<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1994
REGISTRATION NO. 33-55678
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF THE SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------------------
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
(Exact name of trust)
MERRILL LYNCH LIFE INSURANCE COMPANY
(Name of depositor)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Complete address of depositor's principal executive offices)
------------------------
BARRY G. SKOLNICK, ESQ.
Senior Vice President & General Counsel
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Name and complete address of agent for service)
------------------------
Copy to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, NW
Washington, DC 20004-2404
------------------------
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/X/ on January 26, 1995 pursuant to paragraph (a)(1) of Rule 485
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Check box if it is proposed that the filing will become effective on (date)
at (time) pursuant to Rule 487 / /
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933. The Registrant filed the 24f-2 Notice for the year ended
December 31, 1993 on February 28, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
------------------------
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
------------------------
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 Cover Page
2 Cover Page
3 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Divisions
4 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
5 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life Insurance Company (State Regulation)
6 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (The Separate Account)
7 Not Applicable
8 Experts
9 More About Merrill Lynch Life Insurance Company (Legal Proceedings)
10 Summary of the Contract; Facts About the Contract; More About the Contract; More
About the Separate Account and its Divisions
11 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its Divisions (About
the Separate Account; The Zero Trusts)
12 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its Divisions
13 Summary of the Contract (Loans; Fees and Charges); Facts About the Contract
(Charges Deducted from the Investment Base; Contract Loading; Charges to the
Separate Account; Guarantee Period; Cash Value; Loans; Partial Withdrawals;
Death Benefit Proceeds; Payment of Death Benefit Proceeds; Rights to Cancel;
More About the Contract (Group or Sponsored Arrangements; Merrill Lynch Life's
Income Taxes); More About the Separate Account and its Divisions (Charges to
Series Fund Assets; Charges to Variable Series Funds Assets)
14 Facts About the Contract (Who May Be Covered; Purchasing a Contract; Additional
Payments); More About the Contract (Other Contract Provisions)
15 Summary of the Contract (Availability and Payments); Facts About the Contract
(Purchasing A Contract; Additional Payments); More About the Contract (Income
Plans)
16 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Divisions.
17 Summary of the Contract (Net Cash Surrender Value; Rights to Cancel ("Free Look"
Period) or Convert; Partial Withdrawals); Facts About the Contract (Cash Value;
Partial Withdrawals; Rights to Cancel or Convert); More About the Contract
(Some Administrative Procedures)
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
18 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Divisions
19 More About Merrill Lynch Life Insurance Company
20 Not Applicable
21 Summary of the Contract (Loans); Facts About the Contract (Loans)
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life Insurance Company
26 Not Applicable
27 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life Insurance Company
28 More About Merrill Lynch Life Insurance Company (Directors and Executive
Officers)
29 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S)
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S)
36 Not Applicable
37 Not Applicable
38 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
39 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
40 More About the Contract (Selling the Contracts)
41 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
42 Not Applicable
43 Not Applicable
44 Facts About the Contract; More About the Contract
45 Not Applicable
46 Summary of the Contract; Facts About the Contract (Cash Value; Partial
Withdrawals)
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
47 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its Divisions
48 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life (State Regulation)
49 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; Facts About the Contract (Charges Deducted
from the Investment Base; Contract Loading; Charges to the Separate Account);
More About the Contract (Selling the Contracts)
50 Not Applicable
51 Facts About the Contract; More About the Contract
52 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Investment Divisions
53 More About the Contract (Tax Considerations; Merrill Lynch Life's Income Taxes)
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 More About Merrill Lynch Life Insurance Company (Financial Statements)
</TABLE>
<PAGE> 5
PROSPECTUS
, 1994
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: LITTLE ROCK, ARKANSAS 72201
SERVICE CENTER: P.O. BOX 9025
SPRINGFIELD, MASSACHUSETTS 01102-9025
1414 MAIN STREET, THIRD FLOOR
SPRINGFIELD, MASSACHUSETTS 01104-1007
PHONE: (800) 354-5333
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This Prospectus is for a flexible premium variable universal life insurance
contract (the "Contract") offered by Merrill Lynch Life Insurance Company
("Merrill Lynch Life"), a subsidiary of Merrill Lynch & Co., Inc.
Through the first 14 days following the in force date, the initial payment less
contract loading will be invested only in the division investing in the Money
Reserve Portfolio. Thereafter, the investment base will be reallocated to any
five of the 35 investment divisions of Merrill Lynch Variable Life Separate
Account (the "Separate Account"), the Merrill Lynch Life separate investment
account available under the Contract. The investments available through the
investment divisions include 10 mutual fund portfolios of the Merrill Lynch
Series Fund, Inc., six mutual fund portfolios of the Merrill Lynch Variable
Series Funds, Inc., and 19 unit investment trusts in The Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities. Currently, the contract owner may
change his or her investment allocation as many times as desired.
The Contract provides an estate benefit through life insurance coverage on the
life of the insured. The Contract offers two death benefit options. At the
election of the contract owner, the death benefit may include the Contract's
cash value. Contract owners may purchase additional insurance through an
additional insurance rider, the amount of which may be increased or decreased
subject to certain conditions. Merrill Lynch Life guarantees that the coverage
will remain in force for the guarantee period. Each payment will extend the
guarantee period until such time as the guarantee period extends to the
insured's attained age 100. During this guarantee period, Merrill Lynch Life
will terminate the Contract only if the debt exceeds certain contract values.
After the guarantee period, the Contract will remain in force as long as there
is not excessive debt and as long as the cash value is sufficient to cover the
charges due. While the Contract is in force, the death benefit may vary to
reflect the investment results of the investment divisions chosen, but will
generally never be less than the current face amount or, after the insured's
attained age 100, the post 100 death benefit.
The Contract allows for additional payments. Contract owners may also borrow up
to the total loan value of the Contract, make partial withdrawals or turn in the
Contract for its net cash surrender value. The net cash surrender value will
vary with the investment results of the investment divisions chosen. Merrill
Lynch Life does not guarantee any minimum net cash surrender value.
It may not be advantageous to replace existing insurance with the Contract.
Within certain limits the Contract may be converted to a contract with benefits
that do not vary with the investment results of a separate account.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT MUST BE
ACCOMPANIED BY CURRENT PROSPECTUSES FOR THE MERRILL LYNCH SERIES FUND, INC., THE
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND THE MERRILL LYNCH FUND OF STRIPPED
("ZERO") U.S. TREASURY SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
IMPORTANT TERMS........................................................................ 4
SUMMARY OF THE CONTRACT
Purpose of the Contract.............................................................. 5
Availability and Payments............................................................ 5
CMA(R) Insurance Service............................................................. 6
The Investment Divisions............................................................. 6
How the Death Benefit Varies......................................................... 6
How the Investment Base Varies....................................................... 6
Net Cash Surrender Value............................................................. 7
Illustrations........................................................................ 7
Replacement of Existing Coverage..................................................... 7
Rights to Cancel ("Free Look" Period) or Convert..................................... 7
How Death Benefit and Cash Value Increases are Taxed................................. 7
Loans................................................................................ 8
Partial Withdrawals.................................................................. 8
Fees and Charges..................................................................... 8
FACTS ABOUT THE SEPARATE ACCOUNT, THE SERIES FUND, THE VARIABLE
SERIES FUNDS, THE ZERO TRUSTS AND MERRILL LYNCH LIFE
The Separate Account................................................................. 9
The Series Fund...................................................................... 9
The Variable Series Funds............................................................ 10
The Zero Trusts...................................................................... 11
Merrill Lynch Life and MLPF&S........................................................ 11
FACTS ABOUT THE CONTRACT
Who May be Covered................................................................... 12
Purchasing a Contract................................................................ 12
Additional Insurance Rider........................................................... 13
Additional Payments.................................................................. 13
Effect of Additional Payments........................................................ 14
Investment Base...................................................................... 14
Charges Deducted from the Investment Base............................................ 15
Contract Loading..................................................................... 16
Charges to the Separate Account...................................................... 17
Guarantee Period..................................................................... 17
Cash Value........................................................................... 18
Loans................................................................................ 18
Partial Withdrawals.................................................................. 20
Death Benefit Proceeds............................................................... 20
Payment of Death Benefit Proceeds.................................................... 23
Accelerated Benefit Rider............................................................ 23
Rights to Cancel or Convert.......................................................... 24
Reports to Contract Owners........................................................... 24
MORE ABOUT THE CONTRACT
Using the Contract................................................................... 25
Some Administrative Procedures....................................................... 26
Other Contract Provisions............................................................ 27
Income Plans......................................................................... 27
Group or Sponsored Arrangements...................................................... 28
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
</TABLE>
<TABLE>
<S> <C>
Unisex Legal Considerations for Employers............................................ 28
Selling the Contracts................................................................ 29
Tax Considerations................................................................... 29
Merrill Lynch Life's Income Taxes.................................................... 33
Reinsurance.......................................................................... 33
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account........................................................... 33
Changes Within the Account........................................................... 33
Net Rate of Return for an Investment Division........................................ 34
The Series Fund and the Variable Series Funds........................................ 34
Charges to Series Fund Assets........................................................ 35
Charges to Variable Series Funds Assets.............................................. 36
The Zero Trusts...................................................................... 37
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Net Cash Surrender Values
and Accumulated Payments.......................................................... 38
EXAMPLES
Additional Payments.................................................................. 44
Partial Withdrawals.................................................................. 45
Changing the Death Benefit Option.................................................... 46
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
Directors and Executive Officers..................................................... 47
Services Arrangement................................................................. 48
State Regulation..................................................................... 48
Legal Proceedings.................................................................... 48
Experts.............................................................................. 48
Legal Matters........................................................................ 48
Registration Statements.............................................................. 49
Financial Statements................................................................. 49
Financial Statements of Merrill Lynch Variable Life Separate Account.................
Financial Statements of Merrill Lynch Life Insurance Company.........................
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
3
<PAGE> 8
IMPORTANT TERMS
additional payment: is a payment which may be made after the "free look"
period. Additional payments do not require evidence of insurability.
adjusted face amount: is equal to the lesser of the face amount at the
insured's attained age 100, and the cash value as of the date of death plus the
net amount at risk at the insured's attained age 100. The adjusted face amount
is used to determine the death benefit under option 1 at and after the insured's
attained age 100.
attained age: is the issue age of the insured plus the number of full years
since the contract date.
base premium: is the amount equal to the level annual premium which would be
necessary for the face amount of the Contract to endow on the contract
anniversary nearest the insured's age 100. Merrill Lynch Life assumes death
benefit option 1 is elected and further assumes a 5% annual rate of return on
the base premium less contract loading and a maximum cost of insurance charge.
Once determined, the base premium will not change.
cash value: is equal to the investment base plus any unearned charges for cost
of insurance and rider costs plus any debt less any accrued net loan cost since
the last contract anniversary (or since the contract date during the first
contract year).
cash value corridor factor: is used to determine the amount of death benefit
purchased by $1.00 of cash value. Merrill Lynch Life uses this factor in the
calculation of the variable insurance amount to make sure that the Contract
always meets the requirements of what constitutes a life insurance contract
under the Internal Revenue Code.
contract anniversary: is the same date of each year as the contract date.
contract date: is used to determine processing dates, contract years and
anniversaries. It is usually the business day next following the receipt of the
initial payment at the Service Center. It is also referred to as the policy
date.
contract loading: is chargeable to all payments for sales load, federal tax and
premium tax charges.
death benefit: prior to the insured's attained age 100, if option 1 is elected,
it is the larger of the face amount and the variable insurance amount; if option
2 is elected, it is the larger of the face amount plus the cash value and the
variable insurance amount. At and after the insured's attained age 100, the post
100 death benefit will apply.
death benefit proceeds: are equal to the death benefit plus the amount of any
insurance provided by a rider less any debt.
debt: is the sum of all outstanding loans on a Contract plus accrued interest.
excess sales load: a portion of the sales load calculated during the first two
policy years which is in excess of the amount specified under applicable
regulations in effect under the Investment Company Act of 1940 and therefore may
be refunded in the event of lapse or surrender during the first two policy
years. After policy year two, the excess sales load is zero.
face amount: is the minimum death benefit prior to the insured's attained age
100, as long as the Contract remains in force. The face amount will change if a
change in death benefit option is made or if a partial withdrawal is taken.
fixed base: is calculated in the same manner as the cash value except that 4.5%
is substituted for the net rate of return, the guaranteed maximum cost of
insurance rates and guaranteed maximum rider costs are substituted for current
rates and loans and repayments are not taken into account. After the end of the
guarantee period, the fixed base is zero.
guarantee period: is the time guaranteed that the Contract will remain in force
regardless of investment experience, unless the debt exceeds certain values. It
is the period that a comparable fixed life insurance
4
<PAGE> 9
contract (same face amount, payments made, guaranteed mortality table, contract
loading and guaranteed maximum rider costs) would remain in force if credited
with 4.5% interest per year.
in force date: is the date when the underwriting process is complete, the
initial payment is received and outstanding contract amendments (if any) are
received.
initial payment: is the payment required to put the Contract into effect.
investment base: is the amount available under a Contract for investment in the
Separate Account at any time. A contract owner's investment base is the sum of
the amounts invested in each of the selected investment divisions.
investment division: is any division in the Separate Account.
issue age: is the insured's age as of his or her birthday nearest the contract
date.
issue date: is the date that the Contract is issued. The contestable and
suicide periods are measured from this date.
net amount at risk: is the excess, as of a processing date, of the death
benefit (adjusted for interest at an annual rate of 4.5%) over the cash value,
but before the deduction for cost of insurance. The net amount at risk at the
insured's attained age 100 is used to determine the death benefit under option 1
at and after the insured's attained age 100.
net cash surrender value: is equal to the cash value less debt.
processing dates: are the contract date and the first day of each contract
quarter thereafter. Processing dates are the days when Merrill Lynch Life
deducts certain charges from the investment base.
processing period: is the period between consecutive processing dates.
target premium: is equal to 75% of the base premium.
variable insurance amount: is computed daily by multiplying the cash value
(plus certain excess sales load during the first 24 months after the Contract is
issued) by the cash value corridor factor for the insured at his or her attained
age.
SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACT
This flexible premium variable universal life insurance contract offers a choice
of investments and an opportunity for the Contract's investment base, cash value
and death benefit to grow based on investment results.
Merrill Lynch Life does not guarantee that contract values will increase.
Depending on the investment results of selected investment divisions, the
investment base, cash value and death benefit may increase or decrease on any
day. The contract owner bears the investment risk. Merrill Lynch Life guarantees
to keep the Contract in force during the guarantee period subject to the effect
of any debt.
Life insurance is not a short-term investment. The contract owner should
evaluate the need for insurance and the Contract's long-term investment
potential and risks before purchasing a Contract.
AVAILABILITY AND PAYMENTS
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. A Contract may be issued for an insured from age 20 through age 85.
5
<PAGE> 10
Merrill Lynch Life will not accept an initial payment that provides a guarantee
period of less than three months. The guarantee period is the period of time
Merrill Lynch Life guarantees that the Contract will remain in force regardless
of investment experience unless the debt exceeds certain values.
Contract owners may make additional payments. Contract owners may specify an
additional payment amount on the application to be paid on either a monthly,
quarterly, semi-annual or annual basis. For additional payments not being
withdrawn from a CMA account, Merrill Lynch Life will send reminder notices for
such amounts.
The Contract is not available to insure residents of certain municipalities in
Kentucky where premium taxes in excess of a certain level are imposed.
CMA(R) INSURANCE SERVICE
Contract owners who subscribe to the Merrill Lynch Cash Management Account(R)
financial service ("CMA account") may elect to have their Contract linked to
their CMA account electronically. Certain transactions will be reflected in
monthly CMA account statements. Payments may be transferred to and from the
Contract through a CMA account.
THE INVESTMENT DIVISIONS
Through the first 14 days following the in force date, the initial payment less
contract loading will be invested in the investment division of the Separate
Account investing in the Money Reserve Portfolio. Thereafter, the investment
base will be reallocated to up to five of the 35 investment divisions in the
Separate Account. (See "Changing the Allocation" on page 15.)
Payments are invested in investment divisions of the Separate Account. Ten
investment divisions of the Separate Account invest exclusively in shares of
designated mutual fund portfolios of the Merrill Lynch Series Fund, Inc. (the
"Series Fund"). Six investment divisions of the Separate Account invest
exclusively in shares of designated mutual fund portfolios of the Merrill Lynch
Variable Series Funds, Inc. (the "Variable Series Funds"). Each mutual fund
portfolio has a different investment objective. The other 19 investment
divisions invest in units of designated unit investment trusts in The Merrill
Lynch Fund of Stripped ("Zero") U.S. Treasury Securities (the "Zero Trusts").
The contract owner's payments are not invested directly in the Series Fund, the
Variable Series Funds or the Zero Trusts.
HOW THE DEATH BENEFIT VARIES
Contract owners elect a death benefit option on the application. Under option 1,
the death benefit equals the larger of the face amount or the variable insurance
amount. Under option 2, the death benefit equals the larger of the sum of the
face amount plus the cash value or the variable insurance amount. Subject to
certain conditions, contract owners may change the death benefit option. The
death benefit may increase or decrease on any day depending on the investment
results of the investment divisions chosen by the contract owner. Death benefit
proceeds equal the death benefit reduced by any debt and increased by any rider
benefits payable. (See "Death Benefit Proceeds" on page 20.) If the insured dies
at or after the insured's attained age 100, the post-100 death benefit proceeds
will be paid. (See "Post-100 Death Benefit" on page 22.)
HOW THE INVESTMENT BASE VARIES
A Contract's investment base is the amount available for investment at any time.
On the contract date(usually the business day next following receipt of the
initial payment at the Service Center), the investment base is equal to the
initial payment less contract loading and charges for cost of insurance and
rider costs. Afterwards,
- ---------------
Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
6
<PAGE> 11
it varies daily based on investment performance of the investment divisions
chosen. The contract owner bears the risk of poor investment performance and
receives the benefit of favorable investment performance.
NET CASH SURRENDER VALUE
Contract owners may surrender their Contracts at any time and receive the net
cash surrender value. The net cash surrender value varies daily based on
investment performance of the investment divisions chosen. Merrill Lynch Life
doesn't guarantee any minimum net cash surrender value. If the Contract is
surrendered within 24 months after issue, the contract owner will receive
certain excess sales load. (See "Contract Loading -- Excess Sales Load" on page
16.)
ILLUSTRATIONS
Illustrations in this Prospectus or used in connection with the purchase of the
Contract are based on hypothetical investment rates of return. These rates are
not guaranteed. They are illustrative only and should not be deemed a
representation of past or future performance. Actual rates of return may be more
or less than those reflected in the illustrations and, therefore, actual values
will be different than those illustrated.
REPLACEMENT OF EXISTING COVERAGE
Before purchasing a Contract, the contract owner should ask his or her Merrill
Lynch registered representative if changing, or adding to, current insurance
coverage would be advantageous. Generally, it is not advisable to purchase
another contract as a replacement for existing coverage. In particular,
replacement should be carefully considered if the decision to replace existing
coverage is based solely on a comparison of contract illustrations.
RIGHTS TO CANCEL ("FREE LOOK" PERIOD) OR CONVERT
Once the contract owner receives the Contract, he or she should review it
carefully to make sure it is what he or she intended to purchase. Generally, a
Contract may be returned for a refund within the later of ten days after the
contract owner receives it, 45 days after the contract owner completes the
application, or ten days after Merrill Lynch Life mails or personally delivers
the Notice of Withdrawal Right to the contract owner. If the Contract is
returned during the "free look" period, Merrill Lynch Life will refund the
initial payment without interest.
Once the Contract is issued, a contract owner may also convert the Contract
within 24 months after issue to a contract with benefits that do not vary with
the investment results of a separate account. (See "Converting the Contract" on
page 24.)
HOW DEATH BENEFIT AND CASH VALUE INCREASES ARE TAXED
Under current federal tax law, life insurance contracts receive tax-favored
treatment. The death benefit is generally excludable from the beneficiary's
gross income for federal income tax purposes, according to Section 101(a)(1) of
the Internal Revenue Code. An owner of a life insurance contract is not taxed on
any increase in the cash value while the contract remains in force.
If the Contract is a modified endowment contract under federal tax law, certain
distributions made during the insured's lifetime, such as loans and partial
withdrawals from, and collateral assignments of, the Contract are includable in
gross income on an income-first basis. A 10% penalty tax may also be imposed on
distributions made before the contract owner attains age 59 1/2. Contracts that
are not modified endowment contracts under federal tax law receive preferential
tax treatment with respect to certain distributions.
For a discussion of the tax issues associated with this Contract, see "Tax
Considerations" on page 29.
7
<PAGE> 12
LOANS
Contract owners may borrow up to the total loan value of their Contracts, which
is 90% of the cash value. The maximum amount which may be borrowed at any time
is the difference between the total loan value and debt. (See "Loans" on page
18.)
Debt is deducted from the amount payable on surrender of the Contract and is
also subtracted from any death benefit payable. Loan interest accrues daily and,
if it is not repaid each year, it is capitalized and added to the debt. If the
Contract is a modified endowment contract, the amount of capitalized interest
will be treated as a taxable withdrawal. Depending upon investment performance
of the divisions and the amounts borrowed, loans may cause a Contract to lapse.
If the Contract lapses with a loan outstanding, adverse tax consequences may
result. (See "Tax Considerations" on page 29.)
PARTIAL WITHDRAWALS
Contract owners may make partial withdrawals beginning in the second contract
year, subject to certain conditions. (See "Partial Withdrawals" on page 20.)
FEES AND CHARGES
Contract Loading. Merrill Lynch Life deducts certain charges from all payments
before they are invested in the investment divisions. These charges are:
- Sales load equal to 46.25% of each payment through the second base
premium and 1.25% of each payment thereafter.
- State and local premium tax charge of 2.5% of each payment.
- A charge for federal taxes of 1.25% of each payment.
(See "Contract Loading" on page 16.)
Investment Base Charges. Merrill Lynch Life deducts certain charges from the
investment base. The charges deducted are as follows:
- On the contract date and on all processing dates after the contract date,
Merrill Lynch Life makes deductions for cost of insurance (see "Cost of
Insurance" on page 15) and any rider costs (see "Additional Insurance
Rider" on page 13).
- On each contract anniversary, Merrill Lynch Life makes deductions for the
net loan cost if there has been any debt during the prior year. It equals
a maximum of 2% of the debt per year.
Separate Account Charges. There are certain charges deducted daily from the
investment results of the investment divisions in the Separate Account. These
charges are:
- an asset charge designed to cover mortality and expense risks deducted
from all investment divisions which is equivalent to .90% annually at the
beginning of the year; and
- a trust charge deducted from only those investment divisions investing in
the Zero Trusts, which is currently equivalent to .34% annually at the
beginning of the year and will never exceed .50% annually.
Advisory Fees. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 35 and "Charges to Variable Series Funds Assets" on page 36.)
This summary is intended to provide only a very brief overview of the more
significant aspects of the Contract. Further detail is provided in this
Prospectus and in the Contract. The Contract together with its attached
applications, medical exam(s), amendments, riders and endorsements constitutes
the entire agreement between the contract owner and Merrill Lynch Life and
should be retained.
For the definition of certain terms used in this Prospectus, see "Important
Terms" on page 4.
8
<PAGE> 13
FACTS ABOUT THE SEPARATE ACCOUNT,
THE SERIES FUND, THE VARIABLE SERIES FUNDS, THE ZERO TRUSTS
AND MERRILL LYNCH LIFE
THE SEPARATE ACCOUNT
The Separate Account is a separate investment account established by Merrill
Lynch Life on November 16, 1990. It is registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the Investment
Company Act of 1940. This registration does not involve any supervision by the
Securities and Exchange Commission over the investment policies or practices of
the Separate Account. It meets the definition of a separate account under the
federal securities laws. The Separate Account is used to support the Contract as
well as to support other variable life insurance contracts issued by Merrill
Lynch Life.
Merrill Lynch Life owns all of the assets in the Separate Account. The assets of
the Separate Account are kept separate from Merrill Lynch Life's general account
and any other separate accounts it may have and, to the extent of its reserves
and liabilities, may not be charged with liabilities arising out of any other
business Merrill Lynch Life conducts.
Obligations to contract owners and beneficiaries that arise under the Contract
are obligations of Merrill Lynch Life. Income, gains, and losses, whether or not
realized, from assets allocated are, in accordance with the Contracts, credited
to or charged against the Separate Account without regard to other income, gains
or losses of Merrill Lynch Life. As required, the assets in the Separate Account
will always be at least equal to the reserves and other liabilities of the
Separate Account. If the assets exceed the required reserves and other Contract
liabilities (which will always be at least equal to the aggregate contract value
allocated to the Separate Account under the Contracts), Merrill Lynch Life may
transfer the excess to its general account.
There are currently 35 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Six invest in shares of a
specific portfolio of the Variable Series Funds. Nineteen invest in units of a
specific Zero Trust. Complete information about the Series Fund, the Variable
Series Funds and the Zero Trusts, including the risks associated with each
portfolio (including any risks associated with investment in the High Yield
Portfolio of the Series Fund) can be found in the accompanying prospectuses.
They should be read in conjunction with this Prospectus.
THE SERIES FUND
The Merrill Lynch Series Fund, Inc. is registered with the Securities and
Exchange Commission as an open-end management investment company. All of its ten
mutual fund portfolios are currently available through the Separate Account. The
investment objectives of the Series Fund portfolios are described below. There
is no guarantee that any portfolio will meet its investment objective. Meeting
the objectives depends on how well Series Fund management anticipates changing
economic conditions.
Money Reserve Portfolio seeks to preserve capital and liquidity. It also seeks
the highest possible current income consistent with those objectives. It invests
in short-term money market securities.
Intermediate Government Bond Portfolio seeks the highest possible current income
consistent with the protection of capital. It invests in intermediate-term debt
securities issued or guaranteed by the U.S. Government or its agencies.
Long-Term Corporate Bond Portfolio seeks as high a level of current income as is
consistent with prudent investment risk. It invests primarily in fixed income,
high quality corporate bonds.
High Yield Portfolio seeks high current income, consistent with prudent
management, by investing principally in fixed-income securities rated in the
lower categories of the established rating services or in unrated securities of
comparable quality (commonly known as "junk bonds").
9
<PAGE> 14
Capital Stock Portfolio seeks long-term growth of capital and income, plus
moderate current income. It invests in common stocks considered to be of good or
improving quality or considered to be undervalued based on criteria such as
historical price/book value and price/earnings ratios.
Growth Stock Portfolio seeks above average long-term growth of capital. It
invests primarily in common stocks of aggressive growth companies considered to
have special growth potential.
Multiple Strategy Portfolio seeks the highest total investment return consistent
with prudent risk. It does this through a fully managed investment policy
utilizing equity securities, primarily common stocks of large-capitalization
companies, as well as investment grade intermediate- and long-term debt
securities and money market securities.
Natural Resources Portfolio seeks long-term growth of capital and protection of
the purchasing power of shareholders' capital by investing primarily in equity
securities of domestic and foreign companies with substantial natural resource
assets.
Global Strategy Portfolio seeks high total investment return by investing
primarily in a portfolio of equity and fixed-income securities of U.S. and
foreign issuers.
Balanced Portfolio seeks a level of current income and a degree of stability of
principal not normally available from an investment solely in equity securities
and the opportunity for capital appreciation greater than that normally
available from an investment solely in debt securities by investing in a
balanced portfolio of fixed-income and equity securities.
The investment adviser for the Series Fund is Merrill Lynch Investment
Management, Inc., doing business as Merrill Lynch Asset Management, L.P.
("MLAM"), a subsidiary of Merrill Lynch & Co., Inc. and a registered adviser
under the Investment Advisers Act of 1940. The Series Fund, as part of its
operating expenses, pays an investment advisory fee to MLAM. (See "Charges to
Series Fund Assets" on page 35.)
THE VARIABLE SERIES FUNDS
The Merrill Lynch Variable Series Funds, Inc. is registered with the Securities
and Exchange Commission as an open-end management investment company. Six of its
18 mutual fund portfolios are currently available through the Separate Account.
The investment objectives of the six available Variable Series Funds portfolios
are described below. There is no guarantee that any portfolio will meet its
investment objective. Meeting the objectives depends on how well Variable Series
Funds management anticipates changing economic conditions.
Basic Value Focus Fund seeks to attain capital appreciation, and secondarily,
income by investing in securities, primarily equities, that management of the
Fund believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio.
World Income Focus Fund seeks to achieve high current income by investing in a
global portfolio of fixed-income securities denominated in various currencies,
including multinational currency units. The Fund may invest in United States and
foreign government and corporate fixed-income securities, including high yield,
high risk, lower rated and unrated securities. The Fund will allocate its
investment among different types of fixed-income securities denominated in
various currencies.
Global Utility Focus Fund seeks to obtain capital appreciation and current
income through investment of at least 65% of its total assets in equity and debt
securities issued by domestic and foreign companies which are, in the opinion of
management of the Fund, primarily engaged in the ownership or operation of
facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water.
International Equity Focus Fund seeks to obtain capital appreciation through
investment in securities, principally equities, of issuers in countries other
than the United States. Under normal conditions, at least 65% of the Fund's net
assets will be invested in such equity securities.
10
<PAGE> 15
International Bond Fund seeks to achieve a high total investment return by
investing in a non-U.S. international portfolio of debt instruments denominated
in various currencies and multi-national currency units.
Developing Capital Markets Focus Fund seeks to achieve long-term capital
appreciation by investing in securities, principally equities, of issuers in
countries having smaller capital markets. For purposes of its investment
objective, the Fund considers countries having smaller capital markets to be all
countries other than the four countries having the largest equity market
capitalizations. Currently, these four countries are Japan, the United Kingdom,
the United States, and Germany.
MLAM is the investment adviser for the Variable Series Funds. The Variable
Series Funds, as part of its operating expenses, pays an investment advisory fee
to MLAM. (See "Charges to Variable Series Funds Assets" on page 36.)
THE ZERO TRUSTS
The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities was formed
to provide safety of capital and a high yield to maturity. It seeks this through
U.S. Government-backed investments which make no periodic interest payments and,
therefore, are purchased at a deep discount. When held to maturity the
investments should receive approximately a fixed yield. The value of Zero Trust
units before maturity varies more than it would if the Zero Trusts contained
interest-bearing U.S. Treasury securities of comparable maturities.
The Zero Trust portfolios consist mainly of:
- bearer debt obligations issued by the U.S. Government stripped of their
unmatured interest coupons;
- coupons stripped from U.S. debt obligations; and
- receipts and certificates for such stripped debt obligations and coupons.
The Zero Trusts currently available have maturity dates in years 1995 through
2011, 2013 and 2014.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
Merrill Lynch & Co., Inc., is the sponsor for the Zero Trusts. The sponsor will
sell units of the Zero Trusts to the Separate Account and has agreed to
repurchase units when Merrill Lynch Life needs to sell them to pay benefits and
make reallocations. Merrill Lynch Life pays the sponsor a fee for these
transactions and is reimbursed through the trust charge assessed to the
divisions investing in the Zero Trusts. (See "Charges to Divisions Investing in
the Zero Trusts" on page 17.)
MERRILL LYNCH LIFE AND MLPF&S
Merrill Lynch Life is a stock life insurance company organized under the laws of
the State of Washington in 1986 and redomesticated under the laws of the State
of Arkansas in 1991. It is an indirect wholly owned subsidiary of Merrill Lynch
& Co., Inc. Merrill Lynch Life is authorized to sell life insurance and
annuities in 49 states, Guam, the U.S. Virgin Islands and the District of
Columbia. It is also authorized to offer variable life insurance and variable
annuities in most jurisdictions.
MLPF&S is a wholly owned subsidiary of Merrill Lynch & Co., Inc. and provides a
broad range of securities brokerage and investment banking services in the
United States. It provides marketing services for Merrill Lynch Life and is the
principal underwriter of the Contracts issued through the Separate Account.
Merrill Lynch Life retains MLPF&S to provide services relating to the Contracts
under a distribution agreement. (See "Selling the Contracts" on page 29.)
11
<PAGE> 16
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. Merrill Lynch Life will issue a Contract on the life of the insured
provided the relationship between the applicant and the insured meets Merrill
Lynch Life's insurable interest requirements and provided the insured is not
over age 85 or under age 20. The insured's issue age will be determined using
the insured's age as of his or her birthday nearest the contract date. The
insured must also meet Merrill Lynch Life's medical and other underwriting
requirements, which will include undergoing a medical examination.
Merrill Lynch Life assigns insureds to underwriting classes which determine the
cost of insurance rates used in calculating cost of insurance deductions.
Contracts may be issued on insureds in standard, non-smoker or preferred
non-smoker underwriting classes. Contracts may also be issued on insureds in a
substandard underwriting class. For a discussion of the effect of underwriting
classification on deductions for cost of insurance, see "Cost of Insurance" on
page 15.
PURCHASING A CONTRACT
To purchase a Contract, the contract owner must complete an application and make
a payment. The payment is required to put the Contract into effect. In the
application, the contract owner selects the face amount of the Contract. The
amount of the minimum initial payment for a given Contract depends on the face
amount selected and the issue age, sex and underwriting class of the insured.
Merrill Lynch Life will not accept an initial payment for a specified face
amount that will provide a guarantee period of less than three months. (See
"Selecting the Initial Face Amount" and "Initial Guarantee Period" below).
Merrill Lynch Life also will not accept an initial payment that would cause the
Contract to fail to qualify as life insurance under federal tax law as
interpreted by Merrill Lynch Life.
Insurance coverage generally begins as of the contract date, which is usually
the next business day following receipt of the initial payment at Merrill Lynch
Life's Service Center. Temporary life insurance coverage may be provided prior
to the contract date under the terms of a temporary insurance agreement. In
accordance with Merrill Lynch Life's underwriting rules, temporary life
insurance coverage may not exceed $300,000 and may not be in effect for more
than 90 days. As provided for under state insurance law, the contract owner, to
preserve insurance age, may be permitted to backdate the Contract. In no case
may the contract date be more than six months prior to the date the application
was completed. Charges for cost of insurance and rider costs for the backdated
period are deducted on the contract date.
If Merrill Lynch Life determines that, based on the contract owner's initial
payment and face amount, the Contract will be a modified endowment contract,
Merrill Lynch Life will issue the Contract provided the contract owner signs a
statement acknowledging that the Contract is a modified endowment contract or
agrees either to reduce the initial payment or to increase the face amount to a
level at which the Contract will not be a modified endowment contract. For a
discussion of the tax consequences of purchasing a modified endowment contract,
see "Tax Considerations" on page 29.
Selecting the Initial Face Amount. The minimum initial face amount is $250,000
or that face amount which generates a $4,000 base premium, if larger. The
maximum face amount that may be specified for a given initial payment is the
amount which will provide an initial guarantee period of at least three months.
For the same initial payment amount, the larger the face amount requested, the
shorter the guarantee period. The initial face amount will change if the
contract owner changes the death benefit option or takes a partial withdrawal.
Subject to certain conditions, the contract owner may purchase additional
insurance coverage through an additional insurance rider. (See "Additional
Insurance Rider" on page 13.)
Initial Guarantee Period. The initial guarantee period for a Contract will be
determined by the initial payment, face amount and any additional insurance
rider face amount. The guarantee period will be adjusted each time an additional
payment is made, when a partial withdrawal is taken, when a death benefit option
12
<PAGE> 17
change results in a change in face amount, and when the additional insurance
rider face amount is increased or decreased.
The guarantee period is the period of time Merrill Lynch Life guarantees that
the Contract will remain in force regardless of investment experience unless the
debt exceeds certain values. The guarantee period is based on the guaranteed
maximum cost of insurance rates in the Contract, guaranteed maximum rider costs
(if an additional insurance rider is elected), the contract loading and a 4.5%
interest assumption. This means that for a given initial payment and face
amount, different insureds will have different guarantee periods depending on
the age, sex and underwriting class of the insureds. For example, an older
insured will have a shorter guarantee period than a younger insured in the same
underwriting class.
The maximum guarantee period is until the insured's attained age 100.
ADDITIONAL INSURANCE RIDER
The contract owner may purchase additional insurance coverage payable to the
beneficiary on the death of the insured. Additional insurance coverage may be
purchased through an additional insurance rider when the Contract is purchased.
Under Merrill Lynch Life's current procedures, the maximum additional insurance
rider face amount at the time the Contract is purchased is three times the face
amount of the Contract. The rider can also be added on any contract anniversary
thereafter, as long as an application is completed, satisfactory evidence of
insurability of the insured is provided, and the insured has not attained the
age of 86. The minimum additional insurance rider face amount at any time is
$100,000. A cost of insurance charge for the rider ("rider charge") will be
deducted from the Contract's investment base on each processing date. The rider
charge will be based on the same cost of insurance rates as the Contract. (See
"Cost of Insurance" on page 15.) Because insurance coverage through an
additional insurance rider is purchased through deductions from the Contract's
investment base that are not taken into account in determining the base premium,
there is no additional contract loading associated with this coverage.
Beginning in contract year 2, the additional insurance rider face amount may be
increased (subject to evidence of insurability of the insured) or decreased once
each year; however, any change in the additional insurance rider face amount
must be elected prior to the insured's attained age 86 and must be at least
$100,000. The effective date of the change will be the contract anniversary next
following underwriting approval of the change. As of the effective date of the
increase or decrease in the additional insurance rider face amount, Merrill
Lynch Life uses the existing fixed base and the face amount of the Contract plus
the new additional insurance rider face amount to calculate a new guarantee
period. A decrease in the additional insurance rider face amount will increase
the guarantee period. An increase in the additional insurance rider face amount
will decrease the guarantee period. Merrill Lynch Life will not allow a decrease
in rider face amount if the resulting face amount would be less than $100,000;
if the resulting guarantee period would extend beyond the insured's attained age
100; or if the decrease would cause the Contract to fail to qualify as life
insurance under federal income tax laws as interpreted by us.
A decrease in the additional insurance rider face amount can cause a Contract
which is not a modified endowment contract to become a modified endowment
contract. In such a case, Merrill Lynch Life will not process the decrease until
the contract owner confirms in writing his or her intent to convert the Contract
to a modified endowment contract. For a discussion of the tax consequences of
increasing or decreasing the additional insurance rider face amount, see "Tax
Considerations" on page 29.
Any additional insurance rider coverage terminates on the earlier of the date
the Contract terminates or lapses, or at the insured's attained age 100.
ADDITIONAL PAYMENTS
After the "free look" period and prior to the insured's attained age 100,
contract owners may make additional payments while the insured is living.
Additional payments must be submitted with an additional payment form. The
minimum Merrill Lynch Life will accept for these payments is $100. For Contracts
that are not
13
<PAGE> 18
modified endowment contracts, making an additional payment may cause them to
become modified endowment contracts. (See "Tax Considerations" on page 29.)
Merrill Lynch Life will return that portion of any additional payment beyond
that necessary to extend the guarantee period to the insured's attained age 100.
Merrill Lynch Life will also return that portion of any additional payment that
would cause the Contract to fail to qualify as life insurance under federal tax
law as interpreted by Merrill Lynch Life.
Contract owners may specify an additional payment amount on the application to
be paid on either an annual, semi-annual, quarterly, or monthly basis. For
additional payments not being withdrawn from a CMA account, Merrill Lynch Life
will send reminder notices. If a contract owner has the CMA Insurance Service,
such additional payments may be withdrawn automatically from his or her CMA
account and transferred to his or her Contract. The withdrawals will continue
under the selected plan until Merrill Lynch Life is notified otherwise.
EFFECT OF ADDITIONAL PAYMENTS
Generally, any additional payments will be accepted the day they are received at
the Service Center. However, if acceptance of any portion of the payment would
cause a Contract which is not a modified endowment contract to become a modified
endowment contract, to the extent feasible, Merrill Lynch Life will not accept
that portion of the payment unless the contract owner confirms in writing his or
her intent to convert the Contract to a modified endowment contract. Merrill
Lynch Life may return that portion of the payment pending receipt of
instructions from the contract owner.
On the date Merrill Lynch Life receives and accepts an additional payment,
Merrill Lynch Life will:
- increase the Contract's investment base by the amount of the payment less
contract loading applicable to the payment;
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount" on page 21); and
- increase the fixed base by the amount of the payment less contract
loading applicable to the payment (see "The Contract's Fixed Base" on
page 18).
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment does
not extend beyond the insured's attained age 100.
Merrill Lynch Life will determine the increase in the guarantee period by taking
the immediate increase in the cash value resulting from the additional payment
and adding to that interest at the annual rate of 4.5% for the period from the
date Merrill Lynch Life receives and accepts the payment to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is added to the fixed base and the
resulting new fixed base is used to calculate a new guarantee period. For a
discussion of the effect of additional payments on a Contract's guarantee
period, see "Additional Payments" in the Examples on page 44.
If any excess sales load has been applied to keep the Contract in force, any
additional payment, less contract loading, will first be applied to recover such
excess sales load (see "Excess Sales Load" on page 16). Next, unless specified
otherwise, if there is any debt, any payment made will be applied as a loan
repayment, with any excess applied as an additional payment. (See "Loans" on
page 18.)
INVESTMENT BASE
A Contract's investment base is the amount available for investment at any time.
