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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1994
REGISTRATION NO. 33-55472
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF THE SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
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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)
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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)
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Copy to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, NW
Washington, DC 20004-2404
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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.
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MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
------------------------
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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1 Cover Page
2 Cover Page
3 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Divisions
4 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trust and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
5 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life Insurance Company (State Regulation)
6 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (The Separate Account)
7 Not Applicable
8 Experts
9 More About Merrill Lynch Life Insurance Company (Legal Proceedings)
10 Summary of the Contract; Facts About the Contract; More About the Contract; More
About the Separate Account and its Divisions
11 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its Divisions (About
the Separate Account; The Zero Trusts)
12 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its Divisions
13 Summary of the Contract (Loans; Fees and Charges); Facts About the Contract
(Charges Deducted from the Investment Base; Contract Loading; Charges to the
Separate Account; Guarantee Period; Cash Value; Loans; Partial Withdrawals;
Death Benefit Proceeds; Payment of Death Benefit Proceeds; Rights to Cancel or
Convert); More About the Contract (Group or Sponsored Arrangements; Merrill
Lynch Life's Income Taxes); More About the Separate Account and its Divisions
(Charges to Series Fund Assets; Charges to Variable Series Funds Assets)
14 Facts About the Contract (Who May Be Covered; Purchasing a Contract; Additional
Payments); More About the Contract (Other Contract Provisions)
15 Summary of the Contract (Availability and Payments); Facts About the Contract
(Purchasing a Contract; Additional Payments); More About the Contract (Income
Plans)
16 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Divisions.
17 Summary of the Contract (Net Cash Surrender Value; Rights to Cancel ("Free Look"
Period) or Convert; Partial Withdrawals); Facts About the Contract (Cash Value;
Partial Withdrawals; Rights to Cancel or Convert); More About the Contract
(Using the Contract; Some Administrative Procedures)
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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18 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Divisions
19 More About Merrill Lynch Life Insurance Company
20 Not Applicable
21 Summary of the Contract (Loans); Facts About the Contract (Loans)
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life Insurance Company
26 Note Applicable
27 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life Insurance Company
28 More About Merrill Lynch Life Insurance Company (Directors and Executive
Officers)
29 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S)
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S)
36 Not Applicable
37 Not Applicable
38 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
39 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
40 More About the Contract (Selling the Contracts)
41 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
42 Not Applicable
43 Not Applicable
44 Facts About the Contract; More About the Contract
45 Not Applicable
46 Summary of the Contract; Facts About the Contract (Cash Value; Partial
Withdrawals)
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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47 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its Divisions
48 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life (State Regulation)
49 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; Facts About the Contract (Charges Deducted
from the Investment Base; Contract Loading; Charges to the Separate Account);
More About the Contract (Selling the Contracts)
50 Not Applicable
51 Facts About the Contract; More About the Contract
52 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Investment Divisions
53 More About the Contract (Tax Considerations; Merrill Lynch Life's Income Taxes)
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 More About Merrill Lynch Life Insurance Company (Financial Statements)
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PROSPECTUS
May 1, 1994
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
FLEXIBLE PREMIUM JOINT AND LAST SURVIVOR VARIABLE
UNIVERSAL LIFE INSURANCE CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: LITTLE ROCK, ARKANSAS 72201
SERVICE CENTER: P.O. BOX 9025
SPRINGFIELD, MASSACHUSETTS 01102-9025
1414 MAIN STREET, THIRD FLOOR
SPRINGFIELD, MASSACHUSETTS 01104-1007
PHONE: (800) 354-5333
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This Prospectus is for a flexible premium joint and last survivor variable
universal life insurance contract (the "Contract") offered by Merrill Lynch Life
Insurance Company ("Merrill Lynch Life"), a subsidiary of Merrill Lynch & Co.,
Inc.
During the "free look" period, the initial payment less contract loading will be
invested only in the division investing in the Money Reserve Portfolio. After
the "free look" period, the contract owner may invest in up to any five of the
36 investment divisions of Merrill Lynch Variable Life Separate Account (the
"Separate Account"), the Merrill Lynch Life separate investment account
available under the Contract. The investments available through the investment
divisions include 10 mutual fund portfolios of the Merrill Lynch Series Fund,
Inc., six mutual fund portfolios of the Merrill Lynch Variable Series Funds,
Inc. and 20 unit investment trusts in The Merrill Lynch Fund of Stripped ("Zero"
) U.S. Treasury Securities. Currently, the contract owner may change his or her
investment allocation as many times as desired.
The Contract provides an estate benefit through life insurance coverage on the
lives of two insureds with proceeds payable upon the death of the last surviving
insured. The Contract offers two death benefit options. At the election of the
contract owner, the death benefit may include the Contract's cash value.
Contract owners may purchase additional insurance through an additional
insurance rider, the amount of which may be increased or decreased subject to
certain conditions. Merrill Lynch Life guarantees that the coverage will remain
in force for the guarantee period. Each payment will extend the guarantee period
until such time as the guarantee period is established for the whole of life of
the younger insured. During this guarantee period, Merrill Lynch Life will
terminate the Contract only if the debt exceeds certain contract values. After
the guarantee period, the Contract will remain in force as long as there is not
excessive debt and as long as the cash value is sufficient to cover the charges
due. While the Contract is in force, the death benefit may vary to reflect the
investment results of the investment divisions chosen, but will never be less
than the current face amount.
The Contract allows for additional payments. Contract owners may also borrow up
to the loan value of the Contract, make partial withdrawals or turn in the
Contract for its net cash surrender value. The net cash surrender value will
vary with the investment results of the investment divisions chosen. Merrill
Lynch Life doesn't guarantee any minimum net cash surrender value.
It may not be advantageous to replace existing insurance with the Contract.
Within certain limits the Contract may be converted to a contract with benefits
that do not vary with the investment results of a separate account.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT MUST BE
ACCOMPANIED BY CURRENT PROSPECTUSES FOR THE MERRILL LYNCH SERIES FUND, INC., THE
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND THE MERRILL LYNCH FUND OF STRIPPED
("ZERO") U.S. TREASURY SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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IMPORTANT TERMS........................................................................ 4
SUMMARY OF THE CONTRACT
Purpose of the Contract.............................................................. 5
Availability and Payments............................................................ 5
CMA(TM) Insurance Service............................................................ 5
The Investment Divisions............................................................. 5
How the Death Benefit Varies......................................................... 6
How the Investment Base Varies....................................................... 6
Net Cash Surrender Value............................................................. 6
Illustrations........................................................................ 6
Replacement of Existing Coverage..................................................... 6
Rights to Cancel ("Free Look" Period) or Convert..................................... 6
How Death Benefit and Cash Value Increases are Taxed................................. 7
Loans................................................................................ 7
Partial Withdrawals.................................................................. 7
Fees and Charges..................................................................... 7
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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
Purchasing a Contract................................................................ 11
Additional Insurance Rider........................................................... 12
Additional Payments.................................................................. 13
Effect of Additional Payments........................................................ 13
Investment Base...................................................................... 14
Charges Deducted from the Investment Base............................................ 15
Contract Loading..................................................................... 15
Charges to the Separate Account...................................................... 16
Guarantee Period..................................................................... 16
Cash Value........................................................................... 17
Loans................................................................................ 17
Partial Withdrawals.................................................................. 18
Death Benefit Proceeds............................................................... 19
Payment of Death Benefit Proceeds.................................................... 20
Rights to Cancel or Convert.......................................................... 21
Reports to Contract Owners........................................................... 21
MORE ABOUT THE CONTRACT
Using the Contract................................................................... 22
Some Administrative Procedures....................................................... 23
Other Contract Provisions............................................................ 24
Income Plans......................................................................... 25
Group or Sponsored Arrangements...................................................... 25
Unisex Legal Considerations for Employers............................................ 26
Selling the Contracts................................................................ 26
Tax Considerations................................................................... 26
Merrill Lynch Life's Income Taxes.................................................... 30
Reinsurance.......................................................................... 30
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MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account........................................................... 30
Changes Within the Account........................................................... 30
Net Rate of Return for an Investment Division........................................ 31
The Series Fund and the Variable Series Funds........................................ 31
Charges to Series Fund Assets........................................................ 32
Charges to Variable Series Funds Assets.............................................. 33
The Zero Trusts...................................................................... 33
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Net Cash Surrender Values and
Accumulated Payments.............................................................. 34
EXAMPLES
Additional Payments.................................................................. 40
Partial Withdrawals.................................................................. 41
Changing the Death Benefit Option.................................................... 42
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
Directors and Executive Officers..................................................... 43
Services Arrangement................................................................. 44
State Regulation..................................................................... 44
Legal Proceedings.................................................................... 44
Experts.............................................................................. 44
Legal Matters........................................................................ 44
Registration Statements.............................................................. 45
Financial Statements................................................................. 45
Financial Statements of Merrill Lynch Variable Life Separate Account.................
Financial Statements of Merrill Lynch Life Insurance Company.........................
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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
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IMPORTANT TERMS
additional payment: is a payment which may be made after the "free look"
period. Additional payments do not require evidence of insurability.
attained age: is, for each insured, the issue age of the insured plus the
number of full years since the contract date.
base premium: is the amount equal to the level annual premium necessary for the
face amount of the Contract to endow at the younger insured's age 100. Merrill
Lynch Life assumes death benefit option 1 is elected and further assumes a 5%
annual rate of return on the base premium less contract loading and a maximum
cost of insurance charge. Once determined, the base premium will not change.
cash value: is equal to the investment base plus any unearned charges for cost
of insurance and rider costs plus any debt less any accrued net loan cost since
the last contract anniversary (or since the contract date during the first
contract year).
cash value corridor factor: is used to determine the amount of death benefit
purchased by $1.00 of cash value. Merrill Lynch Life uses this factor in the
calculation of the variable insurance amount to make sure that the Contract
always meets the requirements of what constitutes a life insurance contract
under the Internal Revenue Code.
contract anniversary: is the same date of each year as the contract date.
contract date: is used to determine processing dates, contract years and
anniversaries. It is usually the business day next following the receipt of the
initial payment at the Service Center. It is also referred to as the policy
date.
contract loading: is chargeable to all payments for sales load, federal tax and
premium tax charges.
death benefit: if option 1 is elected, it is the larger of the face amount and
the variable insurance amount; if option 2 is elected, it is the larger of the
face amount plus the cash value and the variable insurance amount.
death benefit proceeds: are equal to the death benefit plus any rider amounts
less any debt.
debt: is the sum of all outstanding loans on a Contract plus accrued interest.
face amount: is the minimum death benefit as long as the Contract remains in
force. The face amount will change if a change in death benefit option is made
or if a partial withdrawal is taken.
fixed base: is calculated in the same manner as the cash value except that 5%
is substituted for the net rate of return, the guaranteed maximum cost of
insurance rates and guaranteed maximum rider costs are substituted for current
rates and loans and repayments are not taken into account.
guarantee period: is the time guaranteed that the Contract will remain in force
regardless of investment experience, unless the debt exceeds certain values. It
is the period that a comparable fixed life insurance contract (same face amount,
payments made, guaranteed mortality table, contract loading and guaranteed
maximum rider costs) would remain in force if credited with 5% interest per
year.
in force date: is the date when the underwriting process is complete, the
initial payment is received and outstanding contract amendments (if any) are
received.
initial payment: is the payment required to put the Contract into effect.
investment base: is the amount available under a Contract for investment in the
Separate Account at any time. A contract owner's investment base is the sum of
the amounts invested in each of the selected investment divisions.
investment division: is any division in the Separate Account.
issue age: is, for each insured, the insured's age as of his or her birthday
nearest the contract date.
net amount at risk: is the excess, as of a processing date, of the death
benefit (adjusted for interest at an annual rate of 5%) over the cash value, but
before the deduction for cost of insurance.
net cash surrender value: is equal to the cash value less debt.
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processing dates: are the contract date and the first day of each contract
quarter thereafter. Processing dates are the days when Merrill Lynch Life
deducts certain charges from the investment base.
processing period: is the period between consecutive processing dates.
target premium: is equal to 75% of the base premium.
variable insurance amount: is computed daily by multiplying the cash value
(plus any excess sales load during the first 24 months after the Contract is
issued) by the cash value corridor factor for the younger insured at his or her
attained age.
SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACT
This flexible premium joint and last survivor variable universal life insurance
contract offers a choice of investments and an opportunity for the Contract's
investment base, cash value and death benefit to grow based on investment
results.
Merrill Lynch Life doesn't guarantee that contract values will increase.
Depending on the investment results of selected investment divisions, the
investment base, cash value and death benefit may increase or decrease on any
day. The contract owner bears the investment risk. Merrill Lynch Life guarantees
to keep the Contract in force during the guarantee period subject to the effect
of any debt.
Life insurance is not a short-term investment. The contract owner should
evaluate the need for insurance and 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 insureds from age 20 to age 85. The
minimum initial payment is 75% of the base premium.
Merrill Lynch Life will not accept an initial payment that provides a guarantee
period of less than two years. The guarantee period is the period of time
Merrill Lynch Life guarantees that the Contract will remain in force regardless
of investment experience unless the debt exceeds certain values.
Contract owners may make additional payments. Contract owners may specify an
additional payment amount on the application to be paid on either a quarterly or
annual basis. For additional payments not being withdrawn from a CMA account,
Merrill Lynch Life will send reminder notices for such amounts beginning in the
second contract year.
The Contract is not available to insure residents of certain municipalities in
Kentucky where premium taxes in excess of a certain level are imposed.
CMA(R) INSURANCE SERVICE
Contract owners who subscribe to the Merrill Lynch Cash Management Account(R)
financial service ("CMA account") may elect to have their Contract linked to
their CMA account electronically. Certain transactions will be reflected in
monthly CMA account statements. Payments may be transferred to and from the
Contract through a CMA account.
THE INVESTMENT DIVISIONS
During the "free look" period, the initial payment less contract loading will be
invested in the investment division of the Separate Account investing in the
Money Reserve Portfolio. After the "free look" period, the contract owner may
select up to five of the 36 investment divisions in the Separate Account. (See
"Changing the Allocation" on page 14.)
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Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
5
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Payments are invested in investment divisions of the Separate Account. Ten
investment divisions of the Separate Account invest exclusively in shares of
designated mutual fund portfolios of the Merrill Lynch Series Fund, Inc. (the
"Series Fund"). Six investment divisions of the Separate Account invest
exclusively in shares of designated mutual fund portfolios of the Merrill Lynch
Variable Series Funds, Inc. (the "Variable Series Funds"). Each mutual fund
portfolio has a different investment objective. The other 20 investment
divisions invest in units of designated unit investment trusts in The Merrill
Lynch Fund of Stripped ("Zero") U.S. Treasury Securities (the "Zero Trusts").
The contract owner's payments are not invested directly in the Series Fund, the
Variable Series Funds or the Zero Trusts.
HOW THE DEATH BENEFIT VARIES
Contract owners elect a death benefit option on the application. Under option 1,
the death benefit equals the larger of the face amount or the variable insurance
amount. Under option 2, the death benefit equals the larger of the sum of the
face amount plus the cash value or the variable insurance amount. Subject to
certain conditions, contract owners may change the death benefit option. The
death benefit may increase or decrease on any day depending on the investment
results of the investment divisions chosen by the contract owner. Death benefit
proceeds equal the death benefit reduced by any debt and increased by any rider
benefits payable. (See "Death Benefit Proceeds" on page 19.)
HOW THE INVESTMENT BASE VARIES
A Contract's investment base is the amount available for investment at any time.
On the contract date(usually the business day next following receipt of the
initial payment at the Service Center), the investment base is equal to the
initial payment less contract loading and charges for cost of insurance and
rider costs. Afterwards, it varies daily based on investment performance of the
investment divisions chosen. The contract owner bears the risk of poor
investment performance and receives the benefit of favorable investment
performance.
NET CASH SURRENDER VALUE
Contract owners may surrender their Contracts at any time and receive the net
cash surrender value. The net cash surrender value varies daily based on
investment performance of the investment divisions chosen. Merrill Lynch Life
doesn't guarantee any minimum net cash surrender value. If the Contract is
surrendered within 24 months after issue, the contract owner will receive any
excess sales load previously deducted. (See "Contract Loading -- Excess Sales
Load" on page 15)
ILLUSTRATIONS
Illustrations in this Prospectus or used in connection with the purchase of the
Contract are based on hypothetical investment rates of return. These rates are
not guaranteed. They are illustrative only and should not be deemed a
representation of past or future performance. Actual rates of return may be more
or less than those reflected in the illustrations and, therefore, actual values
will be different than those illustrated.
REPLACEMENT OF EXISTING COVERAGE
Before purchasing a Contract, the contract owner should ask his or her Merrill
Lynch registered representative if changing, or adding to, current insurance
coverage would be advantageous. Generally, it is not advisable to purchase
another contract as a replacement for existing coverage. In particular,
replacement should be carefully considered if the decision to replace existing
coverage is based solely on a comparison of contract illustrations.
RIGHTS TO CANCEL ("FREE LOOK" PERIOD) OR CONVERT
Once the Contract owner receives the Contract, he or she should review it
carefully to make sure it is what he or she intended to purchase. Generally, a
Contract may be returned for a refund within the later of ten days after the
contract owner receives it, 45 days after the contract owner completes the
application, or ten days after Merrill Lynch Life mails or personally delivers
the Notice of Withdrawal Right to the contract owner. If the Contract is
returned during the "free look" period, Merrill Lynch Life will refund the
initial payment without interest.
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Once the Contract is issued, a contract owner may also convert the Contract
within 24 months after issue to a contract with benefits that do not vary with
the investment results of a separate account. (See "Converting the Contract" on
page 21.)
HOW DEATH BENEFIT AND CASH VALUE INCREASES ARE TAXED
Under current federal tax law, life insurance contracts receive tax-favored
treatment. The death benefit is generally excludable from the beneficiary's
gross income for federal income tax purposes, according to Section 101(a)(1) of
the Internal Revenue Code. An owner of a life insurance contract is not taxed on
any increase in the cash value while the contract remains in force.
If the Contract is a modified endowment contract under federal tax law, certain
distributions made during either insured's lifetime, such as loans and partial
withdrawals from, and collateral assignments of, the Contract are includable in
gross income on an income-first basis. A 10% penalty tax may also be imposed on
distributions made before the contract owner attains age 59 1/2. Contracts that
are not modified endowment contracts under federal tax law receive preferential
tax treatment with respect to certain distributions.
For a discussion of the tax issues associated with this Contract, see "Tax
Considerations" on page 26.
LOANS
Contract owners may borrow up to the loan value of their Contracts, which is 90%
of the cash value. The maximum loan amount that may be borrowed at any time is
the difference between the loan value and debt. (See "Loans" on page 17.)
