<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
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.
KIMBERLY J. SMITH, ESQ.
SUTHERLAND, ASBILL & BRENNAN LLP
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 Nos. 33-34562 and 33-60288.
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
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Modified Guaranteed Annuity
Contracts.................... * * $50,000,000** $14,750**
</TABLE>
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* The maximum aggregate offering price is estimated solely for the purpose of
determining the registration fee. The amount to be registered and the
proposed maximum offering price per unit are not applicable since these
securities are not issued in predetermined amounts or units.
** Amounts previously registered in connection with File Nos. 33-34562 and
33-60288 were $120,000,000 and $150,000,000, respectively.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
MAY 1, 1998
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, AND A WITHDRAWAL
CHARGE.
THE PURCHASE OF THIS CONTRACT INVOLVES CERTAIN RISKS. BECAUSE IT IS A MODIFIED
GUARANTEED ANNUITY, THE CONTRACT IS SUBJECT TO A MARKET VALUE ADJUSTMENT IF,
PRIOR TO THE END OF A SELECTED GUARANTEE PERIOD, FUNDS ARE WITHDRAWN OR THE
CONTRACT IS SURRENDERED, THE CONTRACT IS ANNUITIZED OR A DEATH BENEFIT BECOMES
PAYABLE. OTHER THAN IN CERTAIN SITUATIONS, SUCH AS PAYMENT OF A DEATH BENEFIT, A
MARKET VALUE ADJUSTMENT COULD HAVE THE EFFECT OF DECREASING THE ACCOUNT VALUE.
THEREFORE, UNDER ANY OF THE CONDITIONS DESCRIBED ABOVE, CONTRACT OWNERS COULD
LOSE A SUBSTANTIAL PORTION OF THE MONEY THEY HAVE INVESTED. CONTRACT OWNERS
SHOULD CONSIDER THEIR INCOME NEEDS BEFORE PURCHASING A CONTRACT.
ALL WITHDRAWALS FROM AND SURRENDERS OF A CONTRACT ARE SUBJECT TO TAX, AND IF
TAKEN BEFORE AGE 59 1/2, MAY ALSO BE SUBJECT TO A 10% FEDERAL PENALTY TAX.
CONTRACT OWNERS SHOULD NOTE THAT THIS IS AN INTEGRATED ANNUITY CONTRACT FOR
INTERNAL REVENUE CODE PURPOSES. THEREFORE, IN DETERMINING THE EXTENT TO WHICH A
WITHDRAWAL IS SUBJECT TO TAX, THE ENTIRE ACCOUNT VALUE, NOT JUST THE VALUE OF
THE SUBACCOUNT FROM WHICH THE WITHDRAWAL IS MADE, WILL BE TAKEN INTO
CONSIDERATION.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS........................................................... 3
CAPSULE SUMMARY OF THE CONTRACT....................................... 5
ML LIFE INSURANCE COMPANY OF NEW YORK................................. 7
DESCRIPTION OF THE CONTRACT........................................... 7
A. GENERAL..................................................... 7
B. PREMIUMS.................................................... 7
C. SELECTING THE GUARANTEE PERIOD.............................. 7
D. SUBACCOUNT AND ACCOUNT VALUES............................... 8
E. SUBACCOUNT TRANSFERS........................................ 8
F. FIXING GUARANTEED INTEREST RATES............................ 9
G. WITHDRAWALS................................................. 9
H. MARKET VALUE ADJUSTMENT..................................... 10
I. WITHDRAWAL CHARGE........................................... 11
J. PAYMENT ON DEATH............................................ 13
K. ANNUITY PROVISIONS.......................................... 14
L. OTHER PROVISIONS............................................ 16
DISTRIBUTION OF THE CONTRACTS......................................... 17
FEDERAL TAX CONSIDERATIONS............................................ 17
PREMIUM TAXES......................................................... 23
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 PROVISIONS............ 24
MORE INFORMATION ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK.......... 24
A. HISTORY AND BUSINESS........................................ 24
B. SELECTED FINANCIAL DATA..................................... 25
C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 25
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......... G-1
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 10.)
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 last day of each
current Guarantee Period, which is also the first day of any new Guarantee
Period to which subaccount value is transferred. Interest will be credited to
the current Guarantee Period until the business day prior to the Renewal Date.
Interest will be credited to any Guarantee Period to which subaccount value is
transferred beginning as of the Renewal Date.
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 the 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 timely 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. In those jurisdictions
that do not allow an insurance company to reduce its current taxable premium
income by the amount of any withdrawal, surrender or death benefit paid, ML of
New York will also deduct a charge for these taxes on any withdrawal, surrender
or death benefit effected under a Contract.
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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 11 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 ($3,500 for certain qualified Contracts), ML of New York may pay the
net account value in a lump sum in lieu of annuity payments. For tax
consequences of a lump sum payment, see "Federal Tax Considerations--Partial
Withdrawals and Surrenders" on page 19. If any annuity payment would be less
than $20, ML of New York may change the frequency of payments to intervals that
will result in payments of at least $20.
PAYMENT ON DEATH
If either the contract owner or the annuitant (if other than the owner) dies
prior to the annuity date, ML of New York will pay to the contract owner's
beneficiary or annuitant's beneficiary, as applicable, the greater of the
account value or the net account value on the date of death plus interest until
the date of payment at an annual rate determined by ML of New York from time to
time. In determining the net account value, no withdrawal charge will be
applied.
If the contract owner dies after the annuity date, any amounts remaining unpaid
will be paid to the contract owner's beneficiary pursuant to the same method of
distribution in force at the date of death. If the annuitant dies after the
annuity date, the annuitant's beneficiary may choose either to have any
guaranteed amounts remaining unpaid continue to be paid for the amount or period
guaranteed or to receive the present value of the remaining guaranteed payments
in a lump sum.
WITHDRAWALS
The contract owner may withdraw all or part of the net account value prior to
the earlier of the annuity date or the death of the annuitant. For partial
withdrawals, the amount withdrawn must be at least $500, the remaining
subaccount value, after adjustment for any Market Value Adjustment and
withdrawal charge, must be at least $1,000, and the remaining account value must
be at least $5,000. Withdrawals from qualified plans may be restricted. (See
"Qualified Plans" on page 21.) Withdrawals are subject to tax and prior to age
59 1/2 may also be subject to a 10% federal penalty tax. (See "Federal Tax
Considerations" on page 17.)
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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.
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
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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 10 and "Withdrawal Charge" on page 11.) Withdrawals may have
federal income tax consequences, including a 10% penalty on amounts withdrawn.
(See "Federal Tax Considerations" on page 17.)
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. 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
On each subaccount's Renewal Date, 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. The amount transferred will be credited
with the interest rate in effect on the Renewal Date for the subaccount to which
the amount is transferred. 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 Renewal Date. Prior to
the Renewal Date, 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. Under
current administrative procedures, if instructions are not received by the fifth
business day after the Renewal Date, 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 14.)
The Maximum Guarantee Period Option may be selected at any time until the fifth
business day after the Renewal Date. If it has been chosen, as of the Renewal
Date 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
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annuity date. For example, assume that the Maximum Guarantee Period Option is
chosen, that a transfer occurs on March 1, 1999, that the contract owner's
annuity date is on August 1, 2004, 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, 2004. If, however, the
longest Guarantee Period in which the contact owner's account value is invested
is six years or more, the subaccount value will be transferred to a subaccount
with a five year Guarantee Period (or, if ML of New York is not then offering a
five year Guarantee Period, the longest Guarantee Period of less than five years
then offered by ML of New York) since a subaccount with a Guarantee Period of
six years would end after August 1, 2004. 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
are subject to tax, and prior to age 59 1/2 may also be subject to a 10% federal
penalty tax. (See "Federal Tax Considerations" on page 17.) 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
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<PAGE> 11
made. Immediately after a partial withdrawal, the subaccount value will equal
the subaccount value prior to the withdrawal, plus or minus any applicable
Market Value Adjustment, minus any applicable withdrawal charge, and minus the
amount withdrawn. In the case of a request to withdraw the entire amount from a
subaccount, the contract owner receives the net subaccount value (which reflects
any adjustments to the subaccount value for the withdrawal charge and Market
Value Adjustment applied in connection with such withdrawal). Upon such full
withdrawal, the subaccount value is reduced by the amount withdrawn as well as
any applicable withdrawal charge, and the Market Value Adjustment is applied,
thereby reducing the subaccount value to zero. (See "Market Value Adjustment"
below and "Withdrawal Charge" on page 11.) 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 Renewal Date, 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. 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.
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<PAGE> 12
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 4.75
years, the interpolated guaranteed interest rate will be equal to the sum of
one-fourth of the four year rate and three-fourths of the five year rate. If the
four year rate were 4.8% and the five year rate were 5.0%, the interpolated rate
would be 4.95% (4.8% times .25 plus 5.0% times .75).
The Market Value Adjustment is determined from the following formula:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1 + B n/365
A X [ 1- ( ------- ) ]
1 + C
</TABLE>
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
1,734 days (4.75 years) remaining in the Guarantee Period and a guaranteed
interest rate of 4.7%. Assume also that the current guaranteed interest rates
for Guarantee Periods of 4 and 5 years are 4.8% and 5%, respectively. "B" is
equal to 4.95%, the sum of 5% times .75 and 4.8% times .25. To calculate the
Market Value Adjustment, ML of New York divides the sum of 1.00 and "B," 1.0495,
by the sum of 1.00 and the guaranteed interest rate for the affected subaccount,
1.047. The resulting figure, 1.0023878, is then taken to the "n"/365 power, or
4.75 (1,734/365), which is 1.0113929. 1.0113929 is subtracted from 1.00 and the
resulting figure, -.0113929, is multiplied by the amount of the withdrawal,
$20,000, to give -$227.86. 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 4.45%, instead of 4.95%, the Market Value
Adjustment would have been +$225.83, 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 6%, 7% and 8%, the
Market Value Adjustment would have been -$1,207.33, -$2,174.62, and -$3,176.40,
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 -$119.60 or
- -$71.68, respectively. Tables showing the impact of the Market Value Adjustment
and withdrawal charge on hypothetical contracts are set forth in the Appendix.
I. WITHDRAWAL CHARGE
A withdrawal charge is imposed if the contract owner makes a withdrawal from a
subaccount other than at the Renewal Date of a subaccount where prior written
notice is received at ML of New York's Home Office. Subject to the maximum
charges described below, the withdrawal charge is equal to one-half of the
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<PAGE> 13
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>
FACTOR
CONTRACT YEAR ------
<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 5%, the
other with a Guarantee Period of three years and a guaranteed interest rate of
4.75%, 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 22.5% and that the adjustment
applied to the three year Guarantee Period operates to reduce its value by 10%.