It is the sum of the amounts invested in each of the investment divisions. On
the contract date, the investment base equals the initial payment less contract
loading and charges for cost of insurance and rider costs. Merrill Lynch Life
adjusts the investment base daily to reflect the investment performance of the
investment divisions the contract owner has
14
<PAGE> 19
selected. (See "Net Rate of Return for an Investment Division" on page 34.) The
investment performance reflects the deduction of Separate Account charges. (See
"Charges to the Separate Account" on page 17.)
Partial withdrawals, loans and deductions for cost of insurance, rider costs and
net loan cost decrease the investment base. (See "Charges Deducted from the
Investment Base" on page 15, "Partial Withdrawals" on page 20, and "Loans" on
page 18.) Loan repayments and additional payments increase it. Contract owners
may elect from which investment divisions loans and partial withdrawals are
taken and to which investment divisions repayments and additional payments are
added. If an election is not made, Merrill Lynch Life will allocate increases
and decreases proportionately to the contract owner's investment base as then
allocated in the investment divisions.
Initial Investment Allocation and Preallocation. Through the first 14 days
following the in force date, the initial payment less contract loading will
remain in the division investing in the Money Reserve Portfolio. Thereafter, the
investment base will be reallocated to the investment divisions selected by the
contract owner on the application, if different. The contract owner may select
up to five of the 35 investment divisions in the Separate Account.
Changing the Allocation. After the "free look" period, a contract owner's
investment base may be invested in up to five investment divisions at any one
time. Currently, investment allocations may be changed as often as desired.
Merrill Lynch Life reserves the right to charge up to $25 for each change in
excess of six each year. In order to change their investment base allocation,
contract owners must call or write to the Service Center. (See "Some
Administrative Procedures" on page 26.)
Zero Trust Allocations. Merrill Lynch Life will notify contract owners 30 days
before a Zero Trust in which they have invested matures. Contract owners must
notify Merrill Lynch Life by calling or writing at least seven days before the
maturity date how to reinvest their funds in the division investing in that Zero
Trust. If Merrill Lynch Life is not notified, it will move the contract owner's
investment base in that division to the investment division investing in the
Money Reserve Portfolio.
Units of a specific Zero Trust may no longer be available when a request for
allocation is received. Should this occur, Merrill Lynch Life will attempt to
notify the contract owner immediately so that the request can be changed.
Allocation to the Division Investing in the Natural Resources
Portfolio. Merrill Lynch Life and the Separate Account reserve the right to
suspend the sale of units of the investment division investing in the Natural
Resources Portfolio in response to conditions in the securities markets or
otherwise.
CHARGES DEDUCTED FROM THE INVESTMENT BASE
The charges described below are deducted pro-rata from the investment base on
processing dates.
Cost of Insurance. Merrill Lynch Life deducts the cost of insurance from the
investment base on the contract date and on each processing date thereafter
prior to the insured's attained age 100. This charge compensates Merrill Lynch
Life for the cost of providing life insurance coverage for the insured. It is
based on the underwriting class, sex (except where unisex rates are required by
state law) and attained age of the insured and the Contract's net amount at
risk.
To determine the cost of insurance, Merrill Lynch Life multiplies the current
cost of insurance rate by the Contract's net amount at risk. The net amount at
risk is the difference, as of a processing date, between the death benefit
(adjusted for interest at an annual rate of 4.5%) and the cash value, but before
the deduction for cost of insurance.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates depending on the underwriting class, sex (except where unisex
rates are required by state law) and attained age of the insured. Current cost
of insurance rates are lower for insureds in a preferred non-smoker underwriting
class than for insureds of the same age in a non-smoker underwriting class and
are lower for insureds in a non-smoker underwriting class than for insureds of
the same age and sex in a standard underwriting class.
15
<PAGE> 20
Merrill Lynch Life guarantees that the current cost of insurance rates will
never exceed the maximum guaranteed rates shown in the Contract. The maximum
guaranteed rates for Contracts (other than those issued on a substandard basis)
do not exceed the rates based on the 1980 Commissioners Standard Ordinary
Mortality Table (CSO Table). Merrill Lynch Life may use rates that are equal to
or less than these rates, but never greater. The maximum rates for Contracts
issued on a substandard basis are based on a multiple of the 1980 CSO Table. Any
change in the cost of insurance rates will apply to all insureds of the same
age, sex and underwriting class whose Contracts have been in force for the same
length of time.
Net Loan Cost. The net loan cost is explained under "Loans" on page 18.
Rider Charges. Rider charges are deducted on the contract date and on each
processing date thereafter. These charges are explained under "Additional
Insurance Rider" on page 13.
CONTRACT LOADING
Chargeable to each payment is an amount called the contract loading. The
contract loading equals 50% of each payment through the second base premium and
5% of each payment thereafter. This charge consists of a sales load, a charge
for federal taxes and a state and local premium tax charge.
The sales load, equal to 46.25% of each payment through the second base premium
and 1.25% of each payment thereafter, compensates Merrill Lynch Life for sales
expenses and the costs for underwriting and issuing the Contract. The sales load
may be reduced in certain group or sponsored arrangements as described on page
25. Merrill Lynch Life anticipates that the sales load charge may be
insufficient to cover its distribution expenses. Any shortfall will be made up
from Merrill Lynch Life's general account which may include amounts derived from
mortality gains and asset charges. In no event will the sales load exceed the
amount permitted by the Investment Company Act of 1940.
The charge for federal taxes, equal to 1.25% of each payment, compensates
Merrill Lynch Life for a higher corporate income tax liability resulting from
Section 848 of the Internal Revenue Code as enacted by the Omnibus Budget
Reconciliation Act of 1990. (See "Merrill Lynch Life's Income Taxes" on page
33). The charge for federal taxes is reasonable in relation to Merrill Lynch
Life's increased federal tax burden under Section 848 resulting from the receipt
of premiums under the Contract.
The state and local premium tax charge, equal to 2.5% of each payment,
compensates Merrill Lynch Life for state and local premium taxes Merrill Lynch
Life must pay when a payment is accepted. Premium taxes vary from state to
state. The 2.5% rate is the average rate expected on payments from all states.
Excess Sales Load. Excess sales load is equal to any sales load deducted from
the first two base premiums in excess of 30% of premiums paid up to an amount
equal to the first base premium, and then 10% of the premiums paid up to an
amount equal to the second base premium. It is calculated and applied in the
following situations only during the first 24 months after the Contract is
issued:
- It is refunded if the Contract is surrendered or lapses during the first
24 months after issue except to the extent that it has been previously
applied to keep the Contract in force.
- It is added to the cash value so as to keep the Contract in force if debt
exceeds the larger of (i) cash value plus any excess sales load not
previously applied to keep the Contract in force and (ii) the fixed base
during the first 24 months after issue.
- It is added to the cash value in determining the variable insurance
amount during the first 24 months after issue.
16
<PAGE> 21
CHARGES TO THE SEPARATE ACCOUNT
Each day Merrill Lynch Life deducts an asset charge from each division of the
Separate Account. The total amount of this charge is computed at .90% annually
at the beginning of the year. Of this amount, .75% is for
- the risk assumed by Merrill Lynch Life that insureds as a group will live
for a shorter time than actuarial tables predict. As a result, Merrill
Lynch Life would be paying more in death benefits than planned; and
- the risk assumed by Merrill Lynch Life that it will cost more to issue
and administer the Contracts than expected.
The remaining amount, .15%, is for
- the risk assumed by Merrill Lynch Life with respect to potentially
unfavorable investment results. This risk is that the Contract's cash
value cannot cover the charges due during the guarantee period.
The total asset charge may not be increased. Merrill Lynch Life will realize a
gain from this charge to the extent it is not needed to provide for benefits and
expenses under the Contracts.
Charges to Divisions Investing in the Zero Trusts. Merrill Lynch Life assesses
a daily trust charge against the assets of each division investing in the Zero
Trusts. This charge reimburses Merrill Lynch Life for the transaction charge
paid to MLPF&S when units are sold to the Separate Account.
The trust charge is currently equivalent to .34% annually at the beginning of
the year. It may be increased, but will not exceed .50% annually at the
beginning of the year. The charge is based on cost (taking into account loss of
interest) with no expected profit.
Tax Charges. Merrill Lynch Life has the right under the Contract to impose a
charge against Separate Account assets for any taxes imposed on the Separate
Account's investment earnings. (See "Merrill Lynch Life's Income Taxes" on page
33.)
Advisory Fees. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 35 and "Charges to Variable Series Funds Assets" on page 36.)
GUARANTEE PERIOD
Merrill Lynch Life guarantees that the Contract will stay in force for the
guarantee period unless the debt exceeds certain contract values. (See "Loans"
on page 18.) Additional payments will extend the guarantee period until such
time as it extends to the insured's attained age 100. The guarantee period will
be affected by partial withdrawals, by changes in death benefit options and by
increases and decreases in the face amount of the additional insurance rider. A
reserve is held in Merrill Lynch Life's general account to support this
guarantee. The guarantee period never extends beyond the insured's attained age
100.
When the Guarantee Period Does not Extend to the Insured's Attained Age
100. After the end of the guarantee period, Merrill Lynch Life may cancel the
Contract if the cash value plus certain excess sales load on a processing date
is insufficient to cover charges due on that date. (See "Charges Deducted from
the Investment Base" on page 15 and "Contract Loading -- Excess Sales Load" on
page 16.)
Merrill Lynch Life will notify the contract owner at the owner's last known
address before cancelling the Contract. The contract owner will then have 61
days to pay an amount which, after deducting contract loading, equals at least
three times the charges that were due (and not deducted) on the processing date
when the cash value was determined to be insufficient, plus any excess sales
load previously applied to keep the Contract in force. If this amount is paid,
Merrill Lynch Life will deduct the charges due on the processing date and will
apply the balance to the investment base. Merrill Lynch Life will cancel the
Contract at the end of this grace period if payment has not yet been received.
At that time, Merrill Lynch Life will deduct any charges for cost of insurance
and rider costs that were applicable to the grace period and refund any unearned
charges for cost of insurance, rider costs and any excess sale load not
previously applied to keep the Contract in force.
17
<PAGE> 22
Subject to state regulation, if Merrill Lynch Life cancels a Contract, it may be
reinstated prior to the insured's attained age 100 and while the insured is
still living if:
- the reinstatement is requested within three years after the end of the
grace period;
- Merrill Lynch Life receives satisfactory evidence of the insured's
insurability; and
- the reinstatement payment is made. The reinstatement payment is the
minimum payment for which Merrill Lynch Life would then issue a Contract
for the minimum guarantee period with the same face amount as the
original Contract, based on the insured's attained age and underwriting
class as of the effective date of the reinstated Contract.
A reinstated Contract will be effective on the processing date on or next
following the date the reinstatement application is approved.
The Contract's Fixed Base. On the contract date, the fixed base equals the cash
value. From then on, the fixed base is calculated in the same manner as the cash
value except that the calculation substitutes 4.5% for the net rate of return,
the guaranteed maximum cost of insurance rates and guaranteed maximum rider
costs are substituted for the current rates and it is calculated as though there
had been no loans or repayments. The fixed base is equivalent to the cash value
for a comparable fixed benefit contract with the same face amount and guarantee
period. After the end of the guarantee period the fixed base is zero. The fixed
base is used to limit Merrill Lynch Life's right to cancel the Contract during
the guarantee period.
Automatic Adjustment. On any contract anniversary, if the cash value is greater
than the fixed base necessary to cause the guarantee period to extend until the
insured's attained age 100, the guarantee period will be extended to the
insured's attained age 100.
CASH VALUE
A Contract's cash value fluctuates daily with the investment results of the
investment divisions selected. Merrill Lynch Life does not guarantee any minimum
cash value. The cash value on any date equals the total investment base plus
debt plus unearned charges for cost of insurance and rider costs less any
accrued net loan cost since the last contract anniversary (or since the contract
date during the first contract year).
Cancelling the Contract. A contract owner may cancel the Contract at any time
while the insured is living. The request must be in writing in a form
satisfactory to Merrill Lynch Life. All rights to death benefits will end on the
date the written request is sent to Merrill Lynch Life.
The contract owner will then receive the net cash surrender value. The contract
owner may elect to receive this amount either in a single payment or under one
or more income plans described on page 27. The net cash surrender value will be
determined as of the date of receipt of the written request at the Service
Center.
If the Contract is cancelled during the first 24 months after the issue date of
the Contract, excess sales load, as described under "Excess Sales Load" on page
16, will be refunded except to the extent previously applied to keep the
Contract in force. (See "Contract Loading -- Excess Sales Load" on page 16.)
LOANS
At any time after the "free look" period and prior to the insured's attained age
100, contract owners may use the Contract as collateral to borrow funds from
Merrill Lynch Life. The minimum loan is $1,000. Preferred loans are available
beginning on the later of the tenth contract anniversary or the insured's
attained age 55. See "Net Loan Cost" on page 19. Contract owners may repay all
or part of the loan at any time during the insured's lifetime. Each repayment
must be for at least $1,000 or the amount of the debt, if less. Certain states
won't permit establishing a minimum amount that can be borrowed or repaid. If
any excess sales load was previously applied to keep the Contract in force, any
loan repayment will first be applied to repay such excess sales load.
18
<PAGE> 23
When a loan is taken, Merrill Lynch Life transfers a portion of the contract
owner's investment base equal to the amount borrowed out of the investment
divisions and holds it as collateral in its general account. When a loan
repayment is made, Merrill Lynch Life transfers an amount equal to the repayment
from the general account to the investment divisions. The contract owner may
select from which divisions borrowed amounts should be taken and which divisions
should receive repayments (including interest payments). Otherwise, Merrill
Lynch Life will take the borrowed amounts proportionately from and make
repayments proportionately to the contract owner's investment base as then
allocated in the investment divisions.
If a contract owner has the CMA Insurance Service, loans may be transferred to
and loan repayments transferred from his or her CMA account.
For a discussion of the tax consequences associated with a loan, see "Tax
Considerations" on page 29.
Effect on Death Benefit and Cash Value. Whether or not a loan is repaid, taking
a loan will have a permanent effect on a Contract's cash value and may have a
permanent effect on its death benefit. This is because the collateral for a loan
does not participate in the performance of the investment divisions while the
loan is outstanding. If the amount credited to the collateral is more than what
is earned in the investment divisions, the cash value may be higher as a result
of the loan, as may be the death benefit. Conversely, if the amount credited is
less, the cash value will be lower, as may be the death benefit. In that case,
the lower cash value may cause the Contract to lapse sooner than if no loan had
been taken.
Loan Value. The total loan value of a Contract equals 90% of its cash value.
Once available, the preferred loan value is calculated on each contract
anniversary. The preferred loan value for the contract year is equal to 12% of
the cash value less existing debt on the contract anniversary. This amount is
available each contract year, and is applied (i) first, to convert any existing
debt to preferred loan status; and (ii) then, is available for new loans. The
sum of all outstanding loan amounts plus accrued interest is called debt. The
maximum amount that can be borrowed at any time is the difference between the
total loan value and the debt.
Interest. While a loan is outstanding, Merrill Lynch Life may charge interest
at a maximum rate of 6% annually, subject to state regulation. Currently Merrill
Lynch Life charges interest of 5.25% annually. Interest accrues each day and
payments are due at the end of each contract year. If the interest isn't paid
when due, it is added to the outstanding loan amount. Interest paid on a loan
may not be tax deductible.
The amount held in Merrill Lynch Life's general account as collateral for a loan
earns interest at a minimum of 4% annually. Currently the preferred loan
collateral amount earns interest at an annual rate of 5.25%. The loan collateral
amount in excess of the preferred loan collateral amount earns interest at an
annual rate of 4.5%.
Merrill Lynch Life may change the interest rates currently charged on loans and
the rates of interest earned on the loan collateral amounts. Any such changes
will be effective on the contract anniversary following the date such rates are
declared.
Net Loan Cost. On each contract anniversary, Merrill Lynch Life reduces the
investment base by the net loan cost (the difference between the interest
charged and the earnings on the amount held as collateral in the general
account). Since the interest charged on preferred loans is 5.25% and the
preferred loan collateral amount earns interest at an annual rate of 5.25%, the
current net loan cost on preferred loan amounts is zero. Since the interest
charged on loans in excess of the preferred loan amount is 5.25%, and the loan
collateral amount in excess of the preferred loan collateral amount earns
interest at an annual rate of 4.5%, the current net loan cost on such loans is
.75%. The net loan cost is taken into account in determining the net cash
surrender value of the Contract if the date of surrender is not a contract
anniversary.
Cancellation Due to Excess Debt. If on a processing date the debt exceeds the
larger of (i) cash value plus certain excess sales load, and less charges due on
that date, and (ii) the fixed base (if any), Merrill Lynch Life will cancel the
Contract 61 days after a notice of intent to terminate the Contract is mailed to
the contract owner unless Merrill Lynch Life has received at least the minimum
repayment amount specified in the notice. During the first 24 months after the
Contract is issued, Merrill Lynch Life will add excess sales load to the
19
<PAGE> 24
cash value as necessary to keep the Contract in force if debt exceeds the larger
of the cash value less charges due and the fixed base. (See "Contract
Loading -- Excess Sales Load" on page 16.) Upon termination, Merrill Lynch Life
will deduct any charges for cost of insurance and rider costs that may be
applicable to the 61-day period and refund any unearned charges for cost of
insurance, rider costs and any excess sales load not previously applied to keep
the contract in force. If the Contract lapses with a loan outstanding, adverse
tax consequences may result. (See "Tax Considerations" on page 29.)
PARTIAL WITHDRAWALS
Beginning in the second contract year and prior to the insured's attained age
100, and subject to state regulation, a contract owner may make partial
withdrawals by submitting a request in a form satisfactory to Merrill Lynch
Life. The effective date of the withdrawal is the date a withdrawal request is
received at the Service Center. Contract owners may elect to receive the
withdrawal amount either in a single payment or, subject to Merrill Lynch Life's
rules, under one or more income plans.
Contract owners may make one partial withdrawal each contract year. The minimum
amount for each partial withdrawal is $1,000. Following a partial withdrawal,
the remaining cash value less debt must equal or exceed $5,000 and the remaining
face amount must be at least $250,000. The amount of any partial withdrawal may
not exceed the total loan value as of the effective date of the partial
withdrawal less any debt. A partial withdrawal may not be repaid. A partial
withdrawal will not be permitted if after the withdrawal the guarantee period
would extend beyond the insured's attained age 100.
Effect on Investment Base, Fixed Base, Cash Value and Death Benefit. As of the
effective date of the withdrawal, the investment base, fixed base, cash value
and, if the contract owner has elected death benefit option 1, the face amount
of the Contract will each be reduced by the amount of the partial withdrawal.
Merrill Lynch Life allocates this reduction proportionately to the investment
base in each of the contract owner's investment divisions unless notified
otherwise. The variable insurance amount will also reflect the partial
withdrawal as of the effective date.
Effect on Guarantee Period. As of the processing date on or next following the
effective date of a partial withdrawal, Merrill Lynch Life calculates a new
guarantee period. This is done by taking the immediate decrease in cash value
resulting from the partial withdrawal and adding to that amount interest at an
annual rate of 4.5% for the period from the date of the withdrawal to the
contract processing date on or next following such date. This is the guarantee
adjustment amount. The guarantee adjustment amount is subtracted from the fixed
base and the resulting new fixed base is used to calculate a new guarantee
period. For a discussion of the effect of partial withdrawals on a Contract's
guarantee period, see "Partial Withdrawals" in the Examples on page 45.
A partial withdrawal will not be permitted if after the withdrawal, the Contract
would not qualify as life insurance under federal tax law. A partial withdrawal
may cause a Contract which is not a modified endowment contract to become a
modified endowment contract. In such a case, Merrill Lynch Life will not process
the partial withdrawal until the contract owner confirms in writing his or her
intent to convert the Contract to a modified endowment contract. For a
discussion of the tax issues associated with a partial withdrawal, see "Tax
Considerations" on page 29.
DEATH BENEFIT PROCEEDS
Merrill Lynch Life will pay the death benefit proceeds to the beneficiary upon
receipt of all information needed to process the payment, including due proof of
the death of the insured.
If the insured should die within two years from the Contract's issue date,
within two years from the effective date of any requested change in the death
benefit option requiring evidence of insurability, or within two years of an
increase in the additional insurance rider face amount, due proof of the
insured's death should be sent promptly to the Service Center since Merrill
Lynch Life may pay only a limited benefit or contest the Contract. (See
"Incontestability" and "Payment in Case of Suicide" on page 27.)
20
<PAGE> 25
Death Benefit Proceeds. The death benefit payable depends on the death benefit
option in effect on the date of death.
- Under option 1, the death benefit is equal to the larger of the face
amount or the variable insurance amount.
- Under option 2, the death benefit is equal to the larger of the face
amount plus the cash value or the variable insurance amount.
Contract owners who wish to have investment experience reflected in insurance
coverage should choose option 2. Contract owners who wish to have insurance
coverage that generally does not vary in amount should choose option 1.
The death benefit will never be less than the amount required to keep the
Contract qualified as life insurance under federal income tax laws.
To determine the death benefit proceeds, Merrill Lynch Life will subtract from
the death benefit any debt and add to the death benefit any rider benefits
payable.
The values used in calculating the death benefit proceeds are as of the date of
death. If the insured dies during the grace period, the death benefit proceeds
equal the death benefit proceeds in effect immediately prior to the grace period
reduced by any overdue charges. (See "When the Guarantee Period Does Not Extend
to the Insured's Attained Age 100" on page 17.)
If the insured dies at or after the insured's attained age 100, we will instead
pay the beneficiary the post-100 death benefit proceeds (see "Post-100 Death
Benefit Proceeds" on page 22).
Variable Insurance Amount. Merrill Lynch Life determines the variable insurance
amount daily by:
- calculating the cash value (plus excess sales load during the first 24
months after the Contract is issued); and
- multiplying it by the cash value corridor factor (explained below) for
the insured at his or her attained age.
The variable insurance amount will never be less than required by federal tax
law.
Cash Value Corridor Factor. The cash value corridor factor is used to determine
the amount of death benefit purchased by $1.00 of cash value. It is based on the
attained age of the insured on the date of calculation. It decreases daily as
the insured's age increases. As a result, the variable insurance amount as a
multiple of the cash value will decrease over time. A table of cash value
corridor factors as of each anniversary is included in the Contract.
Table of Illustrative Cash Value Corridor Factors
on Anniversaries
<TABLE>
<CAPTION>
ATTAINED AGE FACTOR
- ------------- -----
<S> <C>
40 and under 250%
45 215%
55 150%
65 120%
75-90 105%
95 and over 100%
</TABLE>
Changing the Death Benefit Option. On each contract anniversary beginning with
the first and provided that the insured has not attained age 86, the contract
owner may change the death benefit option. The effective date of the change will
be the contract anniversary next following approval of the change. Merrill Lynch
Life
21
<PAGE> 26
will change the face amount in order to keep the death benefit constant on the
effective date of the change. Therefore, if the change is from option 1 to
option 2, the face amount of the Contract will be decreased by the cash value on
the date of the change. A change in the death benefit option will not be
permitted if it would result in a face amount of less than $250,000 or if the
resulting guarantee period would extend beyond the insured's attained age 100.
If the change is from option 2 to option 1, the face amount of the Contract will
be increased by the cash value on the date of the change. For a discussion of
the effect of a change in the death benefit option on a Contract, see "Changing
the Death Benefit Option" in the Examples on page 46.
If the contract owner requests a change in the death benefit option from option
1 to option 2, evidence of insurability in a form satisfactory to Merrill Lynch
Life that the insured is insurable may be required. In no event will a change be
permitted if, after the change, the Contract would not qualify as life insurance
under federal tax laws as interpreted by Merrill Lynch Life.
As of the effective date of a change in the death benefit option which results
in a change in the face amount, Merrill Lynch Life calculates a new guarantee
period using the new face amount (plus the additional insurance rider face
amount) and the fixed base on that date.
A change in the death benefit option may cause a Contract which is not a
modified endowment contract to become a modified endowment contract. In such a
case, Merrill Lynch Life will not process the change until the contract owner
confirms in writing his or her intent to convert the Contract to a modified
endowment contract. For a discussion of the tax issues associated with a change
in the death benefit option, see "Tax Considerations" on page 29.
Post-100 Death Benefit Proceeds. The death benefit proceeds at and after the
insured's attained age 100 depend upon the death benefit option in effect on the
date of death.
If option 1 is in effect, the post-100 death benefit is calculated based on the
cash value and the adjusted face amount where:
- the adjusted face amount equals the lesser of:
(1) the face amount at the insured's attained age 100, and
(2) the cash value as of the date of death plus the net amount at risk
at the insured's attained age 100.
- the net amount at risk at the insured's attained age 100 equals the face
amount at the insured's attained age 100 less the cash value at that time.
- the death benefit equals the greater of:
(1) the cash value as of the date of death, and
(2) the adjusted face amount.
If option 2 is in effect, the post-100 death benefit is equal to the face amount
at the insured's attained age 100 plus the cash value as of the date of death.
To determine the post-100 death benefit proceeds under either option, Merrill
Lynch Life will subtract from the death benefit any debt.
Benefits at the Insured's Attained Age 100. At the insured's attained age 100,
the guarantee period, if any, ends. Cash value will continue to increase or
decrease depending on the investment experience of the investment divisions to
which the Contract's investment base is allocated. Upon the death of the
insured, Merrill Lynch Life will pay the beneficiary the post-100 death benefit
proceeds.
At and after the insured's attained age 100, cost of insurance charges will no
longer be deducted. Loan repayments will be accepted. Net loan cost will
continue to be deducted and loan interest charges will continue to accrue.
Additional payments, partial withdrawals and additional loans will not be
permitted. Any additional insurance rider coverage terminates.
22
<PAGE> 27
The tax treatment of post-100 benefits is unclear. A contract owner should
consult a tax advisor about the tax consequences associated with such benefits.
PAYMENT OF DEATH BENEFIT PROCEEDS
Merrill Lynch Life will generally pay the death benefit proceeds to the
beneficiary within seven days after all the information needed to process the
payment is received at its Service Center. Merrill Lynch Life will add interest
from the date of the insured's death to the date of payment at an annual rate of
at least 4%. The beneficiary may elect to receive the proceeds either in a
single payment or under one or more income plans described on page 27.
Payment may be delayed if the Contract is being contested or under the
circumstances described in "Using the Contract" on page 25 and "Other Contract
Provisions" on page 27. If a delay is necessary and death of the insured occurs
prior to the end of the guarantee period, Merrill Lynch Life may delay payment
of any excess of the death benefit over the face amount. After the guarantee
period has expired, Merrill Lynch Life may delay payment of the entire death
benefit.
ACCELERATED BENEFIT RIDER
Applicants residing in states that have approved the Accelerated Benefit Rider
(the "ABR") may elect to add it to their Contract. The ABR may only be added to
the Contract at the time the Contract is issued. The ABR permits the contract
owner to receive, upon request and subject to approval by Merrill Lynch Life,
accelerated payment of part of the Contract's death benefit, adjusted to reflect
current value, if the insured develops a non-correctable illness or physical
condition which with reasonable medical certainty is expected to result in his
or her death within 12 months ("Terminal Illness"). There is no charge for
including the ABR in a Contract. However, an administrative expense charge not
to exceed $250 will be deducted from the accelerated benefit at the time it is
paid.
The federal income tax consequences associated with adding the ABR to the
Contract or receiving an accelerated benefit payment are uncertain. You should
consult your personal tax advisor before adding the ABR or requesting an
accelerated benefit payment under the ABR.
The accelerated benefit amount requested cannot exceed the lesser of 75% of the
"eligible amount" or $250,000. If death benefit option 1 is in effect, the
eligible amount is the face amount of the Contract. If death benefit option 2 is
in effect, the eligible amount is the face amount plus the cash value of the
Contract.
The amount of the accelerated benefit payment is the accelerated benefit amount
requested, adjusted to reflect a 12-month discount rate, less partial repayment
of any outstanding debt, and less the administrative expense charge. The minimum
amount of the accelerated benefit payment must be at least $10,000.
The eligible amount and the accelerated benefit payment will be determined as of
the date Merrill Lynch Life receives all requirements to pay benefits under the
rider.
A contract owner may request only one accelerated benefit payment. The payment
will be made in a lump sum. There are no restrictions on the owner's use of the
proceeds.
In order for a contract owner to receive an accelerated benefit payment, as of
the date Merrill Lynch Life receives all requirements to pay benefits under the
rider, the Contract must have been in force for at least two years from its
issue date or date of its last reinstatement. The owner must submit completed
claim forms to Merrill Lynch Life, including certification by a treating
physician that the insured has a Terminal Illness, as provided in the rider.
Merrill Lynch Life may request additional medical information from the insured's
physician and/or may require an independent physical examination (at its
expense) before approving the claim for payment of the accelerated benefit.
Written consent for payment must be given by any co-owner, spouse and any
irrevocable beneficiaries having an interest in the Contract. Merrill Lynch Life
will not approve payment of an accelerated benefit if the Contract is assigned
in whole or in part, or if the owner is required to elect it by any third party.
The total of accelerated benefit payments under all Contracts issued by Merrill
Lynch Life and its affiliates on the life of the insured may not exceed
$250,000.
Upon payment of an accelerated benefit, Merrill Lynch Life will reduce the face
amount of the Contract by the amount of the accelerated benefit payment. The
cash value will be reduced and will equal the original cash
23
<PAGE> 28
value multiplied by the death benefit after payment of the accelerated benefit,
divided by the death benefit before payment of the accelerated benefit. The
investment base, fixed base and variable insurance amount will each be reduced
as a result of the decrease in death benefit and cash value. The guarantee
period will also be recalculated. The reduction in total investment base will be
allocated among the investment divisions based on the percentages indicated by
the owner. If such instructions are not provided, allocation will be made among
the investment divisions in the same proportion as the investment base in each
division bears to the total investment base, as of the date of payment. Any
outstanding debt will be reduced by the amount of the loan repayment deducted
from the accelerated benefit.
The ABR terminates on the earliest of the date an accelerated benefit payment is
made; or the date that the Contract is surrendered, lapses or otherwise
terminates, or the date Merrill Lynch Life receives the contract owner's request
to terminate the ABR.
RIGHTS TO CANCEL OR CONVERT
"Free Look" Period. A contract owner may cancel his or her Contract during the
"free look" period by returning it for a refund. Generally, the "free look"
period ends the later of ten days after the Contract is received, 45 days after
the contract owner completes the application or ten days after Merrill Lynch
Life mails or personally delivers to the contract owner the Notice of Withdrawal
Right. To cancel the Contract during the "free look" period, the contract owner
must mail or deliver the Contract to Merrill Lynch Life's Service Center or to
the registered representative who sold it. Merrill Lynch Life will refund the
payment made without interest. If cancelled, Merrill Lynch Life may require the
contract owner to wait six months before applying again.
Converting the Contract. A contract owner may convert the Contract for a
contract with benefits that do not vary with the investment results of a
separate account. Once a contract owner exercises this right, the investment
base and additional payments may not be allocated to the Separate Account. A
request to convert must be made in writing within 24 months after the issue date
of the Contract while the insured is living. The conversion will not require
evidence of insurability.
The conversion will be accomplished by adding an endorsement to the Contract and
transferring, without charge, the investment base in the Separate Account to the
guaranteed interest division ("GID"). Assets in the guaranteed interest division
are held in Merrill Lynch Life's general account. The investment base at the
time of conversion and any additional payments will remain in the guaranteed
interest division and be credited with interest at a rate declared by Merrill
Lynch Life. A declared interest rate for any amount allocated to the guaranteed
interest division will be in effect for at least one year. After conversion, the
Contract will not be subject to charges to the Separate Account. For a
discussion of the tax consequences of converting the Contract, see "Tax
Considerations" on page 29.
REPORTS TO CONTRACT OWNERS
After the end of each processing period, contract owners will be sent a
statement of the allocation of their investment base, death benefit, cash value,
any debt and, if there has been a change, the face amount, the guarantee period
and the additional insurance rider face amount. All figures will be as of the
end of the immediately preceding processing period. The statement will show the
amounts deducted from or added to the investment base during the processing
period. The statement will also include any other information that may be
currently required by a contract owner's state.
Contract owners will receive confirmation of all financial transactions. Such
confirmations will show the price per unit of each of the contract owner's
investment divisions, the number of units a contract owner has in the investment
division and the value of the investment division computed by multiplying the
quantity of units by the price per unit. (See "Net Rate of Return for an
Investment Division" on page 34.) The sum of the values in each investment
division is a contract owner's investment base.
24
<PAGE> 29
Contract owners will also be sent an annual and a semi-annual report containing
financial statements and a list of portfolio securities of the Series Fund and
the Variable Series Funds, as required by the Investment Company Act of 1940.
CMA Account Reporting. Contract owners who have the CMA Insurance Service will
have certain Contract information included as part of their regular monthly CMA
account statement. It will list the investment base allocation, death benefit,
cash value, debt and any CMA account activity affecting the Contract during the
month.
MORE ABOUT THE CONTRACT
USING THE CONTRACT
Ownership. The contract owner is usually the insured, unless another owner has
been named in the application. The contract owner has all rights and options
described in the Contract.
The contract owner may want to name a contingent owner. If the contract owner
dies before the insured, the contingent owner will own the contract owner's
interest in the Contract and have the contract owner's rights. If the contract
owner doesn't name a contingent owner, the contract owner's estate will own the
contract owner's interest in the Contract upon the owner's death.
If there is more than one contract owner, Merrill Lynch Life will treat the
owners as joint tenants with rights of survivorship unless the ownership
designation provides otherwise. The owners must exercise their rights and
options jointly, except that any one of the owners may reallocate the Contract's
investment base by phone if the owner provides the personal identification
number as well as the Contract number. One contract owner must be designated, in
writing, to receive all notices, correspondence and tax reporting to which
contract owners are entitled under the Contract.
Changing the Owner. During the insured's lifetime, with the consent of any
irrevocable beneficiary, the contract owner has the right to transfer ownership
of the Contract. The new owner will have all rights and options described in the
Contract. The change will be effective as of the day the notice is signed, but
will not affect any payment made or action taken by Merrill Lynch Life before
receipt of the notice of the change at the Service Center. Changing the owner
may have tax consequences. (See "Tax Considerations" on page 29.)
Assigning the Contract as Collateral. Contract owners may assign the Contract
as collateral security for a loan or other obligation. This does not change the
ownership. However, the contract owner's rights and any beneficiary's rights are
subject to the terms of the assignment. Contract owners must give satisfactory
written notice at the Service Center in order to make or release an assignment.
Merrill Lynch Life is not responsible for the validity of any assignment.
For a discussion of the tax issues associated with a collateral assignment, see
"Tax Considerations" on page 29.
Naming Beneficiaries. Merrill Lynch Life will pay the primary beneficiary the
death benefit proceeds of the Contract on the insured's death. If the primary
beneficiary has died, Merrill Lynch Life will pay the contingent beneficiary. If
no contingent beneficiary is living, Merrill Lynch Life will pay the estate of
the insured.
A contract owner may name more than one person as primary or contingent
beneficiaries. Merrill Lynch Life will pay proceeds in equal shares to the
surviving beneficiaries unless the beneficiary designation provides otherwise.
A contract owner has the right to change beneficiaries during the insured's
lifetime, unless the primary beneficiary designation has been made irrevocable.
If the designation is irrevocable, the primary beneficiary must consent when
certain rights and options are exercised under this Contract. If the beneficiary
is changed,
25
<PAGE> 30
the change will take effect as of the day the notice is signed, but will not
affect any payment made or action taken by Merrill Lynch Life before receipt of
the notice of the change at the Service Center.
How Merrill Lynch Life Makes Payments. Merrill Lynch Life generally pays death
benefit proceeds, partial withdrawals, loans and net cash surrender value on
cancellation from the Separate Account within seven days after the Service
Center receives all the information needed to process the payment.
However, it may delay payment from the Separate Account if it isn't practical
for Merrill Lynch Life to value or dispose of Trust units, Series Fund shares or
Variable Series Funds shares because:
- the New York Stock Exchange is closed, other than for a customary weekend
or holiday; or
- trading on the New York Stock Exchange is restricted by the Securities
and Exchange Commission; or
- the Securities and Exchange Commission declares that an emergency exists
such that it is not reasonably practical to dispose of securities held in
the Separate Account or to determine the value of their assets; or
- the Securities and Exchange Commission by order so permits for the
protection of contract owners.
SOME ADMINISTRATIVE PROCEDURES
Described below are certain administrative procedures. Merrill Lynch Life
reserves the right to modify them or to eliminate them. For administrative and
tax purposes, Merrill Lynch Life may from time to time require that specific
forms be completed in order to accomplish certain transactions, including
surrenders.
Personal Identification Number. Merrill Lynch Life will send each contract
owner a four-digit personal identification number ("PIN") shortly after the
Contract is placed in force and before the end of the "free look" period. This
number must be given when the contract owner calls the Service Center to get
information about the Contract, to make a loan (if an authorization is on file),
or to make other requests. Each PIN will be accompanied by a notice reminding
the contract owner that all of the investment base is in the division investing
in the Money Reserve Portfolio, and will be reallocated to the investment
divisions selected at the time of application. The notice sent to contract
owners who did not choose to preallocate investment base will indicate that the
allocation to the Money Reserve Portfolio may be changed by calling or writing
to the Service Center. (See "Changing the Allocation" on page 15.)
Reallocating the Investment Base. Contract owners can reallocate their
investment base either in writing in a form satisfactory to Merrill Lynch Life
or by phone. If the reallocation is requested by phone, contract owners must
give their personal identification number as well as their Contract number.
Merrill Lynch Life will give a confirmation number over the phone and then
follow up in writing.
Requesting a Loan. A loan may be requested in writing in a form satisfactory to
Merrill Lynch Life or, if all required authorization forms are on file, by
phone. Once the authorization has been received at the Service Center, contract
owners can call the Service Center, give their Contract number, name and
personal identification number, and tell Merrill Lynch Life the loan amount and
from which divisions the loan should be transferred.
Upon request, Merrill Lynch Life will wire the funds to the contract owner's
account at the financial institution named on the contract owner's
authorization. Merrill Lynch Life will generally wire the funds within two
working days of receipt of the request. If the contract owner has the CMA
Insurance Service, funds may be transferred directly to that CMA account.
Requesting Partial Withdrawals. Beginning in the second contract year, partial
withdrawals may be requested in writing in a form satisfactory to Merrill Lynch
Life. A contract owner may request a partial withdrawal by phone if all required
phone authorization forms are on file. Once the authorization has been received
at the Service Center, contract owners can call the Service Center, give their
Contract number, name and personal identification number, and tell Merrill Lynch
Life how much to withdraw and from which investment divisions.
26
<PAGE> 31
Upon request, Merrill Lynch Life will wire the funds to the contract owner's
account at the financial institution named on the contract owner's
authorization. Merrill Lynch Life will generally wire the funds within two
working days of receipt of the request. If the contract owner has the CMA
Insurance Service, funds may be transferred directly to that CMA account.
Telephone Requests. A telephone request for a loan, partial withdrawal or a
reallocation received before 4 p.m. (ET) generally will be processed the same
day. A request received at or after 4 p.m. (ET) will be processed the following
business day. Merrill Lynch Life reserves the right to change or discontinue
telephone transfer procedures.
OTHER CONTRACT PROVISIONS
In Case of Errors in the Application. If an age or sex given in the application
is wrong, it could mean that the face amount or any other Contract benefit is
wrong. Merrill Lynch Life will pay what the payments made would have bought for
the guarantee period at the true age or sex.
Incontestability. Merrill Lynch Life will rely on statements made in the
applications. Legally, they are considered representations, not warranties.
Merrill Lynch Life can contest the validity of a Contract if any material
misstatements are made in the initial application or any application for
reinstatement. Merrill Lynch Life can also contest the validity of any change in
face amount due to a change in death benefit option or any increase in the
additional insurance rider face amount requested if any material misstatements
are made in any application required for the change or increase.
Subject to state regulation, Merrill Lynch Life will not contest the validity of
a Contract after it has been in effect during the lifetime of the insured for
two years from the date of issue or the date of any reinstatement. A change in
face amount due to a change in the death benefit option or any increase in the
additional insurance rider face amount won't be contested after the change or
increase has been in effect during the lifetime of the insured for two years
from the date of the change.
Payment in Case of Suicide. Subject to state regulation, if the insured commits
suicide within two years from the Contract's issue date or the date of any
reinstatement, Merrill Lynch Life will pay only a limited death benefit and then
terminate the Contract. The benefit will be equal to the amount of the payments
made, reduced by any debt and partial withdrawals.
Subject to state regulation, if the insured commits suicide within two years of
the effective date of a change in the death benefit option requiring evidence of
insurability or of the effective date of an increase in the additional insurance
rider face amount, any amount of death benefit which would not be payable except
for the fact that the face amount was increased will be limited to the amount of
cost of insurance deductions made for the increase.
Contract Changes -- Applicable Federal Tax Law. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. Therefore, to maintain this qualification to the
maximum extent of the law, Merrill Lynch Life reserves the right to return any
additional payments that would cause the Contract to fail to qualify as life
insurance under applicable tax law as interpreted by Merrill Lynch Life.
Further, Merrill Lynch Life reserves the right to make changes in the Contract
or its riders or to make distributions from the Contract to the extent it is
necessary to continue to qualify the Contract as life insurance. Any changes
will apply uniformly to all Contracts that are affected and contract owners will
be given advance written notice of such changes.