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 26.)
PARTIAL WITHDRAWALS
Contract owners may make partial withdrawals beginning in contract year sixteen,
subject to certain conditions. (See "Partial Withdrawals" on page 18.)
FEES AND CHARGES
Contract Loading. Merrill Lynch Life deducts certain charges from all payments
before they are invested in the investment divisions. These charges are:
- Sales load equal to 46.25% of each payment through the second base
premium and 1.25% of each payment thereafter.
- State and local premium tax charge of 2.5% of each payment.
- A charge for federal taxes of 1.25% of each payment.
(See "Contract Loading" on page 15.)
Investment Base Charges. Merrill Lynch Life deducts certain charges from the
investment base. The charges deducted are as follows:
- On the contract date and on all processing dates after the contract date,
Merrill Lynch Life makes deductions for cost of insurance (see "Cost of
Insurance" on page 14) and any rider costs (see "Additional Insurance
Rider" on page 12).
- On each contract anniversary, Merrill Lynch Life makes deductions for the
net loan cost if there has been any debt during the prior year. It equals
a maximum of 2% of the debt per year.
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<PAGE> 12
Separate Account Charges. There are certain charges deducted daily from the
investment results of the investment divisions in the Separate Account. These
charges are:
- an asset charge designed to cover mortality and expense risks deducted
from all investment divisions which is equivalent to .90% annually at the
beginning of the year; and
- a trust charge deducted from only those investment divisions investing in
the Zero Trusts, which is currently equivalent to .34% annually at the
beginning of the year and will never exceed .50% annually.
Advisory Fees. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 32 and "Charges to Variable Series Funds Assets" on page 33.)
This summary is intended to provide only a very brief overview of the more
significant aspects of the Contract. Further detail is provided in this
Prospectus and in the Contract. The Contract together with its attached
applications, medical exam(s), amendments, riders and endorsements constitutes
the entire agreement between the contract owner and Merrill Lynch Life and
should be retained.
For the definition of certain terms used in this Prospectus, see "Important
Terms" on page 4.
FACTS ABOUT THE SEPARATE ACCOUNT, THE SERIES FUND,
THE VARIABLE SERIES FUNDS, THE ZERO TRUSTS AND MERRILL LYNCH LIFE
THE SEPARATE ACCOUNT
The Separate Account is a separate investment account established by Merrill
Lynch Life on November 16, 1990. It is registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the Investment
Company Act of 1940. This registration does not involve any supervision by the
Securities and Exchange Commission over the investment policies or practices of
the Separate Account. It meets the definition of a separate account under the
federal securities laws. The Separate Account is used to support the Contract as
well as to support other variable life insurance contracts issued by Merrill
Lynch Life.
Merrill Lynch Life owns all of the assets in the Separate Account. The assets of
the Separate Account are kept separate from Merrill Lynch Life's general account
and any other separate accounts it may have and, to the extent of its reserves
and liabilities, may not be charged with liabilities arising out of any other
business Merrill Lynch Life conducts.
Obligations to contract owners and beneficiaries that arise under the Contract
are obligations of Merrill Lynch Life. Income, gains, and losses, whether or not
realized, from assets allocated are, in accordance with the Contracts, credited
to or charged against the Separate Account without regard to other income, gains
or losses of Merrill Lynch Life. As required, the assets in the Separate Account
will always be at least equal to the reserves and other liabilities of the
Separate Account. If the assets exceed the required reserves and other Contract
liabilities (which will always be at least equal to the aggregate contract value
allocated to the Separate Account under the Contracts), Merrill Lynch Life may
transfer the excess to its general account.
There are currently 36 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Six invest in shares of a
specific portfolio of the Variable Series Funds. Twenty invest in units of a
specific Zero Trust. Complete information about the Series Fund, the Variable
Series Funds and the Zero Trusts, including the risks associated with each
portfolio (including any risks associated with investment in the High Yield
Portfolio of the Series Fund) can be found in the accompanying prospectuses.
They should be read in conjunction with this Prospectus.
THE SERIES FUND
The Merrill Lynch Series Fund, Inc. is registered with the Securities and
Exchange Commission as an open-end management investment company. All of its ten
mutual fund portfolios are currently available through the Separate Account. The
investment objectives of the Series Fund portfolios are described below. There
is no guarantee that any portfolio will meet its investment objective. Meeting
the objectives depends on how well Series Fund management anticipates changing
economic conditions.
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Money Reserve Portfolio seeks to preserve capital and liquidity. It also seeks
the highest possible current income consistent with those objectives. It invests
in short-term money market securities.
Intermediate Government Bond Portfolio seeks the highest possible current income
consistent with the protection of capital. It invests in intermediate-term debt
securities issued or guaranteed by the U.S. Government or its agencies.
Long-Term Corporate Bond Portfolio seeks as high a level of current income as is
consistent with prudent investment risk. It invests primarily in fixed-income,
high quality corporate bonds.
High Yield Portfolio seeks high current income, consistent with prudent
management, by investing principally in fixed-income securities rated in the
lower categories of the established rating services or in unrated securities of
comparable quality (commonly known as "junk bonds").
Capital Stock Portfolio seeks long-term growth of capital and income, plus
moderate current income. It invests in common stocks considered to be of good or
improving quality or considered to be undervalued based on criteria such as
historical price/book value and price/earnings ratios.
Growth Stock Portfolio seeks above average long-term growth of capital. It
invests primarily in common stocks of aggressive growth companies considered to
have special growth potential.
Multiple Strategy Portfolio seeks the highest total investment return consistent
with prudent risk. It does this through a fully managed investment policy
utilizing equity securities, primarily common stocks of large capitalization
companies, as well as investment grade intermediate-and long-term debt
securities and money market securities.
Natural Resources Portfolio seeks long-term growth of capital and protection of
the purchasing power of shareholders' capital by investing primarily in equity
securities of domestic and foreign companies with substantial natural resource
assets.
Global Strategy Portfolio seeks high total investment return by investing
primarily in a portfolio of equity and fixed-income securities of U.S. and
foreign issuers.
Balanced Portfolio seeks a level of current income and a degree of stability of
principal not normally available from an investment solely in equity securities
and the opportunity for capital appreciation greater than that normally
available from an investment solely in debt securities by investing in a
balanced portfolio of fixed-income and equity securities.
The investment adviser for the Series Fund is Merrill Lynch Asset Management,
L.P. ("MLAM"), a subsidiary of Merrill Lynch & Co., Inc. and a registered
adviser under the Investment Advisers Act of 1940. The Series Fund, as part of
its operating expenses, pays an investment advisory fee to MLAM. (See "Charges
to Series Fund Assets" on page 32.)
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.
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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 33.)
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 Funds, the Separate Account
and other affiliated parties. This relief is required under current rules of the
Securities and Exchange Commission in order for the Equity Growth Fund of the
Variable Series Funds to be made available through the Separate Account. (See
"Resolving Material Conflicts" on page 32.) Contract owners will be notified
when the necessary relief is obtained and the Equity Growth Fund is available.
Equity Growth Fund seeks to attain long-term growth of capital by investing
primarily in common stocks of relatively small companies that management of the
Fund believes have special investment value and emerging growth companies
regardless of size. Such companies are selected by management on the basis of
their long-term potential for expanding their size and profitability or for
gaining increased market recognition for their securities. Current income is not
a factor in such selection. MLAM receives from the Fund an advisory fee at the
annual rate of 0.75% of the average daily net assets of the Fund. This is a
higher fee than that of many other mutual funds, but management of the Fund
believes it is justified by the high degree of care that must be given to the
initial selection and continuous supervision of the types of portfolio
securities in which the Fund invests.
THE ZERO TRUSTS
The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities was formed
to provide safety of capital and a high yield to maturity. It seeks this through
U.S. Government-backed investments which make no periodic interest payments and,
therefore, are purchased at a deep discount. When held to maturity the
investments should receive approximately a fixed yield. The value of Zero Trust
units before maturity varies more than it would if the Zero Trusts contained
interest-bearing U.S. Treasury securities of comparable maturities.
The Zero Trust portfolios consist mainly of:
- bearer debt obligations issued by the U.S. Government stripped of their
unmatured interest coupons;
- coupons stripped from U.S. debt obligations; and
- receipts and certificates for such stripped debt obligations and coupons.
The Zero Trusts currently available have maturity dates in years 1994 through
2011, 2013 and 2014.
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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 16.)
MERRILL LYNCH LIFE AND MLPF&S
Merrill Lynch Life is a stock life insurance company organized under the laws of
the State of Washington in 1986 and redomesticated under the laws of the State
of Arkansas in 1991. It is an indirect wholly owned subsidiary of Merrill Lynch
& Co., Inc. Merrill Lynch Life is authorized to sell life insurance and
annuities in 49 states, Guam, the U.S. Virgin Islands and the District of
Columbia. It is also authorized to offer variable life insurance and variable
annuities in most jurisdictions.
MLPF&S is a wholly owned subsidiary of Merrill Lynch & Co., Inc. and provides a
broad range of securities brokerage and investment banking services in the
United States. It provides marketing services for Merrill Lynch Life and is the
principal underwriter of the Contracts issued through the Separate Account.
Merrill Lynch Life retains MLPF&S to provide services relating to the Contracts
under a distribution agreement. (See "Selling the Contracts" on page 26.)
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. Merrill Lynch Life will issue a Contract on the lives of two insureds
provided the relationship among the applicant and the insureds meets Merrill
Lynch Life's insurable interest requirements and provided neither insured is
over age 85 or under age 20. The insureds' issue ages will be determined using
their ages as of their birthdays nearest the contract date. The insureds must
also meet Merrill Lynch Life's medical and other underwriting requirements,
which will include undergoing a medical examination.
Merrill Lynch Life assigns insureds to underwriting classes which determine the
current cost of insurance rates used in calculating cost of insurance
deductions. Contracts may be issued on insureds in standard, non-smoker or
preferred non-smoker underwriting classes. Contracts may also be issued on
insureds in a substandard underwriting class. For a discussion of the effect of
underwriting classification on deductions for cost of insurance, see "Cost of
Insurance" on page 14.
PURCHASING A CONTRACT
To purchase a Contract, the contract owner must complete an application and make
a payment. The payment is required to put the Contract into effect. In the
application, the contract owner selects the face amount of the Contract. The
amount of the minimum initial payment for a given Contract depends on the face
amount selected and the issue age, sex and underwriting class of each of the
insureds. The minimum initial payment for any Contract is 75% of the base
premium. Merrill Lynch Life will not accept an initial payment for a specified
face amount that will provide a guarantee period of less than two years. (See
"Selecting the Initial Face Amount" and "Initial Guarantee Period" on page 12.)
Merrill Lynch Life also will not accept an initial payment that would cause the
Contract to fail to qualify as life insurance under federal tax law as
interpreted by Merrill Lynch Life.
Insurance coverage generally begins on the contract date, which is usually the
next business day following receipt of the initial payment at Merrill Lynch
Life's Service Center. Temporary life insurance coverage may be provided under
the terms of a temporary insurance agreement. In accordance with Merrill Lynch
Life's underwriting rules, temporary life insurance coverage may not exceed
$300,000 and may not be in effect for more than 90 days. As provided for under
state insurance law, the contract owner, to preserve insurance age,
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may be permitted to backdate the Contract. In no case may the contract date be
more than six months prior to the date the application was completed. Charges
for cost of insurance and rider costs for the backdated period are deducted on
the contract date.
If Merrill Lynch Life determines that, based on the contract owner's initial
payment and face amount, the Contract will be a modified endowment contract,
Merrill Lynch Life will issue the Contract provided the contract owner signs a
statement acknowledging that the Contract is a modified endowment contract or
agrees either to reduce the initial payment or to increase the face amount to a
level at which the Contract will not be a modified endowment contract. For a
discussion of the tax consequences of purchasing a modified endowment contract,
see "Tax Considerations" on page 26.
Selecting the Initial Face Amount. The minimum initial face amount is $250,000
or that face amount which generates a $4,000 base premium, if larger. The
maximum face amount that may be specified for a given initial payment is the
amount which will provide an initial guarantee period of at least two years. For
the same initial payment amount, the larger the face amount requested, the
shorter the guarantee period. The initial face amount will change if the
contract owner changes the death benefit option or takes a partial withdrawal.
Subject to certain conditions, the contract owner may also purchase additional
insurance coverage through an additional insurance rider. (See "Additional
Insurance Rider" on page 12.)
Initial Guarantee Period. The initial guarantee period for a Contract will be
determined by the initial payment, face amount and any additional insurance
rider face amount. The guarantee period will be adjusted each time an additional
payment is made, when a partial withdrawal is taken, when the death benefit
option is changed and when the additional insurance rider face amount is
increased or decreased.
The guarantee period is the period of time Merrill Lynch Life guarantees that
the Contract will remain in force regardless of investment experience unless the
debt exceeds certain values. The guarantee period is based on the guaranteed
maximum cost of insurance rates in the Contract, guaranteed maximum rider costs
(if an additional insurance rider is elected), the contract loading and a 5%
interest assumption. This means that for a given initial payment and face
amount, different joint insureds will have different guarantee periods depending
on the age, sex and underwriting class of each of the insureds. For example,
older joint insureds will have a shorter guarantee period than younger joint
insureds in the same underwriting classes.
The maximum guarantee period is for the whole of life of the younger insured.
ADDITIONAL INSURANCE RIDER
The contract owner may purchase additional insurance coverage payable to the
beneficiary on the death of the last surviving insured. Additional insurance
coverage can be purchased through an additional insurance rider when the
Contract is purchased. Under Merrill Lynch Life's current procedures, the
maximum additional insurance rider face amount at the time the Contract is
purchased is three times the face amount of the Contract. The rider can also be
added on any contract anniversary thereafter, as long as an application is
completed, satisfactory evidence of insurability of both insureds is provided,
and at least one insured has not attained the age of 85. The minimum additional
insurance rider face amount at any time is $100,000. A cost of insurance charge
for the rider ("rider charge") will be deducted from the Contract's investment
base on each processing date. The rider charge will be based on the same cost of
insurance rates as the Contract. (See "Cost of Insurance" on page 14.) Because
insurance coverage through an additional insurance rider is purchased through
deductions from the Contract's investment base, there is no additional contract
loading associated with this coverage.
Once each year, the additional insurance rider face amount may be increased
(subject to evidence of insurability of both insureds) or decreased (after the
seventh contract anniversary); however, any change in the additional insurance
rider face amount must be at least $100,000. The effective date of the change
will be the contract anniversary next following underwriting approval of the
change. As of the effective date of the increase or decrease in the additional
insurance rider face amount, Merrill Lynch Life uses the existing fixed base and
the face amount of the Contract plus the new additional insurance rider face
amount to calculate a
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new guarantee period. A decrease in the additional insurance rider face amount
will increase the guarantee period. An increase in the additional insurance
rider face amount will decrease the guarantee period. An increase will not be
allowed on the first contract anniversary if the face amount of the Contract
plus the new rider face amount provide a guarantee period of less than one year
from the effective date of the increase.
A decrease in the additional insurance rider face amount can cause a Contract
which is not a modified endowment contract to become a modified endowment
contract. In such a case, Merrill Lynch Life will not process the decrease until
the contract owner confirms in writing his or her intent to convert the Contract
to a modified endowment contract. For a discussion of the tax consequences of
increasing or decreasing the additional insurance rider face amount, see "Tax
Considerations" on page 26.
ADDITIONAL PAYMENTS
After the "free look" period, contract owners may make additional payments.
Additional payments must be submitted with an additional payment form. The
minimum Merrill Lynch Life will accept for these payments is $100. For Contracts
that are not modified endowment contracts, making an additional payment may
cause them to become modified endowment contracts. (See "Tax Considerations" on
page 26.) Merrill Lynch Life will return that portion of any additional payment
beyond that necessary to extend the guarantee period to the whole of life of the
younger insured. Merrill Lynch Life will also return that portion of any
additional payment that would cause the Contract to fail to qualify as life
insurance under federal tax law as interpreted by Merrill Lynch Life.
Contract owners may specify an additional payment amount on the application to
be paid on either an annual or quarterly basis. For additional payments not
being withdrawn from a CMA account, Merrill Lynch Life will send the contract
owner reminder notices beginning in the second contract year. If a contract
owner has the CMA Insurance Service, such additional payments may be withdrawn
automatically from his or her CMA account and transferred to his or her
Contract. The withdrawals will continue under the selected plan until Merrill
Lynch Life is notified otherwise.
EFFECT OF ADDITIONAL PAYMENTS
Currently, any additional payments will be accepted the day they are received at
the Service Center. However, if acceptance of any portion of the payment would
cause a Contract which is not a modified endowment contract to become a modified
endowment contract, to the extent feasible, Merrill Lynch Life will not accept
that portion of the payment unless the contract owner confirms in writing his or
her intent to convert the Contract to a modified endowment contract. Merrill
Lynch Life may return that portion of the payment pending receipt of
instructions from the contract owner.
On the date Merrill Lynch Life receives and accepts an additional payment,
Merrill Lynch Life will:
- increase the Contract's investment base by the amount of the payment less
contract loading applicable to the payment;
- reflect the additional payment in the calculation of the variable
insurance amount (see "Variable Insurance Amount" on page 20); and
- increase the fixed base by the amount of the payment less contract
loading applicable to the payment (see "The Contract's Fixed Base" on
page 17).
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment is
less than for the whole of life of the younger insured.
Merrill Lynch Life will determine the increase in the guarantee period by taking
the immediate increase in the cash value resulting from the additional payment
and adding to that interest at the annual rate of 5% for the period from the
date Merrill Lynch Life receives and accepts the payment to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is
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added to the fixed base and the resulting new fixed base is used to calculate a
new guarantee period. For a discussion of the effect of additional payments on a
Contract's guarantee period, see "Additional Payments" in the Examples on page
40.
Unless specified otherwise, if there is any debt, any payment made will be used
first as a loan repayment, with any excess applied as an additional payment.
(See "Loans" on page 17.)
INVESTMENT BASE
A Contract's investment base is the amount available for investment at any time.
It is the sum of the amounts invested in each of the investment divisions. On
the contract date, the investment base equals the initial payment less contract
loading and charges for cost of insurance and rider costs. Merrill Lynch Life
adjusts the investment base daily to reflect the investment performance of the
investment divisions the contract owner has selected. (See "Net Rate of Return
for an Investment Division" on page 31.) The investment performance reflects the
deduction of Separate Account charges. (See "Charges to the Separate Account" on
page 16.)
Partial withdrawals, loans and deductions for cost of insurance, rider costs and
net loan cost decrease the investment base. (See "Charges Deducted from the
Investment Base" below, "Partial Withdrawals" on page 18 and "Loans" on page
17.) Loan repayments and additional payments increase it. Contract owners may
elect from which investment divisions loans and partial withdrawals are taken
and to which investment divisions repayments and additional payments are added.
