<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1994
REGISTRATION NO. 33-41830
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
POST-EFFECTIVE AMENDMENT NO. 3
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, DC 20004-2404
-------------------
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 486
/X/ on May 1, 1994 pursuant to paragraph (b) of Rule 486
/ / 60 days after filing pursuant to paragraph (a) of Rule 486
/ / on (date) pursuant to paragraph (a) of Rule 486
Check box if it is proposed that the filing will become effective on (date)
at (time) pursuant to Rule 487 / /
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant
has registered an indefinite amount of securities under the Securities Act of
1933. The Registrant filed the 24f-2 Notice for the year ended December 31, 1993
on February 28, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
----------- -----------------------------------------------------------------------------
<C> <S>
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
(Initial Payment; Making 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>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
----------- -----------------------------------------------------------------------------
<C> <S>
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>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
----------- -----------------------------------------------------------------------------
<C> <S>
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)
</TABLE>
<PAGE>
PROSPECTUS
MAY 1, 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 modified endowment contracts under federal tax law. A
prospective contract owner who wants to purchase a contract that is not a
modified endowment contract should consult a Merrill Lynch registered
representative. Because the Contract is a modified endowment contract, any loan,
partial withdrawal or surrender may result in adverse tax consequences and/or
penalties. However, a contract owner should not be considered in constructive
receipt of the cash surrender value of the Contract, including increases, unless
and until he or she is in actual receipt of distributions from the Contract.
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 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 coverage will remain in force for
life, or for a shorter time if the face amount chosen is above the minimum face
amount required for that payment. 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.
Contract owners may make additional payments subject to certain conditions,
change the face amount of their Contract, turn in the Contract for its net cash
surrender value and make partial withdrawals. 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>
<CAPTION>
PAGE
----
<S> <C>
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................................................... 5
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
Partial Withdrawals........................................................ 7
Loans...................................................................... 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
Equity Growth Fund--Exemptive Relief....................................... 10
The Zero Trusts............................................................ 10
Merrill Lynch Life and MLPF&S.............................................. 11
FACTS ABOUT THE CONTRACT
Who May be Covered......................................................... 11
Initial Payment............................................................ 12
Making Additional Payments................................................. 12
Changing the Face Amount................................................... 14
Investment Base............................................................ 15
Charges Deducted from the Investment Base.................................. 16
Charges to the Separate Account............................................ 18
Guarantee Period........................................................... 18
Net Cash Surrender Value................................................... 19
Partial Withdrawals........................................................ 19
Loans...................................................................... 20
Death Benefit Proceeds..................................................... 21
Payment of Death Benefit Proceeds.......................................... 22
Right to Cancel ("Free Look" Period) or Exchange........................... 22
Reports to Contract Owners................................................. 22
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
MORE ABOUT THE CONTRACT
<S> <C>
Using the Contract......................................................... 23
Some Administrative Procedures............................................. 25
Other Contract Provisions.................................................. 26
Income Plans............................................................... 26
Group or Sponsored Arrangements............................................ 27
Unisex Legal Considerations for Employers.................................. 27
Selling the Contracts...................................................... 28
Tax Considerations......................................................... 28
Merrill Lynch Life's Income Taxes.......................................... 31
Reinsurance................................................................ 31
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account................................................. 31
Changes Within the Account................................................. 31
Net Rate of Return for an Investment Division.............................. 32
The Series Fund and the Variable Series Funds.............................. 32
Charges to Series Fund Assets.............................................. 34
Charges to Variable Series Fund Assets..................................... 34
The Zero Trusts............................................................ 35
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Cash Surrender Values and
Accumulated Payments...................................................... 35
EXAMPLES
Additional Payments........................................................ 42
Changing the Face Amount................................................... 42
Partial Withdrawals........................................................ 43
JOINT INSUREDS............................................................... 44
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
Directors and Executive Officers........................................... 47
Services Arrangement....................................................... 48
State Regulation........................................................... 48
Legal Proceedings.......................................................... 48
Experts.................................................................... 48
Legal Matters.............................................................. 48
Registration Statements.................................................... 48
Financial Statements....................................................... 48
Financial Statements of Merrill Lynch Variable Life Separate Account....... 49
Financial Statements of Merrill Lynch Life Insurance Company............... 60
</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.
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 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 the Contract's 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. A Contract can be purchased with a
single payment. The minimum single payment for a Contract is the lesser of (a)
$5,000 for an insured under age 20 and $10,000 for an insured age 20 and over,
or (b) the payment required to purchase a face amount of at least $100,000 (but
that payment may not be less than $2,000).
Subject to state regulation, contract owners may elect to pay planned periodic
payments instead of a single payment. If so, the minimum initial planned
periodic payment is $2,000 provided that the initial payment plus the planned
payments elected in the application will total $10,000 or more during the first
five contract years.
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 (See
"Making Additional Payments" on page 12.)
The Contract is not 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 44.
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 44.)
CMA-R- INSURANCE SERVICE
Contract owners who subscribe to the Merrill Lynch Cash Management Account-R-
financial service ("CMA account") may elect to have their Contract linked to
their CMA account electronically. Certain transactions will be reflected in
monthly CMA account statements. Payments may be transferred to and from the
Contract through a CMA account.
THE INVESTMENT DIVISIONS
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 15.)
- ------------------------
Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
5
<PAGE>
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 coverage. In particular,
replacement should be carefully considered if the decision to replace existing
coverage is based solely on a comparison of contract illustrations.
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.
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.
6
<PAGE>
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. In most cases,
the Contract will be a modified endowment contract. If a Contract is a modified
endowment contract, certain distributions made during an insured's lifetime,
such as loans and partial withdrawals from, and collateral assignments of, the
Contract are includable in gross income on an income-first basis. A 10% penalty
tax may be imposed on income distributed before the contract owner attains age
59 1/2. Contracts that are not modified endowment contracts receive preferential
tax treatment with respect to certain distributions. For a discussion of the tax
issues associated with this Contract, including distributions under the
Contract, see "Tax Considerations" on page 28.
PARTIAL WITHDRAWALS
After a Contract has been in force for one year, the contract owner may withdraw
up to 80% of the net cash surrender value. (See "Partial Withdrawals" on page
19.)
LOANS
A contract owner may borrow against his or her Contract. (See "Loans" on page
20.)
Loans are deducted from the amount payable on surrender of the Contract and are
also subtracted from any death benefit payable. Loan interest accrues daily and,
if it is not repaid each year, it is capitalized and added to the debt. If the
Contract is a modified endowment contract, the amount of capitalized interest
will be treated as a taxable withdrawal. Depending upon investment performance
of the divisions and the amounts borrowed, loans may cause a Contract to lapse.
If the Contract lapses with a loan outstanding, adverse tax consequences may
result. (See "Tax Considerations" on page 28.)
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 17); 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. It equals
a maximum of 2.0% of the debt per year (see "Charges Deducted From the
Investment Base" on page 16).
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
7
<PAGE>
- 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" and "Charges to Variable Series Funds Assets on Page 34.)
THIS SUMMARY IS INTENDED TO PROVIDE ONLY A VERY BRIEF OVERVIEW OF THE MORE
SIGNIFICANT ASPECTS OF THE CONTRACT. FURTHER DETAIL IS PROVIDED IN THIS
PROSPECTUS AND IN THE CONTRACT. THE CONTRACT TOGETHER WITH ITS ATTACHED
APPLICATIONS, MEDICAL EXAM(S), AMENDMENTS, RIDERS, AND ENDORSEMENTS CONSTITUTES
THE ENTIRE AGREEMENT BETWEEN THE CONTRACT OWNER AND MERRILL LYNCH LIFE AND
SHOULD BE RETAINED.
FOR THE DEFINITION OF CERTAIN TERMS USED IN THIS PROSPECTUS, SEE "IMPORTANT
TERMS" ON PAGE 4.
FACTS ABOUT THE SEPARATE ACCOUNT, THE SERIES FUND,
THE VARIABLE SERIES FUNDS, THE ZERO TRUSTS, AND MERRILL LYNCH LIFE
THE SEPARATE ACCOUNT
The Separate Account is a separate investment account established by Merrill
Lynch Life on November 16, 1990. It is registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the Investment
Company Act of 1940. This registration does not involve any supervision by the
Securities and Exchange Commission over the investment policies or practices of
the Separate Account. It meets the definition of a separate account under the
federal securities laws. The Separate Account is used to support the Contract as
well as to support other variable life insurance contracts issued by Merrill
Lynch Life.
Merrill Lynch Life owns all of the assets in the Separate Account. The assets of
the Separate Account are kept separate from Merrill Lynch Life's general account
and any other separate accounts it may have and, to the extent of its reserves
and liabilities, may not be charged with liabilities arising out of any other
business Merrill Lynch Life conducts.
Obligations to contract owners and beneficiaries that arise under the Contract
are obligations of Merrill Lynch Life. Income, gains, and losses, whether or not
realized, from assets allocated are, in accordance with the Contracts, credited
to or charged against the Separate Account without regard to other income, gains
or losses of Merrill Lynch Life. As required, the assets in the Separate Account
will always be at least equal to the reserves and other liabilities of the
Separate Account. If the assets exceed the required reserves and other Contract
liabilities, (which will always be at least equal to the aggregate contract
value allocated to the Separate Account under the Contracts), Merrill Lynch Life
may transfer the excess to its general account.
There are currently 36 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Six invest in shares of a
specific portfolio of the Variable Series Funds. Twenty invest in units of a
specific Zero Trust. Complete information about the Series Fund, the Variable
Series Funds and the Zero Trusts, including the risks associated with each
portfolio (including any risks associated with investment in the High Yield
Portfolio of the Series Fund) can be found in the accompanying prospectuses.
They should be read in conjunction with this Prospectus.
THE SERIES FUND
The Merrill Lynch Series Fund, Inc. is registered with the Securities and
Exchange Commission as an open-end management investment company. All of its ten
mutual fund portfolios are currently available through the Separate Account. The
investment objectives of the Series Fund portfolios are described below. There
is no guarantee that any portfolio will meet its investment objective. Meeting
the objectives depends on how well Series Fund management anticipates changing
economic conditions.
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.
8
<PAGE>
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 34.)
THE VARIABLE SERIES FUNDS
The Merrill Lynch Variable Series Funds, Inc. is registered with the Securities
and Exchange Commission as an open-end management investment company. Six of its
18 mutual fund portfolios are currently available through the separate account.
The investment objectives of the six available Variable Series Funds portfolios
are described below. There is no guarantee that any portfolio will meet its
investment objective. Meeting the objectives depends on how well Variable Series
Funds management anticipates changing economic conditions.
BASIC VALUE FOCUS FUND seeks to attain capital appreciation, and secondarily,
income by investing in securities, primarily equities, that management of the
Fund believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio.
WORLD INCOME FOCUS FUND seeks to achieve high current income by investing in a
global portfolio of fixed-income securities denominated in various currencies,
including multinational currency units. The Fund may invest in United States and
foreign government and corporate fixed-income securities, including high yield,
high risk, lower rated and unrated securities. The Fund will allocate its
investments among different types of fixed-income securities denominated in
various currencies.
9
<PAGE>
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 a non-U.S. international portfolio of debt instruments denominated
in various currencies and multi-national currency units.
DEVELOPING CAPITAL MARKETS FOCUS FUND seeks to achieve long-term capital
appreciation by investing in securities, principally equities, of issuers in
countries having smaller capital markets. For purposes of its investment
objective, the Fund considers countries having smaller capital markets to be all
countries other than the four countries having the largest equity market
capitalizations. Currently, these four countries are Japan, the United Kingdom,
the United States, and Germany.
MLAM is the investment adviser for the Variable Series Funds. The Variable
Series Funds, as part of its operating expenses, pays an investment advisory fee
to MLAM. (See "Charges to Variable Series Funds Assets" on page 34.)
EQUITY GROWTH FUND--EXEMPTIVE RELIEF
An application for exemptive relief has been filed with the Securities and
Exchange Commission on behalf of the Variable Series Fund, the Separate Account
and other affiliated parties. This relief is required under the 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 33.) Contract owners will be
notified when the necessary relief is obtained and the Equity Growth Fund is
available.
EQUITY GROWTH FUND seeks to attain long-term growth of capital by investing
primarily in common stocks of relatively small companies that management of the
Fund believes have special investment value and emerging growth companies
regardless of size. Such companies are selected by management on the basis of
their long-term potential for expanding their size and profitability or for
gaining increased market recognition for their securities. Current income is not
a factor in such selection. MLAM receives from the Fund an advisory fee at the
annual rate of 0.75% of the average daily net assets of the Fund. This is a
higher fee than that of many other mutual funds, but management of the Fund
believes it is justified by the high degree of care that must be given to the
initial selection and continuous supervision of the types of portfolio
securities in which the Fund invests.
THE ZERO TRUSTS
The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities was formed
to provide safety of capital and a high yield to maturity. It seeks this through
U.S. Government-backed investments which make no periodic interest payments and,
therefore, are purchased at a deep discount. When held to maturity the
investments should receive approximately a fixed yield. The value of Zero Trust
units before maturity varies more than it would if the Zero Trusts contained
interest-bearing U.S. Treasury securities of comparable maturities.
The Zero Trust portfolios consist mainly of:
- bearer debt obligations issued by the U.S. Government stripped of their
unmatured interest coupons;
- coupons stripped from U.S. debt obligations; and
- receipts and certificates for such stripped debt obligations and coupons.
10
<PAGE>
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 18.)
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 sell 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 28.)
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 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 any 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 plus any planned payments that will
be underwritten on a simplified basis is set out in the chart below:
<TABLE>
<CAPTION>
AGE MAXIMUM
---------------------------- --------
<S> <C>
0-29....................... $ 25,000
30-39....................... 40,000
40-49....................... 50,000
50-59....................... 100,000
60-75....................... 120,000
</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.
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
11
<PAGE>
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 17.
For joint insureds, see modifications to this section on page 44.
INITIAL PAYMENT
To purchase a Contract, the contract owner must complete an application and make
a payment. The payment is required to put the Contract into effect. This
Prospectus is for a Contract which is a modified endowment contract at the time
of issue. The minimum single payment for a Contract is the lesser of (a) $5,000
for an insured under age 20 and $10,000 for an insured age 20 and over, or (b)
the payment required to purchase a face amount of at least $100,000 (but that
payment may not be less than $2,000). Contract owners may make additional
payments which may, but need not be, under a periodic plan. (See "Making
Additional Payments" below.)
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.
Insurance coverage generally begins on the contract date, which is usually the
next business day following receipt of the initial payment at Merrill Lynch
Life's Service Center. Temporary life insurance coverage may be provided under
the terms of a temporary insurance agreement. In accordance with Merrill Lynch
Life's underwriting rules, temporary life insurance coverage may not exceed
$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 44.
SELECTING THE INITIAL FACE AMOUNT. Contract owners purchase a face amount of
insurance with the initial payment. The face amount is based on the initial
payment less the deferred contract loading. For a given initial payment contract
owners may choose their initial face amount. The minimum face amount is the
amount which will provide a guarantee period for the whole of life. If the face
amount chosen 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. The guarantee period is the
period of time Merrill Lynch Life guarantees that the Contract will remain in
force regardless of investment experience unless the debt exceeds certain
values. The guarantee period is based on the guaranteed maximum cost of
insurance rates in the Contract, 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.
MAKING ADDITIONAL PAYMENTS
After the end of the "free look" period, contract owners may make additional
payments. Payments may be made under a periodic plan. Payments may also be made
which are not under a periodic plan. In Kentucky, no additional payments may be
made until after the first contract year.
PAYMENTS WHICH ARE NOT UNDER A PERIODIC PLAN. 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.