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 $900 (22.5% of $4,000) and the
withdrawal charge of $100 (.05% 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, $300 (10% of $3,000), and the withdrawal charge, $71.25
(4.75% divided by 2 times $3,000), resulting in a remaining subaccount value of
$1,628.75 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 (4.75% divided by 2, or 2.375%). The withdrawal charge,
therefore, would be $30 (1% of $3,000).
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<PAGE> 14
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. If no annuity option is chosen by
the 60th day following receipt of the certified death certificate, ML of New
York reserves the right to automatically pay the death benefit in a lump sum.
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" on page 14.) 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> 15
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. Premium taxes imposed by states and local
jurisdictions currently range from 0% to 5% depending on the tax treatment of
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 by New
York 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. ML of
New York currently permits contract owners to select an annuity date that is any
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 (or by telephone, once a proper authorization form is
submitted to the 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 17.)
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.
14
<PAGE> 16
*JOINT AND SURVIVOR LIFE ANNUITY: Payments will be made during the lifetimes of
the annuitant and a designated second person. Payments will continue as long as
either is living.
QUALIFIED PLAN OPTION: This option is available only under qualified Contracts
issued in connection with plans qualified under Section 401(a), 403, 404, 408 or
457 of the Internal Revenue Code. Payments may be based on (a) the life
expectancy of the annuitant, (b) the joint life expectancy of the annuitant and
his or her spouse, or (c) the life expectancy of the surviving spouse if the
annuitant dies before the annuity date. Payments will be made annually. Each
payment will be equal to the net account value as of the annuity date, plus
credited interest and minus aggregate annuity payments previously made, in each
case as of the first day of that calendar year, divided by the applicable
current life expectancy, as defined by Internal Revenue Service regulations.
Each subsequent payment will be made on the anniversary of the annuity date.
Interest will be credited at ML of New York's then current rate for this option.
The rate will not be less than that shown in the Contract. On death of the
measuring life or lives, any unpaid net account value will be paid to the
beneficiary in a lump sum.
*THESE OPTIONS ARE LIFE ANNUITIES UNDER WHICH IT IS POSSIBLE FOR THE CONTRACT
OWNER TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE ANNUITANT (OR THE ANNUITANT AND
A DESIGNATED SECOND PERSON) DIES AFTER THE FIRST PAYMENT, OR TO RECEIVE ONLY TWO
ANNUITY PAYMENTS IF THE ANNUITANT (OR 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 19.)
Annuity Rates. Annuity rates will be no less favorable than those shown in the
annuity tables contained in the Contract. Those tables show the minimum
guaranteed amount of each monthly payment for each $1,000 applied according to
the age and sex of the annuitant at the annuity date. The tables are based on
the 1983 Table "a" 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.
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<PAGE> 17
L. OTHER PROVISIONS
Alternative Guaranteed Interest Rate. In the event that a current guaranteed
interest rate is not offered (i) upon transfer at the end of a Guarantee Period
or (ii) when a Market Value Adjustment is applied, the interest rate used will
be equal to the yield to maturity on Stripped United States Treasury Bills with
a maturity date in the same month (or, if unavailable, the next nearest
following month) as of the Renewal Date of the subaccount to which the transfer
is made or to which a Market Value Adjustment is applied. Such yield to maturity
is defined as the yield to maturity published in The Wall Street Journal
(Eastern Edition) on the date of such transfer or on which such Market Value
Adjustment is applied. If the yield to maturity is not published on such date,
the yield to maturity published on the most recent date immediately preceding
the date of the transfer or on which the Market Value Adjustment is applied will
be used.
Beneficiary. The beneficiary is the person or persons named in the Contract
application to whom payment is to be made upon the death of the contract owner
or annuitant. If the contract owner is not the annuitant, the contract owner may
name one beneficiary to receive payment on death of the contract owner (the
contract owner's beneficiary) and a different beneficiary to receive payment on
the death of the annuitant (the annuitant's beneficiary). The contract owner's
beneficiary must be a natural person. If the contract owner is the annuitant,
the contract owner may name only one beneficiary. Unless a beneficiary has been
irrevocably designated, the contract owner's beneficiary may be changed while
the owner is alive, and the annuitant's beneficiary may be changed while the
annuitant is alive. The change of a beneficiary who was named by the contract
owner irrevocably may only be made with the written 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 20.)
Notices and Elections. Generally, 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. However, a contract owner (and,
once a proper authorization form is submitted to ML of New York's Home Office, a
contract owner's Financial Consultant) may select by telephone the subaccounts
in which the subaccount value at the end of a Guarantee Period is to be invested
and may also select by telephone the subaccounts from which any partial
withdrawals are to be made. 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.
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Free Look Right. When the contract owner receives the Contract, it should be
reviewed carefully to make sure it is what the contract owner intended to
purchase. Generally within ten days after the contract owner receives the
Contract, he or she may return it for a refund. Some states allow a longer
period of time to return the Contract. The Contract must be delivered to ML of
New York's Home Office or to the Financial Consultant who sold it for a refund
to be made. ML of New York will then refund to the contract owner all premiums
paid into the Contract. The Contract will then be deemed void from the
beginning. If a contract owner exercises his or her free look right, that
contract owner may not submit another application with the same annuitant for
ninety days.
Guarantee of Contracts. The federal government or its instrumentalities does
not guarantee the Contracts. ML of New York backs the guarantees associated with
the Contracts.
DISTRIBUTION OF THE CONTRACTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is the principal
underwriter of the Contract. It was organized in 1958 under the laws of the
state of Delaware and is registered as a broker-dealer under the Securities
Exchange Act of 1934. It is a member of the National Association of Securities
Dealers, Inc. ("NASD"). MLPF&S' principal business address is World Financial
Center, 250 Vesey Street, New York, New York 10281.
Contracts are sold by registered representatives (Financial Consultants) of
MLPF&S who are also licensed through Merrill Lynch Life Agency, Inc. ("MLLA"),
as insurance agents for ML of New York. ML of New York has entered into a
distribution agreement with MLPF&S and a companion sales agreement with MLLA
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 2.0% of each premium. In addition, the maximum
compensation paid to the Financial Consultant for each reinvestment through the
tenth Contract Year is 1.8% 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
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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 status of the individual concerned and on ML of New
York's tax status. In addition, certain requirements must be satisfied in
purchasing a qualified Contract with proceeds from a tax qualified plan and
receiving distributions from a qualified Contract in order to continue receiving
favorable tax treatment. Therefore, purchasers of qualified Contracts should
seek competent legal and tax advice regarding the suitability of a Contract for
their situation, the applicable requirements, and the tax treatment of the
rights and benefits of a Contract. The following discussion assumes that
qualified Contracts are purchased with proceeds from and/or contributions under
retirement plans that qualify for the intended special federal income tax
treatment.
TAXATION OF ML OF NEW YORK
ML of New York is taxed as a life insurance company under Part I of Subchapter L
of the Internal Revenue Code. The assets underlying the Contracts will be owned
by ML of New York. The income earned on such assets will be income to ML of New
York.
TAX STATUS OF THE CONTRACT
ML of New York believes that the Contract will be treated as an annuity contract
and that ML of New York will be treated as owning the assets supporting the
Contract for federal income tax purposes. ML of New 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.
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FEDERAL TAXES
a. In General
Section 72 of the Internal Revenue Code governs taxation of annuities in
general. ML of New York believes that a contract owner who is a natural person
generally is not taxed on increases in the value of a Contract until
distribution occurs by withdrawing all or part of the account value (e.g.,
partial withdrawals and surrenders) or as annuity payments under the annuity
option elected. For this purpose, the assignment, pledge, or agreement to assign
or pledge any portion of the account value (and in the case of a qualified
Contract, any portion of an interest in the qualified plan) generally will be
treated as a distribution. The taxable portion of a distribution (in the form of
a single sum payment or an annuity) is taxable as ordinary income. Additionally,
certain transfers of a Contract for less than full and adequate consideration,
such as a gift, will generate tax on the excess of the net account value over
the contract owner's "investment in the contract" (discussed below).
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" 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.
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d. Penalty Tax on Certain Withdrawals
In the case of a distribution pursuant to a non-qualified Contract, there may be
imposed a federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions: (1) made
on or after the date on which the contract owner attains age 59 1/2; (2) made as
a result of death or disability of the contract owner; (3) received in
substantially equal periodic payments over the life or life expectancy of the
contract owner (or joint life or life expectancy of the contract owner and a
designated beneficiary). In certain circumstances, other exceptions may apply.
Other tax penalties may apply to certain distributions under a qualified
Contract.
e. Taxation of Death Benefit Proceeds
Amounts may be distributed from a Contract because of the death of the contract
owner, the annuitant, or the co-annuitant. Generally, such amounts are
includable in the income of the recipient as follows: (1) if distributed in a
lump sum, they are taxed in the same manner as a full surrender of the Contract,
as described above, or (2) if distributed under an annuity option, they are
taxed in the same manner as annuity payments, as described above.
f. Transfers, Assignments, or Exchanges of a Contract
A transfer of ownership of a Contract, the designation of an annuitant, payee or
other beneficiary who is not also the contract owner, or the exchange of a
Contract (or this Contract along with one or more other annuity contracts) for
one or more new annuity contracts may result in certain tax consequences to the
owner that are not discussed herein. 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
Distributions from Contracts generally are subject to withholding for the
contract owner's federal income tax liability. The withholding rate varies
according to the type of distribution and the contract owner's tax status. The
contract owner will generally be provided the opportunity to elect not to have
tax withheld from distributions.
