<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1994
REGISTRATION NO. 33-41829
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF 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, D.C. 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.
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<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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1 Cover Page
2 Cover Page
3 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
4 Facts About the Separate Account, the Series Fund, the Variable Series
Funds, the Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and
MLPF&S); More About the Contract (Selling the Contracts)
5 Facts About the Separate Account, the Series Fund, the Variable Series
Funds, the Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and
MLPF&S); More About Merrill Lynch Life Insurance Company
6 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 Separate Account and its Divisions (Charges to
Series Fund Assets; Charges to Variable Series Funds Assets)
7 Not Applicable
8 Not Applicable
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 your Investment Base; Charges to the Separate
Account; Guarantee Period; Net Cash Surrender Value; Loans; Partial
Withdrawals; Death Benefit Proceeds; Payment of Death Benefit Proceeds;
Your Right to Cancel ("Free Look" Period) or Exchange]; More About the
Contract; More About the Separate Account and its Divisions (Charges to
Series Fund Assets; Charges to Variable Series Funds Assets)
14 Facts About the Contract (Purchasing a Contract; Planned Payments); More
About the Contract (Other Contract Provisions)
15 Summary of the Contract (Availability and Payments); Facts About the
Contract (Planned Payments; Payments Which Are Not Under a Periodic Payment
Plan; Effect of a Planned Payment and Other 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 and Cash Surrender Value;
Right to Cancel ("Free Look" Period) or Exchange; Partial Withdrawals];
Facts About the Contract [Net Cash Surrender Value; Partial Withdrawals;
Right to Cancel ("Free Look" Period) or Exchange]; More About the Contract
(Some Administrative Procedures)
</TABLE>
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<TABLE>
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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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 More About the Separate Account and its Divisions (Charges within the
Account; Charges to Series Fund Assets; Charges to Variable Series Funds
Assets)
21 Summary of the Contract (Loans); Facts About the Contract (Loans)
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 Facts About the Separate Account, the Series Fund, the Variable Series
Funds, the Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and
MLPF&S); More About Merrill Lynch Life Insurance Company
26 Not Applicable
27 Facts About the Separate Account, the Series Fund, the Variable Series
Funds, the Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and
MLPF&S); More About Merrill Lynch Life Insurance Company
28 More About Merrill Lynch Life Insurance Company
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 Not Applicable
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 (Net Cash Surrender Value;
Partial Withdrawals)
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
</TABLE>
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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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 the Contract (Selling the Contracts)
49 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)
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 (Merrill Lynch Life and
MLPF&S); More About the Contract (Selling the Contracts)
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)
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<PAGE>
PROSPECTUS
, 1994
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
FLEXIBLE PREMIUM VARIABLE 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
SPRINGFIELD, MASSACHUSETTS 01144-1007
PHONE: (800) 354-5333
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This Prospectus is for a flexible premium variable life insurance contract (the
"Contract") offered by Merrill Lynch Life Insurance Company ("Merrill Lynch
Life"), a subsidiary of Merrill Lynch & Co., Inc. It describes contracts which,
at the time of issue, are designed to meet the 7-pay test under federal tax law.
(See "Tax Treatment of Loans and other Distributions" on page 30.) A prospective
contract owner who wants to purchase a modified endowment contract that would
not meet the 7-pay test should consult a Merrill Lynch registered
representative.
The initial payment will be invested only in the investment division of the
Separate Account 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"), a 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
insured. 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 life. 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 surrender
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.
Contract owners may also purchase a Contract to provide insurance coverage on
the lives of two insureds with proceeds payable upon the death of the last
surviving insured.
The Contract is designed to allow for planned periodic payments, and contract
owners may make additional unplanned payments subject to certain conditions.
Contract owners may also change the face amount of their Contracts, borrow up to
the loan value of the Contract 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 cash surrender value.
It may not be advantageous to replace existing insurance with the Contract.
Within certain limits, the Contract may be returned or exchanged for 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>
TABLE OF CONTENTS
<TABLE>
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PAGE
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IMPORTANT TERMS.............................................................. 4
SUMMARY OF THE CONTRACT
Purpose of the Contract.................................................... 5
Availability and Payments.................................................. 5
Joint Insureds............................................................. 5
CMA-R- Insurance Service................................................... 5
The Investment Divisions................................................... 6
How the Death Benefit Varies............................................... 6
How the Investment Base Varies............................................. 6
Net Cash Surrender Value and Cash Surrender Value.......................... 6
Illustrations.............................................................. 6
Replacement of Existing Coverage........................................... 6
Right to Cancel ("Free Look" Period) or Exchange........................... 6
How Death Benefit and Cash Surrender Value Increases are Taxed............. 7
Loans...................................................................... 7
Partial Withdrawals........................................................ 7
Fees and Charges........................................................... 7
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...................................................... 12
Planned Payments........................................................... 13
Payments Which are Not Under a Periodic Payment Plan....................... 14
Effect of a Planned Payment and Other Additional Payments.................. 15
Changing the Face Amount................................................... 16
Investment Base............................................................ 16
Charges Deducted from the Investment Base.................................. 17
Charges to the Separate Account............................................ 19
Guarantee Period........................................................... 19
Net Cash Surrender Value................................................... 20
Loans...................................................................... 21
Partial Withdrawals........................................................ 22
Death Benefit Proceeds..................................................... 23
Payment of Death Benefit Proceeds.......................................... 23
Right to Cancel ("Free Look" Period) or Exchange........................... 24
Reports to Contract Owners................................................. 24
MORE ABOUT THE CONTRACT
Using the Contract......................................................... 24
Some Administrative Procedures............................................. 26
Other Contract Provisions.................................................. 27
Income Plans............................................................... 28
Group or Sponsored Arrangements............................................ 28
Unisex Legal Considerations for Employers.................................. 29
Selling the Contracts...................................................... 29
</TABLE>
2
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Tax Considerations......................................................... 30
Merrill Lynch Life's Income Taxes.......................................... 33
Reinsurance................................................................ 33
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account................................................. 33
Changes Within the Account................................................. 33
Net Rate of Return for an Investment Division.............................. 34
The Series Fund and the Variable Series Funds.............................. 34
Charges to Series Fund Assets.............................................. 35
Charges to Variable Series Funds Assets.................................... 36
The Zero Trusts............................................................ 36
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Cash Surrender Values and
Accumulated Payments...................................................... 37
EXAMPLES
Additional Payments........................................................ 45
Changing the Face Amount................................................... 45
Partial Withdrawals........................................................ 46
JOINT INSUREDS............................................................... 47
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
Directors and Executive Officers........................................... 50
Services Arrangement....................................................... 51
State Regulation........................................................... 52
Legal Proceedings.......................................................... 52
Experts.................................................................... 52
Legal Matters.............................................................. 52
Registration Statements.................................................... 52
Financial Statements....................................................... 52
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>
IMPORTANT TERMS
ADDITIONAL PAYMENT: is a payment which may be made after the "free look"
period.
ATTAINED AGE: is the issue age of the insured plus the number of full years
since the contract date.
CASH SURRENDER VALUE: is equal to the net cash surrender value plus any debt.
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.
DEATH BENEFIT: is the larger of the face amount and the variable insurance
amount.
DEATH BENEFIT PROCEEDS: are equal to the death benefit less any debt and less
any overdue charges.
DEBT: is the sum of all outstanding loans on a Contract plus accrued interest.
DEFERRED CONTRACT LOADING: is chargeable to all payments for sales load,
federal tax and premium tax charges. Merrill Lynch Life advances the amount of
the loading to the divisions as part of the investment base. This loading is
then deducted in equal installments on the next ten contract anniversaries
following the date the initial payment is received and accepted. Merrill Lynch
Life deducts the balance of the deferred contract loading not yet recouped in
determining a Contract's net cash surrender value.
FACE AMOUNT: is the minimum death benefit as long as the Contract remains in
force. The face amount will change if the change in face amount option is
chosen; it may increase as a result of an additional payment; or it may decrease
as a result of a partial withdrawal.
FIXED BASE: is calculated like the cash surrender value except that 4% is
substituted for the net rate of return, the guaranteed maximum cost of insurance
rates 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 and loading) would remain in force if
credited with 4% interest per year.
IN FORCE DATE: is the date when the underwriting process is complete, the
initial payment is received and outstanding contract amendments (if any) are
received.
INITIAL PAYMENT: is the payment required to put the Contract into effect.
INVESTMENT BASE: is the amount available under a Contract for investment in the
Separate Account at any time. A contract owner's investment base is the sum of
the amounts invested in each of the selected investment divisions.
INVESTMENT DIVISION: is any division in the Separate Account.
ISSUE AGE: is the insured's age as of his or her birthday nearest the contract
date.
NET AMOUNT AT RISK: is the excess of the death benefit over the cash surrender
value.
NET CASH SURRENDER VALUE: is equal to the investment base less the balance of
any deferred contract loading not yet recouped and, depending on the date it is
calculated, less all or a portion of certain other charges not yet deducted.
NET SINGLE PREMIUM FACTOR: is used to determine the amount of death benefit
purchased by $1.00 of cash surrender value. Merrill Lynch Life uses this factor
in the calculation of the variable insurance amount to make sure that the
Contract always meets the guidelines of what constitutes a life insurance
contract under the Internal Revenue Code.
PLANNED PERIODIC PAYMENT: is an additional payment made on a planned basis, the
amount, duration and frequency of which are elected in the application or at a
later date.
PROCESSING DATES: are the contract date and the first day of each contract
quarter thereafter. Processing dates after the contract date are the days when
Merrill Lynch Life deducts charges from the investment base.
PROCESSING PERIOD: is the period between consecutive processing dates.
VARIABLE INSURANCE AMOUNT: is computed daily by multiplying the cash surrender
value by the net single premium factor.
4
<PAGE>
SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACT
This flexible premium variable life insurance contract offers a choice of
investments and an opportunity for the Contract's investment base, net cash
surrender 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, net cash surrender 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 an insured up to age 75 (or up to age 80
for joint insureds). Merrill Lynch Life will consider issuing Contracts for
insureds above age 75 on an individual basis. Since the Contract is designed to
comply with the 7-pay test under federal tax law, contract owners must elect a
periodic payment plan providing for payments for at least seven years when they
apply for the Contract. Merrill Lynch Life will modify the payment plan, if
necessary, to ensure that it does comply with the 7-pay test. The minimum
initial payment is $2,000. For a discussion of the 7-pay test, see "Tax
Considerations" on page 30.
Subject to state regulation, contract owners may elect to pre-pay periodic
payments through a single payment by adding a single premium immediate annuity
rider which will fund the Contract. The amount> applied to purchase the SPIAR is
not allocated to the Separate Account and is not considered a payment to the
Contract. (See "Payments Under a Combination Periodic Payment Plan" on page 14.)
Pledging, assigning or gifting a Contract with a SPIAR may have tax consequences
to the contract owner. (See "Tax Considerations" on page 29.)
Merrill Lynch Life will not accept an initial payment that provides a guarantee
period of less than one year.
Subject to certain conditions, contract owners may make additional payments that
are not planned. (See "Payments Which are Not Under a Periodic Payment Plan" on
page 14.)
The Contract won't be available to insure residents of certain municipalities in
Kentucky where premium taxes in excess of a certain level are imposed.
For joint insureds, see modifications to this section on page 47.
JOINT INSUREDS
The Contract is also available to provide coverage on the lives of two insureds
with a death benefit payable on the death of the last surviving insured. Most of
the discussions in this Prospectus referencing a single insured may also be read
as though the single insured were the two insureds under a joint Contract. Those
discussions which are different for joint insureds are noted accordingly. (See
"Joint Insureds" on page 47.)
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.
- ---------
Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
5
<PAGE>
THE INVESTMENT DIVISIONS
The initial payment will be invested only 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 17.)
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
The death benefit equals the face amount or variable insurance amount, whichever
is larger. It may increase or decrease on any day depending on the investment
results of the investment divisions chosen by the contract owner. Death benefit
proceeds are reduced by any debt.
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. 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 AND CASH SURRENDER VALUE
Contract owners may surrender their Contracts at any time and receive the net
cash surrender value. On a contract anniversary, the net cash surrender value
equals the investment base minus the balance of any deferred contract loading
not yet deducted. 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.
For purposes of certain computations under the Contract, Merrill Lynch Life uses
the cash surrender value. It is calculated by adding the amount of any debt to
the net cash surrender value.
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 insurance.
RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR EXCHANGE
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 ten days after the contract owner
receives it. Some states allow a longer period of time to return the Contract.
If required by the contract owner's state, the Contract may be returned within
the later of ten days after receiving it and 45 days from the date the
application is completed. If the Contract is returned during the "free look"
period, Merrill Lynch Life will refund the payment without interest.
6
<PAGE>
A contract owner may also exchange his or her Contract within 18 months for a
contract with benefits that do not vary with the investment results of a
separate account.
HOW DEATH BENEFIT AND CASH SURRENDER VALUE INCREASES ARE TAXED
Under current federal tax law, life insurance contracts receive tax-favored
treatment. The death benefit is fully excludable from the beneficiary's gross
income for federal income tax purposes, according to Section 101(a)(1) of the
Internal Revenue Code. A contract owner is not taxed on any increase in the cash
surrender value while a life insurance contract remains in force. For a
discussion of the tax issues associated with this Contract, including taxation
of loans and partial withdrawals from, and collateral assignments of, the
Contract and the possible 10% penalty tax on such distributions, see "Tax
Considerations" on page 30. Contracts that comply with the 7-pay test receive
preferential tax treatment with respect to certain distributions.
LOANS
Contract owners may borrow up to the loan value of their Contracts, which is 90%
of the cash surrender value. (See "Loans" on page 21.)
Loans are deducted from the amount payable on surrender of the Contract and are
also deducted 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.
Depending upon investment performance of the divisions and the amounts borrowed,
loans may cause a Contract to lapse. If the Contract is not a modified endowment
contract, lapse of the Contract with loans outstanding may result in adverse tax
consequences. (See "Tax Considerations" on page 30).
PARTIAL WITHDRAWALS
Contract owners may make partial withdrawals after the fifteenth contract year,
subject to certain conditions. (See "Partial Withdrawals" on page 22.)
