992.)
3(d) By-Laws of ML Life Insurance Company of New York (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 3 to Form S-1 Registration No.
33-34562, Filed March 30, 1992.)
4(a)(1) Modified Guaranteed Annuity Contract (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration No.
33-34562, Filed October 16, 1990.)
4(a)(2) Modified Guaranteed Annuity Contract MLNY-AY-991/94.
4(b) Modified Guaranteed Annuity Contract Application MLNY-AY-950 (Incorporated by
Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-1
Registration No. 33-34562, Filed October 16, 1990.)
4(c)(1) Qualified Retirement Plan Endorsement (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-1 Registration No.
33-34562, Filed October 16, 1990.)
4(c)(2) Qualified Retirement Plan Endorsement MLNY-AYQ-991/94.
4(d)(1) IRA Endorsement MLNY-AYIRA-991 (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-1 Registration No. 33-34562, Filed
October 16, 1990.)
4(d)(2) IRA Endorsement, MLNY009 (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 1 to Form S-1 Registration No. 33-60288, Filed
March 31, 1994.)
4(e) Company Name Change Endorsement (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 3 to Form S-1 Registration No. 33-34562, Filed
March 30, 1992.)
5 Opinion of Barry G. Skolnick, Esq. and Consent to its use as to the legality
of the securities being registered
10(a) General Agency Agreement Between Royal Tandem Life Insurance Company and
Merrill Lynch Life Agency Inc. (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-1 Registration No. 33-34562, Filed
October 16, 1990.)
</TABLE>
II-2
<PAGE> 49
<TABLE>
<S> <C>
10(b) Investment Management Agreement By and Between Royal Tandem Life Insurance
Company and Equitable Capital Management Corporation (Incorporated by
Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-1
Registration No. 33-34562, Filed October 16, 1990.)
10(c) 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 Registrant's Pre-Effective Amendment No. 1
to Form S-1 Registration No. 33-34562, Filed October 16, 1990.)
10(d) Service Agreement By and Between Royal Tandem Life Insurance Company and
Tandem Financial Group, Inc. (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-1 Registration No. 33-34562, Filed
October 16, 1990.)
10(e) Service Agreement By and Between Tandem Financial Group, Inc. and Merrill
Lynch & Co., Inc. (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-1 Registration No. 33-34562, Filed October 16,
1990.)
10(f) Form of Investment Management Agreement By and Between Royal Tandem Life
Insurance Company and Merrill Lynch Asset Management, Inc. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 1 to Form S-1
Registration No. 33-34562, Filed March 7, 1991.)
10(g) Assumption Reinsurance Agreement By and Among Merrill Lynch Life Insurance
Company and Tandem Insurance Group, Inc. and Royal Tandem Life Insurance
Company and Family Life Insurance Company (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 3 to Form S-1 Registration No.
33-34562, Filed March 30, 1992.)
10(h) Indemnity Agreement Between ML Life Insurance Company of New York and Merrill
Lynch Life Agency Inc. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 3 to Form S-1 Registration No. 33-34562, Filed
March 30, 1992.)
10(i) Amended General Agency Agreement Between ML Life Insurance Company of New
York and Merrill Lynch Life Agency Inc. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 3 to Form S-1 Registration No.
33-34562, Filed March 30, 1992.)
10(j) Amended Management Agreement Between ML Life Insurance Company of New York
and Merrill Lynch Asset Management, Inc. (Incorporated by Reference to
Registrant's Form S-1, Filed March 30, 1993.)
23(a) Written Consent of Sutherland, Asbill & Brennan
23(b) Written Consent of Deloitte & Touche, independent auditors
24(a) Power of attorney from Frederick J.C. Butler (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(b) Power of attorney from Michael P. Cogswell (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(c) Power of attorney from Sandra K. Cox (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(d) Power of attorney from Joseph E. Crowne (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(e) Power of attorney from David M. Dunford (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(f) Power of attorney from John C.R. Hele (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(g) Power of attorney from Robert L. Israeloff (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(h) Power of attorney from Allen N. Jones (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
</TABLE>
II-3
<PAGE> 50
<TABLE>
<S> <C>
24(i) Power of attorney from Cynthia L. Kahn (Incorporated by Reference to
Registrant's Post- Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(j) Power of attorney from Robert A. King (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(k) Power of attorney from Irving M. Pollack (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(l) Power of attorney from Barry G. Skolnick (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(m) Power of attorney from William A. Wilde (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
24(n) Power of attorney from Anthony J. Vespa (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration No.
33-60288, Filed March 31, 1994.)
28 Proxy Statement of Merrill Lynch & Co., Inc. dated April 22, 1991
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 2 to
Form S-1 Registration No. 33-34562, Filed April 26, 1991.)
</TABLE>
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 51
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this amendment to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Plainsboro,
State of New Jersey, on this 7th day of December, 1994.