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
12
<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 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.
PAYMENTS UNDER A PERIODIC PLAN. Contract owners may elect to make planned
periodic payments subject to the rules discussed below. They elect the amount,
duration and frequency of the payments but the minimum planned payment
(including the initial payment) is $2,000 per contract year and the amounts
elected must be level. In any one year the maximum amount of the planned
payments elected cannot exceed the initial payment. Currently, the duration of a
plan cannot exceed five years.
Under a periodic payment plan, as long as the initial payment plus the planned
payments elected will total $10,000 or more during the first five contract
years, the minimum initial payment is $2,000.
Contract owners may elect a periodic plan in the application. The amount and
duration of the payments elected, 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 elected plan is
approved, the planned payments may be made at any time without any additional
evidence of insurability unless it increases the face amount.
Contract owners may elect a periodic 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 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. 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 plan specified 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 payments under a periodic payment
plan if the payment increases the face amount of the Contract.
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 planned 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).
13
<PAGE>
EFFECT OF ADDITIONAL PAYMENTS. Currently, any additional payment not requiring
evidence of insurability will be accepted the day it is received. On the date
Merrill Lynch Life receives and accepts an additional payment, whether under a
periodic 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 16);
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount" on page 21); and
- increase the fixed base by the amount of the payment less the deferred
contract loading applicable to the payment (see "The Contract's Fixed
Base" on page 19).
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 the 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 42.
Unless specified otherwise, if there is any debt, any payment made, other than
planned payments, will be used first as a loan repayment with any excess applied
as an additional payment. (See "Loans" on page 20.)
For joint insureds, see the modifications to this section on page 44.
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
17.)
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.
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.
14
<PAGE>
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 42.
For joint insureds, see the modifications to this section on page 44.
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 32.) The investment performance
reflects the deduction of Separate Account charges. (See "Charges to the
Separate Account" on page 17.)
Deductions for deferred contract loading, mortality cost, and net loan cost, and
partial withdrawals and loans decrease the investment base. (See "Charges
Deducted from the Investment Base" on page 16, "Partial Withdrawals" on page 19
and "Loans" on page 20.) Loan repayments and additional payments increase it.
Contract owners may elect from which investment divisions loans and partial
withdrawals are taken and to which investment divisions repayments and
additional payments are added. If an election is not made, Merrill Lynch Life
will allocate increases and decreases proportionately to the contract owner's
investment base in the investment divisions selected. (For special rules on
allocation of additional payments which require evidence of insurability, see
"Payments Which are Not Under a Periodic Plan" on page 12.)
INVESTMENT ALLOCATION DURING THE "FREE LOOK" PERIOD AND PREALLOCATION. 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
25.) 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.
15
<PAGE>
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 investment 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 17.) The portfolios in the
Series Fund and the 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 page 34.)
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 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
sponsored arrangements as described on page 27. 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 Reconciliation Act
of 1990. (See " Merrill Lynch Life's Income Taxes" on page 31.) 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.
16
<PAGE>
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 45.
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 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 45.
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 19.)
NET LOAN COST. The net loan cost is explained under "Loans" on page 20.
17
<PAGE>
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" on page 17).
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 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 16 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
insured's life, or for a shorter guarantee period depending on the face amount
selected and payments made to date. The guarantee period will be affected by a
requested change in the face amount and may also be affected by additional
payments. A partial withdrawal may affect the guarantee period in certain
circumstances. Merrill Lynch Life won't cancel the Contract during the guarantee
period unless the debt exceeds certain contract values. (See "Interest" on page
20.) 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 16.)
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 the 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
18
<PAGE>
- 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 subsection on page 45.
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
16).
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 on the date the written request is sent to Merrill Lynch Life.
That 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 26. 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 45.
PARTIAL WITHDRAWALS
Currently, after a Contract is in force for one year, and subject to state
regulation, a contract owner may make partial withdrawals of amounts up to the
withdrawal value by submitting a request in a form satisfactory to Merrill Lynch
Life. The withdrawal value is equal to 80% X (a+b) - b where:
- a = the current net cash surrender value, and
- b = the sum of all prior withdrawals.
The effective date of the withdrawal is the date a withdrawal request is
received at the Service Center. Contract owners may make one partial withdrawal
each contract year and 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.
19
<PAGE>
The minimum amount for each partial withdrawal is $500. The amount of any
partial withdrawal may not exceed the loan value less any debt. 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 43.
Partial withdrawals are treated as distributions under the Contract for federal
tax purposes and may be subject to a penalty tax. For a discussion of the tax
issues associated with a partial withdrawal, see "Tax Considerations" on page
28.
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. Certain states won't permit a minimum amount
that can be borrowed or repaid.
Loans are treated as distributions under the Contract for federal tax purposes
and may be subject to a penalty tax. For a discussion of the tax issues
associated with a loan, see "Tax Considerations" on page 28.
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 to 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,
20
<PAGE>
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.
INTEREST. While a loan is outstanding, Merrill Lynch Life charges interest of
5% 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. THIS AMOUNT ADDED TO THE LOAN IS
TAXABLE INCOME IF THE CONTRACT IS A MODIFIED ENDOWMENT CONTRACT. In addition,
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.
NET LOAN COST. On each contract anniversary, Merrill Lynch Life reduces the
investment base by the net loan cost (the difference between the interest
charged and the earnings on the amount held as collateral in the general
account) and adds that amount to the amount held in the general account as
collateral for the loan. Since the interest charged is 5% and the collateral
earnings on such amounts are 4%, the current net loan cost on loaned amounts is
1%. The net loan cost is taken into account in determining the net cash
surrender value of the Contract if the date of surrender is not a contract
anniversary.
CANCELLATION DUE TO EXCESS DEBT. If the debt exceeds the larger of the cash
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 notice.
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 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
18.)
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.
21
<PAGE>
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 45.
PAYMENT OF DEATH BENEFIT PROCEEDS
Merrill Lynch Life will generally pay the death benefit proceeds to the
beneficiary within seven days after all the information needed to process the
payment is received at its Service Center.
Merrill Lynch Life will add interest from the date of the insured's death to the
date of payment at an annual rate of at least 4%. The beneficiary may elect to
receive the proceeds either in a single payment or under one or more income
plans described on page 27. Payment may be delayed if the Contract is being
contested or under the circumstances described in "Using the Contract" on page
23 and "Other Contract Provisions" on page 26.
For joint insureds, see the modifications to this section on page 45.
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 payment 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 subsection on page 45.
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, new face amount and
guarantee period. All figures will be as of the end of the immediately preceding
processing
22
<PAGE>
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 32.) 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.
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 28.)
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 28.
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.
23
<PAGE>
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 at that time.
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 27;
- the variable insurance amount will reflect the change of insured; and
- 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 28.
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
24
<PAGE>
- 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 45.
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 15.)
REALLOCATING THE INVESTMENT BASE. Contract owners can reallocate their
investment base either in writing in a form satisfactory to Merrill Lynch Life
or by phone. If the reallocation is requested by phone, contract owners must
give their personal identification number as well as their Contract number.
Merrill Lynch Life will give a confirmation number over the phone and then
follow up in writing.
REQUESTING A LOAN. A loan may be requested in writing in a form satisfactory to
Merrill Lynch Life or, if all required authorization forms are on file, by
phone. Once the authorization has been received at the Service Center, contract
owners can call the Service Center, give their Contract number, name and
personal identification number, and tell Merrill Lynch Life the loan amount and
from which divisions the loan should be taken.
Upon request, 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.
Upon request, 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 usually wire the funds within two working days of receipt of the
request. If the contract owner has the CMA Insurance Service, funds can 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.
25
<PAGE>
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. In addition,
Merrill Lynch Life can 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 won't 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 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 federal 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 46.
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
26
<PAGE>
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 46.
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
the death of a named person or the 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 this option and interest on the unpaid balance at not
less than 3% per year are exhausted.
JOINT LIFE INCOME. Payments are made in monthly installments as long as
at least one of two named persons is living. While both are living, full
payments are made. If one dies, payments at two-thirds of the full amount
are made. Payments end completely when both named persons die.
Once in effect, some of the plans may not provide any surrender rights.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, Merrill Lynch Life may reduce the
sales load, cost of insurance rates and the minimum payment and may modify
underwriting classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows Merrill Lynch Life to
sell Contracts to its employees on an individual basis.
Costs for sales, administration, and mortality generally vary with the size and
stability of the group and the reasons the Contracts are purchased, among other
factors. Merrill Lynch Life takes all these factors into account when reducing
charges. To qualify for reduced charges, a group or sponsored arrangement must
meet certain requirements, including requirements for size and number of years
in existence. Group or sponsored arrangements that have been set up solely to
buy Contracts or that have been in existence less than six months will not
qualify for reduced charges.
Merrill Lynch Life makes any reductions according to rules in effect when an
application for a Contract or additional payment is approved. It may change
these rules from time to time. However, reductions in charges will not
discriminate unfairly against any person.
UNISEX LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983 the Supreme Court held in ARIZONA GOVERNING COMMITTEE V. NORRIS that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title 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.
27
<PAGE>
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 and other variable life insurance
contracts issued through the Separate Account are sold and the registered
representatives are compensated by Merrill Lynch Life Agencies and/or MLPF&S.
The maximum commission Merrill Lynch Life will pay to the applicable insurance
agency to be used to pay commissions to registered representatives is 7.1% of
each premium. Additional annual compensation of no more than 0.10% of the
investment base may also be paid to the registered representatives. Registered
representatives may elect to receive lower commission as a percent of each
premium in exchange for higher compensation as a percent of the investment base.
In such a case, the maximum additional annual compensation is 0.30% of the
investment base. Commissions may be paid in the form of non-cash compensation.
The amounts paid under the distribution and sales agreements for the Separate
Account for the year ended December 31, 1993 and December 31, 1992 were
$2,513,335 and $119,298, respectively.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD. Registered representatives of these other broker-dealers may be
compensated on a different basis than MLPF&S registered representatives.
TAX CONSIDERATIONS
DEFINITION OF LIFE INSURANCE. In order to qualify as a life insurance contract
for federal tax purposes, the Contract must meet the definition of a life
insurance contract which is set forth in Section 7702 of the Internal Revenue
Code of 1986 as amended (the "Code"). The Section 7702 definition can be met if
a life insurance contract satisfies either one of two tests set forth in that
section. The manner in which these tests should be applied to certain innovative
features of the Contract offered by 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
28
<PAGE>
- the contract owner should not be considered in constructive receipt of the
cash surrender value, including any increases, unless and until actual
receipt of distributions from 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 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 26.)
DIVERSIFICATION. Section 817(h) of the Code provides that separate account
investments (or the investments of a mutual fund, the shares of which are owned
by separate accounts of insurance companies) underlying the Contract must be
"adequately diversified" in accordance with Treasury regulations in order for
the Contract to qualify as life insurance. The Treasury Department has issued
regulations prescribing the diversification requirements in connection with
variable contracts. The Separate Account, through the Series Fund and the
Variable Series Funds, intends to comply with these requirements. Although
Merrill Lynch Life doesn't control the Series Fund or the Variable Series Funds,
it intends to monitor the investments of the Series Fund and the Variable Series
Funds to ensure compliance with the requirements prescribed by the Treasury
Department.
In connection with the issuance of the temporary diversification regulations,
the Treasury Department stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which an owner's control of the
investments of a separate account may cause the contract 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 this Contract has
additional flexibility in allocating payments and cash surrender values. These
differences could result in the owner being treated as the owner of the assets
of the Separate Account. In addition, Merrill Lynch Life does not know what
standards will be set forth in the regulations or rulings which the Treasury has
stated it expects to be issued. Merrill Lynch Life therefore reserves the right
to modify the Contract as necessary to attempt to prevent the contract owner
from being considered the owner of the assets of the Separate Account.
TAX TREATMENT OF LOANS AND OTHER DISTRIBUTIONS. Federal tax law establishes a
class of life insurance contracts referred to as modified endowment contracts.
In most cases, this Contract will be a modified endowment contract. (See,
however, the discussion below on a Contract issued in exchange for another life
insurance contract.) Loans and partial withdrawals from, as well as collateral
assignments of, modified endowment contracts will be treated as distributions to
the owner. All pre-death distributions (including loans, partial withdrawals and
collateral assignments) from these Contracts will be included in gross income on
an income-first basis to the extent of any income in the Contract (the cash
surrender value less the owner's investment in the Contract) immediately before
the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, 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
29
<PAGE>
beneficiary. 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 an additional distribution subject to income tax as well as
the 10% penalty tax, if applicable, to the extent of income in the Contract.
Any Contract issued in exchange for a modified endowment contract will be
subject to the tax treatment accorded to modified endowment contracts. However,
Merrill Lynch Life believes that any Contract issued in exchange for a life
insurance contract that is not a modified endowment contract will generally not
be treated as a modified endowment contract if the face amount of the Contract
is greater than or equal to the death benefit of the policy being exchanged. The
payment of any premiums at the time of or after the exchange may, however, cause
the Contract to become a modified endowment contract. A contract owner may, of
course, choose not to exercise the right to make additional payments (whether
planned or unplanned) in order to prevent a Contract from being treated as a
modified endowment contract.
Merrill Lynch Life also believes that a Contract received in an exchange for a
life insurance contract that is not a modified endowment contract should not be
treated as a modified endowment contract in situations where the face amount of
the Contract received is less than the death benefit of the contract being
exchanged, provided no additional premium is paid into the Contract. This matter
is, however, not free from doubt because neither Treasury regulations nor
Internal Revenue Service rulings have been issued on this situation. A
prospective contract owner should therefore consult a tax advisor before
effecting such an exchange.
Unlike loans from modified endowment contracts, a loan from a Contract that is
not a modified endowment contract will be considered indebtedness of the 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. Pre-death distributions from such a contract 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. Further, the 10% penalty tax on
pre-death distributions does not apply to Contracts that are not modified
endowment contracts.
Certain changes to Contracts that are not modified endowment contracts may cause
such Contracts to be treated as modified endowment contracts. A Contract that is
not originally classified as a modified endowment may become so classified if
there is a reduction in benefits during the first seven contract years after the
exchange (including, for example, by a decrease in face amount) or if a material
change (E.G., an increase in certain benefits) is made in the Contract at any
time. Further, in the case of a Contract with joint insureds, reducing the
Contract's death benefit at any time below the lowest death benefit provided
under the Contract may cause the Contract to become a modified endowment
contract. A contract owner should therefore consult a tax advisor before
effecting any change to a Contract that is not a modified endowment contract.
SPECIAL TREATMENT OF LOANS ON THE CONTRACT. If there is any borrowing against
the Contract, the interest paid on loans may not be tax deductible.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death
distribution (including a loan, partial withdrawal, collateral assignment or
complete surrender) from a contract that is treated as a modified endowment
contract, 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.
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
30
<PAGE>
debt and no cash or other property is received, according to Section 1035(a)(1)
of the Code. 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 on 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 as contract loans. Further, organizations purchasing Contracts
covering the life of an individual who is an officer or employee of, or is
financially interested in the taxpayer's trade or business, may be unable to
deduct all or a portion of the interest or premiums paid with respect to the
Contract. Such organizations should obtain tax advice prior to the acquisition
of this Contract and also before entering into any subsequent changes to or
transactions under this Contract.
MERRILL LYNCH LIFE DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY
CONTRACT OR ANY TRANSACTION REGARDING THE CONTRACT.
THE ABOVE DISCUSSION IS NOT INTENDED AS TAX ADVICE. FOR TAX ADVICE CONTRACT
OWNERS SHOULD CONSULT A COMPETENT TAX 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 16.)