FEES AND CHARGES
INVESTMENT BASE CHARGES. Merrill Lynch Life invests the entire amount of all
premium payments in the Separate Account. It then deducts certain charges from
the investment base on processing dates. The charges deducted are as follows:
- deferred contract loading equals 9% of each payment. It consists of a
sales load of 4.5%, a charge for federal taxes of 2% and a state and local
premium tax charge of 2.5%. For joint insureds the deferred contract
loading equals 11% of each payment and consists of a sales load of 6.5%, a
charge for federal taxes of 2% and a state and local premium tax charge of
2.5%. Deferred contract loading is deducted in equal installments of .90%
(1.1% for joint insureds) of each payment. The deduction is taken on the
ten contract anniversaries following the date Merrill Lynch Life receives
and accepts the payment. However, Merrill Lynch Life subtracts the balance
of the deferred contract loading not yet deducted in determining a
Contract's net cash surrender value. Thus, this balance is deducted in
determining the amount payable on surrender of the Contract;
- on all processing dates after the contract date, Merrill Lynch Life makes
deductions for mortality cost (see "Mortality Cost" on page 18); and
- on each contract anniversary, Merrill Lynch Life makes deductions for the
net loan cost if there has been any debt during the prior year. Currently,
there is no net loan cost for amounts borrowed up to the target loan
amount (see "Charges Deducted From the Investment Base" on page 17).
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
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- a trust charge deducted from only those investment divisions investing in
the Zero Trusts, which is currently equivalent to .34% annually at the
beginning of the year and will never exceed .50% annually.
ADVISORY FEES. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 35 and "Charges to Variable Series Funds Assets" on page 36.)
OTHER CHARGES. If periodic payments are prepaid by purchasing a single premium
immediate annuity rider, Merrill Lynch Life deducts 5% of the single payment as
a charge for the rider. Any applicable premium taxes will also be deducted. (See
"Payments Under a Combination Periodic Payment Plan" on page 14.)
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
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through the Separate Account. The investment objectives of the Series Fund
portfolios are described below. There is no guarantee that any portfolio will
meet its investment objective. Meeting the objectives depends on how well Series
Fund management anticipates changing economic conditions.
MONEY RESERVE PORTFOLIO seeks to preserve capital and liquidity. It also seeks
the highest possible current income consistent with those objectives. It invests
in short-term money market securities.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO seeks the highest possible current income
consistent with the protection of capital. It invests in intermediate-term debt
securities issued or guaranteed by the U.S. Government or its agencies.
LONG-TERM CORPORATE BOND PORTFOLIO seeks as high a level of current income as is
consistent with prudent investment risk. It invests primarily in fixed-income,
high quality corporate bonds.
HIGH YIELD PORTFOLIO seeks high current income, consistent with prudent
management, by investing principally in fixed-income securities rated in the
lower categories of the established rating services or in unrated securities of
comparable quality (commonly known as "junk bonds").
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 35.)
THE VARIABLE SERIES FUNDS
The Merrill Lynch Variable Series Funds, Inc. is registered with the Securities
and Exchange Commission as an open-end management investment company. Six of its
18 mutual fund portfolios are currently available through the Separate Account.
The investment objectives of the six available Variable Series Funds portfolios
are described below. There is no guarantee that any portfolio will meet its
investment objective. Meeting the objectives depends on how well Variable Series
Funds management anticipates changing economic conditions.
BASIC VALUE FOCUS FUND seeks to attain capital appreciation, and secondarily,
income by investing in securities, primarily equities, that management of the
Fund believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price-earnings ratio.
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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.
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 36.)
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
Accounts 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 35). 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 .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.
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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 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 19.)
MERRILL LYNCH LIFE AND MLPF&S
Merrill Lynch Life is a stock life insurance company organized under the laws of
the State of Washington in 1986 and redomesticated under the laws of the State
of Arkansas in 1991. It is an indirect wholly owned subsidiary of Merrill Lynch
& Co., Inc. Merrill Lynch Life is authorized to sell life insurance and
annuities in 49 states, Guam, the U.S. Virgin Islands and the District of
Columbia. It is also authorized to offer variable life insurance and variable
annuities in most jurisdictions.
MLPF&S is a wholly owned subsidiary of Merrill Lynch & Co., Inc. and provides a
broad range of securities brokerage and investment banking services in the
United States. It provides marketing services for Merrill Lynch Life and is the
principal underwriter of the Contracts issued through the Separate Account.
Merrill Lynch Life retains MLPF&S to provide services relating to the Contracts
under a distribution agreement. (See "Selling the Contracts" on page 29.)
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. A Contract may be issued for an insured up to issue age 75. Merrill
Lynch Life will consider issuing Contracts for insureds above age 75 on an
individual basis. The insured's issue age is his or her age as of the birthday
nearest the contract date. The insured must also meet Merrill Lynch Life's
medical and other underwriting requirements.
Merrill Lynch Life uses two methods of underwriting:
- simplified underwriting, with no physical exam; and
- para-medical or medical underwriting with a physical exam.
The initial payment plus the planned periodic payments elected and the age and
sex (except where unisex rates are required by state law) of the insured
determine whether Merrill Lynch Life will do underwriting on a simplified or
medical basis. The maximum initial payment where a periodic payment plan is
selected, or the maximum initial payment plus the SPIAR payment where a
combination periodic plan is selected, that will be underwritten on a simplified
basis is set out in the charts below.
<TABLE>
<CAPTION>
COMBINATION PERIODIC
PLAN (SPIAR)
------------------------------
MAXIMUM
PERIODIC PLAN INITIAL
------------------------------ PAYMENT
MAXIMUM PLUS
INITIAL SPIAR
AGE PAYMENT AGE PAYMENT
--------------------- ------- --------------------- -------
<S> <C> <C> <C>
0-29................ $2,500 0-29................. $20,000
30-39................ 3,500 30-39................ 25,000
40-49................ 5,000 40-49................ 35,000
50-59................ 7,500 50-59................ 55,000
60-75................ 10,000 60-75................ 75,000
</TABLE>
However, if the face amount is above the minimum face amount required for an
initial payment (see "Selecting the Initial Face Amount" on page 12), Merrill
Lynch Life will also take the net amount at risk into account in determining the
method of underwriting.
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<PAGE>
Merrill Lynch Life assigns insureds to underwriting classes which determine the
current cost of insurance rates used in calculating mortality cost deductions.
In assigning insureds to underwriting classes, Merrill Lynch Life distinguishes
between those insureds underwritten on a simplified basis and those on a para-
medical or medical basis. Under both the simplified and medical underwriting
methods, Contracts may be issued on insureds either in the standard or
non-smoker underwriting class. Contracts may also be issued on insureds in a
substandard underwriting class. For a discussion of the effect of underwriting
classification on mortality cost deductions, see "Mortality Cost" on page 18.
For joint insureds, see modifications to this section on page 47.
PURCHASING A CONTRACT
To purchase a Contract the contract owner must complete an application and make
a payment. A periodic payment plan and the initial face amount are selected at
that time. The amount of the initial payment depends in part on the periodic
payment plan selected. Merrill Lynch Life will not accept an initial payment for
a specified face amount that will provide a guarantee period of less than one
year. (See "Selecting the Initial Face Amount" and "Initial Guarantee Period"
below.)
Insurance coverage generally begins on the contract date, which is usually the
next business day following receipt of the initial premium 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 $250,000 and may not be in effect for more than 60 days. As provided for
under state insurance law, the contract owner, to preserve insurance age, may be
permitted to backdate the Contract. In no case may the contract date be more
than six months prior to the date the application was completed. Charges for
cost of insurance for the backdated period are deducted on the first processing
date after the contract date.
For joint insureds, see modifications to this section on page 47.
SELECTING A PERIODIC PAYMENT PLAN. Contract owners select a periodic payment
plan in the application, subject to the rules discussed below. The amount,
duration and frequency of planned payments must be specified, but the minimum
duration is seven contract years, the minimum amount of planned payments is
$2,000 per contract year, the amounts selected must be level, and, in each
contract year under the plan, the amount of planned payments selected must equal
the initial payment. In addition, the plan must comply with the 7-pay test.
Merrill Lynch Life will modify the periodic payment plan selected, if necessary,
to ensure compliance with the 7-pay test. (See "Planned Payments" on page 13.)
SELECTING THE INITIAL FACE AMOUNT. Contract owners can specify the initial face
amount, within limits, subject to any minimum face amount requirements imposed
by the state in which they reside. These limits are based in part on the initial
payment and the periodic payment plan selected. The minimum initial face amount
is the amount that would satisfy the 7-pay test or, if greater, the face amount
that would provide a guarantee period for the whole of life assuming all
payments are made as planned under the periodic payment plan selected. (See
"Initial Guarantee Period" below.) If the contract owner elects to make planned
payments for a period shorter than the first nine contract years (or the first
ten contract years if the issue age of the insured is 71 or older), he or she
will not have a guarantee period for the whole of life at the end of the
periodic payment plan assuming all payments are made as planned. The maximum
face amount that may be specified is the amount which will provide the minimum
guarantee period, which in most states is one year. The initial face amount and
initial payment determine the guarantee period. If the initial face amount is in
excess of the minimum, the guarantee period will be shorter.
INITIAL GUARANTEE PERIOD. The initial guarantee period for a Contract will be
determined by the initial payment and face amount. It will not take the planned
payments into account. Instead, the guarantee period will be adjusted as each
planned payment is made.
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
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based on the guaranteed maximum cost of insurance rates in the Contract, the
deferred contract loading and a 4% interest assumption. This means that for a
given initial payment and face amount, different insureds will have different
guarantee periods depending on their age, sex and underwriting class. For
example, an older insured will have a shorter guarantee period than a younger
insured of the same sex and in the same underwriting class.
The maximum guarantee period is for the whole of the insured's life and the
minimum guarantee period in most states is one year.
PLANNED PAYMENTS
In the application contract owners select a periodic payment plan. This plan
must comply with Merrill Lynch Life's rules. (See "Selecting a Periodic Payment
Plan" on page 12.) The amount and duration of the planned payments selected, as
well as other factors, such as the face amount specified and the insured's age
and sex (except where unisex rates are required by state law), will affect
whether Merrill Lynch Life will do underwriting on a simplified or medical
basis. Once the selected plan is approved, a planned payment may be made at any
time without any additional evidence of insurability unless it increases the
face amount. In Kentucky, payments under a periodic payment plan may not be made
until after the first contract year.
Contract owners may elect another periodic payment plan at a date later than in
the application. The amount and duration of the payments elected, as well as
other factors, such as the current death benefit and the insured's age and sex
(except where unisex rates are required by state law), will affect whether
Merrill Lynch Life will require additional evidence of insurability. Currently,
Merrill Lynch Life will not allow the later election of a periodic payment plan
where additional evidence of insurability would put the insured in a different
underwriting class with different guaranteed or higher current cost of insurance
rates.
Contract owners may elect to make planned payments annually, semiannually or
quarterly, although no planned payments may be made until after the "free look"
period. Payments may also be made on a monthly basis if the contract owner
authorizes Merrill Lynch Life to deduct the payment from his or her checking
account (pre-authorized checking) or to withdraw the payment from his or her CMA
account. Merrill Lynch Life reserves the right to change or discontinue payment
deduction procedures. If a contract owner has the CMA Insurance Service, planned
payments under any of the above frequencies 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. For planned payments not being made under pre-authorized checking or
withdrawn from a CMA account, Merrill Lynch Life will send the contract owner
reminder notices.
Merrill Lynch Life may require satisfactory evidence of insurability before the
contract owner will be permitted to make any further additional payments under a
periodic payment plan if the payment increases the face amount of the Contract.
Failure to make a planned payment will affect the guarantee period. Making a
planned payment before the date specified for payment may affect the contract's
compliance with the 7-pay test. (See "Tax Considerations" on page 30.)
Contract owners may change the frequency, duration and the amount of planned
payments by sending a written request to the Service Center. They may request
one change in the amount, one change in the duration and one change in the
frequency of payments each contract year. Satisfactory evidence of insurability
may be required before the duration or the amount of payments can be increased.
The evidence requirements will be based on the amount of the increase in payment
and the duration, as well as other factors such as the current death benefit and
the insured's age and sex (except where unisex rates are required by state law).
For Contracts that otherwise comply with the 7-pay test, changing the frequency,
duration or the amount of planned payments may impact upon such compliance. (See
"Tax Considerations" on page 30.)
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<PAGE>
PAYMENTS UNDER A COMBINATION PERIODIC PAYMENT PLAN. Subject to state
regulation, contract owners may add a single premium immediate annuity rider
(SPIAR) to their Contract. This rider can be used as a convenient means to
pre-pay planned payments through a single deposit. It does so by providing a
fixed income for six years or more which can be used to fund the Contract.
The charge for this rider equals 5% of the rider's single payment amount and is
deducted directly from the single payment. Of this charge, 4.5% is attributable
to distribution expenses and 0.5% is attributable to issuance and administrative
expenses relating to the rider. This charge is in addition to the deferred
contract loading chargeable to payments made to the Contract from SPIAR income
payments. A charge for state premium taxes, which varies depending upon the
state in which the contract owner resides, is also deducted directly from the
single payment.
The deposit applied to purchase the SPIAR is not allocated to the Separate
Account and is not considered a payment to the Contract. Each amount paid under
the SPIAR and applied to the Contract is considered a payment to the Contract
when applied. Under this funding plan, a Contract should receive the favorable
tax treatment accorded to contracts which comply with the 7-pay test under
current federal tax law.
If the insured dies before the income period ends, Merrill Lynch Life will pay
the rider value in a lump sum to the beneficiary under the Contract. For tax
purposes, this payment won't be considered part of the life insurance death
benefit.
If the contract owner surrenders the rider before the end of the income period,
Merrill Lynch Life will pay the rider value over five years or apply it to a
lifetime income, as selected.
If the contract owner changes ownership of the Contract, Merrill Lynch Life will
change the owner of the SPIAR to the new owner of the contract.
If the contract owner dies before the income period ends, Merrill Lynch Life
will pay the remaining income payments to the new owner.
If the Contract ends because the insured dies (where the contract owner is not
the insured), because Merrill Lynch Life terminates the Contract, or because the
Contract is cancelled for its net cash surrender value, Merrill Lynch Life will
continue the annuity rider under the same terms. Alternatively, the contract
owner may choose one of the options available upon surrender of the rider.
The rider will not have any effect on the Contract's loan value. The reserves
for this rider will be held in Merrill Lynch Life's general account.
Pledging, assigning or gifting a Contract with the SPIAR may have tax
consequences to the contract owner. Contract owners are advised to consult their
tax advisor prior to effecting an assignment, pledge or gift of such a Contract.
For a discussion of the tax issues associated with use of a SPIAR, see "Tax
Considerations" on page 30.
The combination periodic plan is not available under a joint insureds Contract.