<TABLE>
<S> <C>
ATTEST: ML LIFE INSURANCE COMPANY OF NEW YORK
(Registrant)
/s/ SANDRA K. KELLY By: /s/ BARRY G. SKOLNICK
- --------------------------------------------- --------------------------------------------
Sandra K. Kelly Barry G. Skolnick
Assistant Vice President Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement has been signed below by the following persons in the
capacities indicated on this 7th day of December, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* Chairman of the Board, President, and Chief
- --------------------------------------------- Executive Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief
- --------------------------------------------- Financial Officer, Chief Actuary, and
Joseph E. Crowne Treasurer
* Director, Senior Vice President, and Chief
- --------------------------------------------- Investment Officer
David M. Dunford
* Director and Senior Vice President
- ---------------------------------------------
John C.R. Hele
* Director, Vice President and Senior Counsel
- ---------------------------------------------
Michael P. Cogswell
* Director
- ---------------------------------------------
Frederick J.C. Butler
* Director
- ---------------------------------------------
Sandra K. Cox
* Director
- ---------------------------------------------
Robert L. Israeloff
* Director
- ---------------------------------------------
Allen N. Jones
* Director
- ---------------------------------------------
Cynthia L. Kahn
* Director
- ---------------------------------------------
Robert A. King
* Director
- ---------------------------------------------
Irving M. Pollack
* Director
- ---------------------------------------------
William A. Wilde
*By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior Vice
---------------------------------------- President, and General Counsel and as
Barry G. Skolnick Attorney-in-Fact
</TABLE>
II-5
<PAGE> 52
EXHIBIT INDEX
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
----------- -------------------------------------------------------------------- -----
<S> <C> <C>
4(a)(2) Modified Guaranteed Annuity Contract MLNY-AY-991/94................. II-
4(c)(2) Qualified Retirement Plan Endorsement MLNY-AYQ-991/94............... II-
5 Opinion of Barry G. Skolnick, Esq. and Consent to its use as to the
legality of the securities being registered......................... II-
23(a) Written Consent of Sutherland, Asbill & Brennan..................... II-
23(b) Written Consent of Deloitte & Touche, independent auditors.......... II-
</TABLE>
<PAGE> 1
ML LIFE INSURANCE COMPANY OF NEW YORK
A STOCK LIFE INSURANCE COMPANY
Home Office and Administrative Office: 100 Church Street, 11th Floor,
New York, N.Y. 10080-6511 1-800-333-6524
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Contract Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Contract Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8. Payment at Death of Owner or Annuitant . . . . . . . . . . . . . . . . . . . 7
9. Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10. Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
11. Annuity Option Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
ML Life Insurance Company of New York agrees to pay you annuity benefits as
provided in this Contract. Payments will be made to you starting on the Annuity
Date. The amount of the single premium for this Contract is shown on page 3.
THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT FORMULA THAT MAY RESULT IN
BOTH UPWARD AND DOWNWARD ADJUSTMENTS IN CASH SURRENDER BENEFITS AND ANNUITY
BENEFITS AND THAT MAY RESULT IN AN UPWARD OR DOWNWARD ADJUSTMENT UPON THE DEATH
OF THE ANNUITANT. NO ADJUSTMENTS ARE MADE AT THE END OF A GUARANTEE PERIOD.
A detailed description of this Contract and the Market Value Adjustment has
been filed with the Superintendent of Insurance of the State of New York.
TEN DAYS TO EXAMINE CONTRACT - If for any reason you are not satisfied with
your Contract, you may cancel it by returning the Contract to us or our sales
representative within 10 days after you receive it. If you do, we will refund
the premium that was paid and the Contract will be void.
READ YOUR CONTRACT CAREFULLY. THIS IS A LEGAL CONTRACT BETWEEN YOU AND ML LIFE
INSURANCE COMPANY OF NEW YORK.
/s/ Anthony J. Vespa /s/ Barry G. Skolnick
---------------------- ---------------------
President Secretary
Modified Single Premium Modified Guaranteed Annuity Death Benefit
Guaranteed Before Annuity Date.
Annuity Non-Participating. Account Value Subject to Market Value
Adjustment.
MLNY-AY-991/94
<PAGE> 2
<TABLE>
<S> <C>
1. DEFINITIONS The sum of all Sub-Account Values. See Section 4.2.
ACCOUNT VALUE-
ANNUITANT- Annuity payments may depend upon the continuation of life of a person. That person is called the
Annuitant. The Annuitant for this Contract is named in the Contract Specifications.
ANNUITY- A series of predetermined periodic payments. See Section 9.
ANNUITY DATE-
The date shown in the Contract Specifications on which payment of an annuity is to start. See
Sections 2 and 9.1.
BENEFICIARY- The person to whom payment is to be made upon the death of the Owner or Annuitant, as provided in
the Contract. There may be both an Owner's Beneficiary and an Annuitant's Beneficiary if the Owner
is not the Annuitant.
CO-ANNUITANT- If two persons are named as Co-Annuitants on the Contract Specifications, then wherever used in
this Contract: "Annuitant" means the Co-Annuitants; death of the Annuitant refers to death of both
"Co-Annuitants"; and age of the Annuitant refers to age of the older Co-Annuitant. (Only Options
1,2 and 6 of Section 10 are available while both Co-Annuitants are alive, and Option 6 will apply
if no annuity option is chosen.)
CONTRACT ANNIVERSARY- Each anniversary of the Contract Date.
CONTRACT DATE- The date on which this Contract is issued.
CONTRACT YEAR- The year starting on the Contract Date or Contract Anniversary and ending with the day just prior
to the next Contract Anniversary.
GRUARANTEE PERIOD- The period for which we guarantee to credit a specified interest rate for a Sub-Account. See
Section 3.2.
MARKET VALUE ADJUSTMENT An adjustment made to the Sub-Account Value. It is applied upon withdrawal of all or part of the
Sub-Account 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. See Section
5.1(b). The adjustment may be either a deduction from or an addition to the Sub-Account Value. The
formula for this adjustment is shown in Section 5.2.
MAXIMUM GUARANTEE
PERIOD OPTION- An option to have Sub-Account Values automatically transferred to a Sub-Account with a Guarantee
Period equal to the longest Guarantee Period then offered by the Company which: (i) does not exceed
the length of the Owner's longest Guarantee Period immediately prior to the transfer and, (ii) ends
on or prior to the Annuity Date. If the Owner's Annuity Date is less than one year from the date of
transfer, the SubAccount Value will be transferred to a Sub-Account with a one year Guarantee
Period. See Section 3.4.
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 Sub-Account Values. Upon annuitization the Net Account Value will reflect
deductions, if any, for premium taxes. See Section 9.3.
NET SUB-ACCOUNT VALUE- The Sub-Account Value as adjusted for any Market ~'alue Adjustment and Withdrawal Charge applied in
connection with a full withdrawal, annuitization, or the payment of death benefits upon the death
of the Owner or Annuitant prior to the Annuity Date. See Section 6.1.
OWNER- The person named in the Contract Specifications to whom this Contract has been issued; referred to
herein as "you".
