<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1994
REGISTRATION NO. 33-55472
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 2
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) of Rule 486
/ / on pursuant to paragraph (b) of Rule 486
/ / 60 days after filing pursuant to paragraph (a) of Rule 486
/X/ on May 1, 1994 pursuant to paragraph (a) of Rule 486
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 IS PROSPECTUS
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1 Cover Page
</TABLE>
<TABLE>
<S> <C>
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 Trust 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 or
Convert); 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
(Using the Contract; Some Administrative Procedures)
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IS 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 Note 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 IS 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 JOINT AND LAST SURVIVOR 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 joint and last survivor variable
universal life insurance contract (the "Contract") offered by Merrill Lynch Life
Insurance Company ("Merrill Lynch Life"), a subsidiary of Merrill Lynch & Co.,
Inc.
During the "free look" period, the initial payment less contract loading will be
invested only in the division investing in the Money Reserve Portfolio. After
the "free look" period, the contract owner may invest in up to any five of the
36 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 20 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
lives of two insureds with proceeds payable upon the death of the last surviving
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 is established for the whole of life of
the younger insured. 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 never be less
than the current face amount.
The Contract allows for additional payments. Contract owners may also borrow up
to the 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 doesn't 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(TM) Insurance Service............................................................ 5
The Investment Divisions............................................................. 5
How the Death Benefit Varies......................................................... 6
How the Investment Base Varies....................................................... 6
Net Cash Surrender Value............................................................. 6
Illustrations........................................................................ 6
Replacement of Existing Coverage..................................................... 6
Rights to Cancel ("Free Look" Period) or Convert..................................... 6
How Death Benefit and Cash Value Increases are Taxed................................. 7
Loans................................................................................ 7
Partial Withdrawals.................................................................. 7
Fees and Charges..................................................................... 7
</TABLE>
<TABLE>
<S> <C>
FACTS ABOUT THE SEPARATE ACCOUNT, THE SERIES FUND, THE VARIABLE SERIES FUNDS, THE ZERO
TRUSTS AND MERRILL LYNCH LIFE
The Separate Account................................................................. 8
The Series Fund...................................................................... 8
The Variable Series Funds............................................................ 9
Exemptive Relief..................................................................... 10
The Zero Trusts...................................................................... 10
Merrill Lynch Life and MLPF&S........................................................ 11
FACTS ABOUT THE CONTRACT
Who May be Covered................................................................... 11
Purchasing a Contract................................................................ 11
Additional Insurance Rider........................................................... 12
Additional Payments.................................................................. 13
Effect of Additional Payments........................................................ 13
Investment Base...................................................................... 14
Charges Deducted from the Investment Base............................................ 14
Contract Loading..................................................................... 15
Charges to the Separate Account...................................................... 16
Guarantee Period..................................................................... 16
Cash Value........................................................................... 17
Loans................................................................................ 17
Partial Withdrawals.................................................................. 18
Death Benefit Proceeds............................................................... 19
Payment of Death Benefit Proceeds.................................................... 20
Rights to Cancel or Convert.......................................................... 21
Reports to Contract Owners........................................................... 21
MORE ABOUT THE CONTRACT
Using the Contract................................................................... 22
Some Administrative Procedures....................................................... 23
Other Contract Provisions............................................................ 24
Income Plans......................................................................... 25
Group or Sponsored Arrangements...................................................... 25
Unisex Legal Considerations for Employers............................................ 26
Selling the Contracts................................................................ 26
Tax Considerations................................................................... 26
Merrill Lynch Life's Income Taxes.................................................... 29
Reinsurance.......................................................................... 30
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account........................................................... 30
Changes Within the Account........................................................... 30
Net Rate of Return for an Investment Division........................................ 30
The Series Fund and the Variable Series Funds........................................ 31
Charges to Series Fund Assets........................................................ 32
Charges to Variable Series Funds Assets.............................................. 33
The Zero Trusts...................................................................... 33
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Net Cash Surrender Values and
Accumulated Payments.............................................................. 34
EXAMPLES
Additional Payments.................................................................. 40
Partial Withdrawals.................................................................. 41
Changing the Death Benefit Option.................................................... 42
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
Directors and Executive Officers..................................................... 43
Services Arrangement................................................................. 44
State Regulation..................................................................... 45
Legal Proceedings.................................................................... 45
Experts.............................................................................. 45
Legal Matters........................................................................ 45
Registration Statements.............................................................. 45
Financial Statements................................................................. 46
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.
attained age: is, for each insured, 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 necessary for the
face amount of the Contract to endow at the younger 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: 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.
death benefit proceeds: are equal to the death benefit plus any rider amounts
less any debt.
debt: is the sum of all outstanding loans on a Contract plus accrued interest.
face amount: is the minimum death benefit 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 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.
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 contract (same face amount,
payments made, guaranteed mortality table, contract loading and guaranteed
maximum rider costs) would remain in force if credited with 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, for each insured, the insured's age as of his or her birthday
nearest the contract 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 5%) over the cash value, but
before the deduction for cost of insurance.
net cash surrender value: is equal to the cash value less debt.
4
<PAGE> 9
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 any excess sales load during the first 24 months after the Contract is
issued) by the cash value corridor factor for the younger insured at his or her
attained age.
SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACT
This flexible premium joint and last survivor 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 doesn't 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 long-term investment potential 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 insureds from age 20 to age 85. The
minimum initial payment is 75% of the base premium.
Merrill Lynch Life will not accept an initial payment that provides a guarantee
period of less than two years. 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 quarterly or
annual basis. For additional payments not being withdrawn from a CMA account,
Merrill Lynch Life will send reminder notices for such amounts beginning in the
second contract year.
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
During the "free look" period, the initial payment less contract loading will be
invested in the investment division of the Separate Account investing in the
Money Reserve Portfolio. After the "free look" period, the contract owner may
select up to five of the 36 investment divisions in the Separate Account. (See
"Changing the Allocation" on page 13.)
- ---------------
Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
5
<PAGE> 10
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 20 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 18.)