PAYMENTS WHICH ARE NOT UNDER A PERIODIC PAYMENT PLAN
After the "free look" period, contract owners may make additional payments which
are not under a periodic payment plan provided the attained age of the insured
is not over 80. Additional payments may be made at any time up to four times
each contract year. The minimum Merrill Lynch Life will accept for these
payments is $500. They may be made whether or not the contract owner is making
planned payments. In Kentucky, no additional payments may be made until after
the first contract year. For Contracts that otherwise comply with the 7-pay
test, making an additional payment that is not under the periodic payment plan
selected when the Contract was issued may impact upon such compliance. (See "Tax
Considerations" on page 30.)
Merrill Lynch Life may require satisfactory evidence of insurability before a
payment is accepted if the payment immediately increases the net amount at risk
under the Contract, if the contract owner is
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<PAGE>
otherwise making planned payments or if the guarantee period at the time of the
payment is one year or less. Currently, Merrill Lynch Life will not accept an
additional payment which is not under a periodic payment plan where the evidence
of insurability would put the insured in a different underwriting class with
different guaranteed or higher current cost of insurance rates.
If an additional payment requires evidence of insurability, Merrill Lynch Life
will invest that payment in the division investing in the Money Reserve
Portfolio. The additional payment will be invested in this division on the
business day next following receipt at the Service Center. Once the underwriting
is completed and the payment is accepted, the payment invested in the Money
Reserve Portfolio will automatically be allocated either according to
instructions or, if no instructions have been received, proportionately to the
investment base in the Contract's investment divisions.
EFFECT OF A PLANNED PAYMENT AND OTHER ADDITIONAL PAYMENTS
Currently, any additional payments (including planned payments) not requiring
evidence of insurability will be accepted the day they are received at the
Service Center. However, if acceptance of the payment would affect a Contract's
compliance with the 7-pay test, to the extent feasible, Merrill Lynch Life will
not accept that payment until the contract owner confirms his or her intent to
make that payment under those circumstances. If Merrill Lynch Life holds the
payment pending receipt of instructions, it will deposit the payment in its
general account and credit it with interest until the payment is returned or
accepted.
On the date Merrill Lynch Life receives and accepts an additional payment,
whether under a periodic payment plan or not, Merrill Lynch Life will:
- increase the Contract's investment base by the amount of the payment;
- increase the deferred contract loading (see "Deferred Contract Loading" on
page 17);
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount" on page 23); and
- increase the fixed base by the amount of the payment less the deferred
contract loading applicable to the payment (see "The Contract's Fixed
Base" on page 20).
If an additional payment requires evidence of insurability, once underwriting is
completed and the payment is accepted, acceptance will be effective, and the
additional payment will be reflected in contract values as described above, as
of the next business day after the payment is received at the Service Center.
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase either the guarantee period
or face amount or both. If the guarantee period prior to receipt and acceptance
of an additional payment is less than for life, payments will first be used to
extend the guarantee period. Any amount in excess of that required to extend the
guarantee period to the whole of life or any subsequent additional payment will
be used to increase the Contract's face amount.
Merrill Lynch Life will determine the increase in face amount by taking any
excess amount or subsequent additional payment, deducting the applicable
deferred contract loading, bringing the result up at an annual rate of 4%
interest from the date the additional payment is received and accepted to the
next processing date, and then multiplying by the applicable net single premium
factor. If the additional payment is received and accepted on a processing date,
the payment minus the deferred contract loading is multiplied by the applicable
net single premium factor. For a further discussion of the effect of additional
payments on a Contract's face amount, see "Additional Payments" in the Examples
on page 45.
Unless specified otherwise, if there is any debt, any payment made, other than
planned payments, ill be used first as a loan repayment with any excess applied
as an additional payment. (See "Loans" on page 21.)
For joint insureds, see the modifications to this section on page 47.
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<PAGE>
CHANGING THE FACE AMOUNT
After the first contract year, if the insured is in a standard or non-smoker
underwriting class, a contract owner may request a change in the face amount of
his or her Contract without making an additional payment subject to the rules
and conditions discussed below. A change in face amount is not permitted if the
attained age of the insured is over 80. The minimum change in face amount is
$10,000 and only one change may be made each contract year. A change in face
amount may affect the mortality cost deduction. (See "Mortality Cost" on page
18.)
The effective date of the change will be the next processing date following the
receipt and acceptance of a written request, provided it is received at the
Service Center at least seven days before the processing date.
Changing the face amount may have tax consequences. (See "Tax Considerations" on
page 30.)
INCREASING THE FACE AMOUNT. To increase the face amount of a Contract, Merrill
Lynch Life may require satisfactory evidence of insurability. When the face
amount is increased, the guarantee period is decreased. The maximum increase in
face amount is the amount which will provide the minimum guarantee period for
which Merrill Lynch Life would issue a Contract at the time of the request based
on the insured's attained age. Currently, Merrill Lynch Life will not permit an
increase in face amount where evidence of insurability, if required, would put
the insured in a different underwriting class with different guaranteed or
higher current cost of insurance rates.
DECREASING THE FACE AMOUNT. When the face amount of a Contract is decreased,
the guarantee period is increased. The maximum decrease in face amount is that
decrease which would provide the minimum face amount for which Merrill Lynch
Life would issue a Contract at the time of the request based on the insured's
attained age, sex (except where unisex rates are required by state law) and
underwriting class. Merrill Lynch Life won't permit a decrease in face amount
below the amount required to keep the Contract qualified as life insurance under
federal income tax laws.
DETERMINING THE NEW GUARANTEE PERIOD. As of the effective date of any change in
face amount, Merrill Lynch Life takes the fixed base on that date and, based on
the attained age and sex (except where unisex rates are required by state law)
of the insured and the new face amount of the Contract, it redetermines the
guarantee period. A 4% interest assumption and the guaranteed maximum cost of
insurance rates is used in these calculations. For a discussion of the effect of
changes in the face amount on a Contract's guarantee period, see "Changing the
Face Amount" in the Examples on page 45.
For joint insureds, see the modifications to this section on page 48.
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. 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 34.) The investment performance
reflects the deduction of Separate Account charges. (See "Charges to the
Separate Account" on page 19.)
Deductions for deferred contract loading, mortality cost and net loan cost, as
well as partial withdrawals and loans, decrease the investment base. (See
"Charges Deducted from the Investment Base" on page 17, "Partial Withdrawals" on
page 22 and "Loans" on page 21.) 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 investment base in
the investment divisions the contract owner has selected. (For special rules on
allocation of additional payments which require evidence of insurability, see
"Payments Which are Not Under a Periodic Payment Plan" on page 14.)
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INVESTMENT ALLOCATION DURING THE "FREE LOOK" PERIOD AND PREALLOCATION. During
the "free look" period, the initial payment will be invested only in the
investment division of the Separate Account 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 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 invest in up to five of the 36 investment divisions of 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.
However, Merrill Lynch Life may limit the number of changes permitted but not to
less than five each contract year. Contract owners will be notified if
limitations are imposed.
In order to change their investment base allocation, contract owners must call
or write to the Service Center. (See "Some Administrative Procedures" on page
26.) If the "free look" period has expired, Merrill Lynch Life will make the
change as soon as the request is received. Contract owners may give allocation
requests during the "free look" period and the allocation will be made
immediately following the end of the "free look" period.
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
tell Merrill Lynch Life in 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. Merrill Lynch Life also deducts certain asset and trust
charges daily from the investment results of each investment division in the
Separate Account in determining its net rate of return. Currently the asset and
trust charges are equivalent to .90% and .34% annually at the beginning of the
year. (See "Charges to the Separate Account" on page 19.) The portfolios in the
Series Fund and Variable Series Funds also pay monthly advisory fees and other
expenses. (See "Charges to Series Fund Assets" and "Charges to Variable Series
Funds Assets" on pages 35 and 36.) For a discussion of the charges applicable to
the SPIAR issued under a combination periodic plan, see page 14.
DEFERRED CONTRACT LOADING. 100% of all premium payments are invested in the
Separate Account. Chargeable to each payment is an amount called the deferred
contract loading. The deferred contract loading equals 9% of each payment. This
charge consists of a sales load, a charge for federal income taxes and a state
and local premium tax charge.
The sales load, equal to 4.5% of each payment, compensates Merrill Lynch Life
for sales expenses. The sales load may be reduced if cumulative payments are
sufficiently high to reach certain breakpoints (2% of payments in excess of $1.5
million and 0% of payments in excess of $4 million) and in certain group or
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<PAGE>
sponsored arrangements as described on page 28. Merrill Lynch Life anticipates
that the sales load charge may be insufficient to cover 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.
The charge for federal taxes, equal to 2% of each payment, compensates Merrill
Lynch Life for a significantly higher corporate income tax liability resulting
from changes made to the Internal Revenue Code by the Omnibus Budget
Reconciliation Act of 1990. (See "Merrill Lynch Life's Income Taxes" on page
33.) This charge is treated as a sales load for purposes of determining
compliance with the limitations on sales loads imposed by the Investment Company
Act of 1940 and applicable regulations thereunder.
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.
Although chargeable to each payment, Merrill Lynch Life advances the amount of
the deferred contract loading to the investment divisions as part of a contract
owner's investment base. It then takes back these funds in equal installments on
the ten contract anniversaries following the date a payment is received and
accepted. This means that an amount equal to .90% of each payment is deducted
from the investment base on each of the ten contract anniversaries following the
payment. However, in determining a Contract's net cash surrender value, Merrill
Lynch Life subtracts from the investment base the balance of the deferred
contract loading which is chargeable to any payment made but which has not yet
been deducted. Thus, this balance is deducted in determining the amount payable
on surrender of the Contract.
During the period that the deferred contract loading is included in the
investment base, a positive net rate of return will give greater increases in
net cash surrender value and a negative net rate of return will give greater
decreases in net cash surrender value than if the loading had not been included
in the investment base.
For joint insureds, see the modifications to this subsection on page 48.
MORTALITY COST. Merrill Lynch Life deducts a mortality cost from the investment
base on each processing date after the contract date. This charge compensates
Merrill Lynch Life for the cost of providing life insurance coverage for the
insured. It is based on the underwriting class assigned to the insured, the
insured's sex (except where unisex rates are required by state law) and attained
age and the Contract's net amount at risk.
To determine the mortality cost, Merrill Lynch Life multiplies the current cost
of insurance rate by the Contract's net amount at risk (adjusted for interest at
an annual rate of 4%). The net amount at risk is the difference, as of the
previous processing date, between the death benefit and the cash surrender
value.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates depending on the insured's underwriting class, sex (except
where unisex rates are required by state law) and attained age. For all
insureds, current cost of insurance rates distinguish between insureds in the
simplified underwriting class and medical underwriting class. For insureds age
20 and over, current cost of insurance rates also distinguish between insureds
in a smoker (standard) underwriting class and insureds in a non-smoker
underwriting class. For Contracts issued on insureds under the same underwriting
method, current cost of insurance rates are lower for an insured in a non-smoker
underwriting class than for an insured of the same age and sex in a smoker
(standard) underwriting class. Also, current cost of insurance rates are lower
for an insured in a medical underwriting class than for a similarly situated
insured in a simplified underwriting class. The simplified current cost of
insurance rates are higher because less underwriting is performed and therefore
more risk is incurred.
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
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Ordinary Mortality Table (CSO Table). Merrill Lynch Life may use rates that are
equal to or less than these rates, but never greater. The maximum rates for
Contracts issued on a substandard basis are based on a multiple of the 1980 CSO
Table. Any change in the cost of insurance rates will apply to all insureds of
the same age, sex and underwriting class whose Contracts have been in force for
the same length of time.
During the period between processing dates, the net cash surrender value takes
the mortality cost into account on a pro-rated basis. Thus, a pro-rata portion
of the mortality cost is deducted in determining the amount payable on surrender
of the Contract if the date of surrender is not a processing date.
For joint insureds, see the modifications to this subsection on page 48.
MAXIMUM MORTALITY COST. During the guarantee period, Merrill Lynch Life limits
the deduction for mortality cost if investment results are unfavorable. This is
done by substituting the fixed base for the cash surrender value in determining
the net amount at risk and by multiplying by the guaranteed cost of insurance
rate. Merrill Lynch Life will deduct this alternate amount from the investment
base when it is less than the mortality cost that would have otherwise been
deducted. In effect, during the guarantee period, a contract owner will not be
charged for mortality costs that are greater than those for a comparable fixed
contract, based on 4% interest and the same guaranteed cost of insurance rates.
(See "The Contract's Fixed Base" on page 20.)
NET LOAN COST. The net loan cost is explained under "Loans" on page 21.
CHARGES TO THE SEPARATE ACCOUNT
Each day Merrill Lynch Life deducts an asset charge from each division of the
Separate Account. The total amount of this charge is computed at .90% annually
at the beginning of the year. Of this amount, .75% is for
- the risk assumed by Merrill Lynch Life that insureds as a group will live
for a shorter time than actuarial tables predict. As a result, Merrill
Lynch Life would be paying more in death benefits than planned; and
- the risk assumed by Merrill Lynch Life that it will cost more to issue and
administer the Contracts than expected.
The remaining amount, .15%, is for
- the risks assumed by Merrill Lynch Life with respect to potentially
unfavorable investment results. One risk is that the Contract's cash
surrender value cannot cover the charges due during the guarantee period.
The other risk is that Merrill Lynch Life may have to limit the deduction
for mortality cost (see "Maximum Mortality Cost" above).
The total 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 our 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 its taxes, if any. Such a charge is
not currently imposed, but it may be in the future. However, see page 17 for a
discussion of tax charges included in deferred contract loading.
GUARANTEE PERIOD
Merrill Lynch Life guarantees that the Contract will stay in force for the
guarantee period. The guarantee period will be affected by a requested change in
the face amount and may also be affected by additional
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<PAGE>
payments. Each payment will extend the guarantee period until such time as it is
guaranteed for the insured's life. A partial withdrawal may affect the guarantee
period in certain circumstances. Merrill Lynch Life will not cancel the Contract
during the guarantee period unless the debt exceeds certain contract values.
(See "Loans" on page 21.) 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 will cancel the Contract if the cash surrender value
on a processing date is negative. This negative cash surrender value will be
considered an overdue charge. (See "Charges Deducted from the Investment Base"
on page 17.)
Merrill Lynch Life will notify the contract owner before cancelling the
Contract. He or she will then have 61 days to pay the charges due on the
processing date when the cash surrender value became negative. Merrill Lynch
Life will cancel the Contract at the end of this grace period if payment has not
yet been received.