If an election is not made, Merrill Lynch Life will allocate increases and
decreases proportionately to the contract owner's investment base as then
allocated in the investment divisions.
Initial Investment Allocation and Preallocation. During the "free look" period,
the initial payment less contract loading will be invested in the division
investing in the Money Reserve Portfolio. After the "free look" period, the
contract owner may invest in up to five of the 36 investment divisions in the
Separate Account.
Once Merrill Lynch Life's preallocation procedures are available in the state in
which the Contract is issued, the following process will apply to initial
payments. Through the first 14 days following the in force date, the initial
payment less contract loading will remain in the division investing in the Money
Reserve Portfolio. Thereafter, the investment base will be reallocated to the
investment divisions selected by the contract owner on the application, if
different. The contract owner may select up to five of the 36 investment
divisions in the Separate Account.
Changing the Allocation. After the "free look" period, a contract owner's
investment base may be invested in up to five investment divisions at any one
time. Currently, investment allocations may be changed as often as desired.
Merrill Lynch Life reserves the right to charge up to $25 for each change in
excess of six each year. In order to change their investment base allocation,
contract owners must call or write to the Service Center. (See "Some
Administrative Procedures" on page 23.)
Zero Trust Allocations. Merrill Lynch Life will notify contract owners 30 days
before a Zero Trust in which they have invested matures. Contract owners must
notify Merrill Lynch Life by calling or writing at least seven days before the
maturity date how to reinvest their funds in the division investing in that Zero
Trust. If Merrill Lynch Life is not notified, it will move the contract owner's
investment base in that division to the investment division investing in the
Money Reserve Portfolio.
Units of a specific Zero Trust may no longer be available when a request for
allocation is received. Should this occur, Merrill Lynch Life will attempt to
notify the contract owner immediately so that the request can be changed.
Allocation to the Division Investing in the Natural Resources
Portfolio. Merrill Lynch Life and the Separate Account reserve the right to
suspend the sale of units of the investment division investing in the Natural
Resources Portfolio in response to conditions in the securities markets or
otherwise.
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CHARGES DEDUCTED FROM THE INVESTMENT BASE
The charges described below are deducted pro-rata from the investment base on
processing dates.
Cost of Insurance. Merrill Lynch Life deducts the cost of insurance from the
investment base on the contract date and on each processing date thereafter.
This charge compensates Merrill Lynch Life for the cost of providing life
insurance coverage for the insureds. It is based on the underwriting class, sex
(except where unisex rates are required by state law) and attained age of each
insured and the Contract's net amount at risk.
To determine the cost of insurance, Merrill Lynch Life multiplies the current
cost of insurance rate by the Contract's net amount at risk. The net amount at
risk is the difference, as of a processing date, between the death benefit
(adjusted for interest at an annual rate of 5%) and the cash value, but before
the deduction for cost of insurance.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates depending on the underwriting class, sex (except where unisex
rates are required by state law) and attained age of each insured. Current cost
of insurance rates are lower for insureds in a preferred non-smoker underwriting
class than for insureds of the same age in a non-smoker underwriting class and
are lower for insureds in a non-smoker underwriting class than for insureds of
the same age and sex in a standard underwriting class.
Merrill Lynch Life guarantees that the current cost of insurance rates will
never exceed the maximum guaranteed rates shown in the Contract. The maximum
guaranteed rates for Contracts (other than those issued on a substandard basis)
do not exceed the rates based on the 1980 Commissioners Standard Ordinary
Mortality Table (CSO Table). Merrill Lynch Life may use rates that are equal to
or less than these rates, but never greater. The maximum rates for Contracts
issued on a substandard basis are based on a multiple of the 1980 CSO Table. Any
change in the cost of insurance rates will apply to all joint insureds of the
same age, sex, and underwriting class whose Contracts have been in force for the
same length of time.
Net Loan Cost. The net loan cost is explained under "Loans" on page 17.
Rider Charges. Rider charges are deducted on the contract date and on each
processing date thereafter. These charges are explained under "Additional
Insurance Rider" on page 12.
CONTRACT LOADING
Chargeable to each payment is an amount called the contract loading. The
contract loading equals 50% of each payment through the second base premium and
5% of each payment thereafter. This charge consists of a sales load, a charge
for federal taxes and a state and local premium tax charge.
The sales load, equal to 46.25% of each payment through the second base premium
and 1.25% of each payment thereafter, compensates Merrill Lynch Life for sales
expenses and the costs for underwriting and issuing the Contract. The sales load
may be reduced in certain group or sponsored arrangements as described on page
25. Merrill Lynch Life anticipates that the sales load charge may be
insufficient to cover its distribution expenses. Any shortfall will be made up
from Merrill Lynch Life's general account which may include amounts derived from
mortality gains and asset charges. In no event will the sales load exceed the
amount permitted by the Investment Company Act of 1940.
The charge for federal taxes, equal to 1.25% of each payment, compensates
Merrill Lynch Life for a significantly higher corporate income tax liability
resulting from Section 848 of the Internal Revenue Code as enacted by the
Omnibus Budget Reconciliation Act of 1990. (See "Merrill Lynch Life's Income
Taxes" on page 30). The charge for federal taxes is reasonable in relation to
Merrill Lynch Life's increased federal tax burden under Section 848 resulting
from the receipt of premiums under the Contract.
The state and local premium tax charge, equal to 2.5% of each payment,
compensates Merrill Lynch Life for state and local premium taxes Merrill Lynch
Life must pay when a payment is accepted. Premium taxes vary from state to
state. The 2.5% rate is the minimum rate expected on payments from all states.
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Excess Sales Load. Excess sales load is equal to any sales load deducted from
the first two base premiums in excess of 30% of the first base premium and 10%
of the second base premium. It is calculated and applied in the following
situations only during the first 24 months after the Contract is issued:
- It is refunded if the Contract is surrendered during the first 24 months
after issue.
- It is added to the cash value so as to continue the Contract in effect if
debt exceeds the larger of cash value and the fixed base during the first
24 months after issue.
- It is added to the cash value in determining the variable insurance
amount during the first 24 months after issue.
CHARGES TO THE SEPARATE ACCOUNT
Each day Merrill Lynch Life deducts an asset charge from each division of the
Separate Account. The total amount of this charge is computed at .90% annually
at the beginning of the year. Of this amount, .75% is for
- the risk assumed by Merrill Lynch Life that insureds as a group will live
for a shorter time than actuarial tables predict. As a result, Merrill
Lynch Life would be paying more in death benefits than planned; and
- the risk assumed by Merrill Lynch Life that it will cost more to issue
and administer the Contracts than expected.
The remaining amount, .15%, is for
- the risk assumed by Merrill Lynch Life with respect to potentially
unfavorable investment results. This risk is that the Contract's cash
value cannot cover the charges due during the guarantee period.
The total asset charge may not be increased. Merrill Lynch Life will realize a
gain from this charge to the extent it is not needed to provide for benefits and
expenses under the Contracts.
Charges to Divisions Investing in the Zero Trusts. Merrill Lynch Life assesses
a daily trust charge against the assets of each division investing in the Zero
Trusts. This charge reimburses Merrill Lynch Life for the transaction charge
paid to MLPF&S when units are sold to the Separate Account.
The trust charge is currently equivalent to .34% annually at the beginning of
the year. It may be increased, but will not exceed .50% annually at the
beginning of the year. The charge is based on cost (taking into account loss of
interest) with no expected profit.
Tax Charges. Merrill Lynch Life has the right under the Contract to impose a
charge against Separate Account assets for any taxes imposed on the Separate
Account's investment earnings. (See "Merrill Lynch Life's Income Taxes" on page
30.)
Advisory Fees. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 32 and "Charges to Variable Series Funds Assets" on page 33.)
GUARANTEE PERIOD
Merrill Lynch Life guarantees that the Contract will stay in force for the
guarantee period unless the debt exceeds certain contract values. (See "Loans"
on page 17.) Additional payments will extend the guarantee period until such
time as it is guaranteed for the whole of life of the younger insured. The
guarantee period will be affected by partial withdrawals and by increases and
decreases in the face amount of the additional insurance rider. A reserve is
held in Merrill Lynch Life's general account to support this guarantee.
When the Guarantee Period is Less Than for Life. After the end of the guarantee
period, Merrill Lynch Life may cancel the Contract if the cash value on a
processing date is insufficient to cover charges due on that date. (See "Charges
Deducted from the Investment Base" on page 14.)
Merrill Lynch Life will notify the contract owner before cancelling the
Contract. The contract owner will then have 61 days to pay an amount which,
after deducting contract loading, equals at least three times the charges
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that were due (and not deducted) on the processing date when the cash value was
determined to be insufficient. If this amount is paid, Merrill Lynch Life will
deduct the charges due on the processing date and apply the balance to the
investment base. Merrill Lynch Life will cancel the Contract at the end of this
grace period if payment has not yet been received. At that time, Merrill Lynch
Life will deduct any charges for cost of insurance and rider costs applicable to
the grace period and refund to the contract owner any unearned charges for cost
of insurance and rider costs.
Subject to state regulation, if Merrill Lynch Life cancels a Contract, it may be
reinstated while both insureds are still living if:
- the reinstatement is requested within three years after the end of the
grace period;
- Merrill Lynch Life receives satisfactory evidence of the insureds'
insurability; and
- the reinstatement payment is made. The reinstatement payment is the
minimum payment for which Merrill Lynch Life would then issue a Contract
for the minimum guarantee period with the same face amount as the
original Contract, based on the insureds' attained ages and underwriting
classes as of the effective date of the reinstated Contract.
A reinstated Contract will be effective on the processing date on or next
following the date the reinstatement application is approved.
The Contract's Fixed Base. On the contract date, the fixed base equals the cash
value. From then on, the fixed base is calculated in the same manner as the cash
value except that the calculation substitutes 5% for the net rate of return, the
guaranteed maximum cost of insurance rates and guaranteed maximum rider costs
are substituted for the current rates and it is calculated as though there had
been no loans or repayments. The fixed base is equivalent to the cash value for
a comparable fixed benefit contract with the same face amount and guarantee
period. After the end of the guarantee period the fixed base is zero. The fixed
base is used to limit Merrill Lynch Life's right to cancel the Contract during
the guarantee period.
Automatic Adjustment. On any contract anniversary, if the cash value is greater
than the fixed base necessary to cause the guarantee period to equal the whole
of life of the younger insured, the guarantee period will be extended to the
whole of life of the younger insured.
CASH VALUE
A Contract's cash value fluctuates daily with the investment results of the
investment divisions selected. Merrill Lynch Life doesn't guarantee any minimum
cash value. The cash value on any date equals the total investment base plus
debt plus unearned charges for cost of insurance and rider costs less any
accrued net loan cost since the last contract anniversary (or since the contract
date during the first contract year).
Cancelling the Contract. A contract owner may cancel the Contract at any time
while either insured is living. The request must be in writing in a form
satisfactory to Merrill Lynch Life. All rights to death benefits will end on the
date the written request is sent to Merrill Lynch Life.
The contract owner will then receive the net cash surrender value. The contract
owner may elect to receive this amount either in a single payment or under one
or more income plans described on page 25. The net cash surrender value will be
determined as of the date of receipt of the written request at the Service
Center.
If the Contract is cancelled during the first 24 months after the issue date of
the Contract, any sales load previously deducted from the first two base
premiums in excess of 30% of the first base premium and 10% of the second base
premium will be refunded. (See "Contract Loading - Excess Sales Load" on page
15.)
LOANS
Contract owners may use the Contract as collateral to borrow funds from Merrill
Lynch Life. The minimum loan is $1,000. Contract owners may repay all or part of
the loan at any time during either insured's lifetime.
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Each repayment must be for at least $1,000 or the amount of the debt, if less.
Certain states won't permit establishing a minimum amount that can be borrowed
or repaid.
When a loan is taken, Merrill Lynch Life transfers a portion of the contract
owner's investment base equal to the amount borrowed out of the investment
divisions and holds it as collateral in its general account. When a loan
repayment is made, Merrill Lynch Life transfers an amount equal to the repayment
from the general account to the investment divisions. The contract owner may
select from which divisions borrowed amounts should be taken and which divisions
should receive repayments (including interest payments). Otherwise, Merrill
Lynch Life will take the borrowed amounts proportionately from and make
repayments proportionately to the contract owner's investment base as then
allocated in the investment divisions.
If a contract owner has the CMA Insurance Service, loans may be transferred to
and loan repayments transferred from his or her CMA account.
Effect on Death Benefit and Cash Value. Whether or not a loan is repaid, taking
a loan will have a permanent effect on a Contract's cash value and may have a
permanent effect on its death benefit. This is because the collateral for a loan
doesn't participate in the performance of the investment divisions while the
loan is outstanding. If the amount credited to the collateral is more than what
is earned in the investment divisions, the cash value may be higher as a result
of the loan, as may be the death benefit. Conversely, if the amount credited is
less, the cash value will be lower, as may be the death benefit. In that case,
the lower cash value may cause the Contract to lapse sooner than if no loan had
been taken.
Loan Value. The loan value of a Contract equals 90% of its cash value. The sum
of all outstanding loan amounts plus accrued interest is called debt. The
maximum amount that can be borrowed at any time is the difference between the
loan value and the debt.
Interest. While a loan is outstanding, Merrill Lynch Life charges interest at a
maximum rate of 6% annually, subject to state regulation. Currently Merrill
Lynch Life charges interest of 4.75% annually. Interest accrues each day and
payments are due at the end of each contract year. If the interest isn't paid
when due, it is added to the outstanding loan amount. Interest paid on a loan
may not be tax deductible.
The amount held in Merrill Lynch Life's general account as collateral for a loan
earns interest at a minimum of 4% annually. Currently a loan amount earns
interest at 4%.
Net Loan Cost. On each contract anniversary, Merrill Lynch Life reduces the
investment base by the net loan cost (the difference between the interest
charged and the earnings on the amount held as collateral in the general
account) and adds that amount to the amount held in the general account as
collateral for the loan. Since the interest charged is 4.75% and the collateral
earnings on such amounts are 4%, the current net loan cost on loaned amounts is
.75%. The net loan cost is taken into account in determining the net cash
surrender value of the Contract if the date of surrender is not a contract
anniversary.
Cancellation Due to Excess Debt. If the debt exceeds the larger of the cash
value and the fixed base on a processing date, Merrill Lynch Life will cancel
the Contract 61 days after a notice of intent to terminate the Contract is
mailed to the contract owner unless Merrill Lynch Life has received at least the
minimum repayment amount specified in the notice. During the first 24 months
after the Contract is issued, Merrill Lynch Life will add any excess sales load
to the cash value so as to continue the Contract in effect if debt exceeds the
larger of the cash value and the fixed base. (See "Contract Loading - Excess
Sales Load" on page 15.) If the Contract lapses with a loan outstanding, adverse
tax consequences may result. (See "Tax Considerations" on page 26.)
PARTIAL WITHDRAWALS
Beginning in contract year sixteen, and subject to state regulation, a contract
owner may make partial withdrawals by submitting a request in a form
satisfactory to Merrill Lynch Life. The effective date of the withdrawal is the
date a withdrawal request is received at the Service Center. Contract owners may
elect to
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receive the withdrawal amount either in a single payment or, subject to Merrill
Lynch Life's rules, under one or more income plans.
Contract owners may make one partial withdrawal each contract year. The minimum
amount for each partial withdrawal is $1,000. The remaining cash value following
a partial withdrawal must equal or exceed $5,000. The amount of any partial
withdrawal may not exceed the loan value as of the effective date of the partial
withdrawal less any debt. A partial withdrawal may not be repaid.
Effect on Investment Base, Fixed Base, Cash Value and Death Benefit. As of the
effective date of the withdrawal, the investment base, fixed base, cash value
and, if the contract owner has elected death benefit option 1, the face amount
of the Contract will each be reduced by the amount of the partial withdrawal.
Merrill Lynch Life allocates this reduction proportionately to the investment
base in each of the contract owner's investment divisions unless notified
otherwise. The variable insurance amount will also reflect the partial
withdrawal as of the effective date.
Effect on Guarantee Period. As of the processing date on or next following the
effective date of a partial withdrawal, Merrill Lynch Life calculates a new
guarantee period. This is done by taking the immediate decrease in cash value
resulting from the partial withdrawal and adding to that amount interest at an
annual rate of 5% for the period from the date of withdrawal to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is subtracted from the fixed base and
the resulting new fixed base is used to calculate a new guarantee period. For a
discussion of the effect of partial withdrawals on a Contract's guarantee
period, see "Partial Withdrawals" in the Examples on page 41.
A partial withdrawal may cause a Contract which is not a modified endowment
contract to become a modified endowment contract. In such a case, Merrill Lynch
Life will not process the partial withdrawal until the contract owner confirms
in writing his or her intent to convert the Contract to a modified endowment
contract. For a discussion of the tax issues associated with a partial
withdrawal, see "Tax Considerations" on page 26.
DEATH BENEFIT PROCEEDS
Merrill Lynch Life will pay the death benefit proceeds to the beneficiary upon
receipt of all information needed to process the payment, including due proof of
the death of the last surviving insured. Proof of death for both insureds must
be received. There is no death benefit payable at the first death.
If one of the insureds should die within two years from the Contract's issue
date, within two years from the effective date of any requested change in the
death benefit option requiring evidence of insurability, or within two years of
an increase in the additional insurance rider face amount, due proof of the
insured's death should be sent promptly to the Service Center since Merrill
Lynch Life may pay only a limited benefit or contest the Contract. (See
"Incontestability" and "Payment in Case of Suicide" on page 24.)
Death Benefit Proceeds. The death benefit payable depends on the death benefit
option in effect on the date of death.
- Under option 1, the death benefit is equal to the larger of the face
amount or the variable insurance amount.
- Under option 2, the death benefit is equal to the larger of the face
amount plus the cash value or the variable insurance amount.
Contract owners who wish to have investment experience reflected in insurance
coverage should choose option 2. Contract owners who wish to have insurance
coverage that generally does not vary in amount should choose option 1.
The death benefit will never be less than the amount required to keep the
Contract qualified as life insurance under federal income tax laws.
To determine the death benefit proceeds, Merrill Lynch Life will subtract from
the death benefit any debt and add to the death benefit any rider benefits
payable.
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The values used in calculating the death benefit proceeds are as of the date of
death. If the last surviving insured dies during the grace period, the death
benefit proceeds equal the death benefit proceeds in effect immediately prior to
the grace period reduced by any overdue charges. (See "When the Guarantee Period
is Less Than for Life" on page 16.)