State Variations. Certain Contract features, including the "free look" right,
are subject to state variation. The contract owner should read his or her
Contract carefully to determine whether any variations apply in the state in
which the Contract is issued.
INCOME PLANS
Merrill Lynch Life offers several income plans to provide for payment of the
death benefit proceeds to the beneficiary. The contract owner may choose one or
more income plans at any time during the lifetime of the
27
<PAGE> 32
insured. If no plan has been chosen when the insured dies, the beneficiary has
one year to apply the death benefit proceeds either paid or payable to that
beneficiary to one or more of the plans. The contract owner may also choose one
or more income plans if the Contract is cancelled or a partial withdrawal is
taken. Merrill Lynch Life's approval is needed for any plan where any income
payment would be less than $100. Payments under these plans do not depend on the
investment results of a separate account.
Income plans include:
Annuity Plan. An amount can be used to purchase a single premium immediate
annuity.
Interest Payment. Amounts can be left with Merrill Lynch Life to earn
interest at an annual rate of at least 3%. Interest payments can be made
annually, semi-annually, quarterly or monthly.
Income for a Fixed Period. Payments are made in equal installments for a
fixed number of years.
Income for Life. Payments are made in equal monthly installments until
death of a named person or end of a designated period, whichever is later.
The designated period may be for 10 or 20 years.
Income of a Fixed Amount. Payments are made in equal installments until
proceeds applied under the option and interest on unpaid balance at not
less than 3% per year are exhausted.
Joint Life Income. Payments are made in monthly installments as long as at
least one of two named persons is living. While both are living, full
payments are made. If one dies, payments at two-thirds of the full amount
are made. Payments end completely when both named persons die.
Once in effect, some of the plans may not provide any surrender rights.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, Merrill Lynch Life may reduce the
sales load, cost of insurance rates and the minimum payment and may modify
underwriting classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows Merrill Lynch Life to
sell Contracts to its employees on an individual basis. Costs for sales,
administration and mortality generally vary with the size and stability of the
group and the reasons the Contracts are purchased, among other factors. Merrill
Lynch Life takes all these factors into account when reducing charges. To
qualify for reduced charges, a group or sponsored arrangement must meet certain
requirements, including requirements for size and number of years in existence.
Group or sponsored arrangements that have been set up solely to buy Contracts or
that have been in existence less than six months will not qualify for reduced
charges.
Merrill Lynch Life makes any reductions according to rules in effect when an
application for a Contract or additional payment is approved. It may change
these rules from time to time. However, reductions in charges will not
discriminate unfairly against any person.
UNISEX LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983 the Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title Vll of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
Generally, the Contracts offered by this Prospectus are based on mortality
tables that distinguish between men and women. As a result, the Contract pays
different benefits to men and women of the same age. Employers and employee
organizations should check with their legal advisers before purchasing these
Contracts.
Some states prohibit the use of actuarial tables that distinguish between men
and women in determining payments and contract benefits for contracts issued on
the lives of their residents. Therefore, Contracts offered
28
<PAGE> 33
in this Prospectus to insure residents of these states will have unisex payments
and benefits which are based on actuarial tables that do not differentiate on
the basis of sex.
SELLING 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"). The principal business address of MLPF&S is World
Financial Center, 250 Vesey Street, New York, New York 10281. MLPF&S also acts
as principal underwriter of other variable life insurance and variable annuity
contracts issued by Merrill Lynch Life, as well as variable life insurance and
variable annuity contracts issued by ML Life Insurance Company of New York, an
affiliate of Merrill Lynch Life. MLPF&S also acts as principal underwriter of
certain mutual funds managed by MLAM, the investment adviser for the Series Fund
and the Variable Series Funds.
Contracts are sold by registered representatives of MLPF&S who are also licensed
through various Merrill Lynch Life Agencies as insurance agents for Merrill
Lynch Life. Merrill Lynch Life has entered into a distribution agreement with
MLPF&S and companion sales agreements with the Merrill Lynch Life Agencies
through which agreements the Contracts and other variable life insurance
contracts issued through the Separate Account are sold and the registered
representatives are compensated by Merrill Lynch Life Agencies and/or MLPF&S.
The maximum commissions Merrill Lynch Life will pay to the applicable insurance
agency to be used to pay commissions to registered representatives are as
follows: 95% of the target premium under the Contract; plus 3% of payments
thereafter. In addition, an amount equal to .11% of persisting investment base
under a Contract may be paid on an annual basis. Commissions may be paid in the
form of non-cash compensation.
The amounts paid under the distribution and sales agreements for the Separate
Account for the years ended December 31, 1993 and December 31, 1992 were
$2,513,335 and $119,298, respectively.
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. Registered representatives of these other broker-dealers may be
compensated on a different basis than MLPF&S registered representatives.
TAX CONSIDERATIONS
Definition of Life Insurance. In order to qualify as a life insurance contract
for federal tax purposes, the Contract must meet the definition of a life
insurance contract which is set forth in Section 7702 of the Internal Revenue
Code of 1986, as amended (the "Code"). The manner in which Section 7702 should
be applied to certain features of the Contract offered in this Prospectus is not
directly addressed by Section 7702. Nevertheless, Merrill Lynch Life believes
that the Contract will meet the Section 7702 definition of a life insurance
contract. This means that:
- the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
- the contract owner should not be considered in constructive receipt of
the cash value, including any increases, until actual cancellation of the
Contract (see "Tax Treatment of Loans and Other Distributions" below).
In the absence of final regulations or other pertinent interpretations of
Section 7702, however, there is necessarily some uncertainty as to whether a
substandard risk Contract will meet the statutory life insurance contract
definition. There may also be some uncertainty with respect to a Contract with
an additional insurance rider attached. If a Contract were determined not to be
a life insurance contract for purposes of Section 7702, such Contract would not
provide most of the tax advantages normally provided by a life insurance
contracts.
29
<PAGE> 34
Merrill Lynch Life thus reserves the right to make changes in the Contract if
such changes are deemed necessary to attempt to assure its qualification as a
life insurance contract for tax purposes. (See "Contract Changes -- Applicable
Federal Tax Law" on page 27.)
Diversification. Section 817(h) of the Code provides that separate account
investments (or the investments of a mutual fund, the shares of which are owned
by separate accounts of insurance companies) underlying the Contract must be
"adequately diversified" in accordance with Treasury regulations in order for
the Contract to qualify as life insurance. The Treasury Department has issued
regulations prescribing the diversification requirements in connection with
variable contracts. The Separate Account, through the Series Fund and the
Variable Series Funds, intends to comply with these requirements. Although
Merrill Lynch Life doesn't control the Series Fund or the Variable Series Funds,
it intends to monitor the investments of the Series Fund and the Variable Series
Funds to ensure compliance with the requirements prescribed by the Treasury
Department.
In connection with the issuance of the temporary diversification regulations,
the Treasury Department stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which an owner's control of the
investments of a separate account may cause the owner, rather than the insurance
company, to be treated as the owner of the assets in the account. If the
contract owner is considered the owner of the assets of the Separate Account,
income and gains from the account would be included in the owner's gross income.
The ownership rights under the Contract offered in this Prospectus are similar
to, but different in certain respects from, those described by the Internal
Revenue Service in rulings in which it determined that the owners were not
owners of separate account assets. For example, the owner of the Contract has
additional flexibility in allocating payments and cash values. These differences
could result in the owner being treated as the owner of the assets of the
Separate Account. In addition, Merrill Lynch Life does not know what standards
will be set forth in the regulations or rulings which the Treasury has stated it
expects to be issued. Merrill Lynch Life therefore reserves the right to modify
the Contract as necessary to attempt to prevent the contract owner from being
considered the owner of the assets of the Separate Account.
Tax Treatment of Loans and Other Distributions. Federal tax law establishes a
class of life insurance contracts referred to as modified endowment contracts. A
modified endowment contract is any contract which satisfies the definition of
life insurance set forth in Section 7702 of the Code but fails to meet the 7-pay
test. This test applies a cumulative limit on the amount of payments that can be
made into a contract each year in the first seven contract years in order to
avoid modified endowment treatment. In effect, compliance with the 7-pay test
requires that contracts be purchased with a higher face amount for a given
initial payment than would otherwise be required, at a minimum, to meet the
definition of life insurance. Contracts that do not satisfy the 7-pay test,
including contracts which initially satisfied the 7-pay test but later failed
the test, will be considered modified endowment contracts subject to the
following distribution rules. Loans and partial withdrawals from, as well as
collateral assignments of, modified endowment contracts will be treated as
distributions to the contract owner. Furthermore, if the loan interest is
capitalized by adding the amount due to the balance of the loan, the amount of
the capitalized interest will be treated as a distribution which may be subject
to income tax, to the extent of the income in the contract. All pre-death
distributions (including loans, partial withdrawals and collateral assignments)
from these contracts will be included in gross income on an income-first basis
to the extent of any income in the contract (the cash value less the contract
owner's investment in the contract) immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, capitalized interest, collateral assignments, partial withdrawals and
complete surrenders) from modified endowment contracts to the extent they are
included in income, unless such amounts are distributed on or after the taxpayer
attains age 59 1/2, because the taxpayer is disabled, or as substantially equal
periodic payments over the taxpayer's life (or life expectancy) or over the
joint lives (or joint life expectancies) of the taxpayer and his or her
beneficiary.
Contracts that comply with the 7-pay test will not be classified as modified
endowment contracts. Loans from contracts that are not modified endowment
contracts generally will be considered indebtedness of an owner and no part of a
loan generally will constitute income to the owner. (The treatment of a
preferred loan is
30
<PAGE> 35
unclear; such a loan may be considered a withdrawal instead of an indebtedness
of the contract owner.) In addition, pre-death distributions from these
contracts will generally not be included in gross income to the extent that the
amount received does not exceed the owner's investment in the contract. An
exception to this general rule may occur in the case of a decrease in the death
benefit provided in respect of a contract (possibly resulting from a partial
withdrawal) or any other change that reduces benefits under the contract in the
first 15 years after the contract is issued and that results in a cash
distribution to the contract owner in order for the contract to continue
complying with the Section 7702 definitional limits. Such a cash distribution
may be taxed in whole or in part as ordinary income (to the extent of any gain
in the contract) under rules prescribed in Section 7702.
A lapse of such a contract with an outstanding loan will result in the treatment
of the loan cancellation (including the accrued interest) as a distribution
under the contract and may be taxable.
Compliance with the 7-pay test does not imply or guarantee that only seven
payments will be required for the initial death benefit to be guaranteed for
life. Making additional payments or reducing the benefits (for example, through
a partial withdrawal, a change in death benefit option or terminating additional
benefits under a rider) may violate the 7-pay test or, at a minimum, reduce the
amount that may be paid in the future under the 7-pay test. Further, reducing
the death benefit during the first seven contract years will require retroactive
retesting and may well result in a failure of the 7-pay test regardless of any
efforts by Merrill Lynch Life to provide a payment schedule that will not
violate the 7-pay test.
Any contract received in an exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts that is described in the
Prospectus. A contract that is not originally classified as a modified endowment
contract can become so classified if there is a reduction in benefits during the
first seven contract years (including, for example, by a decrease in the
additional insurance rider face amount or a change in death benefit option) or
if a material change is made in the contract at any time. A material change
includes, but is not limited to, a change in the benefits that was not reflected
in a prior 7-pay test computation, such as a change in death benefit option.
This could result from additional payments made after 7-pay test calculations
done at the time of the contract exchange. Contract owners may choose not to
exercise their right to make additional payments, in order to preserve their
contract's current tax treatment.
If a contract becomes a modified endowment contract, distributions that occur
during the contract year it becomes a modified endowment contract and any
subsequent contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a contract within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a contract that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Special Treatment of Loans on the Contract. If there is any borrowing against
the Contract, whether a modified endowment contract or not, the interest paid on
loans may not be tax deductible.
Aggregation of Modified Endowment Contracts. In the case of a pre-death
distribution (including a loan, partial withdrawal, collateral assignment or
complete surrender) from a contract that is treated as a modified endowment
contract under the rules described above, a special aggregation requirement may
apply for purposes of determining the amount of the income on the contract.
Specifically, if Merrill Lynch Life or any of its affiliates issues to the same
contract owner more than one modified endowment contract within a calendar year,
then for purposes of measuring the income on the contract with respect to a
distribution from any of those contracts, the income on the contract for all
those contracts will be aggregated and attributed to that distribution.
Tax Treatment of Policy Split. The Contract may be issued upon exercise of
rights provided by a policy split rider under certain joint and last survivor
contracts issued by Merrill Lynch Life. (For more information about this rider
and the conditions and rules relating to the exercise of any rights under the
rider, the contract owner should call the Service Center.) A policy split could
have adverse tax consequences; for example, it is not clear
31
<PAGE> 36
whether a policy split will be treated as a nontaxable exchange under Sections
1031 through 1043 of the Code. If a policy split is not treated as a nontaxable
exchange, a split could result in the recognition of taxable income in an amount
up to any gain in the joint and last survivor contract at the time of the split.
In addition, it is not clear whether the individual contracts that result from a
policy split would in all circumstances be treated as life insurance contracts
for federal income tax purposes and, if so treated, whether the contracts would
be classified as modified endowment contracts. (See "Tax Treatment of Loans and
Other Distributions" on page 30.) Before the contract owner exercises rights
provided by a policy split rider in order to obtain this Contract, it is
important that he or she consult with a competent tax advisor regarding the
possible consequences of a policy split.
Accelerated Benefit Rider. The federal income tax consequences associated with
adding an Accelerated Benefit Rider to a Contract or receiving an accelerated
benefit payment under such a rider are uncertain. You should consult your
personal tax adviser about these tax consequences.
Other Tax Considerations. The transfer of the Contract or the designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation skipping
transfer taxes. For example, the transfer of the Contract to, or the designation
as beneficiary of, or the payment of proceeds to, a person who is assigned to a
generation which is two or more generations below the generation assignment of
the contract owner, may have generation skipping transfer tax considerations
under Section 2601 of the Code.
The individual situation of each contract owner or beneficiary will determine
the extent, if any, to which federal, state and local transfer taxes may be
imposed. The contract owner should consult with a tax advisor for specific
information in connection with these taxes.
The particular situation of each contract owner or beneficiary will determine
how ownership or receipt of contract proceeds will be treated for purpose of
federal or state tax, as well as state and local estate, inheritance, generation
skipping and other taxes.
Other Transactions. Changing the contract owner or an additional insurance
rider's face amount may have tax consequences. Exchanging this Contract for
another involving the same insured should have no federal income consequences if
there is no debt and no cash or other property is received, according to Section
1035(a)(1) of the Code. The new contract would have to satisfy the 7-pay test
from the date of the exchange to avoid characterization as a modified endowment
contract. An exchange for a new contract may, however, result in a loss of
grandfathering status for statutory changes made after the old contract was
issued. A tax advisor should be consulted before effecting an exchange.
Ownership of This Contract by Non-Natural Persons. The above discussion of the
tax consequences arising from the purchase, ownership and transfer of the
Contract has assumed that the owner of the Contract consists of one or more
individuals. Organizations exempt from taxation under Section 501(a) of the Code
may be subject to additional or different tax consequences with respect to
transactions such as contract loans. Further, organizations purchasing Contracts
covering the life of an individual who is an officer or employee, or is
financially interested in, the taxpayer's trade or business, may be unable to
deduct all or a portion of the interest or payments made with respect to the
Contract. Such organizations should obtain tax advice prior to the acquisition
of this Contract and also before entering into any subsequent changes to or
transactions under this Contract.
Merrill Lynch Life does not make any guarantee regarding the tax status of any
Contract or any transaction regarding the Contract.
The above discussion is not intended as tax advice. For tax advice contract
owners should consult a competent tax advisor. Although this tax discussion is
based on Merrill Lynch Life's understanding of federal income tax laws as they
are currently interpreted, it can't guarantee that those laws or interpretations
will remain unchanged.
32
<PAGE> 37
MERRILL LYNCH LIFE'S INCOME TAXES
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain policy
acquisition expenses over a ten-year period rather than currently deducting such
expenses. This treatment applies to the deferred acquisition expenses of a
Contract and results in a significantly higher corporate income tax liability
for Merrill Lynch Life in early contract years. Merrill Lynch Life makes a
charge to compensate Merrill Lynch Life for the anticipated higher corporate
income taxes that result from the receipt of payments under a Contract. (See
"Contract Loading" on page 16.)
Currently, Merrill Lynch Life makes no charges to the Separate Account for any
federal, state or local taxes that it incurs that may be attributable to the
Separate Account or to the Contracts. Merrill Lynch Life, however, reserves the
right to make a charge for assessments of federal premium taxes or federal,
state or local excise, profits or income taxes measured by or attributable to
the receipt of premiums.
REINSURANCE
Merrill Lynch Life intends to reinsure some of the risks assumed under the
Contracts.
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
ABOUT THE SEPARATE ACCOUNT
The Separate Account is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 as a unit investment trust. This
registration does not involve any supervision by the Securities and Exchange
Commission of Merrill Lynch Life's management or the management of the Separate
Account. The Separate Account is also governed by the laws of the State of
Arkansas, Merrill Lynch Life's state of domicile.
Merrill Lynch Life owns all of the assets of the Separate Account. These assets
are held separate and apart from all of Merrill Lynch Life's other assets.
Merrill Lynch Life maintains records of all purchases and redemptions of Series
Fund, Variable Series Funds and Zero Trust shares by each of the investment
divisions.
CHANGES WITHIN THE ACCOUNT
Merrill Lynch Life may from time to time make additional investment divisions
available to contract owners. These divisions will invest in investment
portfolios Merrill Lynch Life finds suitable for the Contracts. Merrill Lynch
Life also has the right to eliminate investment divisions from the Separate
Account, to combine two or more investment divisions, or to substitute a new
portfolio for the portfolio in which an investment division invests. A
substitution may become necessary if, in Merrill Lynch Life's judgment, a
portfolio no longer suits the purposes of the Contracts. This may happen due to
a change in laws or regulations or in a portfolio's investment objectives or
restrictions, or because the portfolio is no longer available for investment, or
for some other reason. Merrill Lynch Life would get any required prior approval
from the Arkansas State Insurance Department and the Securities and Exchange
Commission before making such a substitution. It would also get any other
required approvals before making such a substitution.
Subject to any required regulatory approvals, Merrill Lynch Life reserves the
right to transfer assets of the Separate Account or of any of the investment
divisions to another separate account or investment division.
When permitted by law, Merrill Lynch Life reserves the right to:
- deregister the Separate Account under the Investment Company Act of 1940;
- operate the Separate Account as a management company under the Investment
Company Act of 1940;
- restrict or eliminate any voting rights of contract owners, or other
persons who have voting rights as to the Separate Account; and
- combine the Separate Account with other separate accounts.
33
<PAGE> 38
NET RATE OF RETURN FOR AN INVESTMENT DIVISION
Each investment division has a distinct unit value (also referred to as "price"
or "separate account index" in reports furnished to the contract owner by
Merrill Lynch Life). When payments or other amounts are allocated to an
investment division, a number of units are purchased based on the value of a
unit of the investment division as of the end of the valuation period during
which the allocation is made. When amounts are transferred out of, or deducted
from, an investment division, units are redeemed in a similar manner. A
valuation period is each business day together with any non-business days before
it. A business day for an investment division is any day the New York Stock
Exchange is open or the SEC requires that the net asset value of an investment
division be determined.
For each investment division, the separate account index was initially set at
$10.00. The separate account index for each subsequent valuation period
fluctuates based upon the net rate of return for that period. Merrill Lynch Life
determines the net rate of return of an investment division at the end of each
valuation period. The net rate of return reflects the investment performance of
the division for the valuation period and is net of the charges to the Separate
Account described on page 17.
For divisions investing in the Series Fund or the Variable Series Funds, shares
are valued at net asset value and reflect reinvestment of any dividends or
capital gains distributions declared by the Series Fund or the Variable Series
Funds.
For divisions investing in the Zero Trusts, units of each Zero Trust are valued
at the sponsor's repurchase price, as explained in the prospectus for the Zero
Trusts.
THE SERIES FUND AND THE VARIABLE SERIES FUNDS
Buying and Redeeming Shares. The Series Fund and the Variable Series Funds sell
and redeem their shares at net asset value. Any dividend or capital gain
distribution will be reinvested at net asset value in shares of the same
portfolio.
Voting Rights. Merrill Lynch Life is the legal owner of all Series Fund and
Variable Series Funds shares held in the Separate Account. As the owner, Merrill
Lynch Life has the right to vote on any matter put to vote at the Series Fund's
and the Variable Series Funds' shareholder meetings. However, Merrill Lynch Life
will vote all Series Fund and Variable Series Funds shares attributable to
Contracts according to instructions received from contract owners. Shares
attributable to Contracts for which no voting instructions are received will be
voted in the same proportion as shares in the respective investment divisions
for which instructions are received. Shares not attributable to Contracts will
also be voted in the same proportion as shares in the respective divisions for
which instructions are received. If any federal securities laws or regulations,
or their present interpretation, change to permit Merrill Lynch Life to vote
Series Fund or Variable Series Funds shares in its own right, it may elect to do
so.
Merrill Lynch Life determines the number of shares that contract owners have in
an investment division by dividing their Contract's investment base in that
division by the net asset value of one share of the portfolio. Fractional votes
will be counted. Merrill Lynch Life will determine the number of shares for
which a contract owner may give voting instructions 90 days or less before each
Series Fund or Variable Series Funds meeting. Merrill Lynch Life will request
voting instructions by mail at least 14 days before the meeting.
Under certain circumstances, Merrill Lynch Life may be required by state
regulatory authorities to disregard voting instructions. This may happen if
following the instructions would mean voting to change the sub-classification or
investment objectives of the portfolios, or to approve or disapprove an
investment advisory contract.
Merrill Lynch Life may also disregard instructions to vote for changes in the
investment policy or the investment adviser if it disapproves of the proposed
changes. Merrill Lynch Life would disapprove a proposed change only if it was:
- contrary to state law;
34
<PAGE> 39
- prohibited by state regulatory authorities; or
- decided by management that the change would result in overly speculative
or unsound investments.
If Merrill Lynch Life disregards voting instructions, it will include a summary
of its actions in the next semi-annual report.
Resolving Material Conflicts. Shares of the Series Fund are available for
investment by Merrill Lynch Life, ML Life Insurance Company of New York (an
indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.) and Monarch Life
Insurance Company (an insurance company not affiliated with Merrill Lynch Life
or Merrill Lynch & Co., Inc.). Shares of the Variable Series Funds are currently
sold only to separate accounts of Merrill Lynch Life, ML Life Insurance Company
of New York, and Family Life Insurance Company (an insurance company not
affiliated with Merrill Lynch Life or Merrill Lynch & Co., Inc.) to fund
benefits under certain variable life insurance and variable annuity contracts.
The Basic Value Focus Fund, World Income Focus Fund, Global Utility Focus Fund,
International Equity Focus Fund, International Bond Fund and Developing Capital
Markets Focus Fund are only offered to separate accounts of Merrill Lynch Life
and ML Life Insurance Company of New York.
It is possible that differences might arise between Merrill Lynch Life's
Separate Account and one or more of the other separate accounts which invest in
the Series Fund or the Variable Series Funds. In some cases, it is possible that
the differences could be considered "material conflicts". Such a "material
conflict" could also arise due to changes in the law (such as state insurance
law or federal tax law) which affect these different variable life insurance and
variable annuity separate accounts. It could also arise by reason of difference
in voting instructions from Merrill Lynch Life's contract owners and those of
the other insurance companies, or for other reasons. Merrill Lynch Life will
monitor events to determine how to respond to such conflicts. If a conflict
occurs, Merrill Lynch Life may be required to eliminate one or more investment
divisions of the Separate Account which invest in the Series Fund or the
Variable Series Funds or substitute a new portfolio for a portfolio in which a
division invests. In responding to any conflict, Merrill Lynch Life will take
the action which it believes necessary to protect its contract owners.
CHARGES TO SERIES FUND ASSETS
The Series Fund incurs operating expenses and pays a monthly advisory fee to
MLAM. This fee equals an annual rate of:
- .50% of the first $250 million of the aggregate average daily net assets
of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
One or more of the insurance companies investing in the Series Fund has agreed
to reimburse the Series Fund so that the ordinary expenses of each portfolio
(which include the monthly advisory fee) do not exceed .50% of the portfolio's
average daily net assets. These companies have also agreed to reimburse MLAM for
any amounts it pays under the investment advisory agreement, as described below.
These reimbursement obligations will remain in effect so long as the advisory
agreement remains in effect and cannot be amended or terminated without Series
Fund approval.
Under its investment advisory agreement, MLAM has agreed that if any portfolio's
aggregate ordinary expenses (excluding interest, taxes, brokerage commissions
and extraordinary expenses) exceed the expense limitations for investment
companies in effect under any state securities law or regulation, it will reduce
its fee for that portfolio by the amount of the excess. If required, it will
reimburse the Series Fund for the excess. This reimbursement agreement will
remain in effect so long as the advisory agreement remains in effect and cannot
be amended without Series Fund approval.
35
<PAGE> 40
MLAM and Merrill Lynch Life have entered into a fee sharing agreement pursuant
to which a portion of the annual gross investment advisory fees received by MLAM
from the Series Fund, and from the Variable Series Fund, is paid by MLAM to
Merrill Lynch Life. This fee sharing agreement will remain in effect for
successive one-year terms unless terminated by either party upon more than 30
days notice prior to the end of a term.
CHARGES TO VARIABLE SERIES FUNDS ASSETS
The Variable Series Funds incurs operating expenses and pays a monthly advisory
fee to MLAM. This fee equals an annual rate of .60% of the average daily net
assets of the Basic Value Focus Fund, World Income Focus Fund and Global Utility
Focus Fund. This fee equals an annual rate of .75%, .60% and 1.00% of the
average daily net assets of the International Equity Focus Fund, the
International Bond Fund and the Developing Capital Markets Focus Fund,
respectively.
Under its investment advisory agreement, MLAM has agreed to reimburse the
Variable Series Funds if and to the extent that in any fiscal year the operating
expenses of any Fund exceeds the most restrictive expense limitations then in
effect under any state securities laws or published regulations thereunder.
Expenses for this purpose include MLAM's fee but exclude interest, taxes,
brokerage commissions and extraordinary expenses, such as litigation. No fee
payments will be made to MLAM with respect to any Fund during any fiscal year
which would cause the expenses of such Fund to exceed the pro rata expense
limitation applicable to such Fund at the time of such payment. This
reimbursement agreement will remain in effect so long as the advisory agreement
remains in effect and cannot be amended without Variable Series Funds approval.
MLAM and Merrill Lynch Life have entered into a fee sharing agreement pursuant
to which a portion of the annual gross investment advisory fees received by MLAM
from the Variable Series Fund, and the Series Fund, is paid by MLAM to Merrill
Lynch Life. (See "Charges to Series Fund Assets" on page 35.)
MLAM and Merrill Lynch Life Agency, Inc. have entered into two agreements which
limit the operating expenses paid by each Fund in a given year to 1.25% of its
average daily net assets, which is less than the expense limitations imposed by
state securities laws or published regulations thereunder. These reimbursement
agreements provide that any expenses in excess of 1.25% of average daily net
assets will be reimbursed to the Fund by MLAM which, in turn, will be reimbursed
by Merrill Lynch Life Agency, Inc.
36
<PAGE> 41
THE ZERO TRUSTS
The 19 Zero Trusts:
<TABLE>
<CAPTION>
TARGETED RATE OF RETURN
TO MATURITY AS
ZERO TRUST MATURITY DATE OF
- ---------- ------------- -----------------------
<S> <C> <C>
1995 November 15, 1995
1996 February 15, 1996
1997 February 15, 1997
1998 February 15, 1998
1999 February 15, 1999
2000 February 15, 2000
2001 February 15, 2001
2002 February 15, 2002
2003 August 15, 2003
2004 February 15, 2004
2005 February 15, 2005
2006 February 15, 2006
2007 February 15, 2007
2008 February 15. 2008
2009 February 15, 2009
2010 February 15, 2010
2011 February 15, 2011
2013 February 15, 2013
2014 February 15, 2014
</TABLE>
Targeted Rate of Return to Maturity
Because the underlying securities in the Zero Trusts will grow to their face
value on the maturity date, it is possible to estimate a compound rate of growth
to maturity for the Zero Trust units.
But because the units are held in the Separate Account, the asset charge and the
trust charge (described in "Charges to the Separate Account" on page 16) must be
taken into account in estimating a targeted rate of return for the Separate
Account. The targeted rate of return to maturity for the Separate Account
depends on the compound rate of growth adjusted for these charges. It does not,
however, represent the actual return on a payment Merrill Lynch Life might
receive under the Contract on that date, since it does not reflect the charges
for contract loading deducted from payments to a Contract, charges for cost of
insurance and rider costs and any net loan cost deducted from a Contract's
investment base.
Since the value of the Zero Trust units will vary daily to reflect the market
value of the underlying securities, the compound rate of growth to maturity for
the Zero Trust units and the targeted rate of return to maturity for the
Separate Account will vary correspondingly.
37
<PAGE> 42
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, NET CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables on pages 40 through 43 demonstrate the way in which the Contract
works. The tables are based on the following ages, face amounts, payments and
guarantee periods and show values based upon both current and maximum mortality
charges.
1. The illustration on page 40 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,576 through contract year 51, an initial face amount of $500,000, an
initial guarantee period of 2.75 years and coverage under death benefit
option 1. It assumes current mortality charges.
2. The illustration on page 41 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,576 through contract year 51, an initial face amount of $500,000, an
initial guarantee period of 2.75 years and coverage under death benefit
option 1. It assumes maximum mortality charges.
3. The illustration on page 42 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$31,268 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 10.75 years and coverage under death benefit
option 2. It assumes current mortality charges.
4. The illustration on page 43 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$31,268 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 10.75 years and coverage under death benefit
option 2. It assumes maximum mortality charges.
The tables show how the death benefit, investment base and net cash surrender
value may vary over an extended period of time assuming hypothetical rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) equivalent to constant gross annual rates of 0%, 6% and 12%.
The death benefit, investment base and net cash surrender value for a Contract
would be different from those shown if the actual rates of return averaged 0%,
6% and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years.
The amounts shown for the death benefit, investment base and net cash surrender
value as of the end of each contract year take into account the daily asset
charge in the Separate Account equivalent to .90% (annually at the beginning of
the year) of assets attributable to the Contracts at the beginning of the year.
The amounts shown in the tables also assume an additional charge of .490%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1993 expenses (including monthly advisory fees)
for the Series Fund and the Variable Series Funds, anticipated 1994 expenses for
the International Bond Fund and the Developing Capital Markets Focus Fund, and
the current trust charge. This charge does not reflect expenses incurred by the
Global Strategy Portfolio and the Natural Resources Portfolio of the Series Fund
in 1993, which were reimbursed to the Series Fund by MLAM. The reimbursements
amounted to .01% and .09%, respectively, of the average daily net assets of
these portfolios. (See "Charges to Series Fund Assets" on page 35.) The actual
charge under a Contract for Series Fund and Variable Series Funds expenses and
the trust charge will depend on the actual allocation of the investment base and
may be higher or lower depending on how the investment base is allocated.
Taking into account the .90% asset charge in the Separate Account and the .490%
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of -1.39%, 4.56%, and 10.51%,
respectively. The gross returns are before any deductions and should not be
compared to rates which are after deduction of charges.
38
<PAGE> 43
The hypothetical returns shown on the tables are without any income tax charges
that may be attributable to the Separate Account in the future, although they do
reflect the charge for federal taxes included in the contract loading. (See
"Contract Loading" on page 16.) In order to produce after tax returns of 0%, 6%
and 12%, the Series Fund and the Variable Series Funds would have to earn a
sufficient amount in excess of 0% or 6% or 12% to cover any tax charges
attributable to the Separate Account.
The second column of the tables shows the amount which would accumulate if an
amount equal to the payments were invested to earn interest (after taxes) at 5%
compounded annually.
Merrill Lynch Life will furnish upon request a personalized illustration
reflecting the proposed insured's age, face amount and the payment amounts
requested. The illustration will show both current and guaranteed cost of
insurance rates and will assume that the proposed insured is in a standard
non-smoker underwriting class.
39
<PAGE> 44
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,576 THROUGH CONTRACT YEAR 51
FACE AMOUNT(1) : $500,000 INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION 1
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ---------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ------------- -------------- ------------------ ------- --------- ----------
<S> <C> <C> <C> <C> <C>
1................................................. 9,576 10,055 500,000 500,000 500,000
2................................................. 9,576 20,612 500,000 500,000 500,000
3................................................. 9,576 31,697 500,000 500,000 500,000
4................................................. 9,576 43,337 500,000 500,000 500,000
5................................................. 9,576 55,559 500,000 500,000 500,000
6................................................. 9,576 68,392 500,000 500,000 500,000
7................................................. 9,576 81,866 500,000 500,000 500,000
8................................................. 9,576 96,014 500,000 500,000 500,000
9................................................. 9,576 110,870 500,000 500,000 500,000
10................................................. 9,576 126,468 500,000 500,000 500,000
15................................................. 9,576 216,968 500,000 500,000 500,000
20................................................. 9,576 332,471 500,000 500,000 513,858
30................................................. 9,576 668,029 500,000 500,000 1,192,170
55................................................. 0 2,698,733 500,000 1,056,895 12,725,836
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
------------------------------------ ----------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ------------- ------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1............................................. 4,058 4,318 4,579 4,058 4,318 4,579
2............................................. 8,295 9,089 9,915 8,295 9,089 9,915
3............................................. 16,065 17,893 19,850 16,065 17,893 19,850
4............................................. 23,596 26,965 30,697 23,596 26,965 30,697
5............................................. 30,928 36,358 42,595 30,928 36,358 42,595
6............................................. 38,076 46,105 55,674 38,076 46,105 55,674
7............................................. 45,053 56,230 70,076 45,053 56,230 70,076
8............................................. 51,901 66,797 85,989 51,901 66,797 85,989
9............................................. 58,595 77,803 103,555 58,595 77,803 103,555
10............................................. 65,083 89,217 122,906 65,083 89,217 122,906
15............................................. 92,626 151,460 252,913 92,626 151,460 252,913
20............................................. 111,407 224,539 421,195 111,407 224,539 421,195
30............................................. 107,396 380,989 1,114,177 107,396 380,989 1,114,177
55............................................. 0 1,056,895 12,725,836 0 1,058,895 12,725,836
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 months after
issue, the contract owner will also receive any excess sales load previously
deducted, except to the extent it is applied to keep the Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 26 and 16, respectively. Once the guarantee
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE> 45
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,576 THROUGH CONTRACT YEAR 51
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS -------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ------------- -------------- ----------------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
1.......................... 9,576 10,055 500,000 500,000 500,000
2.......................... 9,576 20,612 500,000 500,000 500,000
3.......................... 9,576 31,697 500,000 500,000 500,000
4.......................... 9,576 43,337 500,000 500,000 500,000
5.......................... 9,576 55,559 500,000 500,000 500,000
6.......................... 9,576 68,392 500,000 500,000 500,000
7.......................... 9,576 81,866 500,000 500,000 500,000
8.......................... 9,576 96,014 500,000 500,000 500,000
9.......................... 9,576 110,870 500,000 500,000 500,000
10.......................... 9,576 126,468 500,000 500,000 500,000
15.......................... 9,576 216,968 500,000 500,000 500,000
20.......................... 9,576 332,471 500,000 500,000 500,000
30.......................... 9,576 668,029 500,000 500,000 1,011,994
55.......................... 0 2,698,733 500,000 655,244 10,174,061
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
--------------------------------- -------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ------------- ------ ------- ---------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1.................................................. 3,095 3,320 3,545 3,095 3,320 3,545
2.................................................. 6,491 7,159 7,856 6,491 7,159 7,856
3.................................................. 13,512 15,072 16,745 13,512 15,072 16,745
4.................................................. 20,314 23,226 26,451 20,314 23,226 26,451
5.................................................. 26,887 31,619 37,048 26,887 31,619 37,048
6.................................................. 33,227 40,260 48,634 33,227 40,260 48,634
7.................................................. 39,309 49,135 61,294 39,309 49,135 61,294
8.................................................. 45,109 58,232 75,126 45,109 58,232 75,126
9.................................................. 50,609 67,546 90,251 50,609 67,546 90,251
10.................................................. 55,777 77,059 106,792 55,777 77,059 106,792
15.................................................. 75,880 127,447 217,122 75,880 127,447 217,122
20.................................................. 83,043 181,665 365,298 83,043 181,665 365,298
30.................................................. 10,452 292,523 945,789 10,452 292,523 945,789
55.................................................. 0 655,244 10,174,061 0 655,244 10,174,061
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 months after
issue, the contract owner will also receive any excess sales load previously
deducted, except to the extent it is applied to keep the Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and maximum
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 42 and 17, respectively. Once the guarantee period
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE> 46
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $31,268 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 10.75 YEARS
DEATH BENEFIT OPTION 2
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS -------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ------------- -------------- ----------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
1........................... 31,268 32,831 520,588 521,846 523,104
2........................... 31,268 67,304 548,686 552,959 557,383
3........................... 31,268 103,501 576,178 585,269 595,035
4........................... 31,268 141,507 603,132 618,890 636,476
5........................... 31,268 181,414 629,591 653,919 682,144
6........................... 31,268 223,316 655,573 690,432 732,495
7........................... 31,268 267,313 681,089 728,503 788,026
8........................... 31,268 313,510 706,191 768,248 849,329
9........................... 31,268 362,017 730,853 809,710 916,978
10.......................... 31,268 412,949 755,015 852,901 991,571
15.......................... 31,268 708,453 866,142 1,094,993 1,494,129
20.......................... 31,268 1,085,600 960,161 1,386,467 2,200,542
30.......................... 31,268 2,181,276 078,464 2,142,389 4,958,118
55.......................... 0 8,430,939 500,000 3,722,486 50,467,089
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
---------------------------------- ----------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ------------- ------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1................................................ 20,588 21,846 23,104 20,588 21,846 23,104
2................................................ 48,686 52,959 57,383 48,686 52,959 57,383
3................................................ 76,178 85,269 95,035 76,178 85,269 95,035
4................................................ 103,132 118,890 136,476 103,132 118,890 136,476
5................................................ 129,591 153,919 182,144 129,591 153,919 182,144
6................................................ 155,573 190,432 232,495 155,573 190,432 232,495
7................................................ 181,089 228,503 288,026 181,089 228,503 288,026
8................................................ 206,191 268,248 349,329 206,191 268,248 349,329
9................................................ 230,853 309,710 416,978 230,853 309,710 416,978
10............................................... 255,015 352,901 491,571 255,015 352,901 491,571
15............................................... 366,142 594,993 994,129 366,142 594,993 994,129
20............................................... 460,161 886,467 1,700,542 460,161 886,467 1,700,542
30............................................... 578,464 1,642,389 4,458,118 578,464 1,642,389 4,458,118
55............................................... 0 3,222,486 49,967,089 0 3,222,486 49,967,089
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 months after
issue, the contract owner will also receive any excess sales load previously
deducted, except to the extent it is applied to keep the Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 34 and 17, respectively. Once the guarantee period
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE> 47
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $31,268 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 10.75 YEARS
DEATH BENEFIT OPTION 2
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)
INTEREST ASSUMING HYPOTHETICAL GROSS
AT 5% AS ANNUAL RATE OF RETURN OF
OF END OF ------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) YEAR 0% 6% 12%
- ------------- -------------- --------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
1............................................ 31,268 32,831 519,618 520,839 522,061
2............................................ 31,268 67,304 546,864 551,010 555,302
3............................................ 31,268 103,501 573,589 582,408 591,884
4............................................ 31,268 141,507 599,789 615,079 632,146
5............................................ 31,268 181,414 625,453 649,061 676,454
6............................................ 31,268 223,316 650,577 684,404 725,224
7............................................ 31,268 267,313 675,135 721,134 778,888
8............................................ 31,268 313,510 699,099 759,278 837,922
9............................................ 31,268 362,017 722,449 798,869 902,860
10............................................ 31,268 412,949 745,148 839,928 974,275
15............................................ 31,268 708,453 847,969 1,068,360 1,453,554
20............................................ 31,268 1,085,600 929,120 1,336,980 2,115,115
30............................................ 31,268 2,181,276 982,785 1,977,390 4,613,641
55............................................ 0 8,430,939 500,000 556,937 41,894,646
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
------------------------------------ ------------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ------------- ------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1............................................ 19,618 20,839 22,061 19,618 20,839 22,061
2............................................ 46,864 51,010 55,302 46,864 51,010 55,302
3............................................ 73,589 82,408 91,884 73,589 82,408 91,884
4............................................ 99,789 115,079 132,146 99,789 115,079 132,146
5............................................ 125,453 149,061 176,454 125,453 149,061 176,454
6............................................ 150,577 184,404 225,224 150,577 184,404 225,224
7............................................ 175,135 221,134 278,888 175,135 221,134 278,888
8............................................ 199,099 259,278 337,922 199,099 259,278 337,922
9............................................ 222,449 298,869 402,860 222,449 298,869 402,860
10............................................ 245,148 339,928 474,275 245,148 339,928 474,275
15............................................ 347,969 568,360 953,554 347,969 568,360 953,554
20............................................ 429,120 836,980 1,615,115 429,120 836,980 1,615,115
30............................................ 482,785 1,477,390 4,113,641 482,785 1,477,390 4,113,641
55............................................ 0 56,937 41,394,646 0 56,937 41,394,646
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 months after
issue, the contract owner will also receive any excess sales load previously
deducted, except to the extent it is applied to keep the Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and maximum
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 42 and 17, respectively. Once the guarantee period
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE> 48
EXAMPLES
ADDITIONAL PAYMENTS
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment does
not extend to the insured's attained age 100.
