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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1995
REGISTRATION NO. 33-55678
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 5
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF THE SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------------------
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
(Exact name of trust)
MERRILL LYNCH LIFE INSURANCE COMPANY
(Name of depositor)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Complete address of depositor's principal executive offices)
------------------------
BARRY G. SKOLNICK, ESQ.
Senior Vice President & General Counsel
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Name and complete address of agent for service)
------------------------
Copy to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, NW
Washington, DC 20004-2404
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It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on May 1, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Check box if it is proposed that the filing will become effective on (date)
at (time) pursuant to Rule 487 / /
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933. The Registrant filed the 24f-2 Notice for the year ended
December 31, 1994 on February 24, 1995.
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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 Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
5 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life Insurance Company (State Regulation)
6 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (The Separate Account)
7 Not Applicable
8 Experts
9 More About Merrill Lynch Life Insurance Company (Legal Proceedings)
10 Summary of the Contract; Facts About the Contract; More About the Contract; More
About the Separate Account and its Divisions
11 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its Divisions (About
the Separate Account; The Zero Trusts)
12 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its Divisions
13 Summary of the Contract (Loans; Fees and Charges); Facts About the Contract
(Charges Deducted from the Investment Base; Contract Loading; Charges to the
Separate Account; Guarantee Period; Cash Value; Loans; Partial Withdrawals;
Death Benefit Proceeds; Payment of Death Benefit Proceeds; Rights to Cancel;
More About the Contract (Group or Sponsored Arrangements; Merrill Lynch Life's
Income Taxes); More About the Separate Account and its Divisions (Charges to
Series Fund Assets; Charges to Variable Series Funds Assets)
14 Facts About the Contract (Who May Be Covered; Purchasing a Contract; Additional
Payments); More About the Contract (Other Contract Provisions)
15 Summary of the Contract (Availability and Payments); Facts About the Contract
(Purchasing A Contract; Additional Payments); More About the Contract (Income
Plans)
16 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Divisions.
17 Summary of the Contract (Net Cash Surrender Value; Rights to Cancel ("Free Look"
Period) or Convert; Partial Withdrawals); Facts About the Contract (Cash Value;
Partial Withdrawals; Rights to Cancel or Convert); More About the Contract
(Some Administrative Procedures)
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<TABLE>
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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18 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life; More About the Separate Account and its
Divisions
19 More About Merrill Lynch Life Insurance Company
20 Not Applicable
21 Summary of the Contract (Loans); Facts About the Contract (Loans)
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life Insurance Company
26 Not Applicable
27 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
Merrill Lynch Life Insurance Company
28 More About Merrill Lynch Life Insurance Company (Directors and Executive
Officers)
29 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S)
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S)
36 Not Applicable
37 Not Applicable
38 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
39 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
40 More About the Contract (Selling the Contracts)
41 Facts About the Separate Account, the Series Fund, the Variable Series Funds, the
Zero Trusts and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More About
the Contract (Selling the Contracts)
42 Not Applicable
43 Not Applicable
44 Facts About the Contract; More About the Contract
45 Not Applicable
46 Summary of the Contract; Facts About the Contract (Cash Value; Partial
Withdrawals)
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<TABLE>
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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, 1995
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: LITTLE ROCK, ARKANSAS 72201
SERVICE CENTER: P.O. BOX 9025
SPRINGFIELD, MASSACHUSETTS 01102-9025
1414 MAIN STREET, THIRD FLOOR
SPRINGFIELD, MASSACHUSETTS 01104-1007
PHONE: (800) 354-5333
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This Prospectus is for a flexible premium variable universal life insurance
contract (the "Contract") offered by Merrill Lynch Life Insurance Company
("Merrill Lynch Life"), a subsidiary of Merrill Lynch & Co., Inc.
Through the first 14 days following the in force date, the initial payment less
contract loading will be invested only in the division investing in the Money
Reserve Portfolio. Thereafter, the investment base will be reallocated to any
five of the 35 investment divisions of Merrill Lynch Variable Life Separate
Account (the "Separate Account"), the Merrill Lynch Life separate investment
account available under the Contract. The investments available through the
investment divisions include 10 mutual fund portfolios of the Merrill Lynch
Series Fund, Inc., six mutual fund portfolios of the Merrill Lynch Variable
Series Funds, Inc., and 19 unit investment trusts in The Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities. Currently, the contract owner may
change his or her investment allocation as many times as desired.
The Contract provides an estate benefit through life insurance coverage on the
life of the insured. The Contract offers two death benefit options. At the
election of the contract owner, the death benefit may include the Contract's
cash value. Contract owners may purchase additional insurance through an
additional insurance rider, the amount of which may be increased or decreased
subject to certain conditions. Merrill Lynch Life guarantees that the coverage
will remain in force for the guarantee period. Each payment will extend the
guarantee period until such time as the guarantee period extends to the
insured's attained age 100. During this guarantee period, Merrill Lynch Life
will terminate the Contract only if the debt exceeds certain contract values.
After the guarantee period, the Contract will remain in force as long as there
is not excessive debt and as long as the cash value is sufficient to cover the
charges due. While the Contract is in force, the death benefit may vary to
reflect the investment results of the investment divisions chosen, but will
generally never be less than the current face amount or, after the insured's
attained age 100, the post 100 death benefit.
The Contract allows for additional payments. Contract owners may also borrow up
to the total loan value of the Contract, make partial withdrawals or turn in the
Contract for its net cash surrender value. The net cash surrender value will
vary with the investment results of the investment divisions chosen. Merrill
Lynch Life does not guarantee any minimum net cash surrender value.
It may not be advantageous to replace existing insurance with the Contract.
Within certain limits the Contract may be converted to a contract with benefits
that do not vary with the investment results of a separate account.
THE PURCHASE OF THIS CONTRACT INVOLVES CERTAIN RISKS. BECAUSE IT IS A VARIABLE
LIFE INSURANCE CONTRACT, THE VALUE OF THE CONTRACT REFLECTS THE INVESTMENT
PERFORMANCE OF THE SELECTED INVESTMENT OPTIONS. INVESTMENT RESULTS CAN VARY BOTH
UP AND DOWN AND CAN EVEN DECREASE THE VALUE OF PREMIUM PAYMENTS. THEREFORE,
CONTRACT OWNERS COULD LOSE ALL OR PART OF THE MONEY THEY HAVE INVESTED. MERRILL
LYNCH LIFE DOES NOT GUARANTEE THE VALUE OF THE CONTRACT. RATHER, CONTRACT OWNERS
BEAR ALL INVESTMENT RISKS.
LIFE INSURANCE IS INTENDED TO BE A LONG-TERM INVESTMENT. CONTRACT OWNERS SHOULD
EVALUATE THEIR INSURANCE NEEDS AND THE CONTRACT'S LONG-TERM INVESTMENT POTENTIAL
AND RISKS BEFORE PURCHASING THE CONTRACT.
PARTIAL WITHDRAWALS AND SURRENDER OF THE CONTRACT ARE SUBJECT TO TAX, AND BEFORE
THE CONTRACT OWNER ATTAINS AGE 59 1/2 MAY ALSO BE SUBJECT TO A 10% FEDERAL
PENALTY TAX. LOANS MAY BE TAXABLE IF THE CONTRACT BECOMES A "MODIFIED ENDOWMENT
CONTRACT."
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT MUST BE
ACCOMPANIED BY CURRENT PROSPECTUSES FOR THE MERRILL LYNCH SERIES FUND, INC., THE
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND THE MERRILL LYNCH FUND OF STRIPPED
("ZERO") U.S. TREASURY SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
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IMPORTANT TERMS........................................................................ 4
SUMMARY OF THE CONTRACT
Purpose of the Contract.............................................................. 5
Availability and Payments............................................................ 5
CMA(R) Insurance Service............................................................. 6
The Investment Divisions............................................................. 6
How the Death Benefit Varies......................................................... 6
How the Investment Base Varies....................................................... 6
Net Cash Surrender Value............................................................. 7
Illustrations........................................................................ 7
Replacement of Existing Coverage..................................................... 7
Rights to Cancel ("Free Look" Period) or Convert..................................... 7
How Death Benefit and Cash Value Increases are Taxed................................. 7
Loans................................................................................ 8
Partial Withdrawals.................................................................. 8
Fees and Charges..................................................................... 8
FACTS ABOUT THE SEPARATE ACCOUNT, THE SERIES FUND, THE VARIABLE
SERIES FUNDS, THE ZERO TRUSTS AND MERRILL LYNCH LIFE
The Separate Account................................................................. 9
The Series Fund...................................................................... 9
The Variable Series Funds............................................................ 10
Equity Growth Fund -- Exemptive Relief............................................... 11
Certain Risks of the Series Fund and Variable Series Funds........................... 11
The Zero Trusts...................................................................... 12
Merrill Lynch Life and MLPF&S........................................................ 12
FACTS ABOUT THE CONTRACT
Who May be Covered................................................................... 12
Purchasing a Contract................................................................ 13
Additional Insurance Rider........................................................... 14
Additional Payments.................................................................. 14
Effect of Additional Payments........................................................ 15
Investment Base...................................................................... 15
Charges Deducted from the Investment Base............................................ 16
Contract Loading..................................................................... 17
Charges to the Separate Account...................................................... 17
Guarantee Period..................................................................... 18
Cash Value........................................................................... 19
Loans................................................................................ 19
Partial Withdrawals.................................................................. 20
Death Benefit Proceeds............................................................... 21
Payment of Death Benefit Proceeds.................................................... 23
Accelerated Benefit Rider............................................................ 24
Rights to Cancel or Convert.......................................................... 25
Reports to Contract Owners........................................................... 25
MORE ABOUT THE CONTRACT
Using the Contract................................................................... 26
Some Administrative Procedures....................................................... 27
Other Contract Provisions............................................................ 28
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Income Plans........................................................................... 28
Group or Sponsored Arrangements........................................................ 29
Unisex Legal Considerations for Employers.............................................. 29
Selling the Contracts.................................................................. 29
Tax Considerations..................................................................... 30
Merrill Lynch Life's Income Taxes...................................................... 34
Reinsurance.......................................................................... 34
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account........................................................... 34
Changes Within the Account........................................................... 34
Net Rate of Return for an Investment Division........................................ 35
The Series Fund and the Variable Series Funds........................................ 35
Charges to Series Fund Assets........................................................ 36
Charges to Variable Series Funds Assets.............................................. 37
The Zero Trusts...................................................................... 38
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Net Cash Surrender Values
and Accumulated Payments.......................................................... 38
EXAMPLES
Additional Payments.................................................................. 45
Partial Withdrawals.................................................................. 46
Changing the Death Benefit Option.................................................... 47
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
Directors and Executive Officers..................................................... 48
Services Arrangement................................................................. 49
State Regulation..................................................................... 49
Legal Proceedings.................................................................... 49
Experts.............................................................................. 49
Legal Matters........................................................................ 49
Registration Statements.............................................................. 50
Financial Statements................................................................. 50
Financial Statements of Merrill Lynch Variable Life Separate Account................. 51
Financial Statements of Merrill Lynch Life Insurance Company......................... 67
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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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.
adjusted face amount: is equal to the lesser of the face amount at the
insured's attained age 100, and the cash value as of the date of death plus the
net amount at risk at the insured's attained age 100. The adjusted face amount
is used to determine the death benefit under option 1 at and after the insured's
attained age 100.
attained age: is the issue age of the insured plus the number of full years
since the contract date.
base premium: is the amount equal to the level annual premium which would be
necessary for the face amount of the Contract to endow on the contract
anniversary nearest the insured's age 100. Merrill Lynch Life assumes death
benefit option 1 is elected and further assumes a 5% annual rate of return on
the base premium less contract loading and a maximum cost of insurance charge.
Once determined, the base premium will not change.
cash value: is equal to the investment base plus any unearned charges for cost
of insurance and rider costs plus any debt less any accrued net loan cost since
the last contract anniversary (or since the contract date during the first
contract year).
cash value corridor factor: is used to determine the amount of death benefit
purchased by $1.00 of cash value. Merrill Lynch Life uses this factor in the
calculation of the variable insurance amount to make sure that the Contract
always meets the requirements of what constitutes a life insurance contract
under the Internal Revenue Code.
contract anniversary: is the same date of each year as the contract date.
contract date: is used to determine processing dates, contract years and
anniversaries. It is usually the business day next following the receipt of the
initial payment at the Service Center. It is also referred to as the policy
date.
contract loading: is chargeable to all payments for sales load, federal tax and
premium tax charges.
death benefit: prior to the insured's attained age 100, if option 1 is elected,
it is the larger of the face amount and the variable insurance amount; if option
2 is elected, it is the larger of the face amount plus the cash value and the
variable insurance amount. At and after the insured's attained age 100, the post
100 death benefit will apply.
death benefit proceeds: are equal to the death benefit plus the amount of any
insurance provided by a rider less any debt.
debt: is the sum of all outstanding loans on a Contract plus accrued interest.
excess sales load: a portion of the sales load calculated during the first two
policy years which is in excess of the amount specified under applicable
regulations in effect under the Investment Company Act of 1940 and therefore may
be refunded in the event of lapse or surrender during the first two policy
years. After policy year two, the excess sales load is zero.
face amount: is the minimum death benefit prior to the insured's attained age
100, as long as the Contract remains in force. The face amount will change if a
change in death benefit option is made or if a partial withdrawal is taken.
fixed base: is calculated in the same manner as the cash value except that 4.5%
is substituted for the net rate of return, the guaranteed maximum cost of
insurance rates and guaranteed maximum rider costs are substituted for current
rates and loans and repayments are not taken into account. After the end of the
guarantee period, the fixed base is zero.
guarantee period: is the time guaranteed that the Contract will remain in force
regardless of investment experience, unless the debt exceeds certain values. It
is the period that a comparable fixed life insurance
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contract (same face amount, payments made, guaranteed mortality table, contract
loading and guaranteed maximum rider costs) would remain in force if credited
with 4.5% interest per year.
in force date: is the date when the underwriting process is complete, the
initial payment is received and outstanding contract amendments (if any) are
received.
initial payment: is the payment required to put the Contract into effect.
investment base: is the amount available under a Contract for investment in the
Separate Account at any time. A contract owner's investment base is the sum of
the amounts invested in each of the selected investment divisions.
investment division: is any division in the Separate Account.
issue age: is the insured's age as of his or her birthday nearest the contract
date.
issue date: is the date that the Contract is issued. The contestable and
suicide periods are measured from this date.
net amount at risk: is the excess, as of a processing date, of the death
benefit (adjusted for interest at an annual rate of 4.5%) over the cash value,
but before the deduction for cost of insurance. The net amount at risk at the
insured's attained age 100 is used to determine the death benefit under option 1
at and after the insured's attained age 100.
net cash surrender value: is equal to the cash value less debt.
processing dates: are the contract date and the first day of each contract
quarter thereafter. Processing dates are the days when Merrill Lynch Life
deducts certain charges from the investment base.
processing period: is the period between consecutive processing dates.
target premium: is equal to 75% of the base premium.
variable insurance amount: is computed daily by multiplying the cash value
(plus certain excess sales load during the first 24 months after the Contract is
issued) by the cash value corridor factor for the insured at his or her attained
age.
SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACT
This flexible premium variable universal life insurance contract offers a choice
of investments and an opportunity for the Contract's investment base, cash value
and death benefit to grow based on investment results.
Merrill Lynch Life does not guarantee that contract values will increase.
Depending on the investment results of selected investment divisions, the
investment base, cash value and death benefit may increase or decrease on any
day. The contract owner bears the investment risk. Merrill Lynch Life guarantees
to keep the Contract in force during the guarantee period subject to the effect
of any debt.
Life insurance is not a short-term investment. The contract owner should
evaluate the need for insurance and the Contract's long-term investment
potential and risks before purchasing a Contract.
AVAILABILITY AND PAYMENTS
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. A Contract may be issued for an insured from age 20 through age 85.
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Merrill Lynch Life will not accept an initial payment that provides a guarantee
period of less than three months. The guarantee period is the period of time
Merrill Lynch Life guarantees that the Contract will remain in force regardless
of investment experience unless the debt exceeds certain values.
Contract owners may make additional payments. Contract owners may specify an
additional payment amount on the application to be paid on either a monthly,
quarterly, semi-annual or annual basis. For additional payments not being
withdrawn from a CMA account, Merrill Lynch Life will send reminder notices for
such amounts.
The Contract is not available to insure residents of certain municipalities in
Kentucky where premium taxes in excess of a certain level are imposed.
CMA(R) INSURANCE SERVICE
Contract owners who subscribe to the Merrill Lynch Cash Management Account(R)
financial service ("CMA account") may elect to have their Contract linked to
their CMA account electronically. Certain transactions will be reflected in
monthly CMA account statements. Payments may be transferred to and from the
Contract through a CMA account.
THE INVESTMENT DIVISIONS
Through the first 14 days following the in force date, the initial payment less
contract loading will be invested in the investment division of the Separate
Account investing in the Money Reserve Portfolio. Thereafter, the investment
base will be reallocated to up to five of the 35 investment divisions in the
Separate Account. (See "Changing the Allocation" on page 16.)