RENEWAL DATE- The Contract Anniversary corresponding to the end of the Guarantee Period of a SubAccount.
SUB-ACCOUNT Your single premium will be allocated to one or more Sub-Accounts as directed by you. Each
Sub-Account will correspond to a specified interest rate and Guarantee Period. See Section 3.
SUB-ACCOUNT VALUE An amount equal to that part of your single premium allocated to a Sub-Account, or any transfer in
a Sub-Account, plus credited interest, as adjusted for any prior withdrawals, Market Value
Adjustments and Withdrawal Charges. See Section 4.1.
WITHDRAWAL CHARGE A charge deducted from any Sub-Account from which a withdrawal is made prior to the end of a
Guarantee Period. See Section 6.2.
</TABLE>
-2-
SPECIMEN
<PAGE> 3
ML LIFE INSURANCE COMPANY OF NEW YORK
CONTRACT DATE SEPTEMBER 26, 1991
OWNER JOE DOE SINGEL PREMIUM $157,205.15
CONTRACT NUMBER 123456789
ANNUITANT(S) JOHN DOE
ANNUITANT'S JANE DOE ISSUE AGE AND SEX 43 M
BENEFICIARY OF ANNUITANT
RETIREMENT INFORMATION
ANNUITY DATE DECEMBER 1, 2032
FORM OF ANNUITY LIFE WITH PAYMENTS
GUARANTEED FOR 10 YEARS
INITIAL SUB-ACCOUNT INTEREST RATES
<TABLE>
<CAPTION>
AMOUNT ALLOCATED GUARANTEE PERIOD RENEWAL DATE INTEREST RATE
---------------- ---------------- ------------ -------------
<S> <C> <C> <C>
$52,401.72 3 YEARS 7/01/94 7.06%
</TABLE>
FOR WITHDRAWAL CHARGES, SEE SECTION 6.2
-3-
SPECIMEN
ML LIFE INSURANCE COMPANY OF NEW YORK
100 Church Street, 11th Floor
New York, NY 10080-6511
Phone: 800-333-6524
<PAGE> 4
3. SUB-ACCOUNTS
3.1 SUB-ACCOUNT: Your single premium will be allocated to one or more
Sub-Accounts as chosen by you. That part of your single premium
allocated to a Sub-Account must be at least $5,000.
3.2 AVAILABLE GUARANTEE PERIODS: Guarantee periods offered by us will be
for terms of 1 year through 10 years. We may at our discretion offer
additional Guarantee Periods not to exceed 10 years.
3.3 TRANSFERS OF SUB-ACCOUNT VALUE: Sub-Account Values may not be
transferred to another Sub-Account, in full or in part, prior to the
end of the Guarantee Period. At the end of a Guarantee Period, the
Sub-Account Value may be transferred to another Sub-Account. The
minimum amount that can be transferred to any one Sub-Account is the
lesser of (a) $5,000, or (b) the total Sub-Account Value to be
transferred.
Upon notice to us prior to the end of the current Guarantee Period, the
Sub-Account Value may be transferred at the end of the Guarantee Period
to one or more Sub-Accounts as chosen by you. See Section 7.3. We will
notify you of such right at least 30 days prior to the end of the
Guarantee Period. If no notice is received from you, the Sub-Account
Value will be automatically transferred to the Sub-Account for the
1-year Guarantee Period, unless the Maximum Guarantee Period Option has
been chosen (see Section 3.4).
3.4 MAXIMUM GUARANTEE PERIOD OPTION: This choice may be made by you in the
application for this Contract or made or changed prior to the end of a
Guarantee Period. See Section 7.3. Under this option, on the Renewal
Date, the Sub-Account Value of a maturing Sub-Account will automatically
be transferred to a Sub-Account with a Guarantee Period equal to the
longest Guarantee Period then offered by the company which: (i) does
not exceed the length of the Owner's longest Guarantee Period
immediately prior to transfer and (ii) ends on or prior to the Annuity
Date. If the Owner's Annuity Date is less than one year from the date
of transfer, the Sub-Account Value will be transferred to a Sub-Account
with a one year Guarantee Period. This option may be waived upon
notification prior to the Renewal Date.
4. CONTRACT VALUES
4.1 SUB-ACCOUNT VALUE: The current Sub-Account Value at any time prior to
the Annuity Date is an amount equal to the investment or transfer in
the Sub-Account plus credited interest, as adjusted for any prior
withdrawals, Market Value Adjustments and withdrawal charges.
4.2 ACCOUNT VALUE: The current Account Value at any time prior to the
Annuity Date is equal to the sum of all Sub-Account Values.
4.3 INTEREST RATES: The daily simple interest rate will be computed by
dividing the Sub-Account guaranteed interest rate by 365. This rate
will be applied to the last Contract Anniversary Sub-Account Value,
with adjustment for subsequent withdrawals, to determine credited
interest daily (except on February 29). We guarantee that interest
rates of Sub-Accounts, into which a Sub-Account Value has been
transferred, will be the same as the guaranteed interest rates offered
for any new Contracts on the same form as the Contract. The minimum
guaranteed interest rate for transfers of Sub-Accounts is 3%. See
Section 7.11.
5. MARKET VALUE ADJUSTMENT
5.1 MARKET VALUE ADJUSTMENT: The Market Value Adjustment may be either
negative or positive. It will be deducted from or added to the
Sub-Account Values according to the forrnula shown in Section 5.2 in
any of the following events:
(a) Upon withdrawal of all or part of the Net Sub-Account Values prior
to the end of the Guarantee Period for that Sub-Account.
(b) Upon annuitization at the Annuity Date if the Annuity Date is prior
to the end of the Guarantee Period for that Sub-Account.
(c) Upon payment of a death benefit prior to the Annuity Date (see
Section 8.1), except that no Market Value Adjustment is calculated
if the combined Market Value Adjustments of all affected
Sub-Accounts would reduce the Account Value.