Variable Insurance Amount. Merrill Lynch Life determines the variable insurance
amount daily by:
- calculating the cash value (plus any excess sales load during the first
24 months after the Contract is issued); and
- multiplying it by the cash value corridor factor (explained below) for
the younger insured at his or her attained age.
The variable insurance amount will never be less than required by federal tax
law.
Cash Value Corridor Factor. The cash value corridor factor is used to determine
the amount of death benefit purchased by $1.00 of cash value. It is based on the
attained age of the younger insured on the date of calculation. It decreases
daily as the younger insured's age increases. As a result, the variable
insurance amount as a multiple of the cash value will decrease over time. A
table of cash value corridor factors as of each anniversary is included in the
Contract.
Table of Illustrative Cash Value Corridor Factors
on Anniversaries
<TABLE>
<CAPTION>
ATTAINED
AGE FACTOR
----------------------------------- ------
<S> <C>
40 and under 250%
45 215%
55 150%
65 120%
75-90 105%
95 and over 100%
</TABLE>
Changing the Death Benefit Option. On each contract anniversary beginning with
the fifteenth, the contract owner may change the death benefit option. Merrill
Lynch Life will change the face amount in order to keep the death benefit
constant on the effective date of the change. Therefore, if the change is from
option 1 to option 2, the face amount of the Contract will be decreased by the
cash value on the date of the change. A change in the death benefit option will
not be permitted if it would result in a face amount of less than $100,000. If
the change is from option 2 to option 1, the face amount of the Contract will be
increased by the cash value on the date of the change. For a discussion of the
effect of a change in the death benefit option on a Contract, see "Changing the
Death Benefit Option" in the Examples on page 42.
If the contract owner requests a change in the death benefit option from option
1 to option 2, evidence of insurability in a form satisfactory to Merrill Lynch
Life that the insureds are insurable may be required. In no event will a change
be permitted if, after the change, the Contract would not qualify as life
insurance under federal tax laws as interpreted by Merrill Lynch Life.
A change in the death benefit option may cause a Contract which is not a
modified endowment contract to become a modified endowment contract. In such a
case, Merrill Lynch Life will not process the change until the contract owner
confirms in writing his or her intent to convert the Contract to a modified
endowment contract. For a discussion of the tax issues associated with a change
in the death benefit option, see "Tax Considerations" on page 26.
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
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interest from the date of the last surviving insured's death to the date of
payment at an annual rate of at least 4%. The beneficiary may elect to receive
the proceeds either in a single payment or under one or more income plans
described on page 25.
Payment may be delayed if the Contract is being contested or under the
circumstances described in "Using the Contract" on page 22 and "Other Contract
Provisions" on page 24. If a delay is necessary and death of the last surviving
insured occurs prior to the end of the guarantee period, Merrill Lynch Life may
delay payment of any excess of the death benefit over the face amount. After the
guarantee period has expired, Merrill Lynch Life may delay payment of the entire
death benefit.
RIGHTS TO CANCEL OR CONVERT
"Free Look" Period. A contract owner may cancel his or her Contract during the
"free look" period by returning it for a refund. Generally, the "free look"
period ends the later of ten days after the Contract is received, 45 days after
the contract owner completes the application or ten days after Merrill Lynch
Life mails or personally delivers to the contract owner the Notice of Withdrawal
Right. To cancel the Contract during the "free look" period, the contract owner
must mail or deliver the Contract to Merrill Lynch Life's Service Center or to
the registered representative who sold it. Merrill Lynch Life will refund the
payment made without interest. If cancelled, Merrill Lynch Life may require the
contract owner to wait six months before applying again.
Converting the Contract. A contract owner may convert the Contract for a joint
and last survivor contract with benefits that do not vary with the investment
results of a separate account. Once a contract owner exercises this right, the
investment base and additional payments may not be allocated to the Separate
Account. A request to convert must be made in writing within 24 months after the
issue date of the Contract. The conversion will not require evidence of
insurability.
The conversion will be accomplished by adding an endorsement to the Contract and
transferring, without charge, the investment base in the Separate Account to the
guaranteed interest division ("GID"). Assets in the guaranteed interest division
are held in Merrill Lynch Life's general account. The investment base at the
time of conversion and any additional payments will remain in the guaranteed
interest division and be credited with interest at a rate declared by Merrill
Lynch Life. A declared interest rate for any amount allocated to the guaranteed
interest division will be in effect for at least one year. After conversion, the
Contract will not be subject to charges to the Separate Account. For a
discussion of the tax consequences of converting the Contract, see "Tax
Considerations" on page 26.
REPORTS TO CONTRACT OWNERS
After the end of each processing period, contract owners will be sent a
statement of the allocation of their investment base, death benefit, cash value,
any debt and, if there has been a change, the guarantee period and any increase
or decrease in the additional insurance rider face amount. All figures will be
as of the end of the immediately preceding processing period. The statement will
show the amounts deducted from or added to the investment base during the
processing period. The statement will also include any other information that
may be currently required by a contract owner's state.
Contract owners will receive confirmation of all financial transactions. Such
confirmations will show the price per unit of each of the contract owner's
investment divisions, the number of units a contract owner has in the investment
division and the value of the investment division computed by multiplying the
quantity of units by the price per unit. (See "Net Rate of Return for an
Investment Division" on page 31.) 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.
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CMA Account Reporting. Contract owners who have the CMA Insurance Service will
have certain Contract information included as part of their regular monthly CMA
account statement. It will list the investment base allocation, death benefit,
cash value, debt and any CMA account activity affecting the Contract during the
month.
MORE ABOUT THE CONTRACT
USING THE CONTRACT
Ownership. The contract owner is usually one of the insureds, unless another
owner has been named in the application. The contract owner has all rights and
options described in the Contract.
The contract owner may want to name a contingent owner. If the contract owner
dies before the last surviving insured, the contingent owner will own the
contract owner's interest in the Contract and have the contract owner's rights.
If the contract owner doesn't name a contingent owner, the contract owner's
estate will own the contract owner's interest in the Contract upon the owner's
death.
If there is more than one contract owner, Merrill Lynch Life will treat the
owners as joint tenants with rights of survivorship unless the ownership
designation provides otherwise. The owners must exercise their rights and
options jointly, except that any one of the owners may reallocate the Contract's
investment base by phone if the owner provides the personal identification
number as well as the Contract number. One contract owner must be designated, in
writing, to receive all notices, correspondence and tax reporting to which
contract owners are entitled under the Contract.
Changing the Owner. During either insured's lifetime, the contract owner has
the right to transfer ownership of the Contract. The new owner will have all
rights and options described in the Contract. The change will be effective as of
the day the notice is signed, but will not affect any payment made or action
taken by Merrill Lynch Life before receipt of the notice of the change at the
Service Center. Changing the owner may have tax consequences. (See "Tax
Considerations" on page 26.)
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 26.
Naming Beneficiaries. Merrill Lynch Life will pay the primary beneficiary the
death benefit proceeds of the Contract on the last surviving insured's death. If
the primary beneficiary has died, Merrill Lynch Life will pay the contingent
beneficiary. If no contingent beneficiary is living, Merrill Lynch Life will pay
the estate of the last surviving insured .
A contract owner may name more than one person as primary or contingent
beneficiaries. Merrill Lynch Life will pay proceeds in equal shares to the
surviving beneficiaries unless the beneficiary designation provides otherwise.
A contract owner has the right to change beneficiaries during either insured's
lifetime, unless the primary beneficiary designation has been made irrevocable.
If the designation is irrevocable, the primary beneficiary must consent when
certain rights and options are exercised under this Contract. If the beneficiary
is changed, the change will take effect as of the day the notice is signed, but
will not affect any payment made or action taken by Merrill Lynch Life before
receipt of the notice of the change at the Service Center.
Maturity Proceeds. The maturity date is the contract anniversary nearest the
younger insured's 100th birthday. On the maturity date, Merrill Lynch Life will
pay the net cash surrender value to the contract owner, provided either insured
is still living at that time.
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How Merrill Lynch Life Makes Payments. Merrill Lynch Life generally pays death
benefit proceeds, partial withdrawals, loans and net cash surrender value on
cancellation from the Separate Account within seven days after the Service
Center receives all the information needed to process the payment.
However, it may delay payment from the Separate Account if it isn't practical
for Merrill Lynch Life to value or dispose of Trust units, Series Fund shares or
Variable Series Funds shares because:
- the New York Stock Exchange is closed, other than for a customary weekend
or holiday; or
- trading on the New York Stock Exchange is restricted by the Securities
and Exchange Commission; or
- the Securities and Exchange Commission declares that an emergency exists
such that it is not reasonably practical to dispose of securities held in
the Separate Account or to determine the value of their assets; or
- the Securities and Exchange Commission by order so permits for the
protection of contract owners.
SOME ADMINISTRATIVE PROCEDURES
Described below are certain administrative procedures. Merrill Lynch Life
reserves the right to modify them or to eliminate them. For administrative and
tax purposes, Merrill Lynch Life may from time to time require that specific
forms be completed in order to accomplish certain transactions, including
surrenders.
Personal Identification Number. Merrill Lynch Life will send each contract
owner a four-digit personal identification number ("PIN") shortly after the
Contract is placed in force and before the end of the "free look" period. This
number must be given when the contract owner calls the Service Center to get
information about the Contract, to make a loan (if an authorization is on file),
or to make other requests. Each PIN will be accompanied by a notice reminding
the contract owner that all of the investment base is in the division investing
in the Money Reserve Portfolio, and that this allocation may be changed by
calling or writing to the Service Center. (See "Changing the Allocation" on page
14.)
Reallocating the Investment Base. Contract owners can reallocate their
investment base either in writing in a form satisfactory to Merrill Lynch Life
or by phone. If the reallocation is requested by phone, contract owners must
give their personal identification number as well as their Contract number.
Merrill Lynch Life will give a confirmation number over the phone and then
follow up in writing.
Requesting a Loan. A loan may be requested in writing in a form satisfactory to
Merrill Lynch Life or, if all required authorization forms are on file, by
phone. Once the authorization has been received at the Service Center, contract
owners can call the Service Center, give their Contract number, name and
personal identification number, and tell Merrill Lynch Life the loan amount and
from which divisions the loan should be transferred.
Upon request, Merrill Lynch Life will wire the funds to the contract owner's
account at the financial institution named on the contract owner's
authorization. Merrill Lynch Life will generally wire the funds within two
working days of receipt of the request. If the contract owner has the CMA
Insurance Service, funds may be transferred directly to that CMA account.
Requesting Partial Withdrawals. Beginning in contract year 16, partial
withdrawals may be requested in writing in a form satisfactory to Merrill Lynch
Life. A contract owner may request a partial withdrawal by phone if all required
phone authorization forms are on file. Once the authorization has been received
at the Service Center, contract owners can call the Service Center, give their
Contract number, name and personal identification number, and tell Merrill Lynch
Life how much to withdraw and from which investment divisions.
Upon request, Merrill Lynch Life will wire the funds to the contract owner's
account at the financial institution named on the contract owner's
authorization. Merrill Lynch Life will generally wire the funds within two
working days of receipt of the request. If the contract owner has the CMA
Insurance Service, funds may be transferred directly to that CMA account.
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Telephone Requests. A telephone request for a loan, partial withdrawal or a
reallocation received before 4 p.m. (ET) generally will be processed the same
day. A request received at or after 4 p.m. (ET) will be processed the following
business day. Merrill Lynch Life reserves the right to change or discontinue
telephone transfer procedures.
OTHER CONTRACT PROVISIONS
In Case of Errors in the Application. If an age or sex given in the application
is wrong, it could mean that the face amount or any other Contract benefit is
wrong. Merrill Lynch Life will pay what the payments made would have bought for
the guarantee period at the true age or sex.
Incontestability. Merrill Lynch Life will rely on statements made in the
applications. Legally, they are considered representations, not warranties.
Merrill Lynch Life can contest the validity of a Contract if any material
misstatements are made in the initial application or any application for
reinstatement. Merrill Lynch Life can also contest the validity of any change in
face amount due to a change in death benefit option or any increase in the
additional insurance rider face amount requested if any material misstatements
are made in any application required for the change or increase.
Subject to state regulation, Merrill Lynch Life won't contest the validity of a
Contract after it has been in effect during the lifetimes of both insureds for
two years from the date of issue or the date of any reinstatement. A change in
face amount due to a change in the death benefit option or any increase in the
additional insurance rider face amount won't be contested after the change or
increase has been in effect during the lifetimes of both insureds for two years
from the date of the change.
At the end of the second contract year, Merrill Lynch Life will mail the
contract owner a notice requesting that he or she tell Merrill Lynch Life if
either insured has died. Failure to tell Merrill Lynch Life of the death of
either insured will not avoid a contest if Merrill Lynch Life has grounds to do
so, even if the Contract is still in force.
Payment in Case of Suicide. Subject to state regulation, if either insured
commits suicide within two years from the Contract's issue date or the date of
any reinstatement, Merrill Lynch Life will pay only a limited death benefit and
then terminate the Contract. The benefit will be equal to the amount of the
payments made, reduced by any debt.
Subject to state regulation, if either insured commits suicide within two years
of the effective date of a change in the death benefit option requiring evidence
of insurability or of the effective date of an increase in the additional
insurance rider face amount, any amount of death benefit which would not be
payable except for the fact that the face amount was increased will be limited
to the amount of cost of insurance deductions made for the increase.
Establishing Survivorship. If Merrill Lynch Life is unable to determine which
of the insureds was the last survivor on the basis of the proofs of death
provided, it will consider insured No. 1 as designated in the application to be
the last surviving insured.
Contract Changes - Applicable Federal Tax Law. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. Therefore, to maintain this qualification to the
maximum extent of the law, Merrill Lynch Life reserves the right to return any
additional payments that would cause the Contract to fail to qualify as life
insurance under applicable tax law as interpreted by Merrill Lynch Life.
Further, Merrill Lynch Life reserves the right to make changes in the Contract
or its riders or to make distributions from the Contract to the extent it is
necessary to continue to qualify the Contract as life insurance. Any changes
will apply uniformly to all Contracts that are affected and contract owners will
be given advance written notice of such changes.
Policy Split Rider. This rider allows the contract owner to split the Contract
into two new individual contracts upon divorce of the insureds or if certain
federal tax law changes occur. Certain conditions described
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in the rider, including evidence of insurability of both insureds, must be met
before the rider's benefit can be exercised. For more information about this
rider and the conditions and rules relating to the exercise of any rights under
the rider, the contract owner should call the Service Center. The Service Center
can also provide the contract owner with a prospectus for the individual
contract. For a discussion of the possible tax consequences of splitting the
Contract, see "Tax Considerations" on page 26.
State Variations. Certain Contract features, including the "free look" right,
are subject to state variation. The contract owner should read his or her
Contract carefully to determine whether any variations apply in the state in
which the Contract is issued.
INCOME PLANS
Merrill Lynch Life offers several income plans to provide for payment of the
death benefit proceeds to the beneficiary. The contract owner may choose one or
more income plans at any time during the lifetime of either insured. If no plan
has been chosen when the last surviving insured dies, the beneficiary has one
year to apply the death benefit proceeds either paid or payable to that
beneficiary to one or more of the plans. The contract owner may also choose one
or more income plans if the Contract is cancelled or a partial withdrawal is
taken. Merrill Lynch Life's approval is needed for any plan where any income
payment would be less than $100. Payments under these plans do not depend on the
investment results of a separate account.
Income plans include:
Annuity Plan. An amount can be used to purchase a single premium immediate
annuity.
Interest Payment. Amounts can be left with Merrill Lynch Life to earn
interest at an annual rate of at least 3%. Interest payments can be made
annually, semiannually, quarterly or monthly.
Income for a Fixed Period. Payments are made in equal installments for a
fixed number of years.
Income for Life. Payments are made in equal monthly installments until
death of a named person or end of a designated period, whichever is later.
The designated period may be for 10 or 20 years.
Income of a Fixed Amount. Payments are made in equal installments until
proceeds applied under the option and interest on unpaid balance at not
less than 3% per year are exhausted.
Joint Life Income. Payments are made in monthly installments as long as at
least one of two named persons is living. While both are living, full
payments are made. If one dies, payments at two-thirds of the full amount
are made. Payments end completely when both named persons die.
Once in effect, some of the plans may not provide any surrender rights.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, Merrill Lynch Life may reduce the
sales load, cost of insurance rates and the minimum payment and may modify
underwriting classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows Merrill Lynch Life to
sell Contracts to its employees on an individual basis. Costs for sales,
administration and mortality generally vary with the size and stability of the
group and the reasons the Contracts are purchased, among other factors. Merrill
Lynch Life takes all these factors into account when reducing charges. To
qualify for reduced charges, a group or sponsored arrangement must meet certain
requirements, including requirements for size and number of years in existence.
Group or sponsored arrangements that have been set up solely to buy Contracts or
that have been in existence less than six months will not qualify for reduced
charges.
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<PAGE> 30
Merrill Lynch Life makes any reductions according to rules in effect when an
application for a Contract or additional payment is approved. It may change
these rules from time to time. However, reductions in charges will not
discriminate unfairly against any person.
UNISEX LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983 the Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title Vll of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
Generally, the Contracts offered by this Prospectus are based on mortality
tables that distinguish between men and women. As a result, the Contract pays
different benefits to men and women of the same age. Employers and employee
organizations should check with their legal advisers before purchasing these
Contracts.
Some states prohibit the use of actuarial tables that distinguish between men
and women in determining payments and contract benefits for contracts issued on
the lives of their residents. Therefore, Contracts offered in this Prospectus to
insure residents of these states will have unisex payments and benefits which
are based on actuarial tables that do not differentiate on the basis of sex.
SELLING THE CONTRACTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is the principal
underwriter of the Contract. It was organized in 1958 under the laws of the
state of Delaware and is registered as a broker dealer under the Securities
Exchange Act of 1934. It is a member of the National Association of Securities
Dealers, Inc. ("NASD"). The principal business address of MLPF&S is World
Financial Center, 250 Vesey Street, New York, New York 10281. MLPF&S also acts
as principal underwriter of other variable life insurance and variable annuity
contracts issued by Merrill Lynch Life, as well as variable life insurance and
variable annuity contracts issued by ML Life Insurance Company of New York, an
affiliate of Merrill Lynch Life. MLPF&S also acts as principal underwriter of
certain mutual funds managed by MLAM, the investment adviser for the Series Fund
and the Variable Series Funds.
Contracts are sold by registered representatives of MLPF&S who are also licensed
through various Merrill Lynch Life Agencies as insurance agents for Merrill
Lynch Life. Merrill Lynch Life has entered into a distribution agreement with
MLPF&S and companion sales agreements with the Merrill Lynch Life Agencies
through which agreements the Contracts and other variable life insurance
contracts issued through the Separate Account are sold and the registered
representatives are compensated by Merrill Lynch Life Agencies and/or MLPF&S.