"Eligible rollover distributions" from Section 401(a) plans and Section 403(b)
tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An eligible rollover distribution is the taxable portion of
any distribution from such a plan, except certain distributions such as
distributions required by the Internal Revenue Code or distributions in a
specified annuity form. The 20% withholding does not apply, however, if the
contract owner chooses a "direct rollover" from the plan to another
tax-qualified plan or individual retirement account or annuity.
i. Possible Changes in Taxation
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Contracts could change by legislation
or other means. For instance, the President's 1999 Budget Proposal recommended
legislation that, if enacted, would adversely modify the federal taxation of the
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Contracts. It is also possible that any change could be retroactive (that is,
effective prior to the date of the change). A tax adviser should be consulted
with respect to legislative developments and their effect on the Contract.
j. Other Tax Consequences
As noted above, the foregoing discussion of the federal income tax consequences
under the Contract is not exhaustive and special rules are provided with respect
to other tax situations not discussed in this Prospectus. Further, the federal
income tax consequences discussed herein reflect 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, 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, participants, annuitants and beneficiaries are cautioned that
the rights of any person to any benefits under qualified plans may be subject to
the terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contract. Some retirement plans are subject to distribution
and other requirements that are not incorporated into ML of New York's
administration procedures. Owners, participants, and beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the Contracts comply with applicable law. Following
are brief descriptions of the various types of qualified plans in connection
with which ML of New York will issue a Contract. When issued in connection with
a qualified plan, a Contract will be amended as necessary to conform to the
requirements of the Internal Revenue Code.
H.R. 10 Plans
The Self-Employed Individuals' Tax Retirement Act of 1962, as amended, commonly
referred to as "H.R. 10," permits self-employed individuals to establish
qualified plans for themselves and their employees. In order to establish such a
plan, a plan document, often in prototype form preapproved by the Internal
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
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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.
Earnings in an IRA are not taxed until distribution. IRA contributions are
limited each year to the lesser of $2,000 or 100% of the Owner's adjusted gross
income and may be deductible in whole or in part depending on the individual's
income. The limit on the amount contributed to an IRA does not apply to
distributions from certain other types of qualified plans that are "rolled over"
on a tax-deferred basis into an IRA. Amounts in the IRA (other than
nondeductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% penalty tax.
Simplified Employee Pension (SEP) IRAs
Employers may establish Simplified Employee Pension (SEP) IRAs under Internal
Revenue Code Section 408(k) to provide IRA contributions on behalf of their
employees. In addition to all of the general Code rules governing IRAs, such
plans are subject to certain Internal Revenue Code requirements regarding
participation and amounts of contributions.
SIMPLE IRAs
Beginning January 1, 1997, certain small employers may establish SIMPLE plans as
provided by Section 408(p) of the Internal Revenue Code, under which employees
may elect to defer to a SIMPLE IRA a percentage of compensation up to $6,000 (as
increased for cost of living adjustments). The sponsoring employer is required
to make matching or non-elective contributions on behalf of employees.
Distributions from SIMPLE IRAs are subject to the same restrictions that apply
to IRA distributions and are taxed as ordinary income. Subject to certain
exceptions, premature distributions prior to age 59 1/2 are subject to a 10%
penalty tax, which is increased to 25% if the distribution occurs within the
first two years after the commencement of the employee's participation in the
plan.
Roth IRAs
The Contract is available for purchase by an individual who has separately
established a Roth IRA custodial account with Merrill Lynch, Pierce, Fenner &
Smith Incorporated. Effective January 1, 1998, Section 408A of the Code permits
certain eligible individuals to contribute to a Roth IRA. Contributions to a
Roth IRA, which are subject to certain limitations, are not deductible and must
be made in cash or as a rollover or transfer from another Roth IRA or other IRA.
A rollover from or conversion of an IRA to a Roth IRA may be subject to tax and
other special rules may apply. You should consult a tax adviser before combining
any converted amounts with any other Roth IRA contributions, including any other
conversion amounts from other tax years. Distributions from a Roth IRA generally
are not taxed, except that, once aggregate distributions exceed contributions to
the Roth IRA, income tax and a 10% penalty tax may apply to distributions made
(1) before age 59 1/2 (subject to certain exceptions) or (2) during the five
taxable years starting with the year in which the first contribution is made to
the Roth IRA.
Corporate Pension and Profit Sharing Plans
Section 401(a) of the Internal Revenue Code permits employers to establish
various types of retirement plans for employees. Such retirement plans may
permit the purchase of the Contracts in order to accumulate retirement savings
under the plans. Adverse tax 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. 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 state governments, local governments,
political subdivisions, agencies, instrumentalities and
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certain affiliates of such entities, and certain 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. For a non-governmental Section 457
plan, all account values will generally be subject to the claims of the
employer's creditors and the employee has no rights or vested interest in the
Contract. The employee is only entitled to payment in accordance with the
Section 457 plan provisions, and depending on the terms of the particular plan,
the employer may be entitled to draw on deferred amounts for purposes unrelated
to its Section 457 plan obligations. 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.
In general, all amounts received under a Section 457 plan are taxable and are
subject to federal income tax withholding as wages. An Employer intending to use
the Contracts in connection with a Section 457 plan should seek competent tax
and legal advice.
Restrictions under Qualified Contracts
For qualified plans under Sections 401(a) and 457, the Internal Revenue Code
requires that distributions generally must commence no later than April 1 of the
calendar year following the calendar year in which the contract owner (or plan
participant)(i) reaches age 70 1/2 or (ii) if later, retires, and must be made
in a specified form or manner. If the plan participant is a "5 percent owner"
(as defined in the Internal Revenue Code), distributions generally must begin no
later than April 1 of the calendar year following the calendar year in which the
contract owner (or plan participant) reaches age 70 1/2. For IRAs described in
Section 408, distributions generally must commence no later than April 1 of the
calendar year following the calendar year in which the contract owner (or plan
participant) reaches age 70 1/2.
Other restrictions with respect to the election, commencement, or distribution
of benefits may apply under qualified contracts or under the terms of the plans
in respect of which qualified contracts are issued.
PREMIUM TAXES
Various states, municipalities and jurisdictions impose a premium tax on annuity
premiums when they are received by an insurance company. In other jurisdictions,
a premium tax is paid on the contract value on the annuity date.
ML of New York will pay these taxes when due, and a charge for any premium taxes
imposed by a state, local government or jurisdiction will be deducted from the
contract value on the annuity date. In those jurisdictions that do not allow an
insurance company to reduce its current taxable premium income by the amount of
any withdrawal, surrender or death benefit paid, ML of New York will also deduct
a charge for these taxes on any withdrawal, surrender or death benefit effected
under a Contract. Premium tax rates vary from jurisdiction to jurisdiction and
currently range from 0% to 5%.
Premium tax rates are subject to change by law, administrative interpretations,
or court decisions. Premium tax amounts will depend on, among other things, the
participant's state or jurisdiction of residence, ML of New York's status within
that state or jurisdiction, and the premium tax laws of that state or
jurisdiction. 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 by New
York in the future.
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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 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 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
was held in the ML of New York Variable Life Separate Account. The aggregate
face amount of the reinsured policies assumed by ML of New York was
approximately $700 million.
Information pertaining to contract owner deposits, contract owner account
balances, and capital contributions can be found in ML of New York's financial
statements which are contained herein.
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<PAGE> 26
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 1997, premium payments
for annuity and life insurance products were made principally in New York (88%,
as measured by total contract owner deposits).
ML of New York's life insurance and annuity products are sold only by licensed
agents through MLLA which is a wholly owned subsidiary of MLPF&S, pursuant to a
general agency agreement by and between ML of New York and MLLA. Sales are made
by career life insurance agents whose sole responsibility is the sale and
servicing of insurance, and by Financial Consultants of MLPF&S who are also
licensed as insurance agents. At December 31, 1997, approximately 1,765 agents
of MLLA were authorized to act for ML of New York.
B. SELECTED FINANCIAL DATA
The following selected financial data for ML of New York should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
FOR THE PERIODS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net investment income............... $ 25,465 $ 27,520 $ 29,819 $ 32,679 $ 50,661
Earnings Before Federal Income
Tax............................... $ 14,665 $ 13,809 $ 15,242 $ 7,291 $ 2,400
Net Earnings........................ $ 9,692 $ 9,219 $ 10,064 $ 5,473 $ 1,808
Total Assets........................ $1,138,581 $1,008,067 $1,003,347 $920,722 $1,045,313
Stockholder's Equity................ $ 77,781 $ 84,554 $ 110,779 $ 95,813 $ 92,776
</TABLE>
C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Financial Statements and Notes
to Financial Statements included herein.
Business Environment
ML of New York conducts its business in the life insurance and annuity markets
of the financial services industry. These markets are faced with an increased
strengthening of the regulatory environment with particular emphasis on company
solvency and sales practice monitoring. The legal barriers which have
historically segregated many of the markets in the financial services industry
are being challenged through both legislative and judicial processes. The
distribution channels for life insurance and annuity products are diversifying
and now include banks, full service and discount securities brokers, financial
planners and the internet.
During the third quarter 1997, Congress passed the Taxpayer Relief Act of 1997
(the "Act"). Significant provisions of the Act include a reduction in the
long-term capital gains tax rate, a phased-in increase of the estate tax
exemption and the creation of new non-deductible Individual Retirement Accounts.
The effect of this new legislation improves the competitiveness of other
non-insurance products particularly in the individual retirement market;
however, its impact on insurance sales during 1997 was minimal.
Demographically, the population is aging, which favors life insurance and
annuity products. In particular, management anticipates that markets will expand
for estate planning products and annuities, albeit in a more competitive
environment. However, changes in tax laws that are currently being debated by
Congress and the President of the United States may reduce or eliminate the tax
advantages of certain of these products, resulting in either their reduced
marketability or their obsolescence.
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<PAGE> 27
Summary
ML of New York sells variable and interest sensitive life insurance and annuity
products through Merrill Lynch's retail network of Financial Consultants. ML of
New York competes for Merrill Lynch's clients' life insurance and annuity
business with non-affiliated insurers whose products are also sold through
Merrill Lynch's retail network ("non-proprietary products"), and with insurers
who solicit this business directly. The product lines which ML of New York
offers are focused in the highly competitive market segments of retirement and
estate planning. ML of New York competes in these market segments by integrating
its products into Merrill Lynch's planning-based financial management program.
ML of New York's financial management is based on conservative investment and
liability management and regular monitoring of its risk profile. ML of New York
also seeks to provide superior customer service and financial management to
promote the competitiveness of its products. ML of New York's customer service
centers have established standards of performance that are monitored on a
regular basis. Managers and employees in the customer service centers are
periodically evaluated based on their performance in meeting these standards.