Merrill Lynch Life will determine the increase in the guarantee period by taking
the immediate increase in the cash value resulting from the additional payment
and adding to that interest at the annual rate of 4.5% for the period from the
date Merrill Lynch Life receives and accepts the payment to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is added to the fixed base and the
resulting new fixed base is used to calculate a new guarantee period.
The amount of the increase in the guarantee period will depend on the amount of
the additional payment and the contract year in which it is received and
accepted. If additional payments of different amounts were made at the same time
to equivalent Contracts, the Contract to which the larger payment is applied
would have a larger increase in the guarantee period.
Example 1 shows the effect on the guarantee period of a $5,000 additional
payment received and accepted at the beginning of contract year five. Example 2
shows the effect of a $10,000 additional payment received and accepted at the
beginning of contract year five. Example 3 shows the effect of a $5,000
additional payment received and accepted at the beginning of contract year six.
All three examples assume that death benefit option 1 has been elected, that
annual payments of $9,576 have been made through the contract year reflected in
the example and that no other contract transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $9,576
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
5 $9,576 2.75 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
5 $19,152 5.25 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
6 $9,576 2.25 years
</TABLE>
44
<PAGE> 49
PARTIAL WITHDRAWALS
As of the processing date on or next following the effective date of a partial
withdrawal, Merrill Lynch Life calculates a new guarantee period. This is done
by taking the immediate decrease in cash value resulting from the partial
withdrawal and adding to that amount interest at an annual rate of 4.5% for the
period from the date of the withdrawal to the contract processing date on or
next following such date. This is the guarantee adjustment amount. The guarantee
adjustment amount is subtracted from the fixed base and the resulting new fixed
base is used to calculate a new guarantee period.
The amount of the reduction in the guarantee period will depend on the amount of
the withdrawal, the face amount at the time of the withdrawal and the contract
year in which the withdrawal is made. If made at the same time to equivalent
Contracts, a larger withdrawal would result in a greater reduction in the
guarantee period than a smaller withdrawal. The same partial withdrawal made at
the same time from Contracts with the same guarantee periods but with different
face amounts would result in a greater reduction in the guarantee period for the
Contract with the smaller face amount.
Examples 1 and 2 show the effect on the guarantee period of partial withdrawals
for $5,000 and $10,000 taken at the beginning of contract year fifteen. Example
3 shows the effect on the guarantee period of a $10,000 partial withdrawal taken
at the beginning of contract year twenty. All three examples assume that death
benefit option 1 has been elected, that annual payments of $9,576 have been made
through the contract year reflected in the example and that no other contract
transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $9,576
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
15 $5,000 .5 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
15 $10,000 1 year
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
20 $10,000 .5 years
</TABLE>
45
<PAGE> 50
CHANGING THE DEATH BENEFIT OPTION
On each contract anniversary beginning with the first, the contract owner may
change the death benefit option by switching from option 1 to option 2 or from
option 2 to option 1. Merrill Lynch Life will change the face amount of the
Contract in order to keep the death benefit constant on the effective date of
the change. Therefore, if the change is from option 1 to option 2, the face
amount of the Contract will be decreased by the cash value on the date of the
change. If the change is from option 2 to option 1, the face amount of the
Contract will be increased by the cash value on the date of the change.
Example 1 shows the effect on the face amount of a change from option 1 to
option 2 and Example 2 shows the effect on the face amount of a change from
option 2 to option 1. The face amount before each change is $500,000.
EXAMPLE 1
------------------------------------------------------------
Before Option Change
Death Benefit under Option 1: $500,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 2: $500,000
Face Amount: $460,000
Cash Value: $40,000
EXAMPLE 2
------------------------------------------------------------
Before Option Change
Death Benefit under Option 2: $540,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 1: $540,000
Face Amount: $540,000
Cash Value: $40,000
46
<PAGE> 51
MORE ABOUT MERRLLL LYNCH LIFE INSURANCE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Merrill Lynch Life's directors and executive officers and their positions with
the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY
- ---- ----------------------------
<S> <C>
Anthony J. Vespa Chairman of the Board, President, and
Chief Executive Officer
Joseph E. Crowne Director, Senior Vice President,
Chief Financial Officer, Chief
Actuary, and Treasurer
Barry G. Skolnick Director, Senior Vice President, and
General Counsel
David M. Dunford Director, Senior Vice President,
and Chief Investment Officer
John C.R. Hele Director and Senior Vice President
Allen N. Jones Director
Robert J. Boucher Senior Vice President, Variable Life
Administration
</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. Each has held
various executive positions with insurance company subsidiaries of the Company's
indirect parent, Merrill Lynch & Co., Inc. The principal positions of the
Company's directors and executive officers for the past five years are listed
below:
Mr. Vespa joined Merrill Lynch Life in January 1994. Since February 1994, he has
held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From February 1991 to February 1994, he held the position of
District Director and First Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From September 1988 to February 1991, he held the position
of Senior Resident Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
Mr. Crowne joined Merrill Lynch Life in June 1991. From January 1989 to May
1991, he was a Principal with Coopers & Lybrand.
Mr. Skolnick joined Merrill Lynch Life in November 1990. He joined Merrill
Lynch, Pierce, Fenner & Smith Incorporated in July 1984. Since May 1992, he has
held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and
First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Prior to May 1992, he held the position of Senior Counsel of Merrill Lynch &
Co., Inc.
Mr. Dunford joined Merrill Lynch Life in July 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in September 1989. Prior to September 1989,
he held the position of President of Travelers Investment Management Co.
Mr. Hele joined Merrill Lynch Life in December 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in August 1988.
Mr. Jones joined Merrill Lynch Life in June 1992. Since May 1992, he has held
the position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. From June 1992 to February 1994, he held the position of Chairman
of the Board, President, and Chief Executive Officer of Merrill Lynch Life. From
January 1992 to June 1992, he held the position of First Vice President of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From January 1991 to January
1992, he held the position of District Director of Merrill Lynch, Pierce, Fenner
& Smith Incorporated. Prior to January 1991, he held the position of Senior
Regional Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Mr. Boucher joined Merrill Lynch Life in May 1992. Prior to May 1992, he held
the position of Vice President of Monarch Financial Services, Inc. (formerly
Monarch Resources, Inc.).
47
<PAGE> 52
No shares of Merrill Lynch Life are owned by any of its officers or directors,
as it is a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc. The
officers and directors of Merrill Lynch Life, both individually and as a group,
own less than one percent of the outstanding shares of common stock of Merrill
Lynch & Co., Inc.
SERVICES ARRANGEMENT
Merrill Lynch Life and its parent, Merrill Lynch Insurance Group, Inc. ("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 Merrill Lynch Life including services related to the Separate
Account and the Contracts. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by Merrill Lynch Life on an allocated cost basis.
Charges billed to Merrill Lynch Life by MLIG pursuant to the agreement were
$55.9 million for the year ended December 31, 1993.
STATE REGULATION
Merrill Lynch Life is subject to the laws of the State of Arkansas and to the
regulations of the Arkansas Insurance Department (the "Insurance Department"). A
detailed financial statement in the prescribed form (the "Annual Statement") is
filed with the Insurance Department each year covering Merrill Lynch Life's
operations for the preceding year and its financial condition as of the end of
that year. Regulation by the Insurance Department includes periodic examination
to determine contract liabilities and reserves so that the Insurance Department
may certify that these items are correct. Merrill Lynch Life's books and
accounts are subject to review by the Insurance Department at all times. A full
examination of Merrill Lynch Life's operations is conducted periodically by the
Insurance Department and under the auspices of the National Association of
Insurance Commissioners. Merrill Lynch Life is also subject to the insurance
laws and regulations of all jurisdictions in which it is licensed to do
business.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. Merrill Lynch Life and
Merrill Lynch, Pierce, Fenner & Smith Incorporated are engaged in various kinds
of routine litigation that, in the Company's judgment, is not material to
Merrill Lynch Life's total assets or to Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
EXPERTS
The financial statements of Merrill Lynch Life as of December 31, 1993 and 1992
and for each of the three years in the period ended December 31, 1993 and of the
Separate Account as of December 31, 1993 and 1992 and for each of the periods
presented, included in this Prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein, and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing. Other financial statements
included in the Prospectus are unaudited. Deloitte & Touche LLP's principal
business address is Two World Financial Center, New York, New York 10281-1433.
Actuarial matters included in this Prospectus have been examined by Joseph E.
Crowne, F.S.A., Chief Actuary and Chief Financial Officer of Merrill Lynch Life,
as stated in his opinion filed as an exhibit to the registration statement.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contract, and the
validity of the form of the Contract have been passed upon by Barry G. Skolnick,
Merrill Lynch Life's Senior Vice President and General Counsel. Sutherland,
Asbill & Brennan of Washington, D.C. has provided advice on certain matters
relating to federal securities and tax laws.
48
<PAGE> 53
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940 that relate to the Contract and its investment options. 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.
FINANCIAL STATEMENTS
The financial statements of Merrill Lynch Life, included herein, should be
distinguished from the financial statements of the Separate Account and should
be considered only as bearing upon the ability of Merrill Lynch Life to meet its
obligations under the Contracts.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT SEPTEMBER 30, 1994 (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
ASSETS Market
Cost Shares Value
---------------- ---------------- --------------
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note B):
Money Reserve Portfolio $ 26,250,022 26,250,022 $ 26,250,022
Intermediate Government Bond Portfolio 4,839,620 432,292 4,543,387
Long-Term Corporate Bond Portfolio 4,859,719 399,312 4,344,518
Capital Stock Portfolio 6,923,050 304,147 6,761,180
Growth Stock Portfolio 3,714,215 180,803 3,487,695
Multiple Strategy Portfolio 9,809,891 559,700 9,291,019
High Yield Portfolio 2,642,330 283,190 2,506,234
Natural Resources Portfolio 914,488 119,090 938,434
Global Strategy Portfolio 13,342,407 890,492 13,401,906
Balanced Portfolio 3,155,044 226,119 3,034,523
----------------- ----------------
76,450,786 74,558,918
----------------- --------------
Investment in Merrill Lynch Variable Series Funds, Inc.
Note B):
International Bond Fund 95,702 9,778 95,828
Developing Capital Markets Focus Fund 787,142 76,476 815,232
Global Utility Focus Fund 42,545 4,333 42,595
International Equity Focus Fund 1,157,312 101,641 1,143,467
World Income Focus Fund 26,143 2,766 26,004
Basic Value Focus Fund 456,741 42,115 471,686
----------------- ----------------
2,565,585 2,594,812
----------------- ----------------
Investment in Unit Investment Trusts (Note B):
Stripped ("Zero") U.S. Treasury Securities, Series A through K:
1995 Trust 110,105 117,788 110,487
1996 Trust 40,118 43,894 40,382
1997 Trust 17,624 20,609 17,671
1998 Trust 480,165 599,477 475,932
1999 Trust 9,817 13,316 9,775
2000 Trust 134,510 194,586 132,466
2001 Trust 25,692 40,734 25,669
2002 Trust 79,031 135,152 78,257
2003 Trust 3,512 6,774 3,463
2004 Trust 165,776 334,616 164,047
2005 Trust 4,749 10,137 4,605
2007 Trust 915 2,307 896
2010 Trust 205,909 684,095 201,151
2011 Trust 134,886 560,030 151,825
2013 Trust 75,055 300,573 68,693
2014 Trust 1,405 6,332 1,338
----------------- ----------------
1,489,269 1,486,657
----------------- ----------------
Total Invested Assets $ 80,505,640 78,640,387
Dividends Receivable ================= 22,759
----------------
Total Assets 78,663,146
----------------
Continued
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT SEPTEMBER 30, 1994 (Concluded) (Unaudited)
=============================================================================
<TABLE>
<CAPTION>
Market
Cost Shares Value
--------------- --------------- ----------
<S> <C> <C> <C>
LIABILITIES
Payable to Merrill Lynch Series Fund, Inc. 553,896
Payable to Merrill Lynch Variable Series Funds, Inc. 135,773
Payable to Merrill Lynch Life Insurance Company 3,562,770
Total Liabilities 4,252,439
----------------
Net Assets $ 74,410,707
================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1993 (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
Market
ASSETS Cost Shares Value
----------------- ---------------- ----------------
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note B):
Money Reserve Portfolio $ 14,128,729 14,128,729 $ 14,128,729
Intermediate Government Bond Portfolio 2,126,019 177,154 2,129,388
Long-Term Corporate Bond Portfolio 3,607,994 288,643 3,634,015
Capital Stock Portfolio 2,763,303 118,501 3,049,034
Growth Stock Portfolio 1,619,479 70,073 1,727,296
Multiple Strategy Portfolio 4,090,720 219,473 4,354,347
High Yield Portfolio 1,259,332 132,803 1,285,534
Natural Resources Portfolio 382,189 49,459 372,427
Global Strategy Portfolio 5,412,892 368,615 5,684,049
Balanced Portfolio 1,329,563 94,027 1,374,679
----------------- ----------------
36,720,220 37,739,498
----------------- ----------------
Investment in Unit Investment Trusts (Note B):
Stripped ("Zero") U.S. Treasury Securities, Series A through J:
1994 Trust 1,969 2,027 1,985
1995 Trust 256 276 256
1996 Trust 2,205 2,459 2,247
1997 Trust 6,837 8,029 6,961
1998 Trust 15,814 21,780 17,745
2000 Trust 45,453 63,394 45,693
2001 Trust 8,621 14,024 9,467
2003 Trust 7,646 13,519 7,632
2010 Trust 129,831 376,060 129,989
2011 Trust 137,842 572,349 184,400
2013 Trust 4,489 15,991 4,403
----------------- ----------------
360,963 410,778
----------------- ----------------
Total Assets $ 37,081,183 38,150,276
================= ----------------
LIABILITIES
Payable to Merrill Lynch Life Insurance Company 1,600,737
Payable to Merrill Lynch Series Fund, Inc. 970,138
----------------
Total Liabilities 2,570,875
----------------
Net Assets $ 35,579,401
================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
1994 1993
---------------- ----------------
<S> <C> <C>
Reinvested Dividends $ 3,004,679 $ 367,492
Net Gain (Loss):
Realized (79,464) 66,229
Unrealized (2,934,372) 480,672
---------------- --------------
Investment Earnings (Losses) (9,157) 914,393
Mortality and Expense Charges (Note C) (361,352) (75,843)
Transaction Charges (Note D) (2,252) (862)
---------------- ---------------
Net Earnings (Losses) (372,761) 837,688
Capital Shares Transactions:
Transfers of Net Premiums 38,724,676 17,050,909
Transfers of Policy Loading, Net 2,504,329 1,450,710
Transfers Due to Deaths (6,644) (81,500)
Transfers Due toTerminations (245,278) 0
Transfers Due to Policy Loans (871,098) (291,963)
Transfers of Cost of Insurance (897,981) (189,578)
Transfers of Loan Processing Charges (3,937) (2,709)
---------------- --------------
Increase in Net Assets 38,831,306 18,773,557
Net Assets Beginning Balance 35,579,401 3,453,684
---------------- --------------
Net Assets Ending Balance $ 74,410,707 $ 22,227,241
================ ================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
September 30, 1994 (Unaudited)
==============================================================================
Note - A Merrill Lynch Variable Life Separate Account ("Account"), a
separate account of Merrill Lynch Life Insurance Company ("Merrill
Lynch Life") was established by a board of directors resolution on
November 16, 1990 and is governed by Arkansas State Insurance Law.
The Account is registered as a unit investment trust under the
Investment Company Act of 1940 and consists of thirty-four investment
divisions (thirty-five during the year). Ten of the divisions each
invest in the securities of a single mutual fund portfolio of Merrill
Lynch Series Fund, Inc. ("Series Fund"). Six of the divisions each
invest in the securities of a single mutual fund portfolio of Merrill
Lynch Variable Series Funds, Inc. (Variable Series Funds). The
portfolios of the Series Fund and Variable Series Funds have varying
investment objectives relative to growth of capital and income. The
Series Fund receives investment advice from Merrill Lynch Asset
Management, L.P. ("MLAM") for a fee calculated at an effective annual
rate of .50% of the first $250 million of the aggregate average daily
net assets of the investment divisions investing in the Series Fund
with declining rates to .30% of such assets over $800 million. The
Variable Series Funds receives investment advise from MLAM for a fee
at an effective annual rate of .60% of the average daily net assets of
the Basic Value Focus, World Income Focus, Global Utility Focus and
International Bond Funds, .75% of such assets of the International
Equity Focus Fund and 1.00% of such assets of the Developing Capital
Markets Fund. Eighteen of the divisions (nineteen during the year)
each invest in the securities of a single trust of the Merrill Lynch
Fund of Stripped ("Zero") U.S. Treasury Securities, Series A through
K. Each trust of the Series consists of Stripped Treasury Securities
with a fixed maturity date and a Treasury Note deposited to provide
income to pay expenses of the trust.
The Account was formed by Merrill Lynch Life, an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("Merrill") to support Merrill
Lynch Life's operations respecting certain variable life insurance
contracts ("Contracts"). The assets of the Account are the property
of Merrill Lynch Life. The portion of the Account's assets
attributable to the Contracts are not chargeable with liabilities
arising out of any other business Merrill Lynch Life may conduct.
The change in net assets maintained in the Account provides the basis
for the periodic determination of the amount of increased or decreased
benefits under the Contracts.
The net assets may not be less than the amount required under Arkansas
State Insurance Law to provide for death benefits (without regard to
the minimum death benefit guarantee) and other Contract benefits.
The financial statements for the nine months ended September 30, 1994
are unaudited; however, in the opinion of management of Merrill Lynch
Life, all adjustments necessary for a fair statement of the results of
operations have been included.
<PAGE>
Note - B The significant accounting policies of the Account are as
follows:
* Investments are made in the divisions and are valued at the net
asset values of the respective Portfolios.
* Transactions are recorded on the trade date.
* Income from dividends is recognized on the ex-dividend date.
All dividends are automatically reinvested.
* Realized gains and losses on the sales of investments are
computed on the first in first out method.
* The operations of the Account are included in the Federal income
tax return of Merrill Lynch Life. Under the provisions of the
Contracts, Merrill Lynch Life has the right to charge the
Account for any Federal income tax attributable to the Account.
No charge is currently being made against the Account for income
taxes since, under current tax law, Merrill Lynch Life pays no
tax on investment income and capital gains reflected in variable
life insurance contract reserves. However, Merrill Lynch Life
retains the right to charge for any Federal income tax incurred
which is attributable to the Account if the law is changed.
Contract loading, however, includes a charge for a significantly
higher Federal income tax liability of Merrill Lynch Life (see
Note C). Charges for state and local taxes, if any,
attributable to the Account may also be made.
Note - C Merrill Lynch Life assumes mortality and expense risks
related to the operations of the Account and deducts a daily charge
from the assets of the Account to cover these risks. The daily
charges are equal to a rate of .90% (on an annual basis) of the net
assets for contract owners.
Merrill Lynch Life makes certain deductions from each premium. For
certain Contracts, the deductions are made before the premium is
allocated to the Account. For other Contracts, the deductions are
taken in equal installments on the first through tenth contract
anniversaries. The deductions are for (1) sales load, (2) Federal
taxes, and (3) state and local premium taxes.
In addition, for certain Contracts, the cost of providing life
insurance coverage for the insureds will be deducted from the
investment base on the contract date and all subsequent processing
dates. For other Contracts, the cost of providing life insurance
coverage will be deducted only on processing dates. This cost will
vary dependent upon the insured's underwriting class, sex (except
where unisex rates are required by state law), attained age of each
insured and the Contract's net amount at risk.
<PAGE>
Note - D Merrill Lynch Life pays all transaction charges to
Merrill Lynch, Pierce, Fenner & Smith Inc., sponsor of the unit
investment trusts, on the sale of Series A through K Unit Investment
Trust units to the Account and deducts a daily asset charge against
the assets of each trust for the reimbursement of these transaction
charges. The asset charge is equivalent to an effective annual rate
of .34% (annually at the beginning of the year) of net assets for
Contract owners.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
==============================================================================
Division Investing In
-----------------------------------------------
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 598,239 $ 197,761 $ 339,859 $ 361,177
Net Gain (Loss):
Realized 0 (24,997) (19,539) (998)
Unrealized 0 (299,603) (541,224) (447,601)
----------------- ----------------- ---------------- ----------------
Investment Earnings (Losses) 598,239 (126,839) (220,904) (8,422)
Mortality and Expense Charges (Note C) (115,370) (17,883) (27,318) (32,894)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ---------------- ----------------
Net Earnings (Losses) 482,869 (144,722) (248,222) (120,316)
Capital Shares Transactions:
Transfers of Net Premiums 35,477,563 122,509 74,344 543,967
Transfers of Policy Loading, Net 2,450,379 (5,859) (17,278) (114,045)
Transfers Due to Deaths (6,644) 0 0 0
Transfers Due to Other Terminations (57,263) (10,587) (11,410) (30,123)
Transfers Due to Policy Loans (450,915) (132,120) (12,546) (16,895)
Transfers of Cost of Insurance (277,172) (28,089) (36,086) (76,356)
Transfers of Loan Processing Charges (634) (396) (234) (667)
Transfers Among Investment Divisions (27,490,695) 2,603,515 961,101 3,522,154
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 10,127,488 2,404,251 709,669 3,707,719
Net Assets Beginning Balance 12,057,968 2,124,452 3,625,591 3,039,052
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 22,185,456 $ 4,528,703 $ 4,335,260 $ 6,746,771
================= ================= ================= =================
</TABLE>
<PAGE>
<TABLE>
Divisions Investing In
---------------------------------------------------------------------------
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 287,424 $ 661,067 $ 138,212 $ 11,993
----------------- ----------------- ----------------- -----------------
Net Gain (Loss):
Realized (31,685) (17,806) (104) 199
Unrealized (334,338) (782,498) (162,301) 33,707
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) (78,599) (139,237) (24,193) 45,899
Mortality and Expense Charges (Note C) (17,271) (46,161) (12,506) (4,175)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ------------------ -----------------
Net Earnings (Losses) (95,870) (185,398) (36,699) 41,724
Capital Shares Transactions:
Transfers of Net Premiums 375,313 349,490 165,586 107,380
Transfers of Policy Loading, Net 16,176 48,166 3,917 6,960
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (11,435) (19,856) (11,761) (1,076)
Transfers Due to Policy Loans (6,302) (39,334) (22,398) (7,332)
Transfers of Cost of Insurance (56,735) (91,522) (38,423) (12,891)
Transfers of Loan Processing Charges (507) (640) (35) (24)
Transfers Among Investment Divisions 1,538,276 5,193,623 1,208,349 431,093
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 1,758,916 5,254,529 1,268,536 565,834
Net Assets Beginning Balance 1,721,346 4,012,687 1,232,356 370,599
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 3,480,262 $ 9,267,216 $ 2,500,892 $ 936,433
================= ================= ================= =================
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
==============================================================================
Division Investing In
---------------------------------------------------------------------------
Developing
Global International Capital
Strategy Balanced Bond Markets
Portfolio Portfolio Fund Focus Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 307,203 $ 96,724 $ 1,327 $ 0
Net Gain (Loss):
Realized 37,097 2,681 (62) (112)
Unrealized (211,660) (165,637) 125 28,089
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 132,640 (66,232) 1,390 27,977
Mortality and Expense Charges (Note C) (63,324) (15,591) (139) (870)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 69,316 (81,823) 1,251 27,107
Capital Shares Transactions:
Transfers of Net Premiums 1,181,279 132,895 13,567 57,088
Transfers of Policy Loading, Net 86,675 29,877 10 2,126
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (70,001) (21,325) 3 (416)
Transfers Due to Policy Loans (140,622) (7,270) (8,041) (6,313)
Transfers of Cost of Insurance (214,811) (36,313) (765) (6,132)
Transfers of Loan Processing Charges (516) (60) (6) (54)
Transfers Among Investment Divisions 6,844,129 1,637,559 89,603 710,748
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 7,755,449 1,653,540 95,622 784,154
Net Assets Beginning Balance 5,615,068 1,370,514 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 13,370,517 $ 3,024,054 $ 95,622 $ 784,154
================= ================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Division Investing In
---------------------------------------------------------------------------
Global World Basic
Utility International Income Value
Focus Equity Focus Focus Focus
Fund Fund Fund Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 1,561 $ 378 $ 1,754
Net Gain (Loss):
Realized 1 76 (73) 79
Unrealized 49 (13,847) (140) 14,945
----------------- ----------------- ------------------ ----------------
Net Investment Earnings (Losses) 50 (12,210) 165 16,778
Mortality and Expense Charges (Note C) (36) (1,190) (35) (626)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- ----------------
Net Earnings (Losses) 14 (13,400) 130 16,152
Capital Shares Transactions:
Transfers of Net Premiums 0 64,015 0 29,970
Transfers of Policy Loading, Net 5 2,790 3 180
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (20) (587) (12) (212)
Transfers Due to Policy Loans 0 1,648 (7,961) 0
Transfers of Cost of Insurance (156) (8,049) (155) (3,578)
Transfers of Loan Processing Charges (3) (76) (2) (31)
Transfers Among Investment Divisions 42,663 1,090,683 29,941 428,200
----------------- ----------------- ----------------- ----------------
Increase in Net Assets 42,503 1,137,024 21,944 470,681
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 42,503 $ 1,137,024 $ 21,944 $ 470,681
================= ================= ================= =================
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
Division Investing In
---------------------------------------------------------------------------
1994 1995 1996 1997
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 80 1 9 56
Unrealized (16) 382 221 (78)
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 64 383 230 (22)
Mortality and Expense Charges (Note C) (15) (151) (65) (55)
Transaction Charges (Note D) (6) (52) (23) (20)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 43 180 142 (97)
Capital Shares Transactions:
Transfers of Net Premiums 0 0 1,680 6,746
Transfers of Policy Loading, Net (230) (218) (374) 286
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 1 56 (18) (5)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (81) (390) (163) (429)
Transfers of Loan Processing Charges 1 (7) (2) 0
Transfers Among Investment Divisions (1,715) 110,385 36,775 4,187
----------------- ----------------- ----------------- -----------------
Increase in Net Assets (1,981) 110,006 38,040 10,688
Net Assets Beginning Balance 1,981 255 2,241 6,942
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 0 $ 110,261 $ 40,281 $ 17,630
================= ================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Division Investing In
---------------------------------------------------------------------------
1998 1999 2000 2001
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 891 0 (468) 29
Unrealized (6,165) (44) (2,286) (870)
----------------- ----------------- ------------------ ----------------
Investment Earnings (Losses) (5,274) (44) (2,754) (841)
Mortality and Expense Charges (Note C) (2,205) (13) (397) (79)
Transaction Charges (Note D) (837) (4) (148) (29)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) (8,316) (61) (3,299) (949)
Capital Shares Transactions:
Transfers of Net Premiums 662 0 19,652 0
Transfers of Policy Loading, Net (4,241) 1 848 (103)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 41 (5) (241) (8)
Transfers Due to Policy Loans (1,199) 0 (1,203) 0
Transfers of Cost of Insurance (2,215) (40) (3,047) (46)
Transfers of Loan Processing Charges (30) (1) (4) (1)
Transfers Among Investment Divisions 472,459 9,858 73,879 17,280
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 457,161 9,752 86,585 16,173
Net Assets Beginning Balance 17,703 0 45,561 9,431
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 474,864 $ 9,752 $ 132,146 $ 25,604
================= ================= ================= =================
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
Division Investing In
---------------------------------------------------------------------------
2002 2003 2004 2005
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss): 1 (52) 1 (11)
Realized (775) (37) (1,731) (145)
Unrealized ----------------- ----------------- ----------------- -----------------
(774) (89) (1,730) (156)
Investment Earnings (Losses)
(132) (12) (193) (14)
Mortality and Expense Charges (Note C) (47) (4) (65) (6)
Transaction Charges (Note D) ----------------- ----------------- ----------------- -----------------
(953) (105) (1,988) (176)
Net Earnings (Losses)
Capital Shares Transactions: 0 0 0 0
Transfers of Net Premiums 8 (335) 17 1
Transfers of Policy Loading, Net 0 0 0 0
Transfers Due to Deaths 438 2 561 (2)
Transfers Due to Other Terminations 0 0 0 0
Transfers Due to Policy Loans (149) (55) (524) (186)
Transfers of Cost of Insurance (5) 1 (11)
Transfers of Loan Processing Charges 78,733 (3,669) 165,622 4,952
Transfers Among Investment Divisions ----------------- ----------------- ----------------- -----------------
78,072 (4,161) 163,677 4,589
Increase in Net Assets 0 7,614 0 0
Net Assets Beginning Balance ----------------- ----------------- ----------------- -----------------
$ 78,072 $ 3,453 $ 163,677 $ 4,589
Net Assets Ending Balance ================= ================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Division Investing In
--------------------------------------------------------------------------
2007 2010 2011 2013
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 0 (23,005) 690 (2,443)
Unrealized (18) (4,916) (29,619) (6,275)
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) (18) (27,921) (28,929) (8,718)
Mortality and Expense Charges (Note C) (1) (1,190) (1,119) (321)
Transaction Charges (Note D) (1) (456) (431) (122)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) (20) (29,567) (30,479) (9,161)
Capital Shares Transactions:
Transfers of Net Premiums 0 48 0 922
Transfers of Policy Loading, Net 0 (622) (900) 109
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 0 7 13 (36)
Transfers Due to Policy Loans 0 0 0 (12,295)
Transfers of Cost of Insurance (2) (772) (1,142) (1,491)
Transfers of Loan Processing Charges 0 1 10 (4)
Transfers Among Investment Divisions 910 101,899 0 86,097
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 888 70,994 (32,498) 64,141
Net Assets Beginning Balance 0 129,694 183,965 4,381
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 888 $ 200,688 $ 151,467 $ 68,522
================= ================= ================= =================
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
Division Investing In
------------------------------------
2014
Trust Total
----------------- -----------------
<S> <C> <C>
Reinvested Dividends $ 0 $ 3,004,679
Net Gain (Loss):
Realized 0 (79,464)
Unrealized (66) (2,934,372)
----------------- -----------------
Investment Earnings (Losses) (66) (9,157)
Mortality and Expense Charges (Note C) (1) (361,352)
Transaction Charges (Note D) (1) (2,252)
----------------- -----------------
Net Earnings (Losses) (68) (372,761)
Capital Shares Transactions:
Transfers of Net Premiums 0 38,724,676
Transfers of Policy Loading, Net 0 2,504,329
Transfers Due to Deaths 0 (6,644)
Transfers Due to Other Terminations (1) (245,278)
Transfers Due to Policy Loans 0 (871,098)
Transfers of Cost of Insurance (16) (897,981)
Transfers of Loan Processing Charges 0 (3,937)
Transfers Among Investment Divisions 1,406 0
----------------- -----------------
Increase in Net Assets 1,321 38,831,306
Net Assets Beginning Balance 0 35,579,401
----------------- -----------------
Net Assets Ending Balance $ 1,321 $ 74,410,707
================= =================
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
Division Investing In
---------------------------------------------------------------------------
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 146,849 $ 27,111 $ 66,802 $ 20,003
Net Gain (Loss):
Realized 0 (246) 1,695 3,213
Unrealized 0 38,005 113,443 71,469
----------------- ----------------- ----------------- -----------------
Net Investment Earnings (Losses) 146,849 64,870 181,940 94,685
Mortality and Expense Charges (Note C) (30,896) (4,128) (10,478) (6,332)
Transaction Charge (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 115,953 60,742 171,462 88,353
Capital Shares Transactions:
Transfer of Net Premiums 16,806,060 0 6,787 13,203
Transfers of Policy Loading, Net 1,443,368 (1,109) 145 (123)
Transfers on Account of Deaths (81,500) 0 0 0
Transfers on Account of Policy Loans (26,000) (46,544) (36,853) (57,601)
Transfers of Cost of Insurance (77,366) (7,816) (21,422) (17,169)
Transfers of Loan Processing Charges (1,118) (143) (374) (192)
Transfers Among Investment Divisions (12,974,350) 1,205,811 3,324,890 1,589,260
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 5,205,047 1,210,941 3,444,635 1,615,731
Net Assets Beginning Balance 2,106,982 131,996 71,411 183,428
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 7,312,029 $ 1,342,937 $ 3,516,046 $ 1,799,159
================= ================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Division Investing In
---------------------------------------------------------------------------
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 11,722 $ 35,996 $ 18,358 $ 764
Net Gain (Loss):
Realized 2,935 4,817 1,806 6,925
Unrealized 23,160 61,723 2,720 1,573
----------------- ----------------- ----------------- -----------------
Net Investment Earnings (Losses) 37,817 102,536 22,884 9,262
Mortality and Expense Charges (Note C) (4,693) (6,229) (1,864) (545)
Transaction Charge (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 33,124 96,307 21,020 8,717
Capital Shares Transactions:
Transfer of Net Premiums 12,813 31,045 13,247 21,019
Transfers of Policy Loading, Net 332 104 81 1,840
Transfers on Account of Deaths 0 0 0 0
Transfers on Account of Policy Loans (57,319) (55,818) 0 0
Transfers of Cost of Insurance (15,225) (14,853) (5,269) (3,054)
Transfers of Loan Processing Charges (140) (201) (70) (26)
Transfers Among Investment Divisions 1,235,342 1,592,006 606,369 208,248
----------------- ----------------- ------------------ -----------------
Increase in Net Assets 1,208,927 1,648,590 635,378 236,744
Net Assets Beginning Balance 110,894 239,594 15,157 2,944
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,319,821 $ 1,888,184 $ 650,535 $ 239,688
================= ================= ================= =================
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
Division Investing In
---------------------------------------------------------------------------
Global
Strategy Balanced 1993 1994
Portfolio Portfolio Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 17,738 $ 22,149 $ 0 $ 0
Net Gain (Loss):
Realized 311 702 22 0
Unrealized 97,475 30,523 2 2
----------------- ----------------- ----------------- -----------------
Net Investment Earnings (Losses) 115,524 53,374 24 2
Mortality and Expense Charges (Note C) (5,200) (3,191) (6) 0
Transaction Charge (Note D) 0 0 (2) 0
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 110,324 50,183 16 2
Capital Shares Transactions:
Transfer of Net Premiums 49,204 9,241 4,775 0
Transfers of Policy Loading, Net 3,312 (396) 225 0
Transfers on Account of Deaths 0 0 0 0
Transfers on Account of Policy Loans (4,113) (7,715) 0 0
Transfers of Cost of Insurance (18,302) (6,745) (3) (4)
Transfers of Loan Processing Charges (298) (101) 0 0
Transfers Among Investment Divisions 2,543,477 701,063 (5,013) 2
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 2,683,604 745,530 (0) 0
Net Assets Beginning Balance 113,365 201,399 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,796,969 $ 946,929 $ (0) $ 0
Comprised of: ================= ================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Division Investing In
---------------------------------------------------------------------------
1995 1996 1997 1998
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized (8) 0 0 26
Unrealized 0 24 116 1,758
----------------- ----------------- ----------------- -----------------
Net Investment Earnings (Losses) (8) 24 116 1,784
Mortality and Expense Charges (Note C) (1) (2) (10) (109)
Transaction Charge (Note D) 0 (1) (4) (41)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) (9) 21 102 1,634
Capital Shares Transactions:
Transfer of Net Premiums 4,775 1,671 5,730 669
Transfers of Policy Loading, Net 225 79 270 (35)
Transfers on Account of Deaths 0 0 0 0
Transfers on Account of Policy Loans 0 0 0 0
Transfers of Cost of Insurance 0 (4) (17) (95)
Transfers of Loan Processing Charges 0 0 (1) (2)
Transfers Among Investment Divisions (4,985) (1) 1,003 (3)
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 6 1,766 7,087 2,168
Net Assets Beginning Balance 0 0 0 15,171
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 6 $ 1,766 $ 7,087 $ 17,339
================= ================= ================= =================
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
Division Investing In
---------------------------------------------------------------------------
2000 2001 2003 2010
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 375 749 0 42,452
Unrealized 1,472 746 220 (7,287)
----------------- ----------------- ----------------- -----------------
Net Investment Earnings (Losses) 1,847 1,495 220 35,165
Mortality and Expense Charges (Note C) (49) (60) (7) (906)
Transaction Charge (Note D) (18) (23) (3) (342)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 1,780 1,412 210 33,917
Capital Shares Transactions:
Transfer of Net Premiums 65,895 0 4,775 0
Transfers of Policy Loading, Net 3,105 (38) 225 (900)
Transfers on Account of Deaths 0 0 0 0
Transfers on Account of Policy Loans 0 0 0 0
Transfers of Cost of Insurance (157) (53) (13) (612)
Transfers of Loan Processing Charges (7) (1) (1) (14)
Transfers Among Investment Divisions (16,902) (1) 1 (7,196)
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 53,714 1,319 5,197 25,195
Net Assets Beginning Balance (4) 8,274 0 105,511
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 53,710 $ 9,593 $ 5,197 $ 130,706
================= ================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Division Investing In
--------------------------------------------------------
2011 2013
Trust Trust Total
----------------- ----------------- -----------------
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 367,492
Net Gain (Loss):
Realized 455 0 66,229
Unrealized 43,570 (42) 480,672
----------------- ----------------- -----------------
Net Investment Earnings (Losses) 44,025 (42) 914,393
Mortality and Expense Charges (Note C) (1,136) (1) (75,843)
Transaction Charge (Note D) (428) 0 (862)
----------------- ----------------- ------------------
Net Earnings (Losses) 42,461 (43) 837,688
Capital Shares Transactions:
Transfer of Net Premiums 0 0 17,050,909
Transfers of Policy Loading, Net 0 0 1,450,710
Transfers on Account of Deaths 0 0 (81,500)
Transfers on Account of Policy Loans 0 0 (291,963)
Transfers of Cost of Insurance (1,397) (2) (189,578)
Transfers of Loan Processing Charges (20) 0 (2,709)
Transfers Among Investment Divisions (21) 1,000 0
----------------- ----------------- -----------------
Increase in Net Assets 41,023 955 18,773,557
Net Assets Beginning Balance 147,562 0 3,453,684
----------------- ----------------- -----------------
Net Assets Ending Balance $ 188,585 $ 955 $ 22,227,241
================= ================= =================
</TABLE>
See notes to financial statements.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statements of net assets of Merrill Lynch
Variable Life Separate Account (the "Account") as of December 31, 1993 and 1992
and the related statements of earnings and changes in net assets for the
periods presented. These financial statements are the responsibility of the
management of Merrill Lynch Life Insurance Company. 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. Our
procedures included confirmation of mutual fund securities owned at December
31, 1993, by correspondence with the funds' transfer agent. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating 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 Account at December 31, 1993 and 1992
and the results of its operations and the changes in its net assets for the
periods presented in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules included
herein are presented for the purpose of additional analysis and are not a
required part of the basic financial statements. These schedules are the
responsibility of the Company's management. Such schedules have been subjected
to the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
/S/Deloitte & Touche
February 16, 1994
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1993
=====================================================
<TABLE>
<CAPTION>
Market
ASSETS Cost Shares Value
=============== =============== ===============
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc.(Note B):
Money Reserve Portfolio $ 14,128,729 14,128,729 $ 14,128,729
Intermediate Government Bond Portfolio 2,126,019 177,154 2,129,388
Long-Term Corporate Bond Portfolio 3,607,994 288,643 3,634,015
Capital Stock Portfolio 2,763,303 118,501 3,049,034
Growth Stock Portfolio 1,619,479 70,073 1,727,296
Multiple Strategy Portfolio 4,090,720 219,473 4,354,347
High Yield Portfolio 1,259,332 132,803 1,285,534
Natural Resources Portfolio 382,189 49,459 372,427
Global Strategy Portfolio 5,412,892 368,615 5,684,049
Balanced Portfolio 1,329,563 94,027 1,374,679
--------------- ---------------
36,720,220 37,739,498
--------------- ---------------
Investment in Unit Investment Trusts (Note B)
Stripped ("Zero") U.S. Treasury Securities, Series A through J:
1994 Trust 1,969 2,027 1,985
1995 Trust 256 276 256
1996 Trust 2,205 2,459 2,247
1997 Trust 6,837 8,029 6,961
1998 Trust 15,814 21,780 17,745
2000 Trust 45,453 63,394 45,693
2001 Trust 8,621 14,024 9,467
2003 Trust 7,646 13,519 7,632
2010 Trust 129,831 376,060 129,989
2011 Trust 137,842 572,349 184,400
2013 Trust 4,489 15,991 4,403
--------------- ---------------
360,963 410,778
--------------- ---------------
Total Assets $ 37,081,183 38,150,276
=============== ---------------
LIABILITIES
Payable to Merrill Lynch Series Fund, Inc. 1,600,737
Payable to Merrill Lynch Life Insurance Company 970,138
---------------
Total Liabilities 2,570,875
---------------
Net Assets $ 35,579,401
===============
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1992
==================================================================
<TABLE>
<CAPTION>
Market
ASSETS Cost Shares Value
=============== =============== ===============
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc.(Note B):
Money Reserve Portfolio $ 3,266,901 3,266,901 $ 3,266,901
Intermediate Government Bond Portfolio 134,373 11,251 132,201
Long-Term Corporate Bond Portfolio 71,254 5,925 71,518
Capital Stock Portfolio 174,622 7,910 183,678
Growth Stock Portfolio 103,743 4,631 111,040
Multiple Strategy Portfolio 228,920 12,830 239,922
High Yield Portfolio 15,064 1,668 15,180
Natural Resources Portfolio 2,923 421 2,948
Global Strategy Portfolio 111,374 8,581 113,529
Balanced Portfolio 197,389 14,722 201,689
--------------- ---------------
4,306,563 4,338,606
--------------- ---------------
Investment in Unit Investment Trusts (Note B):
Stripped ("Zero") U.S. Treasury Securities, Series A through I:
1998 Trust 14,959 20,765 15,193
2001 Trust 8,056 14,292 8,286
2010 Trust 99,930 385,847 105,656
2011 Trust 139,757 582,393 147,765
--------------- ---------------
262,702 276,900
--------------- ---------------
Total Assets $ 4,569,265 4,615,506
=============== ---------------
LIABILITIES
Payable to Merrill Lynch Life Insurance Company 1,107,789
Payable to Merrill Lynch Series Fund, Inc. 54,033
---------------
Total Liabilities 1,161,822
---------------
Net Assets $ 3,453,684
===============
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993 AND
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
=================================================================
<TABLE>
<CAPTION>
1993 1992
=============== ===============
<S> <C> <C>
Reinvested Dividends $ 566,325 $ 21,362
Net Gain (Loss):
Realized 63,152 (775)
Unrealized 1,022,845 46,241
--------------- ---------------
Investment Earnings 1,652,322 66,828
Mortality and Expense Charges (Note C) (140,002) (6,442)
Transaction Charges (Note D) (1,237) (166)
--------------- ---------------
Net Earnings 1,511,083 60,220
Capital Shares Transactions:
Transfers of Net Premiums 29,211,942 3,099,255
Transfers of Policy Loading, Net 2,330,207 310,111
Transfers Due to Deaths (89,520) 0
Transfers Due toTerminations (69,256) 0
Transfers Due to Policy Loans (387,136) 0
Transfers of Cost of Insurance (377,409) (15,902)
Transfers of Loan Processing Charges (4,194) 0
--------------- ---------------
Increase in Net Assets 32,125,717 3,453,684
Net Assets Beginning Balance 3,453,684 0
--------------- ---------------
Net Assets Ending Balance $ 35,579,401 $ 3,453,684
=============== ===============
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1993
Note - A Merrill Lynch Variable Life Separate Account ("Account"), a
separate account of Merrill Lynch Life Insurance Company ("Merrill Lynch
Life") was established by a board of directors resolution on November 16, 1990
and is governed by Arkansas State Insurance Law. The Account is registered as
a unit investment trust under the Investment Company Act of 1940 and consists
of twenty-eight investment divisions (twenty-nine during the year). Ten of the
divisions each invest in the securities of a single mutual fund portfolio of
Merrill Lynch Series Fund, Inc. ("Series Fund"). The portfolios of the Series
Fund have varying investment objectives relative to growth of capital and
income. The Series Fund receives investment advice from Merrill Lynch Asset
Management, L.P. for a fee calculated at an effective annual rate of .50% of
the first $250 million of the aggregate average daily net assets of the
investment divisions investing in the Series Fund with declining rates to .30%
of such assets over $800 million. Eighteen of the divisions (nineteen during
the year) each invest in the securities of a single trust of the Merrill Lynch
Fund of Stripped ("Zero") U.S. Treasury Securities, Series A through J. Each
trust of the Series consists of Stripped Treasury Securities with a fixed
maturity date and a Treasury Note deposited to provide income to pay expenses
of the trust.