Subject to state regulation, if Merrill Lynch Life cancels a Contract, it may be
reinstated while the insured is still living if:
- the reinstatement is requested within three years after the end of the
grace period;
- Merrill Lynch Life receives satisfactory evidence of insurability; and
- the reinstatement payment is paid. The reinstatement payment is the
minimum payment for which Merrill Lynch Life would then issue a Contract
for the minimum guarantee period with the same face amount as the original
Contract, based on the insured's attained age and underwriting class as of
the effective date of the reinstated Contract.
A reinstated Contract will be effective on the processing date on or next
following the date the reinstatement application is approved.
For joint insureds, see the modifications to this section on page 48.
THE CONTRACT'S FIXED BASE. On the contract date, the fixed base equals the cash
surrender value. From then on, the fixed base is calculated like the cash
surrender value except that the calculation substitutes 4% for the net rate of
return, the guaranteed maximum cost of insurance rates 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 surrender value for a
comparable fixed benefit contract with the same face amount and guarantee
period. After the guarantee period, the fixed base is zero. The fixed base is
used to limit the mortality cost deduction and Merrill Lynch Life's right to
cancel the Contract during the guarantee period.
NET CASH SURRENDER VALUE
A Contract's net cash surrender value fluctuates daily with the investment
results of the investment divisions selected. Merrill Lynch Life doesn't
guarantee any minimum net cash surrender value. On a processing date which is
also a contract anniversary, the net cash surrender value equals:
- the Contract's investment base on that date;
- minus the balance of the deferred contract loading which has not yet been
deducted from the investment base (see "Deferred Contract Loading" on page
17).
If the date of calculation is not a processing date, the net cash surrender
value is calculated in a similar manner but Merrill Lynch Life also subtracts a
pro-rata portion of the mortality cost which would otherwise be deducted on the
next processing date. And, if there is any existing debt, Merrill Lynch Life
will also subtract a pro-rata net loan cost on dates other than the contract
anniversary.
CANCELLING TO RECEIVE NET CASH SURRENDER VALUE. A contract owner may cancel the
Contract at any time while the insured is living. The request must be in writing
in a form satisfactory to Merrill Lynch Life. All rights to death benefits will
end the date the written request is sent to Merrill Lynch Life.
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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 28. The net cash surrender value will be
determined upon receipt of the written request at the Service Center.
For joint insureds, see the modifications to this subsection on page 48.
LOANS
Contract owners may use the Contract as collateral to borrow funds from Merrill
Lynch Life. The minimum loan is $1,000 unless the contract owner is borrowing to
make a payment on another Merrill Lynch Life variable life insurance contract.
In that case, the contract owner may borrow the exact amount required even if
it's less than $1,000. Contract owners may repay all or part of the loan any
time during the insured's lifetime. Each repayment must be for at least $1,000
or the amount of the debt, if less. Loan repayments will first be allocated to
loans above the target loan amount and then to loans from the target loan
amount. (See "Target Loan Amount" below.)
Certain states won't permit 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 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 SURRENDER VALUE. Whether or not a loan is
repaid, taking a loan will have a permanent effect on a Contract's cash
surrender value and may have a permanent effect on its death benefit. This is
because the collateral for a loan does not participate in the performance of the
investment divisions while the loan is outstanding. If the amount credited to
the collateral is more than what is earned in the investment divisions, the cash
surrender value will be higher as a result of the loan, as may be the death
benefit. Conversely, if the amount credited is less, the cash surrender value
will be lower, as may be the death benefit. In that case, the lower cash
surrender 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 surrender
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. The cash surrender value is the net cash
surrender value plus any debt.
TARGET LOAN AMOUNT. A loan is deemed to first be taken from the target loan
amount, if any, and then from amounts above the target loan amount. The target
loan amount is equal to the investment base at the time a loan is made, plus
prior loans not repaid, plus prior withdrawals made, less the initial and any
additional payments made.
INTEREST. While a loan is outstanding, Merrill Lynch Life charges interest of
6% annually, subject to state regulation. 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. The amount held in Merrill Lynch
Life's general account as collateral for loans taken up to the target loan
amount currently earns interest at 6% annually.
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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 and the collateral earnings
on the target loan amount currently are both 6% annually, there is no net loan
cost on loaned amounts up to the target loan amount. Since the interest charged
on amounts above the target loan amount is 6% and the collateral earnings on
such amounts are 4%, the net loan cost on loaned amounts above the target loan
amount is 2%. 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
surrender 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. If the Contract lapses
with a loan outstanding, adverse tax consequences may result. (See "Tax
Considerations" on page 30.)
PARTIAL WITHDRAWALS
Currently, after a Contract is in force for fifteen years, 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 $500. The maximum amount of each partial
withdrawal is set forth below.
<TABLE>
<CAPTION>
CONTRACT YEAR MAXIMUM
------------- -----------
<S> <C>
16........... 25% of payments made
17........... 50%
18........... 75%
19+.......... 100%
</TABLE>
The amount of any partial withdrawal may not exceed the loan value less any
debt. The total amount of partial withdrawals may not exceed the amount of the
initial payment plus any additional payments made under the Contract. A partial
withdrawal may not be repaid.
EFFECT ON INVESTMENT BASE, FIXED BASE AND DEATH BENEFIT. As of the effective
date of the withdrawal, the investment base and fixed base will be reduced by
the amount of the partial withdrawal. Merrill Lynch Life allocates this
reduction proportionately to the investment base in 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 GUARANTEED BENEFITS. As of the processing date on or next following a
partial withdrawal, Merrill Lynch Life reduces the Contract's face amount. This
is done by taking the fixed base as of that processing date and determining what
face amount that fixed base would support for the Contract's guarantee period.
If this produces a face amount below the minimum face amount for the Contract,
Merrill Lynch Life will reduce the face amount to that minimum and reduce the
guarantee period, based on the reduced face amount, the fixed base and the
insured's sex, (except where unisex rates are required by state law) attained
age and underwriting class. The minimum face amount for a Contract is the
greater of the minimum face amount for which Merrill Lynch Life would then issue
the Contract, based on the insured's sex, attained age and underwriting class,
and the minimum amount required to keep the Contract qualified as life insurance
under applicable tax law. For a discussion of the effect of partial withdrawals
on a Contract's guaranteed benefits, see "Partial Withdrawals" in the Examples
on page 46.
A partial withdrawal may affect compliance with the 7-pay test. For a discussion
of the tax issues associated with a partial withdrawal, see "Tax Considerations"
on page 30.
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Partial withdrawals are not available under a joint insureds Contract.
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 insured's death.
AMOUNT OF DEATH BENEFIT PROCEEDS. The death benefit proceeds are equal to the
death benefit, which is the larger of the current face amount and the variable
insurance amount, less any debt. The death benefit proceeds will also include
any amounts payable under any riders.
The values used in calculating the death benefit proceeds are as of the date of
death. The death benefit will never be less than the amount required to keep the
Contract qualified as life insurance under federal income tax laws. If the
insured dies during the grace period, the death benefit proceeds equal the death
benefit proceeds in effect immediately prior to the grace period reduced by any
overdue charges. (See "When the Guarantee Period is Less Than for Life" on page
20.)
VARIABLE INSURANCE AMOUNT. Merrill Lynch Life determines the variable insurance
amount daily by:
- calculating the cash surrender value; and
- multiplying by the net single premium factor (explained below).
The variable insurance amount will never be less than required by federal tax
law.
NET SINGLE PREMIUM FACTOR. The net single premium factor is used to determine
the amount of death benefit purchased by $1.00 of cash surrender value. It is
based on the insured's sex (except where unisex rates are required by state
law), underwriting class and attained age on the date of calculation. It
decreases daily as the insured's age increases. As a result, the variable
insurance amount as a multiple of the cash surrender value will decrease over
time. Also, net single premium factors may be higher for a woman than for a man
of the same age. A table of net single premium factors as of each anniversary is
included in the Contract.
TABLE OF ILLUSTRATIVE NET SINGLE PREMIUM FACTORS
ON ANNIVERSARIES
STANDARD UNDERWRITING CLASS
<TABLE>
<CAPTION>
ATTAINED AGE MALE FEMALE
- ------------- ----------- -----------
<S> <C> <C>
5 10.26605 12.37298
15 7.41158 8.96292
25 5.50384 6.48170
35 3.97197 4.64894
45 2.87749 3.36465
55 2.14058 2.48940
65 1.65786 1.87562
75 1.35394 1.45952
85 1.18029 1.21265
</TABLE>
For joint insureds, see the modifications to this section on page 48.
PAYMENT OF DEATH BENEFIT PROCEEDS
Merrill Lynch Life will generally pay the death benefit proceeds to the
beneficiary within seven days after all the information needed to process the
payment is received at its Service Center.
Merrill Lynch Life will add interest from the date of the insured's death to the
date of payment at an annual rate of at least 4%. The beneficiary may elect to
receive the proceeds either in a single payment or under one or more income
plans described on page 28. Payment may be delayed if the Contract is being
contested or under the circumstances described in "Using the Contract" on page
24 and "Other Contract Provisions" on page 27.
For joint insureds, see the modifications to this section on page 49.
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RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR EXCHANGE
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 ten days after
the Contract is received. Some states allow a longer period of time to return
the Contract. If required by the contract owner's state, the "free look" period
ends the later of ten days after receiving the Contract and 45 days from the
date the application is completed. 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 payments made without interest. If cancelled, Merrill
Lynch Life may require the contract owner to wait six months before applying
again.
EXCHANGING THE CONTRACT. Contract owners may exchange their Contracts for a
contract with benefits that do not vary with the investment results of a
separate account. A request to exchange must be in writing within 18 months of
the issue date of the Contract. Also, the original Contract must be returned to
Merrill Lynch Life's Service Center.
The new contract will have the same owner and beneficiary as those of the
original Contract on the date of the exchange. It will have the same issue age,
issue date, face amount, cash surrender value, benefit riders and underwriting
class as the original Contract on the date of the exchange. Any debt will be
carried over to the new contract.
Merrill Lynch Life will not require evidence of insurability to exchange for a
new contract.
For joint insureds, see the modifications to this section on page 49.
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
surrender value, any debt and, if there has been a change, the new face amount
and guarantee period. All figures will be as of the end of the immediately
preceding processing period. The statement will show the amounts deducted from
or added to the investment base during the processing period. The statement will
also include any other information that may be currently required by a contract
owner's state.
Contract owners will receive confirmation of all financial transactions. Such
confirmations will show the price per unit of each of the contract owner's
investment divisions, the number of units a contract owner has in the investment
division and the value of the investment division computed by multiplying the
quantity of units by the price per unit. (See "Net Rate of Return for an
Investment Division" on page 34.) The sum of the values in each investment
division is a contract owner's investment base.
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,
net cash surrender value, debt and any CMA account activity affecting the
Contract during the month.
MORE ABOUT THE CONTRACT
USING THE CONTRACT
OWNERSHIP. The contract owner is usually the insured, unless another owner has
been named in the application. The contract owner has all rights and options
described in the Contract.
The contract owner may want to name a contingent owner. If the contract owner
dies before the insured, the contingent owner will own the contract owner's
interest in the Contract and have all the contract owner's rights. If the
contract owner does not name a contingent owner, the contract owner's estate
will own the contract owner's interest in the Contract upon the owner's death.
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If there is more than one contract owner, Merrill Lynch Life will treat the
owners as joint tenants with rights of survivorship unless the ownership
designation provides otherwise. The owners must exercise their rights and
options jointly, except that any one of the owners may reallocate the Contract's
investment base by phone if the owner provides the personal identification
number as well as the Contract number. One contract owner must be designated, in
writing, to receive all notices, correspondence and tax reporting to which
contract owners are entitled under the Contract.
CHANGING THE OWNER. During the insured's lifetime, 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 30.)
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 30.
NAMING BENEFICIARIES. Merrill Lynch Life will pay the primary beneficiary the
death benefit proceeds of the Contract on the insured's death. If the primary
beneficiary has died, Merrill Lynch Life will pay the contingent beneficiary. If
no contingent beneficiary is living, Merrill Lynch Life will pay the insured's
estate.
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 beneficiary unless the beneficiary designation provides otherwise.
A contract owner has the right to change beneficiaries during the insured's
lifetime, unless the primary beneficiary designation has been made irrevocable.
If the designation is irrevocable, the primary beneficiary must consent when
certain rights and options are exercised under this Contract. If the beneficiary
is changed, 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.
CHANGING THE INSURED. If permitted by state regulation, and subject to certain
requirements, contract owners may request a change of insured once each contract
year. Merrill Lynch Life must receive a written request from the contract owner
and the proposed new insured. Neither the original nor the new insured can have
attained ages as of the effective date of the change less than 21 or more than
75. Merrill Lynch Life will also require evidence of insurability for the
proposed new insured. If the request for change is approved, insurance coverage
on the new insured will take effect on the processing date on or next following
the date of approval, provided the new insured is still living.
The Contract will be changed as follows on the effective date:
- The issue age will be the new insured's issue age (the new insured's age
as of the birthday nearest the contract date).
- The guaranteed maximum cost of insurance rates will be those in effect on
the contract date for the new insured's issue age, sex (except where
unisex rates are required by state law) and underwriting class.
- A charge for changing the insured will be deducted from the Contract's
investment base on the effective date. This charge will also be reflected
in the Contract's fixed base.The charge will equal $1.50 per $1,000 of
face amount with a minimum charge of $200 and a maximum of $1,500. This
charge may be reduced in certain group or sponsored arrangements as
described on page 28.
- The variable insurance amount will reflect the change of insured.
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- The Contract's issue date will be the effective date of the change.
The face amount or guarantee period may also change on the effective date
depending on the new insured's age, sex (except where unisex rates are required
by state law) and underwriting class. The new guarantee period cannot be less
than the minimum guarantee period for which Merrill Lynch Life would then issue
a Contract based on the new insured's attained age as of the effective date of
the change.
This option is not available for joint insureds.
For a discussion of the tax issues associated with changing the insured, see
"Tax Considerations" on page 30.
MATURITY PROCEEDS. The maturity date is the anniversary nearest the insured's
100th birthday. On the maturity date, Merrill Lynch Life will pay the net cash
surrender value to the contract owner, provided the 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.
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.
For joint insureds, see the modifications to this section on page 49.
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 a 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. Unless the contract owner has preallocated the
Contract's investment base, the personal identification number 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 17.)
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 taken.
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Merrill Lynch Life will wire the funds to the 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. 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 account at the financial
institution named on the contract owner's authorization. Merrill Lynch Life will
generally wire the funds within two working days of receipt of the request. If
the contract owner has the CMA Insurance Service, funds may be transferred
directly to that CMA account.