The maximum commissions Merrill Lynch Life will pay to the applicable insurance
agency to be used to pay commissions to registered representatives are as
follows: 95% of the target premium under the Contract; plus 3% of payments
thereafter. In addition, an amount equal to .11% of persisting investment base
under a Contract may be paid on an annual basis. Commissions may be paid in the
form of non-cash compensation.
The amounts paid under the distribution and sales agreements for the Separate
Account for the years ended December 31, 1993, and December 31, 1992 were
$2,513,335 and $119,298, respectively.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD. Registered representatives of these other broker-dealers may be
compensated on a different basis than MLPF&S registered representatives.
TAX CONSIDERATIONS
Definition of Life Insurance. In order to qualify as a life insurance contract
for federal tax purposes, the Contract must meet the definition of a life
insurance contract which is set forth in Section 7702 of the Internal Revenue
Code of 1986, as amended (the "Code"). The manner in which Section 7702 should
be applied to
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<PAGE> 31
certain features of the Contract offered in this Prospectus is not directly
addressed by Section 7702. Nevertheless, Merrill Lynch Life believes it is
reasonable to conclude that the Contract will meet the Section 7702 definition
of a life insurance contract, so that:
- the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
- the contract owner should not be considered in constructive receipt of
the cash value, including any increases, until actual cancellation of the
Contract (see "Tax Treatment of Loans and Other Distributions" below).
In the absence of final regulations or other pertinent interpretations of
Section 7702, however, there is necessarily some uncertainty as to whether a
Contract will meet the statutory life insurance contract definition,
particularly if it insures substandard risks. If a Contract were determined not
to be a life insurance contract for purposes of Section 7702, such Contract
would not provide most of the tax advantages normally provided by a life
insurance contracts.
Merrill Lynch Life thus reserves the right to make changes in the Contract if
such changes are deemed necessary to attempt to assure its qualification as a
life insurance contract for tax purposes. (See "Contract Changes--Applicable
Federal Tax Law" on page 24.)
Diversification. Section 817(h) of the Code provides that separate account
investments (or the investments of a mutual fund, the shares of which are owned
by separate accounts of insurance companies) underlying the Contract must be
"adequately diversified" in accordance with Treasury regulations in order for
the Contract to qualify as life insurance. The Treasury Department has issued
regulations prescribing the diversification requirements in connection with
variable contracts. The Separate Account, through the Series Fund and the
Variable Series Funds, intends to comply with these requirements. Although
Merrill Lynch Life doesn't control the Series Fund or the Variable Series Funds,
it intends to monitor the investments of the Series Fund and the Variable Series
Funds to ensure compliance with the requirements prescribed by the Treasury
Department.
In connection with the issuance of the temporary diversification regulations,
the Treasury Department stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which an owner's control of the
investments of a separate account may cause the owner, rather than the insurance
company, to be treated as the owner of the assets in the account. If the
contract owner is considered the owner of the assets of the Separate Account,
income and gains from the account would be included in the owner's gross income.
The ownership rights under the Contract offered in this Prospectus are similar
to, but different in certain respects from, those described by the Internal
Revenue Service in rulings in which it determined that the owners were not
owners of separate account assets. For example, the owner of the Contract has
additional flexibility in allocating payments and cash values. These differences
could result in the owner being treated as the owner of the assets of the
Separate Account. In addition, Merrill Lynch Life does not know what standards
will be set forth in the regulations or rulings which the Treasury has stated it
expects to be issued. Merrill Lynch Life therefore reserves the right to modify
the Contract as necessary to attempt to prevent the contract owner from being
considered the owner of the assets of the Separate Account.
Tax Treatment of Loans and Other Distributions. Federal tax law establishes a
class of life insurance contracts referred to as modified endowment contracts. A
modified endowment contract is any contract which satisfies the definition of
life insurance set forth in Section 7702 of the Code but fails to meet the 7-pay
test. This test applies a cumulative limit on the amount of payments that can be
made into a contract each year in the first seven contract years in order to
avoid modified endowment treatment. In effect, compliance with the 7-pay test
requires that contracts be purchased with a higher face amount for a given
initial payment than would otherwise be required, at a minimum, to meet the
definition of life insurance. Contracts that do not satisfy the 7-pay test,
including contracts which initially satisfied the 7-pay test but later failed
the test, will be considered modified endowment contracts subject to the
following distribution rules. Loans and partial withdrawals from, as well as
collateral assignments of, modified endowment contracts will be treated as
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<PAGE> 32
distributions to the contract owner. Furthermore, if the loan interest is
capitalized by adding the amount due to the balance of the loan, the amount of
the capitalized interest will be treated as a distribution which may be subject
to income tax, to the extent of the income in the contract. All pre-death
distributions (including loans, partial withdrawals and collateral assignments)
from these contracts will be included in gross income on an income-first basis
to the extent of any income in the contract (the cash value less the contract
owner's investment in the contract) immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, capitalized interest, collateral assignments, partial withdrawals and
complete surrenders) from modified endowment contracts to the extent they are
included in income, unless such amounts are distributed on or after the taxpayer
attains age 59 1/2, because the taxpayer is disabled, or as substantially equal
periodic payments over the taxpayer's life (or life expectancy) or over the
joint lives (or joint life expectancies) of the taxpayer and his or her
beneficiary.
Contracts that comply with the 7-pay test will not be classified as modified
endowment contracts. Loans from contracts that are not modified endowment
contracts will be considered indebtedness of an owner and no part of a loan will
constitute income to the owner. In addition, pre-death distributions from these
contracts will generally not be included in gross income to the extent that the
amount received does not exceed the owner's investment in the contract. A lapse
of such a contract with an outstanding loan will result in the treatment of the
loan cancellation (including the accrued interest) as a distribution under the
contract and may be taxable.
Compliance with the 7-pay test does not imply or guarantee that only seven
payments will be required for the initial death benefit to be guaranteed for
life. Making additional payments or reducing the benefits (for example, through
a partial withdrawal, a change in death benefit option or terminating additional
benefits under a rider) may violate the 7-pay test or, at a minimum, reduce the
amount that may be paid in the future under the 7-pay test. Further, reducing
the death benefit at any time will require retroactive retesting and will
probably result in a failure of the 7-pay test regardless of any efforts by
Merrill Lynch Life to provide a payment schedule that will not violate the 7-pay
test.
Any contract received in an exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts that is described in the
Prospectus. A contract that is not originally classified as a modified endowment
contract can become so classified if there is a reduction in benefits at any
time (including, for example, by a decrease in the additional insurance rider
face amount or a change in death benefit option) or if a material change is made
in the contract at any time. A material change includes, but is not limited to,
a change in the benefits that was not reflected in a prior 7-pay test
computation, such as a change in death benefit option. This could result from
additional payments made after 7-pay test calculations done at the time of the
contract exchange. Contract owners may choose not to exercise their right to
make additional payments, in order to preserve their contract's current tax
treatment.
If a contract becomes a modified endowment contract, distributions that occur
during the contract year it becomes a modified endowment contract and any
subsequent contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a contract within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a contract that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Special Treatment of Loans on the Contract. If there is any borrowing against
the Contract, whether a modified endowment contract or not, the interest paid on
loans may not be tax deductible.
Aggregation of Modified Endowment Contracts. In the case of a pre-death
distribution (including a loan, partial withdrawal, collateral assignment or
complete surrender) from a contract that is treated as a modified endowment
contract under the rules described above, a special aggregation requirement may
apply for purposes of determining the amount of the income on the contract.
Specifically, if Merrill Lynch Life or any of its affiliates issues to the same
contract owner more than one modified endowment contract within a calendar year,
then for purposes of measuring the income on the contract with respect to a
distribution from any of
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<PAGE> 33
those contracts, the income on the contract for all those contracts will be
aggregated and attributed to that distribution.
Tax Treatment of Policy Split. The policy split rider permits a Contract to be
split into two individual contracts upon the occurrence of a divorce of joint
insureds or certain changes in federal estate tax law. A policy split could have
adverse tax consequences; for example, it is not clear whether a policy split
will be treated as a nontaxable exchange under Sections 1031 through 1043 of the
Code. If a policy split is not treated as a nontaxable exchange, a split could
result in the recognition of taxable income in an amount up to any gain in the
Contract at the time of the split. In addition, it is not clear whether the
individual contracts that result from a policy split would in all circumstances
be treated as life insurance contracts for federal income tax purposes and, if
so treated, whether the individual contracts would be classified as modified
endowment contracts. (See "Tax Treatment of Loans and Other Distributions" on
page 27.) Before the contract owner exercises rights provided by the policy
split rider, it is important that he or she consult with a competent tax advisor
regarding the possible consequences of a policy split.
Other Tax Considerations. The transfer of the Contract or the designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation skipping
transfer taxes. For example, the transfer of the Contract to, or the designation
as beneficiary of, or the payment of proceeds to, a person who is assigned to a
generation which is two or more generations below the generation assignment of
the contract owner, may have generation skipping transfer tax considerations
under Section 2601 of the Code.
The individual situation of each contract owner or beneficiary will determine
the extent, if any, to which federal, state and local transfer taxes may be
imposed. The contract owner should consult with a tax advisor for specific
information in connection with these taxes.
The particular situation of each contract owner or beneficiary will determine
how ownership or receipt of contract proceeds will be treated for purposes of
federal estate tax, as well as state and local estate, inheritance, generation
skipping and other taxes.
Other Transactions. Changing the contract owner may have tax consequences.
Exchanging this Contract for another involving the same insureds should have no
federal income consequences if there is no debt and no cash or other property is
received, according to Section 1035(a)(1) of the Code. The new contract would
have to satisfy the 7-pay test from the date of the exchange to avoid
characterization as a modified endowment contract. An exchange for a new
contract may, however, result in a loss of grandfathering status for statutory
changes made after the old contract was issued. A tax advisor should be
consulted before effecting an exchange.
Ownership of This Contract by Non-Natural Persons. The above discussion of the
tax consequences arising from the purchase, ownership and transfer of the
Contract has assumed that the owner of the Contract consists of one or more
individuals. Organizations exempt from taxation under Section 501(a) of the Code
may be subject to additional or different tax consequences with respect to
transactions such as contract loans. Further, organizations purchasing Contracts
covering the life of an individual who is an officer or employee, or is
financially interested in, the taxpayer's trade or business, may be unable to
deduct all or a portion of the interest or payments made with respect to the
Contract. Such organizations should obtain tax advice prior to the acquisition
of this Contract and also before entering into any subsequent changes to or
transactions under this Contract.
Merrill Lynch Life does not make any guarantee regarding the tax status of any
Contract or any transaction regarding the Contract.
The above discussion is not intended as tax advice. For tax advice contract
owners should consult a competent tax advisor. Although this tax discussion is
based on Merrill Lynch Life's understanding of federal income tax laws as they
are currently interpreted, it can't guarantee that those laws or interpretations
will remain unchanged.
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MERRILL LYNCH LIFE'S INCOME TAXES
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain policy
acquisition expenses over a ten-year period rather than currently deducting such
expenses. This treatment applies to the deferred acquisition expenses of a
Contract and results in a significantly higher corporate income tax liability
for Merrill Lynch Life in early contract years. Merrill Lynch Life makes a
charge to compensate Merrill Lynch Life for the anticipated higher corporate
income taxes that result from the receipt of payments under a Contract. (See
"Contract Loading" on page 15.)
Currently, Merrill Lynch Life makes no charges to the Separate Account for any
federal, state or local taxes that it incurs that may be attributable to the
Separate Account or to the Contracts. Merrill Lynch Life, however, reserves the
right to make a charge for assessments of federal premium taxes or federal,
state or local excise, profits or income taxes measured by or attributable to
the receipt of premiums.
REINSURANCE
Merrill Lynch Life intends to reinsure some of the risks assumed under the
Contracts.
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
ABOUT THE SEPARATE ACCOUNT
The Separate Account is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 as a unit investment trust. This
registration does not involve any supervision by the Securities and Exchange
Commission of Merrill Lynch Life's management or the management of the Separate
Account. The Separate Account is also governed by the laws of the State of
Arkansas, Merrill Lynch Life's state of domicile.
Merrill Lynch Life owns all of the assets of the Separate Account. These assets
are held separate and apart from all of Merrill Lynch Life's other assets.
Merrill Lynch Life maintains records of all purchases and redemptions of Series
Fund, Variable Series Funds and Zero Trust shares by each of the investment
divisions.
CHANGES WITHIN THE ACCOUNT
Merrill Lynch Life may from time to time make additional investment divisions
available to contract owners. These divisions will invest in investment
portfolios Merrill Lynch Life finds suitable for the Contracts. Merrill Lynch
Life also has the right to eliminate investment divisions from the Separate
Account, to combine two or more investment divisions, or to substitute a new
portfolio for the portfolio in which an investment division invests. A
substitution may become necessary if, in Merrill Lynch Life's judgment, a
portfolio no longer suits the purposes of the Contracts. This may happen due to
a change in laws or regulations or in a portfolio's investment objectives or
restrictions, or because the portfolio is no longer available for investment, or
for some other reason. Merrill Lynch Life would get any required prior approval
from the Arkansas State Insurance Department and the Securities and Exchange
Commission before making such a substitution. It would also get any other
required approvals before making such a substitution.
Subject to any required regulatory approvals, Merrill Lynch Life reserves the
right to transfer assets of the Separate Account or of any of the investment
divisions to another separate account or investment division.
When permitted by law, Merrill Lynch Life reserves the right to:
- deregister the Separate Account under the Investment Company Act of 1940;
- operate the Separate Account as a management company under the Investment
Company Act of 1940;
- restrict or eliminate any voting rights of contract owners, or other
persons who have voting rights as to the Separate Account; and
- combine the Separate Account with other separate accounts.
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NET RATE OF RETURN FOR AN INVESTMENT DIVISION
Each investment division has a distinct unit value (also referred to as "price"
or "separate account index" in reports furnished to the contract owner by
Merrill Lynch Life). When payments or other amounts are allocated to an
investment division, a number of units are purchased based on the value of a
unit of the investment division as of the end of the valuation period during
which the allocation is made. When amounts are transferred out of, or deducted
from, an investment division, units are redeemed in a similar manner. A
valuation period is each business day together with any non-business days before
it. A business day for an investment division is any day the New York Stock
Exchange is open or there's enough trading in portfolio securities to materially
affect the net asset value of an investment division.
For each investment division, the separate account index was initially set at
$10.00. The separate account index for each subsequent valuation period
fluctuates based upon the net rate of return for that period. Merrill Lynch Life
determines the net rate of return of an investment division at the end of each
valuation period. The net rate of return reflects the investment performance of
the division for the valuation period and is net of the charges to the Separate
Account described on page 16.
For divisions investing in the Series Fund or the Variable Series Funds, shares
are valued at net asset value and reflect reinvestment of any dividends or
capital gains distributions declared by the Series Fund or the Variable Series
Funds.
For divisions investing in the Zero Trusts, units of each Zero Trust are valued
at the sponsor's repurchase price, as explained in the prospectus for the Zero
Trusts.
THE SERIES FUND AND THE VARIABLE SERIES FUNDS
Buying and Redeeming Shares. The Series Fund and the Variable Series Funds sell
and redeem their shares at net asset value. Any dividend or capital gain
distribution will be reinvested at net asset value in shares of the same
portfolio.
Voting Rights. Merrill Lynch Life is the legal owner of all Series Fund and
Variable Series Funds shares held in the Separate Account. As the owner, Merrill
Lynch Life has the right to vote on any matter put to vote at the Series Fund's
and the Variable Series Funds' shareholder meetings. However, Merrill Lynch Life
will vote all Series Fund and Variable Series Funds shares attributable to
Contracts according to instructions received from contract owners. Shares
attributable to Contracts for which no voting instructions are received will be
voted in the same proportion as shares in the respective investment divisions
for which instructions are received. Shares not attributable to Contracts will
also be voted in the same proportion as shares in the respective divisions for
which instructions are received. If any federal securities laws or regulations,
or their present interpretation, change to permit Merrill Lynch Life to vote
Series Fund and Variable Series Funds shares in its own right, it may elect to
do so.
Merrill Lynch Life determines the number of shares that contract owners have in
an investment division by dividing their Contract's investment base in that
division by the net asset value of one share of the portfolio. Fractional votes
will be counted. Merrill Lynch Life will determine the number of shares for
which a contract owner may give voting instructions 90 days or less before each
Series Fund or Variable Series Funds meeting. Merrill Lynch Life will request
voting instructions by mail at least 14 days before the meeting.
Under certain circumstances, Merrill Lynch Life may be required by state
regulatory authorities to disregard voting instructions. This may happen if
following the instructions would mean voting to change the sub-classification or
investment objectives of the portfolios, or to approve or disapprove an
investment advisory contract.
Merrill Lynch Life may also disregard instructions to vote for changes in the
investment policy or the investment adviser if it disapproves of the proposed
changes. Merrill Lynch Life would disapprove a proposed change only if it was:
- contrary to state law;
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- prohibited by state regulatory authorities; or
- decided by management that the change would result in overly speculative
or unsound investments.
If Merrill Lynch Life disregards voting instructions, it will include a summary
of its actions in the next semi-annual report.
Resolving Material Conflicts. Shares of the Series Fund are available for
investment by Merrill Lynch Life, ML Life Insurance Company of New York (an
indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.) and Monarch Life
Insurance Company (an insurance company not affiliated with Merrill Lynch Life
or Merrill Lynch & Co., Inc.). Shares of the Variable Series Funds are currently
sold only to separate accounts of Merrill Lynch Life, ML Life Insurance Company
of New York and Family Life Insurance Company (an insurance company not
affiliated with Merrill Lynch Life or Merrill Lynch & Co., Inc.) to fund
benefits under certain variable life insurance and variable annuity contracts.
The Basic Value Focus Fund, World Income Focus Fund, Global Utility Focus Fund,
International Equity Focus Fund, International Bond Fund and Developing Capital
Markets Focus Fund are only offered to separate accounts of Merrill Lynch Life
and ML Life Insurance Company of New York. The Equity Growth Fund is also
offered to Family Life Insurance Company.
It is possible that differences might arise between Merrill Lynch Life's
Separate Account and one or more of the other separate accounts which invest in
the Series Fund or the Variable Series Funds. In some cases, it is possible that
the differences could be considered "material conflicts". Such a "material
conflict" could also arise due to changes in the law (such as state insurance
law or federal tax law) which affect these different variable life insurance and
variable annuity separate accounts. It could also arise by reason of difference
in voting instructions from Merrill Lynch Life's contract owners and those of
the other insurance companies, or for other reasons. Merrill Lynch Life will
monitor events to determine how to respond to such conflicts. If a conflict
occurs, Merrill Lynch Life may be required to eliminate one or more investment
divisions of the Separate Account which invest in the Series Fund or the
Variable Series Funds or substitute a new portfolio for a portfolio in which a
division invests. In responding to any conflict, Merrill Lynch Life will take
the action which it believes necessary to protect its contract owners.