Payments are invested in investment divisions of the Separate Account. Ten
investment divisions of the Separate Account invest exclusively in shares of
designated mutual fund portfolios of the Merrill Lynch Series Fund, Inc. (the
"Series Fund"). Six investment divisions of the Separate Account invest
exclusively in shares of designated mutual fund portfolios of the Merrill Lynch
Variable Series Funds, Inc. (the "Variable Series Funds"). Each mutual fund
portfolio has a different investment objective. The other 19 investment
divisions invest in units of designated unit investment trusts in The Merrill
Lynch Fund of Stripped ("Zero") U.S. Treasury Securities (the "Zero Trusts").
The contract owner's payments are not invested directly in the Series Fund, the
Variable Series Funds or the Zero Trusts.
HOW THE DEATH BENEFIT VARIES
Contract owners elect a death benefit option on the application. Under option 1,
the death benefit equals the larger of the face amount or the variable insurance
amount. Under option 2, the death benefit equals the larger of the sum of the
face amount plus the cash value or the variable insurance amount. Subject to
certain conditions, contract owners may change the death benefit option. The
death benefit may increase or decrease on any day depending on the investment
results of the investment divisions chosen by the contract owner. Death benefit
proceeds equal the death benefit reduced by any debt and increased by any rider
benefits payable. (See "Death Benefit Proceeds" on page 21.) If the insured dies
at or after the insured's attained age 100, the post-100 death benefit proceeds
will be paid. (See "Post-100 Death Benefit" on page 23.)
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,
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Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
6
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it varies daily based on investment performance of the investment divisions
chosen. The contract owner bears the risk of poor investment performance and
receives the benefit of favorable investment performance.
NET CASH SURRENDER VALUE
Contract owners may surrender their Contracts at any time and receive the net
cash surrender value. The net cash surrender value varies daily based on
investment performance of the investment divisions chosen. Merrill Lynch Life
doesn't guarantee any minimum net cash surrender value. If the Contract is
surrendered within 24 months after issue, the contract owner will receive
certain excess sales load. (See "Contract Loading -- Excess Sales Load" on page
17.)
ILLUSTRATIONS
Illustrations in this Prospectus or used in connection with the purchase of the
Contract are based on hypothetical investment rates of return. These rates are
not guaranteed. They are illustrative only and should not be deemed a
representation of past or future performance. Actual rates of return may be more
or less than those reflected in the illustrations and, therefore, actual values
will be different than those illustrated.
REPLACEMENT OF EXISTING COVERAGE
Before purchasing a Contract, the contract owner should ask his or her Merrill
Lynch registered representative if changing, or adding to, current insurance
coverage would be advantageous. Generally, it is not advisable to purchase
another contract as a replacement for existing coverage. In particular,
replacement should be carefully considered if the decision to replace existing
coverage is based solely on a comparison of contract illustrations.
RIGHTS TO CANCEL ("FREE LOOK" PERIOD) OR CONVERT
Once the contract owner receives the Contract, he or she should review it
carefully to make sure it is what he or she intended to purchase. Generally, a
Contract may be returned for a refund within the later of ten days after the
contract owner receives it, 45 days after the contract owner completes the
application, or ten days after Merrill Lynch Life mails or personally delivers
the Notice of Withdrawal Right to the contract owner. If the Contract is
returned during the "free look" period, Merrill Lynch Life will refund the
initial payment without interest.
Once the Contract is issued, a contract owner may also convert the Contract
within 24 months after issue to a contract with benefits that do not vary with
the investment results of a separate account. (See "Converting the Contract" on
page 25.)
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.
A Contract may be a "modified endowment contract" under federal tax law
depending upon the amount of payments made in relation to the death benefit
provided under the Contract. If the Contract is a modified endowment contract,
certain distributions made during the insured's lifetime, such as loans and
partial withdrawals from, and collateral assignments of, the Contract are
includable in gross income on an income-first basis. A 10% penalty tax may also
be imposed on distributions made before the contract owner attains age 59 1/2.
Contracts that are not modified endowment contracts under federal tax law
receive preferential tax treatment with respect to certain distributions.
For a discussion of the tax issues associated with this Contract, see "Tax
Considerations" on page 30.
7
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LOANS
Contract owners may borrow up to the total loan value of their Contracts, which
is 90% of the cash value. The maximum amount which may be borrowed at any time
is the difference between the total loan value and debt. (See "Loans" on page
19.)
Debt is deducted from the amount payable on surrender of the Contract and is
also subtracted from any death benefit payable. Loan interest accrues daily and,
if it is not repaid each year, it is capitalized and added to the debt. If the
Contract is a modified endowment contract, the amount of capitalized interest
will be treated as a taxable withdrawal. Depending upon investment performance
of the divisions and the amounts borrowed, loans may cause a Contract to lapse.
If the Contract lapses with a loan outstanding, adverse tax consequences may
result. (See "Tax Considerations" on page 30.)
PARTIAL WITHDRAWALS
Contract owners may make partial withdrawals beginning in the second contract
year, subject to certain conditions. (See "Partial Withdrawals" on page 20.)
FEES AND CHARGES
Contract Loading. Merrill Lynch Life deducts certain charges from all payments
before they are invested in the investment divisions. These charges are:
- Sales load equal to 46.25% of each payment through the second base
premium and 1.25% of each payment thereafter.
- State and local premium tax charge of 2.5% of each payment.
- A charge for federal taxes of 1.25% of each payment.
(See "Contract Loading" on page 17.)
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 16) and any rider costs (see "Additional Insurance
Rider" on page 14).
- On each contract anniversary, Merrill Lynch Life makes deductions for the
net loan cost if there has been any debt during the prior year. It equals
a maximum of 2% of the debt per year.
Separate Account Charges. There are certain charges deducted daily from the
investment results of the investment divisions in the Separate Account. These
charges are:
- an asset charge designed to cover mortality and expense risks deducted
from all investment divisions which is equivalent to .90% annually at the
beginning of the year; and
- a trust charge deducted from only those investment divisions investing in
the Zero Trusts, which is currently equivalent to .34% annually at the
beginning of the year and will never exceed .50% annually.
Advisory Fees. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 36 and "Charges to Variable Series Funds Assets" on page 37.)
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.
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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
The Separate Account is a separate investment account established by Merrill
Lynch Life on November 16, 1990. It is registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the Investment
Company Act of 1940. This registration does not involve any supervision by the
Securities and Exchange Commission over the investment policies or practices of
the Separate Account. It meets the definition of a separate account under the
federal securities laws. The Separate Account is used to support the Contract as
well as to support other variable life insurance contracts issued by Merrill
Lynch Life.
Merrill Lynch Life owns all of the assets in the Separate Account. The assets of
the Separate Account are kept separate from Merrill Lynch Life's general account
and any other separate accounts it may have and, to the extent of its reserves
and liabilities, may not be charged with liabilities arising out of any other
business Merrill Lynch Life conducts.
Obligations to contract owners and beneficiaries that arise under the Contract
are obligations of Merrill Lynch Life. Income, gains, and losses, whether or not
realized, from assets allocated are, in accordance with the Contracts, credited
to or charged against the Separate Account without regard to other income, gains
or losses of Merrill Lynch Life. As required, the assets in the Separate Account
will always be at least equal to the reserves and other liabilities of the
Separate Account. If the assets exceed the required reserves and other Contract
liabilities (which will always be at least equal to the aggregate contract value
allocated to the Separate Account under the Contracts), Merrill Lynch Life may
transfer the excess to its general account.
There are currently 35 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Six invest in shares of a
specific portfolio of the Variable Series Funds. Nineteen invest in units of a
specific Zero Trust. Complete information about the Series Fund, the Variable
Series Funds and the Zero Trusts, including the risks associated with each
portfolio (including any risks associated with investment in the High Yield
Portfolio of the Series Fund) can be found in the accompanying prospectuses.
They should be read in conjunction with this Prospectus.
THE SERIES FUND
The Merrill Lynch Series Fund, Inc. is registered with the Securities and
Exchange Commission as an open-end management investment company. All of its ten
mutual fund portfolios are currently available through the Separate Account. The
investment objectives of the Series Fund portfolios are described below. There
is no guarantee that any portfolio will meet its investment objective.
Money Reserve Portfolio seeks to preserve capital, maintain liquidity and
achieve the highest possible current income consistent with those objectives by
investing in short-term money market securities.
Intermediate Government Bond Portfolio seeks the highest possible current income
consistent with the protection of capital by investing in debt securities issued
or guaranteed by the U.S. Government or its agencies with a maximum maturity of
15 years.
Long-Term Corporate Bond Portfolio primarily seeks as high a level of current
income as is believed to be consistent with prudent investment risk and
secondarily to preserve shareholders' capital. It invests primarily in corporate
bonds which have been rated within the three highest grades of a major rating
agency.
High Yield Portfolio seeks as high a level of current income as is believed to
be consistent with prudent management, and secondarily capital appreciation, 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").
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Capital Stock Portfolio seeks long-term growth of capital and income, plus
moderate current income. It principally 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 long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks of aggressive
growth companies considered to have special investment value.
Multiple Strategy Portfolio seeks a high total investment return consistent with
prudent risk through a fully managed investment policy utilizing equity
securities, 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, including
convertible securities, of U.S. and foreign issuers.
Balanced Portfolio seeks a level of current income and a degree of stability of
principal not normally available from an investment solely in equity securities
and the opportunity for capital appreciation greater than that normally
available from an investment solely in debt securities by investing in a
balanced portfolio of fixed-income and equity securities.
The investment adviser for the Series Fund is Merrill Lynch Investment
Management, Inc., doing business as Merrill Lynch Asset Management, L.P.
("MLAM"), a subsidiary of Merrill Lynch & Co., Inc. and a registered adviser
under the Investment Advisers Act of 1940. The Series Fund, as part of its
operating expenses, pays an investment advisory fee to MLAM. (See "Charges to
Series Fund Assets" on page 36.)
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.
Basic Value Focus Fund seeks capital appreciation, and secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio.
World Income Focus Fund seeks to achieve high current income by investing in a
global portfolio of fixed-income securities denominated in various currencies,
including multinational currency units. The Fund may invest in United States and
foreign government and corporate fixed-income securities, including high yield,
high risk, lower rated and unrated securities. The Fund will allocate its
investment among different types of fixed-income securities denominated in
various currencies.
Global Utility Focus Fund seeks to obtain capital appreciation and current
income through investment of at least 65% of its total assets in equity and debt
securities issued by domestic and foreign companies which are, in the opinion of
management of the Fund, primarily engaged in the ownership or operation of
facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water.
International Equity Focus Fund seeks to obtain capital appreciation through
investment in securities, principally equities, of issuers in countries other
than the United States. Under normal conditions, at least 65% of the Fund's net
assets will be invested in such equity securities.
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.
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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 37.)
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 the current rules of
the Securities and Exchange Commission in order for the Equity Growth Fund of
the Variable Series Funds to be made available through the Separate Account.
(See "Resolving Material Conflicts" on page 36.) 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.
CERTAIN RISKS OF THE SERIES FUND AND VARIABLE SERIES FUNDS
Investment in lower-rated debt securities, such as those in which the High Yield
Portfolio of the Series Fund and the High Current Income Fund of the Variable
Series Funds invest, entails relatively greater risk of loss of income or
principal. In an effort to minimize risk, the Funds will diversify holdings
among many issuers. However, there can be no assurance that diversification will
protect the Funds from widespread defaults during periods of sustained economic
downturn.
In seeking to protect the purchasing power of capital, the Natural Resources
Portfolio of the Series Fund reserves the right, when management anticipates
significant economic, political, or financial instability, such as high
inflationary pressures or upheaval in foreign currency exchange markets, to
invest a majority of its assets in companies that explore for, extract, process
or deal in gold or in asset-based securities indexed to the value of gold
bullion. The Natural Resources Portfolio will not concentrate its investments in
such securities until it has been advised that no adverse tax consequences will
result.
The World Income Focus Fund of the Variable Series Funds has no established
rating criteria for the securities in which it may invest. In an effort to
minimize risk, the Fund will diversify its holdings among many issuers. However,
there can be no assurance that diversification will protect the Fund from
widespread defaults during periods of sustained economic downturn.
The Developing Capital Markets Focus Fund of the Variable Series Funds has
established no rating criteria for the debt securities in which it may invest,
and will rely on the investment adviser's judgment in evaluating the
creditworthiness of an issuer of such securities. In an effort to minimize the
risk, the Fund will diversify its holdings among many issuers. However, there
can be no assurance that diversification will protect the Fund from widespread
defaults during periods of sustained economic downturn.
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Because investment in these Portfolios and Funds entails relatively greater risk
of loss of income or principal, it may not be appropriate to allocate all
payments and investment base to an investment division that invests in one of
these Portfolios or Funds.
THE ZERO TRUSTS
The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities was formed
to provide safety of capital and a high yield to maturity. It seeks this through
U.S. Government-backed investments which make no periodic interest payments and,
therefore, are purchased at a deep discount. When held to maturity the
investments should receive approximately a fixed yield. The value of Zero Trust
units before maturity varies more than it would if the Zero Trusts contained
interest-bearing U.S. Treasury securities of comparable maturities.
The Zero Trust portfolios consist mainly of:
- bearer debt obligations issued by the U.S. Government stripped of their
unmatured interest coupons;
- coupons stripped from U.S. debt obligations; and
- receipts and certificates for such stripped debt obligations and coupons.
The Zero Trusts currently available have maturity dates in years 1995 through
2011, 2013 and 2014.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
Merrill Lynch & Co., Inc., is the sponsor for the Zero Trusts. The sponsor will
sell units of the Zero Trusts to the Separate Account and has agreed to
repurchase units when Merrill Lynch Life needs to sell them to pay benefits and
make reallocations. Merrill Lynch Life pays the sponsor a fee for these
transactions and is reimbursed through the trust charge assessed to the
divisions investing in the Zero Trusts. (See "Charges to Divisions Investing in
the Zero Trusts" on page 18.)
MERRILL LYNCH LIFE AND MLPF&S
Merrill Lynch Life is a stock life insurance company organized under the laws of
the State of Washington in 1986 and redomesticated under the laws of the State
of Arkansas in 1991. It is an indirect wholly owned subsidiary of Merrill Lynch
& Co., Inc. Merrill Lynch Life is authorized to sell life insurance and
annuities in 49 states, Guam, the U.S. Virgin Islands and the District of
Columbia. It is also authorized to offer variable life insurance and variable
annuities in most jurisdictions.
MLPF&S is a wholly owned subsidiary of Merrill Lynch & Co., Inc. and provides a
broad range of securities brokerage and investment banking services in the
United States. It provides marketing services for Merrill Lynch Life and is the
principal underwriter of the Contracts issued through the Separate Account.
Merrill Lynch Life retains MLPF&S to provide services relating to the Contracts
under a distribution agreement. (See "Selling the Contracts" on page 29.)
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. Merrill Lynch Life will issue a Contract on the life of the insured
provided the relationship between the applicant and the insured meets Merrill
Lynch Life's insurable interest requirements and provided the insured is not
over age 85 or under age 20. The insured's issue age will be determined using
the insured's age as of his or her birthday nearest the contract date. The
insured must also meet Merrill Lynch Life's medical and other underwriting
requirements, which will include undergoing a medical examination.
Merrill Lynch Life assigns insureds to underwriting classes which determine the
cost of insurance rates used in calculating cost of insurance deductions.
Contracts may be issued on insureds in standard, non-smoker or
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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 16.
PURCHASING A CONTRACT
To purchase a Contract, the contract owner must complete an application and make
a payment. The payment is required to put the Contract into effect. In the
application, the contract owner selects the face amount of the Contract. The
amount of the minimum initial payment for a given Contract depends on the face
amount selected and the issue age, sex and underwriting class of the insured.
Merrill Lynch Life will not accept an initial payment for a specified face
amount that will provide a guarantee period of less than three months. (See
"Selecting the Initial Face Amount" and "Initial Guarantee Period" below).
Merrill Lynch Life also will not accept an initial payment that would cause the
Contract to fail to qualify as life insurance under federal tax law as
interpreted by Merrill Lynch Life.
Insurance coverage generally begins as of the contract date, which is usually
the next business day following receipt of the initial payment at Merrill Lynch
Life's Service Center. Temporary life insurance coverage may be provided prior
to the contract date under the terms of a temporary insurance agreement. In
accordance with Merrill Lynch Life's underwriting rules, temporary life
insurance coverage may not exceed $300,000 and may not be in effect for more
than 90 days. As provided for under state insurance law, the contract owner, to
preserve insurance age, may be permitted to backdate the Contract. In no case
may the contract date be more than six months prior to the date the application
was completed. Charges for cost of insurance and rider costs for the backdated
period are deducted on the contract date.
If Merrill Lynch Life determines that, based on the contract owner's initial
payment and face amount, the Contract will be a modified endowment contract,
Merrill Lynch Life will issue the Contract provided the contract owner signs a
statement acknowledging that the Contract is a modified endowment contract or
agrees either to reduce the initial payment or to increase the face amount to a
level at which the Contract will not be a modified endowment contract. For a
discussion of the tax consequences of purchasing a modified endowment contract,
see "Tax Considerations" on page 30.
Selecting the Initial Face Amount. The minimum initial face amount is $250,000.
The maximum face amount that may be specified for a given initial payment is the
amount which will provide an initial guarantee period of at least three months.