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, 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 any
excess sales load previously deducted. (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.
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.
6
<PAGE> 11
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 22.)
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 either 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 25.
LOANS
Contract owners may borrow up to the loan value of their Contracts, which is 90%
of the cash value. The maximum loan amount that may be borrowed at any time is
the difference between the loan value and debt. (See "Loans" on page 16.)
Loans are deducted from the amount payable on surrender of the Contract and are
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 25.)
PARTIAL WITHDRAWALS
Contract owners may make partial withdrawals beginning in contract year sixteen,
subject to certain conditions. (See "Partial Withdrawals" on page 17.)
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 14.)
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 13) and any rider costs (see "Additional Insurance
Rider" on page 11).
- 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.
7
<PAGE> 12
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 32 and "Charges to Variable Series Funds Assets" on page 33.)
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.
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 36 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. Twenty 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.
8
<PAGE> 13
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").
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 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 30.)
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
investments among different types of fixed-income securities denominated in
various currencies.
9
<PAGE> 14
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.
International Bond Fund seeks to achieve a high total investment return by
investing in an 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.
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 33.)
EXEMPTIVE RELIEF
An application for exemptive relief has been filed with the Securities and
Exchange Commission on behalf of the Variable Series Funds, the Separate Account
and other affiliated parties. This relief is required under current rules of the
Securities and Exchange Commission in order for the Equity Growth Fund of the
Variable Series Funds to be made available through the Separate Account. (See
"Resolving Material Conflicts" on page 31.) Contract owners will be notified
when the necessary relief is obtained and the Equity Growth Fund is available.
Equity Growth Fund seeks to attain long-term growth of capital by investing
primarily in common stocks of relatively small companies that management of the
Fund believes have special investment value and emerging growth companies
regardless of size. Such companies are selected by management on the basis of
their long-term potential for expanding their size and profitability or for
gaining increased market recognition for their securities. Current income is not
a factor in such selection. MLAM receives from the Fund an advisory fee at the
annual rate of 0.75% of the average daily net assets of the Fund. This is a
higher fee than that of many other mutual funds, but management of the Fund
believes it is justified by the high degree of care that must be given to the
initial selection and continuous supervision of the types of portfolio
securities in which the Fund invests.
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 1994 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
10
<PAGE> 15
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 15.)
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 24.)
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 lives of two insureds
provided the relationship among the applicant and the insureds meets Merrill
Lynch Life's insurable interest requirements and provided neither insured is
over age 85 or under age 20. The insureds' issue ages will be determined using
their ages as of their birthdays nearest the contract date. The insureds 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
current 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 13.
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 each of the
insureds. The minimum initial payment for any Contract is 75% of the base
premium. Merrill Lynch Life will not accept an initial payment for a specified
face amount that will provide a guarantee period of less than two years. (See
"Selecting the Initial Face Amount" below and "Initial Guarantee Period" on page
11.) 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 on 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 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
11
<PAGE> 16
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 25.
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 two years. 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 also purchase additional
insurance coverage through an additional insurance rider. (See "Additional
Insurance Rider" on page 11.)
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 the death benefit
option is changed 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 5%
interest assumption. This means that for a given initial payment and face
amount, different joint insureds will have different guarantee periods depending
on the age, sex and underwriting class of each of the insureds. For example,
older joint insureds will have a shorter guarantee period than younger joint
insureds in the same underwriting classes.
The maximum guarantee period is for the whole of life of the younger insured.
ADDITIONAL INSURANCE RIDER
The contract owner may purchase additional insurance coverage payable to the
beneficiary on the death of the last surviving insured. Additional insurance
coverage can 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 both insureds is provided,
and at least one insured has not attained the age of 85. 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.
Once each year, the additional insurance rider face amount may be increased
(subject to evidence of insurability of both insureds) or decreased (after the
seventh contract anniversary); however, any change in the additional insurance
rider face amount 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.
An increase will not be allowed on the first contract anniversary if the face
amount of the Contract plus the new rider face amount provide a guarantee period
of less than one year from the effective date of the increase.
12
<PAGE> 17
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 25.
ADDITIONAL PAYMENTS
After the "free look" period, contract owners may make additional payments.
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 modified endowment contracts, making an additional payment may
cause them to become modified endowment contracts. (See "Tax Considerations" on
page 25.) Merrill Lynch Life will return that portion of any additional payment
beyond that necessary to extend the guarantee period to the whole of life of the
younger insured. 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 or quarterly basis. For additional payments not
being withdrawn from a CMA account, Merrill Lynch Life will send the contract
owner reminder notices beginning in the second contract year. 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
Currently, 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 additional payment in the calculation of the variable
insurance amount (see "Variable Insurance Amount" on page 18); 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 15).
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 is
less than for the whole of life of the younger insured.
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 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 38.
13
<PAGE> 18
Unless specified otherwise, if there is any debt, any payment made will be used
first as a loan repayment, with any excess applied as an additional payment.
(See "Loans" on page 16.)
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 selected. (See "Net Rate of Return
for an Investment Division" on page 29.) The investment performance reflects the
deduction of Separate Account charges. (See "Charges to the Separate Account" on
page 14.)
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 13, "Partial Withdrawals" on page 17 and "Loans" on
page 16.) 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. During the "free look" period,
the initial payment less contract loading will be invested in the division
investing in the Money Reserve Portfolio. After the "free look" period, the
contract owner may invest in up to five of the 36 investment divisions in the
Separate Account.
Once Merrill Lynch Life's preallocation procedures are available in the state in
which the Contract is issued, the following process will apply to initial
payments. 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 36 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 21.)
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.
This charge compensates Merrill Lynch Life for the cost
14
<PAGE> 19
of providing life insurance coverage for the insureds. It is based on the
underwriting class, sex (except where unisex rates are required by state law)
and attained age of each 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 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 each 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.
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 joint 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 16.
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 11.
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
24. 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 significantly 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 28). 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 minimum 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 the first base premium and 10%
of 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 during the first 24 months
after issue.