TELEPHONE REQUESTS. A telephone request for a loan, partial withdrawal or a
reallocation received before 4 p.m. (ET) generally will be processed the same
day. A request received at or after 4 p.m. (ET) will be processed the following
business day. Merrill Lynch Life reserves the right to change or discontinue
telephone transfer procedures.
OTHER CONTRACT PROVISIONS
IN CASE OF ERRORS IN THE APPLICATION. If an age or sex given in the application
is wrong, it could mean that the face amount or any other Contract benefit is
wrong. Merrill Lynch Life will pay what the payments made would have bought for
the guarantee period at the true age or sex.
INCONTESTABILITY. Merrill Lynch Life will rely on statements made in the
applications. Legally, they are considered representations, not warranties.
Merrill Lynch Life can contest the validity of a Contract if any material
misstatements are made in the initial application. Merrill Lynch Life can also
contest the validity of any change in face amount requested if any material
misstatements are made in any application required for that change. Merrill
Lynch Life can also contest any amount of death benefit which wouldn't be
payable except for the fact that an additional payment was made if any material
misstatements are made in the application required with the additional payment.
Subject to state regulation, Merrill Lynch Life will not contest the validity of
a Contract after it has been in effect during the insured's lifetime for two
years from the date of issue. Any change in face amount will not be contested
after the change has been in effect during the insured's lifetime for two years
from the date of the change. Nor will Merrill Lynch Life contest any amount of
death benefit attributable to an additional payment after the death benefit has
been in effect during the insured's lifetime for two years from the date the
payment was received and accepted.
PAYMENT IN CASE OF SUICIDE. Subject to state regulation, if the insured commits
suicide within two years from the Contract's issue date, Merrill Lynch Life will
pay only a limited death benefit. The benefit will be equal to the amount of the
payments made.
Subject to state regulation, if the insured commits suicide within two years of
the effective date of any increase in face amount requested, 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 mortality cost deductions made for
the increase.
If the insured commits suicide within two years of any date an additional
payment is received and accepted, any amount of death benefit which would not be
payable except for the fact that the additional payment was made will be limited
to the amount of the payment.
The death benefit will be reduced by any debt.
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
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the maximum extent of the law, Merrill Lynch Life reserves the right to return
any additional payments that would cause the Contract to fail to qualify as life
insurance under applicable tax law as interpreted by Merrill Lynch Life.
Further, Merrill Lynch Life reserves the right to make changes in the Contract
or its riders or to make distributions from the Contract to the extent it is
necessary to continue to qualify the Contract as life insurance. Any changes
will apply uniformly to all Contracts that are affected and contract owners will
be given advance written notice of such changes.
STATE VARIATIONS. Certain Contract features, including the "free look" right,
are subject to state variation. The contract owner should read his or her
Contract carefully to determine whether any variations apply in the state in
which the Contract is issued.
For joint insureds, see the modifications to this section on page 49.
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 insured's lifetime. If no plan has been
chosen when the insured dies, the beneficiary has one year to apply the death
benefit proceeds either paid or payable to that beneficiary to one or more of
the plans. The contract owner may also choose one or more income plans if the
Contract is cancelled for its net cash surrender value 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.
For joint insureds, see the modifications to this section on page 50.
Income plans include:
ANNUITY PLAN. An amount can be used to purchase a single premium
immediate annuity. (Annuity purchase rates will be 3% less than for new
annuitants.)
INTEREST PAYMENT. Amounts can be left with Merrill Lynch Life to earn
interest at an annual rate of at least 3%. Interest payments can be made
annually, semi-annually, quarterly or monthly.
INCOME FOR A FIXED PERIOD. Payments are made in equal installments for
up to 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
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meet certain requirements, including requirements for size and number of years
in existence. Group or sponsored arrangements that have been set up solely to
buy Contracts or that have been in existence less than six months will not
qualify for reduced charges.
Merrill Lynch Life makes any reductions according to rules in effect when an
application for a Contract or additional payment is approved. It may change
these rules from time to time. However, reductions in charges will not
discriminate unfairly against any person.
UNISEX LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983 the Supreme Court held in ARIZONA GOVERNING COMMITTEE V. NORRIS that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII 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.
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 Merrill Lynch Asset Management, 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 commission Merrill Lynch Life will pay to the applicable insurance
agency to be used to pay Contract commissions to registered representatives is
7.1% of each Contract premium. Additional annual compensation of no more than
0.10% of the Contract's investment base may also be paid to the registered
representatives. Commissions may be paid in the form of non-cash compensation.
If the contract owner has also purchased the single premium immediate annuity
rider (SPIAR) to fund his or her Contract, the maximum commission Merrill Lynch
Life will pay to the applicable insurance agency to be used to pay SPIAR
commissions to registered representatives is 4.5% of each SPIAR premium.
The amounts paid under the distribution and sales agreements related to
Contracts invested in the Separate Account for the year 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.
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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 Section 7702 definition can be met if
a life insurance contract satisfies either one of two tests that are contained
in that section. The manner in which these tests should be applied to certain
innovative features of the Contract offered in this Prospectus is not directly
addressed by Section 7702 or the proposed regulations issued thereunder. The
presence of these innovative Contract features, and the absence of final
regulations or any other pertinent interpretations of the tests, thus creates
some uncertainty about the application of the tests to the Contract.
Merrill Lynch Life believes that the Contract qualifies as a life insurance
contract for federal tax purposes. This means that:
- the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
- the contract owner should not be considered in constructive receipt of the
cash surrender value, including any increases, until actual cancellation
of the Contract (see "Tax Treatment of Loans and Other Distributions"
below).
Because of the absence of final regulations or any other pertinent
interpretations of the Section 7702 tests, it, however, is unclear whether
substandard risk Contracts or Contracts insuring more than one person will, in
all cases, meet the statutory life insurance contract definition. 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 27.)
DIVERSIFICATION. Section 817(h) of the Code provides that separate account
investments (or the investments of a mutual fund, the shares of which are owned
by separate accounts of insurance companies) underlying the Contract must be
"adequately diversified" in accordance with Treasury regulations in order for
the Contract to qualify as life insurance. The Treasury Department has issued
regulations prescribing the diversification requirements in connection with
variable contracts. The Separate Account, through the Series Fund 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 reserve 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.
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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.
Pre-death distributions from contracts that comply with the 7-pay test 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. Loans from these
contracts will be considered indebtedness of an owner and no part of a loan will
constitute income to the owner. However, a lapse of 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.
Any contract received in an exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts that is described in the
prospectus. A contract that is not originally classified as a modified endowment
contract can become so classified if there is a reduction in benefits during the
first seven contract years (including, for example, by a decrease in face
amount) 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. 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 (whether planned or unplanned) in order to preserve their
Contract's current tax treatment.
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
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 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 surrender value less the contract
owner's investment in the contract) immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, capitalized interest, collateral assignments, partial withdrawals and
complete surrenders) from modified endowment contracts to the extent they are
included in income, unless such amounts are distributed on or after the taxpayer
attains age 59 1/2, because the taxpayer is disabled, or as substantially equal
periodic payments over the taxpayer's life (or life expectancy) or over the
joint lives (or joint life expectancies) of the taxpayer and his or her
beneficiary.
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. Although this Contract is specifically designed to comply with the 7-pay
test and Merrill Lynch Life will modify the payment plan selected, if necessary,
to ensure that it complies with the test, certain actions by the contract owner
will affect the ability of Merrill Lynch Life to provide such a plan. Following
the payment plan as originally established will ensure that the Contract will
not be treated as a modified endowment contract. However, making payments in
addition to the planned periodic payments established at the onset of the
Contract (including payments made in connection with an increase in face
amount), accelerating the payment schedules or reducing the benefits during the
first seven contract years, 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, in the
case of a Contract with joint insureds, reducing the death benefit below the
lowest death benefit provided by the Contract during the
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first seven years 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.
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. There is a possibility that the part of the
loan equal to the target loan amount may be treated as subject to the rules of
Section 7872 of the Code. If so, the contract owner would be deemed to receive
imputed income. Futhermore, the contract owner would then be deemed to pay
Merrill Lynch Life additional interest accrued on the loan, which interest may
not be tax deductible. While the application of the Section 7872 imputed
interest rules to these loans is far from certain, some possibility of their
application does exist.
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.
TAXATION OF SINGLE PREMIUM IMMEDIATE ANNUITY RIDER. If a SPIAR is used to make
the payments on the Contract, a portion of each payment from the annuity will be
includible in income for federal tax purposes when distributed. The amount of
taxable income consists of the excess of the payment amount over the exclusion
amount. The exclusion amount is defined as the payment amount multiplied by the
ratio of the investment in the annuity rider to the total amount expected to be
paid by Merrill Lynch Life under the annuity.
If payments cease because of death before the investment in the annuity rider
has been fully recovered, a deduction is allowed for the unrecovered amount.
Moreover, if the payments continue beyond the time at which the investment in
the annuity rider has been fully recovered, the full amount of each payment will
be includible in income. If the SPIAR is surrendered before all of the scheduled
payments have been made by Merrill Lynch Life, the remaining income in the
annuity rider will be taxed just as in the case of life insurance contracts.
Payments under an immediate annuity rider are not subject to the 10% penalty tax
that is generally applicable to distributions from annuities made before the
recipient attains age 59 1/2.
Other than the tax consequences described above, and assuming that the SPIAR is
not subjected to a pledge, loan or partial withdrawal, no income will be
recognized to the contract owner or beneficiary.
The SPIAR does not exist independently of a contract. Accordingly, there are tax
consequences if a contract with a SPIAR is assigned, transferred by gift, or
pledged. An owner of a Contract with a SPIAR is advised to consult a tax advisor
prior to effecting an assignment, gift or pledge of the contract.
OTHER TRANSACTIONS. Changing the contract owner or the insured may have tax
consequences. Exchanging this Contract for another involving the same insured(s)
will have no tax 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. Changing the insured under
this Contract may not be treated as an exchange under Section 1035 but rather as
a taxable exchange.
OTHER TAXES. Federal estate and state and local estate, inheritance and other
taxes depend upon the contract owner's or the beneficiary's specific situation.
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
32
<PAGE>
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 ADVISER. 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 will result in a significantly higher corporate income tax
liability for Merrill Lynch Life in early contract years. Merrill Lynch Life
makes a charge, which is included in the Contract's deferred contract loading,
to compensate Merrill Lynch Life for the anticipated higher corporate income
taxes that result from the sale of a Contract. (See "Deferred Contract Loading"
on page 17.)
Merrill Lynch Life makes no other 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 any tax or other economic burden resulting from the
application of tax laws that it determines to be properly attributable to the
Separate Account or to the Contracts.
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 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.
33
<PAGE>
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 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 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 above.
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 Variable Series Funds' shareholder meetings. However, Merrill Lynch Life
will vote all Series Fund and Variable Series Funds shares attributable to
Contracts according to instructions received from contract owners. Shares
attributable to Contracts for which no voting instructions are received will be
voted in the same proportion as shares in the respective investment divisions
for which instructions are received. Shares not attributable to Contracts will
also be voted in the same proportion as shares in the respective divisions for
which instructions are received. If any federal securities laws or regulations,
or their present interpretation, change to permit Merrill Lynch Life to vote
Series Fund or Variable Series Funds shares in its own right, it may elect to do
so.
Merrill Lynch Life determines the number of shares that contract owners have in
an investment division by dividing their Contract's investment base in that
division by the net asset value of one share of the portfolio.
34
<PAGE>
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 instruction 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 initiated
by a contract owner 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.
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.
35
<PAGE>
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.
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
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Targeted Rate of Return to
Maturity as
Zero Trust Maturity Date of , 1994
- ---------- ------------------ -------------------------------
2008 February 15, 2008
<C> <S> <C>
2009 February 15, 2009
2010 February 15, 2010
2011 February 15, 2011
2013 February 15, 2013
2014
</TABLE>
TARGETED RATE OF RETURN TO MATURITY
Because the underlying securities in the Zero Trusts will grow to their face
value on the maturity date, it is possible to estimate a compound rate of growth
to maturity for the Zero Trust units.
But because the units are held in the Separate Account, the asset charge and the
trust charge (described in "Charges to the Separate Account" on page 19) must be
taken into account in estimating a net rate of return for the Separate Account.
The net 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 deferred
contract loading, mortality costs and any net loan cost deducted from a
Contract's investment base (described in "Charges Deducted from the Investment
Base" on page 17).
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 net rate of return to maturity for the Separate
Account will vary correspondingly.
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables on pages 39 through 44 demonstrate the way in which the Contract
works. The tables are based on the following ages, face amounts, payments and
guarantee periods and assume maximum mortality charges.
1. The illustration on page 39 is for a Contract issued to a male age 5
in the standard-simplified underwriting class with an initial payment of
$2,000, a face amount of $144,039 and an initial guarantee period of 15.50
years with planned periodic payments of $2,000 for six contract years.
2. The illustration on page 40 is for a Contract issued to a male age
35 in the standard-simplified underwriting class with an initial payment of
$3,500, a face amount of $96,919 and an initial guarantee period of 12.75
years with planned periodic payments of $3,500 for six contract years.
3. The illustration on page 41 is for a Contract issued to a female age
45 in the standard-simplified underwriting class with an initial payment of
$5,000, a face amount of $116,558 and an initial guarantee period of 10
years with planned periodic payments of $5,000 for six contract years.
4. The illustration on page 42 is for a Contract issued to a male age
55 in the standard-simplified underwriting class with an initial payment of
$7,500, a face amount of $107,681 and an initial guarantee period of 5.50
years with planned periodic payments of $7,500 for six contract years.
5. The illustration on page 43 is for a Contract issued to a male age
65 in the standard-simplified underwriting class with an initial payment of
$10,000, a face amount of $103,905 and an initial guarantee period of 3.25
years with planned periodic payments of $10,000 for six contract years.
37
<PAGE>
6. The illustration on page 44 is for a Contract issued to a male age
55 and a female age 55 in the medical underwriting class with an initial
payment of $10,000, a face amount of $205,818 and an initial guarantee
period of 17 years with planned periodic payments of $10,000 for six
contract years.
The tables show how the death benefit, investment base and 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 cash surrender value for a Contract would
be different from those shown if the actual rates of return averaged 0%, 6% and
12% over a period of years, but also fluctuated above or below those averages
for individual contract years.
The amounts shown for the death benefit, investment base and 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 35.) The actual
charge under a Contract for Series Fund and Variable Series Funds expenses and
the trust charge will depend on the actual allocation of the investment base and
may be higher or lower depending on how the investment base is allocated.