For the same initial payment amount, the larger the face amount requested, the
shorter the guarantee period. The initial face amount will change if the
contract owner changes the death benefit option or takes a partial withdrawal.
Subject to certain conditions, the contract owner may purchase additional
insurance coverage through an additional insurance rider. (See "Additional
Insurance Rider" on page 14.)
Initial Guarantee Period. The initial guarantee period for a Contract will be
determined by the initial payment, face amount and any additional insurance
rider face amount. The guarantee period will be adjusted each time an additional
payment is made, when a partial withdrawal is taken, when a death benefit option
change results in a change in face amount, and when the additional insurance
rider face amount is increased or decreased.
The guarantee period is the period of time Merrill Lynch Life guarantees that
the Contract will remain in force regardless of investment experience unless the
debt exceeds certain values. The guarantee period is based on the guaranteed
maximum cost of insurance rates in the Contract, guaranteed maximum rider costs
(if an additional insurance rider is elected), the contract loading and a 4.5%
interest assumption. This means that for a given initial payment and face
amount, different insureds will have different guarantee periods depending on
the age, sex and underwriting class of the insureds. For example, an older
insured will have a shorter guarantee period than a younger insured in the same
underwriting class.
The maximum guarantee period is until the insured's attained age 100.
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ADDITIONAL INSURANCE RIDER
The contract owner may purchase additional insurance coverage payable to the
beneficiary on the death of the insured. Additional insurance coverage may be
purchased through an additional insurance rider when the Contract is purchased.
Under Merrill Lynch Life's current procedures, the maximum additional insurance
rider face amount at the time the Contract is purchased is three times the face
amount of the Contract. The rider can also be added on any contract anniversary
thereafter, as long as an application is completed, satisfactory evidence of
insurability of the insured is provided, and the insured has not attained the
age of 86. The minimum additional insurance rider face amount at any time is
$100,000. A cost of insurance charge for the rider ("rider charge") will be
deducted from the Contract's investment base on each processing date. The rider
charge will be based on the same cost of insurance rates as the Contract. (See
"Cost of Insurance" on page 16.) Because insurance coverage through an
additional insurance rider is purchased through deductions from the Contract's
investment base that are not taken into account in determining the base premium,
there is no additional contract loading associated with this coverage.
Beginning in contract year 2, the additional insurance rider face amount may be
increased (subject to evidence of insurability of the insured) or decreased once
each year; however, any change in the additional insurance rider face amount
must be elected prior to the insured's attained age 86 and must be at least
$100,000. The effective date of the change will be the contract anniversary next
following underwriting approval of the change. As of the effective date of the
increase or decrease in the additional insurance rider face amount, Merrill
Lynch Life uses the existing fixed base and the face amount of the Contract plus
the new additional insurance rider face amount to calculate a new guarantee
period. A decrease in the additional insurance rider face amount will increase
the guarantee period. An increase in the additional insurance rider face amount
will decrease the guarantee period. Merrill Lynch Life will not allow a decrease
in rider face amount if the resulting face amount would be less than $100,000;
if the resulting guarantee period would extend beyond the insured's attained age
100; or if the decrease would cause the Contract to fail to qualify as life
insurance under federal income tax laws as interpreted by us.
A decrease in the additional insurance rider face amount can cause a Contract
which is not a modified endowment contract to become a modified endowment
contract. In such a case, Merrill Lynch Life will not process the decrease until
the contract owner confirms in writing his or her intent to convert the Contract
to a modified endowment contract. For a discussion of the tax consequences of
increasing or decreasing the additional insurance rider face amount, see "Tax
Considerations" on page 30.
Any additional insurance rider coverage terminates on the earlier of the date
the Contract terminates or lapses, or at the insured's attained age 100.
ADDITIONAL PAYMENTS
After the "free look" period and prior to the insured's attained age 100,
contract owners may make additional payments while the insured is living.
Additional payments must be submitted with an additional payment form. The
minimum Merrill Lynch Life will accept for these payments is $100. For Contracts
that are not modified endowment contracts, making an additional payment may
cause them to become modified endowment contracts. (See "Tax Considerations" on
page 30.) Merrill Lynch Life will return that portion of any additional payment
beyond that necessary to extend the guarantee period to the insured's attained
age 100. Merrill Lynch Life will also return that portion of any additional
payment that would cause the Contract to fail to qualify as life insurance under
federal tax law as interpreted by Merrill Lynch Life.
Contract owners may specify an additional payment amount on the application to
be paid on either an annual, semi-annual, quarterly, or monthly basis. For
additional payments not being withdrawn from a CMA account, Merrill Lynch Life
will send reminder notices. If a contract owner has the CMA Insurance Service,
such additional payments may be withdrawn automatically from his or her CMA
account and transferred to his or her Contract. The withdrawals will continue
under the selected plan until Merrill Lynch Life is notified otherwise.
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EFFECT OF ADDITIONAL PAYMENTS
Generally, any additional payments will be accepted the day they are received at
the Service Center. However, if acceptance of any portion of the payment would
cause a Contract which is not a modified endowment contract to become a modified
endowment contract, to the extent feasible, Merrill Lynch Life will not accept
that portion of the payment unless the contract owner confirms in writing his or
her intent to convert the Contract to a modified endowment contract. Merrill
Lynch Life may return that portion of the payment pending receipt of
instructions from the contract owner.
On the date Merrill Lynch Life receives and accepts an additional payment,
Merrill Lynch Life will:
- increase the Contract's investment base by the amount of the payment less
contract loading applicable to the payment;
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount" on page 22); 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 19).
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment does
not extend beyond the insured's attained age 100.
Merrill Lynch Life will determine the increase in the guarantee period by taking
the immediate increase in the cash value resulting from the additional payment
and adding to that interest at the annual rate of 4.5% for the period from the
date Merrill Lynch Life receives and accepts the payment to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is added to the fixed base and the
resulting new fixed base is used to calculate a new guarantee period. For a
discussion of the effect of additional payments on a Contract's guarantee
period, see "Additional Payments" in the Examples on page 45.
If any excess sales load has been applied to keep the Contract in force, any
additional payment, less contract loading, will first be applied to recover such
excess sales load (see "Excess Sales Load" on page 17). Next, unless specified
otherwise, if there is any debt, any payment made will be applied as a loan
repayment, with any excess applied as an additional payment. (See "Loans" on
page 19.)
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 35.) The investment performance reflects the
deduction of Separate Account charges. (See "Charges to the Separate Account" on
page 17.)
Partial withdrawals, loans and deductions for cost of insurance, rider costs and
net loan cost decrease the investment base. (See "Charges Deducted from the
Investment Base" on page 16, "Partial Withdrawals" on page 20, and "Loans" on
page 19.) Loan repayments and additional payments increase it. Contract owners
may elect from which investment divisions loans and partial withdrawals are
taken and to which investment divisions repayments and additional payments are
added. If an election is not made, Merrill Lynch Life will allocate increases
and decreases proportionately to the contract owner's investment base as then
allocated in the investment divisions.
Initial Investment Allocation and Preallocation. Through the first 14 days
following the in force date, the initial payment less contract loading will
remain in the division investing in the Money Reserve Portfolio. Thereafter, the
investment base will be reallocated to the investment divisions selected by the
contract owner
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on the application, if different. The contract owner may select up to five of
the 35 investment divisions in the Separate Account.
Changing the Allocation. After the "free look" period, a contract owner's
investment base may be invested in up to five investment divisions at any one
time. Currently, investment allocations may be changed as often as desired.
Merrill Lynch Life reserves the right to charge up to $25 for each change in
excess of six each year. In order to change their investment base allocation,
contract owners must call or write to the Service Center. (See "Some
Administrative Procedures" on page 27.)
Zero Trust Allocations. Merrill Lynch Life will notify contract owners 30 days
before a Zero Trust in which they have invested matures. Contract owners must
notify Merrill Lynch Life by calling or writing at least seven days before the
maturity date how to reinvest their funds in the division investing in that Zero
Trust. If Merrill Lynch Life is not notified, it will move the contract owner's
investment base in that division to the investment division investing in the
Money Reserve Portfolio.
Units of a specific Zero Trust may no longer be available when a request for
allocation is received. Should this occur, Merrill Lynch Life will attempt to
notify the contract owner immediately so that the request can be changed.
Allocation to the Division Investing in the Natural Resources
Portfolio. Merrill Lynch Life and the Separate Account reserve the right to
suspend the sale of units of the investment division investing in the Natural
Resources Portfolio in response to conditions in the securities markets or
otherwise.
CHARGES DEDUCTED FROM THE INVESTMENT BASE
The charges described below are deducted pro-rata from the investment base on
processing dates.
Cost of Insurance. Merrill Lynch Life deducts the cost of insurance from the
investment base on the contract date and on each processing date thereafter
prior to the insured's attained age 100. This charge compensates Merrill Lynch
Life for the cost of providing life insurance coverage for the insured. It is
based on the underwriting class, sex (except where unisex rates are required by
state law) and attained age of the insured and the Contract's net amount at
risk.
To determine the cost of insurance, Merrill Lynch Life multiplies the current
cost of insurance rate by the Contract's net amount at risk. The net amount at
risk is the difference, as of a processing date, between the death benefit
(adjusted for interest at an annual rate of 4.5%) and the cash value, but before
the deduction for cost of insurance.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates depending on the underwriting class, sex (except where unisex
rates are required by state law) and attained age of the insured. Current cost
of insurance rates are lower for insureds in a preferred non-smoker underwriting
class than for insureds of the same age in a non-smoker underwriting class and
are lower for insureds in a non-smoker underwriting class than for insureds of
the same age and sex in a standard underwriting class.
Merrill Lynch Life guarantees that the current cost of insurance rates will
never exceed the maximum guaranteed rates shown in the Contract. The maximum
guaranteed rates for Contracts (other than those issued on a substandard basis)
do not exceed the rates based on the 1980 Commissioners Standard Ordinary
Mortality Table (CSO Table). Merrill Lynch Life may use rates that are equal to
or less than these rates, but never greater. The maximum rates for Contracts
issued on a substandard basis are based on a multiple of the 1980 CSO Table. Any
change in the cost of insurance rates will apply to all insureds of the same
age, sex and underwriting class whose Contracts have been in force for the same
length of time.
Net Loan Cost. The net loan cost is explained under "Loans" on page 19.
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 14.
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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
29. Merrill Lynch Life anticipates that the sales load charge may be
insufficient to cover its distribution expenses. Any shortfall will be made up
from Merrill Lynch Life's general account which may include amounts derived from
mortality gains and asset charges. In no event will the sales load exceed the
amount permitted by the Investment Company Act of 1940.
The charge for federal taxes, equal to 1.25% of each payment, compensates
Merrill Lynch Life for a higher corporate income tax liability resulting from
Section 848 of the Internal Revenue Code as enacted by the Omnibus Budget
Reconciliation Act of 1990. (See "Merrill Lynch Life's Income Taxes" on page
34). The charge for federal taxes is reasonable in relation to Merrill Lynch
Life's increased federal tax burden under Section 848 resulting from the receipt
of premiums under the Contract.
The state and local premium tax charge, equal to 2.5% of each payment,
compensates Merrill Lynch Life for state and local premium taxes Merrill Lynch
Life must pay when a payment is accepted. Premium taxes vary from state to
state. The 2.5% rate is the average rate expected on payments from all states.
Excess Sales Load. Excess sales load is equal to any sales load deducted from
the first two base premiums in excess of 30% of premiums paid up to an amount
equal to the first base premium, and then 10% of the premiums paid up to an
amount equal to the second base premium. It is calculated and applied in the
following situations only during the first 24 months after the Contract is
issued:
- It is refunded if the Contract is surrendered or lapses during the first
24 months after issue except to the extent that it has been previously
applied to keep the Contract in force.
- It is added to the cash value so as to keep the Contract in force if debt
exceeds the larger of (i) cash value plus any excess sales load not
previously applied to keep the Contract in force and (ii) the fixed base
during the first 24 months after issue.
- It is added to the cash value in determining the variable insurance
amount during the first 24 months after issue.
In the event that certain Contract changes resulting in a reduction in face
amount occur prior to the end of the first two policy years, Merrill Lynch Life
may adjust the amount of excess sales load under a Contract if and to the extent
deemed necessary to comply with applicable regulations under the Investment
Company Act of 1940.
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.
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<PAGE> 22
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
34.)
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 36 and "Charges to Variable Series Funds Assets" on page 37.)
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 19.) Additional payments will extend the guarantee period until such
time as it extends to the insured's attained age 100. The guarantee period will
be affected by partial withdrawals, by changes in death benefit options and by
increases and decreases in the face amount of the additional insurance rider. A
reserve is held in Merrill Lynch Life's general account to support this
guarantee. The guarantee period never extends beyond the insured's attained age
100.
When the Guarantee Period Does not Extend to the Insured's Attained Age
100. After the end of the guarantee period, Merrill Lynch Life may cancel the
Contract if the cash value plus certain excess sales load on a processing date
is insufficient to cover charges due on that date. (See "Charges Deducted from
the Investment Base" on page 16 and "Contract Loading -- Excess Sales Load" on
page 17.)
Merrill Lynch Life will notify the contract owner at the owner's last known
address before cancelling the Contract. The contract owner will then have 61
days to pay an amount which, after deducting contract loading, equals at least
three times the charges that were due (and not deducted) on the processing date
when the cash value was determined to be insufficient, plus any excess sales
load previously applied to keep the Contract in force. If this amount is paid,
Merrill Lynch Life will deduct the charges due on the processing date and will
apply the balance to the investment base. Merrill Lynch Life will cancel the
Contract at the end of this grace period if payment has not yet been received.
At that time, Merrill Lynch Life will deduct any charges for cost of insurance
and rider costs that were applicable to the grace period and refund any unearned
charges for cost of insurance, rider costs and any excess sales load not
previously applied to keep the Contract in force.
Subject to state regulation, if Merrill Lynch Life cancels a Contract, it may be
reinstated prior to the insured's attained age 100 and while the insured is
still living if:
- the reinstatement is requested within three years after the end of the
grace period;
- Merrill Lynch Life receives satisfactory evidence of the insured's
insurability; and
- the reinstatement payment is made. The reinstatement payment is the
minimum payment for which Merrill Lynch Life would then issue a Contract
for the minimum guarantee period with the same face amount as the
original Contract, based on the insured's attained age and underwriting
class as of the effective date of the reinstated Contract.
A reinstated Contract will be effective on the processing date on or next
following the date the reinstatement application is approved.
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The Contract's Fixed Base. On the contract date, the fixed base equals the cash
value. From then on, the fixed base is calculated in the same manner as the cash
value except that the calculation substitutes 4.5% for the net rate of return,
the guaranteed maximum cost of insurance rates and guaranteed maximum rider
costs are substituted for the current rates and it is calculated as though there
had been no loans or repayments. The fixed base is equivalent to the cash value
for a comparable fixed benefit contract with the same face amount and guarantee
period. After the end of the guarantee period the fixed base is zero. The fixed
base is used to limit Merrill Lynch Life's right to cancel the Contract during
the guarantee period.
Automatic Adjustment. On any contract anniversary, if the cash value is greater
than the fixed base necessary to cause the guarantee period to extend until the
insured's attained age 100, the guarantee period will be extended to the
insured's attained age 100.
CASH VALUE
A Contract's cash value fluctuates daily with the investment results of the
investment divisions selected. Merrill Lynch Life does not guarantee any minimum
cash value. The cash value on any date equals the total investment base plus
debt plus unearned charges for cost of insurance and rider costs less any
accrued net loan cost since the last contract anniversary (or since the contract
date during the first contract year).
Cancelling the Contract. A contract owner may cancel the Contract at any time
while the insured is living. The request must be in writing in a form
satisfactory to Merrill Lynch Life. All rights to death benefits will end on the
date the written request is sent to Merrill Lynch Life.
The contract owner will then receive the net cash surrender value. The contract
owner may elect to receive this amount either in a single payment or under one
or more income plans described on page 28. The net cash surrender value will be
determined as of the date of receipt of the written request at the Service
Center.
If the Contract is cancelled during the first 24 months after the issue date of
the Contract, excess sales load, as described above, will be refunded except to
the extent previously applied to keep the Contract in force. (See "Contract
Loading -- Excess Sales Load" on page 17.)
LOANS
At any time after the "free look" period and prior to the insured's attained age
100, contract owners may use the Contract as collateral to borrow funds from
Merrill Lynch Life. The minimum loan is $1,000. Preferred loans are available
beginning on the later of the tenth contract anniversary or the insured's
attained age 55. See "Net Loan Cost" on page 20. Contract owners may repay all
or part of the loan at any time during the insured's lifetime. Each repayment
must be for at least $1,000 or the amount of the debt, if less. Certain states
won't permit establishing a minimum amount that can be borrowed or repaid. If
any excess sales load was previously applied to keep the Contract in force, any
loan repayment will first be applied to repay such excess sales load.
When a loan is taken, Merrill Lynch Life transfers a portion of the contract
owner's investment base equal to the amount borrowed out of the investment
divisions and holds it as collateral in its general account. When a loan
repayment is made, Merrill Lynch Life transfers an amount equal to the repayment
from the general account to the investment divisions. The contract owner may
select from which divisions borrowed amounts should be taken and which divisions
should receive repayments (including interest payments). Otherwise, Merrill
Lynch Life will take the borrowed amounts proportionately from and make
repayments proportionately to the contract owner's investment base as then
allocated in the investment divisions.