15
<PAGE> 20
- It is added to the cash value so as to continue the Contract in effect if
debt exceeds the larger of cash value and 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.
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
28.)
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 30 and "Charges to Variable Series Funds Assets" on page 32.)
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 16.) Additional payments will extend the guarantee period until such
time as it is guaranteed for the whole of life of the younger insured. The
guarantee period will be affected by partial withdrawals 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.
When the Guarantee Period is Less Than for Life. After the end of the guarantee
period, Merrill Lynch Life may cancel the Contract if the cash value on a
processing date is insufficient to cover charges due on that date. (See "Charges
Deducted from the Investment Base" on page 13.)
Merrill Lynch Life will notify the contract owner 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. If this amount is paid, Merrill Lynch Life will
deduct the charges due on the processing date and 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
16
<PAGE> 21
of insurance and rider costs applicable to the grace period and refund to the
contract owner any unearned charges for cost of insurance and rider costs.
Subject to state regulation, if Merrill Lynch Life cancels a Contract, it may be
reinstated while both insureds are 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 insureds'
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 insureds' attained ages and underwriting
classes 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 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 equal the whole
of life of the younger insured, the guarantee period will be extended to the
whole of life of the younger insured.
CASH VALUE
A Contract's cash value fluctuates daily with the investment results of the
investment divisions selected. Merrill Lynch Life doesn't 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 either 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 23. 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, 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. (See "Contract Loading - Excess Sales Load" on page
14.)
LOANS
Contract owners may use the Contract as collateral to borrow funds from Merrill
Lynch Life. The minimum loan is $1,000. Contract owners may repay all or part of
the loan at any time during either 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.
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
17
<PAGE> 22
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.
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
doesn't 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 loan value of a Contract equals 90% of its cash value. 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
loan value and the debt.
Interest. While a loan is outstanding, Merrill Lynch Life charges interest at a
maximum rate of 6% annually, subject to state regulation. Currently Merrill
Lynch Life charges interest of 4.75% 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 a loan amount earns
interest at 4%.
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) and adds that amount to the amount held in the general account as
collateral for the loan. Since the interest charged is 4.75% and the collateral
earnings on such amounts are 4%, the current net loan cost on loaned amounts 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 the debt exceeds the larger of the cash
value and the fixed base on a processing date, 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 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 and the fixed base. (See "Contract Loading - Excess
Sales Load" on page 14.) If the Contract lapses with a loan outstanding, adverse
tax consequences may result. (See "Tax Considerations" on page 27.)
PARTIAL WITHDRAWALS
Beginning in contract year sixteen, 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. The remaining cash value following
a partial withdrawal must equal or exceed $5,000. The amount of any partial
withdrawal may not exceed the loan value as of the effective date of the partial
withdrawal less any debt. A partial withdrawal may not be repaid.
18
<PAGE> 23
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 5% for the period from the date of 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 39.
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 25.
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 last surviving insured. Proof of death for both insureds must
be received. There is no death benefit payable at the first death.
If one of the insureds 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 22.)
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 last surviving 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
is Less Than for Life" on page 15.)
19
<PAGE> 24
Variable Insurance Amount. Merrill Lynch Life determines the variable insurance
amount daily 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 (explained below) for
the younger 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 younger insured on the date of calculation. It decreases
daily as the younger 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 fifteenth, the contract owner may change the death benefit option. Merrill
Lynch Life 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 $100,000. 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 40.
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 insureds are 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.
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 25.
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 last surviving 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
23.
20
<PAGE> 25
Payment may be delayed if the Contract is being contested or under the
circumstances described in "Using the Contract" on page 20 and "Other Contract
Provisions" on page 22. If a delay is necessary and death of the last surviving
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.
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 joint
and last survivor 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 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. 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 25.
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 guarantee period and any increase
or decrease in 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 29.) The sum of the values in each investment
division is a contract owner's investment base.
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.
21
<PAGE> 26
MORE ABOUT THE CONTRACT
USING THE CONTRACT
Ownership. The contract owner is usually one of the insureds, 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 last surviving 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 either insured's lifetime, 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 25.)
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 25.
Naming Beneficiaries. Merrill Lynch Life will pay the primary beneficiary the
death benefit proceeds of the Contract on the last surviving 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 last surviving 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 either 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, 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.
Maturity Proceeds. The maturity date is the contract anniversary nearest the
younger insured's 100th birthday. On the maturity date, Merrill Lynch Life will
pay the net cash surrender value to the contract owner, provided either insured
is still living at that time.
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.
22
<PAGE> 27
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 that this allocation may be changed by
calling or writing to the Service Center. (See "Changing the Allocation" on page
13.)
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.
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 contract year 16, 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.
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
23
<PAGE> 28
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 won't contest the validity of a
Contract after it has been in effect during the lifetimes of both insureds 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 lifetimes of both insureds for two years
from the date of the change.
At the end of the second contract year, Merrill Lynch Life will mail the
contract owner a notice requesting that he or she tell Merrill Lynch Life if
either insured has died. Failure to tell Merrill Lynch Life of the death of an
insured will not avoid a contest if Merrill Lynch Life has grounds to do so,
even if the Contract is still in force.
Payment in Case of Suicide. Subject to state regulation, if either 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.
Subject to state regulation, if either 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.
Establishing Survivorship. If Merrill Lynch Life is unable to determine which
of the insureds was the last survivor on the basis of the proofs of death
provided, it will consider insured No. 1 as designated in the application to be
the last surviving insured.
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.
Policy Split Rider. This rider allows the contract owner to split the Contract
into two new individual contracts upon divorce of the insureds or if certain
federal tax law changes occur. Certain conditions described in the rider,
including evidence of insurability of both insureds, must be met before the
rider's benefit can be exercised. For more information about this rider and the
conditions and rules relating to the exercise of any
24
<PAGE> 29
rights under the rider, the contract owner should call the Service Center. The
Service Center can also provide the contract owner with a prospectus for the
individual contract. For a discussion of the possible tax consequences of
splitting the Contract, see "Tax Considerations" on page 25.