- 4 -
SPECIMEN
<PAGE> 5
5.2 FORMULA: The Market Value Adjustment is determined by the following
formula:
n/365
A x [1 - (1 + B ) ]
-------
1 + C
Where:
"n" = The remaining number of days in the Guarantee Period.
"A" = The amount withdrawn from the Net Sub-Account upon a partial
withdrawal; upon a full withdrawal, annuitization, or death
benefits paid prior to annuitization, it is the Net Sub-Account
Value.
"B" = The current guaranteed interest rate that we are offering for a
Guarantee Period of a duration of years represented by "n/365".
When n/365 is not a whole number, we determine B by straight-line
interpolation. If n/365 is less than 1, we will assume B is equal
to the rate for a one-year Guarantee Period. See Section 7.11.
"C" = The guaranteed interest rate for the Sub-Account.
6. WITHDRAWALS
6.1 WITHDRAWALS: You may withdraw all or part of the Net Account Value upon
notice to us received prior to the earlier of the Annuity Date or the
death of the Owner or Annuitant. See Section 7.3. For full withdrawal,
the Contract must be surrendered at our home office.
For partial withdrawals, the withdrawal must be at least $500. The
Sub-Account Value of any remaining Sub-Accounts, after adjustment for
any current Market Value Adjustment and withdrawal charge, must be at
least $1,000. You must specify the Sub-Accounts from which the
withdrawal is to be made. The remaining Account Value must be at least
$5,000. See Section 7.3. If two or more Sub-Accounts have the same
Guarantee Period, the Owner must first withdraw from the Sub-Account
with the shortest period of time remaining in its Guarantee Period
until that Sub-Account has been depleted.
6.2 WITHDRAWAL CHARGE: A Withdrawal Charge equal to the lesser of: (i)
one-half of the guaranteed interest rate, based on the guaranteed
interest rate of the Sub-Account from which the withdrawal is being
made, multiplied by the amount withdrawn, or (ii) the amount withdrawn
multiplied by the Maximum Surrender Factor of: 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. No withdrawal charge is imposed in
connection with any withdrawal after the end of the tenth Contract
Year. The Withdrawal Charge will be deducted from the Sub-Account from
which the withdrawal is made. Withdrawal Charges do not apply to:
(a) Death Payments under Section 8,
(b) Annuity payments under Section 9, or
(c) Withdrawal at the end of the Guarantee Period from a Sub-Account
if we receive written notice from you requesting such withdrawal
within 30 days prior to the end of the Guarantee Period. See
Section 7.3.
7. GENERAL PROVISIONS
7.1 BENEFICIARY: A beneficiary is the person who is to receive payment on
death of the Owner or Annuitant under Section 8 or under Section 10. If
the Owner is not the Annuitant, you may, if you desire, name one
beneficiary to receive payment on death of the Owner ("Owner's
Beneficiary") and a different beneficiary to receive payment on death
of the Annuitant ("Annuitant's Beneficiary"). The Owner's Beneficiary
must be a natural person. If the Owner is the Annuitant, then only one
Beneficiary may be named and such Beneficiary is an Owner's
Beneficiary.
You choose the beneficiary in the application for this Contract. The
Owner's Beneficiary may be changed while the Owner is alive. The
Annuitant's Beneficiary may be changed while the Annuitant is alive.
A Beneficiary may be named irrevocably, in which case a change can be
made later only with the Beneficiary's written consent. We will not
require such Beneficiary's consent for withdrawals.
If a Beneficiary does not survive the Owner or Annuitant, as
applicable, the estate or heirs of such Beneficiary have no rights
under the Contract. If no Beneficiary survives the Owner or Annuitant,
payment will be made to the Owner, and if the Owner is not living, to
the Owner's estate.
- 5 -
SPECIMEN
<PAGE> 6
7.2 ASSIGNMENT: This Contract may not be assigned as collateral or as
security for a loan. You may assign this Contract, other than as
collateral or as security for a loan, before the Annuity Date, but we
will not be bound by an assignment unless it is in writing and we have
received it. Your rights and those of any other person referred to in
this Contract will be subject to the assignment. We assume no
responsibility for the validity of any assignment.
No amounts payable under this Contract to a payee other than you may be
assigned by that payee, nor will they be subject to the claims of
creditors or to legal process, except to the extent permitted by law.
7.3 NOTICES, CHANGES AND CHOICES: To be effective, all notices, changes and
choices you make under the Contract must be signed, or in a form that
we require and received by us at our home office. This includes
withdrawal requests.
We are not responsible for the validity of such notices, changes or
choices. When recorded by us, notices, changes and choices relating to
beneficiaries will take effect as of the date signed unless we have
already acted in reliance on the prior status.
We will mail a notice to you at least 45 days, but not more than 75
days, prior to the Renewal Date of the Sub-Account. This notice will
inform you that we require notification from you in writing within 30
days prior to the Renewal Date if you wish to receive a withdrawal from
that Sub-Account without a Market Value Adjustment or Withdrawal Charge
as of the Renewal Date. See Section 6.2.
7.4 MISSTATEMENT OF AGE OR SEX: If the age or sex of an Annuitant or a
Co-Annuitant is misstated, annuity paymen will be adjusted to reflect
the correct age and sex. Any amount we have overpaid as the result of
such misstatement will be deducted from the next payments due under the
Contract. Interest on the overpayment will be charged at the rate of 6%
per year. Any amount we have underpaid will be paid in full with the
next payment due under the Contract. We will pay interest on the
underpayment at the rate of 6% per year.
7.5 PROOF OF AGE, SEX OR SURVIVAL: We may require satisfactory proof of the
age, sex or survival of any person on whose continued life any payment
under the Contract depends.
7.6 INCONTESTABILITY: We will not contest the Contract.
7.7 THE CONTRACT: The Contract, its attached application and any
endorsements are the entire Contract. It is issued in consideration of
the application and payment of the single premium. Only our President,
a Vice President, Secretary or Assistant Secretary may change the
Contract. Any change must be in writing.