If a contract owner has the CMA Insurance Service, loans may be transferred to
and loan repayments transferred from his or her CMA account.
For a discussion of the tax consequences associated with a loan, see "Tax
Considerations" on page 30.
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
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collateral for a loan does not participate in the performance of the investment
divisions while the loan is outstanding. If the amount credited to the
collateral is more than what is earned in the investment divisions, the cash
value may be higher as a result of the loan, as may be the death benefit.
Conversely, if the amount credited is less, the cash value will be lower, as may
be the death benefit. In that case, the lower cash value may cause the Contract
to lapse sooner than if no loan had been taken.
Loan Value. The total loan value of a Contract equals 90% of its cash value.
Once available, the preferred loan value is calculated on each contract
anniversary. The preferred loan value for the contract year is equal to 12% of
the cash value less existing debt on the contract anniversary. This amount is
available each contract year, and is applied (i) first, to convert any existing
debt to preferred loan status; and (ii) then, is available for new loans. The
sum of all outstanding loan amounts plus accrued interest is called debt. The
maximum amount that can be borrowed at any time is the difference between the
total loan value and the debt.
Interest. While a loan is outstanding, Merrill Lynch Life may charge interest
at a maximum rate of 6% annually, subject to state regulation. Currently Merrill
Lynch Life charges interest of 5.75% 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 the preferred loan
collateral amount earns interest at an annual rate of 5.75%. The loan collateral
amount in excess of the preferred loan collateral amount earns interest at an
annual rate of 5.0%.
Merrill Lynch Life may change the interest rates currently charged on loans and
the rates of interest earned on the loan collateral amounts. Any such changes
will be effective on the contract anniversary following the date such rates are
declared.
Net Loan Cost. Whether or not loan interest is paid when due, on the contract
anniversary, Merrill Lynch Life reduces the investment base by the net loan cost
(the difference between the interest charged and the earnings on the amount held
as collateral in the general account). Since the interest charged on preferred
loans is 5.75% and the preferred loan collateral amount earns interest at an
annual rate of 5.75%, the current net loan cost on preferred loan amounts is
zero. Since the interest charged on loans in excess of the preferred loan amount
is 5.75%, and the loan collateral amount in excess of the preferred loan
collateral amount earns interest at an annual rate of 5.0%, the current net loan
cost on such loans is .75%. The net loan cost is taken into account in
determining the net cash surrender value of the Contract if the date of
surrender is not a contract anniversary.
Cancellation Due to Excess Debt. If on a processing date the debt exceeds the
larger of (i) cash value plus certain excess sales load, and less charges due on
that date, and (ii) the fixed base (if any), Merrill Lynch Life will cancel the
Contract 61 days after a notice of intent to terminate the Contract is mailed to
the contract owner unless Merrill Lynch Life has received at least the minimum
repayment amount specified in the notice. During the first 24 months after the
Contract is issued, Merrill Lynch Life will add excess sales load to the cash
value as necessary to keep the Contract in force if debt exceeds the larger of
the cash value less charges due and the fixed base. (See "Contract
Loading -- Excess Sales Load" on page 17.) Upon termination, Merrill Lynch Life
will deduct any charges for cost of insurance and rider costs that may be
applicable to the 61-day period and refund any unearned charges for cost of
insurance, rider costs and any excess sales load not previously applied to keep
the Contract in force. If the Contract lapses with a loan outstanding, adverse
tax consequences may result. (See "Tax Considerations" on page 30.)
PARTIAL WITHDRAWALS
Beginning in the second contract year and prior to the insured's attained age
100, and subject to state regulation, a contract owner may make partial
withdrawals by submitting a request in a form satisfactory to Merrill Lynch
Life. The effective date of the withdrawal is the date a withdrawal request is
received at the
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Service Center. Contract owners may elect to receive the withdrawal amount
either in a single payment or, subject to Merrill Lynch Life's rules, under one
or more income plans.
Contract owners may make one partial withdrawal each contract year. The minimum
amount for each partial withdrawal is $1,000. Following a partial withdrawal,
the remaining cash value less debt must equal or exceed $5,000 and the remaining
face amount must be at least $250,000. The amount of any partial withdrawal may
not exceed the total loan value as of the effective date of the partial
withdrawal less any debt. A partial withdrawal may not be repaid. A partial
withdrawal will not be permitted if after the withdrawal the guarantee period
would extend beyond the insured's attained age 100.
Effect on Investment Base, Fixed Base, Cash Value and Death Benefit. As of the
effective date of the withdrawal, the investment base, fixed base, cash value
and, if the contract owner has elected death benefit option 1, the face amount
of the Contract will each be reduced by the amount of the partial withdrawal.
Merrill Lynch Life allocates this reduction proportionately to the investment
base in each of the contract owner's investment divisions unless notified
otherwise. The variable insurance amount will also reflect the partial
withdrawal as of the effective date.
Effect on Guarantee Period. As of the processing date on or next following the
effective date of a partial withdrawal, Merrill Lynch Life calculates a new
guarantee period. This is done by taking the immediate decrease in cash value
resulting from the partial withdrawal and adding to that amount interest at an
annual rate of 4.5% for the period from the date of the withdrawal to the
contract processing date on or next following such date. This is the guarantee
adjustment amount. The guarantee adjustment amount is subtracted from the fixed
base and the resulting new fixed base is used to calculate a new guarantee
period. For a discussion of the effect of partial withdrawals on a Contract's
guarantee period, see "Partial Withdrawals" in the Examples on page 46.
A partial withdrawal will not be permitted if after the withdrawal, the Contract
would not qualify as life insurance under federal tax law. A partial withdrawal
may cause a Contract which is not a modified endowment contract to become a
modified endowment contract. In such a case, Merrill Lynch Life will not process
the partial withdrawal until the contract owner confirms in writing his or her
intent to convert the Contract to a modified endowment contract. For a
discussion of the tax issues associated with a partial withdrawal, see "Tax
Considerations" on page 30.
DEATH BENEFIT PROCEEDS
Merrill Lynch Life will pay the death benefit proceeds to the beneficiary upon
receipt of all information needed to process the payment, including due proof of
the death of the insured.
If the insured should die within two years from the Contract's issue date,
within two years from the effective date of any requested change in the death
benefit option requiring evidence of insurability, or within two years of an
increase in the additional insurance rider face amount, due proof of the
insured's death should be sent promptly to the Service Center since Merrill
Lynch Life may pay only a limited benefit or contest the Contract. (See
"Incontestability" and "Payment in Case of Suicide" on page 28.)
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.
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The death benefit will never be less than the amount required to keep the
Contract qualified as life insurance under federal income tax laws.
To determine the death benefit proceeds, Merrill Lynch Life will subtract from
the death benefit any debt and add to the death benefit any rider benefits
payable.
The values used in calculating the death benefit proceeds are as of the date of
death. If the insured dies during the grace period, the death benefit proceeds
equal the death benefit proceeds in effect immediately prior to the grace period
reduced by any overdue charges. (See "When the Guarantee Period Does Not Extend
to the Insured's Attained Age 100" on page 18.)
If the insured dies at or after the insured's attained age 100, we will instead
pay the beneficiary the post-100 death benefit proceeds (see "Post-100 Death
Benefit Proceeds" on page 23).
Variable Insurance Amount. Merrill Lynch Life determines the variable insurance
amount daily by:
- calculating the cash value (plus excess sales load during the first 24
months after the Contract is issued); and
- multiplying it by the cash value corridor factor (explained below) for
the insured at his or her attained age.
The variable insurance amount will never be less than required by federal tax
law.
Cash Value Corridor Factor. The cash value corridor factor is used to determine
the amount of death benefit purchased by $1.00 of cash value. It is based on the
attained age of the insured on the date of calculation. It decreases daily as
the insured's age increases. As a result, the variable insurance amount as a
multiple of the cash value will decrease over time. A table of cash value
corridor factors as of each anniversary is included in the Contract.
Table of Illustrative Cash Value Corridor Factors
on Anniversaries
<TABLE>
<CAPTION>
ATTAINED AGE FACTOR
- ------------- -----
<S> <C>
40 and under 250%
45 215%
55 150%
65 120%
75-90 105%
95 and over 100%
</TABLE>
Changing the Death Benefit Option. On each contract anniversary beginning with
the first and provided that the insured has not attained age 86, the contract
owner may change the death benefit option. The effective date of the change will
be the contract anniversary next following approval of the change. Merrill Lynch
Life will change the face amount in order to keep the death benefit constant on
the effective date of the change. Therefore, if the change is from option 1 to
option 2, the face amount of the Contract will be decreased by the cash value on
the date of the change. A change in the death benefit option will not be
permitted if it would result in a face amount of less than $250,000 or if the
resulting guarantee period would extend beyond the insured's attained age 100.
If the change is from option 2 to option 1, the face amount of the Contract will
be increased by the cash value on the date of the change. For a discussion of
the effect of a change in the death benefit option on a Contract, see "Changing
the Death Benefit Option" in the Examples on page 47.
If the contract owner requests a change in the death benefit option from option
1 to option 2, evidence of insurability in a form satisfactory to Merrill Lynch
Life that the insured is insurable may be required. In no
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event will a change be permitted if, after the change, the Contract would not
qualify as life insurance under federal tax laws as interpreted by Merrill Lynch
Life.
As of the effective date of a change in the death benefit option which results
in a change in the face amount, Merrill Lynch Life calculates a new guarantee
period using the new face amount (plus the additional insurance rider face
amount) and the fixed base on that date.
A change in the death benefit option may cause a Contract which is not a
modified endowment contract to become a modified endowment contract. In such a
case, Merrill Lynch Life will not process the change until the contract owner
confirms in writing his or her intent to convert the Contract to a modified
endowment contract. For a discussion of the tax issues associated with a change
in the death benefit option, see "Tax Considerations" on page 30.
Post-100 Death Benefit Proceeds. The death benefit proceeds at and after the
insured's attained age 100 depend upon the death benefit option in effect on the
date of death.
If option 1 is in effect, the post-100 death benefit is calculated based on the
cash value and the adjusted face amount where:
- the adjusted face amount equals the lesser of:
(1) the face amount at the insured's attained age 100, and
(2) the cash value as of the date of death plus the net amount at risk
at the insured's attained age 100.
- the net amount at risk at the insured's attained age 100 equals the face
amount at the insured's attained age 100 less the cash value at that time.
- the death benefit equals the greater of:
(1) the cash value as of the date of death, and
(2) the adjusted face amount.
If option 2 is in effect, the post-100 death benefit is equal to the face amount
at the insured's attained age 100 plus the cash value as of the date of death.
To determine the post-100 death benefit proceeds under either option, Merrill
Lynch Life will subtract from the death benefit any debt.
Benefits at the Insured's Attained Age 100. At the insured's attained age 100,
the guarantee period, if any, ends. Cash value will continue to increase or
decrease depending on the investment experience of the investment divisions to
which the Contract's investment base is allocated. Upon the death of the
insured, Merrill Lynch Life will pay the beneficiary the post-100 death benefit
proceeds.
At and after the insured's attained age 100, cost of insurance charges will no
longer be deducted. Loan repayments will be accepted. Net loan cost will
continue to be deducted and loan interest charges will continue to accrue.
Additional payments, partial withdrawals and additional loans will not be
permitted. Any additional insurance rider coverage terminates.
The tax treatment of post-100 benefits is unclear. A contract owner should
consult a tax advisor about the tax consequences associated with such benefits.
PAYMENT OF DEATH BENEFIT PROCEEDS
Merrill Lynch Life will generally pay the death benefit proceeds to the
beneficiary within seven days after all the information needed to process the
payment is received at its Service Center. Merrill Lynch Life will add interest
from the date of the insured's death to the date of payment at an annual rate of
at least 4%. The beneficiary may elect to receive the proceeds either in a
single payment or under one or more income plans described on page 28.
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Payment may be delayed if the Contract is being contested or under the
circumstances described in "Using the Contract" on page 26 and "Other Contract
Provisions" on page 28. If a delay is necessary and death of the insured occurs
prior to the end of the guarantee period, Merrill Lynch Life may delay payment
of any excess of the death benefit over the face amount. After the guarantee
period has expired, Merrill Lynch Life may delay payment of the entire death
benefit.
ACCELERATED BENEFIT RIDER
Applicants residing in states that have approved the Accelerated Benefit Rider
(the "ABR") may elect to add it to their Contract. The ABR may only be added to
the Contract at the time the Contract is issued. The ABR permits the contract
owner to receive, upon request and subject to approval by Merrill Lynch Life,
accelerated payment of part of the Contract's death benefit, adjusted to reflect
current value, if the insured develops a non-correctable illness or physical
condition which with reasonable medical certainty is expected to result in his
or her death within 12 months ("Terminal Illness"). There is no charge for
including the ABR in a Contract. However, an administrative expense charge not
to exceed $250 will be deducted from the accelerated benefit at the time it is
paid.
The federal income tax consequences associated with adding the ABR to the
Contract or receiving an accelerated benefit payment are uncertain. You should
consult your personal tax advisor before adding the ABR or requesting an
accelerated benefit payment under the ABR.
The accelerated benefit amount requested cannot exceed the lesser of 75% of the
"eligible amount" or $250,000. If death benefit option 1 is in effect, the
eligible amount is the face amount of the Contract. If death benefit option 2 is
in effect, the eligible amount is the face amount plus the cash value of the
Contract.
The amount of the accelerated benefit payment is the accelerated benefit amount
requested, adjusted to reflect a 12-month discount rate, less partial repayment
of any outstanding debt, and less the administrative expense charge. The minimum
amount of the accelerated benefit payment must be at least $10,000.
The eligible amount and the accelerated benefit payment will be determined as of
the date Merrill Lynch Life receives all requirements to pay benefits under the
rider.
A contract owner may request only one accelerated benefit payment. The payment
will be made in a lump sum. There are no restrictions on the owner's use of the
proceeds.
In order for a contract owner to receive an accelerated benefit payment, as of
the date Merrill Lynch Life receives all requirements to pay benefits under the
rider, the Contract must have been in force for at least two years from its
issue date or date of its last reinstatement. The owner must submit completed
claim forms to Merrill Lynch Life, including certification by a treating
physician that the insured has a Terminal Illness, as provided in the rider.
Merrill Lynch Life may request additional medical information from the insured's
physician and/or may require an independent physical examination (at its
expense) before approving the claim for payment of the accelerated benefit.
Written consent for payment must be given by any co-owner, spouse and any
irrevocable beneficiaries having an interest in the Contract. Merrill Lynch Life
will not approve payment of an accelerated benefit if the Contract is assigned
in whole or in part, or if the owner is required to elect it by any third party.
The total of accelerated benefit payments under all Contracts issued by Merrill
Lynch Life and its affiliates on the life of the insured may not exceed
$250,000.
Upon payment of an accelerated benefit, Merrill Lynch Life will reduce the face
amount of the Contract by the amount of the accelerated benefit payment. The
cash value will be reduced and will equal the original cash value multiplied by
the death benefit after payment of the accelerated benefit, divided by the death
benefit before payment of the accelerated benefit. The investment base, fixed
base and variable insurance amount will each be reduced as a result of the
decrease in death benefit and cash value. The guarantee period will also be
recalculated. The reduction in total investment base will be allocated among the
investment divisions based on the percentages indicated by the owner. If such
instructions are not provided, allocation will be made among the investment
divisions in the same proportion as the investment base in each division bears
to the total investment base, as of the date of payment. Any outstanding debt
will be reduced by the amount of the loan repayment deducted from the
accelerated benefit.
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The ABR terminates on the earliest of the date an accelerated benefit payment is
made; or the date that the Contract is surrendered, lapses or otherwise
terminates, or the date Merrill Lynch Life receives the contract owner's request
to terminate the ABR.
RIGHTS TO CANCEL OR CONVERT
"Free Look" Period. A contract owner may cancel his or her Contract during the
"free look" period by returning it for a refund. Generally, the "free look"
period ends the later of ten days after the Contract is received, 45 days after
the contract owner completes the application or ten days after Merrill Lynch
Life mails or personally delivers to the contract owner the Notice of Withdrawal
Right. To cancel the Contract during the "free look" period, the contract owner
must mail or deliver the Contract to Merrill Lynch Life's Service Center or to
the registered representative who sold it. Merrill Lynch Life will refund the
payment made without interest. If cancelled, Merrill Lynch Life may require the
contract owner to wait six months before applying again.
Converting the Contract. A contract owner may convert the Contract for a
contract with benefits that do not vary with the investment results of a
separate account. Once a contract owner exercises this right, the investment
base and additional payments may not be allocated to the Separate Account. A
request to convert must be made in writing within 24 months after the issue date
of the Contract while the insured is living. The conversion will not require
evidence of insurability.
The conversion will be accomplished by adding an endorsement to the Contract and
transferring, without charge, the investment base in the Separate Account to the
guaranteed interest division ("GID"). Assets in the guaranteed interest division
are held in Merrill Lynch Life's general account. The investment base at the
time of conversion and any additional payments will remain in the guaranteed
interest division and be credited with interest at a rate declared by Merrill
Lynch Life. A declared interest rate for any amount allocated to the guaranteed
interest division will be in effect for at least one year. After conversion, the
Contract will not be subject to charges to the Separate Account. For a
discussion of the tax consequences of converting the Contract, see "Tax
Considerations" on page 30.