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 either insured. If no plan
has been chosen when the last surviving 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, semiannually, 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.
25
<PAGE> 30
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 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 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
$ 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 it
is reasonable to conclude that the Contract will meet the Section 7702
definition of a life insurance contract, so that:
- the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
26
<PAGE> 31
- 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" on page
26).
In the absence of final regulations or other pertinent interpretations of
Section 7702, however, there is necessarily some uncertainty as to whether a
Contract will meet the statutory life insurance contract definition,
particularly if it insures substandard risks. 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.
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 23.)
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.
27
<PAGE> 32
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 will be considered indebtedness of an owner and no part of a loan will
constitute income to the 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. 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 at any time will require retroactive retesting and will
probably 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 at any
time (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 policy split rider permits a Contract to be
split into two individual contracts upon the occurrence of a divorce of joint
insureds or certain changes in federal estate tax law. A policy split could have
adverse tax consequences; for example, it is not clear 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
28
<PAGE> 33
as a nontaxable exchange, a split could result in the recognition of taxable
income in an amount up to any gain in the 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 individual
contracts would be classified as modified endowment contracts. (See "Tax
Treatment of Loans and Other Distributions" on page 26.) Before the contract
owner exercises rights provided by the policy split rider, it is important that
he or she consult with a competent tax advisor regarding the possible
consequences of a policy split.
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 purposes of
federal estate tax, as well as state and local estate, inheritance, generation
skipping and other taxes.
Other Transactions. Changing the contract owner may have tax consequences.
Exchanging this Contract for another involving the same insureds 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.
We do 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.
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
29
<PAGE> 34
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 14.)
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.
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
30
<PAGE> 35
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
there's enough trading in portfolio securities to materially affect the net
asset value of an investment division.
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 14.
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 and 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;
- prohibited by state regulatory authorities; or
- decided by management that the change would result in overly speculative
or unsound investments.
31
<PAGE> 36
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. The Equity Growth Fund is also
offered to Family Life Insurance Company.
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 fees,
commissions and extraordinary charges) 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.
32
<PAGE> 37
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%, % and % 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 fees and commissions and extraordinary charges, 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 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.
THE ZERO TRUSTS
The 20 Zero Trusts:
<TABLE>
<CAPTION>
TARGETED RATE OF RETURN
TO MATURITY AS
ZERO TRUST MATURITY DATE OF , 1994
- ----------- ------------------- -----------------------
<C> <S> <C>
1994 August 15, 1994
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
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
</TABLE>
33
<PAGE> 38
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 14) 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.
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, NET CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables on pages 34 through 37 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 34 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $40,114, an initial face amount of $1.5 million, an
initial guarantee period of 7.25 years and coverage under death benefit
option 1. It assumes current mortality charges.
2. The illustration on page 35 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $40,114, an initial face amount of $1.5 million, an
initial guarantee period of 7.25 years and coverage under death benefit
option 1. It assumes maximum mortality charges.
3. The illustration on page 36 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $142,166, an initial face amount of $1.5 million,
an initial guarantee period of 14 years and coverage under death benefit
option 2. It assumes current mortality charges.
4. The illustration on page 37 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $142,166, an initial face amount of $1.5 million,
an initial guarantee period of 14 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.
34
<PAGE> 39
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 %. 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 30.) 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 %
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of %, %, and %,
respectively. The gross returns are before any deductions and should not be
compared to rates which are after deduction of charges.
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 14.) 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 comparable illustration
reflecting the proposed insureds' ages, face amount and the payment amounts
requested. The illustration will also use current cost of insurance rates and
will assume that the proposed insureds are in a standard non-smoker underwriting
class.
35
<PAGE> 40
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $40,114
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 7.25 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.................................. 40,114 42,120
2.................................. 40,114 86,345
3.................................. 40,114 132,782
4.................................. 40,114 181,541
5.................................. 40,114 232,738
6.................................. 40,114 286,495
7.................................. 40,114 342,939
8.................................. 40,114 402,206
9.................................. 40,114 464,436
10.................................. 40,114 529,778
15.................................. 40,114 908,884
20.................................. 40,114 1,392,729
30.................................. 40,114 2,798,385
age 99.............................. 0 4,745,112
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER VALUE(3)(4) END OF YEAR
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.................................
2.................................
3.................................
4.................................
5.................................
6.................................
7.................................
8.................................
9.................................
10.................................
15.................................
20.................................
30.................................
age 99.............................
</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 within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(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 reaches life of the younger insured
in contract years 20 and 14, respectively. Once a guarantee of life is
reached, 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 a guarantee
of life is reached.
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.
36
<PAGE> 41
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $40,114
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 7.25 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.................................. 40,114 42,120
2.................................. 40,114 86,345
3.................................. 40,114 132,782
4.................................. 40,114 181,541
5.................................. 40,114 232,738
6.................................. 40,114 286,495
7.................................. 40,114 342,939
8.................................. 40,114 402,206
9.................................. 40,114 464,436
10.................................. 40,114 529,778
15.................................. 40,114 908,884
20.................................. 40,114 1,392,729
30.................................. 40,114 2,798,385
age 99.............................. 0 4,855,313
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER VALUE(3)(4) END OF YEAR
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....................................
2....................................
3....................................
4....................................
5....................................
6....................................
7....................................
8....................................
9....................................
10....................................
15....................................
20....................................
30....................................
age 99................................
</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 within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(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 an annual rate of return of 12% and maximum mortality
charges, the guarantee period reaches life of the younger insured in
contract year 15. Once a guarantee of life is reached, 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 a guarantee of life is reached.
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.
37
<PAGE> 42
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $142,166
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 14 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.................................. 142,166 149,274
2.................................. 142,166 306,012
3.................................. 142,166 470,587
4.................................. 142,166 643,391
5.................................. 142,166 824,835
6.................................. 142,166 1,015,351
7.................................. 142,166 1,215,393
8.................................. 142,166 1,425,437
9.................................. 142,166 1,645,983
10.................................. 142,166 1,877,556
15.................................. 142,166 3,221,125
20.................................. 142,166 4,935,897
30.................................. 142,166 9,917,614
age 99.............................. 0 16,606,869
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER VALUE(3)(4) END OF YEAR
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................................