7.8 PAYMENTS: All sums, payable to or by us, are payable at our home
office. We may require return of this Contract prior to making payment.
We may defer payrnents of partial or full withdrawals for up to 6
months.
7.9 REPORTS: Prior to the Annuity Date we will furnish you with a report at
least once each year. It will show your account Value, Sub-Account
Values and Sub-Account guaranteed interest rates.
7.10 COMPLIANCE WITH STATE AND FEDERAL LAW: We reserve the right to change
the provisions of the Contract issued under the Contract to conform to
any applicable law, regulation or ruling issued by a government agency.
Any paid up annuity, cash surrender, or death benefits available under
this Contract are not less than the minimum benefits required by any
statute of the state in which the Contract is delivered.
7.11 ASSURED INTEREST RATE AVAILABILITY: In the event that a current
guaranteed interest rate is not available (i) at the time of transfer,
or (ii) when a Market Value Adjustment is computed (see Section 5.1),
we will apply an interest rate equal to the yield to maturity on
Stripped Treasuries with a maturity date in the same month (or, if
unavailable, the next nearest following month) as that of the Renewal
Date of the Sub-Account to which such transfer is made or to which such
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
that date, the yield to maturity that was published on the most recent
preceding date will be applied.
- 6 -
SPECIMEN
<PAGE> 7
8. PAYMENT AT DEATH OF OWNER OR ANNUITANT
8.1 DEATH PRIOR TO ANNUITY DATE: On the death of any Owner prior to the
Annuity Date, we will pay the Owner's Beneficiary an amount equal to
the greater of the Account Value or the Net Account Value on the date
of death. On the death of the Annuitant prior to the Annuity Date, if
the Owner is not the Annuitant, we will pay the Annuitant's Beneficiary
an amount equal to the greater of the Account Value or the Net Account
Value on the date of death. Subject to Section 8.2 and Section 8.3,
such payments will be made in a lump sum unless an annuity option is
chosen.
8.2 DISTRIBUTION OPTION ON OWNER'S DEATH: Subject to certain exceptions
(see Section 8.3), the death benefit payable on the Owner's death must
be distributed within five years after the date of the Owner's death.
This five year rule does not apply, however, as to any portion of the
Owner's death benefit payment which is payable to or for the benefit of
an "Owner's Beneficiary" and which will be distributed over the life or
life expectancy of such Owner's Beneficiary, provided such
distributions begin within one year of that Owner's death. The Owner's
Beneficiary is the person designated by the Owner as a beneficiary and
to whom ownership of the Contract passes by reason of Owner's death.
8.3 SPOUSAL CONTRACT CONTINUATION OPTION ON OWNER'S DEATH: If the surviving
spouse of the deceased Owner is the Owner's Beneficiary, such spouse
may choose to become the Owner and continue the Contract in force on
the same terms as before the Owner's death. If the Owner and the
Annuitant were the same, the spouse shall thereafter be the Annuitant.
This option is also available if the surviving spouse and the deceased
Owner were Co-Annuitants.
8.4 CONTRACT CONTINUATION OPTION ON ANNUITANT'S DEATH: If the Owner is not
the Annuitant, the Owner may irrevocably choose, prior to the
Annuitant's death and prior to the Annuity Date, to continue the
Contract in force upon the death of the Annuitant prior to the Annuity
Date on the same terms as before such Annuitant's death. Upon the death
of the Annuitant prior to the Annuity Date, the person designated by
the Owner shall thereafter be the Annuitant. This option is not
available if the Owner is not an individual.
8.5 OWNER NOT AN INDIVIDUAL: If the 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 whose life is of primary
importance in affecting the timing or amount of the payout under the
Contract) will be treated as Owner for the purposes of Section 8, and
any change in the primary annuitant will be treated as the death of the
Owner.
8.6 MULTIPLE OWNERS: Where the Contract names more than one Owner, the date
of death of the Owner will be deemed to be the date of the first Owner
to die.
8.7 DEATH AFTER ANNUITY DATE: See Section 10.8.
9. ANNUITY PROVISIONS
9.1 ANNUITY DATE: The Annuity Date must be on the first day of a month. It
may not be later than the first day of the next month after the
Annuitant's 85th birthday. If you have not chosen an Annuity Date, it
will be the first day of the next month after the Annuitant's 75th
birthday. You may change the Annuity Date up to 30 days prior to the
Annuity Date. A MARKET VALUE ADJUSTMENT MAY BE APPLIED ON THE ANNUITY
DATE. SEE SECTION 5.1.
9.2 ANNUITY OPTIONS: If you have not chosen an annuity option, Option 4
will apply with a 10-year guarantee period. You may change options only
up to 30 days prior to the Annuity Date. An option not set forth in the
Contract may be chosen if acceptable to us.
9.3 AMOUNT OF ANNUITY PAYMENTS: Any premium taxes imposed by a state or
other government will be deducted from the Net Account Value at the
Annuity Date. The remaining Net Account Value will be applied to the
annuity option chosen at our current annuity rates, which will be
furnished on request. The rates will assume interest of not less than
3%. They will not be less favorable than those shown in the annuity
tables in this Contract. If on the Annuity Date we then have a more
favorable annuity purchase rate, we will use that rate. The annuity
purchase rate we use shall be at least as favorable to you as that
available in any single premium annuity contract then offered by us to
the same class of annuitants.
The tables show the minimum guaranteed amount of each monthly payment
for each $1,000 so applied, according to age and sex at the Annuity
Date. The tables are based on the 1983 Table "a" projected forward to
1995 for Individual Annuity Valuation, set back one year, with interest
at 3%. See Section 11.
9.4 MINIMUM ANNUITY PAYMENT: If the Net Account Value to be applied at the
Annuity Date is less than $2,000, we may pay such amount in a lump sum.
If any payment would be less than $20, we may change the frequency so
payments are at least $20 each.