ML of New York has strategically placed its marketing emphasis on the sale of
variable annuities, modified guaranteed annuities and variable life insurance
products. These products are designed to address the retirement and estate
planning needs of Merrill Lynch's clients. The variable annuity product provides
tax deferred savings with the opportunity for diversified investing in a wide
selection of underlying mutual fund portfolios. The modified guaranteed annuity
product provides a guaranteed fixed interest-crediting rate for a period
selected by the contract owner, but imposes a market value adjustment for
withdrawals prior to the expiration of the guarantee period. ML of New York
offers a variable life insurance product which provides life insurance
protection and allows the policyholder to allocate the cash value of the policy
to underlying diversified mutual fund portfolios. The following table summarizes
ML of New York's sales activity for the three years ending December 31, 1997:
<TABLE>
<CAPTION>
PREMIUMS COLLECTED % CHANGE
-------------------- -------------------------
1997 1996 1995 1997 - 1996 1996 - 1995
---- ---- ---- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Variable Annuities:
New Premium................................. $ 91 $21 $18 333% 17%
Internal Tax Free Exchange.................. 10 3 7 233% (57)%
---- --- --- --- ----
101 24 25 321% (4)%
---- --- --- --- ----
Modified Guaranteed Annuities:
New Premium................................. 4 3 19 33% (84)%
Internal Tax Free Exchange.................. 1 2 19 (50)% (89)%
---- --- --- --- ----
5 5 38 0% (87)%
---- --- --- --- ----
Variable Life Insurance.......................... 11 8 5 38% 60%
Other............................................ 0 0 1 0% (100)%
---- --- --- --- ----
Total Premiums......................... $117 $37 $69 216% (46)%
==== === === === ====
New Premium...................................... $106 $32 $43 231% (26)%
Internal Tax Free Exchange.................. 11 5 26 120% (81)%
---- --- --- --- ----
Total Premiums......................... $117 $37 $69 216% (46)%
==== === === === ====
</TABLE>
During 1997, ML of New York's total sales volume increased significantly. New
premiums for all products increased by 231% as compared to a 26% decline during
1996.
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<PAGE> 28
Variable annuity sales increased by 333% during 1997 as compared to 1996. This
compares to a 17% increase in variable annuity sales during 1996 as compared to
1995. Management attributes the increase in variable annuity sales to enhanced
sales efforts related to the December 1996 introduction of five new investment
options managed by three unaffiliated investment advisors. A number of these
mutual fund portfolios generally have aggressive growth investment objectives
and complement the underlying portfolios managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), an indirect subsidiary of Merrill Lynch. To further
complement the existing investment options, ML of New York also introduced an
index fund managed by MLAM.
In addition to the new investment options, management believes that the
generally favorable equity markets over the past three years has also
contributed to the increase in variable annuity sales. During 1997, 1996 and
1995, the Standard & Poor's 500 Composite Stock Price Index has risen 31%, 20%
and 34%, respectively.
During 1996, Merrill Lynch began offering to ML of New York variable annuity
contract owners an asset allocation service. An investment advisor allocates the
participating contract owner's account value among the available underlying
mutual fund portfolios based on the contract owner's investment objectives and
risk tolerance. ML of New York does not receive any financial remuneration from
Merrill Lynch for this service; however, management believes that its
availability has had a positive effect on variable annuity sales volume.
Variable life sales as measured by premiums increased 38% during 1997 as
compared to 1996 and 60% during 1996 as compared to 1995. Management attributes
the continued increase in variable life sales to three factors. The first factor
is Merrill Lynch's planning-based financial management program for individual
investors. Approximately 64% of all financial plans completed contain a
recommendation that the purchase of life insurance may resolve an identified
need. The implementation of these recommendations has, in management's view,
contributed to the growth in variable life premiums. The second factor is the
generally favorable equity markets over the past three years. The third factor
is the addition of the new investment options, described above, which were made
available to variable life contracts during 1997.
Modified guaranteed annuity sales remained low during 1997 which was comparable
to 1996. Sales volume of the modified guaranteed annuity product is reflective
of the current interest rate environment and will generally increase and
decrease in a direct relationship with the increase and decrease in interest
rates. Sales of this product during the three years ending December 31, 1997,
were concentrated during the first half of 1995, generally reflecting higher
interest rates during this period.
During 1997, ML of New York adopted SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 defines comprehensive income as all
non-owner changes in equity during a period. Comprehensive income is reported in
the Statements of Comprehensive Income and is comprised of net earnings, as
reported in the Statement of Net Earnings, and other comprehensive income. Other
comprehensive income is all other non-owner changes in equity excluding net
earnings. Specifically, this includes the period to period change in net
unrealized gains (losses) on investment securities and the related adjustments
to deferred policy acquisition costs, policyholders' liabilities and deferred
income taxes. An explanation of the changes in other comprehensive income for
the years ended 1997 and 1996 is included herein, following the discussion of ML
of New York's results of operations.
Financial Condition
At December 31, 1997, ML of New York's assets were $1.1 billion, or $131 million
higher than the $1.0 billion in assets at December 31, 1996. The increase in
assets is attributable to increases in separate account assets. During 1997,
separate account assets increased $148 million (or 25%) to $740 million. The
increase is attributable to two factors. First, the separate accounts benefited
from strong underlying fund performance associated with the generally rising
equity markets. During 1997, the separate accounts increased $84 million
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<PAGE> 29
due to price appreciation in the underlying funds supporting the variable
products. Second, net cash inflow to the variable products contributed $64
million to the growth in separate account assets.
General account assets decreased $17 million primarily due to the declining
number of fixed-rate contracts in-force and the $15 million dividend payment to
MLIG.
As a result of significantly increased sales during 1997, ML of New York
experienced deposits that exceeded contract owner withdrawals. Deposits for 1997
were $107 million compared to withdrawals of $56 million, resulting in a net
cash inflow from contract owner activity of $51 million.
During 1997, ML of New York continued to concentrate its marketing emphasis on
the sale of variable products, resulting in the migration of assets from the
general account to the separate accounts. As of December 31, 1997 and 1996, ML
of New York's percentage of separate accounts assets to total assets was 65% and
59%, 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 general account investment portfolio. ML
of New York has no mortgage or real estate investments and its investment in
equity securities is significantly below 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.................. 70%
Policy Loans................................................ 25%
Non-Investment Grade Fixed Maturity Securities.............. 3%
Equity Securities........................................... 2%
---
100%
===
</TABLE>
ML of New York's investment in collateralized mortgage obligations ("CMO") and
mortgage backed securities ("MBS") had a carrying value of $36 million as of
December 31, 1997. At December 31, 1997 approximately 86% 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, 1997
approximately $3 million of CMO and MBS securities which had relatively higher
projected cash flow volatility in changing interest rate environments as
compared to the Company's CMO and MBS investment portfolio taken as a whole. 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 that the investor is willing to accept. It is this level of risk that
determines the degree to which the yields on CMO and MBS securities will exceed
the yields that can be obtained from similarly rated corporate securities.
During 1997, ML of New York's three remaining mortgage loans were repaid in
full.
As of December 31, 1997, ML of New York had 3,995 life insurance and annuity
contracts in-force with interest rate guarantees. The estimated average rate of
interest credited on behalf of contract owners was 4.96% during 1997. The
liabilities related to insurance contracts with interest rate guarantees were
supported by invested assets with an estimated effective yield of 7.11% during
1997.
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. ML of New York anticipates funding all its cash requirements
utilizing cash from operations, normal investment maturities and anticipated
calls and repayments, consistent with prior years. As of December 31, 1997, ML
of New York's assets included $214 million of cash, short-term investments and
investment grade publicly traded fixed maturity securities that could be
liquidated if funds were required.
28
<PAGE> 30
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
("GAAP") in two major respects. First, under statutory accounting practices, the
acquisition costs of new business are charged to expense, while under GAAP they
are amortized over a period of time. Second, under statutory accounting
practices, 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 National Association of Insurance Commissioners utilizes the Risk Based
Capital ("RBC") adequacy monitoring system. The RBC calculates the amount of
adjusted capital that a life insurance company should have based upon that
company's risk profile. As of December 31, 1997 and 1996, based on the RBC
formula, ML of New York's total adjusted capital level was well in excess of the
minimum amount of capital required to avoid regulatory action.
ML of New York has developed a comprehensive capital management plan that will
continue to provide appropriate levels of capital for the risks which ML of New
York assumes, but will allow ML of New York to reduce its absolute level of
surplus. In implementing this plan, ML of New York paid dividends to MLIG of $15
million and $35 million during 1997 and 1996, respectively.
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
exceed 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.
The modifications for Year 2000 systems compliance are proceeding according to
plan and are expected to be completed in early 1999. Expenditures on Year 2000
systems compliance are not expected to have a material adverse impact on ML of
New York's financial position in future periods. However, the failure of ML of
New York's service providers to resolve their own processing issues in a timely
manner could result in a material financial risk. ML of New York is in the
process of confirming that its service providers are adequately addressing Year
2000 issues. It is not anticipated at this time that contract owners will
experience negative effects on their investment, or on the services provided in
connection therewith, as a result of Year 2000 transition implementation.
However, there cannot be complete assurance of success, or that interaction with
other service providers will not impair ML of New York's services at that time.
Comprehensive Income
ML of New York recorded comprehensive income of $8.2 million and $8.8 million
for 1997 and 1996, respectively. A discussion of the results of operations and
changes in other comprehensive income follows:
Results of Operations
ML of New York's gross earnings are principally derived from two sources: (i)
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 (ii) the charges imposed on variable life insurance and variable
annuity contracts. The costs associated with acquiring contract owner deposits
are amortized over the period in which ML of New York anticipates holding those
funds. In addition, ML of New York incurs expenses associated with the
maintenance of in-force contracts.
1997 compared to 1996
ML of New York recorded net earnings of $9.7 million and $9.2 million for 1997
and 1996, respectively.
Net investment income and interest credited to policyholders' account balances
for 1997 as compared to 1996 both declined by approximately $2 million. The
reduction in net investment income is primarily attributable to
29
<PAGE> 31
the reduction in fixed rate contracts in-force and stockholder dividend
payments. The decrease in interest credited to policyholders' account balances
is primarily attributable to the reduction in fixed rate contracts in-force.
Additionally, during 1997, certain policyholder reserves were determined to be
in excess of amounts required, resulting in a $1 million reduction to interest
credited.
Net realized investment gains were $1.9 million and $2.2 million during 1997 and
1996, respectively. The decrease is primarily due to credit related losses on
fixed maturity investments during 1997.
Policy charge revenue increased $1.1 million (or 9%) during the current year as
compared to 1996. The increase in policy charge revenue is primarily
attributable to the increase in policyholders' variable account balances. Asset
based charges increased $1.3 million (or 23%) consistent with the growth in the
separate account assets. Non-asset based charges decreased $0.2 million during
1997 as compared to 1996 primarily due to an increase in the number of in-force
variable life policies reaching the end of their deferred policy load collection
period.