The Account was formed by Merrill Lynch Life, an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("Merrill") to support Merrill Lynch
Life's operations respecting certain variable life insurance contracts
("Contracts"). The assets of the Account are the property of Merrill Lynch
Life. The portion of the Account's assets applicable to the Contracts are not
chargeable with liabilities arising out of any other business Merrill Lynch
Life may conduct.
The change in net assets maintained in the Account provides the basis for
the periodic determination of the amount of increased or decreased benefits
under the Contracts.
The net assets may not be less than the amount required under Arkansas
State Insurance Law to provide for death benefits (without regard to the
minimum death benefit guarantee) and other Contract benefits.
Note - B The significant accounting policies of the Account are as follows:
* Investments are made in the divisions and are valued at the net asset
values of the respective Portfolios.
* Transactions are recorded on the trade date.
* Income from dividends is recognized on the ex-dividend date. All
dividends are automatically reinvested.
* Realized gains and losses on the sales of investments are computed on
the first in first out method.
* The operations of the Account are included in the Federal income tax
return of Merrill Lynch Life. Under the provisions of the Contracts, Merrill
Lynch Life has the right to charge the Account for any Federal income tax
attributable to the Account. No charge is currently being made against the
Account for income taxes since, under current tax law, Merrill Lynch Life pays
no tax on investment income and capital gains reflected in variable life
insurance contract reserves. However, Merrill Lynch Life retains the
right to charge for any Federal income tax incurred which is attributable to
the Account if the law is changed. Contract loading, however, includes a
charge for
<PAGE>
a significantly higher Federal income tax liability of Merrill Lynch
Life (see Note C). Charges for state and local taxes, if any, attributable to
the Account may also be made.
Note - C Merrill Lynch Life assumes mortality and expense risks related to
the operations of the Account and deducts a daily charge from the assets of
the Account to cover these risks. The daily charges are equal to a rate of
.90% (on an annual basis) of the net assets for contract owners. Merrill
Lynch Life makes certain deductions from each premium. For certain
Contracts, the deductions are made before the premium is allocated to
the Account. For other Contracts, the deductions are taken in equal
installments on the first through tenth contract anniversaries. The
deductions are for (1) sales load, (2) Federal taxes, and (3) state and local
premium taxes. In addition, for certain Contracts, the cost of providing
life insurance coverage for the insureds will be deducted from the investment
base on the contract date and all subsequent processing dates. For other
Contracts, the cost of providing life insurance coverage will be deducted
only on processing dates. This cost will vary dependent upon the
insured's underwriting class, sex (except where unisex rates are required by
state law), attained age of each insured and the Contract's net amount at risk.
Note - D Merrill Lynch Life pays all transaction charges to Merrill
Lynch, Pierce, Fenner & Smith Inc., sponsor of the unit investment trusts, on
the sale of Series A through J Unit Investment Trust units to the Account
and deducts a daily asset charge against the assets of each trust for the
reimbursement of these transaction charges. The asset charge is equivalent
to an effective annual rate of .34% (annually at the beginning of the year) of
net assets for Contract owners.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
=======================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 240,425 $ 52,396 $ 124,153 $ 20,003
4,153 $ 20,003
Net Gain (Loss):
Realized 0 (207) 2,694 4,634
Unrealized 0 5,540 25,757 276,674
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 240,425 57,729 152,604 301,311
Mortality and Expense Charges (Note C) (52,658) (8,013) (18,583) (11,653)
Transaction Charges (Note D) 0 0 0 0
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 187,767 49,716 134,021 289,658
Capital Shares Transactions:
Transfers of Net Premiums 28,807,995 13,443 16,325 44,825
Transfers of Policy Loading, Net 2,323,451 (488) (3,256) 172
Transfers Due to Deaths (84,834) 0 0 0
Transfers Due to Other Terminations (57,172) (980) (1,880) (1,387)
Transfers Due to Policy Loans (105,200) (46,544) (38,037) (60,377)
Transfers of Cost of Insurance (145,593) (13,605) (30,998) (32,240)
Transfers of Loan Processing Charges (1,554) (234) (400) (335)
Transfers Among Investment Divisions (20,973,874) 1,991,148 3,478,405 2,615,308
--------------- --------------- --------------- ---------------
Increase in Net Assets 9,950,986 1,992,456 3,554,180 2,855,624
Net Assets Beginning Balance 2,106,982 131,996 71,411 183,428
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 12,057,968 $ 2,124,452 $ 3,625,591 $ 3,039,052
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 11,722 $ 35,996 $ 40,979 $ 764
Net Gain (Loss):
Realized 5,372 5,912 1,965 194
Unrealized 100,519 252,624 26,086 (9,788)
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 117,613 294,532 69,030 (8,830)
Mortality and Expense Charges (Note C) (8,200) (12,028) (4,233) (1,214)
Transaction Charges (Note D) 0 0 0 0
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 109,413 282,504 64,797 (10,044)
Capital Shares Transactions:
Transfers of Net Premiums 26,813 36,427 31,231 23,747
Transfers of Policy Loading, Net 1,357 (2,248) 794 2,071
Transfers Due to Deaths 0 (4,686) 0 0
Transfers Due to Other Terminations (894) (2,110) (660) (193)
Transfers Due to Policy Loans (57,729) (56,074) (597) (526)
Transfers of Cost of Insurance (26,818) (31,498) (13,266) (6,103)
Transfers of Loan Processing Charges (190) (479) (141) (41)
Transfers Among Investment Divisions 1,558,500 3,551,257 1,135,041 358,744
--------------- --------------- --------------- ---------------
Increase in Net Assets 1,610,452 3,773,093 1,217,199 367,655
Net Assets Beginning Balance 110,894 239,594 15,157 2,944
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 1,721,346 $ 4,012,687 $ 1,232,356 $ 370,599
=============== =============== =============== ===============
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
==========================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
Global
Strategy Balanced 1993 1994
Portfolio Portfolio Trust Trust
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 17,738 $ 22,149 $ 0 $ 0
Net Gain (Loss):
Realized 1,064 1,120 29 0
Unrealized 269,003 40,816 0 16
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 287,805 64,085 29 16
Mortality and Expense Charges (Note C) (14,321) (5,819) (6) (3)
Transaction Charges (Note D) 0 0 (3) (1)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 273,484 58,266 20 12
Capital Shares Transactions:
Transfers of Net Premiums 88,757 12,081 6,446 1,671
Transfers of Policy Loading, Net 6,718 (1,566) 304 79
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (2,936) (818) (2) (1)
Transfers Due to Policy Loans (14,337) (7,715) 0 0
Transfers of Cost of Insurance (59,703) (13,088) 0 (32)
Transfers of Loan Processing Charges (625) (151) 0 0
Transfers Among Investment Divisions 5,210,345 1,122,106 (6,768) 252
--------------- --------------- --------------- ---------------
Increase in Net Assets 5,501,703 1,169,115 0 1,981
Net Assets Beginning Balance 113,365 201,399 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 5,615,068 $ 1,370,514 $ 0 $ 1,981
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997 1998
Trust Trust Trust Trust
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized (8) 0 3 34
Unrealized 0 42 124 1,697
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) (8) 42 127 1,731
Mortality and Expense Charges (Note C) (1) (6) (25) (149)
Transaction Charges (Note D) 0 (3) (10) (56)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) (9) 33 92 1,526
Capital Shares Transactions:
Transfers of Net Premiums 4,775 1,671 5,730 669
Transfers of Policy Loading, Net 225 79 272 (31)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 0 (11) (4) (16)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (1) (32) (151) (119)
Transfers of Loan Processing Charges 0 0 (1) (2)
Transfers Among Investment Divisions (4,735) 501 1,004 505
--------------- --------------- --------------- ---------------
Increase in Net Assets 255 2,241 6,942 2,532
Net Assets Beginning Balance 0 0 0 15,171
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 255 $ 2,241 $ 6,942 $ 17,703
=============== =============== =============== ===============
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
=====================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
2000 2001 2003 2010
Trust Trust Trust Trust
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 1,181 753 320 37,014
Unrealized 239 615 (14) (5,568)
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 1,420 1,368 306 31,446
Mortality and Expense Charges (Note C) (160) (81) (19) (1,264)
Transaction Charges (Note D) (60) (31) (7) (476)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 1,200 1,256 280 29,706
Capital Shares Transactions:
Transfers of Net Premiums 84,561 0 4,775 0
Transfers of Policy Loading, Net 4,229 (36) 172 (872)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (19) (5) (4) (67)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (1,186) (60) (351) (754)
Transfers of Loan Processing Charges (5) (1) (1) (14)
Transfers Among Investment Divisions (43,215) 3 2,743 (3,816)
--------------- --------------- --------------- ---------------
Increase in Net Assets 45,565 1,157 7,614 24,183
Net Assets Beginning Balance (4) 8,274 0 105,511
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 45,561 $ 9,431 $ 7,614 $ 129,694
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
2011 2013
Trust Trust Total
===============================================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 566,325
Net Gain (Loss):
Realized 1,078 0 63,152
Unrealized 38,549 (86) 1,022,845
--------------- --------------- ---------------
Investment Earnings (Losses) 39,627 (86) 1,652,322
0 0 0
Mortality and Expense Charges (Note C) (1,559) (7) (140,002)
Transaction Charges (Note D) (587) (3) (1,237)
--------------- --------------- ---------------
Net Earnings (Losses) 37,481 (96) 1,511,083
Capital Shares Transactions:
Transfers of Net Premiums 0 0 29,211,942
Transfers of Policy Loading, Net (1,220) 1 2,330,207
Transfers Due to Deaths 0 0 (89,520)
Transfers Due to Other Terminations (95) (2) (69,256)
Transfers Due to Policy Loans 0 0 (387,136)
Transfers of Cost of Insurance (1,779) (32) (377,409)
Transfers of Loan Processing Charges (20) 0 (4,194)
Transfers Among Investment Divisions 2,036 4,510 0
--------------- --------------- ---------------
Increase in Net Assets 36,403 4,381 32,125,717
Net Assets Beginning Balance 147,562 0 3,453,684
--------------- --------------- ---------------
Net Assets Ending Balance $ 183,965 $ 4,381 $ 35,579,401
=============== =============== ===============
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
=======================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 19,050 $ 1,655 $ 478 $ 0
Net Gain (Loss):
Realized 0 (12) (2) 11
Unrealized 0 (2,172) 264 9,056
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 19,050 (529) 740 9,067
Mortality and Expense Charges (Note C) (4,254) (260) (89) (288)
Transaction Charges (Note D) 0 0 0 0
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 14,796 (789) 651 8,779
Capital Shares Transactions:
Transfers of Net Premiums 2,970,874 0 0 0
Transfers of Policy Loading, Net 297,511 0 0 0
Transfers of Cost of Insurance (11,028) (569) (164) (481)
Transfers Among Investment Divisions (1,165,171) 133,354 70,924 175,130
--------------- --------------- --------------- ---------------
Increase in Net Assets 2,106,982 131,996 71,411 183,428
Net Assets Beginning Balance 0 0 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 2,106,982 $ 131,996 $ 71,411 $ 183,428
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 179 $ 0
Net Gain (Loss):
Realized 30 15 0 (1)
Unrealized 7,297 11,002 116 25
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 7,327 11,017 295 24
Mortality and Expense Charges (Note C) (191) (408) (19) (4)
Transaction Charges (Note D) 0 0 0 0
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 7,136 10,609 276 20
Capital Shares Transactions:
Transfers of Net Premiums 0 0 0 0
Transfers of Policy Loading, Net 0 0 0 0
Transfers of Cost of Insurance (682) (863) (84) (61)
Transfers Among Investment Divisions 104,440 229,848 14,965 2,985
--------------- --------------- --------------- ---------------
Increase in Net Assets 110,894 239,594 15,157 2,944
Net Assets Beginning Balance 0 0 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 110,894 $ 239,594 $ 15,157 $ 2,944
=============== =============== =============== ===============
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
=========================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
Global
Strategy Balanced 1998 2000
Portfolio Portfolio Trust Trust
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 1 15 (2) (922)
Unrealized 2,155 4,300 234 0
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 2,156 4,315 232 (922)
Mortality and Expense Charges (Note C) (150) (338) (11) (14)
Transaction Charges (Note D) 0 0 (4) (5)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 2,006 3,977 217 (941)
Capital Shares Transactions:
Transfers of Net Premiums 0 0 0 128,381
Transfers of Policy Loading, Net 0 0 0 12,600
Transfers of Cost of Insurance (652) (806) (46) 0
Transfers Among Investment Divisions 112,011 198,228 15,000 (140,044)
--------------- --------------- --------------- ---------------
Increase in Net Assets 113,365 201,399 15,171 (4)
Net Assets Beginning Balance 0 0 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 113,365 $ 201,399 $ 15,171 $ (4)
=============== =============== =============== ===============
</TABLE
</TABLE>
<TABLE>
<CAPTION>
2001 2010 2011
Trust Trust Trust Total
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 77 8 7 (775)
Unrealized 230 5,726 8,008 46,241
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 307 5,734 8,015 66,828
Mortality and Expense Charges (Note C) (6) (193) (217) (6,442)
Transaction Charges (Note D) (2) (73) (82) (166)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 299 5,468 7,716 60,220
Capital Shares Transactions:
Transfers of Net Premiums 0 0 0 3,099,255
Transfers of Policy Loading, Net 0 0 0 310,111
Transfers of Cost of Insurance (25) (243) (198) (15,902)
Transfers Among Investment Divisions 8,000 100,286 140,044 0
Increase in Net Assets 8,274 105,511 147,562 3,453,684
--------------- --------------- --------------- ---------------
Net Assets Beginning Balance 0 0 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 8,274 $ 105,511 $ 147,562 $ 3,453,684
=============== =============== =============== ===============
</TABLE>
<PAGE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- -------------------------------------------------------------------------------
BALANCE SHEETS
(Dollars in Thousands) (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
- ------ 1994 1993
-------------- --------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1994 - $4,121,412; 1993 - $5,369,236) $ 4,042,858 $ 5,597,359
Fixed maturity securities held for trading, at estimated fair value
(amortized cost: 1994 - $146,735; 1993 - $140,635) 141,649 144,035
Equity securities available for sale, at estimated fair value
(cost: 1994 - $8,965; 1993 - $24,424) 10,605 24,970
Equity securities held for trading, at estimated fair value
(cost: 1994 - $11,336; 1993 - $19,694) 11,568 20,585
Mortgage loans on real estate 153,663 191,214
Real estate available for sale 24,557 29,761
Policy loans on insurance contracts 969,130 924,579
------------- -------------
Total Investments 5,354,030 6,932,503
CASH AND CASH EQUIVALENTS 96,797 122,218
ACCRUED INVESTMENT INCOME 101,782 120,337
DEFERRED POLICY ACQUISITION COSTS 434,623 318,903
FEDERAL INCOME TAXES - DEFERRED 46,026 16,878
REINSURANCE RECEIVABLES 1,960 1,190
RECEIVABLES FROM AFFILIATES - NET 3,605 789
OTHER ASSETS 31,818 21,481
SEPARATE ACCOUNTS ASSETS 5,783,660 4,715,278
------------- -------------
TOTAL ASSETS $ 11,854,301 $ 12,249,577
============= =============
See notes to financial statements. (Continued)
</TABLE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- -------------------------------------------------------------------------------
BALANCE SHEETS
(Concluded) (Dollars in Thousands) (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY September 30, December 31,
- ------------------------------------ 1994 1993
-------------- --------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 5,272,934 $ 6,691,811
Claims and claims settlement expenses 25,711 20,295
------------- -------------
Total policy liabilities and accruals 5,298,645 6,712,106
OTHER POLICYHOLDER FUNDS 13,413 28,768
LIABILITY FOR GUARANTY FUND ASSESSMENTS 25,113 28,083
OTHER LIABILITIES 49,302 68,165
FEDERAL INCOME TAXES - CURRENT 9,213 10,122
SEPARATE ACCOUNTS LIABILITIES 5,768,122 4,715,278
------------- -------------
Total Liabilities 11,163,808 11,562,522
------------- -------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 637,590 637,590
Retained earnings 88,294 47,860
Net unrealized investment loss (37,391) (395)
------------- -------------
Total Stockholder's Equity 690,493 687,055
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 11,854,301 $ 12,249,577
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- ------------------------------------------------------------------------------
STATEMENTS OF EARNINGS
(Dollars in Thousands) (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 333,167 $ 454,415
Net realized investment gains (losses) (10,587) 32,028
Policy charge revenue 83,211 67,653
------------- -------------
Total Revenues 405,791 554,096
------------- -------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 243,735 357,398
Market value adjustment expense 6,143 18,946
Policy benefits (net of reinsurance recoveries: 1994 - $4,647;
1993 - $5,282) 12,353 14,126
Reinsurance premium ceded 10,444 9,362
Amortization of deferred policy acquisition costs 53,624 71,288
Insurance expenses and taxes 28,056 36,533
------------- -------------
Total Benefits and Expenses 354,355 507,653
------------- -------------
Earnings Before Federal Income Tax Provision 51,436 46,443
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 20,229 12,834
Deferred (9,227) 2,902
------------- -------------
Total Federal Income Tax Provision 11,002 15,736
------------- -------------
NET EARNINGS $ 40,434 $ 30,707
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- -------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in Thousands) (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
--------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 $ 2,000 $ 654,717 $ 102,873 $ 2,884 $ 762,474
Dividend to Parent 0 (17,127) (102,873) 0 (120,000)
Net earnings 0 0 47,860 0 47,860
Net unrealized investment loss 0 0 0 (3,279) (3,279)
--------- --------- --------- ---------- ---------
BALANCE, DECEMBER 31, 1993 2,000 637,590 47,860 (395) 687,055
Net earnings 0 0 40,434 0 40,434
Net unrealized investment loss 0 0 0 (36,996) (36,996)
--------- --------- --------- ---------- ---------
BALANCE, SEPTEMBER 30, 1994 $ 2,000 $ 637,590 $ 88,294 $ (37,391) $ 690,493
========= ========= ========= ========== =========
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1994 1993
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 40,434 $ 30,707
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 53,624 71,288
Capitalization of policy acquisition costs (90,955) (56,268)
Depreciation and amortization (2,985) 1,514
Net realized investment (gains) losses 10,587 (32,028)
Interest credited to policyholders' account balances 243,735 357,398
Provision (benefit) for deferred Federal income tax (9,227) 2,902
Cash and cash equivalents provided (used) by changes in
operating assets and liabilities:
Accrued investment income 18,555 (8,075)
Claims and claims settlement expenses 5,416 13,785
Federal income taxes - current (909) 12,835
Other policyholder funds (15,355) 35,618
Liability for guaranty fund assessments (2,970) (2,518)
Receivable from affiliates - net (2,816) (8,599)
Change in policy loans (44,551) (66,613)
Change in investment trading securities 873 (126,578)
Other, net (29,897) 33,846
Net cash and cash equivalents provided by operating ------------- -------------
activities 173,559 259,214
------------- -------------
INVESTING ACTIVITIES:
Fixed maturity securities sold 653,327 326,864
Fixed maturity securities matured 1,066,944 2,000,480
Fixed maturity securities purchased (467,420) (1,518,487)
Equity securities available for sale sold 16,876 4,516
Equity securities available for sale purchased 0 (3,324)
Mortgage loans on real estate principal payments received 31,872 20,543
Real estate encumbrances paid off 0 (956)
Real estate available for sale - improvements acquired (1,323) 0
Real estate available for sale sold 8,616 0
Investment in Separate Accounts (15,076) (20,000)
Recapture of investment in Separate Accounts 0 9,841
Net cash and cash equivalents provided by investing ------------- -------------
activities 1,293,816 819,477
------------- ------------
</TABLE>
See notes to financial statements (continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(Concluded) (Dollars in Thousands) (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1994 1993
------------- -------------
<S> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 771,832 464,029
Withdrawals (includes transfers to Separate Accounts) (2,264,628) (1,650,924)
------------- -------------
Net cash and cash equivalents used by financing activities (1,492,796) (1,186,895)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (25,421) (108,204)
CASH AND CASH EQUIVALENTS:
Beginning of year 122,218 172,124
------------- -------------
End of period $ 96,797 $ 63,920
============= =============
</TABLE>
See notes to financial statements
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 (Unaudited)
===============================================================================
NOTE 1: BASIS OF PRESENTATION:
Merrill Lynch Life Insurance Company (the "Company") is a wholly-
owned subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG").
The Company is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc. ("Merrill Lynch & Co."). The Company sells life
insurance and annuity products, including variable life insurance
and variable annuities.
The condensed financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, the unaudited financial statements presented herein
include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial
position and the results of operations in accordance with
generally accepted accounting principles for the periods
presented. Results for the nine months ended September
30, 1994 and 1993 are not necessarily indicative of annual
results. To facilitate comparison with the current periods,
certain amounts in the prior periods have been reclassified.
These unaudited financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Company's 1993 Annual Report on Form 10-K ("1993
Report").
The Company paid Federal income taxes of $21.1 million during the
first nine months of 1994. The Company did not pay any Federal
income taxes during the first nine months of 1993. The Company
paid interest on affiliated borrowings of $0.6 million and $0.3
million for the nine months ended September 30, 1994 and 1993,
respectively.
NOTE 2. STATUTORY ACCOUNTING PRACTICES:
The Company maintains its statutory accounting records in
conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of Arkansas and the
National Association of Insurance Commissioners. Statutory
capital and surplus at September 30, 1994 and December 31, 1993,
was $395.7 million and $374.2 million, respectively. For the
nine months ended September 30, 1994 and 1993, statutory net
income was $15.2 million and $35.7 million, respectively.
<PAGE>
NOTE 3. COMMITMENTS:
The Company had previously entered into interest rate swap
contracts for the purpose of minimizing exposure to fluctuations
in interest rates of specific assets held. Termination of these
commitments as of September 30, 1994 would not have a material
effect on the financial condition of the Company.
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill Lynch
Life Insurance Company (the "Company"), a wholly-owned subsidiary
of Merrill Lynch Insurance Group, Inc., as of December 31, 1993
and 1992, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1993 and 1992, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the
Company changed its method of accounting for certain investments
in debt and equity securities to conform with Statement of
Financial Accounting Standards No. 115.
/s/Deloitte & Touche
February 28, 1994
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
ASSETS 1993 1992
- ------ ---- ----
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1993 - $5,369,236; 1992 - $334,638) $ 5,597,359 $ 335,916
Fixed maturity securities held for trading, at estimated fair value
(amortized cost: 1993 - $140,635) 144,035 0
Fixed maturity securities to be held to maturity, at amortized cost
(estimated fair value: 1992 - $6,713,831) 0 6,449,981
Equity securities available for sale, at estimated fair value
(cost: 1993 - $24,424; 1992 - $31,598) 24,970 33,186
Equity securities held for trading, at estimated fair value
(cost 1993 - $19,694) 20,585 0
Mortgage loans on real estate 191,214 264,966
Real estate available for sale
(accumulated depreciation: 1993 - $850; 1992 - $321) 29,761 12,847
Policy loans on insurance contracts 924,579 834,461
------------- -------------
Total Investments 6,932,503 7,931,357
CASH AND CASH EQUIVALENTS 122,218 172,124
ACCRUED INVESTMENT INCOME 120,337 138,797
DEFERRED POLICY ACQUISITION COSTS 318,903 373,214
FEDERAL INCOME TAXES - DEFERRED 16,878 19,982
REINSURANCE RECEIVABLES 1,190 856
RECEIVABLES FROM AFFILIATES - NET 789 0
OTHER ASSETS 21,481 19,864
SEPARATE ACCOUNTS ASSETS 4,715,278 3,127,767
------------- -------------
TOTAL ASSETS $ 12,249,577 $ 11,783,961
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1993 1992
- ------------------------------------ ---- ----
LIABILITIES:
<S> <C> <C>
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 6,691,811 $ 7,804,447
Claims and claims settlement expenses 20,295 7,565
------------- -------------
Total policy liabilities and accruals 6,712,106 7,812,012
OTHER POLICYHOLDER FUNDS 28,768 14,637
LIABILITY FOR GUARANTY FUND ASSESSMENTS 28,083 27,104
OTHER LIABILITIES 68,165 16,790
FEDERAL INCOME TAXES - CURRENT 10,122 30,010
PAYABLE TO AFFILIATES - NET 0 2,638
SEPARATE ACCOUNTS LIABILITIES 4,715,278 3,118,296
------------- -------------
Total Liabilities 11,562,522 11,021,487
------------- -------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 637,590 654,717
Retained earnings 47,860 102,873
Net unrealized investment gain (loss) (395) 2,884
------------- -------------
Total Stockholder's Equity 687,055 762,474
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 12,249,577 $ 11,783,961
============= =============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 586,461 $ 712,739 $ 787,603
Net realized investment gains (losses) 63,052 (29,639) (21,957)
Policy charge revenue 95,684 81,653 82,745
----------- ----------- -----------
Total Revenues 745,197 764,753 848,391
----------- ----------- -----------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account
balances 454,671 546,979 638,984
Market value adjustment expense 30,816 6,229 1,198
Policy benefits (reinsurance recoveries: 1993 - $6,004;
1992 - $5,555; 1991 - $6,328) 17,030 12,066 9,537
Reinsurance premium ceded 12,665 12,457 12,765
Amortization of deferred policy acquisition costs 109,456 88,795 93,391
Insurance expenses and taxes 47,784 72,560 78,448
----------- ----------- -----------
Total Benefits and Expenses 672,422 739,086 834,323
----------- ----------- -----------
Earnings Before Federal Income
Tax Provision 72,775 25,667 14,068
----------- ----------- -----------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 20,112 28,549 42,919
Deferred 4,803 (19,913) (40,459)
----------- ----------- -----------
Total Federal Income Tax Provision 24,915 8,636 2,460
----------- ----------- -----------
NET EARNINGS $ 47,860 $ 17,031 $ 11,608
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
-------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1991 $ 2,000 $ 572,321 $ 74,234 $ (103) $ 648,452
Capital contribution 82,396 82,396
Net earnings 11,608 11,608
Net unrealized investment loss (1,142) (1,142)
BALANCE, DECEMBER 31, 1991 2,000 654,717 85,842 (1,245) 741,314
Net earnings 17,031 17,031
Net unrealized investment gain 4,129 4,129
-------- ----------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1992 2,000 654,717 102,873 2,884 762,474
Dividend to Parent (17,127) (102,873) (120,000)
Net earnings 47,860 47,860
Net unrealized investment loss (1) (3,279) (3,279)
-------- ----------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1993 $ 2,000 $ 637,590 $ 47,860 $ ( 395) $ 687,055
======== =========== ========== =========== =============
</TABLE>
(1) Asset gains less adjustment of policyholders' account balances
and deferred policy acquisition costs (See Note 1).
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 47,860 $ 17,031 $ 11,608
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 109,456 88,795 93,391
Capitalization of policy acquisition costs (91,189) (39,146) (149,440)
Depreciation and amortization 1,142 (16,033) (25,417)
Net realized investment (gains) losses (63,052) 29,639 21,957
Interest credited to policyholders' account balances 454,671 546,979 638,984
Provision for deferred Federal
income tax 4,803 (19,913) (40,459)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 18,460 6,018 (9,271)
Policy liabilities and accruals 12,730 7,775 101,521
Federal income taxes - current (19,888) 14,955 44,782
Other policyholder funds 14,131 12,826 (25,035)
Liability for guaranty fund assessments 979 16,439 10,665
Payable to Family Life Insurance Company 0 0 (28,224)
Policy loans (90,118) (126,925) (88,362)
Investment trading securities (145,972) 0 0
Other, net 49,425 (26,296) (30,343)
------------ ------------- -------------
Net cash and cash equivalents provided
by operating activities 303,438 512,144 526,357
------------ ------------- -------------
</TABLE>
(Continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Concluded) (Dollars In Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Fixed maturity securities sold 571,337 1,281,705 4,005,959
Fixed maturity securities matured 2,776,992 2,206,447 746,273
Fixed maturity securities purchased (1,866,857) (2,806,416) (5,142,471)
Equity securities available for sale purchased (8,983) (17,843) (67,348)
Equity securities available for sale sold 6,451 44,188 20,768
Mortgage loans on real estate principal payments received 35,561 8,548 5,977
Mortgage loans on real estate acquired (674) (853) (740)
Real estate available for sale purchased 0 (340) (22,706)
Real estate available for sale sold 7,408 178 25,000
Interest rate swaps sold 0 2,302 0
Recapture of investment in Separate Accounts 29,389 0 0
Investment in Separate Accounts (20,000) (3,841) 0
------------ ------------- -------------
Net cash and cash equivalents provided (used)
by investing activities 1,530,624 714,075 (429,288)
------------ ------------- -------------
FINANCING ACTIVITIES:
Paid-in capital from parent 0 0 82,396
Dividend paid to parent (120,000) 0 0
Affiliated notes payable (3,427) (83,200) 18,794
Policyholders' account balances:
Deposits 814,314 217,410 436,564
Withdrawals (net of transfers to Separate Accounts) (2,574,854) (1,338,034) (772,811)
Net cash and cash equivalents used ------------ ------------- -------------
by financing activities (1,883,967) (1,203,824) (235,057)
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (49,906) 22,395 (137,988)
CASH AND CASH EQUIVALENTS
Beginning of year 172,124 149,729 287,717
------------ ------------- -------------
End of year $ 122,218 $ 172,124 $ 149,729
============ ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: Merrill Lynch Life Insurance Company (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells life insurance and annuity products which
comprise one business segment. The primary products that the
Company currently markets are immediate annuities, market value
adjusted annuities, variable life insurance and variable
annuities. The Company is currently licensed to sell insurance
in forty-nine states, the District of Columbia, the U.S. Virgin
Islands and Guam. The Company markets its products solely
through the Merrill Lynch & Co. retail network.
On June 12, 1991, the Company's former parent, Family Life
Insurance Company ("Family Life"), was sold to a non-affiliated
entity. Immediately prior to this sale, Family Life, through a
dividend, transferred its 100% ownership interest in the
Company to its parent MLIG. (See Note 8).
On October 1, 1991, Tandem Insurance Group, Inc. ("Tandem"), a
wholly-owned subsidiary of MLIG, was merged with and into the
Company. This merger has been accounted for as a combination
of entities under common control. The assets, liabilities,
stockholder's equity, earnings and cash flows as presented in
these financial statements are reported on a combined
historical basis for all periods presented.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles for
stock life insurance companies.
Revenue Recognition: Revenues for the Company's interest
sensitive life, interest sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholder account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest crediting rates for the
Company's fixed rate products are as follows:
Interest sensitive life products 4.0% - 8.8%
Interest sensitive deferred annuities 2.4% - 9.0%
Immediate annuities 4.0% - 10.0%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are
unreported as of the valuation date.
<PAGE>
Reinsurance: Effective during 1992, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 113
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts" ("SFAS No. 113"), which requires that
reinsurance receivables and prepaid reinsurance premium ceded
be reported as assets. SFAS No. 113 eliminates the practice by
insurance enterprises of reporting assets and liabilities
relating to reinsured contracts net of the effects of
reinsurance. The impact of adopting SFAS No. 113 was not
material.
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. On life insurance contracts which the Company is
currently marketing, the maximum amount of mortality risk
retained by the Company is $500,000 on a single life.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the
Company. The Company regularly evaluates the financial
condition of its reinsurers so as to minimize its exposure to
significant losses from reinsurer insolvencies. The Company
holds collateral under reinsurance agreements in the form of
letters of credit and funds withheld totaling $1,024,000 that
can be drawn upon for delinquent reinsurance recoverables.
As of December 31, 1993, the Company had life insurance in-
force which was ceded to other life insurance companies of
$2,005,191,000.
Deferred Policy Acquisition Costs: Policy acquisition costs
for life and annuity contracts are deferred and amortized based
on the estimated future gross profits for each group of
contracts. These future gross profit estimates are subject to
periodic evaluation by the Company, with necessary revisions
applied against amortization to date.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, which are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed.
Included in deferred policy acquisition costs are those costs
related to the acquisition by assumption reinsurance of
insurance contracts from unaffiliated insurers. The deferred
costs will be amortized in proportion to the future gross
profits over the anticipated life of the acquired insurance
contracts utilizing an interest methodology.
In December 1990, the Company entered into an assumption
reinsurance agreement with a non-affiliated insurer (See Note
6). The acquisition costs relating to this agreement are being
amortized over a twenty-year period using an effective interest
rate of 9.01%. This reinsurance agreement provides for payment
of contingent ceding commissions based upon the persistency and
mortality experience of the insurance contracts assumed. Any
payments made for the contingent ceding commissions will be
capitalized and amortized using an identical methodology as
that used for the initial acquisition costs. The following is
a reconciliation of the acquisition costs for the reinsurance
transaction for the three years ended December 31,:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning balance $ 150,450 $ 160,235 $ 24,294
Capitalized amounts 6,987 6,060 156,641
Interest accrued 13,136 15,401 14,071
Amortization (30,926) (31,246) (34,771)
---------- ---------- ----------
Ending balance $ 139,647 $ 150,450 $ 160,235
========== ========== ==========
</TABLE>
The following table presents the expected amortization of these
deferred acquisition costs over the next five years. The
amortization may be adjusted based on periodic evaluation of
the expected gross profits on the reinsured policies.
1994 $18,732,000
1995 17,840,000
1996 16,056,000
1997 12,488,000
1998 8,925,000
Investments: Effective December 31, 1993, the Company has
adopted SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). In compliance
with SFAS No. 115, the Company classified its investments in
fixed maturity securities and equity securities in two
categories, each separately identified:
Available for sale securities include both fixed maturity
and equity securities. These securities may be sold for the
Company's general liquidity needs, asset/liability
management strategy, credit dispositions and investment
opportunities. These securities are carried at estimated
fair value with unrealized gains and losses included in
stockholder's equity (net of tax). If a decline in value of
a security is determined by management to be other than
temporary, the carrying value is adjusted to the estimated
fair value at the date of this determination and recorded
in the net realized investment gains (losses) caption of
the statement of earnings.
Trading securities represent securities that are managed
with an investment objective to maximize total return
subject to the Company's quality guidelines. Investments in
this portfolio will consist primarily of marketable fixed
maturity and equity investments. These securities are
carried at estimated fair value with unrealized gains and
losses included in the statement of earnings. The debt and
equity securities classified as trading securities as of
December 31, 1993 were acquired in 1993 and immediately
classified as trading securities in compliance with SFAS
No. 60 "Accounting and Reporting by Insurance Enterprises",
prior to the adoption of SFAS No. 115.
SFAS No. 115 allows fixed maturity securities to be carried at
amortized cost if the Company has both the ability and positive
intent to hold these securities to maturity. The Company has
determined that it can not guarantee that it will not have the
need or opportunity to sell any particular security in its
investment holdings. As such, the Company did not utilize this
classification as of December 31, 1993.
In compliance with a recent Securities and Exchange Commissions
("SEC") staff announcement, the Company has recorded certain
adjustments to deferred policy acquisition costs and
policyholders' account balances in conjunction with its
adoption of SFAS No. 115. The SEC requires that companies
adjust those assets and liabilities that would have been
adjusted had the unrealized investment gains or losses from
securities classified as available for sale actually been
realized with corresponding credits or charges reported
directly to shareholder's equity. Accordingly, deferred policy
acquisition costs have
<PAGE>
been decreased by $36,044,000 and
policyholders' account balances have been increased by
$193,233,000 as of December 31, 1993.
As of December 31, 1992, the Company classified its investments
in fixed maturity securities as either "to be held to maturity"
or "available for sale." Fixed maturity securities to be held
to maturity are stated in the balance sheets at amortized cost.
Fixed maturity securities available for sale are stated at
estimated fair value. The net unrealized gain and loss on these
securities are reflected as a component of stockholder's
equity.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accrued to
the maturity date and interest income is accrued daily.
Realized gains and losses on the sale or maturity of the
investments are determined on the basis of identified cost.
Fixed maturity securities may contain securities which are
considered high yield. The Company defines high yield fixed
maturity securities as unsecured corporate debt obligations
which do not have a rating equivalent to Standard and Poor's
(or similar rating agency) BBB or higher, and are not
guaranteed by an agency of the federal government. Probable
losses are recognized in the period that a decline in value is
determined to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal
balances net of valuation allowances. Such valuation allowances
are based on the decline in value expected by management to be
realized on in-substance foreclosures of mortgage loans and on
mortgage loans which management believes may not be collectible
in full. In establishing valuation allowances management
considers, among other things, the estimated fair value of the
underlying collateral.
The Company has previously made mortgage loans collateralized
by real estate and direct investments in real estate. The
return on and the ultimate recovery of these loans and
investments are generally dependent on the successful
operation, sale or refinancing of the real estate. In many
parts of the country, current real estate markets are
characterized by above-normal vacancy rates, a lack of ready
sources of credit for real estate financing, reduced or
declining real estate values, and similar factors.
The Company employs a system to monitor the effects of current
and expected real estate market conditions and other factors
when assessing the collectability of mortgage loans and the
recoverability of the Company's real estate investments. When,
in management's judgment, these assets are impaired,
appropriate losses are recorded. Such estimates necessarily
include assumptions, which may include anticipated improvements
in selected market conditions for real estate, which may or may
not occur. The more significant assumptions management
considers involve estimates of the following: lease, absorption
and sales rate; real estate values and rates of return;
operating expenses; required capital improvements; inflation;
and sufficiency of any collateral independent of the real
estate.