CHARGES TO SERIES FUND ASSETS
The Series Fund incurs operating expenses and pays a monthly advisory fee to
MLAM. This fee equals an annual rate of:
- .50% of the first $250 million of the aggregate average daily net assets
of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
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.
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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.
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>
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Targeted Rate of Return to Maturity
Because the underlying securities in the Zero Trusts will grow to their face
value on the maturity date, it is possible to estimate a compound rate of growth
to maturity for the Zero Trust units.
But because the units are held in the Separate Account, the asset charge and the
trust charge (described in "Charges to the Separate Account" on page 16) must be
taken into account in estimating a targeted rate of return for the Separate
Account. The targeted rate of return to maturity for the Separate Account
depends on the compound rate of growth adjusted for these charges. It does not,
however, represent the actual return on a payment Merrill Lynch Life might
receive under the Contract on that date, since it does not reflect the charges
for contract loading deducted from payments to a Contract, charges for cost of
insurance and rider costs and any net loan cost deducted from a Contract's
investment base.
Since the value of the Zero Trust units will vary daily to reflect the market
value of the underlying securities, the compound rate of growth to maturity for
the Zero Trust units and the targeted rate of return to maturity for the
Separate Account will vary correspondingly.
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, NET CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables on pages 36 through 39 demonstrate the way in which the Contract
works. The tables are based on the following ages (to age 99 of the younger
insured), face amounts, payments and guarantee periods and show values based
upon both current and maximum mortality charges.
1. The illustration on page 36 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $40,114 through contract year 37, an initial face
amount of $1.5 million, an initial guarantee period of 7.25 years and
coverage under death benefit option 1. It assumes current mortality
charges.
2. The illustration on page 37 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $40,114 through contract year 37, an initial face
amount of $1.5 million, an initial guarantee period of 7.25 years and
coverage under death benefit option 1. It assumes maximum mortality
charges.
3. The illustration on page 38 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $142,166 through contract year 32, an initial face
amount of $1.5 million, an initial guarantee period of 14 years and
coverage under death benefit option 2. It assumes current mortality
charges.
4. The illustration on page 39 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $142,166 through contract year 32, an initial face
amount of $1.5 million, an initial guarantee period of 14 years and
coverage under death benefit option 2. It assumes maximum mortality
charges.
The tables show how the death benefit, investment base and net cash surrender
value may vary over an extended period of time assuming hypothetical rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) equivalent to constant gross annual rates of 0%, 6% and 12%.
The death benefit, investment base and net cash surrender value for a Contract
would be different from those shown if the actual rates of return averaged 0%,
6% and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years.
34
<PAGE> 39
The amounts shown for the death benefit, investment base and net cash surrender
value as of the end of each contract year take into account the daily asset
charge in the Separate Account equivalent to .90% (annually at the beginning of
the year) of assets attributable to the Contracts at the beginning of the year.
The amounts shown in the tables also assume an additional charge of .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 32.) 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 taxes included in the contract loading. (See
"Contract Loading" on page 15.) 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 insureds' ages, face amount and the payment amounts
requested. The illustration will also use current cost of insurance rates and
will assume that the proposed insureds are in a standard non-smoker underwriting
class.
35
<PAGE> 40
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $40,114 FOR 37 YEARS
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 7.25 YEARS
DEATH BENEFIT OPTION 1
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ---------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ------------------------------------ -------------- ----------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1.................................. 40,114 42,120 1,500,000 1,500,000 1,500,000
2.................................. 40,114 86,346 1,500,000 1,500,000 1,500,000
3.................................. 40,114 132,783 1,500,000 1,500,000 1,500,000
4.................................. 40,114 181,542 1,500,000 1,500,000 1,500,000
5.................................. 40,114 232,739 1,500,000 1,500,000 1,500,000
6.................................. 40,114 286,496 1,500,000 1,500,000 1,500,000
7.................................. 40,114 342,941 1,500,000 1,500,000 1,500,000
8.................................. 40,114 402,208 1,500,000 1,500,000 1,500,000
9.................................. 40,114 464,438 1,500,000 1,500,000 1,500,000
10.................................. 40,114 529,780 1,500,000 1,500,000 1,500,000
15.................................. 40,114 908,886 1,500,000 1,500,000 1,500,000
20.................................. 40,114 1,392,732 1,500,000 1,500,000 1,989,619
30.................................. 40,114 2,798,389 1,500,000 1,729,325 5,269,067
age 99.............................. 0 4,955,270 1,500,000 2,533,844 13,427,558
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER VALUE(3)(4) END OF YEAR
CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
---------------------------------- --------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ----------------------------------- ------- -------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1................................. 19,516 20,699 21,883 19,516 20,699 21,883
2................................. 38,348 41,917 45,626 38,348 41,917 45,626
3................................. 74,670 82,926 91,764 74,670 82,926 91,764
4................................. 110,418 125,738 142,684 110,418 125,738 142,684
5................................. 145,561 170,396 198,854 145,561 170,396 198,854
6................................. 180,089 216,970 260,817 180,089 216,970 260,817
7................................. 213,958 265,500 329,142 213,958 265,500 329,142
8................................. 247,140 316,046 404,480 247,140 316,046 404,480
9................................. 279,580 368,649 487,541 279,580 368,649 487,541
10................................. 311,268 423,398 579,162 311,268 423,398 579,162
15................................. 450,671 726,809 1,156,670 450,671 726,809 1,156,670
20................................. 534,112 1,081,421 1,894,875 534,112 1,081,421 1,894,875
30................................. 251,596 1,646,976 5,018,159 251,596 1,646,976 5,018,159
age 99............................. 0 2,533,844 13,427,558 0 2,533,844 13,427,558
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period reaches life of the younger insured
in contract years 21 and 14, respectively. Once a guarantee of life is
reached, no more payments would be accepted. Values shown at annual rates of
return of 0%, 6% and 12% do not reflect any payments shown after a guarantee
of life is reached.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
36
<PAGE> 41
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $40,114 FOR 37 YEARS
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 7.25 YEARS
DEATH BENEFIT OPTION 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ----------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- -------------------------------------- -------------- ----------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
1.................................... 40,114 42,120 1,500,000 1,500,000 1,500,000
2.................................... 40,114 86,346 1,500,000 1,500,000 1,500,000
3.................................... 40,114 132,783 1,500,000 1,500,000 1,500,000
4.................................... 40,114 181,542 1,500,000 1,500,000 1,500,000
5.................................... 40,114 232,739 1,500,000 1,500,000 1,500,000
6.................................... 40,114 286,496 1,500,000 1,500,000 1,500,000
7.................................... 40,114 342,941 1,500,000 1,500,000 1,500,000
8.................................... 40,114 402,208 1,500,000 1,500,000 1,500,000
9.................................... 40,114 464,438 1,500,000 1,500,000 1,500,000
10.................................... 40,114 529,780 1,500,000 1,500,000 1,500,000
15.................................... 40,114 908,886 1,500,000 1,500,000 1,500,000
20.................................... 40,114 1,392,732 1,500,000 1,500,000 1,777,913
30.................................... 40,114 2,798,389 1,500,000 1,500,000 4,564,247
age 99................................ 0 4,955,270 1,500,000 1,500,000 11,440,888
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER VALUE(3)(4) END OF YEAR
CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
---------------------------------- --------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- -------------------------------------- ------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1.................................... 19,516 20,699 21,883 19,516 20,699 21,883
2.................................... 38,178 41,741 45.444 38,178 41,741 45,444
3.................................... 73,668 81,879 90,673 73,668 81,879 90,673
4.................................... 107,823 122,990 139,781 107,823 122,990 139,781
5.................................... 140,498 164,961 193,035 140,498 164,961 193,035
6.................................... 171,528 207,666 250,733 171,528 207,666 250,733
7.................................... 200,676 250,911 313,165 200,676 250,911 313,165
8.................................... 227,839 294,643 380,829 227,839 294,643 380,829
9.................................... 252,762 338,674 454,189 252,762 338,674 454,189
10.................................... 275,201 382,843 533,850 275,201 382,843 533,850
15.................................... 336,909 598,136 1,059,939 336,909 598,136 1,059,939
20.................................... 248,617 776,531 1,693,250 248,617 776,531 1,693,250
30.................................... 0 698,733 4,346,902 0 698,733 4,346,902
age 99................................ 0 0 11,440,888 0 0 11,440,888
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At an annual rate of return of 12% and maximum mortality
charges, the guarantee period reaches life of the younger insured in
contract year 15. Once a guarantee of life is reached, no more payments
would be accepted. Values shown at annual rates of return of 0%, 6% and 12%
do not reflect any payments shown after a guarantee of life is reached.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
37
<PAGE> 42
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $142,166 FOR 32 YEARS
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 14 YEARS
DEATH BENEFIT OPTION 2
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ---------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ------------------------------------ -------------- ----------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1.................................. 142,166 149,274 1,597,326 1,603,205 1,609,084
2.................................. 142,166 306,012 1,728,449 1,748,396 1,769,044
3.................................. 142,166 470,587 1,857,693 1,900,150 1,945,755
4.................................. 142,166 643,391 1,985,046 2,058,726 2,140,938
5.................................. 142,166 824,835 2,110,487 2,224,386 2,356,482
6.................................. 142,166 1,015,351 2,234,014 2,397,424 2,594,498
7.................................. 142,166 1,215,393 2,355,586 2,578,106 2,857,274
8.................................. 142,166 1,425,437 2,475,171 2,766,719 3,147,351
9.................................. 142,166 1,645,983 2,592,704 2,963,530 3,467,499
10.................................. 142,166 1,877,556 2,708,166 3,168,863 3,820,828
15.................................. 142,166 3,221,125 3,243,276 4,324,391 6,206,599
20.................................. 142,166 4,935,897 3,667,483 5,683,606 9,122,371
30.................................. 142,166 9,917,614 3,820,800 8,149,682 20,936,380
age 99.............................. 0 16,606,869 1,500,000 8,694,145 50,528,855
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER VALUE(3)(4) END OF YEAR
CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
--------------------------------- ---------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ---------------------------------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1................................ 97,326 103,205 109,084 97,326 103,205 109,084
2................................ 228,449 248,396 269,044 228,449 248,396 269,044
3................................ 357,693 400,150 445,755 357,693 400,150 445,755
4................................ 485,046 558,726 640,938 485,046 558,726 640,938
5................................ 610,487 724,386 856,482 610,487 724,386 856,482
6................................ 734,014 897,424 1,094,498 734,014 897,424 1,094,498
7................................ 855,586 1,078,106 1,357,274 855,586 1,078,106 1,357,274
8................................ 975,171 1,266,719 1,647,351 975,171 1,266,719 1,647,351
9................................ 1,092,704 1,463,530 1,967,499 1,092,704 1,463,530 1,967,499
10................................ 1,208,166 1,668,863 2,320,828 1,208,166 1,668,863 2,320,828
15................................ 1,743,276 2,824,391 4,706,599 1,743,276 2,824,391 4,706,599
20................................ 2,167,483 4,183,606 7,622,371 2,167,483 4,183,606 7,622,371
30................................ 2,320,800 6,649,682 19,436,380 2,320,800 6,649,682 19,436,380
age 99............................ 0 7,194,145 49,028,855 0 7,194,145 49,028,855
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period reaches life of the younger insured
in contract years 26 and 15, respectively. Once a guarantee of life is
reached, no more payments would be accepted. Values shown at annual rates of
return of 0%, 6% and 12% do not reflect any payments shown after a guarantee
of life is reached.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
38
<PAGE> 43
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $142,166 FOR 32 YEARS
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 14 YEARS
DEATH BENEFIT OPTION 2
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
DEATH BENEFIT(3)
TOTAL PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ---------------------------------------------- -------------- ----------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1............................................ 142,166 149,274 1,597,326 1,603,205 1,609,084
2............................................ 142,166 306,012 1,728,275 1,748,216 1,768,857
3............................................ 142,166 470,587 1,856,643 1,899,050 1,944,605
4............................................ 142,166 643,391 1,982,281 2,055,782 2,137,810
5............................................ 142,166 824,835 2,104,998 2,218,444 2,350,060
6............................................ 142,166 1,015,351 2,224,574 2,387,034 2,583,080
7............................................ 142,166 1,215,393 2,340,690 2,561,451 2,838,664
8............................................ 142,166 1,425,437 2,453,170 2,741,727 3,118,948
9............................................ 142,166 1,645,983 2,561,650 2,927,702 3,426,088
10............................................ 142,166 1,877,556 2,665,768 3,119,206 3,762,465
15............................................ 142,166 3,221,125 3,102,581 4,146,676 5,978,561
20............................................ 142,166 4,935,897 3,325,344 5,220,323 8,695,036
30............................................ 142,166 9,917,614 2,526,638 6,755,282 18,146,882
age 99........................................ 0 16,606,869 1,500,000 1,500,000 35,770,001
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER VALUE(3)(4) END OF YEAR
CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
------------------------------------ ------------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ---------------------------------------------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1............................................ 97,326 103,205 109,084 97,326 103,205 109,084
2............................................ 228,275 248,216 268,857 228,275 248,216 268,857
3............................................ 356,643 399,050 444,605 356,643 399,050 444,605
4............................................ 482,281 555,782 637,810 482,281 555,782 637,810
5............................................ 604,998 718,444 850,060 604,998 718,444 850,060
6............................................ 724,574 887,034 1,083,080 724,574 887,034 1,083,080
7............................................ 840,690 1,061,451 1,338,664 840,690 1,061,451 1,338,664
8............................................ 953,170 1,241,727 1,618,948 953,170 1,241,727 1,618,948
9............................................ 1,061,650 1,427,702 1,926,088 1,061,650 1,427,702 1,926,088
10............................................ 1,165,768 1,619,206 2,262,465 1,165,768 1,619,206 2,262,465
15............................................ 1,602,581 2,646,676 4,478,561 1,602,581 2,646,676 4,478,561
20............................................ 1,825,344 3,720,323 7,195,036 1,825,344 3,720,323 7,195,036
30............................................ 1,026,638 5,255,282 16,646,882 1,026,638 5,255,282 16,646,882
age 99........................................ 0 0 34,270,001 0 0 34,270,001
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At an annual rate of return of 12% and maximum mortality
charges, the guarantee period reaches life of the younger insured in
contract year 15. Once a guarantee of life is reached, no more payments
would be accepted. Values shown at annual rates of return of 0%, 6% and 12%
do not reflect any payments shown after a guarantee of life is reached.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
39
<PAGE> 44
EXAMPLES
ADDITIONAL PAYMENTS
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment is
less than for the whole of life of the younger insured.
Merrill Lynch Life will determine the increase in the guarantee period by taking
the immediate increase in the cash value resulting from the additional payment
and adding to that interest at the annual rate of 5% for the period from the
date Merrill Lynch Life receives and accepts the payment to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is added to the fixed base and the
resulting new fixed base is used to calculate a new guarantee period.
The amount of the increase in the guarantee period will depend on the amount of
the additional payment and the contract year in which it is received and
accepted. If additional payments of different amounts were made at the same time
to equivalent Contracts, the Contract to which the larger payment is applied
would have a larger increase in the guarantee period.
Example 1 shows the effect on the guarantee period of a $40,114 additional
payment received and accepted at the beginning of contract year ten. Example 2
shows the effect of a $80,228 additional payment received and accepted at the
beginning of contract year ten. Example 3 shows the effect of a $40,114
additional payment received and accepted at the beginning of contract year 11.
All three examples assume that death benefit option 1 has been elected, that
annual payments of $40,114 have been made through the contract year reflected in
the example and that no other contract transactions have been made.
FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $40,114
FACE AMOUNT: $1.5 MILLION
INITIAL GUARANTEE PERIOD: 7.25 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
10 $40,114 1 year
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
10 $80,228 2 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
11 $40,114 .75 years
</TABLE>
40
<PAGE> 45
PARTIAL WITHDRAWALS
As of the processing date on or next following the effective date of a partial
withdrawal, Merrill Lynch Life calculates a new guarantee period. This is done
by taking the immediate decrease in cash value resulting from the partial
withdrawal and adding to that amount interest at an annual rate of 5% for the
period from the date of the withdrawal to the contract processing date on or
next following such date. This is the guarantee adjustment amount. The guarantee
adjustment amount is subtracted from the fixed base and the resulting new fixed
base is used to calculate a new guarantee period.
The amount of the reduction in the guarantee period will depend on the amount of
the withdrawal, the face amount at the time of the withdrawal and the contract
year in which the withdrawal is made. If made at the same time to equivalent
Contracts, a larger withdrawal would result in a greater reduction in the
guarantee period than a smaller withdrawal. The same partial withdrawal made at
the same time from Contracts with the same guarantee periods but with different
face amounts would result in a greater reduction in the guarantee period for the
Contract with the smaller face amount.
Examples 1 and 2 show the effect on the guarantee period of partial withdrawals
for $30,000 and $60,000 taken at the beginning of contract year sixteen. Example
3 shows the effect on the guarantee period of a $60,000 partial withdrawal taken
at the beginning of contract year eighteen. All three examples assume that death
benefit option 1 has been elected, that annual payments of $40,114 have been
made through the contract year reflected in the example and that no other
contract transactions have been made.
FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $40,114
FACE AMOUNT: $1.5 MILLION
GUARANTEE PERIOD: 7.25 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
16 $30,000 .25 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
16 $60,000 .75 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
18 $60,000 .75 years
</TABLE>
41
<PAGE> 46
CHANGING THE DEATH BENEFIT OPTION
On each contract anniversary beginning with the fifteenth, the contract owner
may change the death benefit option by switching from option 1 to option 2 or
from option 2 to option 1. Merrill Lynch Life will change the face amount of the
Contract in order to keep the death benefit constant on the effective date of
the change. Therefore, if the change is from option 1 to option 2, the face
amount of the Contract will be decreased by the cash value on the date of the
change. If the change is from option 2 to option 1, the face amount of the
Contract will be increased by the cash value on the date of the change.
Example 1 shows the effect on the face amount of a change from option 1 to
option 2 and Example 2 shows the effect on the face amount of a change from
option 2 to option 1. The face amount before each change is $500,000.