- 7 -
SPECIMEN
<PAGE> 8
10. ANNUITY OPTIONS
10.1 OPTION 1 - PAYMENTS OF A FIXED AMOUNT: Equal payments in the amount
chosen will be made until the Net Account Value applied under this
option, adjusted for interest credits and prior annuity payments, is
exhausted. Interest will be credited at the rate at which we offer
this option. The term, over which such payments are made, must be at
least 5 years.
10.2 OPTION 2 - PAYMENTS FOR A FIXED PERIOD: Payments will be made for the
period chosen. The period must be at least 5 years.
10.3 OPTION 3 - LIFE ANNUITY: Payments will be made for the life of the
Annuitant. Payments will cease with the last payment due prior to the
Annuitant's death.
10.4 OPTION 4 - LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS:
Payments will be made for the guaranteed period chosen (10 or 20
years) and as long thereafter as the Annuitant lives.
10.5 OPTION 5 - LIFE ANNUITY WITH GUARANTEED RETURN OF NET ACCOUNT VALUE:
Payments will be made until the sum of the annuity payments equals
the Net Account Value applied under this option, and as long
thereafter as the Annuitant lives.
10.6 OPTION 6 - JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made
during the lifetimes of the Annuitant and a designated second person.
Upon death of one, payments will continue in the same amount for the
life of the other person.
10.7 OPTION 7 - QUALIFIED PLAN OPTION: This option is available only for
tax-qualified plans under Section 401,403, 404, 408 or any similar
provision of the Internal Revenue Code. Annuity 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 annual payment
will be determined by computing the Net Account Value applied on the
Annuity Date, plus interest credits and minus prior annuity payments
to the first day of that calendar year, and dividing 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 the
rate at which we offer this option. The rate will not be less than
3%. On death of the measuring life or lives prior to full
distribution of the Net Account Value (as described above), the
remaining Net Account Value will be paid to the beneficiary in a lump
sum.
10.8 DEATH OF OWNER OR ANNUITANT: If any Owner dies on or after the
Annuity Date, any amounts remaining unpaid will be distributed under
the same method of distribution being used as of the date of the
Owner's death.
On death of an Annuitant who is not the Owner while guaranteed
amounts remain unpaid, the Annuitant's Beneficiary may choose either:
(a) To have the payments continue for the amount or period
guaranteed, or
(b) To receive the present value of the remaining guaranteed
payments in a lump sum.
If a Beneficiary should subsequently die while guaranteed amounts
remain unpaid, the present value of such amounts will be paid in a
lump sum to the estate of such Beneficiary.
Present values will be computed at the interest rate or rates that
were used to compute the amount of the initial annuity payment. The
present value thus obtained will generally be less than the sum of
the remaining guaranteed payments.
10.9 PAYMENT: Except for Option 7, payment will be made on the first day
of each month starting with the Annuity Date, but prior to the
Annuity Date you may choose a less frequent payment interval instead.
The amount of each payment on an annual, semiannual or quarterly
basis will not be less than the monthly payment computed from annuity
tables in this Contract multiplied by the appropriate factor.
<TABLE>
<CAPTION>
ANNUAL SEMIANNUAL QUARTERLY
<S> <C> <C>
11.839 5.963 2.993
</TABLE>
- 8 -
SPECIMEN
<PAGE> 9
11. ANNUITY OPTION TABLES
MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION
OPTION 2 (Payments for a Fixed Period)
<TABLE>
<CAPTION>
Years Each Years Each Years Each Years Each
Payable Payment Payable Payment Payable Payment Payable Payment
<S> <C> <C> <C> <C> <C> <C> <C>
5 17.91 9 10.53 13 7.71 17 6.23
6 15.14 10 9.61 14 7.26 18 5.96
7 13.16 11 8.86 15 6.87 19 5.73
8 11.68 12 8.24 16 6.53 20 5.51
</TABLE>
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years Guaranteed)
and OPTION 5 (Return of Net Account Value Guaranteed)
<TABLE>
<CAPTION>
*Adjusted Life 10 Years 20 Years Return of Net *Adjusted Life 10 Years 20 Years Return of Net
Male Age Annuity Guaranteed Guaranteed Account Value Female Age Annuity Guaranteed Guaranteed Account Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
56 4.62 4.56 4.34 4.37 56 4.19 4.16 4.06 4.05
57 4.72 4.65 4.41 4.45 57 4.27 4.24 4.12 4.12
58 4.83 4.75 4.47 4.53 58 4.35 4.32 4.19 4.19
59 4.94 4.85 4.54 4.61 59 4.44 4.40 4.25 4.26
60 5.06 4.95 4.60 4.70 60 4.54 4.49 4.32 4.34
61 5.19 5.01 4.67 4.80 61 4.64 4.58 4.39 4.42
62 5.33 5.19 4.73 4.90 62 4.74 4.68 4.46 4.50
63 5.47 5.31 4.80 5.00 63 4.86 4.79 4.53 4.59
64 5.63 5.44 4.86 5.11 64 4.98 4.90 4.60 4.69
65 5.80 5.58 4.92 5.23 65 5.11 5.01 4.67 4.79
66 5.98 5.72 4.98 5.35 66 5.25 5.14 4.74 4.89
67 6.17 5.86 5.04 5.48 67 5.40 5.27 4.82 5.00
68 6.37 6.02 5.10 5.61 68 5.55 5.40 4.89 5.12