Resulting from the Company's management and valuation of its
mortgage loans on real estate, management believes that the
carrying value approximates the fair value of these
investments.
During 1993 the Financial Accounting Standards Board issued
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"). SFAS No. 114 requires that for impaired
loans, the impairment shall be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral.
Impairments of mortgage loans on real estate are established as
valuation allowances and recorded to net realized investment
gains (losses). SFAS No. 114 must be adopted for fiscal years
beginning after December 15, 1994. The Company has decided
not to early adopt this statement. The Company estimates
that the impact on both financial position and earnings
from adopting SFAS No. 114 would be immaterial.
Real estate available for sale, including real estate acquired
in satisfaction of debt subsequent to its acquisition date, is
stated at depreciated cost less valuation allowances and
estimated selling costs.
<PAGE>
Depreciation is computed using the
straight-line method over the estimated useful lives of the
properties, which generally is 40 years.
Policy loans on insurance contracts are stated at unpaid
principal balances. The Company estimates the fair market value
of policy loans as equal to the book value of the loans.
Policy loans are fully collateralized by the account value of
the associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited to the
account value held as collateral is fixed.
Fair Value of Financial Instruments: Beginning in 1992, the
Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments", which requires companies to report the
fair value of financial instruments, for certain assets and
liabilities both on and off - balance sheet.
Federal Income Taxes: The results of the 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.
Effective the first quarter 1992, the Company adopted SFAS No.
109, "Accounting for Income Taxes" ("SFAS No. 109") which
requires an asset and liability method in recording income
taxes on all transactions that have been recognized in the
financial statements. SFAS No. 109 provides that deferred
taxes be adjusted to reflect tax rates at which future tax
liabilities or assets are expected to be settled or realized.
Previously, the Company accounted for income taxes in
accordance with SFAS No. 96, "Accounting for Income Taxes."
The effect of adopting SFAS No. 109 was not material.
Separate Accounts: The Separate Accounts are established in
conformity with Arkansas insurance law, the Company's
domiciliary state, and under such law, if and to the extent
provided under the applicable insurance contracts, assets held
in the Separate Accounts equal to the reserves and other
contract liabilities with respect to the Separate Accounts may
not be chargeable with liabilities that arise from any other
business of the Company. Separate Accounts assets may be
subject to General Account claims only to the extent the value
of such assets exceeds the Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing
net deposits and accumulated net investment earnings less fees,
held for the benefit of policyholders, are shown as separate
captions in the balance sheets. Assets held in the Separate
Accounts are carried at quoted market values.
The carrying value for Separate Accounts assets and liabilities
approximates the estimated fair value of the underlying assets.
Postretirement Benefits Other Than Pensions: During the fourth
quarter 1992, the Company adopted SFAS No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions"
("SFAS No. 106"). SFAS No. 106 requires the accrual of
postretirement benefits (such as health care benefits) during
the years an employee provides service. Prior to 1992, the
cost of these benefits were expensed on a modified pay-as-you-go
basis when such cost was allocated from MLIG as a component of
the Company's operating expenses. The effect of adopting SFAS
No. 106 was not material.
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.
The carrying amounts approximate the estimated fair value of
cash and cash equivalents.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. INVESTMENTS
The amortized cost (original cost for equity securities) less
valuation allowances and estimated fair value of investments in
fixed maturity securities and equity securities as of December
31 are:
<TABLE>
<CAPTION>
1993
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 3,181,667 $ 159,233 $ 18,440 $ 3,322,460
Mortgage-backed securities 2,015,328 79,645 3,998 2,090,975
U.S. Treasury securitiesand obligations of
U.S. government corporations and
agencies 159,329 10,887 126 170,090
Obligations of states and political
subdivisions 12,912 922 0 13,834
------------ ------------ ------------ ------------
Total fixed maturity securities available
for sale $ 5,369,236 $ 250,687 $ 22,564 $ 5,597,359
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 4,481 $ 577 $ 657 $ 4,401
Non-redeemable preferred stocks 19,943 757 131 20,569
------------ ------------ ------------ ------------
Total equity securities available for sale $ 24,424 $ 1,334 $ 788 $ 24,970
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities to be held to
maturity:
Corporate securities $ 3,052,333 $ 134,016 $ 7,721 $ 3,178,628
Mortgage-backed securities 3,292,132 141,387 5,215 3,428,304
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 97,976 1,798 1,396 98,378
Obligations of states and political
subdivisions 7,540 981 0 8,521
------------ ------------ ------------ ------------
Total fixed maturity securities to be
held to maturity $6,449,981 $ 278,182 $ 14,332 $ 6,713,831
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 134,675 $ 6,648 $ 938 $ 140,385
Mortgage-backed securities 117,248 3,316 8,337 112,227
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 74,109 916 560 74,465
Obligations of states and political
subdivisions 8,606 233 0 8,839
------------ ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 334,638 $ 11,113 $ 9,835 $ 335,916
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 12,980 $ 762 $ 0 $ 13,742
Non-redeemable preferred stocks 18,618 826 0 19,444
------------ ------------ ------------ ------------
Total equity securities available for sale $ 31,598 $ 1,588 $ 0 $ 33,186
============ ============ ============ ============
</TABLE>
For publicly traded securities, the estimated fair value is
determined using quoted market prices. For securities without
a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including 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, 1993 and 1992,
respectively, securities without a readily ascertainable market
value, having an amortized cost less valuation allowances of
approximately $773,965,000 and $992,340,000, had an estimated
fair value of approximately $819,866,000 and $1,064,915,000,
respectively.
The amortized cost less valuation allowances and estimated fair
value of fixed maturity securities available for sale at
December 31, 1993 by contractual maturity are shown below:
<TABLE>
<CAPTION>
Amortized
Cost less Estimated
Valuation Fair
Allowances Value
------------ ------------
(In Thousands)
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 293,809 $ 299,884
Due after one year through five years 1,162,162 1,207,307
Due after five years through ten years 1,499,057 1,585,524
Due after ten years 398,880 413,669
------------ ------------
3,353,908 3,506,384
Mortgage-backed securities 2,015,328 2,090,975
------------ ------------
Total fixed maturity securities
available for sale $ 5,369,236 $ 5,597,359
============ ============
</TABLE>
<PAGE>
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The Company's investment in mortgage loans on real estate
consists principally of loans collateralized by commercial real
estate. The largest concentrations of commercial real estate
mortgage loans are for properties located in California
($53,795,000 or 24%), Illinois ($28,294,000 or 13%) and
Pennsylvania ($27,558,000 or 12%).
For the years ended December 31, 1993 and 1992, $29,555,000 and
$3,126,000, respectively, of real estate was acquired in
satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 511,655 $ 652,136 $ 715,102
Equity securities 4,143 4,813 2,852
Mortgage loans on real estate 20,342 25,954 32,827
Real estate available for sale 32 1,004 310
Policy loans on insurance contracts 46,129 40,843 34,366
Other 11,135 5,924 13,015
------------ ------------ ------------
Gross investment income 593,436 730,674 798,472
Less expenses (6,975) (17,935) (10,869)
------------ ------------ ------------
Net investment income $ 586,461 $ 712,739 $ 787,603
============ ============ ============
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances, determined by specific identification for
the years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 67,473 $ 15,907 $ (12,689)
Fixed maturity securities held for trading 5,562 0 0
Equity securities available for sale 22 (3,051) (804)
Equity securities held for trading 2,587 0 0
Mortgage loans on real estate (9,310) (42,997) (12,913)
Real estate available for sale (4,733) (1,800) 3,224
Other 1,451 2,302 1,225
------------ ------------ ------------
Net realized investment gains (losses) $ 63,052 $ (29,639) $ (21,957)
============ ============ ============
</TABLE>
<PAGE>
Valuation allowances have been established to reflect other than
temporary declines in estimated fair value of the following
classification of investments as of December 31,:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Fixed maturity securities to be held to maturity $ 0 $ 19,711
Fixed maturity securities available for sale 850 0
Equity securities available for sale 0 210
Mortgage loans on real estate 45,924 55,610
Real estate available for sale 20,797 5,600
------------ ------------
$ 67,571 $ 81,131
============ ============
</TABLE>
Proceeds, gains and losses from the sale or maturity of fixed
maturity securities available for sale and held to maturity for
the years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Proceeds $ 3,348,329 $ 3,488,152 $ 4,752,232
Realized investment gains 71,599 51,925 88,230
Realized investment losses 4,126 25,732 91,745
</TABLE>
Approximately $4,291,000 of unrealized holding gains from
investment trading securities were recorded in net realized
investment gains during 1993.
The Company held investments at December 31, 1993 of
$22,672,000 which have been non-income producing for the
preceding twelve months.
The Company had investment securities of $28,702,000 and
$19,030,000 held on deposit with insurance regulatory
authorities at December 31, 1993 and 1992, respectively.
At December 31, 1992, the Company retained $9,741,000 in the
Separate Accounts, including unrealized gains of $1,504,000.
The investments in the Separate Accounts were for the purpose
of providing original funding of certain mutual funds available
as investment options to variable life and annuity
policyholders. No funds were retained in the Separate Accounts
at December 31, 1993.
The Company has restructured the terms of certain of its
investments in fixed maturity securities and mortgage loans on
real estate during 1993 and 1992. The following table provides
the amortized cost less valuation allowances immediately prior
to restructuring, gross interest income that would have been
earned had the loans been current per their original terms
("Expected Income"), gross interest income recorded during the
year ("Actual Income") and equity interests which were received
in the restructuring:
<PAGE>
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Fixed maturity securities:
Amortized cost less valuation allowances $ 3,743 $ 13,148
Expected income 916 2,781
Actual income 103 1,011
Equity interest received 1,833 2,003
Mortgage loans on real estate:
Amortized cost less valuation allowance $ 79,624 $ 0
Expected income 6,859 0
Actual income 5,076 0
</TABLE>
NOTE 3. FEDERAL INCOME TAXES
The Company's operating results (excluding Tandem prior to
September 30, 1991) are consolidated with those of MLIG. MLIG
and the Company are included in Merrill Lynch & Co.'s
consolidated Federal income tax returns. It is the policy of
Merrill Lynch & Co. to allocate the tax associated with such
operating results to its respective subsidiaries on a separate
company basis. The Company has the intent to pay accumulated
Federal income tax to MLIG upon request. For the nine months
ended September 30, 1991, Tandem filed a separate Federal
income tax return.
The following is a reconciliation of the provision for income
taxes based on income before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the three years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 25,471 $ 8,726 $ 4,783
Increase (decrease) in income taxes resulting from:
Federal tax rate increase (631)
Recognition of prior year capital loss tax
benefits (2,219)
Other 75 (90) (104)
------------ ------------ ------------
Federal income tax provision $ 24,915 $ 8,636 $ 2,460
============ ============ ============
</TABLE>
The Federal statutory rate for 1993, 1992 and 1991 was 35%, 34%
and 34%, respectively.
The Company provides for deferred income taxes resulting from
temporary differences which arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each were as follows:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs $ (9,030) $ (17,633) $ (32,834)
Policyholders' account balances 6,433 21,301 (6,282)
Estimated liability for guaranty fund assessments (1,066) (2,735) (3,626)
Investment adjustments 7,941 (21,875) 2,437
Other 525 1,029 (154)
------------ ------------ ------------
Deferred Federal income tax
provision (benefit) $ 4,803 $ (19,913) $ (40,459)
============ ============ ============
</TABLE>
Deferred tax assets and liabilities as of December 31, are
determined as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 99,475 $ 105,908
Investment adjustments 19,596 27,537
Estimated liability for guaranty fund assessments 7,427 6,361
------------ ------------
Total deferred tax asset 126,498 139,806
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs 92,625 101,655
Net unrealized investment gain (loss) (213) 1,486
Other 17,208 16,683
------------ ------------
Total deferred tax liability 109,620 119,824
------------ ------------
Net deferred tax asset $ 16,878 $ 19,982
============ ============
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
Federal income taxes paid (recovered) totaled $40,000,000,
$13,594,000 and $(1,560,000) in 1993, 1992 and 1991,
respectively.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain data processing, legal,
actuarial, management, advertising and other services to the
Company. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by the Company on an allocated cost
basis. Charges billed to the Company by MLIG pursuant to the
agreement were $55,843,000, $63,300,000 and $78,306,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management to the Company. The
Company pays a fee to MLAM for these services, through the MLIG
service agreement.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
Merrill Lynch, Pierce, Fenner and Smith, Inc. ("MLPF&S") who
are the
<PAGE>
Company's licensed insurance agents, solicit
applications for contracts to be issued by the Company. MLLA
is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were approximately $67,102,000,
$25,158,000 and $27,974,000 for 1993, 1992 and 1991,
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,
1991, the outstanding balance of these loans was approximately
$83,200,000. These loans were repaid during 1992. Interest
was calculated on these loans at LIBOR plus 150 basis points.
Intercompany interest paid on these loans during 1992 and 1991
was approximately $4,025,000 and $6,300,000, respectively.
The Company and Merrill Lynch Trust Company ("ML Trust") were
parties to an agreement whereby the Company retained ML Trust
to hold certain invested assets upon the terms and conditions
of the agreement. ML Trust was paid a fee based on its current
fee schedule. This agreement was terminated during 1993.
The Company has entered into certain other marketing and
administrative service agreements with affiliates in connection
with the variable life and annuity policies it sells.
During 1993, 1992 and 1991, the Company allowed the recapture
of certain policies previously indemnity reinsured by the
Company from Family Life. Simultaneously with the recapture,
the Company's affiliate, ML Life Insurance Company of New York
("ML Life"), assumption reinsured these policies. These
transactions resulted in the transfer of approximately
$11,900,000 $2,000,000 $19,200,000 of policy reserves during
1993, 1992 and 1991, respectively.
The fair value of the Company's payables to affiliates is
estimated at carrying value. These borrowings are payable on
demand and bear a variable interest rate based on LIBOR.
Total intercompany interest paid was $737,000, $5,409,000 and
$8,567,000 for 1993, 1992 and 1991, respectively.
NOTE 5. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
On December 20, 1993, the Company paid a $44,988,000 ordinary
dividend and a $75,012,000 extraordinary dividend to MLIG. The
Company received approval from the Arkansas Insurance
Commissioner prior to the declaration and payment of the
extraordinary dividend.
At December 31, 1993 and 1992, approximately $37,221,000 and
$44,988,000, respectively, of retained earnings was available
for distribution to the Company's stockholder. Statutory
capital and surplus at December 31, 1993 and 1992, was
$374,209,000 and $451,888,000, respectively.
During 1991, MLIG contributed capital to the Company of
$82,396,000. The contribution was made to support the
underwriting of additional insurance premiums and deposits. No
contributions were received during 1993 and 1992.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial statements
by charging policy acquisition costs to expense as incurred,
establishing future policy benefit reserves using different
actuarial assumptions, not providing for deferred taxes and
valuing securities on a different basis. The Company's
statutory net income for the years ended December 31, 1993,
1992 and 1991 was $45,604,000, $60,140,000 and $65,771,000,
respectively.
<PAGE>
The National Association of Insurance Commissioners ("NAIC")
has developed and implemented effective December 31,
1993, the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which
a life insurance company should have based upon that company's
risk profile. The NAIC has established four different levels of
regulatory action with respect to the RBC adequacy monitoring
system. Each of these levels may be triggered if an insurer's
total adjusted capital is less than a corresponding level of
RBC. These levels are as follows:
For companies with capital levels which are below 100% of
the basic RBC level (company action level) calculated for
that company, the company must submit to the domiciliary
insurance commissioner, and implement, an approved plan to
increase adjusted capital to at least 100% of the basic
RBC.
For companies with capital levels which are below 75% of
the basic RBC level calculated for that company, the
company must submit to an examination by the domiciliary
insurance department and as a result of the findings of the
examination, corrective orders may be issued.
For companies with capital levels which are below 50% of
the basic RBC level (authorized control level) calculated
for that company, the domiciliary insurance commissioner
will have the authority to place the company into
conservatorship or liquidation.
For companies with capital levels which are below 35% of
the basic RBC level calculated for that company, the
domiciliary insurance commissioner will be required to
place the company into conservatorship or liquidation.
As of December 31, 1993, based on the RBC formula, the
Company's total adjusted capital level was 279% of the basic
RBC level.
NOTE 6. REINSURANCE AGREEMENTS
On December 28, 1990, the Company entered into an indemnity
reinsurance agreement with Family Life, in which the Company
100% coinsured substantially all of Family Life's general
account interest-sensitive life and annuity business, and
modified coinsured all of the separate account variable annuity
business. As of December 31, 1993, substantially all of this
business has been assumption reinsured by the Company and an
affiliate.
On December 31, 1990, the Company and an affiliate entered into
a 100% reinsurance agreement with respect to all variable life
policies issued by Monarch Life and sold through the Merrill
Lynch & Co. retail network. As a result of the indemnity
provisions of the agreement, the Company became obligated to
reimburse Monarch Life for its net amount at risk with regard
to the reinsured policies. At the date of acquisition, assets
of approximately $553,000,000 supporting general account
reserves, on a statutory accounting basis, were transferred
from Monarch Life to the Company. This agreement provides for
contingent ceding commission payments to Monarch Life dependent
upon the lapse rate during the five years ending in 1995 and
mortality experience during the ten years ending in 2000. To
date, the Company has paid approximately $225,900,000 to
Monarch Life under the terms of the agreement. As of December
31, 1993, the Company has accrued $7,673,000 for such payments.
On various dates during 1992 and 1991, the Company and an
affiliate assumption reinsured substantially all such policies,
wherever permitted by appropriate regulatory authorities. Upon
assumption, the policy liabilities and the underlying assets of
approximately $2,625,000,000 were transferred to the Merrill
Lynch Life Variable Life Separate Account II. As a result of
the assumptions, the Company became directly obligated to the
policyholders, rather than to Monarch Life. Certain contract
owners of the reinsured policies elected to remain with Monarch
Life as permitted under certain
<PAGE>
state insurance laws. Assets
and liabilities of those policies not assumption reinsured by
the Company or its affiliate have remained with Monarch Life.
The Company and its affiliate have indemnified Monarch Life
against its net amount at risk on such policies. As of
December 31, 1993, approximately 10 life insurance policies
with $1,499,000 life insurance in force remain under the
indemnity provisions of the reinsurance agreement.
During 1992, the Company, and its affiliates, entered into an
agreement with Monarch Life for the purchase, transfer or
assignment of certain services and assets owned, licensed or
leased by Monarch Life. Additionally, the Company along with
its affiliates were allowed to actively solicit the employment
of individuals employed by Monarch Life, who are required to
service the Company's and its affiliates' variable life
insurance policies and Monarch Life's variable life insurance
policies. In consideration of this, the Company and its
affiliate, ML Life, transferred title to Monarch Life certain
telecommunications equipment owned by Merrill Lynch Insurance
Group Services, Inc., an affiliate of the Company, with a net
book value of $1,753,000. The Company agreed to service
Monarch Life's variable life insurance policies for a period of
five years at an annual rate of $100 per policy. Monarch Life
has an option to terminate the service agreement upon proper
notification.
NOTE 7. INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap contracts for the
purpose of minimizing exposure to fluctuations in interest
rates of specific assets held. The notional amount of such
swaps outstanding at December 31, 1993 and 1992 was
approximately $155,082,000 and $197,024,000 respectively. The
average unexpired term at December 31, 1993 and 1992 was 3.2
and 3.5 years, respectively.
The current amount at risk, on a present value basis, of
terminating or replacing at current market rates all
outstanding matched swaps in a loss position at December 31,
1993 and 1992 was $0 and $0, respectively. During 1992 and
1991, a net investment gain of approximately $2,302,000 and
$4,750,000, respectively, was recorded in connection with
interest rate swap activity. The Company did not realize net
investment gains (losses) from interest rate swap activity
during 1993.
During 1993, 1992 and 1991, the Company did not enter into
unmatched interest rate swap arrangements and did not act as an
intermediary or broker in interest rate swaps.
Estimated fair values for the Company's interest rate swaps are
based on broker quotes. At December 31, 1993 and 1992, the
estimated fair value for these contracts was $4,317,000 and
$10,551,000, respectively.
NOTE 8. SALE OF FAMILY LIFE INSURANCE COMPANY
On June 12, 1991, MLIG sold Family Life to a non-affiliated
entity. Prior to closing, MLIG transferred to affiliates of
Family Life, to the extent permitted by law, all assets and
liabilities of Family Life that were not related to Family
Life's mortgage protection life insurance business. Certain
life insurance and annuity products sold through the retail
network of Merrill Lynch & Co. and underwritten by Family Life
have been or will be assumption reinsured by the Company or its
affiliate in those jurisdictions in which the Company or its
affiliate has the authority to do so. (See Note 6)
NOTE 9. 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). During 1991, and to a lesser extent 1992, there were
certain highly
<PAGE>
publicized life insurance insolvencies. The
Company has utilized public information to estimate what future
assessments it will incur as a result of these insolvencies.
At December 31, 1993 and 1992, the Company had accrued an
estimated liability for future guaranty fund assessments of
$28,083,000 and $27,104,000, respectively. The Company
regularly monitors public information regarding insurer
insolvencies and will adjust its estimated liability where
appropriate.
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.
* * * * * *
49
<PAGE> 54
The prospectus dated May 1, 1994 included as part of Post-Effective Amendment
No. 3 to the Registration Statement on Form S-6, File No. 33-55678, filed on
April 27, 1994, is incorporated herein by reference.
<PAGE> 55
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
The Insurance Company's By-Laws provide, in Article VI, Section 1, 2, 3 and
4, as follows:
Section 1. Actions Other Than by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer or employee of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. Actions by or in the Right of the Corporation. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer or employee of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the Court in which such action or suit was brough shall
determined upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other Court shall deem proper.
Section 3. Right to Indemnification. To the extent that a director,
officer of employee of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2 of this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith.
Section 4. Determination of Right to Indemnification. Any indemnification
under Sections 1 and 2 of this Article (unless ordered by a Court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, or employee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 and 2 of this Article. Such determination shall be made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
II-1
<PAGE> 56
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 policies.
ARKANSAS BUSINESS CORPORATION LAW
In addition, Section 4-26-814 of the Arkansas Business Corporation Law
generally provides that a corporation has the power to indemnify a director or
officer of the corporation, or a person serving at the request of the
corporation as a director or officer of another corporation or other enterprise
against any judgments, amounts paid in settlement, and reasonably incurred
expenses in a civil or criminal action or proceeding if the director or officer
acted in good faith in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation (or, in the case of a criminal
action or proceeding, if he or she in addition had no reasonable cause to
believe that his or her conduct was unlawful).
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATIONS PURSUANT TO RULE 6E-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company
Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the policies described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk and guaranteed
benefits risk charge is within the range of industry practice for
comparable flexible or scheduled contracts.
(3) Registrant has concluded that there is a reasonable likelihood
that the distribution financing arrangement of the Separate Account will
benefit the separate account and policyowners and will keep and make
available to the Commission on request a memorandum setting forth the basis
for this representation.
II-2
<PAGE> 57
(4) The Separate Account will invest only in management investment
companies which have undertaken to have a board of directors, a majority of
whom are not interested persons of the company, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2)
above is based on an analysis of the mortality and expense risk and guaranteed
benefits risk charge contained in other variable life insurance contracts.
Registrant undertakes to keep and make available to the Commission on request
the documents used to support the representation in paragraph (2) above.
II-3
<PAGE> 58
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Two Prospectuses consisting of and pages, respectively.
Undertaking to file reports.
Rule 484 Undertaking.
Representations Pursuant to Rule 6e-3(T).
The signatures.
Written Consents of the Following Persons:
(a) Barry G. Skolnick, Esq.
(b) Joseph E. Crowne, F.S.A.
(c) Sutherland, Asbill & Brennan
(d) Deloitte & Touche, Independent Certified Public Accountants
The following exhibits:
<TABLE>
<S> <C> <C>
1. A. (1) Resolution of the Board of Directors of Merrill Lynch Life Insurance Company establishing the
Separate Account (Incorporated by Reference to Registrant's Form S-6 Registration No. 33-41830
Filed July 24, 1991)
(2) Not applicable
(3)(a) Distribution Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (Incorporated by Reference to Registrant's Pre-Effective Amendment
No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(b) Amended Sales Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Life
Agency Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993.)
(c) Schedules of Sales Commissions. (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(d) Indemnity Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Life Agency,
Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
(4) Undertaking of Merrill Lynch Life Insurance Company pursuant to Rule 27d-2 (Incorporated by
reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55678
Filed April 26, 1993)
(5)(a) (1) Flexible Premium Variable Universal Life Insurance Policy (Incorporated by Reference to
Registrant's Form S-6 Registration No. 33-55678 Filed December 11, 1992)
(5)(a) (2) Flexible Premium Variable Universal Life Insurance Policy
(b) (1) Backdating Endorsement (Incorporated by Reference to Registrant's Form S-6 Registration No.
33-55678 Filed December 11, 1992)
(2)(a) Additional Insurance Rider for Flexible Premium Variable Universal Life Insurance Policy
(Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55678 Filed December 11,
1992)
(2)(b) Additional Insurance Rider for Flexible Premium Variable Universal Life Insurance Policy
(3) Endorsement for Guaranteed Interest Division for Flexible Premium Variable Universal Life
Insurance Policy (Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55678
Filed December 11, 1992)
(4) Endorsement for Flexible Premium Variable Universal Life Insurance Policy
(5) Accelerated Benefit Rider (Incorporated by Reference to Registrant's Post-Effective Amendment
No. 4 to Form S-6 Registration No. 33-55472 Filed December 2, 1994)
(6)(a) Articles of Amendment, Restatement, and Redomestication of the Articles of Incorporation of
Merrill Lynch Life Insurance Company (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41830 Filed April 16, 1992)
(b) Amended and Restated By-Laws of Merrill Lynch Life Insurance Company (Incorporated by Reference
to Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41830 Filed April
16, 1992)
(7) Not applicable
(8)(a) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Series Fund, Inc.
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
(b) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Funds Distributor, Inc.
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
</TABLE>
II-4
<PAGE> 59
<TABLE>
<S> <C> <C>
(c) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form
S-6 Registration No. 33-55472 Filed April 26, 1993)
(d) Participation Agreement among Merrill Lynch Life Insurance Company, ML Life Insurance Company of
New York and Monarch Life Insurance Company (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 3 to Form S-6 Registration No. 33-55472 Filed April 27, 1994)
(e) Management Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Asset
Management, Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to
Form S-6 Registration No. 33-55472 Filed April 26, 1993.)
(f) Form of Participation Agreement among Merrill Lynch Life Insurance Company, ML Life Insurance
Company of New York and Family Life Insurance Company (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 3 to Form S-6 Registration No. 33-55472 Filed April 27, 1994)
(9)(a) Service Agreement among Merrill Lynch Insurance Group, Inc., Family Life Insurance Company and
Merrill Lynch Life Insurance Company (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41830 Filed April 16, 1992)
(10)(a) (1) Variable Life Insurance Application (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55678 Filed December 11, 1992)
(10)(a) (2) Variable Life Insurance Application (Incorporated by Reference to Registrant's Post Effective
Amendment No. 4 to Form S-6 Registration No. 33-55472 Filed December 2, 1994)
(b) Application for Reinstatement (Incorporated by Reference to Registrant's Form S-6 Registration
No. 33-55678 Filed December 11, 1992)
(11)(a) Memorandum describing Merrill Lynch Life Insurance Company's Issuance, Transfer and Redemption
Procedures (Incorporated by Reference to Registrant's Post-Effective Amendment No. 2 to Form S-6
Registration No. 33-55678 Filed March 1, 1994)
(11)(b) Amended and restated memorandum describing Merrill Lynch Life Insurance Company's Issuance,
Transfer and Redemption Procedures
2. See Exhibit 1.A.(5)
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the legality of the securities being
registered
4. Not applicable
5. Not applicable
6. Opinion and Consent of Joseph E. Crowne, F.S.A. as to actuarial matters pertaining to the
securities being registered
7. (a) Power of Attorney of Joseph E. Crowne (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(b) Power of Attorney of David E. Dunford (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(c) Power of Attorney of John C.R. Hele (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(d) Power of Attorney of Allen N. Jones (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(e) Power of Attorney of Barry G. Skolnick (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(f) Power of Attorney of Anthony J. Vespa (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March 1, 1994)
8. (a) Written Consent of Barry G. Skolnick, Esq. (See Exhibit 3)
(b) Written Consent of Joseph E. Crowne, F.S.A. (See Exhibit 6)
(c) Written Consent of Sutherland, Asbill & Brennan
(d) Written Consent of Deloitte & Touche, independent certified public accountants
</TABLE>
II-5
<PAGE> 60
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT, HAS DULY CAUSED THIS
POST-EFFECTIVE AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, AND ITS SEAL TO BE HEREUNTO
AFFIXED AND ATTESTED, ALL IN THE CITY OF PLAINSBORO AND THE STATE OF NEW JERSEY,
ON THE 9TH DAY OF DECEMBER 1994.
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
BY: MERRILL LYNCH LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
------------------------- ---------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 4 to the Registration Statement has been signed below by the
following persons in the capacities indicated on December 9, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board, President, and Chief
- --------------------------------------------- Executive Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief
- --------------------------------------------- Financial Officer, Chief Actuary, and
Joseph E. Crowne Treasurer
* Director, Senior Vice President, and Chief
- --------------------------------------------- Investment Officer
David M. Dunford
* Director and Senior Vice President
- ---------------------------------------------
John C.R. Hele
* Director
- ---------------------------------------------
Allen N. Jones
*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-6
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
1. A. (5)(a)(2) Flexible Premium Variable Universal Life Insurance Policy
(5)(b)(2)(b) Additional Insurance Rider for Flexible Premium Variable Universal Life Insurance
Policy
(5)(b)(4) Endorsement for Flexible Premium Variable Universal Life Insurance Policy
(11)(b) Amended and restated memorandum describing Merrill Lynch Life Insurance Company's
Issuance, Transfer and Redemption Procedures
8. (a) Written Consent of Barry G. Skolnick, Esq. (See Exhibit 3)
(b) Written Consent of Joseph E. Crowne, F.S.A. (See Exhibit 6)
(c) Written Consent of Sutherland, Asbill & Brennan
(d) Written Consent of Deloitte & Touche, independent certified public accountants
</TABLE>
<PAGE> 1
Exhibit (5)(a)(2)
[LOGO]
MERRILL LYNCH LIFE INSURANCE COMPANY
Home Office, Little Rock, Arkansas
Variable Life Service Center, P.O. Box 9025,
Springfield, Massachusetts 01102-9025
Telephone: 1-800-354-5333
INSURED NO. 1 RICHARD ROE
POLICY NUMBER SPECIMEN
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE
INSURANCE POLICY
This policy is a legal contract between its owner and us. Please read it
carefully. In this policy, the word you refers to the owner shown on the policy
schedule. We, us and our refers to Merrill Lynch Life Insurance Company.
Death Benefit
Provided By This
Policy
We will pay the death benefit proceeds to the beneficiary when we receive due
proof of the death of the insured.
AT ISSUE, THE DEATH BENEFIT EQUALS THIS POLICY'S INITIAL FACE AMOUNT PLUS ANY
ADDITIONAL INSURANCE COVERAGE PROVIDED BY A RIDER. AFTERWARDS, THE DEATH
BENEFIT MAY INCREASE OR DECREASE ON ANY DAY, DEPENDING ON THIS POLICY'S
INVESTMENT RESULTS, BUT UNTIL THE INSURED'S ATTAINED AGE 100 WILL NEVER BE LESS
THAN THIS POLICY'S FACE AMOUNT PLUS ANY RIDER BENEFITS IN EFFECT. THE DURATION
FOR WHICH THE DEATH BENEFIT IS IN EFFECT MAY VARY WITH THE INVESTMENT RESULTS,
BUT WILL NEVER BE LESS THAN THIS POLICY'S GUARANTEE PERIOD. FOR DETAILS ON
DEATH BENEFIT PROCEEDS AND THE GUARANTEE PERIOD, SEE INSURANCE BENEFITS AND
BENEFITS AT THE INSURED'S ATTAINED AGE 100.
Cash Value Benefits
Provided By
This Policy
During the lifetime of the insured while this policy is in effect we provide
cash value benefits and other important rights as described in this policy.
THE CASH VALUE MAY INCREASE OR DECREASE ON ANY DAY, DEPENDING ON THE
INVESTMENT RESULTS FOR THIS POLICY. NO MINIMUM AMOUNT IS GUARANTEED. FOR
INFORMATION ON CASH SURRENDER VALUES, SEE POLICY BENEFITS FOR THE OWNER AND
BENEFITS AT THE INSURED'S ATTAINED AGE 100.
Investment Results
For This Policy
You may allocate this policy's total investment base among the investment
divisions. Each division invests in a designated investment portfolio. Cash
values and death benefits may increase or decrease depending on the investment
experience of these investment divisions, the allocation of the policy's
investment base among the divisions and the timing and amount of all premiums.
For details, see How Variable Life Insurance Works.
Right To Examine
This Policy
This policy may be returned on or before the end of the free look period. That
period ends at the later of ten days after you receive this policy, 45 days
after you execute the application, or ten days after we mail or deliver to you
the Notice of Withdrawal Rights. Mail or deliver this policy to us or to the
agent who sold it. The returned policy will be treated as if we never issued
it. We will promptly return the premium paid.
/s/ BARRY G. SKOLNICK /s/ ANTHONY J. VESPA
--------------------- --------------------
Secretary President
Flexible Premium
Variable Universal Life
Insurance Policy
Variable universal life insurance payable upon death of the insured. Death
benefit subject to guaranteed minimum during guarantee period. Guaranteed
minimum is policy's face amount. Flexible premiums. Non-participating.
Investment results reflected in policy benefits.
VUS94
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
POLICY SCHEDULE 4
This schedule gives specific facts about this policy and its coverage.
Please refer to the schedule while reading the policy.
DEFINITIONS 5
INTRODUCTION TO THIS POLICY 6
- - This Policy Is A Contract 6
- - Dates And Ages Referred To In This Policy 6
Date Of Issue
Policy Date
In Force Date
Issue Age
Attained Age
- - Right To Name A Contingent Owner 6
- - The Beneficiary 7
- - Change Of Owner Or Beneficiary 7
- - Sending Notice To Us 7
PREMIUM PAYMENTS 8
- - When To Pay Premiums 8
- - Where To Pay Premiums 8
- - Additional Premiums 8
- - Allocation Of Additional Premiums 8
- - Premium Loading 8
- - Grace Period 9
- - How To Reinstate This Policy 9
HOW VARIABLE LIFE INSURANCE WORKS 10
- - The Separate Account 10
- - Investment Divisions 10
- - Changes To The Separate Account 10
- - Allocation Of Total Investment Base 11
- - Investment Base In Each Investment Division 11
On The Policy Date
On Each Subsequent Business Day
- - Charges Deducted From Investment Base 12
Cost Of Insurance
Other Deductions
- - What Happens On The Maturity Date Of An Investment Division 12
- - Measurement Of Investment Experience 13
Index Of Investment Experience
How We Determine The Experience Factor
- - Net Rate Of Return For An Investment Division 13
POLICY BENEFITS FOR THE OWNER 14
- - Partial Withdrawal 14
Requirements For Each Partial Withdrawal
Requesting A Partial Withdrawal
Effect Of A Partial Withdrawal On Total Investment Base,
Cash Value And Death Benefit
Effect Of A Partial Withdrawal On Guarantee Period
When We Will Pay The Partial Withdrawal
- - Cash Value Benefits 15
Surrendering Your Policy
</TABLE>
VUS94
2
<PAGE> 3
TABLE OF CONTENTS (Continued)
POLICY BENEFITS FOR THE OWNER (Continued)
<TABLE>
<S> <C>
- - Policy Loans 15
Preferred Loans
Loan Value
Interest And Net Loan Cost
Effect Of A Loan
When We Will Make The Loan
- - Assignment - Using This Policy As Collateral Security 17
- - Right To Fixed Life Benefits 17
INSURANCE BENEFITS 18
- - The Guarantee Period 18
On The Policy Date
At Attained Age 100
When An Additional Premium Is Paid
When A Partial Withdrawal Is Requested
When A Change In Face Amount Results From A
Change In Death Benefit Option
Automatic Adjustment
- - Proceeds Payable To The Beneficiary 19
Death Benefit Proceeds
Changing The Death Benefit Option
How To Claim Death Benefit Proceeds
CHOOSING AN INCOME PLAN 21
- - The Income Plans 21
Plan 1 - Income For A Fixed Period
Plan 2 - Income For Life
Plan 3 - Interest Payment
Plan 4 - Income Of A Fixed Amount
Plan 5 - Joint Life Income
Plan 6 - Annuity Plan
- - Payments When Named Person Dies 23
OTHER IMPORTANT INFORMATION 24
- - Benefits At The Insured's Attained Age 100 24
- - Limits On Our Contesting This Policy 24
- - Quarterly Report 25
- - Changing This Policy 25
- - Policy Changes - Applicable Tax Law 25
- - Error In Age Or Sex 25
- - Suicide 25
- - Claims Of Creditors 25
- - Non-Participating 25
- - Authority To Make Agreements 25
- - Changes In Policy Cost Factors 25
- - Required Note On Our Computations 26
APPENDIX 1 - TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES 27
APPENDIX 2 - CASH VALUE CORRIDOR FACTORS 28
</TABLE>
A copy of the application(s) and any additional benefit riders and endorsements
are at the back of this policy.
VUS94
3
<PAGE> 4
POLICY SCHEDULE
<TABLE>
<S> <C>
INSURED Richard Roe
ISSUE AGE/SEX 35 Male
UNDERWRITING CLASS Standard Non-Smoker
INITIAL PREMIUM $45,000.00
INITIAL FACE AMOUNT $1,000,000.00
BASE PREMIUM $10,832.78
INITIAL ADDITIONAL INSURANCE
RIDER FACE AMOUNT $500,000.00
ISSUE DATE January 3, 1994
POLICY DATE January 3, 1994
POLICY NUMBER SPECIMEN
OWNER Richard Roe
INITIAL GUARANTEE PERIOD The Initial Guarantee Period is 11.75 years.
SALES LOAD (only included if applicable regulations
under the Investment Company Act of 1940
require a reduced sales load) ))
RIDERS (( Additional Insurance Rider (only if
elected) ))
(( THIS IS A MODIFIED ENDOWMENT CONTRACT. ))
ANNUAL RATE OF INTEREST
USED IN OUR COMPUTATIONS 4.50%
</TABLE>
VUS92
4
<PAGE> 5
DEFINITIONS
Owner
The owner has the rights and options as described in this policy. The owner
is shown on the Policy Schedule.
Beneficiary
The beneficiary is the person to whom we pay the proceeds upon the death of
the insured.
Base Premium
The base premium is the amount equal to the level annual premium that would be
necessary for the face amount of the policy to endow on the policy anniversary
nearest the insured's 100th birthday. We assume a 5% annual rate of return on
the base premium less premium loading, the guaranteed maximum cost of
insurance rates shown in Appendix 1 and that death benefit option 1 is in
effect. The base premium is shown on the Policy Schedule.
Separate Account
The Merrill Lynch Variable Life Separate Account is governed by the laws of
Arkansas, our state of domicile.
Total Investment
Base
The total investment base is the amount that this policy provides for
investment at any time. It is the sum of the investment base in each of the
investment divisions.
Fixed Base
The fixed base on the policy date of this policy equals this policy's cash
value. Thereafter, the fixed base is calculated in the same manner as the cash
value except that all calculations are based on the guaranteed maximum cost of
insurance rates and the annual rate of interest shown on the Policy Schedule.
The fixed base calculation does not reflect policy loans and repayments.
After the end of the guarantee period the fixed base equals zero.
Cash Value
The cash value on any date equals the total investment base, plus policy debt,
less any accrued net loan cost since the last policy anniversary (or since the
policy date during the first policy year), plus any unearned charges for cost
of insurance and rider costs.
Variable Insurance
Amount
The variable insurance amount equals the cash value corridor factor for the
insured at his or her attained age multiplied by the sum of cash value plus
any excess sales load. The variable insurance amount will vary daily based on
the investment results, any premium payments made, any partial withdrawals
taken and any loans taken.
In no event will the variable insurance amount be less than that required to
keep this policy qualified as life insurance under the federal income tax
laws as interpreted by us. The table of cash value corridor factors is shown
in Appendix 2.
Guarantee Period
The guarantee period is the period for which the policy face amount and any
additional insurance coverage provided by a rider are guaranteed to remain in
effect unless debt exceeds certain values.
Excess Sales Load
A portion of the sales load calculated during the first two policy years which
is in excess of the amount specified under applicable regulations in effect
under the Investment Company Act of 1940. After policy year two, this amount
is equal to zero.
VUS94
5
<PAGE> 6
INTRODUCTION TO THIS POLICY
This policy insures the life of the insured listed on the Policy Schedule. The
insured is the owner of this policy unless another owner has been named in the
application. If there is more than one owner, the owners must exercise their
rights and options jointly. We reserve the right to limit the number of
owners.
This Policy Is A
Contract
This policy is a contract between you and us. We provide insurance coverage
and other benefits as stated in this policy. We do this in return for a
completed application and payment of the initial premium.
Whenever we use the word policy, we mean the entire contract. The entire
contract consists of:
- the basic policy;
- the attached copy of the initial application and medical exam(s);
all attached subsequent applications and amendments to change the
basic policy; and
- any riders or endorsements.