EXAMPLE 1
------------------------------------------------------------
Before Option Change
Death Benefit under Option 1: $500,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 2: $500,000
Face Amount: $460,000
Cash Value: $40,000
EXAMPLE 2
------------------------------------------------------------
Before Option Change
Death Benefit under Option 2: $540,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 1: $540,000
Face Amount: $540,000
Cash Value: $40,000
42
<PAGE> 47
MORE ABOUT MERRLLL LYNCH LIFE INSURANCE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Merrill Lynch Life's directors and executive officers and their positions with
the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY
- ------------------------------ -------------------------------------
<S> <C>
Anthony J. Vespa Chairman of the Board, President, and
Chief Executive Officer
Joseph E. Crowne Director, Senior Vice President,
Chief Financial Officer, Chief
Actuary, and Treasurer
Barry G. Skolnick Director, Senior Vice President, and
General Counsel
David M. Dunford Director, Senior Vice President, and
Chief Investment Officer
John C.R. Hele Director and Senior Vice President
Allen N. Jones Director
Robert J. Boucher Senior Vice President, Variable Life
Administration
</TABLE>
Each director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and shall have qualified. Each has held
various executive positions with insurance company subsidiaries of the Company's
indirect parent, Merrill Lynch & Co., Inc. The principal positions of the
Company's directors and executive officers for the past five years are listed
below:
Mr. Vespa joined Merrill Lynch Life in January 1994. Since February 1994, he has
held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From February 1991 to February 1994, he held the position of
District Director and First Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From September 1988 to February 1991, he held the position
of Senior Resident Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
Mr. Crowne joined Merrill Lynch Life in June 1991. From January 1989 to May
1991, he was a Principal with Coopers & Lybrand.
Mr. Skolnick joined Merrill Lynch Life in November 1990. He joined Merrill
Lynch, Pierce, Fenner & Smith Incorporated in July 1984. Since May 1992, he has
held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and
First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Prior to May 1992, he held the position of Senior Counsel of Merrill Lynch &
Co., Inc.
Mr. Dunford joined Merrill Lynch Life in July 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in September 1989. Prior to September 1989,
he held the position of President of Travelers Investment Management Co.
Mr. Hele joined Merrill Lynch Life in December 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in August 1988.
Mr. Jones joined Merrill Lynch Life in June 1992. Since May 1992, he has held
the position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. From June 1992 to February 1994, he held the position of Chairman
of the Board, President, and Chief Executive Officer of Merrill Lynch Life. From
January 1992 to June 1992, he held the position of First Vice President of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From January 1991 to January
1992, he held the position of District Director of Merrill Lynch, Pierce, Fenner
& Smith Incorporated. Prior to January 1991, he held the position of Senior
Regional Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
43
<PAGE> 48
Mr. Boucher joined Merrill Lynch Life in May 1992. Prior to May 1992, he held
the position of Vice President of Monarch Financial Services, Inc. (formerly
Monarch Resources, Inc.).
No shares of Merrill Lynch Life are owned by any of its officers or directors,
as it is a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc. The
officers and directors of Merrill Lynch Life, both individually and as a group,
own less than one percent of the outstanding shares of common stock of Merrill
Lynch & Co., Inc.
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 and tax laws.
44
<PAGE> 49
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.
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.
* * * * * *
45
<PAGE> 50
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
The Insurance Company's By-Laws provide, in Article VI, Section 1, 2, 3 and
4, as follows:
Section 1. Actions Other Than by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer or employee of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. Actions by or in the Right of the Corporation. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer or employee of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the Court in which such action or suit was brough shall
determined upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other Court shall deem proper.
Section 3. Right to Indemnification. To the extent that a director,
officer of employee of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2 of this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith.
Section 4. Determination of Right to Indemnification. Any indemnification
under Sections 1 and 2 of this Article (unless ordered by a Court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, or employee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 and 2 of this Article. Such determination shall be made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
II-1
<PAGE> 51
Any persons serving as an officer, director or trustee of a corporation,
trust, or other enterprise, including the Registrant, at the request of Merrill
Lynch are entitled to indemnification from Merrill Lynch, to the fullest extent
authorized or permitted by law, for liabilities with respect to actions taken or
omitted by such persons in any capacity in which such persons serve Merrill
Lynch or such other corporation, trust, or other enterprise. Any action
initiated by any such person for which indemnification is provided shall be
approved by the Board of Directors of Merrill Lynch prior to such initiation.
DIRECTORS' AND OFFICERS' INSURANCE
Merrill Lynch has purchased from Corporate Officers' and Directors'
Assurance Company directors' and officers' liability insurance policies which
cover, in addition to the Indemnification described above, liabilities for which
indemnification is not provided under the By-Laws. The Company will pay an
allocable portion of the insurance premium paid by Merrill Lynch with respect to
such insurance policies.
ARKANSAS BUSINESS CORPORATION LAW
In addition, Section 4-26-814 of the Arkansas Business Corporation Law
generally provides that a corporation has the power to indemnify a director or
officer of the corporation, or a person serving at the request of the
corporation as a director or officer of another corporation or other enterprise
against any judgments, amounts paid in settlement, and reasonably incurred
expenses in a civil or criminal action or proceeding if the director or officer
acted in good faith in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation (or, in the case of a criminal
action or proceeding, if he or she in addition had no reasonable cause to
believe that his or her conduct was unlawful).
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company
Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the policies described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk and guaranteed
benefits risk charge is within the range of industry practice for
comparable flexible or scheduled contracts.
(3) Registrant has concluded that there is a reasonable likelihood
that the distribution financing arrangement of the Separate Account will
benefit the separate account and policyowners and will keep
II-2
<PAGE> 52
and make available to the Commission on request a memorandum setting forth
the basis for this representation.
(4) The Separate Account will invest only in management investment
companies which have undertaken to have a board of directors, a majority of
whom are not interested persons of the company, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2)
above is based on an analysis of the mortality and expense risk and guaranteed
benefits risk charge contained in other variable life insurance contracts.
Registrant undertakes to keep and make available to the Commission on request
the documents used to support the representation in paragraph (2) above.
II-3
<PAGE> 53
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents :
The facing sheet.
The Prospectus consisting of 87 pages.
Undertaking to file reports.
Rule 484 Undertaking.
Representations Pursuant to Rule 6e-3(T).
The signatures.
Written Consents of the Following Persons:
(a) Barry G. Skolnick, Esq.
(b) Joseph E. Crowne, F.S.A.
(c) Sutherland, Asbill & Brennan
(d) Deloitte & Touche, Independent Certified Public Accountants
The following exhibits:
<TABLE>
<S> <C> <C> <C>
1. A. (1) Resolution of the Board of Directors of Merrill Lynch Life Insurance Company establishing the
Separate Account (Incorporated by Reference to Registrant's Form S-6 Registration No. 33-41830
Filed July 24, 1991)
(2) Not applicable
(3)(a) Distribution Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (Incorporated by Reference to Registrant's Pre-Effective Amendment
No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(b) Amended Sales Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Life
Agency Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
(c) Schedules of Sales Commissions (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(d) Indemnity Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Life Agency,
Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
(4) Undertaking of Merrill Lynch Life Insurance Company pursuant to Rule 27d-2 (Incorporated by
Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55472
Filed April 26, 1993)
(5)(a) (1) Flexible Premium Joint and Last Survivor Variable Universal Life Insurance Policy (Incorporated
by Reference to Registrant's Form S-6 Registration No. 33-55472 Filed December 7, 1992)
(b) (1) Backdating Endorsement (Incorporated by Reference to Registrant's Form S-6 Registration No.
33-55472 Filed December 7, 1992)
(2)(a) Additional Insurance Rider for Flexible Premium Joint and Last Survivor Variable Universal Life
Insurance Policy (Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55472
Filed December 7, 1992)
(3)(a) Policy Split Rider for Flexible Premium Joint and Last Survivor Variable Universal Life
Insurance Policy (Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55472
Filed December 7, 1992)
(4) Endorsement for Guaranteed Interest Division for Flexible Premium Joint and Last Survivor
Variable Universal Life Insurance Policy (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(6)(a) Articles of Amendment, Restatement, and Redomestication of the Articles of Incorporation of
Merrill Lynch Life Insurance Company (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41830 Filed April 16, 1992)
(b) Amended and Restated By-Laws of Merrill Lynch Life Insurance Company (Incorporated by Reference
to Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41830 Filed April
16, 1992)
(7) Not applicable
(8)(a) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Series Fund, Inc.
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
(b) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Funds Distributor, Inc.
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
</TABLE>
II-4
<PAGE> 54
<TABLE>
<S> <C> <C>
(c) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form
S-6 Registration No. 33-55472 Filed April 26, 1993)
(d) Participation Agreement among Merrill Lynch Life Insurance Company, ML Life Insurance Company of
New York and Monarch Life Insurance Company
(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
(9) Service Agreement among Merrill Lynch Insurance Group, Inc., Family Life Insurance Company and
Merrill Lynch Life Insurance Company (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41830 Filed April 16, 1992)
(10)(a) Variable Life Insurance Application (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(b) Application for Reinstatement (Incorporated by Reference to Registrant's Form S-6 Registration
No. 33-55472 Filed December 7, 1992)
(11) Memorandum describing Merrill Lynch Life Insurance Company's Issuance, Transfer and Redemption
Procedures (Incorporated by Reference to Registrant's Post-Effective Amendment No. 2 to Form S-6
Registration No. 33-55472 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> 55
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 27TH 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 27, 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> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------------------ ------------------------------------------------------------------------------------ ------------
<S> <C> <C> <C>
1. A. (1) Resolution of the Board of Directors of Merrill Lynch Life Insurance Company
establishing the Separate Account (Incorporated by Reference to Registrant's Form
S-6 Registration No. 33-41830 Filed July 24, 1991)
(2) Not applicable
(3)(a) Distribution Agreement between Merrill Lynch Life Insurance Company and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55472
Filed April 26, 1993)
(b) Amended Sales Agreement between Merrill Lynch Life Insurance Company and Merrill
Lynch Life Agency Inc. (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(c) Schedules of Sales Commissions (Incorporated by Reference to Registrant's
Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-55472 Filed April 26,
1993)
(d) Indemnity Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch
Life Agency, Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment
No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(4) Undertaking of Merrill Lynch Life Insurance Company pursuant to Rule 27d-2
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
(5)(a) (1) Flexible Premium Joint and Last Survivor Variable Universal Life Insurance Policy
(Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55472 Filed
December 7, 1992)
(b) (1) Backdating Endorsement (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(2)(a) Additional Insurance Rider for Flexible Premium Joint and Last Survivor Variable
Universal Life Insurance Policy (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(3)(a) Policy Split Rider for Flexible Premium Joint and Last Survivor Variable Universal
Life Insurance Policy (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(4) Endorsement for Guaranteed Interest Division for Flexible Premium Joint and Last
Survivor Variable Universal Life Insurance Policy (Incorporated by Reference to
Registrant's Form S-6 Registration No. 33-55472 Filed December 7, 1992)
(6)(a) Articles of Amendment, Restatement, and Redomestication of the Articles of
Incorporation of Merrill Lynch Life Insurance Company (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41830
Filed April 16, 1992)
(b) Amended and Restated By-Laws of Merrill Lynch Life Insurance Company (Incorporated
by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration
No. 33-41830 Filed April 16, 1992)
(7) Not applicable
(8)(a) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Series
Fund, Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1
to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(b) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Funds
Distributor, Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment
No. 1 to Form S-6 Registration No. 33-55472 Filed April 26, 1993)
(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
(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
</TABLE>
II-8
<PAGE> 57
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------------------ ------------------------------------------------------------------------------------ ------------
<S> <C> <C> <C>
(9) Service Agreement among Merrill Lynch Insurance Group, Inc., Family Life Insurance
Company and Merrill Lynch Life Insurance Company (Incorporated by Reference to
Registrant's Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-41830
Filed April 16, 1992)
(10)(a) Variable Life Insurance Application (Incorporated by Reference to Registrant's Form
S-6 Registration No. 33-55472 Filed December 7, 1992)
(b) Application for Reinstatement (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55472 Filed December 7, 1992)
(11) Memorandum describing Merrill Lynch Life Insurance Company's Issuance, Transfer and
Redemption Procedures (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 2 to Form S-6 Registration No. 33-55472 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> 1
[MERRILL LYNCH 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. 33-55472) filed by the Company and the
Account with Securities and Exchange Commission under the Securities Act of
1933 for the registration of the Contracts to be issued with respect to the
Account.
I have made such examination of the law and examined such corporate records and
such other documents as in my judgment are necessary and appropriate to enable
me to render the following opinion that:
1. The Company has been duly organized under the laws of the State of
Arkansas and is a validly existing corporation.
2. The Account is duly created and validly existing as a separate account
pursuant to the aforesaid provisions of Arkansas law.
3. The assets in the Account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business the Company may conduct.
4. The Contracts have been duly authorized by the Company and constitute
legal, validly issued and binding obligations of the Company in
accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Barry G. Skolnick
Barry G. Skolnick
Senior Vice President and General Counsel
<PAGE> 1
[MERRILL LYNCH 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 the filing of Post-Effective
Amendment No. 3 to the Registration Statement on Form S-6 (File No. 33-55472)
which covers premiums received under certain flexible premium joint and last
survivor variable life insurance contracts ("Contracts" or "Contract") issued
by Merrill Lynch Life Insurance Company (the "Company").
The Prospectus included in the Registration Statement describes Contracts which
are issued by the Company. The Contract forms were reviewed under my
direction, and I am familiar with the Registration Statement and exhibits
thereto. In my opinion:
1. The "sales load," as defined in paragraph (c)(4) of Rule 6(e)-3(T) under
the Investment Company Act of 1940, will not exceed 9 per centum of the
sum of the guideline annual premiums that would be paid during the period
equal to the lesser of 20 years or the anticipated joint life expectancy
of the named insureds, calculated on an exact age basis, based on the 1980
Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Table (or the
1980 Commissioners Standard Ordinary Aggregate Mortality Table for ages
0-19). The sales load on payments made in excess of such sum will not
exceed 9%. Sales load in excess of (1) 30% of payments made which are
less than or equal to one guideline annual premium; plus (2) 10% of
payments greater than one but no greater than two guideline annual
premiums; plus (3) 9% of payments in excess of two guideline annual
premiums, will be refunded if the Contract is surrendered during the first
24 months after issue, added to the cash value so as to continue the
Contract in effect if debt exceeds the larger of cash value and the fixed
base during the first 24 months after issue, and added to the cash value
in determining the variable insurance amount during the first 24 months
after issue.
2. The illustrations of death benefits, investment base, net cash surrender
values, and cash values and accumulated premiums included in the
Registration Statement for the Contract and based on the assumptions
stated in the illustrations, are consistent with the provisions of the
Contract. The rate structure of the Contract has not been designed so as
to make the relationship between premiums and benefits, as shown in the
illustrations, appear more favorable to a prospective purchaser of a
Contract for the ages and sexes shown, than to prospective purchasers of a
Contract for other ages and sex.
<PAGE> 2
3. The table of illustrative cash value corridor factors included in the
"Death Benefit Proceeds" section is consistent with the provisions of
the Contract.
4. The information with respect to the Contract contained in (i) the
illustrations of the increase in guarantee period included in the
"Additional Payments" section of the Examples, (ii) the illustrations of a
decrease in guarantee period included in the "Partial Withdrawals" section
of the Examples and (iii) the illustrations of the changes in face amount
included in the "Changing the Death Benefit Option" section of the
Examples, based on the assumptions specified, are consistent with the
provisions of the Contract.
5. The charge for federal taxes that is imposed under the Contracts is
reasonable in relation to the Company's increased tax burden under Section
848 of the Internal Revenue Code of 1986, as amended, resulting from the
Company's receipt of such premiums. The cost to the Company of capital
used to satisfy its increased federal tax burden under Section 848 is, in
essence, the Company's targeted rate of return. The targeted rate of
return that is used in calculating the level of such charge is reasonable,
and the factors taken into account by the Company in determining such
targeted rate of return are the appropriate factors to consider in
determining such targeted rate of return.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of my name relating to actuarial matters under the
heading "Experts" in the Prospectus.
Very truly yours,
/s/ Joseph E. Crowne
Joseph E. Crowne, FSA
Senior Vice President &
Chief Financial Officer
<PAGE> 1
EXHIBIT 23
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. 33-55472). 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> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to Registration
Statement No. 33-55472 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
<PAGE> 1
PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Merrill Lynch Series Fund, Inc.,
a Maryland corporation (the "Fund"), ML Life Insurance Company of New York, an
insurance company organized under the laws of the State of New York,
Merrill Lynch Life Insurance Company, an insurance company organized under the
laws of the State of Arkansas, (together the "Merrill Lynch Insurance
Companies"), Monarch Life Insurance Company, an insurance company organized
under the laws of the State of Massachusetts ("Monarch" and, together with the
Merrill Lynch Insurance Companies, the "Participating Insurance Companies"), ML
of New York Variable Life Separate Account, ML of New York Variable Life
Separate Account II, Merrill Lynch Life Variable Life Separate Account II,
Merrill Lynch Variable Life Separate Account and Variable Account A of Monarch
Life Insurance Company (such separate accounts and variable account being
referred to herein as the "Separate Accounts").
WHEREAS, the Fund is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 ("1940 Act") as an open-end
diversified investment management company; and
WHEREAS, the Fund is organized as a series fund, currently offering
ten portfolios to the Separate Accounts; and
WHEREAS, the Fund was organized as a funding vehicle for variable
life insurance policies issued through Monarch's Variable Account A; and
WHEREAS, the Merrill Lynch Insurance Companies have assumed the
obligations of Monarch under certain of such variable life insurance policies
and, in connection with such assumption, those assets held in Monarch's
Variable Account A as were associated with such policies, including shares of
the Fund, were transferred to the respective Separate Accounts of the Merrill
Lynch Insurance Companies; and
WHEREAS, the Participating Insurance Companies are desirous of having
the Fund serve as one of the funding vehicles for their respective variable
life insurance policies issued through the Separate Accounts.
NOW, THEREFORE, and in consideration of the mutual covenants herein
contained, it is hereby agreed by and among the Participating Insurance
Companies as follows:
1. Each Participating Insurance Company shall designate an
individual to monitor for the occurrence of any event which may give rise to
the existence of any material irreconcilable conflict between the interests of
the participants of all Separate Accounts investing in the Fund, and to advise
each other Participating Insurance Company and the Board of Directors of the
Fund (the "Board"), if any such event shall occur. Such an event may include
<PAGE> 2
(but will not necessarily be limited to): (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no action or interpretive letter, or any similar action by insurance,
tax or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any portfolio are being managed; or (e) a decision by a Participating Insurance
Company to disregard the voting instructions of its policyowners or
contractowners.