The decrease in policy benefits of $0.5 million during 1997 as compared to 1996
is attributable to favorable mortality experienced during 1997.
Reinsurance premium ceded increased $0.3 million to $1.6 million during 1997.
This increase is attributable to the combined effect of the increasing age of
policyholders and increased insurance in-force resulting from the strong equity
markets.
Other Comprehensive Income
ML of New York recorded a $1.5 million decrease in other comprehensive income
during 1997 as compared to a $0.5 million decrease during 1996.
Other comprehensive income is impacted by the change in net unrealized holding
gains (losses) on investment securities and the related adjustments to deferred
policy acquisition costs, policyholders' liabilities and deferred income taxes.
Generally, the most significant factor that impacts net unrealized holding gains
(losses) on investment securities is changes in interest rates. At December 31,
1997, interest rates had decreased by approximately 56 basis points from
December 31, 1996 resulting in a $0.2 million increase in net unrealized holding
gains. However, offsetting this gain was the $2.4 million reversal of prior year
unrealized gains resulting from the disposition of a single preferred stock
investment during 1997. At December 31, 1996, interest rates had increased by
approximately 79 basis points from December 31, 1995. Net unrealized holding
gains (losses) have an inverse relationship to changes in interest rates.
1996 compared to 1995
ML of New York recorded net earnings of $9 million and $10 million for 1996 and
1995, respectively.
Net investment income and interest credited to policyholders' account balances
for 1996 as compared to 1995 have declined by approximately $2 million and $1
million, respectively, resulting in a $1 million decrease in interest spread.
The reduction in net investment income is primarily attributable to the
reduction in fixed rate contracts in-force and the accumulation of cash for and
payment of the stockholder dividend. The decrease in interest credited to
policyholders account balances is primarily attributable to the reduction in
fixed rate contracts in-force.
Net realized investment gains (losses) increased $2 million during 1996 to a
gain of $2 million. This change is primarily attributable to the sale of a
single equity security and normal dispositions of fixed maturity securities
during 1996. Certain credit related dispositions of equity securities and
mortgage loans resulted in realized losses of $1 million during 1995.
The increase in policy benefits of $0.8 million during 1996 as compared to 1995
is attributable to unfavorable mortality experienced during 1996.
Amortization of deferred policy acquisition costs increased $2 million during
1996 as compared to 1995. This change is primarily attributable to the period to
period difference in amortization associated with the
30
<PAGE> 32
retrospective adjustment of deferred policy acquisition costs as a result of
revising the assumptions of estimated future gross profits of certain life and
annuity products.
Other Comprehensive Income
ML of New York recorded a $0.5 million decrease in other comprehensive income
during 1996 as compared to a $4.9 million increase during 1995.
Other comprehensive income is impacted by the change in net unrealized holding
gains (losses) on investment securities and the related adjustments to deferred
policy acquisition costs, policyholders' liabilities and deferred income taxes.
Generally, the most significant factor that impacts net unrealized holding gains
(losses) on investment securities is changes in interest rates. At December 31,
1996, interest rates had increased by approximately 79 basis points from
December 31, 1995. This compares to the approximately 200 basis point decrease
in interest rates from December 31, 1994 to December 31, 1995. Net unrealized
holding gains (losses) have an inverse relationship to changes in interest
rates.
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 1997.
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
approximately $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 certain of its 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's assets must be invested in accordance with applicable state
laws. These laws govern the nature and quality of investments that may be made
by life insurance companies and the percentage of their assets that may be
committed to any particular type of investment. In general, these laws permit
investments, within specified limits and subject to certain qualifications, in
federal, state, and municipal obligations, corporate bonds, preferred or common
stocks, real estate mortgages, real estate and certain other investments. All of
ML of New York's assets, except for separate account assets supporting variable
products, are available to meet its obligations under the Contracts.
ML of New York makes investments in accordance with investment guidelines that
take into account investment quality, liquidity, and diversification, and
invests primarily in investment-grade fixed income assets such as
mortgage-backed securities, collateralized mortgage obligations and corporate
debentures. At December 31, 1997, invested assets consisted of $256 million in
fixed maturity securities available for sale, $88 million in policy loans, and
$5 million in equity securities.
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<PAGE> 33
At December 31, 1997, ML of New York's assets included $214 million of cash,
short-term investments and investment grade publicly traded fixed maturity
securities supporting contract guarantees.
At December 31, 1997, approximately $73 million (approximately 29% of ML of New
York's general account portfolio of fixed maturity securities) was invested in
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, 1997, approximately $10 million (4%) 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 1,800 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
$159,000, $186,000, and $206,000 during the years ended December 31, 1997, 1996,
and 1995, respectively, to MLAM for such services.
Mortgage Loan Servicing and Investment Advisory Agreements
ML of New York has entered into a mortgage loan servicing agreement with Merrill
Lynch, pursuant to which Merrill Lynch provides mortgage servicing and related
accounting services with respect to investments of ML of New York in real
estate, commercial mortgage loans, and mortgage loan participations. ML of New
York paid fees of $2,000, $7,000, and $7,000 during the years ended December 31,
1997, 1996, and 1995, respectively, to Merrill Lynch for such services.
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 $4.3 million, $4.3 million, and $4.4 million during the years
ended December 31, 1997, 1996, and 1995, respectively.
General Agency Agreement
ML of New York has entered into a general agency agreement with 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.
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<PAGE> 34
Commissions paid to MLLA by ML of New York under the general agency agreement
were $4.1 million, $1.3 million, and $2.4 million during the years ended
December 31, 1997, 1996, and 1995, respectively. (See "Distribution of the
Contracts" on page 17.)
I. EMPLOYEES
ML of New York, by special agreement with the New York State Insurance
Department, is required to maintain at its principal office in New York
qualified personnel responsible for directing its daily operations including,
without limitation, general administrative services, record keeping, accounting,
underwriting, claims settlement and marketing. ML of New York has nine such
employees, and the cost of their services is incurred by ML of New York.
Certain officers of ML of New York also perform services for affiliates of ML of
New York, and their salaries are allocated among ML of New York and such
affiliates. (See "Directors and Executive Officers" on page 33.)
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 leases
certain office space in Springfield, Massachusetts from Picknelly Family Limited
Partnership. 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 NAIC.
In addition, ML of New York is subject to regulation under the insurance laws of
other jurisdictions in which it operates. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. ML of New York is required to file the Annual Statement
with supervisory agencies in each of the jurisdictions in which it conducts
business, and its operations and accounts are subject to examination by these
agencies at regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve the
surveillance and financial analysis regarding the solvency 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 27.
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<PAGE> 35
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 7 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> 36
DIRECTORS AND EXECUTIVE OFFICERS
ML of New York's directors and executive officers and their positions with ML of
New York are as follows:
<TABLE>
<CAPTION>
NAME (AGE) POSITION(S) WITH ML OF NEW YORK
---------- -------------------------------
<S> <C>
Anthony J. Vespa (56).............................. Chairman of the Board, President, and Chief Executive
Officer
Joseph E. Crowne, Jr. (51)......................... Director, Senior Vice President, Chief Financial
Officer, Chief Actuary, and Treasurer
Barry G. Skolnick (46)............................. Director, Senior Vice President, General Counsel, and
Secretary
David M. Dunford (49).............................. Director, Senior Vice President, and Chief Investment
Officer
Gail R. Farkas (46)................................ Director and Senior Vice President
Michael P. Cogswell (43)........................... Director, Vice President, and Senior Counsel
Frederick J.C. Butler (56)......................... Director
Robert L. Israeloff (59)........................... Director
Allen N. Jones (55)................................ Director
Cynthia L. Kahn (42)............................... Director
Robert A. King (59)................................ Director
Stanley C. Peterson (53)........................... Director
Irving M. Pollack (80)............................. Director
Robert J. Boucher (52)............................. Senior Vice President, Variable Life Administration
Chi N. Hum (45).................................... Vice President, Administrative Manager, and Assistant
Secretary
</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 ML of New York's indirect parent, Merrill Lynch. From time to
time during 1997, 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 ML of New York'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 MLPF&S. From February 1991 to
February 1994, he held the position of District Director and First Vice
President of MLPF&S.
Mr. Crowne joined ML of New York in June 1991.
Mr. Skolnick joined ML of New York in November 1989. Since May 1992, he has held
the position of Assistant General Counsel of Merrill Lynch and First Vice
President of MLPF&S.
Mr. Dunford joined ML of New York in July 1990.
Ms. Farkas joined ML of New York in August 1995. Prior to August 1995, she held
the position of Director of Market Planning of MLPF&S.
Mr. Cogswell has been with ML of New York since November of 1990.
Mr. Butler joined ML of New York in April 1991.
35
<PAGE> 37
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 1996. Since May 1992, he has been Senior
Vice President of MLPF&S. From June 1992 to May 1995, he served as a director of
ML of New York. 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.
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. In May 1996, he retired from the
position of Vice President for Finance at Marymount College, Tarrytown, New
York, which he had held since February 1991.
Mr. Peterson joined ML of New York in December 1997. Since November 1997, he has
been National Sales Director for MLLA. Prior to November 1997, he held various
positions with MLLA.
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. Boucher joined ML of New York in May 1992.
Mr. Hum joined ML of New York in August 1997. Prior to August 1997, he was an
Assistant Vice President with Smith Barney 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.
EXECUTIVE COMPENSATION
Certain executive officers and directors of ML of New York also perform services
for affiliates of ML of New York, and the salaries of all such individuals are
allocated among ML of New York and such affiliates.
36
<PAGE> 38
COMPENSATION TABLES AND OTHER INFORMATION
The following tables set forth information with respect to the 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, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS (1)
-------------------------- ------------------------
RESTRICTED
STOCK SECURITIES ALL OTHER
NAME AND AWARDS UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS(1) (2)(3)(4) OPTIONS SATION(5)
- ------------------ ---- ------ -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Vespa 1997 $9,280 $46,154 $11,966 696 $1,686
Chairman of the Board, 1996 7,235 29,988 8,263 404 1,019
President and Chief 1995 4,816 21,368 4,840 377 625
Executive Officer
(since February 1994)
</TABLE>
- ---------------
(1) Awards were made in January or February of the succeeding fiscal year for
performance in the year indicated.
(2) Awards were split equally between Restricted Shares and Restricted Units.