2................................
3................................
4................................
5................................
6................................
7................................
8................................
9................................
10................................
15................................
20................................
30................................
age 99............................
</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 within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(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 reaches life of the younger insured
in contract years 26 and 15, respectively. Once a guarantee of life is
reached, 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 a guarantee
of life is reached.
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.
38
<PAGE> 43
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $142,166
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 14 YEARS
DEATH BENEFIT OPTION 2
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
DEATH BENEFIT(3)
TOTAL 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............................................ 142,166 149,274
2............................................ 142,166 306,012
3............................................ 142,166 470,587
4............................................ 142,166 643,391
5............................................ 142,166 824,835
6............................................ 142,166 1,015,351
7............................................ 142,166 1,215,393
8............................................ 142,166 1,425,437
9............................................ 142,166 1,645,983
10............................................ 142,166 1,877,556
15............................................ 142,166 3,221,125
20............................................ 142,166 4,935,897
30............................................ 142,166 9,917,614
age 99........................................ 0 16,606,869
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER VALUE(3)(4) END OF YEAR
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............................................
2............................................
3............................................
4............................................
5............................................
6............................................
7............................................
8............................................
9............................................
10............................................
15............................................
20............................................
30............................................
age 99........................................
</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 within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(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 an annual rate of return of 12% and maximum mortality
charges, the guarantee period reaches life of the younger insured in
contract year 16. Once a guarantee of life is reached, 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 a guarantee of life is reached.
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.
39
<PAGE> 44
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 is
less than for the whole of life of the younger insured.
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 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 $40,114 additional
payment received and accepted at the beginning of contract year ten. Example 2
shows the effect of a $80,228 additional payment received and accepted at the
beginning of contract year ten. Example 3 shows the effect of a $40,114
additional payment received and accepted at the beginning of contract year 11.
All three examples assume that death benefit option 1 has been elected, that
annual payments of $40,114 have been made through the contract year reflected in
the example and that no other contract transactions have been made.
FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $40,114
FACE AMOUNT: $1.5 MILLION
INITIAL GUARANTEE PERIOD: 7.25 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> <C>
10 $40,114 1 year
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
10 $80,228 2 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
11 $40,114 .75 years
</TABLE>
40
<PAGE> 45
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 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 $30,000 and $60,000 taken at the beginning of contract year sixteen. Example
3 shows the effect on the guarantee period of a $60,000 partial withdrawal taken
at the beginning of contract year eighteen. All three examples assume that death
benefit option 1 has been elected, that annual payments of $40,114 have been
made through the contract year reflected in the example and that no other
contract transactions have been made.
FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $40,114
FACE AMOUNT: $1.5 MILLION
GUARANTEE PERIOD: 7.25 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> <C>
16 $30,000 .25 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
16 $60,000 .75 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
18 $60,000 .75 years
</TABLE>
41
<PAGE> 46
CHANGING THE DEATH BENEFIT OPTION
On each contract anniversary beginning with the fifteenth, 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
42
<PAGE> 47
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. 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.
43
<PAGE> 48
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.).
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.
Officers who are not directors but report to the President are:
<TABLE>
<CAPTION>
NAME OFFICE HELD
- ------------------------------ -------------------------------------
<S> <C>
Deborah J. Adler Vice President & Actuary
Robert M. Bordeman Vice President
Michael P. Cogswell Vice President & Senior Counsel
Eileen Dyson Vice President
Peter P. Massa Vice President
Shelley K. Parker Vice President
Julia Raven Vice President
Frederick Steele Vice President
Thomas J. Thatcher Vice President
Denis Wuestman Vice President
</TABLE>
The principal occupations of these officers for the past five years are as
follows:
Ms. Adler has been with Merrill Lynch Life since May 1992. From August 1988 to
May 1992, she was Assistant Vice President and Actuary of Monarch Life Insurance
Company.
Mr. Bordeman has been with Merrill Lynch Life since November 1990. From February
1988 to November 1990, he was the Corporate Controller of Blue Cross of
California.
Mr. Cogswell has been with Merrill Lynch Life since November 1990. From April
1987 to November 1990, he was Assistant Counsel at UNUM Life Insurance Company.
Ms. Dyson has been with Merrill Lynch Life since July 1990. Prior to July 1990,
she held the position of Vice President and Manager of Tandem Financial Group,
Inc.
Mr. Massa has been with Merrill Lynch Life since July 1991. From July 1980 to
February 1994, he held various positions with Merrill Lynch & Co., Inc.
Ms. Parker has been with Merrill Lynch Life since May 1992. From March 1989 to
May 1992, she was an attorney for Monarch Life Insurance Company.
Ms. Raven has been with Merrill Lynch Life since September 1990. Prior to
September 1990, she was the Controller of Diversified Financial Services at
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Mr. Steele has been with Merrill Lynch Life since March 1993. Prior to March
1993, he was Director, Treasury of Blue Cross of California.
Mr. Thatcher has been with Merrill Lynch Life since July 1989. Prior to July
1989 he was a Vice President with Family Life Insurance Company.
Mr. Wuestman has been with Merrill Lynch Life since 1990. Prior
to 1990, he was Assistant Vice President of Merrill Lynch Life
Agency, 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
44
<PAGE> 49
by Merrill Lynch Life on an allocated cost basis. Charges billed to Merrill
Lynch Life by MLIG pursuant to the agreement were $ 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. It is also subject to the
insurance laws and regulations of all jurisdictions in which it is licensed to
do business.