69 6.59 6.18 5.15 5.75 69 5.72 5.55 4.95 5.25
70 6.82 6.34 5.20 5.90 70 5.91 5.70 5.02 5.38
71 7.07 6.50 5.24 6.06 71 6.11 5.86 5.08 5.52
72 7.34 6.67 5.28 6.22 72 6.32 6.03 5.14 5.66
73 7.62 6.85 5.32 6.39 73 6.56 6.20 5.19 5.82
74 7.92 7.02 5.35 6.57 74 6.81 6.38 5.24 5.99
75 8.24 7.20 5.38 6.76 75 7.08 6.57 5.29 6.16
76 8.58 7.38 5.40 6.97 76 7.37 6.76 5.33 6.35
77 8.95 7.55 5.42 7.17 77 7.69 6.96 5.36 6.55
78 9.35 7.72 5.44 7.39 78 8.03 7.16 5.39 6.75
79 9.77 7.89 5.46 7.63 79 8.40 7.36 5.41 6.98
80 10.22 8.06 5.47 7.87 80 8.80 7.56 5.44 7.21
81 10.71 8.22 5.48 8.13 81 9.23 7.75 5.45 7.45
82 11.22 8.37 5.49 8.40 82 9.70 7.94 5.47 7.71
83 11.77 8.51 5.50 8.68 83 10.21 8.13 5.48 7 98
84 12.35 8.65 5.50 8.97 84 10.76 8.30 5.49 8.27
85 12.97 8.77 5.50 9.29 85 11.35 8.46 5.50 8.57
</TABLE>
OPTION 6 (Joint and Survivor Life Annuity)
<TABLE>
<CAPTION>
*Adjusted *Adjusted Male Age *Adjusted
Female Female
Age Age
50 55 60 65 70 75 80 85
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 3.52 3.60 3.66 3.71 3.74 3.76 3.78 3.78 50
55 3.65 3.77 3.87 3.95 4.01 4.05 4.08 4.09 55
60 3.78 3.94 4.10 4.23 4.34 4.41 4.46 4.49 60
65 3.88 4.10 4.33 4.54 4.72 4.86 4.96 5.02 65
70 3.96 4.23 4.54 4.85 5.15 5.40 5.59 5.72 70
75 4.02 4.34 4.72 5.14 5.59 6.01 6.37 6.64 75
80 4.06 4.41 4.85 5.38 5.99 6.63 7.24 7.76 80
85 4.09 4.46 4.94 5.55 6.30 7.17 8.11 9.01 85
</TABLE>
Information for ages not shown will be fumished on request.
* "Adjusted Age" means attained age at last birthday adjusted as follows:
<TABLE>
<CAPTION>
ANNUITY DATE ADJUSTED AGE
<S> <C>
Before 2000 Actual age
2000-2009 Subtract 1 year from actual age
2010-2019 Subtract 2 years from actual age
2020-2029 Subtract 3 years from actual age
2030 and after Subtract 4 years from actual age
</TABLE>
- 9 -
SPECIMEN
<PAGE> 10
ML LIFE INSURANCE COMPANY OF NEW YORK
100 Church Street, 11th Floor, New York, N.Y. 10080-6511
1-800-333-6524
Modified Single Premium Modified Guaranteed Annuity. Death Benefit
Annuity. Death Benefit Before Annuity Date.
Guaranteed Annuity Non-Participating. Account Value Subject to Market Value
Adjustment.
SPECIMEN
<PAGE> 1
ML LIFE INSURANCE COMPANY OF NEW YORK
Qualified Retirement Plan Endorsement
This Endorsement is part of the Contract. This Contract is issued to or
purchased by the trustee of a pension or profit-sharing plan intended to
qualify under section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). The following provisions apply and replace any contrary Contract
provisions:
(1) Except as permitted by the qualified pension or profit-sharing plan
of which this Contract is a part, the Contract may not be
transferred, sold, assigned, discounted or pledged, either as
collateral for a loan or as security for the performance of an
obligation or for any other purpose, to any person other than the
ML Life Insurance Company of New York.
(2) This Contract shall be subject to the provisions, terms and
conditions of the qualified pension or profit-sharing plan of which
the Contract is a part. Any payment, distribution or transfer under
this Contract shall comply with the provisions, terms and
conditions of such plan as determined by the plan administrator,
trustee or other designated plan fiduciary. The ML Life Insurance
Company of New York shall be under no obligation either (a) to
determine whether any such payment, distribution or transfer
complies with the provisions, terms and conditions of such plan or
with applicable law, or (b) to administer such plan, including,
without limitation, any provisions required by the Retirement
Equity Act of 1984.
(3) Notwithstanding any provision to the contrary in this Contract or
the qualified pension or profit-sharing plan of which this contract
is a part, the ML Life Insurance Company of New York reserves the
right to amend or modify this Contract or Endorsement to the extent
necessary to comply with any law, regulation, ruling or other
requirement (including changes in the Internal Revenue Code or in
regulation or rulings of the Internal Revenue Service relating to
Qualified Retirement plans) deemed by the ML Life Insurance Company
of New York to be necessary to establish or maintain the qualified
status of such pension or profit-sharing plan.
Such amendments are subject to the approval of the insurance
regulator of the state in which this Contract was issued. ML Life
Insurance Company of New York will promptly provide the Owner with
a copy of such amendment.
(4) If the Net Account Value to be applied at the Annuity Date is less
than $3,500, we may pay such amount in a lump sum.
(5) The Annuity Option tables on the next page shall be substituted for
the Annuity Option Tables set forth in the Contract.
(6) Distributions under the contract must satisfy the minimum
distribution rules of Section 401 (a)(9) of the Internal Revenue
Code, including the incidental death requirement.
Except as otherwise set forth above, this Endorsement is subject to the
exclusions, definitions, and provisions of the Contract.