2. (a) If a Participating Insurance Company shall have advised the
other Participating Insurance Companies of the occurrence of an event which may
give rise to a material irreconcilable conflict as provided in paragraph 1
above, the Participating Insurance Companies shall consult with each other in a
good faith effort (i) to determine whether such event gives rise to such a
conflict and, (ii) if it does, to attempt to resolve such conflict within a
reasonable period of time without resort to the provisions of paragraph 2(b)
of this Agreement.
(b) If the Participating Insurance Companies are unable to
resolve a conflict through consultation as provided in paragraph 2(a), and if
any Participating Insurance Company determines that such a conflict is a
material irreconcilable conflict:
(i) if the event giving rise to the conflict involves the
inability, for state insurance regulatory or any other reason, of one or more
of the Participating Insurance Companies to invest in the Fund or one of its
portfolios unless the investment adviser or principal underwriter of the Fund
or such portfolio is changed, then such Participating Insurance Company or
Companies shall withdraw their investments from the Fund or such portfolio
within a reasonable period of time; provided, however, that if such
Participating Insurance Company or Companies own a majority of the then
outstanding shares of the Fund or such portfolio, the Participating Insurance
Companies will advise the Board that the Agreement with the investment
adviser or principal underwriter, as the case may be, for the Fund or such
portfolio is to be terminated and that the Participating Insurance Companies
intend to vote their shares in the Fund to effect such termination (and if the
Board does not then terminate such agreement, the Participating Insurance
Companies shall recommend to their respective participants that the shares in
the Fund be voted to effect such termination); and
(ii) if the event giving rise to the conflict involves a need
to change the investment policy of the Fund or one of its portfolios so that
one or more of the Participating Insurance Companies may continue to invest in
the Fund or such portfolio, the Participating Insurance Companies shall advise
the Board of the changes in the investment policies of the Fund or such
portfolio that must be affected so as to permit all of the Participating
Insurance Companies to continue to invest in the Fund
2
<PAGE> 3
or such portfolio (and if required to affect such change, the Participating
Insurance Companies shall recommend to their respective participants that the
shares in the Fund be voted to affect such change).
(c) The Participating Insurance Company which, pursuant to
paragraph 1 of this Agreement, initially advises of an event which may give
rise to a conflict shall also advise the Board as to whether such event in fact
gave rise to a conflict and, if so, the action taken by the Participating
Insurance Companies pursuant to paragraph 2 of this Agreement to resolve such
conflict.
3. If, as provided in paragraph 2(b) of this Agreement, it is
determined by the Participating Insurance Companies that a material
irreconcilable conflict exists and that one or more of the Participating
Insurance Companies must withdraw their assets from the Fund or one of its
portfolios (or if a Participating Insurance Company determines that it should
withdraw its assets from the Fund so as to avoid a material irreconcilable
conflict), such Company or Companies shall take whatever steps are necessary to
effect such withdrawal within a reasonable period of time, up to and including:
(a) withdrawing the assets allocable to some or all of the Separate Accounts
from the Fund or any portfolio and reinvesting such assets in a different
investment medium (including another portfolio of the Fund) or submitting the
question of whether such segregation should be implemented to a vote of all
affected participants and, as appropriate, segregating the assets of any
particular group (i.e., policyowners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
participants the option of making such a change; and (b) establishing a new
registered management investment company or management separate account. No
charge or penalty will be imposed on policyowners directly or indirectly as a
result of such a withdrawal. In no event will the Fund or the investment
adviser of the Fund be required to establish a new funding medium for any
variable life insurance policy. No Participating Insurance Company will be
required to establish a new funding medium for any variable life insurance
policy if an offer to do so has been declined by vote of a majority of
participants materially adversely affected by the material irreconcilable
conflict.
4. The Participating Insurance Companies acknowledge to the Fund
that prospectus disclosure regarding potential risks of shared funding
permitted by this Agreement may be appropriate.
5. The Fund will file with its books and records all reports
received by the Board concerning potential or existing conflicts, and the means
by which it is proposed that any conflicts be resolved, will note the receipt
of such reports in the minutes of meetings of the Board and will make such
reports available to the Securities and Exchange Commission (the "Commission")
upon request.
3
<PAGE> 4
6. Each of the Participating Insurance Companies agree that any
action taken by it under this Agreement, including an action in
identifying and resolving any material conflicts of interest, will be carried
out with a view only to the interest of its policyowners participating in the
Fund.
7. Each Participating Insurance Company shall provide pass-through
voting privileges to all of its variable insurance policyowners so long as the
Commission continues to interpret the 1940 Act to require such pass-through
voting privileges for variable life insurance policy owners. Each
Participating Insurance Company shall be responsible for assuring that its
Separate Accounts calculate voting privileges in a manner consistent with the
other Participating Insurance Companies. It is a condition of this Agreement
that each Participating Insurance Company will vote shares, for which it has
not received voting instructions as well as shares attributable to it, in the
same proportion as it votes shares for which it has received instructions.
8. This Agreement shall terminate automatically in the event of its
assignment, unless made with the written consent of each party.
9. This Agreement shall be subject to the provisions of the 1940 Act
and the rules and regulations thereunder, including any exemptive relief
therefrom and the orders of the Commission setting forth such relief.
Executed this 2nd day of April, 1993.
MERRILL LYNCH SERIES FUND, INC.
By /s/ TERRY K. GLENN
-----------------------------
Name: Terry K. Glenn
Title: Executive Vice President
ML LIFE INSURANCE COMPANY OF
NEW YORK
By /s/ JOHN C. CIRINCION
-----------------------------
Name: John C. Cirincion
Title: Vice President and
Senior Counsel
4
<PAGE> 5
MERRILL LYNCH LIFE INSURANCE
COMPANY
By /s/ JOHN C. CIRINCION
-----------------------------
Name: John C. Cirincion
Title: Vice President and Senior
Counsel
MONARCH LIFE INSURANCE COMPANY
By /s/ JOHN S. COULTON
-----------------------------
Name: John S. Coulton
Title: Vice President, General
Counsel and Secretary
ML OF NEW YORK VARIABLE LIFE SEPARATE
ACCOUNT
By see footnote 1, page 6
-----------------------------
MERRILL LYNCH LIFE VARIABLE LIFE
SEPARATE ACCOUNT II
By see footnote 2, page 6
-----------------------------
Name:
Title:
VARIABLE ACCOUNT A OF MONARCH
LIFE INSURANCE COMPANY
By /s/ JOHN S. COULTON
-----------------------------
Name: John S. Coulton
Title: Vice President, General
Counsel and Secretary
MERRILL LYNCH VARIABLE LIFE
SEPARATE ACCOUNT
By see footnote 2, page 6
-----------------------------
Name:
Title:
5
<PAGE> 6
ML OF NEW YORK VARIABLE LIFE
SEPARATE ACCOUNT II
By see footnote 1
---------------------------
Name:
Title:
(1)ML Life Insurance Company of New York
(on behalf of its ML of New York Variable
Life Separate Account and its ML of New
York Variable Life Separate Account II)
By: /s/ JOHN C. CIRINCION
-------------------------------------------------
John C. Cirincion, Vice President and Senior Counsel
(2)Merrill Lynch Insurance Company
(on behalf of its Merrill Lynch Life Variable
Life Separate Account II and its Merrill Lynch
Variable Life Separate Account
By: /s/ JOHN C. CIRINCION
-------------------------------------------------
John C. Cirincion, Vice President and Senior Counsel
6
<PAGE> 7
ML LIFE INSURANCE COMPANY OF NEW YORK
ADDENDUM NUMBER ONE TO PARTICIPATION AGREEMENT
The Participation Agreement dated April 2, 1993 between ML Life Insurance
Company of New York, Merrill Lynch Series Fund, Inc., Merrill Lynch Life
Insurance Company, and Monarch Life Insurance Company is hereby amended to
satisfy the requirements of the Securities and Exchange Commission.
1. Paragraph three on page one of the Participation Agreement is hereby
amended by deleting:
"offering" and replacing it with "with" and deleting "to the Separate
Accounts"
2. Paragraph 2(c) on page three of the Participation Agreement is hereby
amended by adding the following at the end of the paragraph:
", the Participating Insurance Company so advising the Board will
include a description of the basis upon which the Participating
Insurance Companies involved in the conflict have determined that the
action is, under the circumstances, in the best interests of the
policyowners of those Insurance Companies affected by the conflict
(or, if applicable, of a majority in interest of such policyowners)."
3. Paragraph 5 on page three of the Participation Agreement is deleted
and replaced with the following:
"If the Board is required to act to implement the action proposed to
be taken by the Participating Insurance Companies pursuant to
Paragraph 2 of this Agreement to resolve a conflict, the Board will,
in connection with determining whether or not to implement such action
and with its fiduciary duties in this regard in mind, seek to obtain,
and to take into consideration, relevant information from the
Participating Insurance Companies concerning the manner in which they,
in resolving such conflict, determined that such action is, under the
circumstances in the best interest of the policyowners (or, if
applicable, a majority in interest of the policyowners) affected by
the action. The Board will reflect in its minutes any action taken,
by one or more of the Participating Insurance Companies or otherwise,
in respect to any such conflict of which the Board is aware and will
make such minutes available to the Securities and Exchange Commission
(the "Commission") upon request."
Executed this 1st day of November, 1993.
MERRILL LYNCH SERIES FUND, INC.
By /s/ TERRY K. GLENN
---------------------------------
Name: Terry K. Glenn
Title: Executive Vice President
ML LIFE INSURANCE COMPANY
OF NEW YORK
By /s/ JOHN C. CIRINCION
---------------------------------
Name: John C. Cirincion
Title: Vice President and Senior Counsel
<PAGE> 8
MERRILL LYNCH LIFE INSURANCE COMPANY
By /s/ JOHN C. CIRINCION
---------------------------------
Name: John C. Cirincion
Title: Vice President and Senior Counsel
MONARCH LIFE INSURANCE COMPANY
By /s/ JOHN S. COULTON
---------------------------------
Name: John S. Coulton
Title: Vice President, General Counsel
and Secretary
ML OF NEW YORK VARIABLE LIFE
SEPARATE ACCOUNT
By see footnote 1 page 3
---------------------------------
Name:
Title:
ML OF NEW YORK VARIABLE LIFE
SEPARATE ACCOUNT II
By see footnote 1 page 3
---------------------------------
Name:
Title:
MERRILL LYNCH VARIABLE LIFE
SEPARATE ACCOUNT
By see footnote 2 page 3
---------------------------------
Name:
Title:
MERRILL LYNCH VARIABLE LIFE
SEPARATE ACCOUNT II
By see footnote 2 page 3
---------------------------------
Name:
Title:
VARIABLE ACCOUNT A OF MONARCH
LIFE INSURANCE COMPANY
By /s/ JOHN S. COULTON
---------------------------------
Name: John S. Coulton
Title: Vice President, General Counsel
and Secretary
2
<PAGE> 9
(1) ML Life Insurance Company of New York
(on behalf of its ML of New York Variable
Life Separate Account and its ML of New
York Variable Life Separate Account II
By: /s/ JOHN C. CIRINCION
---------------------------------
John C. Cirincion, Vice President and
Senior Counsel
(2) Merrill Lynch Life Insurance Company
(on behalf of its Merrill Lynch Life Variable
Life Separate Account II and its Merrill Lynch
Variable Life Separate Account
By: /s/ JOHN C. CIRINCION
---------------------------------
John C. Cirincion, Vice President and
Senior Counsel
3
<PAGE> 1
Exhibit 8(f)
EXHIBIT A
PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Merrill Lynch Variable Series Funds, Inc.
(the "Fund"), Merrill Lynch Life Insurance Company, an insurance company
organized under the laws of the State of Arkansas, ML Life Insurance Company of
New York, an insurance company organized under the laws of the State of New
York, Family Life Insurance Company, an insurance company organized under the
laws of the State of Washington, ---------------, ----------------,
(collectively, the "Participating Insurance Companies") and separate accounts
of the Participating Insurance Companies that currently invest or in the future
will invest in the Fund (such separate accounts being referred to herein as the
"Separate Accounts").
WHEREAS, the Fund is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 (the "1940 Act") as an open-end
diversified investment management company; and
WHEREAS, the Fund is organized as a series fund, currently with fourteen
portfolios; and
WHEREAS, the Fund was organized as a funding vehicle for variable annuity
contracts; and
WHEREAS, the Participating Insurance Companies are desirous of having the
Fund serve as one of the funding vehicles for their respective variable annuity
contracts and/or variable life insurance contracts issued through the Separate
Accounts.
NOW, THEREFORE, and in consideration of the mutual covenants herein
contained, it is hereby agreed by and among the Participating Insurance
Companies as follows:
1. Each Participating Insurance Company shall designate an individual to
monitor for the occurrence of any event which may give rise to the existence of
any material irreconcilable conflict between the interests of the participants
of all Separate Accounts investing in the Fund, and to advise each other
Participating Insurance Company and the Board of Directors of the Fund (the
"Board"), if any such event shall occur. Such an event may include (but will
not necessarily be limited to): (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or public ruling, private letter
ruling, no action or interpretive letter, or any similar action by insurance,
tax or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any
- 30 -
<PAGE> 2
portfolio are being managed; or (e) a decision by a Participating Insurance
Company to disregard the voting instructions of its contract owners.
2. (a) If a Participating Insurance Company shall have advised
the other Participating Insurance Companies of the occurrence of an event which
may give rise to a material irreconcilable conflict as provided in paragraph 1
above, the Participating Insurance Companies shall consult with each other in a
good faith effort (i) to determine whether such event gives rise to such a
conflict and, (ii) if it does, to attempt to resolve such conflict within a
reasonable period of time without resort to the provisions of paragraph 2(b) of
this Agreement.
(b) If the Participating Insurance Companies are unable to
resolve a conflict through consultation as provided in paragraph 2(a), and if
any Participating Insurance Company determines that such conflict is a material
irreconcilable conflict:
(i) if the event giving rise to the conflict involves the
inability, for state insurance regulatory or any other reason, of one or more
of the Participating Insurance Companies to invest in the Fund or one of its
portfolios unless the investment adviser or principal underwriter of the Fund
or such portfolio is changed, then such Participating Insurance Company or
Companies shall withdraw their investments from the Fund or such portfolio
within a reasonable period of time; provided, however, that if such
Participating Insurance Company or Companies own a majority of the then
outstanding shares of the Fund or such portfolio, the Participating Insurance
Companies will advise the Board that the agreement with the investment adviser
or principal underwriter, as the case may be, for the Fund or such portfolio is
to be terminated and that the Participating Insurance Companies intend to vote
their shares in the Fund to effect such termination (and if the Board does not
then terminates such agreement, the Participating Insurance Companies shall
recommend to their respective contract owners that the shares in the Fund be
voted to effect such termination); and
(ii) if the event giving rise to the conflict involves a need
to change the investment policy of the Fund or one of its portfolios so that
one or more of the participating insurance companies may continue to invest in
the Fund or such portfolio, the participating insurance companies agree to
advise the Board of Directors of the Fund of the changes in the investment
policies of the Fund or such portfolio that must be effected so as to permit
all of the participating insurance companies to continue to invest in the Fund
or such portfolio (and if required to effect such change, the participating
insurance companies will recommend to their respective contract owners that the
shares in the Fund be voted to effect such change).
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<PAGE> 3
(c) The Participating Insurance Company which, pursuant to paragraph 1
of this Agreement, initially advises of an event which may give rise to a
conflict shall also advise the Board as to whether such event in fact gave rise
to a conflict and, if so, the action taken by the Participating Insurance
Companies pursuant to paragraph 2 of this Agreement to resolve such conflict.
3. If, as provided in paragraph 2(b) of this Agreement, it is
determined by the Participating Insurance Companies that a material
irreconcilable conflict exists and that one or more of the Participating
Insurance Companies must withdraw their assets from the Fund or one of its
portfolios (or if a Participating Insurance Company determines that it should
withdraw its assets from the Fund so as to avoid a material irreconcilable
conflict), such Company or Companies shall take whatever steps are necessary to
effect such withdrawal within a reasonable period of time, up to and including:
(a) withdrawing the assets allocable to some or all of the Separate Accounts
from the Fund or any portfolio and reinvesting such assets in a different
investment medium (including another portfolio of the Fund) or submitting the
question of whether such withdrawal should be implemented to a vote of all
affected participants and, as appropriate, withdrawing the assets of any
particular group (i.e., contract owners of one or more Participating Insurance
Companies) that votes in favor of such withdrawal, or offering to the affected
participants the option of making such a change; and (b) establishing a new
registered management investment company or management separate account. No
charge or penalty will be imposed on contract owners directly or indirectly as
a result of such a withdrawal. In no event will the Fund or the investment
adviser of the Fund be required to establish a new funding medium for any
variable insurance contract. No Participating Insurance Company will be
required to establish a new funding medium for any variable insurance contract.
No Participating Insurance Company will be required to establish a new funding
medium for any variable insurance contract if an offer to do so has been
declined by vote of a majority of participants materially adversely affected by
the material irreconcilable conflict.
4. The Participating Insurance Companies acknowledge to the Fund that
prospectus disclosure regarding potential risks of mixed and shared funding
permitted by this Agreement may be appropriate.
5. The Fund will file with its books and records all reports received
by the Board concerning potential or existing conflicts, and the means by which
it is proposed that any conflicts be resolved, will note the receipt of such
reports in the minutes of meetings of the Board and will make such reports
available to the Securities and Exchange Commission (the "Commission") upon
request.
6. Each of the Participating Insurance Companies agrees that
any action taken by it under this agreement, including any action
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<PAGE> 4
in identifying and resolving any material conflicts of interest, will be
carried out with a view only to the interest of its contract owners
participating in the Fund.
7. Each Participating Insurance Company shall provide pass-through voting
privileges to all of its contract owners so long as the Commission continues to
interpret the 1940 Act to require such pass-through voting privileges for
variable insurance contract owners. Each Participating Insurance Company shall
be responsible for assuring that its Separate Accounts calculate voting
privileges in a manner consistent with the other Participating Insurance
Companies. It is a condition of this Agreement that each Participating
Insurance Company will vote shares, for which it has not received voting
instructions as well as shares attributable to it, in the same proportion as it
votes shares for which it has received instructions.
8. This Agreement shall terminate automatically in the event of its
assignment, unless made with the written consent of each party.
9. This Agreement shall be subject to the provisions of the 1940 Act and
the rules and regulations thereunder, including any exemptive relief therefrom
and the orders of the Commission setting forth such relief.
Executed this day of , 1994.
MERRILL LYNCH LIFE INSURANCE COMPANY
By
----------------------------------
Name:
Title:
ML LIFE INSURANCE COMPANY OF NEW YORK
By
----------------------------------
Name:
Title:
FAMILY LIFE INSURANCE COMPANY
By
----------------------------------
Name:
Title:
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<PAGE> 5
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
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