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
31
<PAGE>
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 a change
in a portfolio's investment objectives or restrictions, or because the portfolio
is no longer available for investment, or for some other reason. 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.
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 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 Accounts. As the owner,
Merrill Lynch Life has the right to vote on any matter put to vote at the Series
Funds' 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
32
<PAGE>
as shares in the respective divisions for which instructions are received. If
any federal securities laws or regulations, or their present interpretation,
change to permit Merrill Lynch Life to vote Series Fund or Variable Series Funds
shares in its own right, it may elect to do so.
Merrill Lynch Life determines the number of shares that contract owners have in
an investment division by dividing their Contract's investment base in that
division by the net asset value of one share of the portfolio. Fractional votes
will be counted. Merrill Lynch Life will determine the number of shares for
which a contract owner may give voting instructions 90 days or less before each
Series Fund or Variable Series Funds meeting. Merrill Lynch Life will request
voting instructions by mail at least 14 days before the meeting.
Under certain circumstances, Merrill Lynch Life may be required by state
regulatory authorities to disregard voting instructions. This may happen if
following the instructions would mean voting to change the sub-classification or
investment objectives of the portfolios, or to approve or disapprove an
investment advisory contract.
Merrill Lynch Life may also disregard instructions to vote for changes in the
investment policy or the investment adviser if it disapproves of the proposed
changes. Merrill Lynch Life would disapprove a proposed change only if it was:
- contrary to state law;
- 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 differences
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 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.
33
<PAGE>
CHARGES TO SERIES FUND ASSETS
The Series Fund incurs operating expenses and pays a monthly advisory fee to
MLAM. This fee equals an annual rate of:
- .50% of the first $250 million of the aggregate average daily net assets
of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
One or more of the insurance companies investing in the Series Fund has agreed
to reimburse the Series Fund so that the ordinary expenses of each portfolio
(which include the monthly advisory fee) do not exceed .50% of the portfolio's
average daily net assets. These companies have also agreed to reimburse MLAM for
any amounts it pays under the investment advisory agreement, as described below.
These reimbursement obligations will remain in effect so long as the advisory
agreement remains in effect and cannot be amended or terminated without Series
Fund approval.
Under its investment advisory agreement, MLAM has agreed that if any portfolio's
aggregate ordinary expenses (excluding interest, taxes, brokerage commissions
and extraordinary expenses) exceed the expense limitations for investment
companies in effect under any state securities law or regulation, it will reduce
its fee for that portfolio by the amount of the excess. If required, it will
reimburse the Series Fund for the excess. This reimbursement agreement will
remain in effect so long as the advisory agreement remains in effect and cannot
be amended without Series Fund approval.
CHARGES TO VARIABLE SERIES FUNDS ASSETS
The Variable Series Funds incurs operating expenses and pays a monthly advisory
fee to MLAM. This fee equals an annual rate of .60% of the average daily net
assets of the Basic Value Focus Fund, World Income Focus Fund and Global Utility
Focus Fund. This fee equals an annual rate of .75%, .60% and 1.00% of the
average daily net assets of the International Equity Focus Fund, the
International Bond Fund and the Developing Capital Markets Focus Fund,
respectively.
Under its investment advisory agreement, MLAM has agreed to reimburse the
Variable Series Funds if and to the extent that in any fiscal year the operating
expenses of any Fund exceeds the most restrictive expense limitations then in
effect under any state securities laws or published regulations thereunder.
Expenses for this purpose include MLAM's fee but exclude interest, taxes,
brokerage commissions and extraordinary expenses, such as litigation. No fee
payments will be made to MLAM with respect to any Fund during any fiscal year
which would cause the expenses of such Fund to exceed the pro rata expense
limitation applicable to such Fund at the time of such payment. This
reimbursement agreement will remain in effect so long as the advisory agreement
remains in effect and cannot be amended without Variable Series Funds approval.
MLAM and Merrill Lynch Life 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.
34
<PAGE>
THE ZERO TRUSTS
THE 20 ZERO TRUSTS:
<TABLE>
<CAPTION>
Targeted Rate of Return to
Maturity as
Zero Trust Maturity Date of April 25, 1994
- ---------- ------------------ -----------------------------
<C> <S> <C>
1994 August 15, 1994 2.65
1995 November 15, 1995 3.94
1996 February 15, 1996 4.26
1997 February 15, 1997 4.67
1998 February 15, 1998 4.99
1999 February 15, 1999 5.28
2000 February 15, 2000 5.38
2001 February 15, 2001 5.48
2002 February 15, 2002 5.64
2003 August 15, 2003 5.85
2004 February 15, 2004 5.88
2005 February 15, 2005 5.92
2006 February 15, 2006 5.84
2007 February 15, 2007 5.94
2008 February 15, 2008 6.15
2009 February 15, 2009 6.19
2010 February 15, 2010 6.26
2011 February 15, 2011 6.26
2013 February 15, 2013 6.32
2014 February 15, 2014 6.30
</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 17) 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 that 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 16).
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 37 through 41 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 37 is for a Contract issued to a male age 5 in
the standard-simplified underwriting class with a single payment of $10,000, a
face amount of $93,421 and a guarantee period for life.
35
<PAGE>
2. The illustration on page 38 is for a Contract issued to a female age 40
in the standard-simplified underwriting class with a single payment of $25,000,
a face amount of $89,686 and a guarantee period for life.
3. The illustration on page 39 is for a Contract issued to a male age 55 in
the standard-simplified underwriting class with a single payment of $30,000, a
face amount of $58,438 and a guarantee period for life.
4. The illustration on page 40 is for a Contract issued to a male age 65 in
the standard-simplified underwriting class with a single payment of $35,000, a
face amount of $52,803 and a guarantee period for life.
5. The illustration on page 41 is for a Contract issued to a male age 65
and a female age 65 in the standard-simplified underwriting class with a single
payment of $35,000, a face amount of $67,012 and a guarantee period for life.
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 .490%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1993 expenses (including monthly advisory fees)
for the Series Fund and the Variable Series Funds, anticipated 1994 expenses for
the International Bond Fund and the Developing Capital Markets Focus Fund, and
the current trust charge. This charge does not reflect expenses incurred by the
Global Strategy Portfolio and the Natural Resources Portfolio of the Series Fund
in 1993, which were reimbursed to the Series Fund by MLAM. The reimbursements
amounted to .01% and .09%, respectively, of the average daily net assets of
these portfolios. (See "Charges to Series Fund Assets" on page 34.) The actual
charge under a Contract for Series Fund and Variable Series Funds expenses and
the trust charge will depend on the actual allocation of the investment base and
may be higher or lower depending on how the investment base is allocated.
Taking into account the .90% asset charge in the Separate Account and the .490%
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of -1.39%, 4.56%, and 10.51%,
respectively. The gross returns are before any deductions and should not be
compared to rates which are after deduction of charges.
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 16). In order to produce after
tax returns of 0%, 6% and 12%, the Series Fund and the Variable Series Funds
would have to earn a sufficient amount in excess of 0% or 6% or 12% to cover any
tax charges attributable to the Separate Account.
The second column of the tables shows the amount which would accumulate if an
amount equal to the payments were invested to earn interest (after taxes) at 5%
compounded annually.
Merrill Lynch Life will furnish upon request a personalized illustration
reflecting the proposed insured's age, face amount and the payment amounts
requested. The illustration will also use current cost of insurance rates and
will assume that the proposed insured is in a standard underwriting class.
36
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 5
$10,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $93,421 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS -----------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
--------------------- --------------- ----------------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
1................... $10,000 $ 10,500 $93,421 $ 94,333 $ 100,216
2................... 0 11,025 93,421 95,197 107,317
3................... 0 11,576 93,421 96,017 114,747
4................... 0 12,155 94,421 96,794 122,534
5................... 0 12,763 93,421 97,531 130,707
6................... 0 13,401 93,421 98,231 139,294
7................... 0 14,071 93,421 98,895 148,329
8................... 0 14,775 93,421 99,525 157,847
9................... 0 15,513 93,421 100,125 167,883
10................... 0 16,289 93,421 100,696 178,476
15................... 0 20,789 93,421 103,445 241,916
20 (age 25) ......... 0 26,533 93,421 106,269 327,900
30 (age 35) ......... 0 43,219 93,421 112,146 602,164
60 (age 65) ......... 0 186,791 93,421 131,825 3,735,363
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
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................... $9,694 $10,287 $ 10,878 $8,884 $ 9,477 $ 10,068
2................... 9,396 10,589 11,846 8,676 9,869 11,126
3................... 9,109 10,912 12,918 8,479 10,282 12,288
4................... 8,829 11,253 14,102 8,289 10,713 13,562
5................... 8,554 11,610 15,406 8,104 11,160 14,956
6................... 8,286 11,986 16,845 7,926 11,626 16,485
7................... 8,019 12,375 18,426 7,749 12,105 18,156
8................... 7,749 12,775 20,155 7,569 12,595 19,975
9................... 7,470 13,178 22,036 7,380 13,088 21,946
10................... 7,183 13,586 24,081 7,183 13,586 24,081
15................... 6,062 16,186 37,853 6,062 16,186 37,853
20 (age 25) ......... 4,941 19,308 59,577 4,941 19,308 59,577
30 (age 35) ......... 3,063 28,234 151,603 3,063 28,234 151,603
60 (age 65) ......... 0 79,515 2,253,123 0 79,515 2,253,123
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) 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.
37
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
FEMALE ISSUE AGE 40
$25,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $89,686 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
DEATH BENEFIT (2)
TOTAL ASSUMING HYPOTHETICAL GROSS
PAYMENTS ANNUAL INVESTMENT RETURN OF
END OF MADE PLUS ---------------------------
CONTRACT YEAR PAYMENTS (1) INTEREST AT 5% 0% 6% 12%
--------------------- --------------- ----------------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
1................... $25,000 $ 26,250 $89,686 $ 90,560 $ 96,206
2................... 0 27,562 89,686 91,389 103,020
3................... 0 28,941 89,686 92,176 110,154
4................... 0 30,388 89,686 92,922 117,632
5................... 0 31,907 89,686 93,631 125,482
6................... 0 33,502 89,686 94,303 133,733
7................... 0 35,178 89,686 94,942 142,416
8................... 0 36,936 89,686 95,549 151,562
9................... 0 38,783 89,686 96,125 161,205
10................... 0 40,722 89,686 96,674 171,382
15................... 0 51,973 89,686 99,313 232,300
20 (age 60) ......... 0 66,332 89,686 102,025 314,896
30 (age 70) ......... 0 108,049 89,686 107,676 578,773
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
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................... $24,269 $25,751 $ 27,231 $22,244 $23,726 $ 25,206
2................... 23,534 26,521 29,667 21,734 24,721 27,867
3................... 22,796 27,310 32,329 21,221 25,735 30,754
4................... 22,055 28,119 35,237 20,705 26,796 33,887
5................... 21,314 28,953 38,419 20,189 27,828 37,294
6................... 20,571 29,810 41,898 19,671 28,910 40,998
7................... 19,826 30,691 45,701 19,151 30,016 45,026
8................... 19,080 31,599 49,860 18,630 31,149 49,410
9................... 18,332 32,533 54,406 18,107 32,308 54,181
10................... 17,579 33,491 59,372 17,579 33,491 59,372
15................... 14,824 39,895 93,316 14,824 39,895 93,316
20 (age 60) ......... 11,833 47,298 145,982 11,833 47,298 145,982
30 (age 70) ......... 4,719 65,386 351,458 4,719 65,386 351,458
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) 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.
38
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 55
$30,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $58,438 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
--------------------- --------------- ----------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1................... $30,000 $ 31,500 $58,438 $59,009 $ 62,693
2................... 0 33,075 58,438 59,552 67,143
3................... 0 34,729 58,438 60,067 71,802
4................... 0 36,465 58,438 60,556 76,689
5................... 0 38,288 58,438 61,022 81,821
6................... 0 40,203 58,438 61,464 87,216
7................... 0 42,213 58,438 61,883 92,893
8................... 0 44,324 58,438 62,282 98,873
9................... 0 46,540 58,438 62,660 105,179
10 (age 65) ......... 0 48,867 58,438 63,019 111,832
15................... 0 62,368 58,438 64,743 151,674
20................... 0 79,599 58,438 66,516 205,757
30................... 0 129,658 58,438 70,213 378,938
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
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................... $28,991 $30,767 $ 32,536 $26,561 $28,337 $ 30,106
2................... 27,973 31,541 35,286 25,813 29,381 33,126
3................... 26,948 32,326 38,272 25,058 30,436 36,382
4................... 25,916 33,119 41,511 24,296 31,499 39,891
5................... 24,875 33,922 45,025 23,525 32,572 43,675
6................... 23,825 34,734 48,834 22,745 33,654 47,754
7................... 22,765 35,552 52,961 21,955 34,742 52,151
8................... 21,691 36,372 57,424 21,151 35,832 56,884
9................... 20,600 37,193 62,248 20,330 36,923 61,978
10 (age 65) ......... 19,492 38,012 67,456 19,492 38,012 67,456
15................... 14,995 43,526 101,969 14,995 43,526 101,969
20................... 9,880 49,128 151,969 9,880 49,128 151,969
30................... 0 59,488 321,055 0 59,488 321,055
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) 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.
39
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 65
$35,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $52,803 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
--------------------- --------------- ----------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1................... $35,000 $ 36,750 $52,803 $53,320 $ 56,653
2................... 0 38,588 52,803 53,812 60,682
3................... 0 40,517 52,803 54,280 64,904
4................... 0 42,543 52,803 54,726 69,332
5................... 0 44,670 52,803 55,149 73,984
6................... 0 46,903 52,803 55,552 78,875
7................... 0 49,249 52,803 55,934 84,022
8................... 0 51,711 52,803 56,298 89,444
9................... 0 54,296 52,803 56,642 95,161
10 (age 75) ......... 0 57,011 52,803 56,968 101,192
15................... 0 72,762 52,803 58,529 137,311
20................... 0 92,865 52,803 60,134 186,363
30................... 0 151,268 52,803 63,479 343,439
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
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................... $33,670 $35,737 $ 37,794 $30,835 $32,902 $ 34,959
2................... 32,327 36,471 40,805 29,807 33,951 38,285
3................... 30,973 37,201 44,050 28,768 34,996 41,845
4................... 29,609 37,928 47,547 27,719 36,038 45,657
5................... 28,233 38,652 51,314 26,658 37,077 49,739
6................... 26,844 39,368 55,367 25,584 38,108 54,107
7................... 25,438 40,074 59,722 24,493 39,129 58,777
8................... 24,014 40,764 64,394 23,384 40,134 63,764
9................... 22,565 41,433 69,395 22,250 41,118 69,080
10 (age 75) ......... 21,090 42,076 74,739 21,090 42,076 74,739
15................... 14,910 46,626 109,387 14,910 46,626 109,387
20................... 8,216 50,949 157,896 8,216 50,949 157,896
30................... 0 59,153 320,031 0 59,153 320,031
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) 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.