REPORTS TO CONTRACT OWNERS
After the end of each processing period, contract owners will be sent a
statement of the allocation of their investment base, death benefit, cash value,
any debt and, if there has been a change, the face amount, the guarantee period
and the additional insurance rider face amount. All figures will be as of the
end of the immediately preceding processing period. The statement will show the
amounts deducted from or added to the investment base during the processing
period. The statement will also include any other information that may be
currently required by a contract owner's state.
Contract owners will receive confirmation of all financial transactions. Such
confirmations will show the price per unit of each of the contract owner's
investment divisions, the number of units a contract owner has in the investment
division and the value of the investment division computed by multiplying the
quantity of units by the price per unit. (See "Net Rate of Return for an
Investment Division" on page 35.) The sum of the values in each investment
division is a contract owner's investment base.
Contract owners will also be sent an annual and a semi-annual report containing
financial statements and a list of portfolio securities of the Series Fund and
the Variable Series Funds, as required by the Investment Company Act of 1940.
CMA Account Reporting. Contract owners who have the CMA Insurance Service will
have certain Contract information included as part of their regular monthly CMA
account statement. It will list the investment base allocation, death benefit,
cash value, debt and any CMA account activity affecting the Contract during the
month.
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MORE ABOUT THE CONTRACT
USING THE CONTRACT
Ownership. The contract owner is usually the insured, unless another owner has
been named in the application. The contract owner has all rights and options
described in the Contract.
The contract owner may want to name a contingent owner. If the contract owner
dies before the insured, the contingent owner will own the contract owner's
interest in the Contract and have the contract owner's rights. If the contract
owner doesn't name a contingent owner, the contract owner's estate will own the
contract owner's interest in the Contract upon the owner's death.
If there is more than one contract owner, Merrill Lynch Life will treat the
owners as joint tenants with rights of survivorship unless the ownership
designation provides otherwise. The owners must exercise their rights and
options jointly, except that any one of the owners may reallocate the Contract's
investment base by phone if the owner provides the personal identification
number as well as the Contract number. One contract owner must be designated, in
writing, to receive all notices, correspondence and tax reporting to which
contract owners are entitled under the Contract.
Changing the Owner. During the insured's lifetime, with the consent of any
irrevocable beneficiary, the contract owner has the right to transfer ownership
of the Contract. The new owner will have all rights and options described in the
Contract. The change will be effective as of the day the notice is signed, but
will not affect any payment made or action taken by Merrill Lynch Life before
receipt of the notice of the change at the Service Center. Changing the owner
may have tax consequences. (See "Tax Considerations" on page 30.)
Assigning the Contract as Collateral. Contract owners may assign the Contract
as collateral security for a loan or other obligation. This does not change the
ownership. However, the contract owner's rights and any beneficiary's rights are
subject to the terms of the assignment. Contract owners must give satisfactory
written notice at the Service Center in order to make or release an assignment.
Merrill Lynch Life is not responsible for the validity of any assignment.
For a discussion of the tax issues associated with a collateral assignment, see
"Tax Considerations" on page 30.
Naming Beneficiaries. Merrill Lynch Life will pay the primary beneficiary the
death benefit proceeds of the Contract on the insured's death. If the primary
beneficiary has died, Merrill Lynch Life will pay the contingent beneficiary. If
no contingent beneficiary is living, Merrill Lynch Life will pay the estate of
the insured.
A contract owner may name more than one person as primary or contingent
beneficiaries. Merrill Lynch Life will pay proceeds in equal shares to the
surviving beneficiaries unless the beneficiary designation provides otherwise.
A contract owner has the right to change beneficiaries during the insured's
lifetime, unless the primary beneficiary designation has been made irrevocable.
If the designation is irrevocable, the primary beneficiary must consent when
certain rights and options are exercised under this Contract. If the beneficiary
is changed, the change will take effect as of the day the notice is signed, but
will not affect any payment made or action taken by Merrill Lynch Life before
receipt of the notice of the change at the Service Center.
How Merrill Lynch Life Makes Payments. Merrill Lynch Life generally pays death
benefit proceeds, partial withdrawals, loans and net cash surrender value on
cancellation from the Separate Account within seven days after the Service
Center receives all the information needed to process the payment.
However, it may delay payment from the Separate Account if it isn't practical
for Merrill Lynch Life to value or dispose of Trust units, Series Fund shares or
Variable Series Funds shares because:
- the New York Stock Exchange is closed, other than for a customary weekend
or holiday; or
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- trading on the New York Stock Exchange is restricted by the Securities
and Exchange Commission; or
- the Securities and Exchange Commission declares that an emergency exists
such that it is not reasonably practical to dispose of securities held in
the Separate Account or to determine the value of their assets; or
- the Securities and Exchange Commission by order so permits for the
protection of contract owners.
SOME ADMINISTRATIVE PROCEDURES
Described below are certain administrative procedures. Merrill Lynch Life
reserves the right to modify them or to eliminate them. For administrative and
tax purposes, Merrill Lynch Life may from time to time require that specific
forms be completed in order to accomplish certain transactions, including
surrenders.
Personal Identification Number. Merrill Lynch Life will send each contract
owner a four-digit personal identification number ("PIN") shortly after the
Contract is placed in force and before the end of the "free look" period. This
number must be given when the contract owner calls the Service Center to get
information about the Contract, to make a loan (if an authorization is on file),
or to make other requests. Each PIN will be accompanied by a notice reminding
the contract owner that all of the investment base is in the division investing
in the Money Reserve Portfolio, and will be reallocated to the investment
divisions selected at the time of application. The notice sent to contract
owners who did not choose to preallocate investment base will indicate that the
allocation to the Money Reserve Portfolio may be changed by calling or writing
to the Service Center. (See "Changing the Allocation" on page 16.)
Reallocating the Investment Base. Contract owners can reallocate their
investment base either in writing in a form satisfactory to Merrill Lynch Life
or by phone. If the reallocation is requested by phone, contract owners must
give their personal identification number as well as their Contract number.
Merrill Lynch Life will give a confirmation number over the phone and then
follow up in writing.
Requesting a Loan. A loan may be requested in writing in a form satisfactory to
Merrill Lynch Life or, if all required authorization forms are on file, by
phone. Once the authorization has been received at the Service Center, contract
owners can call the Service Center, give their Contract number, name and
personal identification number, and tell Merrill Lynch Life the loan amount and
from which divisions the loan should be transferred.
Upon request, Merrill Lynch Life will wire the funds to the contract owner's
account at the financial institution named on the contract owner's
authorization. Merrill Lynch Life will generally wire the funds within two
working days of receipt of the request. If the contract owner has the CMA
Insurance Service, funds may be transferred directly to that CMA account.
Requesting Partial Withdrawals. Beginning in the second contract year, partial
withdrawals may be requested in writing in a form satisfactory to Merrill Lynch
Life. A contract owner may request a partial withdrawal by phone if all required
phone authorization forms are on file. Once the authorization has been received
at the Service Center, contract owners can call the Service Center, give their
Contract number, name and personal identification number, and tell Merrill Lynch
Life how much to withdraw and from which investment divisions.
Upon request, Merrill Lynch Life will wire the funds to the contract owner's
account at the financial institution named on the contract owner's
authorization. Merrill Lynch Life will generally wire the funds within two
working days of receipt of the request. If the contract owner has the CMA
Insurance Service, funds may be transferred directly to that CMA account.
Telephone Requests. A telephone request for a loan, partial withdrawal or a
reallocation received before 4 p.m. (ET) generally will be processed the same
day. A request received at or after 4 p.m. (ET) will be processed the following
business day. Merrill Lynch Life reserves the right to change or discontinue
telephone transfer procedures.
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OTHER CONTRACT PROVISIONS
In Case of Errors in the Application. If an age or sex given in the application
is wrong, it could mean that the face amount or any other Contract benefit is
wrong. Merrill Lynch Life will pay what the payments made would have bought for
the guarantee period at the true age or sex.
Incontestability. Merrill Lynch Life will rely on statements made in the
applications. Legally, they are considered representations, not warranties.
Merrill Lynch Life can contest the validity of a Contract if any material
misstatements are made in the initial application or any application for
reinstatement. Merrill Lynch Life can also contest the validity of any change in
face amount due to a change in death benefit option or any increase in the
additional insurance rider face amount requested if any material misstatements
are made in any application required for the change or increase.
Subject to state regulation, Merrill Lynch Life will not contest the validity of
a Contract after it has been in effect during the lifetime of the insured for
two years from the date of issue or the date of any reinstatement. A change in
face amount due to a change in the death benefit option or any increase in the
additional insurance rider face amount won't be contested after the change or
increase has been in effect during the lifetime of the insured for two years
from the date of the change.
Payment in Case of Suicide. Subject to state regulation, if the insured commits
suicide within two years from the Contract's issue date or the date of any
reinstatement, Merrill Lynch Life will pay only a limited death benefit and then
terminate the Contract. The benefit will be equal to the amount of the payments
made, reduced by any debt and partial withdrawals.
Subject to state regulation, if the insured commits suicide within two years of
the effective date of a change in the death benefit option requiring evidence of
insurability or of the effective date of an increase in the additional insurance
rider face amount, any amount of death benefit which would not be payable except
for the fact that the face amount was increased will be limited to the amount of
cost of insurance deductions made for the increase.
Contract Changes -- Applicable Federal Tax Law. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. Therefore, to maintain this qualification to the
maximum extent of the law, Merrill Lynch Life reserves the right to return any
additional payments that would cause the Contract to fail to qualify as life
insurance under applicable tax law as interpreted by Merrill Lynch Life.
Further, Merrill Lynch Life reserves the right to make changes in the Contract
or its riders or to make distributions from the Contract to the extent it is
necessary to continue to qualify the Contract as life insurance. Any changes
will apply uniformly to all Contracts that are affected and contract owners will
be given advance written notice of such changes.
State Variations. Certain Contract features, including the "free look" right,
are subject to state variation. The contract owner should read his or her
Contract carefully to determine whether any variations apply in the state in
which the Contract is issued.
INCOME PLANS
Merrill Lynch Life offers several income plans to provide for payment of the
death benefit proceeds to the beneficiary. The contract owner may choose one or
more income plans at any time during the lifetime of the insured. If no plan has
been chosen when the insured dies, the beneficiary has one year to apply the
death benefit proceeds either paid or payable to that beneficiary to one or more
of the plans. The contract owner may also choose one or more income plans if the
Contract is cancelled or a partial withdrawal is taken. Merrill Lynch Life's
approval is needed for any plan where any income payment would be less than
$100. Payments under these plans do not depend on the investment results of a
separate account.
Income plans include:
Annuity Plan. An amount can be used to purchase a single premium immediate
annuity.
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Interest Payment. Amounts can be left with Merrill Lynch Life to earn
interest at an annual rate of at least 3%. Interest payments can be made
annually, semi-annually, quarterly or monthly.
Income for a Fixed Period. Payments are made in equal installments for a
fixed number of years.
Income for Life. Payments are made in equal monthly installments until
death of a named person or end of a designated period, whichever is later.
The designated period may be for 10 or 20 years.
Income of a Fixed Amount. Payments are made in equal installments until
proceeds applied under the option and interest on unpaid balance at not
less than 3% per year are exhausted.
Joint Life Income. Payments are made in monthly installments as long as at
least one of two named persons is living. While both are living, full
payments are made. If one dies, payments at two-thirds of the full amount
are made. Payments end completely when both named persons die.
Once in effect, some of the plans may not provide any surrender rights.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, Merrill Lynch Life may reduce the
sales load, cost of insurance rates and the minimum payment and may modify
underwriting classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows Merrill Lynch Life to
sell Contracts to its employees on an individual basis. Costs for sales,
administration and mortality generally vary with the size and stability of the
group and the reasons the Contracts are purchased, among other factors. Merrill
Lynch Life takes all these factors into account when reducing charges. To
qualify for reduced charges, a group or sponsored arrangement must meet certain
requirements, including requirements for size and number of years in existence.
Group or sponsored arrangements that have been set up solely to buy Contracts or
that have been in existence less than six months will not qualify for reduced
charges.
Merrill Lynch Life makes any reductions according to rules in effect when an
application for a Contract or additional payment is approved. It may change
these rules from time to time. However, reductions in charges will not
discriminate unfairly against any person.
UNISEX LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983 the Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title Vll of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
Generally, the Contracts offered by this Prospectus are based on mortality
tables that distinguish between men and women. As a result, the Contract pays
different benefits to men and women of the same age. Employers and employee
organizations should check with their legal advisers before purchasing these
Contracts.
Some states prohibit the use of actuarial tables that distinguish between men
and women in determining payments and contract benefits for contracts issued on
the lives of their residents. Therefore, Contracts offered 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,
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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, 1994, December 31, 1993 and December
31, 1992 were $8,456,418, $2,513,335 and $119,298, respectively.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD. Registered representatives of these other broker-dealers may be
compensated on a different basis than MLPF&S registered representatives.
TAX CONSIDERATIONS
Definition of Life Insurance. In order to qualify as a life insurance contract
for federal tax purposes, the Contract must meet the definition of a life
insurance contract which is set forth in Section 7702 of the Internal Revenue
Code of 1986, as amended (the "Code"). The manner in which Section 7702 should
be applied to certain features of the Contract offered in this Prospectus is not
directly addressed by Section 7702. Nevertheless, Merrill Lynch Life believes
that the Contract will meet the Section 7702 definition of a life insurance
contract. This means that:
- the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
- the contract owner should not be considered in constructive receipt of
the cash value, including any increases, until actual cancellation of the
Contract (see "Tax Treatment of Loans and Other Distributions" below).
In the absence of final regulations or other pertinent interpretations of
Section 7702, however, there is necessarily some uncertainty as to whether a
substandard risk Contract will meet the statutory life insurance contract
definition. There may also be some uncertainty with respect to a Contract with
an additional insurance rider attached. If a Contract were determined not to be
a life insurance contract for purposes of Section 7702, such Contract would not
provide most of the tax advantages normally provided by a life insurance
contracts.
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 28.)
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
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requirements in connection with variable contracts. The Separate Account,
through the Series Fund and the Variable Series Funds, intends to comply with
these requirements. Although Merrill Lynch Life doesn't control the Series Fund
or the Variable Series Funds, it intends to monitor the investments of the
Series Fund and the Variable Series Funds to ensure compliance with the
requirements prescribed by the Treasury Department.
In connection with the issuance of the temporary diversification regulations,
the Treasury Department stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which an owner's control of the
investments of a separate account may cause the owner, rather than the insurance
company, to be treated as the owner of the assets in the account. If the
contract owner is considered the owner of the assets of the Separate Account,
income and gains from the account would be included in the owner's gross income.
The ownership rights under the Contract offered in this Prospectus are similar
to, but different in certain respects from, those described by the Internal
Revenue Service in rulings in which it determined that the owners were not
owners of separate account assets. For example, the owner of the Contract has
additional flexibility in allocating payments and cash values. These differences
could result in the owner being treated as the owner of the assets of the
Separate Account. In addition, Merrill Lynch Life does not know what standards
will be set forth in the regulations or rulings which the Treasury has stated it
expects to be issued. Merrill Lynch Life therefore reserves the right to modify
the Contract as necessary to attempt to prevent the contract owner from being
considered the owner of the assets of the Separate Account.
Tax Treatment of Loans and Other Distributions. Federal tax law establishes a
class of life insurance contracts referred to as modified endowment contracts. A
modified endowment contract is any contract which satisfies the definition of
life insurance set forth in Section 7702 of the Code but fails to meet the 7-pay
test. This test applies a cumulative limit on the amount of payments that can be
made into a contract each year in the first seven contract years in order to
avoid modified endowment treatment. In effect, compliance with the 7-pay test
requires that contracts be purchased with a higher face amount for a given
initial payment than would otherwise be required, at a minimum, to meet the
definition of life insurance. Contracts that do not satisfy the 7-pay test,
including contracts which initially satisfied the 7-pay test but later failed
the test, will be considered modified endowment contracts subject to the
following distribution rules. Loans and partial withdrawals from, as well as
collateral assignments of, modified endowment contracts will be treated as
distributions to the contract owner. Furthermore, if the loan interest is
capitalized by adding the amount due to the balance of the loan, the amount of
the capitalized interest will be treated as a distribution which may be subject
to income tax, to the extent of the income in the contract. All pre-death
distributions (including loans, partial withdrawals and collateral assignments)
from these contracts will be included in gross income on an income-first basis
to the extent of any income in the contract (the cash value less the contract
owner's investment in the contract) immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, capitalized interest, collateral assignments, partial withdrawals and
complete surrenders) from modified endowment contracts to the extent they are
included in income, unless such amounts are distributed on or after the taxpayer
attains age 59 1/2, because the taxpayer is disabled, or as substantially equal
periodic payments over the taxpayer's life (or life expectancy) or over the
joint lives (or joint life expectancies) of the taxpayer and his or her
beneficiary.