Riders and endorsements add provisions or change the terms of the basic
policy.
Dates And Ages
Referred To In This
Policy
The following dates and ages are referred to in this policy.
Issue Date
This is the date this policy is issued at our Service Center. The contestable
and suicide periods are measured from this date.
Policy Date
This date is used to determine policy processing dates, policy years and
anniversaries. It is generally one business day after the premium is received
by us. See the Policy Schedule. The policy date may or may not be the same
as the issue date. The policy processing dates are the days when we deduct
charges. They are the policy date and the same day of the month as the policy
date at the end of each successive three month period. A policy processing
period is the period between successive policy processing dates.
In Force Date
This date occurs when the following three conditions have been met:
- the underwriting process is complete,
- the initial premium is received by us or the agent who sold you the
policy, and
- outstanding policy amendments (if any) are received by us or the
agent who sold you the policy.
Issue Age
This is the insured's age on the insured's birthday nearest to the policy
date.
Attained Age
This is the insured's issue age plus the number of full years elapsed since
the policy date.
Right To Name A Contingent Owner
You may name a contingent owner. If you die before a death benefit is payable
under this policy, your interest in this policy will then pass to the
contingent owner. If there's no contingent owner, your interest will pass to
your estate.
VUS94
6
<PAGE> 7
The Beneficiary
We pay the death benefit proceeds to the primary beneficiary. If the primary
beneficiary (whether or not irrevocable) has died, the proceeds are paid to
any contingent beneficiary. If there is no surviving beneficiary, we pay the
proceeds to the estate of the insured. One or more persons may be named as
primary beneficiaries or contingent beneficiaries. In that case we will assume
the proceeds are to be paid in equal shares to the surviving beneficiaries.
The owner can specify other than equal shares. If an irrevocable beneficiary
has been designated, you and the irrevocable beneficiary must act together to
exercise certain rights and options under this policy.
Change Of Owner Or Beneficiary
During the insured's lifetime, with the consent of any irrevocable
beneficiary, you can transfer ownership of this policy and change the
beneficiary. To do this, you must send us written notice of the change in a
form satisfactory to us. The change will take effect as of the day the notice
is signed. However, the change will not affect any payment made or action
taken by us before receipt of the notice of the change at our Service Center.
Sending Notice To Us
Any written notices or requests should be sent to our Service Center in a form
satisfactory to us. The address is shown on the front of this policy. Please
include your name, the name of the insured and the policy number.
VUS94
7
<PAGE> 8
PREMIUM PAYMENTS
When To Pay Premiums
Payment of the initial premium is required to put this policy in effect. The
amount of the initial premium is shown on the Policy Schedule.
Where To Pay Premiums
Pay the premiums to our Service Center.
Additional Premiums
After the end of the free look period and prior to the insured's attained age
100, if the insured is alive, the owner may pay additional premiums under this
policy. To make an additional premium payment, the owner must provide us with
notice at our Service Center. We reserve the right to return any portion of
the additional premiums that would cause this policy to become a modified
endowment contract, under federal income tax law as interpreted by us, unless
you consent. We will also return any portion of the additional premium that
would cause this policy to fail to qualify as life insurance under federal
income tax laws as interpreted by us. Any amount of additional premium beyond
that necessary to extend the guarantee period to the insured's attained age
100 will be returned to you.
The minimum additional premium is $100. If we have applied any excess sales
load to avoid termination of this policy, the additional premium less premium
loading will first be applied to repay such excess sales load. Next, unless
otherwise specified by the owner, if there is any policy debt, any additional
premiums paid will be applied as a loan repayment, with any excess used as an
additional premium. See Policy Loans.
As of the policy processing date on or next following the date of receipt and
acceptance of an additional premium, the guarantee period may increase. See
The Guarantee Period.
The variable insurance amount will also reflect this premium.
Allocation Of
Additional Premiums
As of the date we receive and accept an additional premium payment, the
increase in the total investment base will be allocated among the investment
divisions in accordance with instructions from the owner. If no such
instructions are received by us, allocation will be among the investment
divisions in the same proportion as the investment base in each division bears
to the total investment base as of the date we receive and accept the premium.
Premium Loading
As of the date we receive and accept any premium:
- The investment base will increase by the amount of the payment less:
(1) a sales load of 46.25% of each payment through the second base
premium and 1.25% of each base premium paid after the second; (2) a
premium tax charge of 2.50% of each premium paid; (3) a charge for
federal taxes of 1.25% of each premium paid. These charges are deducted
before allocation to applicable investment divisions.
We may also deduct a charge for other assessments of federal premium taxes or
federal, state or local excise, profits or income taxes measured by or
attributable to the receipt of premiums. We also reserve the right to deduct
from the separate account any taxes imposed on the separate account earnings.
If your sales load will be less than the sales load described above, it will
be shown on the Policy Schedule. In no event will the sales load exceed the
amount permitted by applicable regulations in effect under the Investment
Company Act of 1940.
VUS94
8
<PAGE> 9
Grace Period
After the end of the guarantee period, we will terminate this policy at the
end of the grace period if the quarterly charges are greater than the cash
value plus any unused excess sales load on a policy processing date. Also see
Policy Loans.
The grace period will end 61 days after we mail a notice to the owner that we
may terminate this policy because of insufficient cash value. We will notify
you at your last known address according to our records. To avoid termination,
you must pay us an amount which after deducting premium loading equals at least
three (3) times the charges that were due on the policy processing date on
which we determined that the cash value was insufficient plus the portion of
any excess sales load used to keep the policy in force. However, see Policy
Loans. This amount will be specified on the notice we send. If we do not
receive such amount at our Service Center before the end of the grace period,
this policy will terminate. At that time, we deduct any charges for cost of
insurance and rider costs applicable to the grace period and refund to you any
unearned charges for cost of insurance, rider costs and any unused excess sales
load. If the insured dies during the grace period, we will pay the
beneficiary the insurance benefits as described in Proceeds Payable To The
Beneficiary.
How To Reinstate This
Policy
If we have terminated this policy at the end of the grace period, you may
reinstate it prior to the insured's attained age 100 provided if:
- You ask for reinstatement within three (3) years after the end of
the grace period;
- We receive satisfactory evidence of the insured's insurability; and
- You pay us at least the minimum premium for which we would then issue
this policy based on the policy year and underwriting class of the
insured as of the effective date of the reinstated policy.
The effective date of the reinstated policy will be the
policy processing date on or next following the date we approve
the reinstatement application.
VUS94
9
<PAGE> 10
HOW VARIABLE LIFE INSURANCE WORKS
The Separate Account
The variable life insurance benefits under this policy are provided through
investments made in the separate account. This account is kept separate from
our general account and any other separate accounts we may have. It is used to
support variable life insurance policies and may be used for other purposes
permitted by applicable laws and regulations. We own the assets in the
separate account. Assets equal to the reserves and other liabilities of the
account will not be charged with liabilities that arise from any other
business we conduct. However, we may transfer to our general account assets
which exceed the reserves and other liabilities of the separate account.
The separate account will invest in mutual funds, unit investment trusts and
other investment portfolios which we determine to be suitable for this
policy's purposes. The separate account is a unit investment trust under
federal securities laws. It is registered with the Securities and Exchange
Commission (SEC) under the Investment Company Act of 1940.
Income, gains and losses whether or not realized from assets in the separate
account are credited to or charged against the account without regard to other
income, gains or losses in our other separate accounts or general account.
Investment Divisions
The separate account is divided into investment divisions. Each investment
division invests in a designated investment portfolio. The divisions and the
investment portfolios in which they invest are described in the prospectus.
Each investment division will be valued at the end of each valuation period.
A valuation period is each business day together with any non-business days
before it. A business day for a division is any day the New York Stock
Exchange (NYSE) is open for trading or any day in which the SEC requires that
the mutual funds, unit investment trusts or other investment portfolios be
valued.
Changes To The
Separate Account
We may from time to time make additional investment divisions available. These
divisions will invest in investment portfolios we find suitable for this
policy. We also have the right to eliminate investment divisions from the
separate account, to combine two or more investment divisions or to substitute
a new portfolio for the portfolio in which an investment division invests. A
substitution may become necessary if, in our judgment, a portfolio no longer
suits the purposes of this policy. This may happen due to a change in laws or
regulations, or a change in a portfolio's investment objectives or
restrictions, or because the portfolio is no longer available for investment
or for some other reason. We would get any required prior approval from the
insurance department of our state of domicile before making such a
substitution. We would also get any required prior approval from the SEC and
any other required approvals before making such a substitution.
Subject to any required regulatory approvals, we reserve the right to transfer
assets of the separate account or of an investment division, which we
determine to be associated with the class of policies to which this policy
belongs, to another separate account or investment division.
VUS94
10
<PAGE> 11
Changes To The
Separate Account
(Continued)
When permitted by law, we reserve the right to:
- Deregister the separate account under the Investment Company Act of
1940;
- Operate the separate account as a management investment company
under the Investment Company Act of 1940;
- Restrict or eliminate any voting rights of policyowners or other
persons who have voting rights as to the separate account; and
- Combine the separate account with other separate accounts.
Allocation Of
Total Investment
Base
You select the divisions to which to allocate the total investment
base. The maximum number of divisions to which the total investment base may
be allocated at any one time is five (5).
You can change the allocation of the total investment base among the
investment divisions. The number of allocation changes per year is unlimited.
We reserve the right to charge up to $25 for each transfer in excess of six
(6) each policy year. No allocation changes are permitted to be executed
during the first 14 days following the in force date. To make a change, you
must provide us with satisfactory notice at our Service Center. The
change will take effect when we receive the notice. Our calculations will
reflect the change.
Investment Base In Each
Investment Division
On The Policy Date
On the policy date, your initial premium is reduced by the premium loading.
See Premium Loading. The balance is your total investment base which is
allocated to the Money Reserve investment division. Then we deduct quarterly
charges. The resulting amount remains in the Money Reserve investment
division for the first 14 days following the in force date. After that, your
investment base will be allocated to the investment divisions indicated on
your application. See Allocation Of Total Investment Base. After the free
look period, and prior to the insured's attained age 100, the owner may pay
additional premiums under this policy. See Additional Premiums.
On Each Subsequent Business Day
On each subsequent business day, the investment base in each division is an
amount calculated as follows:
(1) We take the investment base in the division at the end of the
preceding valuation period.
(2) We multiply (1) by the division's net rate of return for the current
valuation period.
(3) We add (1) and (2).
(4) We add to (3) any premiums allocated to the division during the
current valuation period less any premium loading deducted before
allocation.
(5) We add to (4) any loan repayments received and subtract from (4) any
borrowed amounts which are allocated to the division during the
current valuation period.
(6) We subtract any amounts withdrawn from the investment division since
the end of the preceding valuation period.
(7) We add any amounts transferred to the investment division and subtract
any amounts transferred from the investment division since the end of
the preceding valuation period.
(8) If the business day is a policy processing date, we subtract from (7)
the following amounts allocated to that division for the next policy
processing period (sometimes referred to as quarterly charges):
(a) cost of insurance;
(b) any other fees we describe in this policy; and
(c) any rider charges deducted from the investment base.
Charges in (a), (b) and (c) above will not be deducted on or after the
insured's attained age 100. See Benefits At Insured's Attained Age 100.
VUS94
11
<PAGE> 12
Investment Base In Each
Investment Division
(Continued)
On Each Subsequent Business Day (Continued)
If a policy processing date is on a policy anniversary, we also
subtract:
(d) any net loan cost.
All amounts in (8) will be allocated to each division in the same
proportion as (3) bears to the total investment base.
(9) If the charges in (8) exceed the amount in (7), we will notify you of
the amount due.
Charges Deducted From
Investment Base
Cost Of Insurance
We will determine the cost of insurance on each policy processing date until
the insured's attained age 100 as follows:
(1) We determine the policy's net amount at risk as of the policy
processing date, which is equal to:
(a) the death benefit as of the policy processing date adjusted for
the annual rate of interest shown on the Policy Schedule
per year, less
(b) the cash value as of the policy processing date but before
deduction for the cost of insurance.
(2) We divide (1) by $1,000.
(3) We determine the current cost of insurance rate per $1,000 based on
the policy year, sex and underwriting class of the insured.
(4) We multiply (2) by (3).
We may change the current cost of insurance rates per $1,000 from time to
time. Any change in the current rates will be as described in Changes In
Policy Cost Factors. They will never be more than the guaranteed maximum cost
of insurance rates per $1,000 shown in Appendix 1.
Other Deductions
The net loan cost is described in the Policy Loans provision. The cost and
frequency of deductions for any benefits provided by riders are shown on the
Policy Schedule unless otherwise provided for in the rider. An asset charge
at a daily rate of .002477% (equivalent to .90% annually in advance) and a
trust charge at a daily rate currently of .000933% (equivalent to .34%
annually in advance) are deducted from appropriate investment divisions in the
separate account.
We reserve the right to increase the trust charge but in no event above a
daily rate of .001373% (equivalent to .50% annually in advance).
What Happens On The
Maturity Date Of
An Investment Division
If part of the total investment base is allocated to an investment division
that has a maturity date, then, unless otherwise specified by the owner, the
amounts in that division as of the maturity date will be allocated to the
Money Reserve investment division. We will notify the owner 30 days in
advance of the maturity date. To elect an allocation to other than the Money
Reserve investment division, the owner must provide satisfactory notice to us
at least seven (7) days prior to the maturity date. The allocation on a
maturity date will not be considered a change in the allocation of the
investment base for purposes of the number of changes permitted before a
charge may be applied.
VUS94
12
<PAGE> 13
Measurement Of
Investment Experience
The investment experience of an investment division is determined at the end
of each division's valuation period.
Index Of Investment Experience
We use an index to measure changes in each investment division's experience
during a valuation period. We set the index at $10 when the first investments
in that division were made. The index for a current valuation period equals
the index for the preceding valuation period multiplied by the experience
factor for the current period.
How We Determine The Experience Factor
The experience factor for an investment division's valuation period reflects
the investment experience of the portfolio in which the division invests as
well as the charges assessed against the division. The factor is calculated as
follows:
(1) We take the net asset value as of the end of the current valuation
period of the portfolio in which the division invests.
(2) We add to (1) the amount of any dividend or capital gains distribution
declared during the current valuation period for the investment
portfolio. We subtract from that amount a charge for our taxes, if any.
(3) We divide (2) by the net asset value of the portfolio at the end of
the preceding valuation period.
(4) We subtract the daily asset charge for each day in the valuation
period. This charge is to cover expense, mortality and minimum death
benefit guarantee risks that we are assuming.
(5) For any divisions investing in unit investment trusts only, we
subtract an additional charge equal to the daily trust charge for
each day in the valuation period. This charge is to cover the actual
costs incurred in the purchase or sale of units of the trusts.
The net asset value of an investment company's shares held in each investment
division shall be the value reported to us by the investment company. Such net
asset value will be net of any investment advisory fees and other expenses of
such investment company.
Calculations for divisions investing in the mutual fund portfolios are made on
a per share basis. Calculations for divisions investing in unit investment
trusts are on a per unit basis.
Net Rate Of Return For
An Investment Division
Here's how to determine an investment division's net rate of return for a
valuation period:
(1) We determine the change in the division's index from the preceding
valuation period to the current valuation period.
(2) We divide this by the index for the preceding valuation period.
We follow a consistent method for longer periods of time.
VUS94
13
<PAGE> 14
POLICY BENEFITS FOR THE OWNER
Partial Withdrawal
Requirements For Each Partial Withdrawal
Each partial withdrawal is subject to the following requirements:
- The minimum partial withdrawal is $1,000. The remaining cash value less
any policy debt following a partial withdrawal must equal or exceed
$5,000. Withdrawals are permitted once each policy year, beginning in
policy year 2 and prior to the insured's attained age 100.
- The amount of a partial withdrawal may not exceed the total loan value
as of the effective date of a partial withdrawal, less any existing
policy debt as of such date.
- A partial withdrawal may not be repaid.
- In no event will a partial withdrawal be permitted if, after the
withdrawal, the guarantee period will extend beyond the insured's
attained age 100.
- The minimum face amount remaining after any partial withdrawal must be
at least $250,000.
- In no event will a partial withdrawal be permitted if, after the
withdrawal, the policy would not qualify as life insurance under
federal income tax laws as interpreted by us.
- If the partial withdrawal will cause the policy to become a modified
endowment contract under federal income tax laws as interpreted by us,
we will require your consent.
Requesting A Partial Withdrawal
The request for a partial withdrawal must be in a form satisfactory to us. The
effective date of the withdrawal will be the date the request is received at
our Service Center.
Effect Of A Partial Withdrawal On Total Investment Base, Cash Value And Death
Benefit
As of the effective date of a partial withdrawal:
- The total investment base, cash value, fixed base and, if you have
elected death benefit Option 1, the face amount of this policy, each
will be reduced by the amount of the partial withdrawal.
- The reduction in the total investment base will be allocated among the
investment divisions in accordance with your instructions. If no such
instructions are received by us, allocation will be among the
investment divisions in the same proportion as the investment base in
each division bears to the total investment base as of the effective
date of the partial withdrawal.
- The variable insurance amount will reflect the partial withdrawal.
Effect Of A Partial Withdrawal On Guarantee Period
As of the policy processing date on or next following the effective date of a
partial withdrawal, the guarantee period may decrease. See The Guarantee
Period
VUS94
14
<PAGE> 15
Partial Withdrawal
(Continued)
When We Will Pay The Partial Withdrawal
We'll usually pay the amount of the partial withdrawal within seven (7) days
after we receive a request satisfactory to us. But we may delay paying the
amount of the partial withdrawal when:
- The NYSE is closed for trading except for a normal holiday closing;
- The SEC determines that a state of emergency exists; or
- An order of the SEC permits a delay for the protection of policyowners.
Cash Value Benefits
Surrendering Your Policy
You can surrender this policy at any time while the insured is living and
receive its cash value less any policy debt. This amount may be paid in cash
or under one or more income plans. See Choosing An Income Plan. To surrender
this policy, the owner must return it to our Service Center with a signed
request for surrender in a form satisfactory to us. The right to a death
benefit will end on the date the request is sent to us. The cash value will
vary daily. We will determine the cash value as of the date we receive this
policy and the signed request at our Service Center. We will usually pay the
cash value less any policy debt within seven (7) days. But we may delay
payment when we are not able to determine the amount because:
- The NYSE is closed for trading except for a normal holiday closing;
- The SEC determines that a state of emergency exists; or
- An order of the SEC permits a delay for the protection of policyowners.
If the policy is surrendered during the first two policy years, we will refund
any excess sales load except such excess sales load which may have been used
to avoid termination of the policy.
Policy Loans
You may borrow money from us. The maximum amount you may borrow is the total
loan value less policy debt. The policy will be the only security we require
for the loan. A loan may be taken any time after the free look period has
ended and prior to the insured's attained age 100. You may repay all or part
of the loan at any time while the insured is living. If we have applied any
excess sales load to avoid termination of the policy, any loan repayment will
first be applied to repay such excess sales load.
Preferred Loans
Preferred loans are available beginning on the later of the tenth policy
anniversary or the insured's attained age 55.
Once preferred loans are available, any existing policy debt will then be
treated as a preferred loan up to the preferred loan value. See Loan Value.
Loan Value
The total loan value equals 90% of cash value. Once available, the preferred
loan value is calculated on each policy anniversary. The preferred loan value
for the policy year is equal to 12% of the difference between the cash value
and any existing policy debt as of the previous policy anniversary. This
amount is available annually and is applied first, to convert any existing
policy debt to preferred loan status; and then, is available for new loans. The
sum of all outstanding loan amounts plus the accrued interest is called policy
debt. The maximum amount that can be borrowed at any time is the difference
between the total loan value and the policy debt. The minimum permissible
amount of any loan and the minimum repayment amount are each $1,000.
Interest And Net Loan Cost
Interest accrues (builds up) each day on your outstanding loan. The sum of all
outstanding loans plus accrued interest is called policy debt. The amount
held in the general account for loans (see Effect Of A Loan) earns interest.
On each policy anniversary, the investment base is increased by the interest
earned on the amount held in the general account and decreased by the interest
charged and unpaid on the policy debt. The difference between the interest
charged on the policy debt and the interest earned on the amount held in the
general account is called the net loan cost.
VUS94
15
<PAGE> 16
Policy Loans (Continued)
Interest And Net Loan Cost (Continued)
The net loan cost will be calculated as follows:
(1) We determine the policy debt as of the previous policy anniversary and
take into account loans and repayments made during the policy year.
(2) We multiply (1) by the loan interest rate less the annual rate of
interest earned on the amount held in the general account for loans.
The maximum interest rate charged on loans is 6% per year. The amount held in
the general account for loans earns interest at a minimum rate of 4% annually.
The amount held in the general account for preferred loans earns interest at a
rate equal to the rate charged on preferred loans.
Interest payments are due at the end of each policy year. If interest isn't
paid when due, an amount equal to the interest due will be added to your
outstanding loan amount and interest will accrue on this new loan amount.
We may change the interest rates we currently charge on loans and the annual
rates of interest earned on the loan amount transferred to the general
account. Any such changes are set on the policy anniversary.
Effect Of A Loan
An amount equal to the loan will be transferred out of the separate account
and into our general account. At the time of a repayment, an amount equal to a
repayment will be transferred out of the general account and into the separate
account. A policy loan and the net loan cost reduce the total investment base
while repayment of a loan will cause an increase in the total investment base.
Loans, repayments and the net loan cost will be allocated among the investment
divisions in accordance with your instructions. You may change that allocation
by sending satisfactory notice to us. If no such instructions are on record,
the loan, repayment or net loan cost will be allocated in the same proportion
as the investment base in each division bears to the total investment base as
of the date of the loan, repayment or deduction of net loan cost.
A loan, whether or not repaid, will have a permanent effect on the cash values
and may have a permanent effect on the death benefits. If not repaid, the
policy debt will reduce the amount of death benefit proceeds and cash value
benefits.
Loans and repayments during a policy year will affect our calculations.
If on the policy processing date, the policy debt exceeds the larger of:
(a) the cash value plus any unused excess sales load less quarterly
charges and
(b) the fixed base,
we will terminate this policy. We will not do this, however, until 61 days
after we mail notice of our intent to terminate. We will notify you at your
last known address. Upon termination, we deduct any charges for cost of
insurance and rider costs that may be applicable to the 61 day period and
refund to you any unearned charges for cost of insurance, rider costs and any
unused excess sales load.
When We Will Make The Loan
We will usually loan the money within seven (7) days after we receive a
request in a form satisfactory to us. But we may delay making the loan when we
are not able to determine the loan value because:
- The NYSE is closed for trading except for a normal holiday closing;
- The SEC determines that a state of emergency exists; or
- An order of the SEC permits a delay for the protection of policyowners.
VUS94
16
<PAGE> 17
Assignment - Using
This Policy As
Collateral Security
You may assign this policy as collateral security for a loan or other
obligation. This does not change the ownership. But your rights and any
beneficiary's rights are subject to the terms of the assignment. To make or
release an assignment, we must receive written notice, satisfactory to us, at
our Service Center. We are not responsible for the validity of any assignment.
Right To Fixed
Life Benefits
You may elect benefits that do not vary with the investment results of a
separate account. You must elect to do so within 24 months from the issue date
while the insured is living and this policy is in effect. No evidence of
insurability will be required. If you make this election, we will add an
endorsement to this policy and your total investment base will be transferred
to the guaranteed interest division of our general account. Future premium
payments will be allocated to the guaranteed interest division. Once
transferred to the guaranteed interest division, your total investment base
may not be transferred to the separate account.
VUS94
17
<PAGE> 18
INSURANCE BENEFITS
The Guarantee Period
On The Policy Date
The initial guarantee period and initial face amount on the policy date are
shown on the Policy Schedule. The guarantee period and face amount are not
affected by investment results nor the allocation of the total investment base
among the investment divisions. However, see Automatic Adjustment. The
guarantee period is the length of time that a comparable fixed life insurance
policy with the same face amount, payments made, guaranteed mortality table,
policy loading and guaranteed maximum rider costs would remain in force if
credited with the annual rate of interest shown on the Policy Schedule.
In no event will the guarantee period extend beyond the insured's attained age
100. The guarantee period will change as described below as a result of any
additional premiums, partial withdrawals and any changes in face amount
resulting from changes in rider coverage or changes in death benefit options.
At Attained Age 100
The guarantee period, if any, automatically ends at the insured's attained
age 100. See Benefits At The Insured's Attained Age 100.
When An Additional Premium Is Paid
The guarantee period will increase as follows:
(1) We determine the immediate increase in cash value resulting from the
additional premium less premium loading. See Premium Loading.
(2) We add to (1) interest at the annual rate shown on the Policy Schedule
for the period from the date we receive and accept the additional
premium to the policy processing date on or next following such date.
This is the guarantee adjustment amount.
(3) If the guarantee period prior to payment of the additional premium
does not extend to the insured's attained age 100, the guarantee
adjustment amount is added to the fixed base and the new fixed base
will be used to calculate a new guarantee period. Any excess amount
of additional premium beyond that necessary to extend the guarantee
period to the insured's attained age 100 will be returned to you.
When A Partial Withdrawal Is Requested
As of the policy processing date on or next following the effective date of a
partial withdrawal, the guarantee period will decrease as follows:
(1) We determine the immediate decrease in cash value resulting from the
partial withdrawal.
VUS94
18
<PAGE> 19
The Guarantee Period
(Continued)
When A Partial Withdrawal Is Requested (Continued)
(2) We add to (1) interest at the annual rate shown on the Policy
Schedule for the period from the date of the withdrawal to the policy
processing date on or next following such date. This is the guarantee
adjustment amount.
(3) We subtract the guarantee adjustment amount from the fixed base and
use the new fixed base to calculate a new guarantee period.
When A Change In Face Amount Results From A Change In Death Benefit Option
As of the effective date of change, we will redetermine the guarantee period
as follows:
(1) We take the fixed base described in the policy as of such date.
(2) Based on the policy year, the face amount of the policy, plus any
additional insurance coverage provided by a rider, and the amount in
(1), we will redetermine the guarantee period.
Our computations are based on the annual interest rate shown in the Policy
Schedule and the guaranteed maximum cost of insurance rates shown in
Appendix 1.
Automatic Adjustment
On any policy anniversary, if the cash value is greater than the fixed base
necessary to cause the guarantee period to extend to the insured's attained
age 100, the guarantee period will be extended to the insured's attained
age 100.
Proceeds Payable To The
Beneficiary
Prior to the insured's attained age 100 we will pay the death benefit proceeds
to the beneficiary upon the insured's death. At and after the insured's
attained age 100, we will pay the beneficiary the post 100 death benefit
proceeds upon the death of the insured. See Benefits At The Insured's Attained
Age 100. The proceeds may be paid in cash or under one or more income plans.
See Choosing An Income Plan.
In the event of the death of the insured within two years from the issue date,
proof of such death should be promptly submitted to our Service Center
since we will pay only a limited benefit under certain circumstances. See
Limits On Our Contesting This Policy and Suicide.
Death Benefit Proceeds
Death benefit proceeds depend upon the death benefit option in effect on the
date of death. Death benefits payable prior to the insured's attained age 100
are as below:
Option 1. Under this option, death benefit proceeds are determined as follows:
(1) We determine the policy's death benefit, which is the larger of the
face amount or the variable insurance amount.
(2) We subtract from (1) any policy debt.
(3) We add to (2) any rider benefits payable
Option 2. Under this option, death benefit proceeds are determined as follows:
(1) We determine the policy's death benefit, which is the larger of the
face amount plus cash value or the variable insurance amount.
(2) We subtract from (1) any policy debt.
(3) We add to (2) any rider benefits payable.
The value of the death benefit proceeds will be that as of the insured's date
of death. If that death occurs during the grace period, we will pay the
beneficiary the death benefit proceeds in effect immediately prior to the
grace period reduced by any overdue charges. The death benefit will never be
less than that required to keep this policy qualified as life insurance under
federal income tax laws.
VUS94
19
<PAGE> 20
Proceeds Payable To
The Beneficiary (Continued)
Changing The Death Benefit Option
On each policy anniversary beginning with the first and prior to the insured's
attained age 86, you may change the death benefit option. We will change the
policy face amount in order to keep your death benefit constant as of the
effective date of the change. The effective date of change will be the policy
anniversary date next following approval of the change. See The Guarantee
Period.
If the death benefit option is changed from Option 1 to Option 2, satisfactory
evidence of insurability will be required. A change in the death benefit
option will not be permitted if it would result in a face amount of less than
$250,000 or if the resulting guarantee period extends beyond the insured's
attained age 100. In no event will a change be permitted if, after the
change, the policy would not qualify as life insurance under federal income
tax laws as interpreted by us. If the change will cause the policy to become
a modified endowment contract under federal income tax laws as interpreted by
us, we will require your consent.
How to Claim Death Benefit Proceeds
The beneficiary should contact our Service Center for instructions. We will
usually pay the proceeds within seven (7) days after we receive satisfactory
proof of the insured's death and any other requirements. We may delay payment
of all or part of the death benefit if we have not been able to determine this
policy's cash value as of the date of death because:
- The NYSE is closed for trading except for normal holiday closing;
- The SEC determines that a state of emergency exists; or
- An order of the SEC permits a delay for the protection of policyowners.
If a delay is necessary and death of the insured occurs prior to the end of
the guarantee period, we may delay payment of any excess of the death benefit
over the face amount. After the guarantee period has expired, we may delay
payment of the entire death benefit.
We will add interest to the death benefit proceeds at an annual rate of at
least the minimum required by state law from the date of death to the date of
payment.
VUS94
20
<PAGE> 21
CHOOSING AN INCOME PLAN
You may choose one or more income plans under the policy for the payment of
death benefit proceeds. If, at the time of the death of the insured, no plan
has been chosen for paying death benefit proceeds, the beneficiary may choose
a plan within one year. The owner may also elect an income plan under the
policy on surrender of the policy.
Our approval is needed for any plan where:
- The person named to receive payment is other than the owner or
beneficiary;
- The person named is not a natural person, such as a corporation; or
- Any income payment would be less than $100.
The Income Plans
There are six (6) income plans to choose from. They are:
Plan 1. Income For A Fixed Period
Payment is made in equal installments for a fixed number of years. We
guarantee each monthly payment will be at least the amount shown in the
following table. Values for annual, semi-annual or quarterly payments are
available on request.
TABLE FOR INCOME FOR A FIXED PERIOD
(Payments for Each $1,000 Applied)
<TABLE>
<CAPTION>
Fixed Period Monthly Fixed Period Monthly
of Years Income of Years Income
------------ ------- ------------ -------
<S> <C> <C> <C>
1 $84.47 16 $6.53
2 42.86 17 6.23
3 28.99 18 5.96
4 22.06 19 5.73
5 17.91 20 5.51
6 15.14 21 5.32
7 13.16 22 5.15
8 11.68 23 4.99
9 10.53 24 4.84
10 9.61 25 4.71
11 8.86 26 4.59
12 8.24 27 4.47
13 7.71 28 4.37
14 7.26 29 4.27
15 6.87 30 4.18
</TABLE>
Plan 2. Income For Life
Payment is made to the person named in equal monthly installments and
guaranteed for at least a period certain. The period certain can be 10 or 20
years. Other periods certain are available on request. A refund certain may be
chosen instead. Under this arrangement, income is guaranteed until payments
equal the amount applied. If the person named lives beyond the guaranteed
payments, payments continue until his or her death.
We guarantee each payment will be at least the amount shown in the following
table. By age we mean the named person's age on his or her birthday nearest
the plan's effective date. Amounts for ages not shown are available on
request.
VUS94
21
<PAGE> 22
The Income Plans
(Continued)
TABLES FOR INCOME FOR LIFE
(Monthly Payments for Each $1,000 Applied)
PAYMENTS TO A MALE
<TABLE>
<CAPTION>
Age 10 Years Certain 20 Years Certain Refund Certain
--- ---------------- ---------------- --------------
<S> <C> <C> <C>
0-10 $2.85 $2.84 $2.84
15 2.92 2.91 2.90
20 3.00 2.99 2.98
25 3.10 3.09 3.08
30 3.22 3.21 3.19
35 3.37 3.35 3.33
40 3.56 3.52 3.50
45 3.80 3.74 3.71
50 4.10 3.99 3.97
55 4.47 4.28 4.29
60 4.95 4.60 4.70
65 5.58 4.92 5.23
70 6.34 5.20 5.90
75 7.20 5.38 6.76
80 8.06 5.47 7.87
85 & over 8.77 5.50 -----
</TABLE>
PAYMENTS TO A FEMALE
<TABLE>
<CAPTION>
Age 10 Years Certain 20 Years Certain Refund Certain
--- ---------------- ---------------- --------------
<S> <C> <C> <C>
0-10 $2.78 $2.78 $2.77
15 2.83 2.83 2.83
20 2.90 2.90 2.89
25 2.98 2.98 2.97
30 3.08 3.07 3.07
35 3.20 3.19 3.18
40 3.35 3.34 3.32
45 3.54 3.52 3.50
50 3.78 3.73 3.71
55 4.09 4.00 3.99
60 4.49 4.32 4.34
65 5.01 4.67 4.79
70 5.70 5.02 5.38
75 6.57 5.29 6.16
80 7.56 5.44 7.21
85 & over 8.46 5.50 -----
</TABLE>
Plan 3. Interest Payment
Amounts can be left with us to earn interest at an annual rate of at least 3%.
Interest payments can be made annually, semi-annually, quarterly or monthly.
Plan 4. Income Of A Fixed Amount
Payments of an agreed fixed amount are made annually, semi-annually, quarterly
or monthly. The fixed amount per year must be at least $60 for each $1,000 of
the amount applied. The amount applied will earn interest at an annual rate of
at least 3%. Payments will continue until the amount applied and interest are
fully paid.
VUS94
22
<PAGE> 23
The Income Plans
(Continued)
Plan 5. Joint Life Income
This plan is available if there are two persons named to receive payments. At
least one of the persons named must be either the owner or beneficiary of this
policy. Monthly payments are made as long as at least one of the named persons
is living. We guarantee the payments will be at least the amount shown in the
following table while both named persons are alive. When one dies, we
guarantee to continue paying the other at least two-thirds of the amount
shown. By age we mean the named person's age on his or her birthday nearest
the plan's effective date. Amounts for two males, two females or for ages not
shown in the table below are available on request.
TABLE OF JOINT LIFE INCOME
(Monthly Payments for Each $1,000 Applied)
<TABLE>
<CAPTION>
FEMALE AGE
55 60 65 70 75
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
50 $3.65 $3.78 $3.88 $3.96 $4.02
55 3.77 3.94 4.10 4.23 4.34
MALE AGE 60 3.87 4.10 4.33 4.54 4.72
65 3.95 4.23 4.54 4.85 5.14
70 4.01 4.34 4.72 5.15 5.59
75 4.05 4.41 4.86 5.40 6.01
</TABLE>
Plan 6. Annuity Plan
An amount can be used to buy any single premium annuity we offer on the plan's
effective date. Annuities combine features of guaranteed income and payment
similar to plans 2 and 5.
Payments When Named
Person Dies
When the person named to receive payments dies, we will pay any amounts still
due. The amounts still due are determined as follows:
- For plans 1, 2 or 4, any remaining guaranteed payments will be
continued. Under plan 4, any unpaid proceeds with any accrued interest
may be paid in a single sum. Under plans 1 and 2, the discounted values
of the remaining guaranteed payments may be paid in a single sum. This
means we deduct the amount of the interest each remaining guaranteed
payment would have earned had it not been paid out early. The discount
interest rate is 3% for plan 1 and 3% for plan 2. But we will use
the interest rate we used to calculate the payment for plans 1 and 2,
if they were not based on the table in this policy.
- For plan 3, we'll pay the amount left with us and any accrued interest.
- For plan 5, no amounts are payable after both named persons have died.
- For plan 6, the annuity agreement will state the amount due, if any.
VUS94
23
<PAGE> 24
OTHER IMPORTANT INFORMATION
Benefits At The Insured's Attained Age 100
At the insured's attained age 100, the guarantee period, if any, ends. Cash
value will continue to increase or decrease depending on the investment
experience of the investment division(s) to which the policy's investment base
is allocated and the effect of policy debt, if any. No minimum cash value is
guaranteed. Upon the death of the insured, we will pay the beneficiary a death
benefit
The death benefit proceeds at and after the insured's attained age 100 ("post
100 death benefit proceeds") depend upon the death benefit option in effect on
the date of death.
If Option 1 is in effect, the post 100 death benefit proceeds are calculated
based on the cash value and the adjusted face amount where:
(1) The adjusted face amount equals the lesser of:
(a) the face amount at the insured's attained age 100, and
(b) the cash value as of the date of death plus the net amount at risk
at the insured's attained age 100.
(2) The net amount at risk at the insured's attained age 100 equals the
face amount at the insured's attained age 100 less the cash value at
that time.
(3) The death benefit equals the greater of:
(a) the cash value as of the date of death, and
(b) the adjusted face amount.
(4) We subtract from (3) any policy debt.
If Option 2 is in effect the post 100 death benefit proceeds are determined as
follows:
(1) The death benefit is the face amount at the insured's attained age
100, plus the cash value as of the date of death.
(2) We subtract from (1) any policy debt.
The death benefit may be paid in cash or under one or more income plans. See
Choosing An Income Plan.
At and after the insured's attained age 100, cost of insurance charges will no
longer be deducted. Loan repayments will be accepted. Net loan cost will
continue to be deducted, and loan interest charges will continue to accrue.
Any riders to the policy will terminate and are no longer available.
The following transactions will not be permitted at and after the insured's
attained age 100:
- Payment of additional premiums.
- Partial Withdrawals.
- Additional loans from the policy.
Limits On Our Contesting
This Policy
We rely on the statements made in the applications. Legally, they are
considered representations, not warranties. We can contest the validity of
this policy if any material misstatements are made in any applications. A
copy of any application will be attached to this policy.
We will not contest the validity of this policy after this policy has been in
effect during the insured's lifetime for two years from the issue date. We
will not contest any policy change that requires evidence of insurability, or
any reinstatement of this policy, after the change or reinstatement has been
in effect for two years during the lifetime of the insured.
VUS94
24
<PAGE> 25
Quarterly Report
We will send you a report four (4) times a policy year within 31 days after
the end of each policy quarter. The report will show the death benefit, cash
value, policy debt, any change in the policy's face amount, guarantee period
and additional insurance coverage provided by a rider as of the end of the
policy quarter. The report will also show the allocation of the total
investment base as of such date and the amounts deducted from or added to the
total investment base since the last quarterly report. The report will also
include any other information that may be currently required by the insurance
supervisory official of the jurisdiction in which this policy is issued.
Changing This Policy
This policy with any benefit riders may be changed to another plan of
insurance according to our rules at the time of the change.
Policy Changes -
Applicable Tax Law
For you to receive the tax treatment accorded to life insurance under federal
law, this policy must qualify initially and continue to qualify as life
insurance under the Internal Revenue Code of 1986, as amended, or successor
law. Therefore, to maintain this qualification to the maximum extent permitted
by law, we reserve in this policy the right to return any premium payments
that would cause this policy to fail to qualify as life insurance under
federal income tax law as interpreted by us. Further, we reserve the right to
make changes in this policy or its riders or to make distributions from this
policy to the extent we deem it necessary to continue to qualify this policy
as life insurance. Any such changes will apply uniformly to all policies that
are affected. You will be given advance written notice of such changes.
Error In Age Or Sex
If the age or sex for the insured as stated in the application is wrong, it
could mean the face amount or any other policy benefit is wrong. Therefore,
amounts payable under this policy or its riders will be what the premiums paid
would have bought for the guarantee period at the true age or sex.
Suicide
If the insured commits suicide within two years from the issue date or
reinstatement, while sane or insane, we will pay only a limited benefit and
then terminate this policy. The limited benefit will be the amount of the
premiums paid less any policy debt and partial withdrawals.
Claims Of Creditors
The proceeds of this policy will be free from creditors' claims to the extent
allowed by law.
Non-Participating
This policy does not participate in the divisible surplus of Merrill Lynch
Life Insurance Company ("Merrill Lynch Life").
Authority To Make Agreements
All agreements made by us must be signed by our president or a vice president
and by our secretary or an assistant secretary. No other person, including an
insurance agent or broker, can:
- Change any of this policy's terms;
- Extend the time for paying premiums; or
- Make any agreement binding on us.
Changes In Policy Cost
Factors
Changes in policy cost factors (expense charges, current cost of insurance
rates, loan charges) will be by class and based upon changes in future
expectations for such elements as: mortality, persistency, expenses and taxes.
The policy cost factors are determined prospectively. We will not recoup prior
losses by means of policy cost factor changes. Any change in policy cost
factors will be determined in accordance with procedures and standards on
file, if required, with the insurance supervisory official of the jurisdiction
in which this policy is issued.
VUS94
25
<PAGE> 26
Required Note On Our
Computations
Our computations of reserves and fixed base are based on the Commissioners
1980 Standard Ordinary Mortality Tables and annual interest at the rate shown
on the Policy Schedule. When making our computations, we assume that death
claims are paid immediately. Mortality and expense risks of Merrill Lynch Life
shall not adversely affect the dollar amount of insurance benefits or cash
values.