40
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
JOINT INSUREDS: FEMALE ISSUE AGE 65/MALE ISSUE AGE 65
$35,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $67,012 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
--------------------- --------------- ----------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1................... $35,000 $ 36,750 $67,012 $67,736 $ 72,041
2................... 0 38,588 67,012 68,416 77,275
3................... 0 40,517 67,012 69,054 82,733
4................... 0 42,543 67,012 69,654 88,436
5................... 0 44,670 67,012 70,218 94,408
6................... 0 46,903 67,012 70,748 100,670
7................... 0 49,249 67,012 71,247 107,248
8................... 0 51,711 67,012 71,716 114,166
9................... 0 54,296 67,012 72,159 121,450
10 (age 75) ......... 0 57,011 67,012 72,575 129,128
15................... 0 72,762 67,012 74,558 175,080
20................... 0 92,865 67,012 76,599 237,500
30................... 0 151,268 67,012 80,858 437,484
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
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................... $34,117 $36,198 $38,278 $30,652 $32,733 $ 34,813
2................... 33,218 37,420 41,867 30,138 34,340 38,787
3................... 32,298 38,664 45,789 29,603 35,969 43,094
4................... 31,357 39,927 50,071 29,047 37,617 47,761
5................... 30,390 41,206 54,739 28,465 39,281 52,814
6................... 29,395 42,497 59,820 27,855 40,957 50,280
7................... 28,367 43,796 65,342 27,212 42,640 64,187
8................... 27,301 45,094 71,329 26,531 44,324 70,559
9................... 26,190 46,384 77,805 25,805 45,999 77,420
10 (age 75) ......... 25,027 47,656 84,791 25,027 47,656 84,791
15................... 20,196 55,640 130,656 20,196 55,640 130,656
20................... 13,695 62,930 195,119 13,695 62,930 195,119
30................... 0 75,232 407,046 0 75,232 407,046
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) 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.
41
<PAGE>
EXAMPLES
ADDITIONAL PAYMENTS
If the guarantee period is for the whole of life at the time an additional
payment is received and accepted, 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 two. Example 2 shows the
effect of a $4,000 additional payment received and accepted at the beginning of
contract year two. Example 3 shows the effect of a $2,000 additional payment
received and accepted at the beginning of contract year five. 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
INITIAL PAYMENT: $30,000 FACE AMOUNT: $58,438
<TABLE>
<CAPTION>
EXAMPLE 1
--------------------------------------------
NEW
CONTRACT ADDITIONAL CHANGE IN FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
-------- ---------- ----------- -------
<S> <C> <C> <C>
2 $2,000 $3,802 $62,240
<CAPTION>
EXAMPLE 2
--------------------------------------------
NEW
CONTRACT ADDITIONAL CHANGE IN FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
-------- ---------- ----------- -------
<S> <C> <C> <C>
2 $4,000 $7,603 $66,041
<CAPTION>
EXAMPLE 3
--------------------------------------------
NEW
CONTRACT ADDITIONAL CHANGE IN FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
-------- ---------- ----------- -------
<S> <C> <C> <C>
5 $2,000 $3,511 $61,949
</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.
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 five.
Example 3 shows the effect on the guarantee period of an increase in face amount
of $10,000 made in contract year eight. All three examples assume that the
guarantee period at the time of the requested increase in face amount is for
life and assume no other Contract transactions have been made.
42
<PAGE>
MALE ISSUE AGE: 55
INITIAL PAYMENT: $30,000 FACE AMOUNT: $58,438
<TABLE>
<CAPTION>
EXAMPLE 1
----------------------------------------
DECREASE IN
CONTRACT INCREASE IN GUARANTEED
YEAR FACE AMOUNT PERIOD
-------- ----------- ----------------
<S> <C> <C>
5 $10,000 16.00 years
<CAPTION>
EXAMPLE 2
----------------------------------------
DECREASE IN
CONTRACT INCREASE IN GUARANTEED
YEAR FACE AMOUNT PERIOD
-------- ----------- ----------------
<S> <C> <C>
5 $20,000 19.75 years
<CAPTION>
EXAMPLE 3
----------------------------------------
DECREASE IN
CONTRACT INCREASE IN GUARANTEED
YEAR FACE AMOUNT PERIOD
-------- ----------- ----------------
<S> <C> <C>
8 $10,000 15.5 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
$500 and $1,000 taken at the beginning of contract year three. Example 3 shows
the effect on the face amount of a $500 partial withdrawal taken at the
beginning of contract year eight. All three examples assume that the guarantee
period was for the lifetime of the insured before the partial withdrawal and
assume no other contract transactions have been made.
MALE ISSUE AGE: 55
INITIAL PAYMENT: $30,000 FACE AMOUNT: $58,438
<TABLE>
<CAPTION>
EXAMPLE 1
----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
-------- ---------- -----------
<S> <C> <C>
3 $ 500 $57,421
<CAPTION>
EXAMPLE 2
----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
-------- ---------- -----------
<S> <C> <C>
3 $1,000 $56,404
<CAPTION>
EXAMPLE 3
----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
-------- ---------- -----------
<S> <C> <C>
8 $ 500 $57,544
</TABLE>
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.
43
<PAGE>
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. The minimum initial
payment for a Contract is $5,000 if either insured is under age 20. If neither
insured is under age 20 the minimum initial payment is $10,000.
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, or the 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 joint insureds in a standard underwriting class only.
INITIAL PAYMENT (REFERENCE PAGE 12)
The minimum initial payment for a Contract is $5,000 if either insured is
under age 20. If neither insured is under age 20 the minimum initial payment is
$10,000.
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.
MAKING ADDITIONAL PAYMENTS
PAYMENTS WHICH ARE NOT UNDER A PERIODIC PLAN (REFERENCE PAGE 12). 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.
PAYMENTS UNDER A PERIODIC PLAN (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.
EFFECT OF ADDITIONAL PAYMENTS (REFERENCE PAGE 13). 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.
CHANGING THE FACE AMOUNT
INCREASING THE FACE AMOUNT (REFERENCE PAGE 14). 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 14). Contract owners may decrease
the face amount of their Contracts if either insured is living.
44
<PAGE>
CHARGES DEDUCTED FROM THE INVESTMENT BASE
DEFERRED CONTRACT LOADING (REFERENCE PAGE 16). The deferred contract loading
equals 11.0% of each payment. This charge consists of a sales load, a charge for
federal income taxes measured by premiums 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 breakpoints (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 31.) 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 17). 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 18). 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
18.
NET CASH SURRENDER VALUE
CANCELLING TO RECEIVE NET CASH SURRENDER VALUE (REFERENCE PAGE 19). Contract
owners may cancel their Contracts at any time while either insured is living.
DEATH BENEFIT PROCEEDS (REFERENCE PAGE 21)
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 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 26.)
NET SINGLE PREMIUM FACTOR (REFERENCE PAGE 21). 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 22)
If 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 22). A contract owner may exchange his
or her Contract for a joint and last survivor Contract with benefits that don't
vary with the investment results of a separate account.
USING THE CONTRACT
OWNERSHIP (REFERENCE PAGE 23). The contract owner is usually one of the
insureds, unless another owner has been named in the application.
45
<PAGE>
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 23). 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 24). Not available for joint insureds.
MATURITY PROCEEDS (REFERENCE PAGE 24). 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 26). 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 26). 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 payment 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.
INCOME PLANS (REFERENCE PAGE 26)
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.
46
<PAGE>
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. Since February 1994, he has
held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From February 1991 to February 1994, he held the position of
District Director and First Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From September 1988 to February 1991, he held the position
of Senior Resident Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
Mr. Crowne joined Merrill Lynch Life in June 1991. From January 1989 to May
1991, he was a Principal with Coopers & Lybrand.
Mr. Skolnick joined Merrill Lynch Life in November 1990. He joined Merrill
Lynch, Pierce, Fenner & Smith Incorporated in July 1984. Since May 1992, he has
held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and
First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Prior to May 1992, he held the position of Senior Counsel of Merrill Lynch &
Co., Inc.
Mr. Dunford joined Merrill Lynch Life in July 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in September 1989. Prior to September 1989,
he held the position of President of Travelers Investment Management Co.
Mr. Hele joined Merrill Lynch Life in December 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in August 1988.
Mr. Jones joined Merrill Lynch Life in June 1992. Since May 1992, he has held
the position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. From June 1992 to February 1994, he held the position of Chairman
of the Board, President, and Chief Executive Officer of Merrill Lynch Life. From
January 1992 to June 1992, he held the position of First Vice President, of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From January 1991 to January
1992, he held the position of District Director of Merrill Lynch, Pierce, Fenner
& Smith Incorporated. Prior to January 1991, he held the position of Senior
Resident Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Mr. Boucher joined Merrill Lynch Life in May 1992. Prior to May 1992, he held
the position of Vice President of Monarch Financial Services, Inc. (formerly
Monarch Resources Inc.)
47
<PAGE>
No shares of Merrill Lynch Life are owned by any of its officers or directors,
as it is a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc. The
officers and directors of Merrill Lynch Life, both individually and as a group,
own less than one percent of the outstanding shares of common stock of Merrill
Lynch & Co., Inc.
SERVICES ARRANGEMENT
Merrill Lynch Life and its parent, Merrill Lynch Insurance Group, Inc.
("MLIG"), are parties to a service agreement pursuant to which MLIG has agreed
to provide certain data processing, legal, actuarial, management, advertising
and other services to Merrill Lynch Life, including services related to the
Separate Account and the Contracts. Expenses incurred by MLIG in relation to
this service agreement are reimbursed by Merrill Lynch Life on an allocated cost
basis. Charges billed to Merrill Lynch Life by MLIG pursuant to the agreement
were $55.9 million for the year ended December 31, 1993.
STATE REGULATION
Merrill Lynch Life is subject to the laws of the State of Arkansas and to
the regulations of the Arkansas Insurance Department (the "Insurance
Department"). A detailed financial statement in the prescribed form (the "Annual
Statement") is filed with the Insurance Department each year covering Merrill
Lynch Life's operations for the preceding year and its financial condition as of
the end of that year. Regulation by the Insurance Department includes periodic
examination to determine contract liabilities and reserves so that the Insurance
Department may certify that these items are correct. Merrill Lynch Life's books
and accounts are subject to review by the Insurance Department at all times. A
full examination of Merrill Lynch Life's operations is conducted periodically by
the Insurance Department and under the auspices of the National Association of
Insurance Commissioners. Merrill Lynch Life is also subject to the insurance
laws and regulations of all jurisdictions in which it is licensed to do
business.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. Merrill Lynch Life and
Merrill Lynch, Pierce, Fenner & Smith Incorporated are engaged in various kinds
of routine litigation that, in the Company's judgment, is not material to
Merrill Lynch Life's total assets or to Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
EXPERTS
The financial statements of Merrill Lynch Life as of December 31, 1993 and
1992 and for each of the three years in the period ended December 31, 1993 and
of the Separate Account as of December 31, 1993 and 1992 and for each of the
periods presented, included in this Prospectus have been audited by Deloitte &
Touche, independent auditors, as stated in their reports appearing herein, and
have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing. 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.
48
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statements of net assets of Merrill Lynch
Variable Life Separate Account (the "Account") as of December 31, 1993 and 1992
and the related statements of earnings and changes in net assets for the
periods presented. These financial statements are the responsibility of the
management of Merrill Lynch Life Insurance Company. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of mutual fund securities owned at December
31, 1993, by correspondence with the funds' transfer agent. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Account at December 31, 1993 and 1992
and the results of its operations and the changes in its net assets for the
periods presented in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules included
herein are presented for the purpose of additional analysis and are not a
required part of the basic financial statements. These schedules are the
responsibility of the Company's management. Such schedules have been subjected
to the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
/S/Deloitte & Touche
February 16, 1994
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1993
=====================================================
<TABLE>
<CAPTION>
Market
ASSETS Cost Shares Value
=============== =============== ===============
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc.(Note B):
Money Reserve Portfolio $ 14,128,729 14,128,729 $ 14,128,729
Intermediate Government Bond Portfolio 2,126,019 177,154 2,129,388
Long-Term Corporate Bond Portfolio 3,607,994 288,643 3,634,015
Capital Stock Portfolio 2,763,303 118,501 3,049,034
Growth Stock Portfolio 1,619,479 70,073 1,727,296
Multiple Strategy Portfolio 4,090,720 219,473 4,354,347
High Yield Portfolio 1,259,332 132,803 1,285,534
Natural Resources Portfolio 382,189 49,459 372,427
Global Strategy Portfolio 5,412,892 368,615 5,684,049
Balanced Portfolio 1,329,563 94,027 1,374,679
--------------- ---------------
36,720,220 37,739,498
--------------- ---------------
Investment in Unit Investment Trusts (Note B)
Stripped ("Zero") U.S. Treasury Securities, Series A through J:
1994 Trust 1,969 2,027 1,985
1995 Trust 256 276 256
1996 Trust 2,205 2,459 2,247
1997 Trust 6,837 8,029 6,961
1998 Trust 15,814 21,780 17,745
2000 Trust 45,453 63,394 45,693
2001 Trust 8,621 14,024 9,467
2003 Trust 7,646 13,519 7,632
2010 Trust 129,831 376,060 129,989
2011 Trust 137,842 572,349 184,400
2013 Trust 4,489 15,991 4,403
--------------- ---------------
360,963 410,778
--------------- ---------------
Total Assets $ 37,081,183 38,150,276
=============== ---------------
LIABILITIES
Payable to Merrill Lynch Series Fund, Inc. 1,600,737
Payable to Merrill Lynch Life Insurance Company 970,138
---------------
Total Liabilities 2,570,875
---------------
Net Assets $ 35,579,401
===============
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1992
==================================================================
<TABLE>
<CAPTION>
Market
ASSETS Cost Shares Value
=============== =============== ===============
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc.(Note B):
Money Reserve Portfolio $ 3,266,901 3,266,901 $ 3,266,901
Intermediate Government Bond Portfolio 134,373 11,251 132,201
Long-Term Corporate Bond Portfolio 71,254 5,925 71,518
Capital Stock Portfolio 174,622 7,910 183,678
Growth Stock Portfolio 103,743 4,631 111,040
Multiple Strategy Portfolio 228,920 12,830 239,922
High Yield Portfolio 15,064 1,668 15,180
Natural Resources Portfolio 2,923 421 2,948
Global Strategy Portfolio 111,374 8,581 113,529
Balanced Portfolio 197,389 14,722 201,689
--------------- ---------------
4,306,563 4,338,606
--------------- ---------------
Investment in Unit Investment Trusts (Note B):
Stripped ("Zero") U.S. Treasury Securities, Series A through I:
1998 Trust 14,959 20,765 15,193
2001 Trust 8,056 14,292 8,286
2010 Trust 99,930 385,847 105,656
2011 Trust 139,757 582,393 147,765
--------------- ---------------
262,702 276,900
--------------- ---------------
Total Assets $ 4,569,265 4,615,506
=============== ---------------
LIABILITIES
Payable to Merrill Lynch Life Insurance Company 1,107,789
Payable to Merrill Lynch Series Fund, Inc. 54,033
---------------
Total Liabilities 1,161,822
---------------
Net Assets $ 3,453,684
===============
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993 AND
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
=================================================================
<TABLE>
<CAPTION>
1993 1992
=============== ===============
<S> <C> <C>
Reinvested Dividends $ 566,325 $ 21,362
Net Gain (Loss):
Realized 63,152 (775)
Unrealized 1,022,845 46,241
--------------- ---------------
Investment Earnings 1,652,322 66,828
Mortality and Expense Charges (Note C) (140,002) (6,442)
Transaction Charges (Note D) (1,237) (166)
--------------- ---------------
Net Earnings 1,511,083 60,220
Capital Shares Transactions:
Transfers of Net Premiums 29,211,942 3,099,255
Transfers of Policy Loading, Net 2,330,207 310,111
Transfers Due to Deaths (89,520) 0
Transfers Due toTerminations (69,256) 0
Transfers Due to Policy Loans (387,136) 0
Transfers of Cost of Insurance (377,409) (15,902)
Transfers of Loan Processing Charges (4,194) 0
--------------- ---------------
Increase in Net Assets 32,125,717 3,453,684
Net Assets Beginning Balance 3,453,684 0
--------------- ---------------
Net Assets Ending Balance $ 35,579,401 $ 3,453,684
=============== ===============
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1993
Note - A Merrill Lynch Variable Life Separate Account ("Account"), a
separate account of Merrill Lynch Life Insurance Company ("Merrill Lynch
Life") was established by a board of directors resolution on November 16, 1990
and is governed by Arkansas State Insurance Law. The Account is registered as
a unit investment trust under the Investment Company Act of 1940 and consists
of twenty-eight investment divisions (twenty-nine during the year). Ten of the
divisions each invest in the securities of a single mutual fund portfolio of
Merrill Lynch Series Fund, Inc. ("Series Fund"). The portfolios of the Series
Fund have varying investment objectives relative to growth of capital and
income. The Series Fund receives investment advice from Merrill Lynch Asset
Management, L.P. for a fee calculated at an effective annual rate of .50% of
the first $250 million of the aggregate average daily net assets of the
investment divisions investing in the Series Fund with declining rates to .30%
of such assets over $800 million. Eighteen of the divisions (nineteen during
the year) each invest in the securities of a single trust of the Merrill Lynch
Fund of Stripped ("Zero") U.S. Treasury Securities, Series A through J. Each
trust of the Series consists of Stripped Treasury Securities with a fixed
maturity date and a Treasury Note deposited to provide income to pay expenses
of the trust.