Contracts that comply with the 7-pay test will not be classified as modified
endowment contracts. Loans from contracts that are not modified endowment
contracts generally will be considered indebtedness of an owner and no part of a
loan generally will constitute income to the owner. (The treatment of a
preferred loan is unclear; such a loan may be considered a withdrawal instead of
an indebtedness of the contract owner.) In addition, pre-death distributions
from these contracts will generally not be included in gross income to the
extent that the amount received does not exceed the owner's investment in the
contract. An exception to this general rule may occur in the case of a decrease
in the death benefit provided in respect of a contract (possibly resulting from
a partial withdrawal) or any other change that reduces benefits under the
contract in the first 15 years after the contract is issued and that results in
a cash distribution to the contract owner in order for the contract to continue
complying with the Section 7702 definitional limits. Such a cash distribution
may be
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taxed in whole or in part as ordinary income (to the extent of any gain in the
contract) under rules prescribed in Section 7702.
A lapse of such a contract with an outstanding loan will result in the treatment
of the loan cancellation (including the accrued interest) as a distribution
under the contract and may be taxable.
Compliance with the 7-pay test does not imply or guarantee that only seven
payments will be required for the initial death benefit to be guaranteed for
life. Making additional payments or reducing the benefits (for example, through
a partial withdrawal, a change in death benefit option or terminating additional
benefits under a rider) may violate the 7-pay test or, at a minimum, reduce the
amount that may be paid in the future under the 7-pay test. Further, reducing
the death benefit during the first seven contract years will require retroactive
retesting and may well result in a failure of the 7-pay test regardless of any
efforts by Merrill Lynch Life to provide a payment schedule that will not
violate the 7-pay test.
Any contract received in an exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts that is described in the
Prospectus. A contract that is not originally classified as a modified endowment
contract can become so classified if there is a reduction in benefits during the
first seven contract years (including, for example, by a decrease in the
additional insurance rider face amount or a change in death benefit option) or
if a material change is made in the contract at any time. A material change
includes, but is not limited to, a change in the benefits that was not reflected
in a prior 7-pay test computation, such as a change in death benefit option.
This could result from additional payments made after 7-pay test calculations
done at the time of the contract exchange. Contract owners may choose not to
exercise their right to make additional payments, in order to preserve their
contract's current tax treatment.
If a contract becomes a modified endowment contract, distributions that occur
during the contract year it becomes a modified endowment contract and any
subsequent contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a contract within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a contract that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Special Treatment of Loans on the Contract. If there is any borrowing against
the Contract, whether a modified endowment contract or not, the interest paid on
loans may not be tax deductible.
Aggregation of Modified Endowment Contracts. In the case of a pre-death
distribution (including a loan, partial withdrawal, collateral assignment or
complete surrender) from a contract that is treated as a modified endowment
contract under the rules described above, a special aggregation requirement may
apply for purposes of determining the amount of the income on the contract.
Specifically, if Merrill Lynch Life or any of its affiliates issues to the same
contract owner more than one modified endowment contract within a calendar year,
then for purposes of measuring the income on the contract with respect to a
distribution from any of those contracts, the income on the contract for all
those contracts will be aggregated and attributed to that distribution.
Tax Treatment of Policy Split. The Contract may be issued upon exercise of
rights provided by a policy split rider under certain joint and last survivor
contracts issued by Merrill Lynch Life. (For more information about this rider
and the conditions and rules relating to the exercise of any rights under the
rider, the contract owner should call the Service Center.) A policy split could
have adverse tax consequences; for example, it is not clear whether a policy
split will be treated as a nontaxable exchange under Sections 1031 through 1043
of the Code. If a policy split is not treated as a nontaxable exchange, a split
could result in the recognition of taxable income in an amount up to any gain in
the joint and last survivor contract at the time of the split. In addition, it
is not clear whether the individual contracts that result from a policy split
would in all circumstances be treated as life insurance contracts for federal
income tax purposes and, if so treated, whether the contracts would be
classified as modified endowment contracts. (See "Tax Treatment of Loans and
Other Distributions" on page 31.) Before the contract owner exercises rights
provided by a policy split rider in order to obtain
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this Contract, it is important that he or she consult with a competent tax
advisor regarding the possible consequences of a policy split.
Accelerated Benefit Rider. The federal income tax consequences associated with
adding an Accelerated Benefit Rider to a Contract or receiving an accelerated
benefit payment under such a rider are uncertain. You should consult your
personal tax adviser about these tax consequences.
Other Tax Considerations. The transfer of the Contract or the designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation skipping
transfer taxes. For example, the transfer of the Contract to, or the designation
as beneficiary of, or the payment of proceeds to, a person who is assigned to a
generation which is two or more generations below the generation assignment of
the contract owner, may have generation skipping transfer tax considerations
under Section 2601 of the Code.
The individual situation of each contract owner or beneficiary will determine
the extent, if any, to which federal, state and local transfer taxes may be
imposed. The contract owner should consult with a tax advisor for specific
information in connection with these taxes.
The particular situation of each contract owner or beneficiary will determine
how ownership or receipt of contract proceeds will be treated for purpose of
federal or state tax, as well as state and local estate, inheritance, generation
skipping and other taxes.
Other Transactions. Changing the contract owner or an additional insurance
rider's face amount may have tax consequences. Exchanging this Contract for
another involving the same insured should have no federal income consequences if
there is no debt and no cash or other property is received, according to Section
1035(a)(1) of the Code. The new contract would have to satisfy the 7-pay test
from the date of the exchange to avoid characterization as a modified endowment
contract. An exchange for a new contract may, however, result in a loss of
grandfathering status for statutory changes made after the old contract was
issued. A tax advisor should be consulted before effecting an exchange.
In addition, the Contract may be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a contract in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.
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.
33
<PAGE> 38
MERRILL LYNCH LIFE'S INCOME TAXES
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 17.)
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.
34
<PAGE> 39
NET RATE OF RETURN FOR AN INVESTMENT DIVISION
Each investment division has a distinct unit value (also referred to as "price"
or "separate account index" in reports furnished to the contract owner by
Merrill Lynch Life). When payments or other amounts are allocated to an
investment division, a number of units are purchased based on the value of a
unit of the investment division as of the end of the valuation period during
which the allocation is made. When amounts are transferred out of, or deducted
from, an investment division, units are redeemed in a similar manner. A
valuation period is each business day together with any non-business days before
it. A business day for an investment division is any day the New York Stock
Exchange is open or the SEC requires that the net asset value of an investment
division be determined.
For each investment division, the separate account index was initially set at
$10.00. The separate account index for each subsequent valuation period
fluctuates based upon the net rate of return for that period. Merrill Lynch Life
determines the net rate of return of an investment division at the end of each
valuation period. The net rate of return reflects the investment performance of
the division for the valuation period and is net of the charges to the Separate
Account described on page 17.
For divisions investing in the Series Fund or the Variable Series Funds, shares
are valued at net asset value and reflect reinvestment of any dividends or
capital gains distributions declared by the Series Fund or the Variable Series
Funds.
For divisions investing in the Zero Trusts, units of each Zero Trust are valued
at the sponsor's repurchase price, as explained in the prospectus for the Zero
Trusts.
THE SERIES FUND AND THE VARIABLE SERIES FUNDS
Buying and Redeeming Shares. The Series Fund and the Variable Series Funds sell
and redeem their shares at net asset value. Any dividend or capital gain
distribution will be reinvested at net asset value in shares of the same
portfolio.
Voting Rights. Merrill Lynch Life is the legal owner of all Series Fund and
Variable Series Funds shares held in the Separate Account. As the owner, Merrill
Lynch Life has the right to vote on any matter put to vote at the Series Fund's
and the Variable Series Funds' shareholder meetings. However, Merrill Lynch Life
will vote all Series Fund and Variable Series Funds shares attributable to
Contracts according to instructions received from contract owners. Shares
attributable to Contracts for which no voting instructions are received will be
voted in the same proportion as shares in the respective investment divisions
for which instructions are received. Shares not attributable to Contracts will
also be voted in the same proportion as shares in the respective divisions for
which instructions are received. If any federal securities laws or regulations,
or their present interpretation, change to permit Merrill Lynch Life to vote
Series Fund or Variable Series Funds shares in its own right, it may elect to do
so.
Merrill Lynch Life determines the number of shares that contract owners have in
an investment division by dividing their Contract's investment base in that
division by the net asset value of one share of the portfolio. Fractional votes
will be counted. Merrill Lynch Life will determine the number of shares for
which a contract owner may give voting instructions 90 days or less before each
Series Fund or Variable Series Funds meeting. Merrill Lynch Life will request
voting instructions by mail at least 14 days before the meeting.
Under certain circumstances, Merrill Lynch Life may be required by state
regulatory authorities to disregard voting instructions. This may happen if
following the instructions would mean voting to change the sub-classification or
investment objectives of the portfolios, or to approve or disapprove an
investment advisory contract.
35
<PAGE> 40
Merrill Lynch Life may also disregard instructions to vote for changes in the
investment policy or the investment adviser if it disapproves of the proposed
changes. Merrill Lynch Life would disapprove a proposed change only if it was:
- contrary to state law;
- prohibited by state regulatory authorities; or
- decided by management that the change would result in overly speculative
or unsound investments.
If Merrill Lynch Life disregards voting instructions, it will include a summary
of its actions in the next semi-annual report.
Resolving Material Conflicts. Shares of the Series Fund are available for
investment by Merrill Lynch Life, ML Life Insurance Company of New York (an
indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.) and Monarch Life
Insurance Company (an insurance company not affiliated with Merrill Lynch Life
or Merrill Lynch & Co., Inc.). Shares of the Variable Series Funds are currently
sold only to separate accounts of Merrill Lynch Life, ML Life Insurance Company
of New York, and Family Life Insurance Company (an insurance company not
affiliated with Merrill Lynch Life or Merrill Lynch & Co., Inc.) to fund
benefits under certain variable life insurance and variable annuity contracts.
The Basic Value Focus Fund, World Income Focus Fund, Global Utility Focus Fund,
International Equity Focus Fund, International Bond Fund and Developing Capital
Markets Focus Fund are only offered to separate accounts of Merrill Lynch Life
and ML Life Insurance Company of New York. The Equity Growth Fund is also
offered to Family Life Insurance Company. Shares of each Fund of the Variable
Series Funds may be made available to the separate accounts of other insurance
companies in the future.
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,
consistent with applicable legal requirements.
Administrative Arrangements. MLAM and Merrill Lynch Life have entered into an
agreement pursuant to which MLAM pays to Merrill Lynch Life a fee in an amount
equal to a portion of the annual gross investment advisory fees paid by the
Series Fund and the Variable Series Funds to MLAM attributable to contracts
issued by Merrill Lynch Life. This agreement reflects administrative services
provided by Merrill Lynch Life and affiliates.
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.
36
<PAGE> 41
One or more of the insurance companies investing in the Series Fund has agreed
to reimburse the Series Fund so that the ordinary expenses of each portfolio
(which include the monthly advisory fee) do not exceed .50% of the portfolio's
average daily net assets. These companies have also agreed to reimburse MLAM for
any amounts it pays under the investment advisory agreement, as described below.
These reimbursement obligations will remain in effect so long as the advisory
agreement remains in effect and cannot be amended or terminated without Series
Fund approval.
Under its investment advisory agreement, MLAM has agreed that if any portfolio's
aggregate ordinary expenses (excluding interest, taxes, brokerage commissions
and extraordinary expenses) exceed the expense limitations for investment
companies in effect under any state securities law or regulation, it will reduce
its fee for that portfolio by the amount of the excess. If required, it will
reimburse the Series Fund for the excess. This reimbursement agreement will
remain in effect so long as the advisory agreement remains in effect and cannot
be amended without Series Fund approval.
CHARGES TO VARIABLE SERIES FUNDS ASSETS
The Variable Series Funds incurs operating expenses and pays a monthly advisory
fee to MLAM. This fee equals an annual rate of .60% of the average daily net
assets of the Basic Value Focus Fund, World Income Focus Fund and Global Utility
Focus Fund. This fee equals an annual rate of .75%, .60% and 1.00% of the
average daily net assets of the International Equity Focus Fund, the
International Bond Fund and the Developing Capital Markets Focus Fund,
respectively.
Under its investment advisory agreement, MLAM has agreed to reimburse the
Variable Series Funds if and to the extent that in any fiscal year the operating
expenses of any Fund exceeds the most restrictive expense limitations then in
effect under any state securities laws or published regulations thereunder.
Expenses for this purpose include MLAM's fee but exclude interest, taxes,
brokerage commissions and extraordinary expenses, such as litigation. No fee
payments will be made to MLAM with respect to any Fund during any fiscal year
which would cause the expenses of such Fund to exceed the pro rata expense
limitation applicable to such Fund at the time of such payment. This
reimbursement agreement will remain in effect so long as the advisory agreement
remains in effect and cannot be amended without Variable Series Funds approval.
MLAM and Merrill Lynch Life Agency, Inc. have entered into two agreements which
limit the operating expenses paid by each Fund in a given year to 1.25% of its
average daily net assets, which is less than the expense limitations imposed by
state securities laws or published regulations thereunder. These reimbursement
agreements provide that any expenses in excess of 1.25% of average daily net
assets will be reimbursed to the Fund by MLAM which, in turn, will be reimbursed
by Merrill Lynch Life Agency, Inc.
37
<PAGE> 42
THE ZERO TRUSTS
The 19 Zero Trusts:
<TABLE>
<CAPTION>
TARGETED RATE OF RETURN
TO MATURITY AS OF
ZERO TRUST MATURITY DATE APRIL 27, 1995
- ----------- ------------------- -----------------------
<C> <S> <C>
1995 November 15, 1995 4.17%
1996 February 15, 1996 4.70%
1997 February 15, 1997 4.98%
1998 February 15, 1998 5.33%
1999 February 15, 1999 5.49%
2000 February 15, 2000 5.50%
2001 February 15, 2001 5.55%
2002 February 15, 2002 5.70%
2003 August 15, 2003 5.83%
2004 February 15, 2004 5.89%
2005 February 15, 2005 5.85%
2006 February 15, 2006 5.80%
2007 February 15, 2007 5.89%
2008 February 15. 2008 6.14%
2009 February 15, 2009 6.17%
2010 February 15, 2010 6.28%
2011 February 15, 2011 6.29%
2013 February 15, 2013 6.39%
2014 February 15, 2014 6.39%
</TABLE>
Targeted Rate of Return to Maturity
Because the underlying securities in the Zero Trusts will grow to their face
value on the maturity date, it is possible to estimate a compound rate of growth
to maturity for the Zero Trust units.
But because the units are held in the Separate Account, the asset charge and the
trust charge (described in "Charges to the Separate Account" on page 17) must be
taken into account in estimating a 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 41 through 44 demonstrate the way in which the Contract
works. The tables are based on the following ages, face amounts, payments and
guarantee periods and show values based upon both current and maximum mortality
charges.
38
<PAGE> 43
1. The illustration on page 41 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,576 through contract year 51, an initial face amount of $500,000, an
initial guarantee period of 2.75 years and coverage under death benefit
option 1. It assumes current mortality charges.
2. The illustration on page 42 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,576 through contract year 51, an initial face amount of $500,000, an
initial guarantee period of 2.75 years and coverage under death benefit
option 1. It assumes maximum mortality charges.
3. The illustration on page 43 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$31,268 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 10.75 years and coverage under death benefit
option 2. It assumes current mortality charges.
4. The illustration on page 44 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$31,268 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 10.75 years and coverage under death benefit
option 2. It assumes maximum mortality charges.
The tables show how the death benefit, investment base and net cash surrender
value may vary over an extended period of time assuming hypothetical rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) equivalent to constant gross annual rates of 0%, 6% and 12%.
The death benefit, investment base and net cash surrender value for a Contract
would be different from those shown if the actual rates of return averaged 0%,
6% and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years.
The amounts shown for the death benefit, investment base and net cash surrender
value as of the end of each contract year take into account the daily asset
charge in the Separate Account equivalent to .90% (annually at the beginning of
the year) of assets attributable to the Contracts at the beginning of the year.
The amounts shown in the tables also assume an additional charge of .490%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1994 expenses (including monthly advisory fees)
for the Series Fund and the Variable Series Funds, and the current trust charge.
This charge does not reflect expenses incurred by the Natural Resources
Portfolio of the Series Fund and the Developing Capital Markets Focus Fund of
the Variable Series Funds in 1994, which were reimbursed to the Series Fund and
Variable Series Funds, respectively, by MLAM. The reimbursements amounted to
.09% and .06%, respectively, of the average daily net assets of these
portfolios. (See "Charges to Series Fund Assets" on page 36.) 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 17.) In order to produce after tax returns of 0%, 6%
and 12%, the Series Fund and the Variable Series Funds would have to earn a
sufficient amount in excess of 0% or 6% or 12% to cover any tax charges
attributable to the Separate Account.
The second column of the tables shows the amount which would accumulate if an
amount equal to the payments were invested to earn interest (after taxes) at 5%
compounded annually.
39
<PAGE> 44
Merrill Lynch Life will furnish upon request a personalized illustration
reflecting the proposed insured's age, face amount and the payment amounts
requested. The illustration will show both current and guaranteed cost of
insurance rates and will assume that the proposed insured is in a standard
non-smoker underwriting class.