We have filed a detailed statement of our computations with the insurance
supervisor of the state or jurisdiction where this policy is issued. All
policy values equal or exceed those required by the law of that state or
jurisdiction. Any benefit provided by an attached rider will not increase
these values unless stated in that rider.
VUS94
26
<PAGE> 27
APPENDIX 1
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES
(Quarterly Rates per $1,000 of Net Amount at Risk)
<TABLE>
<CAPTION>
Policy Policy Policy Policy
Year Factor Year Factor Year Factor Year Factor
- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
1 $0.42295 26 $3.18520 51 $41.22151
2 0.44299 27 3.51568 52 45.42455
3 0.47055 28 3.89259 53 49.83813
4 0.50063 29 4.32384 54 54.38230
5 0.53572 30 4.81234 55 59.12649
6 0.57332 31 5.35339 56 64.14988
7 0.61846 32 5.93709 57 69.55698
8 0.66360 33 6,57156 58 75.55722
9 0.71628 34 7.25409 59 82.46033
10 0.76898 35 8.00258 60 91.57321
11 0.83173 36 8.84989 61 105.28688
12 0.89952 37 9.97119 62 129.02044
13 0,97236 38 10.93288 63 177.71697
14 1.05025 39 12.22466 64 307.63677
15 1.13823 40 13.68573 65 333.33333
16 1.23128 41 15.26525
17 1.34199 42 16.94414
18 1.47039 43 18.75768
19 1.61399 44 20.64011
20 1.78040 45 22.65747
21 1.96461 46 24.89273
22 2.16921 47 27.41004
23 2.38667 48 30.29207
24 2.62210 49 33.58917
25 2.88823 50 37.25464
</TABLE>
VUS94
27
<PAGE> 28
APPENDIX 2
CASH VALUE CORRIDOR FACTORS
<TABLE>
<CAPTION>
AGE OF PERCENTAGE OF CASH AGE OF PERCENTAGE OF CASH
INSURED VALUE INSURED VALUE
- ------- ------------------ ------- ------------------
<S> <C> <C> <C>
40 and under 250% 61 128%
41 243% 62 126%
42 236% 63 124%
43 229% 64 122%
44 222% 65 120%
45 215% 66 119%
46 209% 67 118%
47 203% 68 117%
48 197% 69 116%
49 191% 70 115%
50 185% 71 113%
51 178% 72 111%
52 171% 73 109%
53 164% 74 107%
54 157% 75 - 90 105%
55 150% 91 104%
56 146% 92 103%
57 142% 93 102%
58 138% 94 101%
59 134% 95 and over 100%
60 130%
</TABLE>
VUS94
28
<PAGE> 1
[LOGO] MERRILL LYNCH LIFE INSURANCE COMPANY Little Rock,
Arkansas
ADDITIONAL INSURANCE RIDER
Rider Schedule Insured No. 1: Richard Roe
Owner: Richard Roe
Issue Date: January 3, 1994
Policy Number: SPECIMEN
Rider Face Amount: $500,000.00
Insurance Benefits
This rider provides additional insurance coverage on the insured. It is
payable to the beneficiary at the death of the insured while the rider is in
effect. The rider face amount provided by this rider is shown on the above
rider schedule.
Changing The Rider Face Amount
The owner may elect to change the rider face amount prior to the insured's
attained age 86. The minimum change in the rider face amount is $100,000. One
(1) such change is permitted each year beginning in policy year 2. The
minimum additional insurance rider face amount is $100,000. To request a
change in rider face amount, you must provide satisfactory notice to us. The
effective date of change will be the policy anniversary date next following
approval of the change. As of the effective date of change, the guarantee
period will change. See How We Determine The Guarantee Period.
Increasing The Rider Face Amount
Beginning in policy year 2, you may increase the rider face amount.
Satisfactory evidence of insurability will be required before we will increase
the rider face amount.
Decreasing The Rider Face Amount
Beginning in policy year 2, you may decrease the rider face amount. We will
not allow a decrease in the rider face amount:
- If it would result in a rider face amount of less than $100,000;
- If the resulting guarantee period will extend beyond the insured's
attained age 100; or
- Below the amount required to keep the policy qualified as life
insurance under federal income tax laws as interpreted by us.
If the change will cause this policy to become a modified endowment contract
under federal income tax laws as interpreted by us, we will require your
consent.
How We Determine The Guarantee Period
When A Change In Rider Face Amount Is Requested
As of the effective date of change, we will redetermine the guarantee period
as follows:
(1) We take the fixed base described in the policy as of such date.
(2) Based on the policy year, the face amount of the policy, plus the
rider face amount, and the amount in (1), we will redetermine the
guarantee period.
AIVUS94
<PAGE> 2
How We Determine The
Guarantee Period (Continued)
Our computations are based on the annual interest rate shown on the Policy
Schedule and the guaranteed maximum cost of insurance rates shown in Appendix 1.
Cost of Rider
The cost of the rider is determined by dividing the rider face amount by $1000
and multiplying the result by the current cost of insurance rate per $1000
based on the policy year and sex and underwriting class of the insured. The
cost of the rider is deducted from the investment base until the insured's
attained age 100 as described in the policy. See Investment Base In Each
Investment Division in the policy.
Incontestability And Suicide
The incontestability and suicide provisions of the policy also apply to this
rider. We can contest the validity of any change in the rider face amount
requested by the owner if any material misstatements are made in any
application required for that change. We will not contest any change in the
rider face amount requested by the owner after the change has been in effect
during the insured's lifetime for two years from the effective date of such
change. If the insured commits suicide, while sane or insane, within two
years of the effective date of any increase in the rider face amount requested
by the owner, we will terminate the coverage attributable to such increase in
rider face amount and pay only a limited benefit. The limited benefit will be
the amount of cost of insurance deductions made for such increase.
When This Rider Will Terminate
This rider will terminate on the earlier of the date the policy terminates or
lapses or the insured's attained age 100.
General
This rider is a part of the policy. It has no cash or loan value. Its
benefit is subject to all the terms of this rider and the policy.
MERRILL LYNCH LIFE INSURANCE COMPANY
/s/ BARRY G. SKOLNICK /s/ ANTHONY J. VESPA
--------------------- --------------------
Secretary President
AIVUS94
<PAGE> 1
[LOGO] MERRILL LYNCH LIFE INSURANCE COMPANY Little Rock,
Arkansas
ENDORSEMENT
This endorsement adds or modifies certain provisions of the basic policy. It
controls over any contrary provisions of the policy.
The following definition has been amended to read as follows:
The Guarantee Period
The guarantee period is the period for which the policy face amount and any
additional insurance coverage provided by a rider are guaranteed to remain in
effect unless debt exceeds certain values.
The following definition is added:
Excess Sales Load
A portion of the sales load calculated during the first two policy years which
is in excess of the amount specified under applicable regulations in effect
under the Investment Company Act of 1940. After policy year two, this amount
is equal to zero.
Dates And Ages Referred
To In This Policy
The provision entitled Maturity Age is deleted.
How To Reinstate This Policy
The first sentence under this provision is amended to read
as follows:
If we have terminated this policy at the end of the grace period, you may
reinstate it prior to the insured's attained age 100 provided if:
Investment Base In Each
Investment Division
On Each Subsequent Business Day
The numbered provisions beginning with (6) are deleted
and replaced with the following:
(6) We subtract any amounts withdrawn from the investment division since
the end of the preceding valuation period.
(7) We add any amounts transferred to the investment division and subtract
any amounts transferred from the investment division since the end of
the preceding valuation period.
(8) If the business day is a policy processing date, we subtract from
(7) the following amounts allocated to that division for the next
policy processing period (sometimes referred to as quarterly charges):
(a) cost of insurance;
(b) any other fees we describe in this policy; and
(c) any rider charges deducted from the investment base.
Charges in (a), (b) and (c) above will not be deducted on or after the
insured's attained age 100. See Benefits At The Insured's Attained Age
100.
If a policy processing date is on a policy anniversary, we also
subtract:
(d) any net loan cost.
All amounts in (8) will be allocated to each division in the same
proportion as (3) bears to the total investment base.
(9) If the charges in (8) exceed the amount in (7), we will notify you
of the amount due.
VUS94END
1
<PAGE> 2
Partial Withdrawal
Requirements For Each Partial Withdrawal
The last sentence of the first bullet point under this provision is amended to
read as follows:
Withdrawals are permitted once each policy year, beginning in policy year 2
and prior to the insured's attained age 100.
The second bullet point is amended to read as follows:
- The amount of a partial withdrawal may not exceed the total loan
value as of the effective date of a partial withdrawal, less any
existing policy debt as of such date.
The following bullet points are added:
- In no event will a partial withdrawal be permitted if, after the
withdrawal, the guarantee period will extend beyond the insured's
attained age 100.
- The minimum face amount remaining after any partial withdrawal must
be at least $250,000.
- In no event will a partial withdrawal be permitted if, after the
withdrawal, the policy would not qualify as life insurance under
federal income tax laws as interpreted by us.
- If the partial withdrawal will cause the policy to become a modified
endowment contract under federal income tax laws as interpreted by
us, we will require your consent.
Policy Loans
The first paragraph and the Loan Value provision are deleted and replaced by
the following:
You may borrow money from us. The maximum amount you may borrow is the total
loan value less policy debt. The policy will be the only security we require
for the loan. A loan may be taken any time after the free look period has
ended and prior to the insured's attained age 100. You may repay all or part
of the loan at any time while the insured is living. If we have applied any
excess sales load to avoid termination of the policy, any loan repayment will
first be applied to repay such excess sales load.
Preferred Loans
Preferred loans are available beginning on the later of the tenth policy
anniversary or the insured's attained age 55.
Once preferred loans are available, any existing policy debt will then be
treated as a preferred loan up to the preferred loan value, See Loan Value.
Loan Value
The total loan value equals 90% of cash value. Once available, the preferred
loan value is calculated on each policy anniversary. The preferred loan value
for the policy year is equal to 12% of the difference between the cash value
and any existing policy debt as of the previous policy anniversary. This
amount is available annually and is applied first, to convert any existing
policy debt to preferred loan status; and then, is available for new loans.
The sum of all outstanding loan amounts plus the accrued interest is
called policy debt. The maximum amount that can be borrowed at any time is the
difference between the total loan value and the policy debt. The minimum
permissible amount of any loan and minimum repayment amount are each $1,000.
VUS94END
2
<PAGE> 3
Policy Loans (Continued)
Interest And Net Loan Cost
The fourth and fifth sentences of the first paragraph are amended to read as
follows:
On each policy anniversary, the investment base is increased by the interest
earned on the amount held in the general account and decreased by the interest
charged and unpaid on the policy debt. The difference between the interest
charged on the policy debt and the interest earned on the amount held in the
general account is called the net loan cost.
The third paragraph of this provision is amended to read as follows:
The maximum interest rate charged on loans is 6% per year. The amount held in
the general account for loans earns interest at a minimum rate of 4% annually.
The amount held in the general account for preferred loans earns interest at a
rate equal to the rate charged on preferred loans.
The last sentence of this provision is amended to read:
We may change the interest rates we currently charge on loans and the annual
rates of interest earned on the loan amount transferred to the general
account. Any such changes are set on the policy anniversary.
VUS94END
3
<PAGE> 4
The Guarantee Period
On The Policy Date
This provision is amended to read as follows:
The initial guarantee period and initial face amount on the policy date are
shown on the Policy Schedule. The guarantee period and face amount are not
affected by investment results nor the allocation of the total investment base
among the investment divisions. However, see Automatic Adjustment. The
guarantee period is the length of time that a comparable fixed life insurance
policy with the same face amount, payments made, guaranteed mortality table,
policy loading and guaranteed maximum rider costs would remain in force if
credited with the annual rate of interest shown on the Policy Schedule. In no
event will the guarantee period extend beyond the insured's attained age 100.
The guarantee period will change as described below as a result of any
additional premiums, partial withdrawals and any changes in the face amount
resulting from changes in rider coverage or changes in death benefit options.
The following provision is added:
At Attained Age 100
The guarantee period, if any, automatically ends at the insured's attained age
100. See Benefits At The Insured's Attained Age 100.
When An Additional Premium Is Paid
(3) is amended to read as follows:
(3) If the guarantee period prior to payment of the additional premium does
not extend to the insured's attained age 100, the guarantee adjustment
amount is added to the fixed base and the new fixed base will be used
to calculate a new guarantee period. Any excess amount of additional
premium beyond that necessary to extend the guarantee period to the
insured's attained age 100 will be returned to you.
The following provision is added:
When A Change In Face Amount Results From A Change In Death Benefit Option
As of the effective date of change, we will redetermine the
guarantee period as follows:
(1) We take the fixed base described in the policy as of such date.
(2) Based on the policy year, the face amount of the policy, plus any
additional insurance coverage provided by a rider, and the amount
in (1), we will redetermine the guarantee period.
Our computations are based on an annual interest rate of 5% and the
guaranteed maximum cost of insurance rates shown in Appendix 1.
Automatic Adjustment
This provision is amended to read as folows:
On any policy anniversary, if the cash value is greater than the fixed
base necessary to cause the guarantee period to extend to the insured's
attained age 100, the guarantee period will be extended to the insured's
attained age 100.
VUS94END
4
<PAGE> 5
Proceeds Payable To The
Beneficiary
Changing The Death Benefit Option
The first paragraph of this provision is amended to read as follows:
On each policy anniversary beginning with the first and prior to the insured's
attained age 86, you may change the death benefit option. We will change the
policy face amount in order to keep your death benefit constant as of the
effective date of the change. The effective date of change will be the policy
anniversary date next following approval of the change. See The Guarantee
Period.
The second paragraph of this provision is amended to read as follows:
If the death benefit option is changed from Option 1 to Option 2, satisfactory
evidence of insurability will be required. A change in the death benefit
option will not be permitted if it would result in a face amount of less than
$100,000 of if the resulting guarantee period extends beyond the insured's
attained age 100. In no event will a change be permitted if, after the change,
the policy would not qualify as life insurance under federal income tax laws
as interpreted by us. If the change will cause the policy to become a modified
endowment contract under federal income tax laws as interpreted by us, we will
require your consent.
The following provision is added to the OTHER IMPORTANT INFORMATION provision:
Benefits At The Insured's
Attained Age 100
At the insured's attained age 100, the guarantee period, if any, ends. Cash
value will continue to increase or decrease depending on the investment
experience of the investment division(s) to which the policy's investment base
is allocated and the effect of policy debt, if any. No minimum cash value is
guaranteed. Upon the death of the insured, we will pay the beneficiary a death
benefit.
The death benefit proceeds at and after the insured's attained age 100 ("post
100 death benefit proceeds") depend upon the death benefit option in effect on
the date of death.
If Option 1 is in effect, the post 100 death benefit proceeds are calculated
based on the cash value and the adjusted face amount where:
(1) The adjusted face amount equals the lesser of:
(a) the face amount at the insured's attained age 100, and
(b) the cash value as of the date of death plus the net amount at the
risk at the insured's attained age 100.
(2) The net amount at risk at the insured's attained age 100 equals the
face amount at the insured's attained age 100 less the cash value at
that time.
(3) The death benefit equals the greater of:
(a) the cash value as of the date of death, and
(b) the adjusted face amount.
(4) We subtract from (3) any policy debt.
If Option 2 is in effect the post 100 death benefit proceeds are determined as
follows:
(1) The death benefit is the face amount at the insured's attained age
100, plus the cash value as of the date of death.
(2) We subtract from (1) any policy debt.
VUS94END
5
<PAGE> 6
Benefits At The Insured's
Attained Age 100
(Continued)
The death benefit may be paid in cash or under one or more income plans. See
Choosing An Income Plan.
At and after the insured's attained age 100, cost of insurance charges will no
longer be deducted. Loan repayments will be accepted. Net loan cost will
continue to be deducted, and loan interest charges will continue to accrue.
Any riders to the policy will terminate and are no longer available.
The following transactions are not permitted at and after the insured's
attained age 100:
- Payment of additional premiums.
- Partial withdrawals.
- Additional loans from the policy.
Quarterly Report
The second sentence of this provision is amended to read as follows:
The report will show the death benefit, cash value, policy debt, any change in
the policy's face amount, guarantee period and additional insurance coverage
provided by a rider as of the end of the policy quarter.
MERRILL LYNCH LIFE INSURANCE COMPANY
/s/ BARRY G. SKOLNICK /s/ ANTHONY J. VESPA
--------------------- --------------------
Secretary President
VUS94END
6
<PAGE> 1
Description of Merrill Lynch Life Insurance Company's
Issuance, Transfer and Redemption Procedures
for Contracts Pursuant to
Rule 6e-3(T)(b)(12)(iii)
This document sets forth the administrative procedures that will be followed by
Merrill Lynch Life Insurance Company ("Merrill Lynch Life") in connection with
the issuance of certain of its flexible premium variable universal life
insurance contracts ("Contracts") issued through Merrill Lynch Variable Life
Separate Account ("Separate Account"), the transfer of assets held under the
Contracts, and the redemption by owners of their interests in said Contracts.
Procedures Relating to Issuance and Purchase of the Contracts
A. Term Cost Structure, Payments and Underwriting Standards
The term cost charges for Merrill Lynch Life's Contract will not be the
same for all contract owners. Insurance is based on the principle of pooling
and distribution of mortality risks which assumes that each owner is charged a
cost of insurance commensurate with the insured's mortality risk as actuarially
determined, reflecting factors such as age, sex, health, and occupation. A
uniform term cost for all insureds would discriminate unfairly in favor of those
insureds representing greater risks. Although there will be no uniform term
costs for all insureds, for a given face amount and guarantee period there will
be a uniform term cost
<PAGE> 2
schedule for all insureds of the same issue age, sex and underwriting
classification. Similarly, the face amount that a contract owner can purchase
with an initial payment will also vary to reflect factors similar to those that
affect term cost charges.
The Contract is a variable universal life insurance contract providing
coverage on an insured named under the Contract and payable upon the death of
the insured. The Contract offers two death benefit options. At the election
of the owner, the death benefit may include the Contract's cash value. Contract
owners may purchase additional insurance through an additional insurance rider,
the amount of which may be increased or decreased subject to certain
conditions.
The Contract provides for life insurance coverage which is guaranteed
to remain in force for the "guarantee period." Each payment will extend the
guarantee period until such time as the guarantee period extends until the
insured's attained age 100. The Contract will not be cancelled during the
guarantee period unless the debt exceeds certain contract values. After the
guarantee period, the Contract will remain in force as long as there is not
excessive debt and as long as the Contract's cash value is sufficient to
cover the charges due.
The owner may select the face amount, within limits. These limits are
based in part on the initial payment. The minimum initial face amount is
$250,000 or that face which generates a $4,000 base premium, if larger. The
base premium is the amount
2
<PAGE> 3
equal to the level annual premium which would be necessary for the face
amount of the Contract to endow at the insured's age 100, assuming a maximum
cost of insurance charge and a 5% annual rate of return on the base premium
less contract loading, and further assuming death benefit option 1 is elected.
The maximum face amount that may be specified for a given initial
payment is the amount which will provide an initial guarantee period of at
least three months. For a given initial payment and face amount, the guarantee
period is based on the guaranteed maximum cost of insurance rates in the
Contract, guaranteed maximum rider costs (if an additional insurance rider is
elected), the contract loading, and a 4.5% interest assumption. Thus, for a
given initial payment and face amount, different insureds will have different
guarantee periods depending on their age, sex and underwriting class.
The Contract will be offered and sold pursuant to an established
mortality structure and underwriting standards in accordance with state
insurance laws. Where state insurance laws prohibit the use of actuarial
tables that distinguish between men and women in determining premiums and
contract benefits for their insured residents, Merrill Lynch Life will comply.
In addition, the payment to be made by an owner will be specified in the
Contract.
B. Application and Payment Processing.
When a completed application is received, Merrill Lynch Life
3
<PAGE> 4
will follow certain insurance underwriting (i.e., evaluation of risks)
procedures designed to determine whether the proposed insured is insurable.
This process may require that further information be provided by the proposed
insured before a determination can be made. Once underwriting approval is
received and a payment has been made, a Contract is issued.
The date on which a Contract is issued is referred to as the issue
date. The issue date represents the commencement of the suicide and
contestable periods for purposes of the Contract. The initial payment will be
credited to the Separate Account and the investment base will begin to vary
with investment experience on the business day next following receipt of the
initial payment at Merrill Lynch Life's Variable Life Service Center (the
"Service Center"), which is generally the contract date. Merrill Lynch Life
may, however, provide temporary life insurance coverage, the death benefit of
which shall not exceed $300,000, until coverage begins under the Contract,
provided the payment has been made.
The contract date is the date used to determine processing dates,
contract years and anniversaries. Processing dates are the contract date and
the first day of each contract quarter thereafter. Processing dates are the
days when Merrill Lynch Life deducts certain charges from a Contract's
investment base. As provided for under state insurance law, the owner, to
preserve insurance age, may be permitted to backdate the Contract. In no case
may the contract date be more than six months prior to the
4
<PAGE> 5
date the application was executed. Charges for cost of insurance and rider
costs for the backdated period are deducted on the contract date.
The inforce date is the date when the underwriting is complete, the
initial payment is received and outstanding contract amendments, if any are
received.
If an age or sex given in the application is wrong, the face amount or
any other Contract benefit may also be wrong. Merrill Lynch Life will pay the
benefit that any payment would have bought at the correct age or sex.
C. Allocation of Investment Base
The investment base is the amount available under the Contract in the
Separate Account at any time. A contract owner's investment base is the sum of
the amounts invested in each of the selected investment divisions.
Through the first 14 days following the in force date, the initial
payment less contract loading will be invested only in the division investing
in the Money Reserve Portfolio. Thereafter, the investment base will be
reallocated to the investment divisions selected by the contract owner on the
application for the Contract.
5
<PAGE> 6
D. Additional Payments.
An owner may make additional payments subject to Merrill Lynch Life's
rules. On the date Merrill Lynch Life receives and accepts an additional
payment, it will (1) increase the investment base by the amount of such payment
less contract loading applicable to the payment; (2) increase the fixed base by
the amount of such payment less contract loading applicable to the payment; and
(3) reflect the payment in the calculation of the variable insurance amount.
An owner may designate the investment divisions to which the additional payment
should be allocated. Otherwise the payment will be allocated in proportion to
the investment base in each division as of the date Merrill Lynch Life receives
and accepts the payment. As of the processing date on or next following the
date Merrill Lynch Life receives and accepts the additional payment, Merrill
Lynch Life will increase the guarantee period if the guarantee period prior to
the receipt and acceptance of an additional payment does not extend beyond the
insured's attained age 100. Any amount in excess of that required to extend
the guarantee period until the insured's attained age 100 and any portion of
any additional payment that would cause the Contract to fail to qualify as
life insurance under federal tax law will be returned to the contract
owner. If acceptance of any portion of the payment would cause a Contract
which is not a modified endowment contract to become a modified endowment
contract, to the extent feasible, Merrill Lynch Life will not accept that
portion of the payment unless the contract owner confirms in writing his
or her intent to convert the Contract to a modified endowment contract.
Merrill
6
<PAGE> 7
Lynch Life may return that portion of the payment pending receipt of
instructions from the contract owner.
If any excess sales load has been applied to keep the Contract
in force, any additional payment will first be applied to repay such excess
sales load. Next, unless specified otherwise, if there is any debt, any
payment less contract loading will be applied as a loan repayment, with any
excess applied as an additional payment.
E. Grace Period
After the end of the guarantee period, a Contract may be cancelled by
Merrill Lynch Life if the cash value plus certain excess sales load on a
processing date is insufficient to cover charges due on that date. The
Contract, however, provides for a 61-day grace period. The grace period will
end 61 days after Merrill Lynch Life mails a notice to the owner stating that
the Contract will be terminated.
The Contract will lapse at the end of the grace period unless Merrill
Lynch Life has received payment of an amount which, after deducting contract
loading, equals at least three times the charges that were due (and not
deducted) on the processing date when the cash value was determined to be
insufficient plus any excess sales load previously applied to keep the contract
in force. At that time, Merrill Lynch Life will deduct any charges applicable
to the grace period. The amount due at the beginning of the grace period
will be shown on the notice sent to the owner.
During the grace period the death benefit proceeds will equal the
death benefit in effect immediately prior to the grace period, reduced by any
overdue charges.
F. Reinstatement
A Contract that is cancelled by Merrill Lynch Life may be reinstated
prior to the insured's attained age 100 and while the insured is still living.
The Contract will be
7
<PAGE> 8
reinstated if, within three years after the end of the grace period, Merrill
Lynch Life receives from the Contract's owner (a) an application to reinstate
the Contract; (b) satisfactory evidence of insurability; and (c) a
reinstatement payment. The reinstatement payment is the minimum payment for
which Merrill Lynch Life would then issue a contract for the minimum guarantee
period with the same face amount as the original Contract, based on the
insured's attained age and underwriting class as of the effective date of the
reinstated Contract.
The reinstated Contract will be effective on the processing date on or
next following the date Merrill Lynch Life approves the reinstatement
application.
G. Repayment of Loan
A loan or any part of a loan under a Contract may be repaid while the
insured is living and the Contract is in force. Upon repayment of a loan, a
transfer will be made from Merrill Lynch Life's general account to the Separate
Account in an amount equal to the amount repaid. An owner may designate the
investment division to which the repayment will be made. Otherwise the
repayment will be allocated in proportion to the investment base in each
division as of the date of the repayment. If any excess sales load has been
used to keep the Contract in force, any loan repayment will first be applied
to repay such excess sales load.
H. Additional Insurance Rider
The contract owner may purchase additional insurance coverage through
an additional insurance rider when the Contract is purchased. Thereafter, the
rider can be added as long as an
8
<PAGE> 9
application is completed, satisfactory evidence of insurability is provided,
and the insured has not attained the age of 86. The effective date of
the change will be the contract anniversary next following underwriting
approval of the change. The minimum additional insurance rider face amount is
$100,000. A cost of insurance charge for the rider ("rider charge") will be
deducted from the Contract's investment base on each processing date. The
rider charge will be based on the same cost of insurance rates as the Contract.
Beginning in contract year 2, the additional insurance rider face
amount may be increased (subject to evidence of insurability) or decreased once
each year; however, any change in the additional insurance rider face amount
must be at least $100,000. Under Merrill Lynch Life's current procedures, the
maximum additional insurance rider face amount at the time the Contract is
purchased is three times the face amount of the Contract. The effective date
of the change will be the contract anniversary next following underwriting
approval of the change. As of the effective date of the increase or decrease,
Merrill Lynch Life uses the existing fixed base and the face amount of the
Contract plus the new additional insurance rider face amount to calculate a
new guarantee period.
Any additional insurance rider coverage terminates on the earlier of
the date the Contract terminates or lapses or at the insured's attained age
100.
9
<PAGE> 10
II. Transfers Among Investment Divisions
The Separate Account currently has 35 investment divisions, ten of
which invest in corresponding portfolios of the Merrill Lynch Series Fund, Inc.
("Series Fund"), six invest in shares of a specific portfolio of Merrill
Lynch Variable Series Funds, Inc. (the "Variable Series Funds") and 19 of
which invest in The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities ("Zero Trusts"). The Series Fund and the Variable Series Funds are
each registered under the Investment Company Act of 1940 as an
open-end, investment company. The Zero Trusts are registered under the
Investment Company Act of 1940 as unit investment trusts. Currently the owner
may transfer among the investment divisions as often as he or she chooses.
Merrill Lynch Life reserves the right to charge up to $25.00 for each change in
excess of six each year.
III. Redemption Procedures: Surrender and Related Transactions
A. Surrender for Net Cash Surrender Value
An owner of a Contract may surrender the Contract for its net
cash surrender value at any time while the insured is living. The surrender is
effective on the date the owner transmits the written request in a form
satisfactory to Merrill Lynch Life. Merrill Lynch Life will pay the net cash
surrender value based on the next computed value after the request is received
at the Service Center in a form satisfactory to Merrill Lynch Life.
10
<PAGE> 11
The net cash surrender value will usually be paid within seven days after
receipt of the request for surrender at Merrill Lynch Life's Service Center.
The net cash surrender value equals the cash value less debt. The
cash value equals the investment base plus any unearned charges for cost of
insurance and rider costs plus any debt less any accrued net loan cost since
the last contract anniversary (or since the contract date during the first
contract year).
Merrill Lynch Life will make the payment of the net cash surrender
value out of its general account and, at the same time, transfer assets from
the Separate Account to its general account in an amount equal to the
investment base (applicable to the Contract) held in the Separate Account.
In lieu of receiving the net cash surrender value in a single sum upon
surrender of a Contract, the owner may elect to apply the net cash surrender
value to one or more of the Income Plans described in the Contract. The Income
Plans are subject to the restrictions and limitations set forth in the
Contract.
If the Contract is surrendered during the first 24 months after the
issue date, any sales load previously deducted from the first two base premiums
in excess of 30% of the first base premium and 10% of the second base premium
will be refunded, except any excess sales load previously applied to keep the
contract in force.
11
<PAGE> 12
B. Death Claims
Merrill Lynch Life will usually pay the death benefit proceeds to the
beneficiary within seven days after receipt at its Service Center of due proof
of death of the insured and all other requirements necessary to make payment.
The death benefit payable depends on the death benefit option in
effect on the date of death. Under option 1, the death benefit prior to the
insured's attained age 100 is equal to the larger of the face amount and the
variable insurance amount. Under option 2, the death benefit prior to the
insured's attained age 100 is equal to the larger of the face amount plus the
cash value and the variable insurance amount. Under option 1, at and after
the insured's attained age 100, the death benefit equals the greater of the
cash value as of the date of death and the adjusted face amount where the
adjusted face amount equals the lesser of (1) the face amount at the insured's
attained age 100, and (2) the cash value as of the date of death plus the net
amount at risk at the insured's attained age 100. The net amount at risk at the
insured's attained age 100 equals the face amount at the insured's attained 100
less the cash value at that time. Under option 2, at and after the insured's
attained age 100, the death benefit is equal to the face amount at the insured's
attained age 100 plus the cash value as of the date of death. Subject to
certain conditions, contract owners may change the death benefit option. To
determine the death benefit proceeds, Merrill Lynch Life will subtract from
the death benefit any debt and add to the death benefit any rider benefits
payable.
Where required by law, the amount payable also reflects interest from the date
of death to the date of payment.
Merrill Lynch Life will determine the variable insurance amount daily
to take into account the investment experience of the designated investment
divisions. The variable insurance amount is determined by calculating the cash
value (plus any excess sales load during the first 24 months after the Contract
is issued) and multiplying it by the cash value corridor factor for the insured
at his or her attained age.
12
<PAGE> 13
The death benefit will never be less than the amount required to keep the
Contract qualified as life insurance under Federal income tax laws.
Merrill Lynch Life will make payment of the death benefit proceeds out
of its general account and, at the same time, will transfer the investment base
(applicable to the Contract) out of the Separate Account to the general
account. In lieu of payment of the death benefit in a single sum, one or more
Income Plans may be elected as described in the Contract.
C. Contract Loan
The owner may borrow an amount equal to the difference between the
loan value and debt. The loan value of the Contract equals 90% of a
Contract's cash value. Preferred loans are available beginning on the later of
the tenth contract anniversary or the insured's attained age 55. Once
available, the preferred loan value is calculated on each contract anniversary.
The preferred loan value for the contract year is equal to 12% of the cash
value less existing debt. This amount is available each contract year and
is applied first to convert any existing debt to preferred loan status and
then is available for new loans. Payment of the loan from Merrill
Lynch Life's general account will usually be made to the owner within seven
days of receipt of the request. Interest accrues daily at a maximum effective
rate of 6.0% annually. The smallest loan will be for $1,000. When a loan is
taken out, a portion of the investment base equal to the loan is transferred
from the Separate Account to Merrill Lynch Life's general account. Unless
designated otherwise by the owner, a loan will be allocated among the
investment divisions of the Separate Account based upon the investment base in
each division as of the date the loan is made. The amount maintained in the
general account will not be credited with the return earned by the Separate
Account during the period the loan is outstanding. Instead, interest will be
credited daily
13
<PAGE> 14
at a minimum effective rate of 4% annually. The amount maintained in the
general account for preferred loans will earn interest at an annual rate equal
to the annual loan interest charged on such amount. Therefore, taking a loan
will have a permanent effect on a Contract's cash value and may have a
permanent effect on the death benefit whether or not repaid in whole or in part.
If on a processing date the debt exceeds the larger of (1) the cash
value plus certain excess sales load and less charges due on that date and
(2) the fixed base, Merrill Lynch Life will cancel the Contract 61 days after
a notice of intent to terminate the Contract is mailed to the owner unless
Merrill Lynch Life has received at least the minimum repayment amount specified
in the notice. During the first 24 months after the Contract is issued,
Merrill Lynch Life will add any excess sales load to the cash value so as to
continue the Contract in effect if debt exceeds the larger of the cash value
less charges due and the fixed base.
D. Partial Withdrawals
After the first contract year, an owner may take partial withdrawals
of payments made under the Contract by submitting a request in a form
satisfactory to Merrill Lynch Life. The withdrawal is effective on the
date the Service Center receives the request. One partial withdrawal may be
taken each contract year. The amount of any partial withdrawal may not exceed
the loan value as of the effective date of the partial withdrawal less any
debt. The minimum amount for each partial withdrawal is $1,000.
As of the processing date on or next following the effective date of
the partial withdrawal, the period for which guaranteed coverage is provided
will be reduced. The period will be
14
<PAGE> 15
redetermined by taking the immediate decrease in cash value resulting from the
partial withdrawal and adding to that amount interest at an annual rate of 4.5%
for the period from the date of the withdrawal to the contract processing date
on or next following such date. This is the guarantee adjustment amount. The
guarantee adjustment amount is subtracted from the fixed base and the resulting
new fixed base is used to calculate a new guarantee period.
The fixed base is equal to the cash value on the contract date.
Thereafter, it is calculated in the same manner as the cash value except that
the calculation substitutes 4.5% for the net rate of return, the guaranteed
maximum cost of insurance rates and guaranteed maximum rider costs are
substituted for the current rates and it is calculated as though there had been
no loans or repayments.
The fixed base is used to make certain computations under the Contract and is
equivalent to the cash value for a comparable fixed benefit contract with the
same face amount and guarantee period.
E. Converting the Contract
An owner may convert the Contract for a contract with benefits that do
not vary with the investment results of a separate account provided Merrill
Lynch Life receives the owner's request to convert the Contract within 24
months of the issue date of the original Contract. The conversion will be
accomplished by adding an endorsement to the Contract and transferring, without
charge, the
15
<PAGE> 16
investment base in the Separate Account to the guaranteed interest division,
where assets are held in Merrill Lynch Life's general account. The investment
base at the time of conversion and any additional payments will remain in the
guaranteed interest division and be credited with interest at a rate declared
by Merrill Lynch Life.
F. Accelerated Benefit Rider
The Accelerated Benefit Rider (ABR) permits the contract owner to
receive accelerated payment of part of the Contract's death benefit, adjusted to
reflect current value, if the insured develops a terminal illness. The
accelerated benefit amount cannot exceed the lesser of 75% of the "eligible
amount" or $250,000. The payment amount is the requested amount less a 12-month
discount rate, partial repayment of any debt and less an administrative expense
charge not to exceed $250.
Upon payment of the accelerated benefit, Merrill Lynch Life will
reduce the full amount of the Contract by the amount of the payment. The cash
value will be reduced and will equal the original cash value multiplied by the
death benefit after payment, divided by the death benefit before payment. The
investment base, fixed base and variable insurance amount will each be reduced
as a result of the decrease in death benefit and cash value. The guarantee
period will also be recalculated.
16
<PAGE> 1
[MERRILL LYNCH LOGO]
December 6, 1994
Board of Directors
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
To The Board of Directors:
In my capacity as General Counsel of Merrill Lynch Life Insurance Company (the
"Company"), I have supervised the establishment of the Merrill Lynch Variable
Life Separate Account (the "Account") by the Board of Directors of the Company
as a separate account for assets applicable to certain flexible premium
variable life insurance contracts (the "Contracts") issued by the Company
pursuant to the provisions of Section 23-81-402 of the Insurance Laws of the
State of Arkansas. Moreover, I have supervised the preparation of
Post-effective Amendment No. 4 to the Registration Statement on Form S-6 (the
"Registration Statement") (File No. 33-55678) filed by the Company and the
Account with Securities and Exchange Commission under the Securities Act of
1933 for the registration of the Contracts to be issued with respect to the
Account.
I have made such examination of the law and examined such corporate records and
such other documents as in my judgment are necessary and appropriate to enable
me to render the following opinion that:
1. The Company has been duly organized under the laws of the State of
Arkansas and is a validly existing corporation.
2. The Account is duly created and validly existing as a separate account
pursuant to the aforesaid provisions of Arkansas law.
3. The assets in the Account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business the Company may conduct.
4. The Contracts have been duly authorized by the Company and constitute
legal, validly issued and binding obligations of the Company in
accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Barry G. Skolnick
Barry G. Skolnick
Senior Vice President and General Counsel
<PAGE> 1
[MERRILL LYNCH LOGO]
December 6, 1994
Board of Directors
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Re: Merrill Lynch Variable Life Separate Account
To The Board of Directors:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 4 to the Registration Statement on Form S-6 (File No. 33-55678)
which covers premiums received under certain flexible premium variable life
insurance contracts ("Contracts" or "Contract") issued by Merrill Lynch Life
Insurance Company (the "Company").
The Prospectus included in the Registration Statement describes Contracts which
are issued by the Company. The Contract forms were reviewed under my
direction, and I am familiar with the Registration Statement and exhibits
thereto. In my opinion:
1. The "sales load," as defined in paragraph (c)(4) of Rule 6(e)-3(T) under
the Investment Company Act of 1940, will not exceed 9% of the sum of the
guideline annual premiums that would be paid during the period equal to the
lesser of 20 years or the anticipated life expectancy of the named insured
based on the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality
Table (or the 1980 Commissioners Standard Ordinary Aggregate Mortality Table for
ages 0-19). The sales load on payments made in excess of such sum will not
exceed 9%. Sales load in excess of (1) 30% of payments made which are less
than or equal to one guideline annual premium; plus (2) 10% of payments greater
than one but no greater than two guideline annual premiums; plus (3) 9% of
payments in excess of two guideline annual premiums, will be refunded if the
Contract is; surrendered or lapses during the first 24 months after issue
except to the extent that it has been previously applied to keep the Contract
in force; added to the cash value so as to keep the Contract in force if debt
exceeds the larger of (i) cash value plus any excess sales load not previously
applied to keep the Contract in force, and (ii) the fixed base during the first
24 months after issue: and added to the cash value in determining the variable
insurance amount during the first 24 months after issue.
2. The illustrations of death benefits, investment base, net cash surrender
values, and cash values and accumulated premiums included in the Registration
Statement for the Contract and based on the assumptions stated in the
illustrations, are consistent with the provisions of the Contract. The rate
structure of the Contract has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a prospective purchaser of a Contract for the ages and sexes
shown, than to prospective purchasers of a Contract for other ages and sex.
<PAGE> 2
3. The table of illustrative cash value corridor factors included in the
"Death Benefit Proceeds" section is consistent with the provisions of the
Contract.
4. The information with respect to the Contract contained in (i) the
illustrations of the increase in guarantee period included in the "Additional
Payments" section of the Examples, (ii) the illustrations of a decrease in
guarantee period included in the "Partial Withdrawals" section of the Examples
and (iii) the illustrations of the changes in face amount included in the
"Changing the Death Benefit Option" section of the Examples, based on the
assumptions specified, are consistent with the provisions of the Contract.
5. The charge for federal taxes that is imposed under the Contracts is
reasonable in relation to the Company's increased tax burden under Section 848
of the Internal Revenue Code of 1986, as amended, resulting from the Company's
receipt of such premiums. The cost to the Company of capital used to satisfy
its increased federal tax burden under Section 848 is, in essence, the
Company's targeted rate of return. The targeted rate of return that is used in
calculating the level of such charge is reasonable, and the factors taken into
account by the Company in determining such targeted rate of return are the
appropriate factors to consider in determining such targeted rate of return.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of my name relating to actuarial matters under the
heading "Experts" in the Prospectus.
Very truly yours,
/s/ Joseph E. Crowne
Joseph E. Crowne, FSA
Senior Vice President &
Chief Financial Officer
<PAGE> 1
(LETTERHEAD)
CONSENT OF SUTHERLAND, ASBILL & BRENNAN
We consent to the reference to our firm under the heading "Legal
Matters" in the prospectus included in Post-Effective Amendment No. 4 to the
Registration Statement on Form S-6 for certain variable life insurance
contracts issued through Merrill Lynch Variable Life Separate Account of
Merrill Lynch Life Insurance Company (File No. 33-55678). In giving this
consent, we do not admit that we are in the category of persons whose consent
is required under Section 7 of the Securities Act of 1933.
/s/ SUTHERLAND, ASBILL & BRENNAN
----------------------------
Sutherland, Asbill & Brennan
Washington, D.C.
December 5, 1994
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 4 to Registration
Statement No. 33-55678 of Merrill Lynch Variable Life Separate Account on Form
S-6 of our reports on (i) Merrill Lynch Life Insurance Company dated February
28, 1994, and (ii) Merrill Lynch Variable Life Separate Account dated February
16, 1994, appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
New York, New York
December 2, 1994