The Account was formed by Merrill Lynch Life, an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("Merrill") to support Merrill Lynch
Life's operations respecting certain variable life insurance contracts
("Contracts"). The assets of the Account are the property of Merrill Lynch
Life. The portion of the Account's assets applicable to the Contracts are not
chargeable with liabilities arising out of any other business Merrill Lynch
Life may conduct.
The change in net assets maintained in the Account provides the basis for
the periodic determination of the amount of increased or decreased benefits
under the Contracts.
The net assets may not be less than the amount required under Arkansas
State Insurance Law to provide for death benefits (without regard to the
minimum death benefit guarantee) and other Contract benefits.
Note - B The significant accounting policies of the Account are as follows:
* Investments are made in the divisions and are valued at the net asset
values of the respective Portfolios.
* Transactions are recorded on the trade date.
* Income from dividends is recognized on the ex-dividend date. All
dividends are automatically reinvested.
* Realized gains and losses on the sales of investments are computed on
the first in first out method.
* The operations of the Account are included in the Federal income tax
return of Merrill Lynch Life. Under the provisions of the Contracts, Merrill
Lynch Life has the right to charge the Account for any Federal income tax
attributable to the Account. No charge is currently being made against the
Account for income taxes since, under current tax law, Merrill Lynch Life pays
no tax on investment income and capital gains reflected in variable life
insurance contract reserves. However, Merrill Lynch Life retains the
right to charge for any Federal income tax incurred which is attributable to
the Account if the law is changed. Contract loading, however, includes a
charge for
<PAGE>
a significantly higher Federal income tax liability of Merrill Lynch
Life (see Note C). Charges for state and local taxes, if any, attributable to
the Account may also be made.
Note - C Merrill Lynch Life assumes mortality and expense risks related to
the operations of the Account and deducts a daily charge from the assets of
the Account to cover these risks. The daily charges are equal to a rate of
.90% (on an annual basis) of the net assets for contract owners. Merrill
Lynch Life makes certain deductions from each premium. For certain
Contracts, the deductions are made before the premium is allocated to
the Account. For other Contracts, the deductions are taken in equal
installments on the first through tenth contract anniversaries. The
deductions are for (1) sales load, (2) Federal taxes, and (3) state and local
premium taxes. In addition, for certain Contracts, the cost of providing
life insurance coverage for the insureds will be deducted from the investment
base on the contract date and all subsequent processing dates. For other
Contracts, the cost of providing life insurance coverage will be deducted
only on processing dates. This cost will vary dependent upon the
insured's underwriting class, sex (except where unisex rates are required by
state law), attained age of each insured and the Contract's net amount at risk.
Note - D Merrill Lynch Life pays all transaction charges to Merrill
Lynch, Pierce, Fenner & Smith Inc., sponsor of the unit investment trusts, on
the sale of Series A through J Unit Investment Trust units to the Account
and deducts a daily asset charge against the assets of each trust for the
reimbursement of these transaction charges. The asset charge is equivalent
to an effective annual rate of .34% (annually at the beginning of the year) of
net assets for Contract owners.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
=======================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 240,425 $ 52,396 $ 124,153 $ 20,003
4,153 $ 20,003
Net Gain (Loss):
Realized 0 (207) 2,694 4,634
Unrealized 0 5,540 25,757 276,674
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 240,425 57,729 152,604 301,311
Mortality and Expense Charges (Note C) (52,658) (8,013) (18,583) (11,653)
Transaction Charges (Note D) 0 0 0 0
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 187,767 49,716 134,021 289,658
Capital Shares Transactions:
Transfers of Net Premiums 28,807,995 13,443 16,325 44,825
Transfers of Policy Loading, Net 2,323,451 (488) (3,256) 172
Transfers Due to Deaths (84,834) 0 0 0
Transfers Due to Other Terminations (57,172) (980) (1,880) (1,387)
Transfers Due to Policy Loans (105,200) (46,544) (38,037) (60,377)
Transfers of Cost of Insurance (145,593) (13,605) (30,998) (32,240)
Transfers of Loan Processing Charges (1,554) (234) (400) (335)
Transfers Among Investment Divisions (20,973,874) 1,991,148 3,478,405 2,615,308
--------------- --------------- --------------- ---------------
Increase in Net Assets 9,950,986 1,992,456 3,554,180 2,855,624
Net Assets Beginning Balance 2,106,982 131,996 71,411 183,428
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 12,057,968 $ 2,124,452 $ 3,625,591 $ 3,039,052
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 11,722 $ 35,996 $ 40,979 $ 764
Net Gain (Loss):
Realized 5,372 5,912 1,965 194
Unrealized 100,519 252,624 26,086 (9,788)
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 117,613 294,532 69,030 (8,830)
Mortality and Expense Charges (Note C) (8,200) (12,028) (4,233) (1,214)
Transaction Charges (Note D) 0 0 0 0
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 109,413 282,504 64,797 (10,044)
Capital Shares Transactions:
Transfers of Net Premiums 26,813 36,427 31,231 23,747
Transfers of Policy Loading, Net 1,357 (2,248) 794 2,071
Transfers Due to Deaths 0 (4,686) 0 0
Transfers Due to Other Terminations (894) (2,110) (660) (193)
Transfers Due to Policy Loans (57,729) (56,074) (597) (526)
Transfers of Cost of Insurance (26,818) (31,498) (13,266) (6,103)
Transfers of Loan Processing Charges (190) (479) (141) (41)
Transfers Among Investment Divisions 1,558,500 3,551,257 1,135,041 358,744
--------------- --------------- --------------- ---------------
Increase in Net Assets 1,610,452 3,773,093 1,217,199 367,655
Net Assets Beginning Balance 110,894 239,594 15,157 2,944
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 1,721,346 $ 4,012,687 $ 1,232,356 $ 370,599
=============== =============== =============== ===============
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
==========================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
Global
Strategy Balanced 1993 1994
Portfolio Portfolio Trust Trust
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 17,738 $ 22,149 $ 0 $ 0
Net Gain (Loss):
Realized 1,064 1,120 29 0
Unrealized 269,003 40,816 0 16
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 287,805 64,085 29 16
Mortality and Expense Charges (Note C) (14,321) (5,819) (6) (3)
Transaction Charges (Note D) 0 0 (3) (1)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 273,484 58,266 20 12
Capital Shares Transactions:
Transfers of Net Premiums 88,757 12,081 6,446 1,671
Transfers of Policy Loading, Net 6,718 (1,566) 304 79
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (2,936) (818) (2) (1)
Transfers Due to Policy Loans (14,337) (7,715) 0 0
Transfers of Cost of Insurance (59,703) (13,088) 0 (32)
Transfers of Loan Processing Charges (625) (151) 0 0
Transfers Among Investment Divisions 5,210,345 1,122,106 (6,768) 252
--------------- --------------- --------------- ---------------
Increase in Net Assets 5,501,703 1,169,115 0 1,981
Net Assets Beginning Balance 113,365 201,399 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 5,615,068 $ 1,370,514 $ 0 $ 1,981
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997 1998
Trust Trust Trust Trust
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized (8) 0 3 34
Unrealized 0 42 124 1,697
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) (8) 42 127 1,731
Mortality and Expense Charges (Note C) (1) (6) (25) (149)
Transaction Charges (Note D) 0 (3) (10) (56)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) (9) 33 92 1,526
Capital Shares Transactions:
Transfers of Net Premiums 4,775 1,671 5,730 669
Transfers of Policy Loading, Net 225 79 272 (31)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 0 (11) (4) (16)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (1) (32) (151) (119)
Transfers of Loan Processing Charges 0 0 (1) (2)
Transfers Among Investment Divisions (4,735) 501 1,004 505
--------------- --------------- --------------- ---------------
Increase in Net Assets 255 2,241 6,942 2,532
Net Assets Beginning Balance 0 0 0 15,171
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 255 $ 2,241 $ 6,942 $ 17,703
=============== =============== =============== ===============
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
=====================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
2000 2001 2003 2010
Trust Trust Trust Trust
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 1,181 753 320 37,014
Unrealized 239 615 (14) (5,568)
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 1,420 1,368 306 31,446
Mortality and Expense Charges (Note C) (160) (81) (19) (1,264)
Transaction Charges (Note D) (60) (31) (7) (476)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 1,200 1,256 280 29,706
Capital Shares Transactions:
Transfers of Net Premiums 84,561 0 4,775 0
Transfers of Policy Loading, Net 4,229 (36) 172 (872)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (19) (5) (4) (67)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (1,186) (60) (351) (754)
Transfers of Loan Processing Charges (5) (1) (1) (14)
Transfers Among Investment Divisions (43,215) 3 2,743 (3,816)
--------------- --------------- --------------- ---------------
Increase in Net Assets 45,565 1,157 7,614 24,183
Net Assets Beginning Balance (4) 8,274 0 105,511
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 45,561 $ 9,431 $ 7,614 $ 129,694
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
2011 2013
Trust Trust Total
===============================================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 566,325
Net Gain (Loss):
Realized 1,078 0 63,152
Unrealized 38,549 (86) 1,022,845
--------------- --------------- ---------------
Investment Earnings (Losses) 39,627 (86) 1,652,322
0 0 0
Mortality and Expense Charges (Note C) (1,559) (7) (140,002)
Transaction Charges (Note D) (587) (3) (1,237)
--------------- --------------- ---------------
Net Earnings (Losses) 37,481 (96) 1,511,083
Capital Shares Transactions:
Transfers of Net Premiums 0 0 29,211,942
Transfers of Policy Loading, Net (1,220) 1 2,330,207
Transfers Due to Deaths 0 0 (89,520)
Transfers Due to Other Terminations (95) (2) (69,256)
Transfers Due to Policy Loans 0 0 (387,136)
Transfers of Cost of Insurance (1,779) (32) (377,409)
Transfers of Loan Processing Charges (20) 0 (4,194)
Transfers Among Investment Divisions 2,036 4,510 0
--------------- --------------- ---------------
Increase in Net Assets 36,403 4,381 32,125,717
Net Assets Beginning Balance 147,562 0 3,453,684
--------------- --------------- ---------------
Net Assets Ending Balance $ 183,965 $ 4,381 $ 35,579,401
=============== =============== ===============
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
=======================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 19,050 $ 1,655 $ 478 $ 0
Net Gain (Loss):
Realized 0 (12) (2) 11
Unrealized 0 (2,172) 264 9,056
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 19,050 (529) 740 9,067
Mortality and Expense Charges (Note C) (4,254) (260) (89) (288)
Transaction Charges (Note D) 0 0 0 0
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 14,796 (789) 651 8,779
Capital Shares Transactions:
Transfers of Net Premiums 2,970,874 0 0 0
Transfers of Policy Loading, Net 297,511 0 0 0
Transfers of Cost of Insurance (11,028) (569) (164) (481)
Transfers Among Investment Divisions (1,165,171) 133,354 70,924 175,130
--------------- --------------- --------------- ---------------
Increase in Net Assets 2,106,982 131,996 71,411 183,428
Net Assets Beginning Balance 0 0 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 2,106,982 $ 131,996 $ 71,411 $ 183,428
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 179 $ 0
Net Gain (Loss):
Realized 30 15 0 (1)
Unrealized 7,297 11,002 116 25
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 7,327 11,017 295 24
Mortality and Expense Charges (Note C) (191) (408) (19) (4)
Transaction Charges (Note D) 0 0 0 0
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 7,136 10,609 276 20
Capital Shares Transactions:
Transfers of Net Premiums 0 0 0 0
Transfers of Policy Loading, Net 0 0 0 0
Transfers of Cost of Insurance (682) (863) (84) (61)
Transfers Among Investment Divisions 104,440 229,848 14,965 2,985
--------------- --------------- --------------- ---------------
Increase in Net Assets 110,894 239,594 15,157 2,944
Net Assets Beginning Balance 0 0 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 110,894 $ 239,594 $ 15,157 $ 2,944
=============== =============== =============== ===============
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
=========================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================
Global
Strategy Balanced 1998 2000
Portfolio Portfolio Trust Trust
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 1 15 (2) (922)
Unrealized 2,155 4,300 234 0
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 2,156 4,315 232 (922)
Mortality and Expense Charges (Note C) (150) (338) (11) (14)
Transaction Charges (Note D) 0 0 (4) (5)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 2,006 3,977 217 (941)
Capital Shares Transactions:
Transfers of Net Premiums 0 0 0 128,381
Transfers of Policy Loading, Net 0 0 0 12,600
Transfers of Cost of Insurance (652) (806) (46) 0
Transfers Among Investment Divisions 112,011 198,228 15,000 (140,044)
--------------- --------------- --------------- ---------------
Increase in Net Assets 113,365 201,399 15,171 (4)
Net Assets Beginning Balance 0 0 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 113,365 $ 201,399 $ 15,171 $ (4)
=============== =============== =============== ===============
</TABLE
</TABLE>
<TABLE>
<CAPTION>
2001 2010 2011
Trust Trust Trust Total
===============================================================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 77 8 7 (775)
Unrealized 230 5,726 8,008 46,241
--------------- --------------- --------------- ---------------
Investment Earnings (Losses) 307 5,734 8,015 66,828
Mortality and Expense Charges (Note C) (6) (193) (217) (6,442)
Transaction Charges (Note D) (2) (73) (82) (166)
--------------- --------------- --------------- ---------------
Net Earnings (Losses) 299 5,468 7,716 60,220
Capital Shares Transactions:
Transfers of Net Premiums 0 0 0 3,099,255
Transfers of Policy Loading, Net 0 0 0 310,111
Transfers of Cost of Insurance (25) (243) (198) (15,902)
Transfers Among Investment Divisions 8,000 100,286 140,044 0
Increase in Net Assets 8,274 105,511 147,562 3,453,684
--------------- --------------- --------------- ---------------
Net Assets Beginning Balance 0 0 0 0
--------------- --------------- --------------- ---------------
Net Assets Ending Balance $ 8,274 $ 105,511 $ 147,562 $ 3,453,684
=============== =============== =============== ===============
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill Lynch
Life Insurance Company (the "Company"), a wholly-owned subsidiary
of Merrill Lynch Insurance Group, Inc., as of December 31, 1993
and 1992, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1993 and 1992, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the
Company changed its method of accounting for certain investments
in debt and equity securities to conform with Statement of
Financial Accounting Standards No. 115.