/s/ Anthony J. Vespa /s/ Barry G. Skolnick
-------------------- ---------------------
President Secretary
SPECIMEN
MLNY-AYQ-991/94
<PAGE> 2
The following tables are substituted for the tables set forth in
Section 11 of the contract to which this endorsement is attached:
ANNUITY OPTION TABLES
MINIMUM GUARANTEED MONTHLY ANNUITY PAYMENT FOR EACH $1,000 APPLIED UNDER OPTION
OPTION 2 (Payments for a Fixed Period)
<TABLE>
<CAPTION>
Years Each Years Each Years Each
Payable Payment Payable Payment Payable Payment
- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
6 15.14 11 8.86 16 6.53
7 13.16 12 8.24 17 6.23
8 11.68 13 7.71 18 5.96
9 10.53 14 7.26 19 5.73
10 9.61 15 6.87 20 5.51
</TABLE>
OPTION 3 (Life Annuity), OPTION 4 (Life Annuity with 10 or 20 Years
Guaranteed) and OPTION 5 (Return of Net Account Value Guaranteed)
<TABLE>
<CAPTION>
*Adjusted Life 10 Years 20 Years Return of Net
Age Annuity Guaranteed Guaranteed Account Value
--- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
50 3.97 3.94 3.87 3.85
51 4.03 4.01 3.92 3.90
52 4.10 4.07 3.97 3.96
53 4.17 4.14 4.03 4.02
54 4.25 4.21 4.09 4.08
55 4.33 4.28 4.15 4.14
56 4.41 4.36 4.21 4.21
57 4.50 4.45 4.27 4.28
58 4.59 4.54 4.34 4.36
59 4.69 4.63 4.40 4.44
60 4.80 4.73 4.47 4.52
61 4.92 4.83 4.54 4.61
62 5.04 4.94 4.60 4.70
63 5.17 5.05 4.67 4.80
64 5.31 5.17 4.74 4.90
65 5.45 5.30 4.81 5.01
66 5.61 5.43 4.87 5.12
67 5.78 5.57 4.94 5.24
68 5.96 5.72 5.00 5.37
69 6.16 5.87 5.06 5.50
70 6.36 6.03 5.12 5.64
71 6.59 6.19 5.17 5.79
72 6.83 6.36 5.22 5.94
73 7.08 6.54 5.26 6.10
74 7.36 6.71 5.30 6.28
75 7.65 6.90 5.34 6.46
76 7.97 7.08 5.37 6.65
77 8.31 7.27 5.40 6.86
78 8.68 7.46 5.42 7.07
79 9.08 7.64 5.44 7.30
80 9.50 7.82 5.46 7.54
81 9.96 8.00 5.47 7.79
82 10.45 8.17 5.48 8.05
83 10.98 8.33 5.49 8.33
84 11.54 8.49 5.50 8.62
85 12.15 8.63 5.50 8.93
</TABLE>
OPTION 6 (Joint and Survivor Life Annuity)
<TABLE>
<CAPTION>
*ADJUSTED
AGE OF 50 55 60
ANNUITANT 100% 2/3 100% 2/3 100% 2/3
- ------------ ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
50 3.54 3.81 3.65 3.96 3.74 4.12
55 3.79 4.13 3.93 4.32
60 4.13 4.55
65
70
75
80
85
<CAPTION>
*ADJUSTED
AGE OF 65 70 75
ANNUITANT 100% 2/3 100% 2/3 100% 2/3
- ------------ ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
50 3.81 4.30 3.86 4.49 3.90 4.69
55 4.05 4.53 4.14 4.76 4.21 5.00
60 4.31 4.81 4.46 5.09 4.58 5.39
65 4.58 5.13 4.82 5.48 5.03 5.85
70 5.19 5.92 5.54 6.41
75 6.06 7.04
80
85
<CAPTION>
*ADJUSTED *ADJUSTED
AGE OF 80 85 AGE OF
ANNUITANT 100% 2/3 100% 2/3 ANNUITANT
- ------------ ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
50 3.93 4.90 3.94 5.10 50
55 4.26 5.25 4.29 5.49 55
60 4.67 5.69 4.73 5.97 60
65 5.19 6.23 5.30 6.60 65
70 5.82 6.91 6.04 7.40 70
75 6.55 7.72 6.94 8.40 75
80 7.30 8.63 7.98 9.59 80
85 9.06 10.91 85
</TABLE>
Information for ages not shown will be furnished on request.
*"Adjusted Age" means attained age at last birthday adjusted as follows:
<TABLE>
<S> <C>
Annuity Date Adjusted Age
Before 2000 Actual age
2000-2009 Subtract 1 year from actual age
2010-2019 Subtract 2 years from actual age
2020-2029 Subtract 3 years from actual age
2030 and after Subtract 4 years from actual age
</TABLE>
The above tables are based on the 1983 Table "a" projected forward to
1995 for Individual Annuity Variation (set back one year) blended 50% male and
50% female with interest at 3%.
<PAGE> 1
December 7, 1994
Board of Directors
ML Life Insurance Company
of New York
100 Church Street, 11th Floor
New York, New York 10080-6511
Ladies and Gentlemen:
In my capacity as General Counsel of ML Life Insurance Company of New York
("Company"), I have supervised the preparation of the registration statement
for the ASSET I modified guaranteed annuity contract ("Contract") to be filed
by the Company with the Securities and Exchange Commission under the Securities
Act of 1933.
I am of the following opinion:
(1) The Company was organized in accordance with the laws of the
State of New York and is a duly authorized stock life
insurance company under the laws of New York and the laws of
those states in which the Company is admitted to do business;
(2) The Company is authorized to issue the Contracts in those
states in which it is admitted and upon compliance with
applicable local law;
(3) The Contracts, when issued in accordance with the prospectus
contained in the aforesaid registration statement and upon
compliance with applicable local law, will be legal and
binding obligations of the Company in accordance with their
terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the aforesaid
registration statement and to the reference to me under the caption "Legal
Matters" in the prospectus contained in said registration statement.
Sincerely,
/s/ Barry G. Skolnick
Barry G. Skolnick
Senior Vice President and
General Counsel
<PAGE> 1
[Letterhead]
CONSENT OF SUTHERLAND, ASBILL & BRENNAN
We consent to the reference to our firm under the heading
"Legal Matters" in the prospectus included in Post-Effective Amendment No. 3
to the Registration Statement on Form S-1 (File No. 60288) for certain modified
guaranteed annuity contracts issued by ML Life Insurance Company of New York.
In giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
/s/ Sutherland, Asbill & Brennan
SUTHERLAND, ASBILL & BRENNAN
Washington, D.C.
December 5, 1994
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to Registration
Statement No. 33-60288 of ML Life Insurance Company of New York of our report
dated February 28, 1994 appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Deloitte & Touche
New York, New York
December 7, 1994