40
<PAGE> 45
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,576 THROUGH CONTRACT YEAR 51
FACE AMOUNT(1) : $500,000 INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION 1
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ---------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- --------------------------------------------------- -------------- ----------------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
1................................................. 9,576 10,055 500,000 500,000 500,000
2................................................. 9,576 20,612 500,000 500,000 500,000
3................................................. 9,576 31,697 500,000 500,000 500,000
4................................................. 9,576 43,337 500,000 500,000 500,000
5................................................. 9,576 55,559 500,000 500,000 500,000
6................................................. 9,576 68,392 500,000 500,000 500,000
7................................................. 9,576 81,866 500,000 500,000 500,000
8................................................. 9,576 96,014 500,000 500,000 500,000
9................................................. 9,576 110,870 500,000 500,000 500,000
10................................................. 9,576 126,468 500,000 500,000 500,000
15................................................. 9,576 216,968 500,000 500,000 500,000
20................................................. 9,576 332,471 500,000 500,000 513,858
30................................................. 9,576 668,029 500,000 500,000 1,192,170
55................................................. 0 2,698,733 500,000 1,056,895 12,725,836
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
------------------------------------ ----------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ----------------------------------------------- ------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1............................................. 4,058 4,318 4,579 4,058 4,318 4,579
2............................................. 8,295 9,089 9,915 8,295 9,089 9,915
3............................................. 16,065 17,893 19,850 16,065 17,893 19,850
4............................................. 23,596 26,965 30,697 23,596 26,965 30,697
5............................................. 30,928 36,358 42,595 30,928 36,358 42,595
6............................................. 38,076 46,105 55,674 38,076 46,105 55,674
7............................................. 45,053 56,230 70,076 45,053 56,230 70,076
8............................................. 51,901 66,797 85,989 51,901 66,797 85,989
9............................................. 58,595 77,803 103,555 58,595 77,803 103,555
10............................................. 65,083 89,217 122,906 65,083 89,217 122,906
15............................................. 92,626 151,460 252,913 92,626 151,460 252,913
20............................................. 111,407 224,539 421,195 111,407 224,539 421,195
30............................................. 107,396 380,989 1,114,177 107,396 380,989 1,114,177
55............................................. 0 1,056,895 12,725,836 0 1,058,895 12,725,836
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 months after
issue, the contract owner will also receive any excess sales load previously
deducted, except to the extent it is applied to keep the Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 26 and 16, respectively. Once the guarantee
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE> 46
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,576 THROUGH CONTRACT YEAR 51
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ----------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ---------------------------- -------------- ----------------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C>
1.......................... 9,576 10,055 500,000 500,000 500,000
2.......................... 9,576 20,612 500,000 500,000 500,000
3.......................... 9,576 31,697 500,000 500,000 500,000
4.......................... 9,576 43,337 500,000 500,000 500,000
5.......................... 9,576 55,559 500,000 500,000 500,000
6.......................... 9,576 68,392 500,000 500,000 500,000
7.......................... 9,576 81,866 500,000 500,000 500,000
8.......................... 9,576 96,014 500,000 500,000 500,000
9.......................... 9,576 110,870 500,000 500,000 500,000
10.......................... 9,576 126,468 500,000 500,000 500,000
15.......................... 9,576 216,968 500,000 500,000 500,000
20.......................... 9,576 332,471 500,000 500,000 500,000
30.......................... 9,576 668,029 500,000 500,000 1,011,994
55.......................... 0 2,698,733 500,000 655,244 10,174,061
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
--------------------------------- -------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ---------------------------------------------------- ------ ------- ---------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1.................................................. 3,095 3,320 3,545 3,095 3,320 3,545
2.................................................. 6,491 7,159 7,856 6,491 7,159 7,856
3.................................................. 13,512 15,072 16,745 13,512 15,072 16,745
4.................................................. 20,314 23,226 26,451 20,314 23,226 26,451
5.................................................. 26,887 31,619 37,048 26,887 31,619 37,048
6.................................................. 33,227 40,260 48,634 33,227 40,260 48,634
7.................................................. 39,309 49,135 61,294 39,309 49,135 61,294
8.................................................. 45,109 58,232 75,126 45,109 58,232 75,126
9.................................................. 50,609 67,546 90,251 50,609 67,546 90,251
10.................................................. 55,777 77,059 106,792 55,777 77,059 106,792
15.................................................. 75,880 127,447 217,122 75,880 127,447 217,122
20.................................................. 83,043 181,665 365,298 83,043 181,665 365,298
30.................................................. 10,452 292,523 945,789 10,452 292,523 945,789
55.................................................. 0 655,244 10,174,061 0 655,244 10,174,061
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 months after
issue, the contract owner will also receive any excess sales load previously
deducted, except to the extent it is applied to keep the Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and maximum
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 42 and 17, respectively. Once the guarantee period
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE> 47
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $31,268 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 10.75 YEARS
DEATH BENEFIT OPTION 2
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ----------------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ---------------------------- -------------- ----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
1........................... 31,268 32,831 520,588 521,846 523,104
2........................... 31,268 67,304 548,686 552,959 557,383
3........................... 31,268 103,501 576,178 585,269 595,035
4........................... 31,268 141,507 603,132 618,890 636,476
5........................... 31,268 181,414 629,591 653,919 682,144
6........................... 31,268 223,316 655,573 690,432 732,495
7........................... 31,268 267,313 681,089 728,503 788,026
8........................... 31,268 313,510 706,191 768,248 849,329
9........................... 31,268 362,017 730,853 809,710 916,978
10.......................... 31,268 412,949 755,015 852,901 991,571
15.......................... 31,268 708,453 866,142 1,094,993 1,494,129
20.......................... 31,268 1,085,600 960,161 1,386,467 2,200,542
30.......................... 31,268 2,181,276 1,078,464 2,142,389 4,958,118
55.......................... 0 8,430,939 500,000 3,722,486 50,467,089
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
---------------------------------- ----------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ------------------------------------------------- ------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1................................................ 20,588 21,846 23,104 20,588 21,846 23,104
2................................................ 48,686 52,959 57,383 48,686 52,959 57,383
3................................................ 76,178 85,269 95,035 76,178 85,269 95,035
4................................................ 103,132 118,890 136,476 103,132 118,890 136,476
5................................................ 129,591 153,919 182,144 129,591 153,919 182,144
6................................................ 155,573 190,432 232,495 155,573 190,432 232,495
7................................................ 181,089 228,503 288,026 181,089 228,503 288,026
8................................................ 206,191 268,248 349,329 206,191 268,248 349,329
9................................................ 230,853 309,710 416,978 230,853 309,710 416,978
10............................................... 255,015 352,901 491,571 255,015 352,901 491,571
15............................................... 366,142 594,993 994,129 366,142 594,993 994,129
20............................................... 460,161 886,467 1,700,542 460,161 886,467 1,700,542
30............................................... 578,464 1,642,389 4,458,118 578,464 1,642,389 4,458,118
55............................................... 0 3,222,486 49,967,089 0 3,222,486 49,967,089
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 months after
issue, the contract owner will also receive any excess sales load previously
deducted, except to the extent it is applied to keep the Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 34 and 17, respectively. Once the guarantee period
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE> 48
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $31,268 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 10.75 YEARS
DEATH BENEFIT OPTION 2
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)
INTEREST ASSUMING HYPOTHETICAL GROSS
AT 5% AS ANNUAL RATE OF RETURN OF
OF END OF ------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) YEAR 0% 6% 12%
- ---------------------------------------------- -------------- --------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
1............................................ 31,268 32,831 519,618 520,839 522,061
2............................................ 31,268 67,304 546,864 551,010 555,302
3............................................ 31,268 103,501 573,589 582,408 591,884
4............................................ 31,268 141,507 599,789 615,079 632,146
5............................................ 31,268 181,414 625,453 649,061 676,454
6............................................ 31,268 223,316 650,577 684,404 725,224
7............................................ 31,268 267,313 675,135 721,134 778,888
8............................................ 31,268 313,510 699,099 759,278 837,922
9............................................ 31,268 362,017 722,449 798,869 902,860
10............................................ 31,268 412,949 745,148 839,928 974,275
15............................................ 31,268 708,453 847,969 1,068,360 1,453,554
20............................................ 31,268 1,085,600 929,120 1,336,980 2,115,115
30............................................ 31,268 2,181,276 982,785 1,977,390 4,613,641
55............................................ 0 8,430,939 500,000 556,937 41,894,646
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
------------------------------------ ------------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ---------------------------------------------- ------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1............................................ 19,618 20,839 22,061 19,618 20,839 22,061
2............................................ 46,864 51,010 55,302 46,864 51,010 55,302
3............................................ 73,589 82,408 91,884 73,589 82,408 91,884
4............................................ 99,789 115,079 132,146 99,789 115,079 132,146
5............................................ 125,453 149,061 176,454 125,453 149,061 176,454
6............................................ 150,577 184,404 225,224 150,577 184,404 225,224
7............................................ 175,135 221,134 278,888 175,135 221,134 278,888
8............................................ 199,099 259,278 337,922 199,099 259,278 337,922
9............................................ 222,449 298,869 402,860 222,449 298,869 402,860
10............................................ 245,148 339,928 474,275 245,148 339,928 474,275
15............................................ 347,969 568,360 953,554 347,969 568,360 953,554
20............................................ 429,120 836,980 1,615,115 429,120 836,980 1,615,115
30............................................ 482,785 1,477,390 4,113,641 482,785 1,477,390 4,113,641
55............................................ 0 56,937 41,394,646 0 56,937 41,394,646
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 months after
issue, the contract owner will also receive any excess sales load previously
deducted, except to the extent it is applied to keep the Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and maximum
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 42 and 17, respectively. Once the guarantee period
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
MERRILL LYNCH LIFE OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
44
<PAGE> 49
EXAMPLES
ADDITIONAL PAYMENTS
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment does
not extend to the insured's attained age 100.
Merrill Lynch Life will determine the increase in the guarantee period by taking
the immediate increase in the cash value resulting from the additional payment
and adding to that interest at the annual rate of 4.5% for the period from the
date Merrill Lynch Life receives and accepts the payment to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is added to the fixed base and the
resulting new fixed base is used to calculate a new guarantee period.
The amount of the increase in the guarantee period will depend on the amount of
the additional payment and the contract year in which it is received and
accepted. If additional payments of different amounts were made at the same time
to equivalent Contracts, the Contract to which the larger payment is applied
would have a larger increase in the guarantee period.
Example 1 shows the effect on the guarantee period of a $5,000 additional
payment received and accepted at the beginning of contract year five. Example 2
shows the effect of a $10,000 additional payment received and accepted at the
beginning of contract year five. Example 3 shows the effect of a $5,000
additional payment received and accepted at the beginning of contract year six.
All three examples assume that death benefit option 1 has been elected, that
annual payments of $9,576 have been made through the contract year reflected in
the example and that no other contract transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $9,576
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
-------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
--------- ----------- -----------------
<S> <C> <C> <C>
5 $9,576 2.75 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
-------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
--------- ----------- -----------------
<S> <C> <C> <C>
5 $19,152 5.25 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
-------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
--------- ----------- -----------------
<S> <C> <C> <C>
6 $9,576 2.25 years
</TABLE>
45
<PAGE> 50
PARTIAL WITHDRAWALS
As of the processing date on or next following the effective date of a partial
withdrawal, Merrill Lynch Life calculates a new guarantee period. This is done
by taking the immediate decrease in cash value resulting from the partial
withdrawal and adding to that amount interest at an annual rate of 4.5% for the
period from the date of the withdrawal to the contract processing date on or
next following such date. This is the guarantee adjustment amount. The guarantee
adjustment amount is subtracted from the fixed base and the resulting new fixed
base is used to calculate a new guarantee period.
The amount of the reduction in the guarantee period will depend on the amount of
the withdrawal, the face amount at the time of the withdrawal and the contract
year in which the withdrawal is made. If made at the same time to equivalent
Contracts, a larger withdrawal would result in a greater reduction in the
guarantee period than a smaller withdrawal. The same partial withdrawal made at
the same time from Contracts with the same guarantee periods but with different
face amounts would result in a greater reduction in the guarantee period for the
Contract with the smaller face amount.
Examples 1 and 2 show the effect on the guarantee period of partial withdrawals
for $5,000 and $10,000 taken at the beginning of contract year fifteen. Example
3 shows the effect on the guarantee period of a $10,000 partial withdrawal taken
at the beginning of contract year twenty. All three examples assume that death
benefit option 1 has been elected, that annual payments of $9,576 have been made
through the contract year reflected in the example and that no other contract
transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $9,576
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
-------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
--------- ----------- -----------------
<S> <C> <C> <C>
15 $5,000 .5 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
-------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
--------- ----------- -----------------
<S> <C> <C> <C>
15 $10,000 1 year
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
-------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
--------- ----------- -----------------
<S> <C> <C> <C>
20 $10,000 .5 years
</TABLE>
46
<PAGE> 51
CHANGING THE DEATH BENEFIT OPTION
On each contract anniversary beginning with the first, the contract owner may
change the death benefit option by switching from option 1 to option 2 or from
option 2 to option 1. Merrill Lynch Life will change the face amount of the
Contract in order to keep the death benefit constant on the effective date of
the change. Therefore, if the change is from option 1 to option 2, the face
amount of the Contract will be decreased by the cash value on the date of the
change. If the change is from option 2 to option 1, the face amount of the
Contract will be increased by the cash value on the date of the change.
Example 1 shows the effect on the face amount of a change from option 1 to
option 2 and Example 2 shows the effect on the face amount of a change from
option 2 to option 1. The face amount before each change is $500,000.
EXAMPLE 1
------------------------------------------------------------
Before Option Change
Death Benefit under Option 1: $500,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 2: $500,000
Face Amount: $460,000
Cash Value: $40,000
EXAMPLE 2
------------------------------------------------------------
Before Option Change
Death Benefit under Option 2: $540,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 1: $540,000
Face Amount: $540,000
Cash Value: $40,000
47
<PAGE> 52
MORE ABOUT MERRLLL LYNCH LIFE INSURANCE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Merrill Lynch Life's directors and executive officers and their positions with
the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY
- ------------------------------ -------------------------------------
<S> <C>
Anthony J. Vespa Chairman of the Board, President, and
Chief Executive Officer
Joseph E. Crowne Director, Senior Vice President,
Chief Financial Officer, Chief
Actuary, and Treasurer
Barry G. Skolnick Director, Senior Vice President, and
General Counsel
David M. Dunford Director, Senior Vice President,
and Chief Investment Officer
John C.R. Hele Director and Senior Vice President
Allen N. Jones Director
Robert J. Boucher Senior Vice President, Variable Life
Administration
</TABLE>
Each director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and shall have qualified. Each has held
various executive positions with insurance company subsidiaries of the Company's
indirect parent, Merrill Lynch & Co., Inc. The principal positions of the
Company's directors and executive officers for the past five years are listed
below:
Mr. Vespa joined Merrill Lynch Life in January 1994. Since February 1994, he has
held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From February 1991 to February 1994, he held the position of
District Director and First Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From September 1988 to February 1991, he held the position
of Senior Resident Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
Mr. Crowne joined Merrill Lynch Life in June 1991. From January 1989 to May
1991, he was a Principal with Coopers & Lybrand.
Mr. Skolnick joined Merrill Lynch Life in November 1990. He joined Merrill
Lynch, Pierce, Fenner & Smith Incorporated in July 1984. Since May 1992, he has
held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and
First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Prior to May 1992, he held the position of Senior Counsel of Merrill Lynch &
Co., Inc.
Mr. Dunford joined Merrill Lynch Life in July 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in September 1989. Prior to September 1989,
he held the position of President of Travelers Investment Management Co.
Mr. Hele joined Merrill Lynch Life in December 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in August 1988.
Mr. Jones joined Merrill Lynch Life in June 1992. Since May 1992, he has held
the position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. From June 1992 to February 1994, he held the position of Chairman
of the Board, President, and Chief Executive Officer of Merrill Lynch Life. From
January 1992 to June 1992, he held the position of First Vice President of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From January 1991 to January
1992, he held the position of District Director of Merrill Lynch, Pierce, Fenner
& Smith Incorporated. Prior to January 1991, he held the position of Senior
Regional Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Mr. Boucher joined Merrill Lynch Life in May 1992. Prior to May 1992, he held
the position of Vice President of Monarch Financial Services, Inc. (formerly
Monarch Resources, Inc.).
48
<PAGE> 53
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
$44.2 million for the year ended December 31, 1994.
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, 1994 and 1993
and for each of the three years in the period ended December 31, 1994 and of the
Separate Account as of December 31, 1994 and for the periods presented, included
in this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein, and have been so included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing. Deloitte & Touche LLP's principal business address
is Two World Financial Center, New York, New York 10281-1433.
Actuarial matters included in this Prospectus have been examined by Joseph E.
Crowne, F.S.A., Chief Actuary and Chief Financial Officer of Merrill Lynch Life,
as stated in his opinion filed as an exhibit to the registration statement.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contract, and the
validity of the form of the Contract have been passed upon by Barry G. Skolnick,
Merrill Lynch Life's Senior Vice President and General Counsel. Sutherland,
Asbill & Brennan of Washington, D.C. has provided advice on certain matters
relating to federal securities and tax laws.
49
<PAGE> 54
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.