/s/Deloitte & Touche
February 28, 1994
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
ASSETS 1993 1992
- ------ ---- ----
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1993 - $5,369,236; 1992 - $334,638) $ 5,597,359 $ 335,916
Fixed maturity securities held for trading, at estimated fair value
(amortized cost: 1993 - $140,635) 144,035 0
Fixed maturity securities to be held to maturity, at amortized cost
(estimated fair value: 1992 - $6,713,831) 0 6,449,981
Equity securities available for sale, at estimated fair value
(cost: 1993 - $24,424; 1992 - $31,598) 24,970 33,186
Equity securities held for trading, at estimated fair value
(cost 1993 - $19,694) 20,585 0
Mortgage loans on real estate 191,214 264,966
Real estate available for sale
(accumulated depreciation: 1993 - $850; 1992 - $321) 29,761 12,847
Policy loans on insurance contracts 924,579 834,461
------------- -------------
Total Investments 6,932,503 7,931,357
CASH AND CASH EQUIVALENTS 122,218 172,124
ACCRUED INVESTMENT INCOME 120,337 138,797
DEFERRED POLICY ACQUISITION COSTS 318,903 373,214
FEDERAL INCOME TAXES - DEFERRED 16,878 19,982
REINSURANCE RECEIVABLES 1,190 856
RECEIVABLES FROM AFFILIATES - NET 789 0
OTHER ASSETS 21,481 19,864
SEPARATE ACCOUNTS ASSETS 4,715,278 3,127,767
------------- -------------
TOTAL ASSETS $ 12,249,577 $ 11,783,961
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1993 1992
- ------------------------------------ ---- ----
LIABILITIES:
<S> <C> <C>
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 6,691,811 $ 7,804,447
Claims and claims settlement expenses 20,295 7,565
------------- -------------
Total policy liabilities and accruals 6,712,106 7,812,012
OTHER POLICYHOLDER FUNDS 28,768 14,637
LIABILITY FOR GUARANTY FUND ASSESSMENTS 28,083 27,104
OTHER LIABILITIES 68,165 16,790
FEDERAL INCOME TAXES - CURRENT 10,122 30,010
PAYABLE TO AFFILIATES - NET 0 2,638
SEPARATE ACCOUNTS LIABILITIES 4,715,278 3,118,296
------------- -------------
Total Liabilities 11,562,522 11,021,487
------------- -------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 637,590 654,717
Retained earnings 47,860 102,873
Net unrealized investment gain (loss) (395) 2,884
------------- -------------
Total Stockholder's Equity 687,055 762,474
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 12,249,577 $ 11,783,961
============= =============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 586,461 $ 712,739 $ 787,603
Net realized investment gains (losses) 63,052 (29,639) (21,957)
Policy charge revenue 95,684 81,653 82,745
----------- ----------- -----------
Total Revenues 745,197 764,753 848,391
----------- ----------- -----------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account
balances 454,671 546,979 638,984
Market value adjustment expense 30,816 6,229 1,198
Policy benefits (reinsurance recoveries: 1993 - $6,004;
1992 - $5,555; 1991 - $6,328) 17,030 12,066 9,537
Reinsurance premium ceded 12,665 12,457 12,765
Amortization of deferred policy acquisition costs 109,456 88,795 93,391
Insurance expenses and taxes 47,784 72,560 78,448
----------- ----------- -----------
Total Benefits and Expenses 672,422 739,086 834,323
----------- ----------- -----------
Earnings Before Federal Income
Tax Provision 72,775 25,667 14,068
----------- ----------- -----------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 20,112 28,549 42,919
Deferred 4,803 (19,913) (40,459)
----------- ----------- -----------
Total Federal Income Tax Provision 24,915 8,636 2,460
----------- ----------- -----------
NET EARNINGS $ 47,860 $ 17,031 $ 11,608
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
-------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1991 $ 2,000 $ 572,321 $ 74,234 $ (103) $ 648,452
Capital contribution 82,396 82,396
Net earnings 11,608 11,608
Net unrealized investment loss (1,142) (1,142)
BALANCE, DECEMBER 31, 1991 2,000 654,717 85,842 (1,245) 741,314
Net earnings 17,031 17,031
Net unrealized investment gain 4,129 4,129
-------- ----------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1992 2,000 654,717 102,873 2,884 762,474
Dividend to Parent (17,127) (102,873) (120,000)
Net earnings 47,860 47,860
Net unrealized investment loss (1) (3,279) (3,279)
-------- ----------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1993 $ 2,000 $ 637,590 $ 47,860 $ ( 395) $ 687,055
======== =========== ========== =========== =============
</TABLE>
(1) Asset gains less adjustment of policyholders' account balances
and deferred policy acquisition costs (See Note 1).
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 47,860 $ 17,031 $ 11,608
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 109,456 88,795 93,391
Capitalization of policy acquisition costs (91,189) (39,146) (149,440)
Depreciation and amortization 1,142 (16,033) (25,417)
Net realized investment (gains) losses (63,052) 29,639 21,957
Interest credited to policyholders' account balances 454,671 546,979 638,984
Provision for deferred Federal
income tax 4,803 (19,913) (40,459)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 18,460 6,018 (9,271)
Policy liabilities and accruals 12,730 7,775 101,521
Federal income taxes - current (19,888) 14,955 44,782
Other policyholder funds 14,131 12,826 (25,035)
Liability for guaranty fund assessments 979 16,439 10,665
Payable to Family Life Insurance Company 0 0 (28,224)
Policy loans (90,118) (126,925) (88,362)
Investment trading securities (145,972) 0 0
Other, net 49,425 (26,296) (30,343)
------------ ------------- -------------
Net cash and cash equivalents provided
by operating activities 303,438 512,144 526,357
------------ ------------- -------------
</TABLE>
(Continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Concluded) (Dollars In Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Fixed maturity securities sold 571,337 1,281,705 4,005,959
Fixed maturity securities matured 2,776,992 2,206,447 746,273
Fixed maturity securities purchased (1,866,857) (2,806,416) (5,142,471)
Equity securities available for sale purchased (8,983) (17,843) (67,348)
Equity securities available for sale sold 6,451 44,188 20,768
Mortgage loans on real estate principal payments received 35,561 8,548 5,977
Mortgage loans on real estate acquired (674) (853) (740)
Real estate available for sale purchased 0 (340) (22,706)
Real estate available for sale sold 7,408 178 25,000
Interest rate swaps sold 0 2,302 0
Recapture of investment in Separate Accounts 29,389 0 0
Investment in Separate Accounts (20,000) (3,841) 0
------------ ------------- -------------
Net cash and cash equivalents provided (used)
by investing activities 1,530,624 714,075 (429,288)
------------ ------------- -------------
FINANCING ACTIVITIES:
Paid-in capital from parent 0 0 82,396
Dividend paid to parent (120,000) 0 0
Affiliated notes payable (3,427) (83,200) 18,794
Policyholders' account balances:
Deposits 814,314 217,410 436,564
Withdrawals (net of transfers to Separate Accounts) (2,574,854) (1,338,034) (772,811)
Net cash and cash equivalents used ------------ ------------- -------------
by financing activities (1,883,967) (1,203,824) (235,057)
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (49,906) 22,395 (137,988)
CASH AND CASH EQUIVALENTS
Beginning of year 172,124 149,729 287,717
------------ ------------- -------------
End of year $ 122,218 $ 172,124 $ 149,729
============ ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: Merrill Lynch Life Insurance Company (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells life insurance and annuity products which
comprise one business segment. The primary products that the
Company currently markets are immediate annuities, market value
adjusted annuities, variable life insurance and variable
annuities. The Company is currently licensed to sell insurance
in forty-nine states, the District of Columbia, the U.S. Virgin
Islands and Guam. The Company markets its products solely
through the Merrill Lynch & Co. retail network.
On June 12, 1991, the Company's former parent, Family Life
Insurance Company ("Family Life"), was sold to a non-affiliated
entity. Immediately prior to this sale, Family Life, through a
dividend, transferred its 100% ownership interest in the
Company to its parent MLIG. (See Note 8).
On October 1, 1991, Tandem Insurance Group, Inc. ("Tandem"), a
wholly-owned subsidiary of MLIG, was merged with and into the
Company. This merger has been accounted for as a combination
of entities under common control. The assets, liabilities,
stockholder's equity, earnings and cash flows as presented in
these financial statements are reported on a combined
historical basis for all periods presented.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles for
stock life insurance companies.
Revenue Recognition: Revenues for the Company's interest
sensitive life, interest sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholder account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest crediting rates for the
Company's fixed rate products are as follows:
Interest sensitive life products 4.0% - 8.8%
Interest sensitive deferred annuities 2.4% - 9.0%
Immediate annuities 4.0% - 10.0%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are
unreported as of the valuation date.
<PAGE>
Reinsurance: Effective during 1992, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 113
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts" ("SFAS No. 113"), which requires that
reinsurance receivables and prepaid reinsurance premium ceded
be reported as assets. SFAS No. 113 eliminates the practice by
insurance enterprises of reporting assets and liabilities
relating to reinsured contracts net of the effects of
reinsurance. The impact of adopting SFAS No. 113 was not
material.
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. On life insurance contracts which the Company is
currently marketing, the maximum amount of mortality risk
retained by the Company is $500,000 on a single life.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the
Company. The Company regularly evaluates the financial
condition of its reinsurers so as to minimize its exposure to
significant losses from reinsurer insolvencies. The Company
holds collateral under reinsurance agreements in the form of
letters of credit and funds withheld totaling $1,024,000 that
can be drawn upon for delinquent reinsurance recoverables.
As of December 31, 1993, the Company had life insurance in-
force which was ceded to other life insurance companies of
$2,005,191,000.
Deferred Policy Acquisition Costs: Policy acquisition costs
for life and annuity contracts are deferred and amortized based
on the estimated future gross profits for each group of
contracts. These future gross profit estimates are subject to
periodic evaluation by the Company, with necessary revisions
applied against amortization to date.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, which are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed.
Included in deferred policy acquisition costs are those costs
related to the acquisition by assumption reinsurance of
insurance contracts from unaffiliated insurers. The deferred
costs will be amortized in proportion to the future gross
profits over the anticipated life of the acquired insurance
contracts utilizing an interest methodology.
In December 1990, the Company entered into an assumption
reinsurance agreement with a non-affiliated insurer (See Note
6). The acquisition costs relating to this agreement are being
amortized over a twenty-year period using an effective interest
rate of 9.01%. This reinsurance agreement provides for payment
of contingent ceding commissions based upon the persistency and
mortality experience of the insurance contracts assumed. Any
payments made for the contingent ceding commissions will be
capitalized and amortized using an identical methodology as
that used for the initial acquisition costs. The following is
a reconciliation of the acquisition costs for the reinsurance
transaction for the three years ended December 31,:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning balance $ 150,450 $ 160,235 $ 24,294
Capitalized amounts 6,987 6,060 156,641
Interest accrued 13,136 15,401 14,071
Amortization (30,926) (31,246) (34,771)
---------- ---------- ----------
Ending balance $ 139,647 $ 150,450 $ 160,235
========== ========== ==========
</TABLE>
The following table presents the expected amortization of these
deferred acquisition costs over the next five years. The
amortization may be adjusted based on periodic evaluation of
the expected gross profits on the reinsured policies.
1994 $18,732,000
1995 17,840,000
1996 16,056,000
1997 12,488,000
1998 8,925,000
Investments: Effective December 31, 1993, the Company has
adopted SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). In compliance
with SFAS No. 115, the Company classified its investments in
fixed maturity securities and equity securities in two
categories, each separately identified:
Available for sale securities include both fixed maturity
and equity securities. These securities may be sold for the
Company's general liquidity needs, asset/liability
management strategy, credit dispositions and investment
opportunities. These securities are carried at estimated
fair value with unrealized gains and losses included in
stockholder's equity (net of tax). If a decline in value of
a security is determined by management to be other than
temporary, the carrying value is adjusted to the estimated
fair value at the date of this determination and recorded
in the net realized investment gains (losses) caption of
the statement of earnings.
Trading securities represent securities that are managed
with an investment objective to maximize total return
subject to the Company's quality guidelines. Investments in
this portfolio will consist primarily of marketable fixed
maturity and equity investments. These securities are
carried at estimated fair value with unrealized gains and
losses included in the statement of earnings. The debt and
equity securities classified as trading securities as of
December 31, 1993 were acquired in 1993 and immediately
classified as trading securities in compliance with SFAS
No. 60 "Accounting and Reporting by Insurance Enterprises",
prior to the adoption of SFAS No. 115.
SFAS No. 115 allows fixed maturity securities to be carried at
amortized cost if the Company has both the ability and positive
intent to hold these securities to maturity. The Company has
determined that it can not guarantee that it will not have the
need or opportunity to sell any particular security in its
investment holdings. As such, the Company did not utilize this
classification as of December 31, 1993.
In compliance with a recent Securities and Exchange Commissions
("SEC") staff announcement, the Company has recorded certain
adjustments to deferred policy acquisition costs and
policyholders' account balances in conjunction with its
adoption of SFAS No. 115. The SEC requires that companies
adjust those assets and liabilities that would have been
adjusted had the unrealized investment gains or losses from
securities classified as available for sale actually been
realized with corresponding credits or charges reported
directly to shareholder's equity. Accordingly, deferred policy
acquisition costs have
<PAGE>
been decreased by $36,044,000 and
policyholders' account balances have been increased by
$193,233,000 as of December 31, 1993.
As of December 31, 1992, the Company classified its investments
in fixed maturity securities as either "to be held to maturity"
or "available for sale." Fixed maturity securities to be held
to maturity are stated in the balance sheets at amortized cost.
Fixed maturity securities available for sale are stated at
estimated fair value. The net unrealized gain and loss on these
securities are reflected as a component of stockholder's
equity.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accrued to
the maturity date and interest income is accrued daily.
Realized gains and losses on the sale or maturity of the
investments are determined on the basis of identified cost.
Fixed maturity securities may contain securities which are
considered high yield. The Company defines high yield fixed
maturity securities as unsecured corporate debt obligations
which do not have a rating equivalent to Standard and Poor's
(or similar rating agency) BBB or higher, and are not
guaranteed by an agency of the federal government. Probable
losses are recognized in the period that a decline in value is
determined to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal
balances net of valuation allowances. Such valuation allowances
are based on the decline in value expected by management to be
realized on in-substance foreclosures of mortgage loans and on
mortgage loans which management believes may not be collectible
in full. In establishing valuation allowances management
considers, among other things, the estimated fair value of the
underlying collateral.
The Company has previously made mortgage loans collateralized
by real estate and direct investments in real estate. The
return on and the ultimate recovery of these loans and
investments are generally dependent on the successful
operation, sale or refinancing of the real estate. In many
parts of the country, current real estate markets are
characterized by above-normal vacancy rates, a lack of ready
sources of credit for real estate financing, reduced or
declining real estate values, and similar factors.
The Company employs a system to monitor the effects of current
and expected real estate market conditions and other factors
when assessing the collectability of mortgage loans and the
recoverability of the Company's real estate investments. When,
in management's judgment, these assets are impaired,
appropriate losses are recorded. Such estimates necessarily
include assumptions, which may include anticipated improvements
in selected market conditions for real estate, which may or may
not occur. The more significant assumptions management
considers involve estimates of the following: lease, absorption
and sales rate; real estate values and rates of return;
operating expenses; required capital improvements; inflation;
and sufficiency of any collateral independent of the real
estate.
Resulting from the Company's management and valuation of its
mortgage loans on real estate, management believes that the
carrying value approximates the fair value of these
investments.
During 1993 the Financial Accounting Standards Board issued
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"). SFAS No. 114 requires that for impaired
loans, the impairment shall be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral.