Taking into account the .90% asset charge in the Separate Account and the %
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 income taxes included in the deferred contract
loading, see "Deferred Contract Loading" on page 17). 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 insured's age, face amount and the payment amounts
requested. The illustration will also use current cost of insurance rates and
will assume that the proposed insured is in a standard underwriting class.
38
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 5
$2,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $144,039 INITIAL GUARANTEE PERIOD (1): 15.50 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ----------------------------------
CONTRACT YEAR PAYMENTS (2) OF END OF YEAR 0% 6% 12%
--------------- ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1................... $2,000 $ 2,100
2................... 2,000 4,305
3................... 2,000 6,620
4................... 2,000 9,051
5................... 2,000 11,604
6................... 2,000 14,284
7................... 2,000 17,098
8................... 0 17,953
9................... 0 18,851
10................... 0 19,793
15................... 0 25,262
20 (age 25) ......... 0 32,241
30 (age 35) ......... 0 52,518
60 (age 65) ......... 0 226,978
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (3) CASH SURRENDER VALUE (3)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT 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 (age 25) .........
30 (age 35)..........
60 (age 65)..........
<FN>
- --------------------------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 72.25 years
at the end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
</TABLE>
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 SHOWN 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
SURRENDER 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>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 35
$3,500 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $96,919 INITIAL GUARANTEE PERIOD (1): 12.75 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
DEATH BENEFIT (3)
TOTAL ASSUMING HYPOTHETICAL GROSS
PAYMENTS ANNUAL INVESTMENT RETURN OF
END OF MADE PLUS --------------------------------
CONTRACT YEAR PAYMENTS (2) INTEREST AT 5% 0% 6% 12%
--------------- ----------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
1................... $3,500 $ 3,675
2................... 3,500 7,534
3................... 3,500 11,585
4................... 3,500 15,840
5................... 3,500 20,307
6................... 3,500 24,997
7................... 3,500 29,922
8................... 0 31,418
9................... 0 32,989
10................... 0 34,638
15................... 0 44,208
20................... 0 56,422
30 (age 65) ......... 0 91,906
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (3) CASH SURRENDER VALUE (3)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END 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 65) .........
<FN>
- --------------------------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 44.75 years
at the end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
</TABLE>
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
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR
THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
FEMALE ISSUE AGE 45
$5,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $116,558 INITIAL GUARANTEE PERIOD (1): 10 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ----------------------------------
CONTRACT YEAR PAYMENTS (2) OF END OF YEAR 0% 6% 12%
--------------- ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1................... $5,000 $ 5,250
2................... 5,000 10,762
3................... 5,000 16,551
4................... 5,000 22,628
5................... 5,000 29,010
6................... 5,000 35,710
7................... 5,000 42,746
8................... 0 44,883
9................... 0 47,127
10................... 0 49,483
15................... 0 63,155
20 (age 65) ......... 0 80,603
30................... 0 131,294
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (3) CASH SURRENDER VALUE (3)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT 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 (age 65) .........
30...................
<FN>
- --------------------------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 40.25 years
at the end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
</TABLE>
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
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR
THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 55
$7,500 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $107,681 INITIAL GUARANTEE PERIOD (1): 5.50 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ----------------------------------
CONTRACT YEAR PAYMENTS (2) OF END OF YEAR 0% 6% 12%
--------------- ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1................... $7,500 $ 7,875
2................... 7,500 16,144
3................... 7,500 24,826
4................... 7,500 33,942
5................... 7,500 43,514
6................... 7,500 53,565
7................... 7,500 64,118
8................... 0 67,324
9................... 0 70,690
10 (age 65) ......... 0 74,225
15................... 0 94,732
20................... 0 120,905
30................... 0 196,941
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (3) CASH SURRENDER VALUE (3)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT 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 (age 65) .........
15...................
20...................
30...................
<FN>
- --------------------------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 27 years at
the end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
</TABLE>
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
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR
THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 65
$10,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $103,905 INITIAL GUARANTEE PERIOD (1): 3.25 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ----------------------------
CONTRACT YEAR PAYMENTS (2) OF END OF YEAR 0% 6% 12%
--------------- ----------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1................... $10,000 $ 10,500
2................... 10,000 21,525
3................... 10,000 33,101
4................... 10,000 45,256
5................... 10,000 58,019
6................... 10,000 71,420
7................... 10,000 85,491
8................... 0 89,766
9................... 0 94,254
10................... 0 98,967
15................... 0 126,309
20................... 0 161,206
30................... 0 262,588
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (3) CASH SURRENDER VALUE (3)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT 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...................
<FN>
- --------------------------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 19.25 years
at the end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
</TABLE>
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
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR
THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
JOINT INSUREDS: FEMALE ISSUE AGE 55/MALE ISSUE AGE 55
$10,000 INITIAL PAYMENT FOR MEDICAL UNDERWRITING CLASS
FACE AMOUNT: $205,818 INITIAL GUARANTEE PERIOD (1): 17 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ----------------------------
CONTRACT YEAR PAYMENTS (2) OF END OF YEAR 0% 6% 12%
--------------- ----------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1................... $10,000 $ 10,500
2................... 10,000 21,525
3................... 10,000 33,101
4................... 10,000 45,256
5................... 10,000 58,019
6................... 10,000 71,420
7................... 10,000 85,491
8................... 0 89,766
9................... 0 94,254
10................... 0 98,967
15................... 0 126,309
20................... 0 161,206
30................... 0 262,588
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (3) CASH SURRENDER VALUE (3)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT 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...................
<FN>
- --------------------------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 33.75 at the
end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
</TABLE>
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 INVESTMENT 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 SURRENDER 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.
44
<PAGE>
EXAMPLES
ADDITIONAL PAYMENTS
If the guarantee period is for the whole of life at the time an additional
payment is received and accepted (which means that planned periodic payments
have been made through contract year 9), as of the processing date on or next
following the date of the additional payment, Merrill Lynch Life will increase
the face amount to the amount that the Contract's fixed base, as of such
processing date, would support for the life of the insured.
Under these circumstances the amount of the increase in face amount 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 proportionately larger increase in face amount. And if
additional payments of the same amounts were made in earlier and later years,
those made in the later years would result in smaller increases to the face
amount.
Example 1 shows the effect on face amount of a $2,000 additional payment
received and accepted at the beginning of contract year ten. Example 2 shows the
effect of a $4,000 additional payment received and accepted at the beginning of
contract year ten. Example 3 shows the effect of a $2,000 additional payment
received and accepted at the beginning of contract year eleven. All three
examples assume that the guarantee period at the time of the additional payment
is for life and assume no other contract transactions have been made.
MALE ISSUE AGE: 55
PAYMENTS: INITIAL PAYMENT PLUS 8 PERIODIC PAYMENTS OF $7,500
FACE AMOUNT: $107,681
<TABLE>
<CAPTION>
EXAMPLE 1
---------------------------------------------
CONTRACT ADDITIONAL CHANGE IN NEW FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
-------- ---------- ----------- --------
<S> <C> <C> <C>
10 $2,000 $2,629 $110,310
<CAPTION>
EXAMPLE 2
---------------------------------------------
CONTRACT ADDITIONAL CHANGE IN NEW FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
-------- ---------- ----------- --------
<S> <C> <C> <C>
10 $4,000 $5,730 $113,411
<CAPTION>
EXAMPLE 3
---------------------------------------------
CONTRACT ADDITIONAL CHANGE IN NEW FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
-------- ---------- ----------- --------
<S> <C> <C> <C>
11 $2,000 $2,538 $110,219
</TABLE>
CHANGING THE FACE AMOUNT
As of the processing date on or next following receipt and acceptance of a
request for a change in face amount, Merrill Lynch Life will make the requested
change and adjust the guarantee period. For an increase in face amount, Merrill
Lynch Life will decrease the guarantee period and for a decrease in face amount,
Merrill Lynch Life will increase the guarantee period. To decrease the face
amount, the guarantee period must be less than for the whole of life at the time
of the request. A new guarantee period is established by taking the Contract's
fixed base as of the processing date and determining how long that fixed base
would support the face amount.
The amount of the increase or decrease in the guarantee period will depend on
the amount of increase or decrease in the face amount and the contract year in
which the change is made. If made at the same time to equivalent Contracts, a
larger increase in face amount would result in a greater decrease in the
guarantee period than a smaller increase in face amount. The same increase made
in two different years would result in a smaller decrease in the guarantee
period for the increase in face amount made in the later year.
45
<PAGE>
Examples 1 and 2 show the effect on the guarantee period of an increase in face
amount of $10,000 and $20,000 made at the beginning of contract year eight.
Example 3 shows the effect on the guarantee period of an increase in face amount
of $10,000 made at the beginning of contract year ten. All three examples assume
no other contract transactions have been made.
MALE ISSUE AGE: 55
PAYMENTS: INITIAL PAYMENT PLUS 6 PERIODIC PAYMENTS OF $7,500
FACE AMOUNT: $107,681
<TABLE>
<CAPTION>
EXAMPLE 1
----------------------------------------
CONTRACT INCREASE IN DECREASE IN
YEAR FACE AMOUNT GUARANTEE PERIOD
-------- ----------- ----------------
<S> <C> <C>
8 $10,000 2.00 years
<CAPTION>
EXAMPLE 2
----------------------------------------
CONTRACT INCREASE IN DECREASE IN
YEAR FACE AMOUNT GUARANTEE PERIOD
-------- ----------- ----------------
<S> <C> <C>
8 $20,000 3.50 years
<CAPTION>
EXAMPLE 3
----------------------------------------
CONTRACT INCREASE IN DECREASE IN
YEAR FACE AMOUNT GUARANTEE PERIOD
-------- ----------- ----------------
<S> <C> <C>
10 $10,000 1.75 years
</TABLE>
PARTIAL WITHDRAWALS
As of the processing date on or next following any partial withdrawal, Merrill
Lynch Life will reduce the Contract's face amount. The new face amount is
established by taking the Contract's fixed base as of the processing date and
determining what face amount that fixed base would support for the Contract's
guarantee period.
The amount of the reduction in the face amount will depend on the amount of the
partial withdrawal, the guarantee period 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 face amount than a smaller withdrawal. The same partial withdrawal made at
the same time from Contracts with the same face amounts but with different
guarantee periods would result in a greater reduction in the face amount for the
Contract with the longer guarantee period. A partial withdrawal made in a later
contract year would result in a smaller decrease in the face amount than if the
same amount was withdrawn in an earlier year.
Examples 1 and 2 show the effect on the face amount of partial withdrawals for
$5,000 and $10,000 taken at the beginning of contract year sixteen. Example 3
shows the effect on the face amount of a $10,000 partial withdrawal taken at the
beginning of contract year eighteen. All three examples assume no other contract
transactions have been made.
MALE ISSUE AGE: 55
PAYMENTS: INITIAL PAYMENT PLUS 6 PERIODIC PAYMENTS OF $7,500
FACE AMOUNT: $107,681
<TABLE>
<CAPTION>
EXAMPLE 1
----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
-------- ---------- -----------
<S> <C> <C>
16 $5,000 $100,208
<CAPTION>
EXAMPLE 2
----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
-------- ---------- -----------
<S> <C> <C>
16 $10,000 $ 92,734
<CAPTION>
EXAMPLE 3
----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
-------- ---------- -----------
<S> <C> <C>
18 $10,000 $ 93,312
</TABLE>
46
<PAGE>
If the reduction in face amount would be below the minimum face amount for a
Contract, Merrill Lynch Life will reduce the face amount to the minimum face
amount, and then reduce the guarantee period by taking the Contract's fixed base
as of the processing date and determining how long that fixed base would support
the reduced face amount.
JOINT INSUREDS
Contract owners may purchase a Contract on the lives of two insureds. Some of
the discussions in this Prospectus applicable to the Contract apply only to a
Contract on a single insured. Set out below are the modifications to the
designated sections of this Prospectus for joint insureds. Except in the
sections noted below, the discussions in this Prospectus referencing a single
insured, can be read as though the single insured were the two insureds under a
joint contract.
AVAILABILITY AND PAYMENTS (REFERENCE PAGE 5)
A Contract may be issued for insureds up to age 80.
Merrill Lynch Life will not accept an initial payment that will provide a
guarantee period of less than the minimum guarantee period for which it would
then issue a Contract based on the age of the younger insured. Such minimum will
range from 10 to 40 years depending on the age of the younger insured.
WHO MAY BE COVERED (REFERENCE PAGE 11)
Merrill Lynch Life will issue a Contract on the lives of two insureds provided
the relationship among the applicant and the insureds meets its insurable
interest requirements and provided neither insured is over age 80 and no more
than one insured is under age 20. The insureds' issue ages will be determined
using their ages as of their birthdays nearest the contract date.
The initial payment plus any planned periodic payments elected and the average
age of the insureds determine whether underwriting will be done on a simplified
or medical basis. The maximum amount underwritten on a simplified basis for
joint insureds depends on Merrill Lynch Life's administrative rules in effect at
the time of underwriting.
Under both simplified and medical underwriting methods, Contracts may be issued
on insureds in a standard underwriting class only.
PURCHASING A CONTRACT (REFERENCE PAGE 12)
Merrill Lynch Life will not accept an initial payment for a specified face
amount that will provide a guarantee period of less than the minimum guarantee
period for which Merrill Lynch Life would then issue a Contract based on the age
of the younger insured. The minimum will range from 10 to 40 years depending on
the age of the younger insured.
PLANNED PAYMENTS (REFERENCE PAGE 13)
Contract owners may change the frequency and the amount of planned payments
provided both insureds are living.
Planned payments must be received while at least one insured is living and not
more than 30 days before or 30 days after the date specified for payment.
A combination periodic plan is not available for joint insureds.
PAYMENTS WHICH ARE NOT UNDER A PERIODIC PAYMENT PLAN (REFERENCE PAGE 14).
Contract owners may make additional payments which are not under a periodic
payment plan only if both insureds are living and the attained ages of both
insureds are not over 80.
EFFECT OF A PLANNED PAYMENT AND OTHER ADDITIONAL PAYMENTS (REFERENCE PAGE 15).
If the guarantee period prior to receipt and acceptance of an additional payment
is less than for the life of the last surviving insured, the payment will first
be used to extend the guarantee period to the whole of life of the younger
insured.
47
<PAGE>
CHANGING THE FACE AMOUNT
INCREASING THE FACE AMOUNT (REFERENCE PAGE 16). Contract owners may increase
the face amount of their Contracts only if both insureds are living. A change in
face amount is not permitted if the attained age of either insured is over 80.