An annual statement in the prescribed form is filed with the insurance
departments of jurisdictions where Merrill Lynch Life does business disclosing
the Company's operations for the preceding year and its financial condition as
of the end of that year. Insurance department regulation includes periodic
examination to verify Contract liabilities and reserves and to determine
solvency and compliance with all insurance laws and regulations. Merrill Lynch
Life's books and accounts are subject to insurance department review at all
times. A full examination of Merrill Lynch Life's operations is conducted
periodically by the Arkansas Insurance Department and under the auspices of the
National Association of Insurance Commissioners.
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. No litigation relates to the Separate Account.
EXPERTS
The financial statements of Merrill Lynch Life for the three years ended
December 31, 1993 and of the Separate Account for the period ended December 31,
1993 included in this Prospectus have been audited by Deloitte & Touche,
independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing. Deloitte & Touche's principal business
address is 1633 Broadway, New York, New York 10019-6754.
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.
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.
45
<PAGE> 50
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.
46
<PAGE> 51
FINANCIAL STATEMENTS TO BE FILED BY AMENDMENT
<PAGE> 52
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> 53
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
II-2
<PAGE> 54
and make available to the Commission on request a memorandum setting forth
the basis for this representation.
(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> 55
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents :
The facing sheet.
The Prospectus consisting of 46 pages.
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. (To be filed by Amendment)
(c) Sutherland, Asbill & Brennan (To be filed by Amendment)
(d) Deloitte & Touche, Independent Certified Public Accountants (To be
filed by Amendment)
The following exhibits:
<TABLE>
<S> <C> <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. 33-55472
Filed April 26, 1993)
(5)(a) (1) Flexible Premium Joint and Last Survivor Variable Universal Life Insurance Policy (Incorporated
by Reference to Registrant's Form S-6 Registration No. 33-55472 Filed December 7, 1992)
(b) (1) Backdating Endorsement (Incorporated by Reference to Registrant's Form S-6 Registration No.
33-55472 Filed December 7, 1992)
(2)(a) Additional Insurance Rider for Flexible Premium Joint and Last Survivor Variable Universal Life
Insurance Policy (Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55472
Filed December 7, 1992)
(3)(a) Policy Split Rider for Flexible Premium Joint and Last Survivor Variable Universal Life
Insurance Policy (Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55472
Filed December 7, 1992)
(4) Endorsement for Guaranteed Interest Division for Flexible Premium Joint and Last Survivor
Variable Universal Life Insurance Policy (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(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> 56
<TABLE>
<S> <C> <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) Form of 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 Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41830 Filed April 16,
1992)
(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)
(9) 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) Variable Life Insurance Application (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(b) Application for Reinstatement (Incorporated by Reference to Registrant's Form S-6 Registration
No. 33-55472 Filed December 7, 1992)
(11) 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 (To be filed by Amendment)
7. (a) Power of Attorney of Joseph E. Crowne
(b) Power of Attorney of David E. Dunford
(c) Power of Attorney of John C.R. Hele
(d) Power of Attorney of Allen N. Jones
(e) Power of Attorney of Barry G. Skolnick
(f) Power of Attorney of Anthony J. Vespa
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 (To be filed by Amendment)
(d) Written Consent of Deloitte & Touche, independent certified public accountants (To be filed by
Amendment)
</TABLE>
II-5
<PAGE> 57
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. 2 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 TH DAY OF FEBRUARY 1994.
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
BY: MERRILL LYNCH LIFE INSURANCE COMPANY
(Depositor)
<TABLE>
<S> <C>
Attest: /s/ SHELLEY K. PARKER By: /s/ BARRY G. SKOLNICK
Shelley K. Parker Barry G. Skolnick
Vice President Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on February , 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* Chairman of the Board, President, and Chief
- --------------------------------------------- Executive Officer
Anthony J. Vespa
</TABLE>
<TABLE>
<S> <C>
* 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. In his own capacity as Director, Senior Vice
SKOLNICK President, and General Counsel and as
Barry G. Skolnick Attorney-in-Fact
</TABLE>
II-6
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------------------ ------------------------------------------------------------------------------------ ------------
<S> <C> <C> <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)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(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. 33-55472 Filed April 26, 1993)
(5)(a) (1) Flexible Premium Joint and Last Survivor Variable Universal Life Insurance Policy
(Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55472 Filed
December 7, 1992)
(b) (1) Backdating Endorsement (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(2)(a) Additional Insurance Rider for Flexible Premium Joint and Last Survivor Variable
Universal Life Insurance Policy (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(3)(a) Policy Split Rider for Flexible Premium Joint and Last Survivor Variable Universal
Life Insurance Policy (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(4) Endorsement for Guaranteed Interest Division for Flexible Premium Joint and Last
Survivor Variable Universal Life Insurance Policy (Incorporated by Reference to
Registrant's Form S-6 Registration No. 33-55472 Filed December 7, 1992)
(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)
(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) Form of 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 Pre-Effective Amendment No. 1 to Form S-6 Registration No.
33-41830 Filed April 16, 1992)
(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)
</TABLE>
II-8
<PAGE> 59
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------------------ ------------------------------------------------------------------------------------ ------------
<S> <C> <C> <C> <C>
(9) 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) Variable Life Insurance Application (Incorporated by Reference to Registrant's Form
S-6 Registration No. 33-55472 Filed December 7, 1992)
(b) Application for Reinstatement (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(11) 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 (To be filed by Amendment)
7. (a) Power of Attorney of Joseph E. Crowne
(b) Power of Attorney of David E. Dunford
(c) Power of Attorney of John C.R. Hele
(d) Power of Attorney of Allen N. Jones
(e) Power of Attorney of Barry G. Skolnick
(f) Power of Attorney of Anthony J. Vespa
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 (To be filed by Amendment)
(d) Written Consent of Deloitte & Touche, independent certified public accountants (To
be filed by Amendment)
</TABLE>
II-9
<PAGE> 1
[MERRILL LYNCH LOGO]
February 23, 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. 2 to the Registration Statement on Form S-6 (the
"Registration Statement") (File No. 33-55472) 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
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John C.R. Hele, a member
of the Board of Directors of Merrill Lynch Life Insurance Company (the
"Company"), whose signature appears below, constitutes and appoints Barry G.