Impairments of mortgage loans on real estate are established as
valuation allowances and recorded to net realized investment
gains (losses). SFAS No. 114 must be adopted for fiscal years
beginning after December 15, 1994. The Company has decided
not to early adopt this statement. The Company estimates
that the impact on both financial position and earnings
from adopting SFAS No. 114 would be immaterial.
Real estate available for sale, including real estate acquired
in satisfaction of debt subsequent to its acquisition date, is
stated at depreciated cost less valuation allowances and
estimated selling costs.
<PAGE>
Depreciation is computed using the
straight-line method over the estimated useful lives of the
properties, which generally is 40 years.
Policy loans on insurance contracts are stated at unpaid
principal balances. The Company estimates the fair market value
of policy loans as equal to the book value of the loans.
Policy loans are fully collateralized by the account value of
the associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited to the
account value held as collateral is fixed.
Fair Value of Financial Instruments: Beginning in 1992, the
Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments", which requires companies to report the
fair value of financial instruments, for certain assets and
liabilities both on and off - balance sheet.
Federal Income Taxes: The results of the operations of the
Company are included in the consolidated Federal income tax
return of Merrill Lynch & Co.. The Company has entered into a
tax-sharing agreement with Merrill Lynch & Co. whereby the
Company will calculate its current tax provision based on its
operations. Under the agreement, the Company periodically
remits to Merrill Lynch & Co. its current federal tax
liability.
Effective the first quarter 1992, the Company adopted SFAS No.
109, "Accounting for Income Taxes" ("SFAS No. 109") which
requires an asset and liability method in recording income
taxes on all transactions that have been recognized in the
financial statements. SFAS No. 109 provides that deferred
taxes be adjusted to reflect tax rates at which future tax
liabilities or assets are expected to be settled or realized.
Previously, the Company accounted for income taxes in
accordance with SFAS No. 96, "Accounting for Income Taxes."
The effect of adopting SFAS No. 109 was not material.
Separate Accounts: The Separate Accounts are established in
conformity with Arkansas insurance law, the Company's
domiciliary state, and under such law, if and to the extent
provided under the applicable insurance contracts, assets held
in the Separate Accounts equal to the reserves and other
contract liabilities with respect to the Separate Accounts may
not be chargeable with liabilities that arise from any other
business of the Company. Separate Accounts assets may be
subject to General Account claims only to the extent the value
of such assets exceeds the Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing
net deposits and accumulated net investment earnings less fees,
held for the benefit of policyholders, are shown as separate
captions in the balance sheets. Assets held in the Separate
Accounts are carried at quoted market values.
The carrying value for Separate Accounts assets and liabilities
approximates the estimated fair value of the underlying assets.
Postretirement Benefits Other Than Pensions: During the fourth
quarter 1992, the Company adopted SFAS No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions"
("SFAS No. 106"). SFAS No. 106 requires the accrual of
postretirement benefits (such as health care benefits) during
the years an employee provides service. Prior to 1992, the
cost of these benefits were expensed on a modified pay-as-you-go
basis when such cost was allocated from MLIG as a component of
the Company's operating expenses. The effect of adopting SFAS
No. 106 was not material.
Statements of Cash Flows: For the purpose of reporting cash
flows, cash and cash equivalents include cash on hand and on
deposit and short-term investments with original maturities of
three months or less.
The carrying amounts approximate the estimated fair value of
cash and cash equivalents.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. INVESTMENTS
The amortized cost (original cost for equity securities) less
valuation allowances and estimated fair value of investments in
fixed maturity securities and equity securities as of December
31 are:
<TABLE>
<CAPTION>
1993
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 3,181,667 $ 159,233 $ 18,440 $ 3,322,460
Mortgage-backed securities 2,015,328 79,645 3,998 2,090,975
U.S. Treasury securitiesand obligations of
U.S. government corporations and
agencies 159,329 10,887 126 170,090
Obligations of states and political
subdivisions 12,912 922 0 13,834
------------ ------------ ------------ ------------
Total fixed maturity securities available
for sale $ 5,369,236 $ 250,687 $ 22,564 $ 5,597,359
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 4,481 $ 577 $ 657 $ 4,401
Non-redeemable preferred stocks 19,943 757 131 20,569
------------ ------------ ------------ ------------
Total equity securities available for sale $ 24,424 $ 1,334 $ 788 $ 24,970
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities to be held to
maturity:
Corporate securities $ 3,052,333 $ 134,016 $ 7,721 $ 3,178,628
Mortgage-backed securities 3,292,132 141,387 5,215 3,428,304
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 97,976 1,798 1,396 98,378
Obligations of states and political
subdivisions 7,540 981 0 8,521
------------ ------------ ------------ ------------
Total fixed maturity securities to be
held to maturity $6,449,981 $ 278,182 $ 14,332 $ 6,713,831
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 134,675 $ 6,648 $ 938 $ 140,385
Mortgage-backed securities 117,248 3,316 8,337 112,227
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 74,109 916 560 74,465
Obligations of states and political
subdivisions 8,606 233 0 8,839
------------ ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 334,638 $ 11,113 $ 9,835 $ 335,916
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 12,980 $ 762 $ 0 $ 13,742
Non-redeemable preferred stocks 18,618 826 0 19,444
------------ ------------ ------------ ------------
Total equity securities available for sale $ 31,598 $ 1,588 $ 0 $ 33,186
============ ============ ============ ============
</TABLE>
For publicly traded securities, the estimated fair value is
determined using quoted market prices. For securities without
a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provision for credit risk, based upon the
assumption that such securities will be held to maturity. Such
estimated fair values do not necessarily represent the values
for which these securities could have been sold at the dates of
the balance sheets. At December 31, 1993 and 1992,
respectively, securities without a readily ascertainable market
value, having an amortized cost less valuation allowances of
approximately $773,965,000 and $992,340,000, had an estimated
fair value of approximately $819,866,000 and $1,064,915,000,
respectively.
The amortized cost less valuation allowances and estimated fair
value of fixed maturity securities available for sale at
December 31, 1993 by contractual maturity are shown below:
<TABLE>
<CAPTION>
Amortized
Cost less Estimated
Valuation Fair
Allowances Value
------------ ------------
(In Thousands)
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 293,809 $ 299,884
Due after one year through five years 1,162,162 1,207,307
Due after five years through ten years 1,499,057 1,585,524
Due after ten years 398,880 413,669
------------ ------------
3,353,908 3,506,384
Mortgage-backed securities 2,015,328 2,090,975
------------ ------------
Total fixed maturity securities
available for sale $ 5,369,236 $ 5,597,359
============ ============
</TABLE>
<PAGE>
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The Company's investment in mortgage loans on real estate
consists principally of loans collateralized by commercial real
estate. The largest concentrations of commercial real estate
mortgage loans are for properties located in California
($53,795,000 or 24%), Illinois ($28,294,000 or 13%) and
Pennsylvania ($27,558,000 or 12%).
For the years ended December 31, 1993 and 1992, $29,555,000 and
$3,126,000, respectively, of real estate was acquired in
satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 511,655 $ 652,136 $ 715,102
Equity securities 4,143 4,813 2,852
Mortgage loans on real estate 20,342 25,954 32,827
Real estate available for sale 32 1,004 310
Policy loans on insurance contracts 46,129 40,843 34,366
Other 11,135 5,924 13,015
------------ ------------ ------------
Gross investment income 593,436 730,674 798,472
Less expenses (6,975) (17,935) (10,869)
------------ ------------ ------------
Net investment income $ 586,461 $ 712,739 $ 787,603
============ ============ ============
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances, determined by specific identification for
the years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 67,473 $ 15,907 $ (12,689)
Fixed maturity securities held for trading 5,562 0 0
Equity securities available for sale 22 (3,051) (804)
Equity securities held for trading 2,587 0 0
Mortgage loans on real estate (9,310) (42,997) (12,913)
Real estate available for sale (4,733) (1,800) 3,224
Other 1,451 2,302 1,225
------------ ------------ ------------
Net realized investment gains (losses) $ 63,052 $ (29,639) $ (21,957)
============ ============ ============
</TABLE>
<PAGE>
Valuation allowances have been established to reflect other than
temporary declines in estimated fair value of the following
classification of investments as of December 31,:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Fixed maturity securities to be held to maturity $ 0 $ 19,711
Fixed maturity securities available for sale 850 0
Equity securities available for sale 0 210
Mortgage loans on real estate 45,924 55,610
Real estate available for sale 20,797 5,600
------------ ------------
$ 67,571 $ 81,131
============ ============
</TABLE>
Proceeds, gains and losses from the sale or maturity of fixed
maturity securities available for sale and held to maturity for
the years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Proceeds $ 3,348,329 $ 3,488,152 $ 4,752,232
Realized investment gains 71,599 51,925 88,230
Realized investment losses 4,126 25,732 91,745
</TABLE>
Approximately $4,291,000 of unrealized holding gains from
investment trading securities were recorded in net realized
investment gains during 1993.
The Company held investments at December 31, 1993 of
$22,672,000 which have been non-income producing for the
preceding twelve months.
The Company had investment securities of $28,702,000 and
$19,030,000 held on deposit with insurance regulatory
authorities at December 31, 1993 and 1992, respectively.
At December 31, 1992, the Company retained $9,741,000 in the
Separate Accounts, including unrealized gains of $1,504,000.
The investments in the Separate Accounts were for the purpose
of providing original funding of certain mutual funds available
as investment options to variable life and annuity
policyholders. No funds were retained in the Separate Accounts
at December 31, 1993.
The Company has restructured the terms of certain of its
investments in fixed maturity securities and mortgage loans on
real estate during 1993 and 1992. The following table provides
the amortized cost less valuation allowances immediately prior
to restructuring, gross interest income that would have been
earned had the loans been current per their original terms
("Expected Income"), gross interest income recorded during the
year ("Actual Income") and equity interests which were received
in the restructuring:
<PAGE>
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Fixed maturity securities:
Amortized cost less valuation allowances $ 3,743 $ 13,148
Expected income 916 2,781
Actual income 103 1,011
Equity interest received 1,833 2,003
Mortgage loans on real estate:
Amortized cost less valuation allowance $ 79,624 $ 0
Expected income 6,859 0
Actual income 5,076 0
</TABLE>
NOTE 3. FEDERAL INCOME TAXES
The Company's operating results (excluding Tandem prior to
September 30, 1991) are consolidated with those of MLIG. MLIG
and the Company are included in Merrill Lynch & Co.'s
consolidated Federal income tax returns. It is the policy of
Merrill Lynch & Co. to allocate the tax associated with such
operating results to its respective subsidiaries on a separate
company basis. The Company has the intent to pay accumulated
Federal income tax to MLIG upon request. For the nine months
ended September 30, 1991, Tandem filed a separate Federal
income tax return.
The following is a reconciliation of the provision for income
taxes based on income before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the three years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 25,471 $ 8,726 $ 4,783
Increase (decrease) in income taxes resulting from:
Federal tax rate increase (631)
Recognition of prior year capital loss tax
benefits (2,219)
Other 75 (90) (104)
------------ ------------ ------------
Federal income tax provision $ 24,915 $ 8,636 $ 2,460
============ ============ ============
</TABLE>
The Federal statutory rate for 1993, 1992 and 1991 was 35%, 34%
and 34%, respectively.
The Company provides for deferred income taxes resulting from
temporary differences which arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each were as follows:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs $ (9,030) $ (17,633) $ (32,834)
Policyholders' account balances 6,433 21,301 (6,282)
Estimated liability for guaranty fund assessments (1,066) (2,735) (3,626)
Investment adjustments 7,941 (21,875) 2,437
Other 525 1,029 (154)
------------ ------------ ------------
Deferred Federal income tax
provision (benefit) $ 4,803 $ (19,913) $ (40,459)
============ ============ ============
</TABLE>
Deferred tax assets and liabilities as of December 31, are
determined as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 99,475 $ 105,908
Investment adjustments 19,596 27,537
Estimated liability for guaranty fund assessments 7,427 6,361
------------ ------------
Total deferred tax asset 126,498 139,806
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs 92,625 101,655
Net unrealized investment gain (loss) (213) 1,486
Other 17,208 16,683
------------ ------------
Total deferred tax liability 109,620 119,824
------------ ------------
Net deferred tax asset $ 16,878 $ 19,982
============ ============
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
Federal income taxes paid (recovered) totaled $40,000,000,
$13,594,000 and $(1,560,000) in 1993, 1992 and 1991,
respectively.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain data processing, legal,
actuarial, management, advertising and other services to the
Company. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by the Company on an allocated cost
basis. Charges billed to the Company by MLIG pursuant to the
agreement were $55,843,000, $63,300,000 and $78,306,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management to the Company. The
Company pays a fee to MLAM for these services, through the MLIG
service agreement.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
Merrill Lynch, Pierce, Fenner and Smith, Inc. ("MLPF&S") who
are the
<PAGE>
Company's licensed insurance agents, solicit
applications for contracts to be issued by the Company. MLLA
is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were approximately $67,102,000,
$25,158,000 and $27,974,000 for 1993, 1992 and 1991,
respectively. Substantially all of these commissions were
capitalized as deferred policy acquisition costs and are being
amortized in accordance with the policy discussed in Note 1.
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company
("Monarch Life"), the Company borrowed funds from Merrill Lynch
& Co. to partially finance the transaction. As of December 31,
1991, the outstanding balance of these loans was approximately
$83,200,000. These loans were repaid during 1992. Interest
was calculated on these loans at LIBOR plus 150 basis points.
Intercompany interest paid on these loans during 1992 and 1991
was approximately $4,025,000 and $6,300,000, respectively.
The Company and Merrill Lynch Trust Company ("ML Trust") were
parties to an agreement whereby the Company retained ML Trust
to hold certain invested assets upon the terms and conditions
of the agreement. ML Trust was paid a fee based on its current
fee schedule. This agreement was terminated during 1993.
The Company has entered into certain other marketing and
administrative service agreements with affiliates in connection
with the variable life and annuity policies it sells.
During 1993, 1992 and 1991, the Company allowed the recapture
of certain policies previously indemnity reinsured by the
Company from Family Life. Simultaneously with the recapture,
the Company's affiliate, ML Life Insurance Company of New York
("ML Life"), assumption reinsured these policies. These
transactions resulted in the transfer of approximately
$11,900,000 $2,000,000 $19,200,000 of policy reserves during
1993, 1992 and 1991, respectively.
The fair value of the Company's payables to affiliates is
estimated at carrying value. These borrowings are payable on
demand and bear a variable interest rate based on LIBOR.
Total intercompany interest paid was $737,000, $5,409,000 and
$8,567,000 for 1993, 1992 and 1991, respectively.
NOTE 5. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
On December 20, 1993, the Company paid a $44,988,000 ordinary
dividend and a $75,012,000 extraordinary dividend to MLIG. The
Company received approval from the Arkansas Insurance
Commissioner prior to the declaration and payment of the
extraordinary dividend.
At December 31, 1993 and 1992, approximately $37,221,000 and
$44,988,000, respectively, of retained earnings was available
for distribution to the Company's stockholder. Statutory
capital and surplus at December 31, 1993 and 1992, was
$374,209,000 and $451,888,000, respectively.
During 1991, MLIG contributed capital to the Company of
$82,396,000. The contribution was made to support the
underwriting of additional insurance premiums and deposits. No
contributions were received during 1993 and 1992.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial statements
by charging policy acquisition costs to expense as incurred,
establishing future policy benefit reserves using different
actuarial assumptions, not providing for deferred taxes and
valuing securities on a different basis. The Company's
statutory net income for the years ended December 31, 1993,
1992 and 1991 was $45,604,000, $60,140,000 and $65,771,000,
respectively.