All awards have been valued for this table using closing prices of Merrill
Lynch Common Stock on the Consolidated Transaction Reporting System on the
dates of grant of such awards; the closing price on the last trading day
prior to February 1, 1998, the effective date of the grant for performance
in 1997, was $63.25. All of the Restricted Shares and Restricted Units vest
three years following grant and the Restricted Shares are restricted from
transferability for an additional two years after vesting. Restricted Shares
are shares of Merrill Lynch Common Stock that convey to the holder all the
rights of a stockholder except that they are restricted from being sold,
transferred, or assigned for a period of time after they are granted.
Restricted Units are similar to Restricted Shares but are payable in cash at
the end of the three year vesting period and do not convey voting rights.
(3) During the applicable vesting and/or restricted periods, dividends are paid
on Restricted Shares and dividend equivalents are paid on Restricted Units.
Such dividends and dividend equivalents are equal in amount to the dividends
paid on shares of Merrill Lynch 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 26, 1997 is as
follows: Mr. Vespa (304 shares and 304 units--$41,207). These amounts do not
include Restricted Shares and Restricted Units awarded in 1998 for
performance in fiscal year 1997.
(5) Amount shown for 1997 consists of the following: (i) contributions made in
1997 by ML of New York to account of employee under the Merrill Lynch 401(k)
Savings & Investment Plan (including, where applicable, cash payments made
because of limitations imposed by the Internal Revenue Code)--Mr. Vespa
($73); and (ii) allocations made in 1997 by ML of New York to account of
employee under the defined contribution retirement program--Mr. Vespa
($1,613).
37
<PAGE> 39
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
FISCAL OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME YEAR(1) GRANTED FISCAL YEAR ($ PER SHARE) DATE(2) VALUE(3)
---- ------- ---------- ------------ ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Vespa 1997 696 .01% $62.00 1/26/2008 $13,934
</TABLE>
- ---------------
(1) Includes awards made in January 1998 for performance in 1997. Awards made in
January 1997 for performance in 1996 are excluded, which awards were
reflected in ML of New York's Prospectus for the Contracts dated May 1,
1997.
(2) All Stock Options are exercisable as follows: 20% after one year, 40% after
two years, 60% after three years, 80% after four years, and 100% after five
years.
(3) Valued using a modified Black-Scholes option pricing model. The exercise
price of each Stock Option ($62.00) is equal to the average of the high and
low prices on the Consolidated Transaction Reporting System of a share of
Merrill Lynch Common Stock on January 26, 1998, the date of grant. The
assumptions used for the variables in the model were: 28.03% volatility
(which is the volatility of the Merrill Lynch Common Stock for the 36 months
preceding grant); a 5.81% risk-free rate of return (which is the yield as of
the date of grant on a U.S. Treasury Strip (zero-coupon bond) maturing in
February 2008 as quoted in The Wall Street Journal); a 1.29% 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-marketability of employee stock options. The actual gain that executives
will realize on their Stock Options will depend on the future price of the
Merrill Lynch Common Stock and cannot be accurately forecast by application
of an option pricing model.
38
<PAGE> 40
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(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Vespa 0 $0 586 1,848 $27,931 $68,222
</TABLE>
- ---------------
(1) This valuation represents the difference between $67.75, the closing price
on December 26, 1997 on the Consolidated Transaction Reporting System of a
share of Merrill Lynch Common Stock, and the exercise prices of these
options.
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 compensates each director who is not also an officer of ML of New
York a fee of $4,000 annually plus $500 per meeting attended. In addition, ML of
New York reimburses reasonable travel expenses of directors related to their
service as directors of ML of New York. ML of New York paid fees of $6,500 to
Mr. Butler, $7,000 to Mr. Israeloff, $11,000 to Ms. Kahn, $11,000 to Mr. King,
and $7,000 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 1997.
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 LLP 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, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997, 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. 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> 41
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, 1997 and 1996, and the related statements of
earnings, comprehensive income, stockholder's equity, and cash
flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
February 23, 1998
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
- ------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1997 - $250,695; 1996 - $264,341) $ 255,958 $ 269,103
Equity securities, at estimated fair value
(cost: 1997 - $5,830; 1996 - $8,975) 5,029 10,859
Mortgage loans - 2,057
Policy loans on insurance contracts 88,163 85,548
-------------- --------------
Total Investments 349,150 367,567
-------------- --------------
CASH AND CASH EQUIVALENTS 10,063 7,828
ACCRUED INVESTMENT INCOME 5,416 5,952
DEFERRED POLICY ACQUISITION COSTS 30,406 29,272
REINSURANCE RECEIVABLES 429 1,065
OTHER ASSETS 3,405 4,569
SEPARATE ACCOUNTS ASSETS 739,712 591,814
-------------- --------------
TOTAL ASSETS $ 1,138,581 $ 1,008,067
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 307,333 $ 318,567
Claims and claims settlement expenses 2,007 2,572
-------------- --------------
Total policy liabilities and accruals 309,340 321,139
OTHER POLICYHOLDER FUNDS 1,941 1,160
FEDERAL INCOME TAXES - DEFERRED 1,905 626
FEDERAL INCOME TAXES - CURRENT 2,255 2,099
AFFILIATED PAYABLES - NET 3,492 5,026
OTHER LIABILITIES 2,155 1,649
SEPARATE ACCOUNTS LIABILITIES 739,712 591,814
-------------- --------------
Total Liabilities 1,060,800 923,513
-------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 220,000 shares
authorized, issued and outstanding 2,200 2,200
Additional paid-in capital 66,259 72,040
Retained earnings 9,692 9,219
Accumulated other comprehensive income (370) 1,095
-------------- --------------
Total Stockholder's Equity 77,781 84,554
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,138,581 $ 1,008,067
============== ==============
</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, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 25,465 $ 27,520 $ 29,819
Net realized investment gains (losses) 1,947 2,169 (265)
Policy charge revenue 13,064 11,959 10,864
-------------- -------------- --------------
Total Revenues 40,476 41,648 40,418
-------------- -------------- --------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 14,532 16,586 17,375
Market value adjustment expense 232 301 238
Policy benefits (net of reinsurance recoveries: 1997 - $690
1996 - $1,584; 1995 - $917) 781 1,311 528
Reinsurance premium ceded 1,584 1,262 1,227
Amortization of deferred policy acquisition costs 4,119 3,784 1,300
Insurance expenses and taxes 4,563 4,595 4,508
-------------- -------------- --------------
Total Benefits and Expenses 25,811 27,839 25,176
-------------- -------------- --------------
Earnings Before Federal Income Tax Provision 14,665 13,809 15,242
-------------- -------------- --------------
FEDERAL INCOME TAX PROVISION:
Current 2,905 102 1,692
Deferred 2,068 4,488 3,486
-------------- -------------- --------------
Total Federal Income Tax Provision 4,973 4,590 5,178
-------------- -------------- --------------
NET EARNINGS $ 9,692 $ 9,219 $ 10,064
============== ============== ==============
</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 COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
NET EARNINGS $ 9,692 $ 9,219 $ 10,064
-------------- -------------- --------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period (413) (4,206) 23,575
Reclassification adjustment for gains included in net earnings (1,771) (1,858) 294
-------------- -------------- --------------
Net unrealized gains (losses) on investment securities (2,184) (6,064) 23,869
Adjustments for:
Policyholder liabilities (70) 5,380 (13,149)
Deferred policy acquisition costs - - (3,177)
Income tax (expense) benefit related to items of
other comprehensive income 789 240 (2,641)
-------------- -------------- --------------
Other comprehensive income, net of tax (1,465) (444) 4,902
-------------- -------------- --------------
COMPREHENSIVE INCOME $ 8,227 $ 8,775 $ 14,966
============== ============== ==============
</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, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common paid-in Retained Comprehensive stockholder's
stock capital earnings Income equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,200 $ 83,006 $ 13,970 $ (3,363) $ 95,813
Net earnings 10,064 10,064
Other comprehensive income, net of tax 4,902 4,902
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1995 2,200 83,006 24,034 1,539 110,779
Dividend to Parent (10,966) (24,034) (35,000)
Net earnings 9,219 9,219
Other comprehensive income, net of tax (444) (444)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 2,200 72,040 9,219 1,095 84,554
Dividend to Parent (5,781) (9,219) (15,000)
Net earnings 9,692 9,692
Other comprehensive income, net of tax (1,465) (1,465)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,200 $ 66,259 $ 9,692 $ (370) $ 77,781
============= ============= ============= ============= =============
</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
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 9,692 $ 9,219 $ 10,064
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 4,119 3,784 1,300
Capitalization of policy acquisition costs (5,253) (2,134) (4,368)
Amortization, (accretion) and depreciation of investments (239) 1 (434)
Net realized investment (gains) losses (1,947) (2,169) 265
Interest credited to policyholders' account balances 14,532 16,586 17,375
Provision for deferred Federal income tax 2,068 4,488 3,486
Changes in operating assets and liabilities:
Accrued investment income 536 651 751
Claims and claims settlement expenses (565) (329) (1,413)
Federal income taxes - current 156 1,914 15
Other policyholder funds 781 421 (793)
Affiliated payable - net (1,534) 964 (180)
Policy loans on insurance contracts (2,615) (3,475) (4,246)
Other, net 2,306 (3,951) 1,723
-------------- -------------- --------------
Net cash and cash equivalents provided
by operating activities 22,037 25,970 23,545
-------------- -------------- --------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 88,882 155,645 68,736
Maturities of available-for-sale securities 51,060 34,455 38,420
Purchases of available-for-sale securities (120,965) (162,828) (103,568)
Mortgage loans principal payments received 2,057 1,975 -
Sales of mortgage loans - - 3,608
-------------- -------------- --------------
Net cash and cash equivalents provided
by investing activities 21,034 29,247 7,196
-------------- -------------- --------------
</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
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Continued) (Dollars In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ (15,000) $ (35,000) $ -
Policyholders' account balances:
Deposits 106,983 32,158 43,191
Withdrawals (including transfers to/from Separate Accounts) (132,819) (61,934) (77,460)
-------------- -------------- --------------
Net cash and cash equivalents used
by financing activities (40,836) (64,776) (34,269)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,235 (9,559) (3,528)
CASH AND CASH EQUIVALENTS:
Beginning of year 7,828 17,387 20,915
-------------- -------------- --------------
End of year $ 10,063 $ 7,828 $ 17,387
============== ============== ==============
Supplementary Disclosure of Cash Flow Information:
Cash paid to (received from) affiliates for:
Federal income taxes $ 2,749 $ (1,812) $ 1,677
Interest 494 440 447
</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
(DOLLARS IN THOUSANDS)
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 non-participating life insurance and annuity
products which comprise one business segment. The primary
products that the Company currently markets are variable life
insurance, variable annuities, market value adjusted annuities,
and immediate 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 retail network of
Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("MLPF&S"),
a wholly-owned broker-dealer subsidiary of Merrill Lynch & Co.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles and
prevailing industry practices, both of which require
management to make estimates that affect the reported amounts and
disclosure of contingencies in the financial statements. Actual
results could differ from those estimates.