Skolnick and Michael P. Cogswell, respectively, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all Registration Statements and Amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, under the Investment Company Act of 1940, where
applicable, and the Securities Act of 1933, respectively, with the Securities
and Exchange Commission, for the purpose of registering any and all variable
life and variable annuity separate accounts (collectively "Separate Accounts"),
of the Company that may be established in connection with the issuance of any
and all variable life and variable annuity contracts funded by such Separate
Accounts, granting unto said attorney-in-fact and agent, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done.
Date: February 7, 1994 /s/ John C.R. Hele
--------------------------------
John C.R. Hele
State of New York )
County of New York )
On the 7th day of February, 1994, before me came John C.R.
Hele, Director of Merrill Lynch Life Insurance Company, to me known to be said
person and he signed the above Power of Attorney on behalf of Merrill Lynch
Life Insurance Company.
[SEAL] /s/ Nandanee Persaud-Singh
---------------------------
Notary Public
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Allen N. Jones, a member
of the Board of Directors of Merrill Lynch Life Insurance Company (the
"Company"), whose signature appears below, constitutes and appoints Barry G.
Skolnick and Michael P. Cogswell, respectively, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all Registration Statements and Amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, under the Investment Company Act of 1940, where
applicable, and the Securities Act of 1933, respectively, with the Securities
and Exchange Commission, for the purpose of registering any and all variable
life and variable annuity separate accounts (collectively "Separate Accounts"),
of the Company that may be established in connection with the issuance of any
and all variable life and variable annuity contracts funded by such Separate
Accounts, granting unto said attorney-in-fact and agent, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done.
Date: February 7, 1994 /s/ Allen N. Jones
-----------------------------
Allen N. Jones
State of New Jersey )
County of Middlesex )
On the 7th day of February, 1994, before me came Allen N.
Jones, Director of Merrill Lynch Life Insurance Company, to me known to be said
person and he signed the above Power of Attorney on behalf of Merrill Lynch
Life Insurance Company.
[SEAL] /s/ Sandra K. Kelly
--------------------------
Notary Public
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that David M. Dunford, a
member of the Board of Directors of Merrill Lynch Life Insurance Company (the
"Company"), whose signature appears below, constitutes and appoints Barry G.
Skolnick and Michael P. Cogswell, respectively, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all Registration Statements and Amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, under the Investment Company Act of 1940, where
applicable, and the Securities Act of 1933, respectively, with the Securities
and Exchange Commission, for the purpose of registering any and all variable
life and variable annuity separate accounts (collectively "Separate Accounts"),
of the Company that may be established in connection with the issuance of any
and all variable life and variable annuity contracts funded by such Separate
Accounts, granting unto said attorney-in-fact and agent, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done.
Date: February 7, 1994 /s/ David M. Dunford
-------------------------------
David M. Dunford
State of New Jersey )
County of Middlesex )
On the 7th day of February, 1994, before me came David M.
Dunford, Director of Merrill Lynch Life Insurance Company, to me known to be
said person and he signed the above Power of Attorney on behalf of Merrill
Lynch Life Insurance Company.
[SEAL] /s/ Elizabeth F. Meyer
-------------------------
Notary Public
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Joseph E. Crowne, Jr., a
member of the Board of Directors of Merrill Lynch Life Insurance Company (the
"Company"), whose signature appears below, constitutes and appoints Barry G.
Skolnick and Michael P. Cogswell, respectively, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all Registration Statements and Amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, under the Investment Company Act of 1940, where
applicable, and the Securities Act of 1933, respectively, with the Securities
and Exchange Commission, for the purpose of registering any and all variable
life and variable annuity separate accounts (collectively "Separate Accounts"),
of the Company that may be established in connection with the issuance of any
and all variable life and variable annuity contracts funded by such Separate
Accounts, granting unto said attorney-in-fact and agent, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done.
Date: February 7, 1994 /s/ Joseph E. Crowne, Jr.
--------------------------------
Joseph E. Crowne, Jr.
State of New Jersey )
County of Middlesex )
On the 7th day of February, 1994, before me came Joseph E.
Crowne, Jr., Director of Merrill Lynch Life Insurance Company, to me known to
be said person and he signed the above Power of Attorney on behalf of Merrill
Lynch Life Insurance Company.
[SEAL] /s/ Sandra K. Kelly
-------------------------
Notary Public
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Barry G. Skolnick, a
member of the Board of Directors of Merrill Lynch Life Insurance Company (the
"Company"), whose signature appears below, constitutes and appoints and Michael
P. Cogswell, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all Registration Statements and
Amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, under the Investment Company Act of 1940,
where applicable, and the Securities Act of 1933, respectively, with the
Securities and Exchange Commission, for the purpose of registering any and all
variable life and variable annuity separate accounts (collectively "Separate
Accounts"), of the Company that may be established in connection with the
issuance of any and all variable life and variable annuity contracts funded by
such Separate Accounts, granting unto said attorney-in-fact and agent, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done.
Date: February 7, 1994 /s/ Barry G. Skolnick
--------------------------------
Barry G. Skolnick
State of New Jersey )
County of Middlesex )
On the 7th day of February, 1994, before me came Barry G.
Skolnick, Director of Merrill Lynch Life Insurance Company, to me known to be
said person and he signed the above Power of Attorney on behalf of Merrill
Lynch Life Insurance Company.
[SEAL] /s/ Sandra K. Kelly
------------------------
Notary Public
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Anthony J. Vespa, a
member of the Board of Directors of Merrill Lynch Life Insurance Company (the
"Company"), whose signature appears below, constitutes and appoints Barry G.
Skolnick and Michael P. Cogswell, respectively, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all Registration Statements and Amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, under the Investment Company Act of 1940, where
applicable, and the Securities Act of 1933, respectively, with the Securities
and Exchange Commission, for the purpose of registering any and all variable
life and variable annuity separate accounts (collectively "Separate Accounts"),
of the Company that may be established in connection with the issuance of any
and all variable life and variable annuity contracts funded by such Separate
Accounts, granting unto said attorney-in-fact and agent, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done.