DECREASING THE FACE AMOUNT (REFERENCE PAGE 16). Contract owners may decrease
the face amount of their Contracts if either insured is living.
Any reduction in death benefit in a Contract on joint insureds, whether by a
change in face amount or other means, will probably result in a failure to
satisfy the 7-pay test and subsequent treatment as a modified endowment
contract.
CHARGES DEDUCTED FROM THE INVESTMENT BASE
DEFERRED CONTRACT LOADING (REFERENCE PAGE 17). The deferred contract loading
equals 11.0% of each payment. 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 6.5% of each payment compensates Merrill Lynch Life for
sales expenses. The sales load may be reduced if cumulative payments are
sufficiently high to reach certain break points (4% of payments in excess of
$1.5 million and 2% of payments in excess of $4 million). The charge for federal
taxes, equal to 2% of each payment, compensates Merrill Lynch Life for a
significantly higher corporate income tax liability resulting from changes made
to the Internal Revenue Code by the Omnibus Budget Reconciliation Act of 1990.
(See "Merrill Lynch Life's Income Taxes" on page 33.) The state and local
premium tax charge, equal to 2.5% of payments, compensates Merrill Lynch Life
for state and local premium taxes that must be paid when a payment is accepted.
Merrill Lynch Life deducts an amount equal to 1.1% of each payment from the
investment base on each of the ten contract anniversaries following payment.
MORTALITY COST (REFERENCE PAGE 18). For Contracts issued on joint insureds,
current cost of insurance rates are equal to the guaranteed maximum cost of
insurance rates set forth in the Contract. Those rates are based on the 1980
Commissioners Aggregate Mortality Table and do not distinguish between insureds
in a smoker underwriting class and insureds in a non-smoker underwriting class.
The cost of insurance rates are based on an aggregate class which is made up of
a blend of smokers and non-smokers.
GUARANTEE PERIOD
WHEN THE GUARANTEE PERIOD IS LESS THAN FOR LIFE (REFERENCE PAGE 20). If Merrill
Lynch Life cancels a Contract, it may be reinstated only if neither insured has
died between the date the Contract was terminated and the effective date of the
reinstatement and the contract owner meets the other conditions listed on page
19.
NET CASH SURRENDER VALUE
CANCELLING TO RECEIVE NET CASH SURRENDER VALUE (REFERENCE PAGE 20). Contract
owners may cancel their Contracts at any time while either insured is living.
PARTIAL WITHDRAWALS (REFERENCE PAGE 22)
Partial withdrawals are not available for joint insureds.
DEATH BENEFIT PROCEEDS (REFERENCE PAGE 23)
Merrill Lynch Life will pay the death benefit proceeds to the beneficiary when
all information needed to process the payment, including due proof of the last
surviving insured's death, has been received at the Service Center. 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 increase in face amount
requested or within two years from the date an
48
<PAGE>
additional payment was received and accepted, proof of the insured's death
should be sent promptly to the Service Center since Merrill Lynch Life may only
pay a limited benefit or contest the Contract. (See "Incontestability" and
"Payment in Case of Suicide"on page 27.)
NET SINGLE PREMIUM FACTOR (REFERENCE PAGE 23). The net single premium factors
are based on the insureds' sexes and underwriting classes and the attained ages
on the date of calculation.
PAYMENT OF DEATH BENEFIT PROCEEDS (REFERENCE PAGE 23)
If a payment is delayed, 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%.
RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR EXCHANGE
EXCHANGING THE CONTRACT (REFERENCE PAGE 24). A contract owner may exchange his
or her Contract for a joint and last survivor Contract with benefits that do not
vary with the investment results of a separate account.
USING THE CONTRACT
OWNERSHIP (REFERENCE PAGE 24). The contract owner is usually one of the
insureds, unless another owner has been named in the application.
The contract owner, may want to name a contingent owner in the event the
contract owner dies before the last surviving insured. The contingent owner
would then own the contract owner's interest in the Contract and have all the
contract owner's rights.
NAMING BENEFICIARIES (REFERENCE PAGE 25). Merrill Lynch Life pays the primary
beneficiary the proceeds of this Contract on the last surviving insured's death.
If no contingent beneficiary is living, Merrill Lynch Life pays the last
surviving insured's estate.
CHANGING THE INSURED (REFERENCE PAGE 25). Not available for joint insureds.
MATURITY PROCEEDS (REFERENCE PAGE 26). 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 living.
OTHER CONTRACT PROVISIONS
INCONTESTABILITY (REFERENCE PAGE 27). 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 issue date. It won't contest any change in face
amount requested after the change has been in effect during the lifetimes of
both insureds for two years from the date of the change. Nor will Merrill Lynch
Life contest any amount of death benefit attributable to an additional payment
after the death benefit has been in effect during the lifetimes of both insureds
for two years from the date the payment has been received and accepted.
PAYMENT IN CASE OF SUICIDE (REFERENCE PAGE 27). If either insured commits
suicide within two years from the issue date, Merrill Lynch Life will pay only a
limited benefit and terminate the Contract. The benefit will be equal to the
payments made reduced by any debt.
If either insured commits suicide within two years of the effective date of any
increase in face amount requested, the coverage attributable to the increase
will be terminated and a limited benefit will be paid. The benefit will be
limited to the amount of mortality cost deductions made for the increase.
If either insured commits suicide within two years of any date an additional
payment is received and accepted, the coverage attributable to the payments will
be terminated and only a limited benefit will be paid. The benefit will be equal
to the payment less any debt attributable to amounts borrowed during the two
years from the date the payment was received and accepted.
ESTABLISHING SURVIVORSHIP (ONLY APPLICABLE TO JOINT INSUREDS). 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.
49
<PAGE>
INCOME PLANS (REFERENCE PAGE 28)
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 him
or her to one or more of the income plans.
MORE ABOUT MERRILL 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. 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,
50
<PAGE>
Fenner & Smith Incorporated. From January 1991 to January 1992, he held the
position of District Director of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Prior to January 1991, he held the position of Senior Regional
Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Mr. Boucher joined Merrill Lynch Life in May 1992. Prior to May 1992, he held
the position of Vice President of Monarch Financial Services, Inc. (formerly
Monarch Resources, Inc.)
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>
<S> <C>
NAME OFFICE HELD
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.
51
<PAGE>
SERVICES ARRANGEMENT
Merrill Lynch Life and its parent, Merrill Lynch Insurance Group, Inc. ("MLIG")
are parties to a service agreement pursuant to which MLIG has agreed to provide
certain data processing, legal, actuarial, management, advertising and other
services to Merrill Lynch Life, including services related to the Separate
Account and the Contracts. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by Merrill Lynch Life on an allocated cost basis.
Charges billed to Merrill Lynch Life by MLIG pursuant to the agreement were $
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 at 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 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.
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.
52
<PAGE>
FINANCIAL STATEMENTS TO BE FILED BY AMENDMENT
<PAGE>
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 judgement 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 brought
shall determine 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.
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.
II-1
<PAGE>
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)(B) under the
Investment Company Act of 1940 with respect to the policies described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk and guaranteed benefits
risk charge is within the range of industry practice for comparable flexible
or scheduled contracts.
(3) Registrant has concluded that there is a reasonable likelihood that
the distribution financing arrangement of the Separate Account will benefit
the Separate Account and policyowners and will keep and make available to
the Commission on request a memorandum setting forth the basis for this
representation.
(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-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 52 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> <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. 33-41829 Filed July 24, 1991)
(2) Not applicable
(3) (a) Form of 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) Form of 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. See Exhibit A(3)(b)
(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) Not applicable
(5) (a) (1) Flexible Premium Variable Life Insurance Policy (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829
Filed April 16, 1992)
(2) Flexible Premium Joint and Last Survivor Variable Life Insurance Policy
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form
S-6 Registration No. 33-41829 Filed April 16, 1992)
(b)(1) Backdating Endorsement (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April 16, 1992)
(2)(a) Guarantee of Insurability Rider for Flexible Premium Variable Life Insurance
Policy (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1
to Form S-6 Registration No. 33-41829 Filed April 16, 1992)
(b) Guarantee of Insurability Rider for Flexible Premium Joint and Last Survivor
Variable Life Insurance Policy (Incorporated by Reference to Registrant's Pre-
Effective Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April 16,
1992)
(3)(a) Single Premium Immediate Annuity Rider for Flexible Premium Variable Life
Insurance Policy (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April 16, 1992)
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(b) Single Premium Immediate Annuity Rider for Flexible Premium Joint and Last
Survivor Variable Life Insurance Policy (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829
Filed April 16, 1992)
(4) Flexible Premium Joint and Last Survivor Partial Withdrawal Rider for use with
Flexible Premium Joint and Last Survivor Variable Life Insurance Policy
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form
S-6 Registration No. 33-41829 Filed April 16, 1992)
(5) Flexible Premium Partial Withdrawal Rider for use with Flexible Premium Variable
Life Insurance Policy (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April 16, 1992)
(6) Change of Insured Rider for use with Flexible Premium Variable Life Insurance
Policy (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1
to Form S-6 Registration No. 33-41829 Filed April 16, 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.
33-41829 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. 33-41829 Filed April 16, 1992)
(7) Not applicable
(8) (a) Form of 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) Form of 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) Form of 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. 33-41829 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. 33-41829 Filed April 16, 1992)
(10) (a) Variable Life Insurance Application (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April
16, 1992)
(b) Variable Life Insurance Supplemental Application 1 (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829
Filed April 16, 1992)
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(c) Application for Additional Payment for Variable Life Insurance (Incorporated by
Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration
No. 33-41829 Filed April 16, 1992)
(d) Application for Reinstatement (Incorporated by Reference to Registrant's Pre-
Effective Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April 16,
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 (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(b) Power of Attorney of David E. Dunford (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(c) Power of Attorney of John C.R. Hele (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(d) Power of Attorney of Allen N. Jones (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(e) Power of Attorney of Barry G. Skolnick (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-55472 Filed March 1, 1994)
(f) Power of Attorney of Anthony J. Vespa (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
8. (a) Written Consent of Barry G. Skolnick, Esq. (See Exhibit 3)
(b) Written Consent of Joseph E. Crowne, F.S.A. (See Exhibit 6)
(c) Written Consent of Sutherland, Asbill & Brennan (To be filed by Amendment)
(d) Written Consent of Deloitte & Touche, independent certified public accountants
(To be filed by Amendment)
</TABLE>
II-5
<PAGE>
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 __ 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
* Director, Senior Vice President, Chief Financial
-------------------------------------- Officer, Chief Actuary, and Treasurer
Joseph E. Crowne
* Director, Senior Vice President, and Chief
-------------------------------------- Investment Officer
David M. Dunford
* Director and Senior Vice President
--------------------------------------
John C.R. Hele
* Director
--------------------------------------
Allen N. Jones
*By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior Vice
---------------------------------- President, and General Counsel and as
Barry G. Skolnick Attorney-In-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<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. 33-41829 Filed July 24, 1991)
(2) Not applicable
(3) (a) Form of 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) Form of 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. See Exhibit A(3)(b)
(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) Not applicable
(5) (a) (1) Flexible Premium Variable Life Insurance Policy (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829
Filed April 16, 1992)
(2) Flexible Premium Joint and Last Survivor Variable Life Insurance Policy
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form
S-6 Registration No. 33-41829 Filed April 16, 1992)
(b)(1) Backdating Endorsement (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April 16, 1992)
(2)(a) Guarantee of Insurability Rider for Flexible Premium Variable Life Insurance
Policy (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1
to Form S-6 Registration No. 33-41829 Filed April 16, 1992)
(b) Guarantee of Insurability Rider for Flexible Premium Joint and Last Survivor
Variable Life Insurance Policy (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April
16, 1992)
(3)(a) Single Premium Immediate Annuity Rider for Flexible Premium Variable Life
Insurance Policy (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April 16, 1992)
(b) Single Premium Immediate Annuity Rider for Flexible Premium Joint and Last
Survivor Variable Life Insurance Policy (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829
Filed April 16, 1992)
(4) Flexible Premium Joint and Last Survivor Partial Withdrawal Rider for use with
Flexible Premium Joint and Last Survivor Variable Life Insurance Policy
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form
S-6 Registration No. 33-41829 Filed April 16, 1992)
(5) Flexible Premium Partial Withdrawal Rider for use with Flexible Premium Variable
Life Insurance Policy (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April 16, 1992)
</TABLE>
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<S> <C> <C> <C> <C>
(6) Change of Insured Rider for use with Flexible Premium Variable Life Insurance
Policy (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1
to Form S-6 Registration No. 33-41829 Filed April 16, 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.
33-41829 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. 33-41829 Filed April 16, 1992)
(7) Not applicable
(8) (a) Form of 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) Form of 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) Form of 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. 33-41829 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. 33-41829 Filed April 16, 1992)
(10) (a) Variable Life Insurance Application (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April
16, 1992)
(b) Variable Life Insurance Supplemental Application 1 (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829
Filed April 16, 1992)
(c) Application for Additional Payment for Variable Life Insurance (Incorporated by
Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration
No. 33-41829 Filed April 16, 1992)
(d) Application for Reinstatement (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41829 Filed April
16, 1992)
(11) Memorandum describing Merrill Lynch Life Insurance Company's Issuance, Transfer
and Redemption Procedures
2. See Exhibit 1.A.(5)
</TABLE>
II-9
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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 (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(b) Power of Attorney of David E. Dunford (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(c) Power of Attorney of John C.R. Hele (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(d) Power of Attorney of Allen N. Jones (Incorporated by Reference to Registrant's
Post-Effective Amendment No.2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(e) Power of Attorney of Barry G. Skolnick (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-55472 Filed March 1, 1994)
(f) Power of Attorney of Anthony J. Vespa (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
8. (a) Written Consent of Barry G. Skolnick, Esq. (See Exhibit 3)
(b) Written Consent of Joseph E. Crowne, F.S.A. (See Exhibit 6)
(c) Written Consent of Sutherland, Asbill & Brennan (To be filed by Amendment)
(d) Written Consent of Deloitte & Touche, independent certified public accountants
(To be filed by Amendment)
</TABLE>
II-10
<PAGE>
Merrill Lynch Life Insurance
Company
Administrative Offices
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Writer's Direct Dial
609 282
[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.
33-41829) filed by the Company and the Account with the 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>
Description of Merrill Lynch Life Insurance Company's
Issuance, Transfer and Redemption Procedures
for Contracts Pursuant to
Rule 6e-3(T)(b)(12)(iii)
This document sets forth the administrative procedures that will be
followed by Merrill Lynch Life Insurance Company ("Merrill Lynch Life") in
connection with the issuance of certain of its flexible premium variable life
insurance contracts ("Contracts") issued through Merrill Lynch Variable Life
Separate Account ("Separate Account"), the transfer of assets held under the
Contracts, and the redemption by owners of their interests in said Contracts.
PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE CONTRACTS
A. TERM COST STRUCTURE, PAYMENTS AND UNDERWRITING STANDARDS
The term cost charges for Merrill Lynch Life's Contract will not be the
same for all contract owners. Insurance is based on the principle of pooling
and distribution of mortality risks which assumes that each owner is charged a
cost of insurance commensurate with the insured's mortality risk as actuarially
determined, reflecting factors such as age, sex, health, and occupation. A
uniform term cost for all insureds would discriminate unfairly in favor of those
insureds representing greater risks. Although there will be no uniform term
costs for all insureds, for a given face amount and guarantee period there will
be a uniform term cost schedule for all insureds of the same issue age, sex and
underwriting classification. Similarly, the face amount that a
<PAGE>
contract owner can purchase with an initial payment will also vary to reflect
factors similar to those that affect term cost charges.
The Contract is a variable life insurance contract providing coverage on an
insured named under the Contract and payable upon the death of the insured. The
Contract is also available to provide insurance coverage on the lives of two
insureds ("joint insureds") with a death benefit payable upon the death of the
last surviving insured. 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 contract owner has a
guarantee period for life. The Contract will not be canceled 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 surrender 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 payment and the payment plan selected. The minimum face
amount is the amount that would satisfy the 7-pay test under Federal tax law or,
if greater, the face amount that would give a guarantee period for the whole of
life assuming all payments are made under the plan. For a given initial payment
and face amount the guarantee period is based on the guaranteed maximum cost of
insurance rates in the Contract, the deferred contract loading and a 4% interest
assumption. Thus for a given initial payment and face amount different insureds
will have different guarantee periods depending on their age, sex and
underwriting class.
2
<PAGE>
The Contract will be offered and sold pursuant to an established mortality
structure and underwriting standards in accordance with state insurance laws.
Where state insurance laws prohibit the use of actuarial tables that distinguish
between men and women in determining premiums and contract benefits for their
insured residents, Merrill Lynch Life will comply. In addition, the payment to
be made by an owner will be specified in the Contract.
B. APPLICATION AND PAYMENT PROCESSING
When a completed application is received, Merrill Lynch Life will follow
certain insurance underwriting (i.e., evaluation of risks) procedures designed
to determine whether the proposed insured is insurable. This process may
require that further information be provided by the proposed insured before a
determination can be made. Merrill Lynch Life uses two methods of underwriting,
simplified underwriting and para-medical or medical underwriting. Insureds in a
standard classification will have their maximum cost of insurance rates based on
the 1980 CSO mortality table. For insureds in a substandard underwriting class,
Merrill Lynch Life will use a multiple of these tables. During the underwriting
process, Merrill Lynch Life may, however, provide temporary life insurance
coverage, the death benefit of which shall not exceed $250,000, until coverage
begins under the Contract, provided the premium has been paid.
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 Contracts. The
3
<PAGE>
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 the Merrill Lynch Life's Variable Life Service
Center (the "Service Center"), which is generally the contract date.
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 after the contract
date are the days when Merrill Lynch Life deducts certain charges from a
Contract's investment base. As provided for under state insurance law, the
owner, to preserve insurance age, may be permitted to backdate the Contract. In
no case may the contract date be more than six months prior to the date the
application was executed.
During the "free look" period the initial premium will be invested in the
investment division investing in the Money Reserve Portfolio. At the end of the
"free look" period, the investment base will be allocated among the investment
divisions in accordance with the owner's instructions. The contract owner may
select up to five of the 36 investment divisions of 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 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 in force date is the date when the
4
<PAGE>
underwriting process is complete, the initial payment is received and
outstanding contract amendments (if any) are received.
If an age or sex given in the application is wrong, the face amount or any
other Contract benefit may also be wrong. Merrill Lynch Life will pay the
benefit that any payment would have bought at the correct age or sex.
C. ADDITIONAL PAYMENTS
An owner may make additional payments (under a periodic plan or otherwise)
subject to Merrill Lynch Life's rules. For joint insureds, both insureds must
be alive before Merrill Lynch Life will accept an additional payment, except in
certain situations as described in the prospectus for the Contract. On the date
Merrill Lynch Life receives and accepts an additional payment, whether under a
periodic plan or not, it will (1) increase the investment base by the amount of
such payment; (2) increase the fixed base by the amount of the payment less the
deferred contract loading applicable to such payment; (3) increase the deferred
contract loading; and (4) reflect the payment in the calculation of the variable
insurance amount. Merrill Lynch Life may in certain circumstances require
additional evidence of insurability before accepting an additional payment.
Where an additional payment would not require evidence of insurability, the
additional payment will be allocated among the investment divisions in
accordance with the owner's instructions or, if no instructions have been
received, in proportion to the investment base in each division on that date.
The payment will be credited to the Contract on the date of receipt at the
Service Center. On that date, Merrill Lynch Life will
5
<PAGE>
increase the investment base by the amount of the payment and increase the fixed
base by the amount of the payment less the deferred contract loading applicable
to such payment and reflect the payment in the variable insurance amount.
When an additional payment requires evidence of insurability, the
additional payment will be invested in the investment division investing in the
Money Reserve Portfolio on the next business day following receipt of the
payment at the Service Center. On the day Merrill Lynch Life completes its
underwriting and accepts the additional payment, the investment base applicable
to the additional payment in the division investing in the Money Reserve
Portfolio will be allocated among the investment divisions in accordance with
the owner's instructions or if no instructions have been received in proportion
to the investment base in each division on that date. Once underwriting is
completed and the payment is accepted, the payment will be reflected in the
investment base, fixed base and variable insurance amount as of the next
business day following receipt of the payment at the Service Center.
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 insured's guaranteed benefits by increasing either the insured's guarantee
period or face amount or both. If the guarantee period prior to the receipt and
acceptance of an additional payment is less than for life, payments will first
be used to extend the guarantee period. For joint insureds, if the guarantee
period prior to receipt and acceptance of an additional payment is less than for
the life of the last surviving insured, the payment will first be used to extend
the
6
<PAGE>
guarantee period to the whole of life of the last surviving insured. Any amount
in excess of that required to extend the guarantee period to the whole of life
or any subsequent additional payments will be used to increase the Contract's
face amount.
The contract owner may elect to make payments pursuant to a periodic
plan that complies with the 7-pay test under Federal tax law. If this is the
case, and if acceptance of an additional payment would affect such compliance,
Merrill Lynch Life will not accept the payment until Merrill Lynch Life has
confirmed that the contract owner wants to make the payment. Pending receipt of
instructions from the contract owner, Merrill Lynch Life will deposit the
payment in its general account and credit it with interest until Merrill Lynch
Life returns the payment to the owner or accepts the payment.
D. GRACE PERIOD
If the guarantee period is less than for life, a Contract may be canceled
by Merrill Lynch Life after the end of the guarantee period if the cash
surrender value on a processing date is negative. 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 the charges which were due on the processing date
when the cash surrender value became negative. The amount of the charges will
be shown on the notice.
7
<PAGE>
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.
E. REINSTATEMENT
A Contract that is canceled by Merrill Lynch Life may be reinstated while
the insured is still living. For joint insureds, an owner may reinstate the
Contract only if neither insured has died between the date Merrill Lynch Life
terminated the Contract and the effective date of the reinstatement. 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
insurability; and (c) a reinstatement payment. The reinstatement payment is the
minimum payment for which Merrill Lynch Life would then issue a contract for the
minimum guarantee period with the same face amount as the original contract,
based on the insured's attained age and underwriting class as of the effective
date of the reinstated Contract.
The reinstated Contract will be effective on the processing date on or next
following the date Merrill Lynch Life approves the reinstatement application.
F. REPAYMENT OF LOAN
A loan or any part of a loan under Merrill Lynch Life's Contracts may be
repaid while the insured is living and the Contract is in force. Upon repayment
of a loan, a transfer will be made from Merrill Lynch Life's general account to
the Separate Account in an amount equal to the amount repaid. An owner may
8
<PAGE>
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.
G. CHANGING THE FACE AMOUNT
After the first contract year an owner may request a change in the face
amount of the Contract without making an additional payment. The effective date
of the change will be the next processing date following the receipt and
acceptance of the written request, provided Merrill Lynch Life receives it at
the Service Center at least seven days before such processing date. A change in
face amount is not permitted if the attained age of the insured is over 80. The
minimum change in face amount Merrill Lynch Life will make is $10,000 and an
owner may request only one change per contract year. A change in face amount
may affect the mortality cost deduction. For joint insureds, both insureds must
be alive before Merrill Lynch Life will increase the face amount of the
Contract. To decrease the face amount, either insured must be alive.
i. INCREASING THE FACE AMOUNT
To increase the face amount of the Contract, Merrill Lynch Life may require
satisfactory evidence of insurability. When Merrill Lynch Life increases the
face amount, it will decrease the guarantee period. The maximum increase in
face amount is the amount which will give the minimum guarantee period for which
Merrill Lynch Life would issue a contract at the time of the request based on
the insured's attained age.
9
<PAGE>
ii. DECREASING THE FACE AMOUNT
When Merrill Lynch Life decreases the face amount of the Contract, it will
increase the guarantee period. The maximum decrease in face amount is the
amount which would result in the minimum face amount for which Merrill Lynch
Life would issue a contract at the time of the request based on the insured's
attained age, sex and underwriting class. Merrill Lynch Life won't permit a
decrease in face amount below the amount required to keep the Contract qualified
as life insurance under Federal income tax laws.
iii. DETERMINING THE NEW GUARANTEE PERIOD
As of the effective date of any change, Merrill Lynch Life takes the fixed
base as of such date and, based on the attained age and sex of the insured and
the new face amount of the Contract, redetermines the guarantee period. Merrill
Lynch Life uses a 4.0% interest assumption and the guaranteed maximum cost of
insurance rates in the calculations.
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. (the
"Series Fund"), six of which 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
registered under the Investment Company Act of 1940, each as an open-end,
investment company. The Zero Trusts are registered under the Investment Company
Act of 1940 as unit
10
<PAGE>
investment trusts. The owner may transfer among the investment divisions as
often as he or she chooses. Allocations can be made to as many as five
divisions at any time.
III. REDEMPTION PROCEDURES; SURRENDER AND RELATED TRANSACTIONS
A. SURRENDER FOR NET CASH SURRENDER VALUE
An owner of a Contract may surrender the Contract for its net cash
surrender value at any time while the insured is living. The surrender is
effective on the date the contract owner transmits the written request and the
Contract to Merrill Lynch Life. Merrill Lynch Life will pay the net cash
surrender value based on the next computed value after a request and Contract
are received at the Service Center. The net cash surrender value will usually
be paid within seven days after receipt of the Contract and a signed request for
surrender at Merrill Lynch Life's Service Center.
The net cash surrender value on the contract date equals the investment
base less the deferred contract loading.
The net cash surrender value on each subsequent processing date which is
also an anniversary equals the investment base, less the balance of the deferred
contract loading not yet deducted. On a processing date other than an
anniversary Merrill Lynch Life also subtracts a pro-rata net loan cost if there
is any debt.
On a date during a processing period, the net cash surrender value equals
the investment base less the balance of the deferred contract loading, less the
PRO RATA mortality cost since the last processing date and, if there is any
debt, less any pro rata net loan cost.
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<PAGE>
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.
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 the
Contract, due proof of death of the insured, and all other requirements
necessary to make payment. For joint insureds, Merrill Lynch Life must receive
proof of the last surviving insured's death, which must include proof of death
for both insureds.
Death benefit proceeds equal the death benefit, which is the larger of the
current face amount and the variable insurance amount, less any debt. 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.
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 multiplying the cash surrender
value by the net single premium
12
<PAGE>
factor. The death benefit will never be less than the amount required to keep
the Contract qualified as life insurance under Federal income tax laws. The
proceeds payable to the beneficiary will also be adjusted to reflect any amounts
due from riders. Where required by law, the amount payable also reflects
interest from the date of death to the date of payment.
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 surrender value. The cash surrender value for this purpose will be the net
cash surrender value plus any debt. 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 an effective annual rate of
6.0% compounded annually. The smallest loan will be for $1,000. With a proper
request to Merrill Lynch Life, an owner may designate the divisions from which
the loan amounts will be transferred. 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, loans will be allocated among the investment
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divisions of the Separate Account based upon the investment base in each
investment division as of the date the loans are 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 an effective annual rate of at least 4%. Therefore, taking a
loan will have a permanent effect on a Contract's cash surrender value and may
have a permanent effect on the death benefit whether or not repaid in whole or
in part.
The Contract defines a "target loan amount" of the investment base, plus
prior loans not repaid, plus withdrawals taken, less payments made. Interest
will be credited daily on the target loan amount at an effective annual rate
that is higher than the rate credited to amounts above the target loan amount.
D. PARTIAL WITHDRAWALS
After the fifteenth contract year, an owner may take partial withdrawals of
payments made under the Contract by sending a written 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 maximum amount of each partial withdrawal is set forth below.
CONTRACT YEAR MAXIMUM
16 25% of payments made
17 50%
18 75%
19+ 100%
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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 as follows: (1) the fixed base is
calculated as of such date, and (2) based on the contract year, the face amount
of the Contract at the time of the partial withdrawal and the amount of the
partial withdrawal, Merrill Lynch Life will redetermine the period for which
that fixed based can support the face amount.
The fixed base is equal to the cash surrender value on the contract date.
Thereafter, it is calculated exactly like the cash surrender value except that
the calculation substitutes 4% for the net rate of return and the guaranteed
maximum cost of insurance for the current cost of insurance and does not take
into account loans and repayments. The fixed base is used to make certain
computations under the Contract and is equivalent to the cash surrender value
for a comparable fixed benefit contract with the same face amount and guarantee
period.
E. EXCHANGING THE CONTRACT
An owner may exchange the Contract for a fixed 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 exchange and the original Contract
within 18 months of the issue date of the Contract. The new contract will have
the same owner and beneficiary as the original Contract on the date of the
exchange. It will also have the same issue age, issue date, face amount, cash
surrender value, benefit riders, and underwriting class as the original
Contract. For joint insureds, the Contract
15
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may be exchanged for a joint and last survivor contract with benefits that do
not vary with the investment results of a separate account. The new contract
will have the same owner and beneficiary as the original Contract and it will
have the same issue age and underwriting classes as the original Contract.
16