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 policyholders'
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 4.00% - 5.30%
Interest-sensitive deferred annuities 3.65% - 8.23%
Immediate annuities 3.00% - 10.00%
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 claims unreported.
Reinsurance: 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.
The maximum amount of mortality risk retained by the Company is
approximately $500 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 funds
withheld totaling $202 that can be drawn upon for delinquent
reinsurance recoverables.
As of December 31, 1997, the Company had life insurance inforce
that was ceded to other life insurance companies of $154,754.
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. It is reasonably possible that
estimates of future gross profits could be reduced in the future,
resulting in a material reduction in the carrying amount of
deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy acquisition,
underwriting and issuance, that 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. The deferred costs are
amortized in proportion to the estimated future gross profits over
the anticipated life of the acquired insurance contracts utilizing
an interest methodology.
The Company has entered into an assumption reinsurance agreement
with an unaffiliated insurer. 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 related to the reinsurance
agreement for the years ended December 31:
<PAGE>
1997 1996 1995
----------- ----------- -----------
Beginning balance $ 17,151 $ 17,654 $ 14,923
Capitalized amounts 577 577 1,553
Interest accrued 1,651 1,566 2,138
Amortization (2,829) (2,646) (960)
----------- ----------- -----------
Ending balance $ 16,550 $ 17,151 $ 17,654
=========== =========== ===========
The following table presents the expected amortization, net of interest
accrued, 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.
1998 1,228
1999 1,105
2000 994
2001 895
2002 805
Investments: The Company's investments in fixed maturity and equity
securities are classified as available-for-sale securities, which 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 as net realized investment gains
(losses).
For fixed maturity securities, premiums are amortized to the earlier of
the call or maturity date, discounts are accreted to the maturity date,
and interest income is accrued daily. For equity securities, dividends
are recognized on the ex-dividend date. Realized gains and losses on
the sale or maturity of the investments are determined on the basis of
specific identification.
Certain fixed maturity securities are considered non-investment grade.
The Company defines non-investment grade fixed maturity securities as
unsecured debt obligations that do not have a rating equivalent to
Standard and Poor's (or similar rating agency) BBB- or higher.
As of December 31, 1997, the Company has no mortgage loans
outstanding. Mortgage loans were stated at unpaid principal
balances, net of valuation allowances. Such valuation allowances
were based on the decline in value expected to be realized on
mortgage loans that may not be collectible in full. In establishing
valuation allowances, management considered, among other things, the
estimated fair value of the underlying collateral.
The Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may be different from the
accrual interest rate of the loan for certain outstanding mortgage
loans. The Company recognized a realized gain at the date of the
satisfaction of the loan at contractual terms for loans where there
was a difference between the cash payment interest rate and the
accrual interest rate. For all loans, the Company stopped accruing
income when an interest payment default either occurred or was
probable. Impairments of mortgage loans were established as
valuation allowances and recorded to net realized investment gains
or losses.
Policy loans on insurance contracts are stated at unpaid principal
balances.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of Merrill
Lynch & Co. The Company has entered into a tax-sharing agreement with
Merrill Lynch & Co. whereby the Company will calculate its current
tax provision based on its operations. Under the agreement, the
Company periodically remits to Merrill Lynch & Co. its current federal
tax liability.
The Company uses the asset and liability method in providing income
taxes on all transactions that have been recognized in the financial
statements. The asset and liability method requires that deferred
taxes be adjusted to reflect the tax rates at which future taxable
amounts will be settled or realized. The effects of tax rate changes
on future deferred tax liabilities and deferred tax assets, as well
as other changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums and in
substantially all states are exempt from state income taxes.
Separate Accounts: Separate Accounts are established in conformity with
New York State Insurance Law, the Company's domiciliary state, and are
generally not chargeable with liabilities that arise from any other
business of the Company. Separate Accounts assets may be subject to
general claims of the Company only to the extent the value of such
assets exceeds Separate Accounts liabilities.
Assets and liabilities of Separate Accounts, representing net deposits
and accumulated net investment earnings less fees, held primarily for
the benefit of policyholders, are shown as separate captions in the
balance sheets.
Statements of Comprehensive Income: During 1997, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS
No. 130 defines comprehensive income as all non-owner changes in equity
during a period. Comprehensive income is reported in the Statements of
Comprehensive Income included in the financial statements for the years
ended December 31, 1997, 1996 and 1995.
Statements of Cash Flows: For the purpose of reporting cash flows, cash
and cash equivalents include cash on hand and on deposit and short-term
investments with original maturities of three months or less.
Reclassifications: To facilitate comparisons with the current year,
certain amounts in the prior years have been reclassified.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial instruments
as of December 31 were:
1997 1996
-------------- --------------
Assets:
Fixed maturity securities (1) $ 255,958 $ 269,103
Equity securities (1) 5,029 10,859
Mortgage loans (2) - 2,057
Policy loans on insurance contracts (3) 88,163 85,548
Cash and cash equivalents (4) 10,063 7,828
Separate Accounts assets (5) 739,712 591,814
-------------- --------------
Total financial instruments recorded as assets $ 1,098,925 $ 967,209
============== ==============
(1) 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 model, including provision 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, 1997 and 1996, securities without a readily ascertainable
market value, having an amortized cost of $47,064 and $55,323,
had an estimated fair value of $48,188 and $57,018, respectively.
(2) The estimated fair value of mortgage loans approximates
the carrying value.
(3) The Company estimates the fair 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.
(4) The estimated fair value of cash and cash equivalents approximates
the carrying value.
(5) Assets held in Separate Accounts are carried at quoted market values.
<PAGE>
NOTE 3: INVESTMENTS
The amortized cost and estimated fair value of investments in fixed maturity
and equity securities as of December 31 were:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 198,266 $ 4,595 $ 777 $ 202,084
Mortgage-backed securities 34,726 1,135 5 35,856
U.S. government and agencies 13,593 268 11 13,850
Municipals 2,090 90 - 2,180
Foreign governments 2,020 - 32 1,988
------------- ------------- ------------- -------------
Total fixed maturity securities $ 250,695 $ 6,088 $ 825 $ 255,958
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 4,507 $ - $ 34 $ 4,473
Common stocks 1,323 - 767 556
------------- ------------- ------------- -------------
Total equity securities $ 5,830 $ - $ 801 $ 5,029
============= ============= ============= =============
1996
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Fixed maturity securities:
Corporate debt securities $ 212,290 $ 4,743 $ 556 $ 216,477
Mortgage-backed securities 46,204 827 383 46,648
U.S. government and agencies 830 230 - 1,060
Foreign governments 5,017 10 109 4,918
------------- ------------- ------------- -------------
Total fixed maturity securities $ 264,341 $ 5,810 $ 1,048 $ 269,103
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 7,237 $ 2,429 $ 38 $ 9,628
Common stocks 1,738 260 767 1,231
------------- ------------- ------------- -------------
Total equity securities $ 8,975 $ 2,689 $ 805 $ 10,859
============= ============= ============= =============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
----------- -----------
Fixed maturity securities:
Due in one year or less $ 33,356 $ 33,722
Due after one year through five years 113,217 115,861
Due after five years through ten years 51,746 52,536
Due after ten years 17,650 17,983
----------- -----------
215,969 220,102
Mortgage-backed securities 34,726 35,856
----------- -----------
Total fixed maturity securities $ 250,695 $ 255,958
=========== ===========
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 may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
----------- -----------
AAA $ 76,429 $ 78,021
AA 18,804 19,191
A 74,572 75,612
BBB 70,762 73,204
Non-investment grade 10,128 9,930
----------- -----------
Total fixed maturity securities $ 250,695 $ 255,958
=========== ===========
<PAGE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
conjunction with investments classified as available-for-sale. The
Company adjusts those assets and liabilities as if the unrealized
investment gains or losses from securities classified as available-
for-sale had actually been realized, with corresponding credits or
charges reported directly to shareholder's equity. The following
reconciles the net unrealized investment gain (loss) on investment
securities classified as available-for-sale as of December 31:
1997 1996
----------- -----------
Assets:
Fixed maturity securities $ 5,263 $ 4,762
Equity securities (801) 1,884
----------- -----------
4,462 6,646
----------- -----------
Liabilities:
Policyholders' account balances 5,032 4,962
Federal income taxes - deferred (200) 589
----------- -----------
4,832 5,551
----------- -----------
Stockholder's equity:
Net unrealized investment gain (loss) on
investment securities $ (370) $ 1,095
=========== ==========
Proceeds and gross realized investment gains and losses from the sale of
available-for-sale securities for the years ended December 31 were:
1997 1996 1995
----------- ----------- -----------
Proceeds $ 88,882 $ 155,645 $ 68,736
Gross realized investment gains 4,077 2,677 1,709
Gross realized investment losses 2,130 508 1,640
The Company owned investment securities of $1,076 and $1,060 that were
deposited with insurance regulatory authorities at December 31, 1997 and
1996, respectively.
<PAGE>
Net investment income arose from the following sources for the
years ended December 31:
1997 1996 1995
----------- ----------- -----------
Fixed maturity securities $ 19,815 $ 22,153 $ 25,046
Equity securities 761 183 -
Mortgage loans 81 388 686
Policy loans on insurance contracts 4,333 4,133 3,903
Cash and cash equivalents 1,293 1,559 1,103
Other 65 - -
----------- ----------- ------------
Gross investment income 26,348 28,416 30,738
Less investment expenses (883) (896) (919)
----------- ----------- ------------
Net investment income $ 25,465 $ 27,520 $ 29,819
=========== =========== ============
Net realized investment gains (losses), including changes in valuation
allowances, for the years ended December 31:
1997 1996 1995
----------- ----------- ------------
Fixed maturity securities $ (1,268) $ 657 $ 985
Equity securities 3,215 1,512 (916)
Mortgage loans - - (334)
----------- ----------- ------------
Net realized investment gains
(losses) $ 1,947 $ 2,169 $ (265)
=========== =========== ============
The following is a reconciliation of the change in valuation
allowances which have been recorded to reflect other-than-temporary
declines in estimated fair value of mortgage loans for the years ended
December 31, 1995. During 1997 and 1996, there were no valuation
allowances recorded:
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
------------ ------------ ------------ ------------
1995 1,536 - 1,536 -
The Company held no investments at December 31, 1997 which have been
non-income producing for the preceding twelve months.