<PAGE>
The National Association of Insurance Commissioners ("NAIC")
has developed and implemented effective December 31,
1993, the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which
a life insurance company should have based upon that company's
risk profile. The NAIC has established four different levels of
regulatory action with respect to the RBC adequacy monitoring
system. Each of these levels may be triggered if an insurer's
total adjusted capital is less than a corresponding level of
RBC. These levels are as follows:
For companies with capital levels which are below 100% of
the basic RBC level (company action level) calculated for
that company, the company must submit to the domiciliary
insurance commissioner, and implement, an approved plan to
increase adjusted capital to at least 100% of the basic
RBC.
For companies with capital levels which are below 75% of
the basic RBC level calculated for that company, the
company must submit to an examination by the domiciliary
insurance department and as a result of the findings of the
examination, corrective orders may be issued.
For companies with capital levels which are below 50% of
the basic RBC level (authorized control level) calculated
for that company, the domiciliary insurance commissioner
will have the authority to place the company into
conservatorship or liquidation.
For companies with capital levels which are below 35% of
the basic RBC level calculated for that company, the
domiciliary insurance commissioner will be required to
place the company into conservatorship or liquidation.
As of December 31, 1993, based on the RBC formula, the
Company's total adjusted capital level was 279% of the basic
RBC level.
NOTE 6. REINSURANCE AGREEMENTS
On December 28, 1990, the Company entered into an indemnity
reinsurance agreement with Family Life, in which the Company
100% coinsured substantially all of Family Life's general
account interest-sensitive life and annuity business, and
modified coinsured all of the separate account variable annuity
business. As of December 31, 1993, substantially all of this
business has been assumption reinsured by the Company and an
affiliate.
On December 31, 1990, the Company and an affiliate entered into
a 100% reinsurance agreement with respect to all variable life
policies issued by Monarch Life and sold through the Merrill
Lynch & Co. retail network. As a result of the indemnity
provisions of the agreement, the Company became obligated to
reimburse Monarch Life for its net amount at risk with regard
to the reinsured policies. At the date of acquisition, assets
of approximately $553,000,000 supporting general account
reserves, on a statutory accounting basis, were transferred
from Monarch Life to the Company. This agreement provides for
contingent ceding commission payments to Monarch Life dependent
upon the lapse rate during the five years ending in 1995 and
mortality experience during the ten years ending in 2000. To
date, the Company has paid approximately $225,900,000 to
Monarch Life under the terms of the agreement. As of December
31, 1993, the Company has accrued $7,673,000 for such payments.
On various dates during 1992 and 1991, the Company and an
affiliate assumption reinsured substantially all such policies,
wherever permitted by appropriate regulatory authorities. Upon
assumption, the policy liabilities and the underlying assets of
approximately $2,625,000,000 were transferred to the Merrill
Lynch Life Variable Life Separate Account II. As a result of
the assumptions, the Company became directly obligated to the
policyholders, rather than to Monarch Life. Certain contract
owners of the reinsured policies elected to remain with Monarch
Life as permitted under certain
<PAGE>
state insurance laws. Assets
and liabilities of those policies not assumption reinsured by
the Company or its affiliate have remained with Monarch Life.
The Company and its affiliate have indemnified Monarch Life
against its net amount at risk on such policies. As of
December 31, 1993, approximately 10 life insurance policies
with $1,499,000 life insurance in force remain under the
indemnity provisions of the reinsurance agreement.
During 1992, the Company, and its affiliates, entered into an
agreement with Monarch Life for the purchase, transfer or
assignment of certain services and assets owned, licensed or
leased by Monarch Life. Additionally, the Company along with
its affiliates were allowed to actively solicit the employment
of individuals employed by Monarch Life, who are required to
service the Company's and its affiliates' variable life
insurance policies and Monarch Life's variable life insurance
policies. In consideration of this, the Company and its
affiliate, ML Life, transferred title to Monarch Life certain
telecommunications equipment owned by Merrill Lynch Insurance
Group Services, Inc., an affiliate of the Company, with a net
book value of $1,753,000. The Company agreed to service
Monarch Life's variable life insurance policies for a period of
five years at an annual rate of $100 per policy. Monarch Life
has an option to terminate the service agreement upon proper
notification.
NOTE 7. INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap contracts for the
purpose of minimizing exposure to fluctuations in interest
rates of specific assets held. The notional amount of such
swaps outstanding at December 31, 1993 and 1992 was
approximately $155,082,000 and $197,024,000 respectively. The
average unexpired term at December 31, 1993 and 1992 was 3.2
and 3.5 years, respectively.
The current amount at risk, on a present value basis, of
terminating or replacing at current market rates all
outstanding matched swaps in a loss position at December 31,
1993 and 1992 was $0 and $0, respectively. During 1992 and
1991, a net investment gain of approximately $2,302,000 and
$4,750,000, respectively, was recorded in connection with
interest rate swap activity. The Company did not realize net
investment gains (losses) from interest rate swap activity
during 1993.
During 1993, 1992 and 1991, the Company did not enter into
unmatched interest rate swap arrangements and did not act as an
intermediary or broker in interest rate swaps.
Estimated fair values for the Company's interest rate swaps are
based on broker quotes. At December 31, 1993 and 1992, the
estimated fair value for these contracts was $4,317,000 and
$10,551,000, respectively.
NOTE 8. SALE OF FAMILY LIFE INSURANCE COMPANY
On June 12, 1991, MLIG sold Family Life to a non-affiliated
entity. Prior to closing, MLIG transferred to affiliates of
Family Life, to the extent permitted by law, all assets and
liabilities of Family Life that were not related to Family
Life's mortgage protection life insurance business. Certain
life insurance and annuity products sold through the retail
network of Merrill Lynch & Co. and underwritten by Family Life
have been or will be assumption reinsured by the Company or its
affiliate in those jurisdictions in which the Company or its
affiliate has the authority to do so. (See Note 6)
NOTE 9. COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). During 1991, and to a lesser extent 1992, there were
certain highly
<PAGE>
publicized life insurance insolvencies. The
Company has utilized public information to estimate what future
assessments it will incur as a result of these insolvencies.
At December 31, 1993 and 1992, the Company had accrued an
estimated liability for future guaranty fund assessments of
$28,083,000 and $27,104,000, respectively. The Company
regularly monitors public information regarding insurer
insolvencies and will adjust its estimated liability where
appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
<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.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 81 pages.
Undertaking to file reports.
II-2
<PAGE>
Rule 484 Undertaking.
Representations Pursuant to Rule 6e-3(T).
The signatures.
Written Consents of the Following Persons:
(a) Barry G. Skolnick, Esq.
(b) Joseph E. Crowne, F.S.A.
(c) Sutherland, Asbill & Brennan
(d) Deloitte & Touche, Independent Certified Public Accountants
The following exhibits:
<TABLE>
<S> <C> <C> <C> <C>
1.A. (1) Resolution of the Board of Directors of Merrill Lynch Life Insurance Company
establishing the Separate Account (Incorporated by Reference to Registrant's
Form S-6 Registration No. 33-41830 Filed July 24, 1991)
(2) Not applicable
(3) (a) Distribution Agreement between Merrill Lynch Life Insurance Company and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55472
Filed April 26, 1993)
(b) Amended Sales Agreement between Merrill Lynch Life Insurance Company and Merrill
Lynch Life Agency Inc. (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(c) Schedules of Sales Commissions. 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)
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(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) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Series
Fund, Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment
No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(b) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Funds
Distributor, Inc. (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(c) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April
26, 1993)
(d) Participation Agreement among Merrill Lynch Life Insurance Company, ML Life
Insurance Company of New York and Monarch Life Insurance Company (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 3 to Form S-6
Registration No. 33-55472 Filed April 27, 1994)
(e) Management Agreement between Merrill Lynch Life Insurance Company and Merrill
Lynch Asset Management, Inc. (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April
26, 1993)
(f) Form of Participation Agreement among Merrill Lynch Life Insurance Company, ML
Life Insurance Company of New York and Family Life Insurance Company
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 3 to
Form S-6 Registration No. 33-55472 Filed April 27, 1994)
(9) 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)
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(11) Memorandum describing Merrill Lynch Life Insurance Company's Issuance, Transfer
and Redemption Procedures (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-41830 Filed March
1, 1994)
2. See Exhibit 1.A.(5)
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the legality of the securities being
registered
4. Not applicable
5. Not applicable
6. Opinion and Consent of Joseph E. Crowne, F.S.A. as to actuarial matters pertaining to the
securities being registered
7. (a) Power of Attorney of Joseph E. Crowne (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(b) Power of Attorney of David E. Dunford (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(c) Power of Attorney of John C.R. Hele (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(d) Power of Attorney of Allen N. Jones (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(e) Power of Attorney of Barry G. Skolnick (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-55472 Filed March 1, 1994)
(f) Power of Attorney of Anthony J. Vespa (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
8. (a) Written Consent of Barry G. Skolnick, Esq. (See Exhibit 3)
(b) Written Consent of Joseph E. Crowne, F.S.A. (See Exhibit 6)
(c) Written Consent of Sutherland, Asbill & Brennan
(d) Written Consent of Deloitte & Touche, independent certified public accountants
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Merrill Lynch Variable Life Separate Account, hereby certifies that this
Post-Effective Amendment No. 3 meets all of the requirements for effectiveness
pursuant to paragraph (b) of Rule 486 under the Securities Act of 1933, and has
duly caused this Post-Effective Amendment No. 3 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 28th day of April 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. 3 to the Registration Statement has been signed
below by the following persons in the capacities indicated on April 28, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
-------------------------------------- -------------------------------------------
<S> <C>
* Chairman of the Board, President, and Chief
-------------------------------------- Executive Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief
-------------------------------------- Financial Officer, Chief Actuary, and
Joseph E. Crowne Treasurer
* Director, Senior Vice President, and Chief
-------------------------------------- Investment Officer
David M. Dunford
* Director, and Senior Vice President
--------------------------------------
John C.R. Hele
* Director
--------------------------------------
Allen N. Jones
*By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior
---------------------------------- Vice President, and General Counsel and as
Barry G. Skolnick Attorney-In-Fact
</TABLE>
II-6
<PAGE>
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. 33-41830 Filed July 24, 1991)
(2) Not applicable
(3) (a) Distribution Agreement between Merrill Lynch Life Insurance Company and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55472
Filed April 26, 1993)
(b) Amended Sales Agreement between Merrill Lynch Life Insurance Company and Merrill
Lynch Life Agency Inc. (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(c) Schedules of Sales Commissions. 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>
II-7
<PAGE>
<TABLE>
<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) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Series
Fund, Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment
No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(b) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Funds
Distributor, Inc. (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(c) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April
26, 1993)
(d) Participation Agreement among Merrill Lynch Life Insurance Company, ML Life
Insurance Company of New York and Monarch Life Insurance Company (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 3 to Form S-6
Registration No. 33-55472 Filed April 27, 1994)
(e) Management Agreement between Merrill Lynch Life Insurance Company and Merrill
Lynch Asset Management, Inc. (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April
26, 1993)
(f) Form of Participation Agreement among Merrill Lynch Life Insurance Company, ML
Life Insurance Company of New York and Family Life Insurance Company
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 5 to
Form S-6 Registration No. 33-55472 Filed April 27, 1994)
(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)
</TABLE>
II-8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(11) Memorandum describing Merrill Lynch Life Insurance Company's Issuance, Transfer
and Redemption Procedures (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-41830 Filed March
1, 1994)
2. See Exhibit 1.A.(5)
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the legality of the securities being
registered
4. Not applicable
5. Not applicable
6. Opinion and Consent of Joseph E. Crowne, F.S.A. as to actuarial matters pertaining to the
securities being registered
7. (a) Power of Attorney of Joseph E. Crowne (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(b) Power of Attorney of David E. Dunford (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(c) Power of Attorney of John C.R. Hele (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(d) Power of Attorney of Allen N. Jones (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
(e) Power of Attorney of Barry G. Skolnick (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-55472 Filed March 1, 1994)
(f) Power of Attorney of Anthony J. Vespa (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 2 to Form S-6 Registration No. 33-55472 Filed March
1, 1994)
8. (a) Written Consent of Barry G. Skolnick, Esq. (See Exhibit 3)
(b) Written Consent of Joseph E. Crowne, F.S.A. (See Exhibit 6)
(c) Written Consent of Sutherland, Asbill & Brennan
(d) Written Consent of Deloitte & Touche, independent certified public accountants
</TABLE>
II-9
<PAGE>
[LOGO]
April 4, 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. 3 to
the Registration Statement on Form S-6 (the "Registration Statement") (File No.
33-41830) 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>
[logo]
April 4, 1994
Board of Directors
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Re: Merrill Lynch Variable Life Separate Account
To The Board of Directors:
This opinion is furnished in connection with filing of Post-Effective Amendment
No. 3 to the Registration Statement on Form S-6 (the "Registration Statement")
(File No. 33-41830) which covers premiums received under certain flexible
premium variable life insurance contracts ("Contracts" or "Contract") issued by
Merrill Lynch Life Insurance Company (the "Company").
The Prospectus included in the Registration Statement describes Contracts which
are issued by the Company. The Contract forms were reviewed under my direction,
and I am familiar with the Registration Statement and Exhibits thereto. In my
opinion:
1. Using the interest rate and mortality tables guaranteed in the Contract,
current mortality rates cannot be established at levels such that the "sales
load," as defined in paragraph (c)(4) of Rule 6(e)-3T under the Investment
Company Act of 1940, would exceed 9% of any payment.
2. The illustrations of death benefits, investment base, cash surrender values
and accumulated premiums included in the Registration Statement for the Contract
and based on the assumptions stated in the illustrations, are consistent with
the provisions of the Contract. The rate structure of the Contract has not been
designed so as to make the relationship between premiums and benefits, as shown
in the illustrations, appear more favorable to a prospective purchaser of a
Contract for the ages and sexes shown, than to prospective purchasers of a
Contract for other ages and sex.
3. The table of illustrative net single premium factors included in the "Death
Benefit Proceeds" section is consistent with the provisions of the Contract.
4. The information with respect to the Contract contained in (i) the
illustrations of the change in face amount included in the "Additional Payments"
sections of the Examples, (ii) the illustrations of a change in Guarantee Period
included in the "Changing the Face Amount" section of the Examples and (iii) the
illustrations of the changes in face amount included in the "Partial
Withdrawals" section of the Examples, based on the assumptions specified, are
consistent with the provisions of the Contract.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of my name relating to actuarial matters under the
heading "Experts" in the Prospectus.
Very truly yours,
/s/ Joseph E. Crowne
Joseph E. Crowne, FSA
Senior Vice President &
Chief Financial Officer
<PAGE>
Exhibit 8(c)
CONSENT OF SUTHERLAND, ASBILL & BRENNAN
We consent to the reference to our firm under the heading "Legal
Matters" in the prospectus included in Post-Effective Amendment No. 3
to the Registration Statement on Form S-6 for certain variable life
insurance contracts issued through Merrill Lynch Variable Life Separate
Account of Merrill Lynch Life Insurance Company (File No. 33-41830).
In giving this consent, we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Securities
Act of 1933.
/s/ Sutherland, Asbill & Brennan
SUTHERLAND, ASBILL & BRENNAN
Washington, D.C.
April 26, 1994
<PAGE>
Exhibit 8(d)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to
Registration Statement No. 33-41830 of Merrill Lynch Variable Life
Separate Account on Form S-6 of our reports on (i) Merrill Lynch Life
Insurance Company dated February 28, 1994, and (ii) Merrill Lynch Variable
Life Separate Account dated February 16, 1994, appearing in the Prospectus,
which is a part of such Registration Statement, and to the reference to us
under the heading "Experts" in such Prospectus.
New York, New York
April 25, 1994