Date: February 17, 1994 /s/ Anthony J. Vespa
--------------------------------
Anthony J. Vespa
State of New Jersey )
County of Middlesex )
On the 17th day of February, 1994, before me came Anthony J.
Vespa, Director of Merrill Lynch Life Insurance Company, to me known to be said
person and he signed the above Power of Attorney on behalf of Merrill Lynch
Life Insurance Company.
[SEAL] /s/ Sandra K. Kelly
-------------------------
Notary Public
<PAGE> 1
Description of Merrill Lynch Life Insurance Company's
Issuance, Transfer and Redemption Procedures
for Contracts Pursuant to
Rule 63-3(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 joint and last survivor 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 joint insureds' mortality risk as actuarially
determined, reflecting factors such as age, sex, health, and
occupation. A uniform term cost for all joint insureds would
discriminate unfairly in favor of those joint insureds
representing greater risks. Although there will be no uniform
term costs for each insured, for a given face amount and
guarantee period there will be
<PAGE> 2
a uniform term cost schedule for each insured 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 joint and last survivor variable universal
life insurance contract providing coverage on two insureds named
under the Contract and payable upon the death of the last
surviving 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 is for the whole of life of the younger insured.
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
2
<PAGE> 3
$4,000 base premium, if larger. The base premium is the amount
equal to the level annual premium necessary for the face amount
of the Contract to endow at the younger 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 two years. 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 5% interest assumption.
Thus, for a given initial payment and face amount, different
joint insureds will have different guarantee periods depending on
each insured's 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
3
<PAGE> 4
When a completed application is received, Merrill Lynch Life
will follow certain insurance underwriting (i.e., evaluation of
risks) procedures designed to determine whether the proposed
insured are insurable. This process may require that further
information be provided by the proposed insureds 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
4
<PAGE> 5
case may the contract date be more than six months prior to the
date the application was executed. Charges for cost of insurance
and rider costs for the backdated period are deducted on the
contract date.
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 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. During the "free look" period,
the initial payment less contract loading will be invested only
in the division investing in the Money Reserve Portfolio. After
the "free look" period, the contract owner may invest in up to
five of the 36 investment divisions at any one time.
Once preallocation procedures are available in the sate where
the Contract is issued, the following procedures will apply to
the initial payment. 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 is less than for
life. Any amount in excess of that required to extend the
guarantee period to the whole of life of the younger insured 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
6
<PAGE> 7
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.
E. Grace Period
After the end of the guarantee period, a Contract may be
cancelled by Merrill Lynch Life if the cash value 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. At that
time, Merrill Lynch Life will deduct any charges applicable to
the grace period and refund to the owner any unearned charges for
cost of insurance and rider costs. 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.
7
<PAGE> 8
F. Reinstatement
A contract that is cancelled by Merrill Lynch Life may be
reinstated while both insureds are still living. The Contract
will be 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 the insureds' 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 insureds' attained ages and
underwriting classes 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 either 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.
8
<PAGE> 9
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
application is completed, satisfactory evidence of insurability
for both insureds is provided, and at least one insured has not
attained the age of 85. 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. 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. 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.
Once each year, the additional insurance rider face amount may
be increased (subject to evidence of insurability of both
insureds) or decreased (after the seventh contract anniversary);
however, any change in the additional insurance rider face amount
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, Merrill Lynch Life uses the existing fixed base and the
face amount of the Contract plus the new additional insurance
rider face amount
9
<PAGE> 10
to calculate a new guarantee period. An increase will not be
allowed on the first contract anniversary if the face amount of
the Contract plus the new rider face amount provide a guarantee
period of less than one year from the effective date of the
increase.
II. Transfers Among Investment Divisions
The Separate Account currently has 36 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 the Merrill Lynch Variable Series
Funds, Inc. (the "Variable Series Funds") and 20 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 amount 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 either 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
10
<PAGE> 11
the next computed value after the request is received at the
Service Center in a form satisfactory to Merrill Lynch Life. 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.
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 last surviving 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 is equal to the larger of the face amount and the
variable insurance amount. Under option 2, the death benefit is
equal to the larger of the face amount plus the cash value and the
variable insurance amount. 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 younger insured at his or her attained age. The death
benefit will never be less than the amount required to keep the
Contract qualified as
12
<PAGE> 13
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 the debt. The loan value of the Contract
equals 90% of a Contract's cash value. 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 at a minimum effective
rate of 4% annually. Therefore, taking a loan will have a
permanent effect on a Contract's cash value and
13
<PAGE> 14
may have a permanent effect on the death benefit whether or not
repaid in whole or in part.
If the debt exceeds the larger of the cash value and the fixed
base on a processing date, 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 as to continue the Contract in effect if debt exceeds the
larger of the cash value and the fixed base.
D. Partial Withdrawals
After the fifteenth 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
redetermined by taking the immediate decrease in cash value
resulting from the partial withdrawal and adding to that amount
14
<PAGE> 15
interest at an annual rate of 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 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 investment base in the Separate Account to the guaranteed
interest division, where assets are held in Merrill Lynch Life's
general
15
<PAGE> 16
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. Policy Split Rider
An owner may split the Contract into two new individual
contracts upon the divorce of the insureds or if certain federal
tax law changes occur. Certain conditions, including evidence of
insurability of both insureds, must be met before the right to
split may be exercised.
The face amount of each new contract will be equal to one-half
of the face amount of the Contract less any outstanding debt on
the date of the exchange. One-half of the cash value of the
Contract less any debt will be applied to each of the new
contracts. The issue date of each new contract will be the date
of the exchange. On the issue date, Merrill Lynch Life will
refund any unearned charges for cost of insurance and rider costs
previously deducted from the Contract. Thereafter, the cost of
insurance will be for each insured's then attained age and for
the same risk class that the insured was classified as under the
Contract. Sales load for each new contract will take into
account the sale load paid under the Contract.
16