<PAGE>
NOTE 4: FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income taxes
based on earnings before federal income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes for
the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Provision for income taxes computed at Federal statutory rate $ 5,133 $ 4,833 $ 5,334
State corporate income taxes - (10) (91)
Decrease in income taxes resulting from:
Dividend received deduction (160) (235) (31)
Other - 2 (34)
--------- --------- ----------
Federal income tax provision $ 4,973 $ 4,590 $ 5,178
========= ========= ==========
</TABLE>
The Federal statutory rate for each of the three years in the period
ended December 31, 1997 was 35%.
The Company provides for deferred income taxes resulting from temporary
differences that 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
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 315 $ (259) $ 1,239
Policyholders' account balances (140) 4,053 738
Liability for guaranty fund assessments (50) 50 -
Investment adjustments 1,943 642 1,445
Other - 2 64
--------- --------- ---------
Deferred Federal income tax provision $ 2,068 $ 4,488 $ 3,486
========= ========= =========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 4,364 $ 4,224
Investment adjustments (4) 1,939
Net unrealized investment loss 200 -
--------- ---------
Total deferred tax assets 4,560 6,163
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 6,465 6,150
Liability for guaranty fund assessments - 50
Net unrealized investment gain - 589
--------- ---------
Total deferred tax liabilities 6,465 6,789
--------- ---------
Net deferred tax liability $ 1,905 $ 626
========= =========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
<PAGE>
NOTE 5: RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain accounting, 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 $4,305, $4,258 and $3,968 for 1997, 1996 and
1995 respectively. The Company is allocated interest expense on
its accounts payable to MLIG which approximates the daily
Federal funds rate. Total intercompany interest paid was $64,
$74 and $88 for 1997, 1996 and 1995, 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 Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were $159,
$186 and $206 for 1997, 1996 and 1995, respectively.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
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 $4,130, $1,334 and $2,424 for
1997, 1996 and 1995, respectively. Substantially all of these
commissions 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,
1997 and 1996, the outstanding balance of these loans were
$1,156 and $3,075, respectively. Repayments made on these loans
during 1997, 1996, and 1995 were $1,919, $0 and $1,261,
respectively. Interest was calculated on these loans at LIBOR
plus 150 basis points. Intercompany interest paid on these
loans during 1997, 1996 and 1995 was $359, $366 and $359,
respectively.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
NOTE 6: STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
Notice of intention to declare a dividend must be filed with
the New York Superintendent of Insurance who may disallow the
payment. During 1997 and 1996, the Company paid dividends of
$15,000 and $35,000, respectively, to MLIG. No dividends were
declared or paid during 1995. Statutory capital and surplus at
December 31, 1997 and 1996, was $51,080 and $52,895,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principals 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
income taxes and valuing securities on a different basis. The
Company's statutory net income for 1997, 1996 and 1995 was
$9,888, $12,884 and $3,080, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes 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. As of December 31, 1997, and 1996, based on the
RBC formula, the Company's total adjusted capital level was
649% and 626%, respectively, of the minimum amount of capital
required to avoid regulatory action.
NOTE 7: COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). Based upon the public information available at this
time, management believes the Company has no material financial
obligations to state guaranty associations.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
<PAGE>
<PAGE> 42
NOTE 8. LIFE INSURANCE IN FORCE
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Life Insurance in force................... 894,547 154,754 892,383 1,632,176 55%
</TABLE>
G-20
<PAGE> 43
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 5.3%. Table 2 assumes the premium is allocated to
a subaccount with a 5-year Guarantee Period with a guaranteed rate of 5.0%. The
Market Value Adjustments are based on interpolated current interest rates
(defined in the Contract as "B") of 3.3%, 5.3% and 7.3% in the 10 year guarantee
table and 3.0%, 5.0% and 7.0% 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:
---------------------------------------------------------------------------------------------------------
3.30% 5.30% 7.30%
- -----------------------------------------------------------------------------------------------------------------------------------
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 10,530 1,923 321 12,132 -0- 272 10,258 (1,604) 230 8,695
2 11,088 1,783 332 12,539 -0- 286 10,802 (1,515) 247 9,326
3 11,676 1,628 343 12,960 -0- 301 11,374 (1,408) 265 10,003
4 12,295 1,456 355 13,395 -0- 317 11,977 (1,282) 284 10,728
5 12,946 1,266 367 13,845 -0- 334 12,612 (1,135) 305 11,506
6 13,632 1,057 379 14,310 -0- 352 13,280 (965) 327 12,341
7 14,355 827 392 14,790 -0- 371 13,984 (769) 351 13,236
8 15,116 575 405 15,286 -0- 390 14,725 (544) 376 14,195
9 15,917 302 318 15,901 -0- 312 15,605 (291) 306 15,319
10 16,760 -0- -0- 16,760 -0- -0- 16,760 -0- -0- 16,760
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
MARKET VALUE ADJUSTMENTS, WITHDRAWAL CHARGES AND NET SUBACCOUNT VALUE BASED ON
INTERPOLATED CURRENT INTEREST RATES OF:
---------------------------------------------------------------------------------------------------------
3.00% 5.00% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
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 10,500 818 276 11,041 -0- 256 10,244 (746) 238 9,516
2 11,025 638 284 11,378 -0- 269 10,756 (593) 254 10,178
3 11,576 442 293 11,726 -0- 282 11,294 (419) 272 10,885
4 12,155 230 302 12,083 -0- 296 11,859 (222) 291 11,642
5 12,763 -0- -0- 12,763 -0- -0- 12,763 -0- -0- 12,763
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 44
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>
(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> 45
PART II
INFORMATION NOT REQUIRED IN A PROSPECTUS
<PAGE> 46
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 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
II-1
<PAGE> 47
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.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 3 to Form S-1 Registration No. 33-60288, Filed
December 7, 1994.)
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.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 3 to Form S-1 Registration No. 33-60288, Filed
December 7, 1994.)
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.)
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.)
</TABLE>
II-2
<PAGE> 48
<TABLE>
<S> <C>
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.)
10(k) Mortgage Loan Servicing Agreement Between ML Life Insurance
Company of New York and Merrill Lynch & Co., Inc.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 to Form S-1 Registration No. 33-60288, Filed
March 29, 1995.)
23(a) Written Consent of Sutherland, Asbill & Brennan LLP
23(b) Written Consent of Deloitte & Touche LLP, 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 Francis X. Ervin, Jr. (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 5
to Form S-1 Registration No. 33-60288, Filed March 26,
1996.)
24(g) Power of attorney from Gail R. Farkas (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 5 to
Form S-1 Registration No. 33-60288, Filed March 26, 1996.)
24(h) 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(i) 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(j) Power of attorney from Allen N. Jones (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 6 to
Form S-1 Registration No. 33-60288, Filed March 27, 1997.)
</TABLE>
II-3
<PAGE> 49
<TABLE>
<S> <C>
24(k) 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(l) 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(m) 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(n) 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(o) 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(p) 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.)
24(q) Power of attorney from Stanley C. Peterson.
</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> 50
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plainsboro, State of New
Jersey, on this 30th day of March, 1998.
<TABLE>
<S> <C>
ATTEST: ML LIFE INSURANCE COMPANY OF NEW YORK
(Registrant)
/s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
- ----------------------------------------------------- -------------------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on this 30th day of March, 1998.
<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 Treasurer
Joseph E. Crowne, Jr.
* Director, Senior Vice President, and Chief Investment
- ----------------------------------------------------- Officer
David M. Dunford
* Director and Senior Vice President
- -----------------------------------------------------
Gail R. Farkas
* Director, Vice President, and Senior Counsel
- -----------------------------------------------------
Michael P. Cogswell
* Director
- -----------------------------------------------------
Frederick J.C. Butler
* Director
- -----------------------------------------------------
Robert L. Israeloff
* Director
- -----------------------------------------------------
Allen N. Jones
* Director
- -----------------------------------------------------
Cynthia L. Kahn
* Director
- -----------------------------------------------------
Robert A. King
* Director
- -----------------------------------------------------
Stanley C. Peterson
* Director
- -----------------------------------------------------
Irving M. Pollack
*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> 51
EXHIBIT INDEX
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
5 Opinion of Barry G. Skolnick, Esq. and Consent to its use as
to the legality of the securities being registered..........
23(a) Written Consent of Sutherland, Asbill & Brennan LLP.........
23(b) Written Consent of Deloitte & Touche LLP, independent
auditors....................................................
24(q) Power of attorney from Stanley C. Peterson..................
</TABLE>
<PAGE> 1
EXHIBIT 5
March 30, 1998
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 on
Form S-1 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;
and
(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
EXHIBIT 23(a)
SUTHERLAND, ASBILL & BRENNAN LLP
CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters" in the
prospectus included in the Registration Statement on Form S-1 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 LLP
SUTHERLAND, ASBILL & BRENNAN LLP
Washington, D.C.
March 30, 1998
<PAGE> 1
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of ML Life Insurance
Company of New York on Form S-1 of our report dated February 23, 1998 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 LLP
New York, New York
March 30, 1998
<PAGE> 1
EXHIBIT 24(g)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Stanley C. Peterson, a member of
the Board of Directors of ML Life Insurance Company of New York (the "Company"),
whose signature appears below, constitutes and appoints Barry G. Skolnick and
Michael P. Cogswell, respectively, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all Registration Statements and Amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, under
the Investment Company Act of 1940, where applicable, and the Securities Act of
1933, respectively, with the Securities and Exchange Commission, for the purpose
of registering any and all variable life and variable annuity separate accounts
(collectively "Separate Accounts"), of the Company that may be established in
connection with the issuance of any and all variable life and variable annuity
contracts funded by such Separate Accounts, granting unto said attorney-in-fact
and agent, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done.
Date: /s/ Stanley C. Peterson
----------------------------
Stanley C. Peterson
State of New Jersey )
County of Middlesex )
On the 17th day of March, 1998, before me came Stanley C. Peterson,
Director of ML Life Insurance Company of New York, to me known to be said person
and he signed the above Power of Attorney on behalf of ML Life Insurance Company
of New York.
/s/ Carol ElSayed
----------------------------
[SEAL] Notary Public