50
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statement of net assets of
Merrill Lynch Variable Life Separate Account (the "Account")
as of December 31, 1994 and the related statements of
earnings (losses) and changes in net assets for each of the
three years in the period then ended. 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, 1994, 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, 1994 and the results of its operations and
the changes in its net assets for the above periods 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 LLP
February 8, 1995
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
================= ================= =================
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note A):
Money Reserve Portfolio $ 31,759,631 31,759,631 $ 31,759,631
Intermediate Government Bond Portfolio 5,179,862 468,308 4,832,936
Long-Term Corporate Bond Portfolio 5,170,218 428,717 4,595,847
Capital Stock Portfolio 7,719,283 340,716 7,373,091
Growth Stock Portfolio 4,596,005 226,869 4,355,880
Multiple Strategy Portfolio 10,596,030 610,464 9,901,732
High Yield Portfolio 2,962,288 323,044 2,755,564
Natural Resources Portfolio 1,120,419 146,180 1,086,121
Global Strategy Portfolio 15,045,602 1,004,393 14,603,870
Balanced Portfolio 3,160,730 228,418 3,031,114
----------------- -----------------
87,310,068 84,295,786
----------------- -----------------
Investment in Merrill Lynch Variable Series Funds, Inc. (Note A):
Global Utility Focus Fund 66,047 6,746 63,753
International Equity Focus Fund 2,273,756 201,442 2,195,715
World Income Focus Fund 53,297 5,693 52,204
Basic Value Focus Fund 1,368,693 123,678 1,372,824
International Bond Fund 85,539 8,751 84,888
Developing Capital Markets Focus Fund 1,615,101 156,876 1,491,889
----------------- -----------------
5,462,433 5,261,273
----------------- -----------------
Investment in Unit Investment Trusts (Note A):
Stripped ("Zero") U.S. Treasury Securities, Series A through K:
1995 Trust 115,066 123,060 116,262
1996 Trust 39,897 43,647 40,324
1997 Trust 31,827 37,210 31,846
1998 Trust 115,113 144,858 114,447
1999 Trust 154,295 210,747 154,037
2000 Trust 287,452 422,634 286,875
2001 Trust 49,909 79,413 50,084
2002 Trust 98,125 168,121 97,971
2003 Trust 5,880 11,459 5,925
2004 Trust 403,249 821,983 408,106
2005 Trust 29,625 65,815 29,675
2006 Trust 49,207 116,660 51,382
2007 Trust 973 2,465 984
2008 Trust 6,697 18,532 6,715
2009 Trust 145,928 452,723 152,001
2010 Trust 155,299 516,810 159,043
2011 Trust 133,116 552,622 157,513
2013 Trust 73,693 295,289 71,415
2014 Trust 103,688 486,991 109,061
----------------- -----------------
1,999,039 2,043,666
----------------- -----------------
Dividends Receivable 32,364
-----------------
Total Assets $ 94,771,540 91,633,089
----------------- -----------------
</TABLE>
(Continued)
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1994 (Concluded)
==============================================================================
<TABLE>
<CAPTION>
Market
Value
=================
<S> <C>
LIABILITIES
Payable to Merrill Lynch Series Fund, Inc. 239,300
Payable to Merrill Lynch Variable Series Funds, Inc. 99,232
Payable to Merrill Lynch Life Insurance Company 5,187,392
-----------------
Total Liabilities 5,525,924
-----------------
Net Assets $ 86,107,165
=================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF EARNINGS (LOSSES) AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND FOR THE PERIOD
FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
==============================================================================
<TABLE>
1994 1992 1992
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 3,610,497 $ 566,325 $ 21,362
Net Gains (Losses):
Realized (218,534) 63,152 (775)
Unrealized (4,239,903) 1,022,845 46,241
----------------- ----------------- -----------------
Investment Earnings (Losses) (847,940) 1,652,322 66,828
Mortality and Expense Charges (Note C) (542,446) (140,002) (6,442)
Transaction Charges (Note D) (3,767) (1,237) (166)
----------------- ----------------- -----------------
Net Earnings (Losses) (1,394,153) 1,511,083 60,220
Capital Shares Transactions:
Transfers of Net Premiums 51,971,799 29,211,942 3,099,255
Transfers of Policy Loading, Net 3,241,522 2,330,207 310,111
Transfers Due to Deaths (29,512) (89,520) 0
Transfers Due to Other Terminations (493,701) (69,256) 0
Transfers Due to Policy Loans (1,463,743) (387,136) 0
Transfers of Cost of Insurance (1,296,287) (377,409) (15,902)
Transfers of Loan Processing Charges (8,161) (4,194) 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 50,527,764 32,125,717 3,453,684
Net Assets Beginning Balance 35,579,401 3,453,684 0
----------------- ----------------- -----------------
Net Assets Ending Balance $ 86,107,165 $ 35,579,401 $ 3,453,684
================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
Note A - Merrill Lynch Variable Life Separate Account
("Account"), a separate account of Merrill Lynch Life
Insurance Company ("Merrill Lynch Life") was established by
a board of directors resolution on November 16, 1990 and is
governed by Arkansas State Insurance Law. The Account is
registered as a unit investment trust under the Investment
Company Act of 1940 and consists of thirty-five investment
divisions (thirty-six during the year). Ten of the divisions
each invest in the securities of a single mutual fund
portfolio of Merrill Lynch Series Fund, Inc. ("Series
Fund"). Six of the divisions each invest in the securities
of a single mutual fund portfolio of Merrill Lynch Variable
Series Funds, Inc. ("Variable Series Funds"). The portfolios
of the Series Fund and Variable Series Funds have varying
investment objectives relative to growth of capital and
income. The Series Fund receives investment advice from
Merrill Lynch Asset Management, L.P. ("MLAM") for a fee
calculated at an effective annual rate of .50% of the first
$250 million of the aggregate average daily net assets of
the investment divisions investing in the Series Fund with
declining rates to .30% of such assets over $800 million.
The Variable Series Funds receives investment advise from
MLAM for a fee at an effective annual rate of .60% of the
average daily net assets of the Basic Value Focus, World
Income Focus, Global Utility Focus and International Bond
Funds, .75% of such assets of the International Equity Focus
Fund and 1.00% of such assets of the Developing Capital
Markets Fund. Nineteen of the divisions (twenty during the
year) each invest in the securities of a single trust of the
Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities, Series A through K. Each trust of the Series
consists of Stripped Treasury Securities with a fixed
maturity date and a Treasury Note deposited to provide
income to pay expenses of the trust.
The Account was formed by Merrill Lynch Life, an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill") to support Merrill Lynch Life's operations
respecting certain variable life insurance contracts
("Contracts"). The assets of the Account are the property of
Merrill Lynch Life. The portion of the Account's assets
attributable to the Contracts are not chargeable with
liabilities arising out of any other business Merrill Lynch
Life may conduct.
The change in net assets maintained in the Account provides
the basis for the periodic determination of the amount of
increased or decreased benefits under the Contracts.
The net assets may not be less than the amount required
under Arkansas State Insurance Law to provide for death
benefits (without regard to the minimum death benefit
guarantee) and other Contract benefits.
Note B - The significant accounting policies of the Account
are as follows:
Investments are made in the divisions and are valued at the
net asset values of the respective Portfolios.
Transactions are recorded on the trade date.
Income from dividends is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Realized gains and losses on the sales of investments are
computed on the first in first out method.
The operations of the Account are included in the Federal
income tax return of Merrill Lynch Life. Under the
provisions of the Contracts, Merrill Lynch Life has the
right to charge the Account for any Federal income tax
attributable to the Account. No charge is currently being
made against the Account for income taxes since, under
current tax law, Merrill Lynch Life pays no tax on
investment income and capital gains reflected in variable
life insurance contract reserves. However, Merrill Lynch
Life retains the right to charge for any Federal income tax
incurred which is attributable to the Account if the law is
changed. Contract loading, however, includes a charge for a
significantly higher Federal income tax liability of Merrill
Lynch Life (see Note C). Charges for state and local
taxes, if any, attributable to the Account may also be
made.
Note C - Merrill Lynch Life assumes mortality and expense
risks related to the operations of the Account and deducts a
daily charge from the assets of the Account to cover these
risks. The daily charges are equal to a rate of .90% (on an
annual basis) of the net assets for contract owners.
Merrill Lynch Life makes certain deductions from each
premium. For certain Contracts, the deductions are made
before the premium is allocated to the Account. For other
Contracts, the deductions are taken in equal installments on
the first through tenth contract anniversaries. The
deductions are for (1) sales load, (2) Federal taxes, and
(3) state and local premium taxes.
In addition, for certain Contracts, the cost of providing
life insurance coverage for the insureds will be deducted
from the investment base on the contract date and all
subsequent processing dates. For other Contracts, the cost
of providing life insurance coverage will be deducted only
on processing dates. This cost will vary dependent upon the
insured's underwriting class, sex (except where unisex rates
are required by state law), attained age of each insured and
the Contract's net amount at risk.
Note D - Merrill Lynch Life pays all transaction charges to
Merrill Lynch, Pierce, Fenner & Smith Inc., sponsor of the
unit investment trusts, on the sale of Series A through K
Unit Investment Trust units to the Account and deducts a
daily asset charge against the assets of each trust for the
reimbursement of these transaction charges. The asset
charge is equivalent to an effective annual rate of .34%
(annually at the beginning of the year) of net assets for
Contract owners.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<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 $ 950,581 $ 285,253 $ 425,190 $ 361,177
Net Gains (Losses):
Realized 0 (60,234) (25,319) (4,588)
Unrealized 0 (350,295) (600,392) (631,923)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 950,581 (125,276) (200,521) (275,334)
Mortality and Expense Charges (Note C) (170,748) (28,708) (37,653) (49,108)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 779,833 (153,984) (238,174) (324,442)
Capital Shares Transactions:
Transfers of Net Premiums 47,324,731 187,931 92,352 740,725
Transfers of Policy Loading, Net 3,195,360 (8,955) (18,352) (121,761)
Transfers Due to Deaths (6,644) 0 (2,647) 0
Transfers Due to Other Terminations (172,019) (13,442) (12,312) (52,016)
Transfers Due to Policy Loans (610,255) (142,120) (12,546) (71,717)
Transfers of Cost of Insurance (390,815) (43,069) (51,233) (108,205)
Transfers of Loan Processing Charges (1,637) (913) (376) (928)
Transfers Among Investment Divisions (35,662,412) 2,882,108 1,212,618 4,257,528
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 14,456,142 2,707,556 969,330 4,319,184
Net Assets Beginning Balance 12,057,968 2,124,452 3,625,591 3,039,052
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 26,514,110 $ 4,832,008 $ 4,594,921 $ 7,358,236
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 287,424 $ 661,067 $ 215,561 $ 11,993
Net Gains (Losses):
Realized (38,883) (57,248) (21,634) 1,420
Unrealized (347,941) (957,925) (232,926) (24,535)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (99,400) (354,106) (38,999) (11,122)
Mortality and Expense Charges (Note C) (26,158) (68,143) (18,453) (6,508)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (125,558) (422,249) (57,452) (17,630)
Capital Shares Transactions:
Transfers of Net Premiums 500,203 513,551 258,413 163,578
Transfers of Policy Loading, Net 19,520 36,858 5,702 9,677
Transfers Due to Deaths 0 (4,590) (2,687) 0
Transfers Due to Other Terminations (12,269) (45,256) (27,551) (1,141)
Transfers Due to Policy Loans (15,306) (142,921) (131,734) (7,332)
Transfers of Cost of Insurance (81,834) (133,481) (56,140) (17,949)
Transfers of Loan Processing Charges (741) (1,011) (255) (96)
Transfers Among Investment Divisions 2,313,575 6,058,382 1,520,909 520,012
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 2,597,590 5,859,283 1,509,205 649,119
Net Assets Beginning Balance 1,721,346 4,012,687 1,232,356 370,599
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 4,318,936 $ 9,871,970 $ 2,741,561 $ 1,019,718
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Global International
Global Utility Equity
Strategy Balanced Focus Focus
Portfolio Portfolio Fund Fund
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 307,203 $ 96,724 $ 489 $ 1,561
Net Gains (Losses):
Realized 42,186 (22,332) (4) (231)
Unrealized (712,889) (174,733) (2,295) (78,043)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (363,500) (100,341) (1,810) (76,713)
Mortality and Expense Charges (Note C) (95,867) (22,533) (111) (3,570)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (459,367) (122,874) (1,921) (80,283)
Capital Shares Transactions:
Transfers of Net Premiums 1,592,234 220,509 0 111,017
Transfers of Policy Loading, Net 90,005 26,326 (162) 2,406
Transfers Due to Deaths (7,628) (5,316) 0 0
Transfers Due to Other Terminations (121,934) (39,643) (38) (3,405)
Transfers Due to Policy Loans (174,375) (107,866) 0 310
Transfers of Cost of Insurance (301,516) (50,834) (387) (20,300)
Transfers of Loan Processing Charges (1,317) (156) (6) (266)
Transfers Among Investment Divisions 8,328,156 1,725,495 66,253 2,178,719
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 8,944,258 1,645,641 63,739 2,188,198
Net Assets Beginning Balance 5,615,068 1,370,514 0 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 14,559,326 $ 3,016,155 $ 63,739 $ 2,188,198
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
World Basic Developing
Income Value International Capital
Focus Focus Bond Markets Focus
Fund Fund Fund Fund
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 1,593 $ 1,754 $ 2,927 $ 0
Net Gains (Losses):
Realized (988) 169 147 (98)
Unrealized (1,095) 4,130 (651) (123,212)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (490) 6,053 2,423 (123,310)
Mortality and Expense Charges (Note C) (106) (2,016) (257) (2,550)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (596) 4,037 2,166 (125,860)
Capital Shares Transactions:
Transfers of Net Premiums 0 72,775 33,800 112,249
Transfers of Policy Loading, Net (11) (675) 180 3,647
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (30) 776 (1) (3,448)
Transfers Due to Policy Loans (7,961) (1,349) (8,041) (7,813)
Transfers of Cost of Insurance (1,034) (9,133) (1,325) (14,744)
Transfers of Loan Processing Charges (4) (140) (7) (184)
Transfers Among Investment Divisions 61,824 1,299,178 58,099 1,518,993
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 52,188 1,365,469 84,871 1,482,840
Net Assets Beginning Balance 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 52,188 $ 1,365,469 $ 84,871 $ 1,482,840
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
1994 1995 1996 1997
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 80 7 15 57
Unrealized (16) 1,196 386 (104)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 64 1,203 401 (47)
Mortality and Expense Charges (Note C) (15) (406) (156) (110)
Transaction Charges (Note D) (6) (154) (60) (41)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 43 643 185 (198)
Capital Shares Transactions:
Transfers of Net Premiums 0 0 1,679 6,745
Transfers of Policy Loading, Net (230) (80) (378) 335
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (23) 42 (22) (14)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (81) (636) (259) (531)
Transfers of Loan Processing Charges 0 (10) (3) (3)
Transfers Among Investment Divisions (1,690) 116,007 36,857 18,538
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets (1,981) 115,966 38,059 24,872
Net Assets Beginning Balance 1,981 255 2,241 6,942
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 0 $ 116,221 $ 40,300 $ 31,814
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
1998 1999 2000 2001
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (4,839) (6) (1,056) 42
Unrealized (2,597) (259) (816) (670)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (7,436) (265) (1,872) (628)
Mortality and Expense Charges (Note C) (2,744) (312) (847) (161)
Transaction Charges (Note D) (1,035) (119) (321) (61)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (11,215) (696) (3,040) (850)
Capital Shares Transactions:
Transfers of Net Premiums 661 0 23,597 0
Transfers of Policy Loading, Net (860) (408) 1,020 (180)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 9,883 (88) (342) (24)
Transfers Due to Policy Loans (1,199) 0 (9,218) 0
Transfers of Cost of Insurance (423) (560) (4,141) (111)
Transfers of Loan Processing Charges (8) (12) (19) (3)
Transfers Among Investment Divisions 99,872 155,745 233,354 41,783
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 96,711 153,981 241,211 40,615
Net Assets Beginning Balance 17,703 0 45,561 9,431
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 114,414 $ 153,981 $ 286,772 $ 50,046
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2002 2003 2004 2005
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (4) (53) (22) (29)
Unrealized (154) 58 4,857 830
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (158) 5 4,835 801
Mortality and Expense Charges (Note C) (326) (25) (759) (66)
Transaction Charges (Note D) (124) (9) (290) (25)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (608) (29) 3,786 710
Capital Shares Transactions:
Transfers of Net Premiums 0 2,254 9,684 0
Transfers of Policy Loading, Net 38 (223) 566 150
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 419 1 409 (17)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (297) (150) (1,422) (417)
Transfers of Loan Processing Charges (8) 0 (24) (2)
Transfers Among Investment Divisions 98,392 (3,544) 394,979 29,234
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 97,936 (1,691) 407,978 29,658
Net Assets Beginning Balance 0 7,614 0 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 97,936 $ 5,923 $ 407,978 $ 29,658
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2006 2007 2008 2009
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (2) (1) 0 1
Unrealized 1,397 12 19 6,074
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 1,395 11 19 6,075
Mortality and Expense Charges (Note C) (99) (3) (3) (295)
Transaction Charges (Note D) (38) (1) (1) (113)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 1,258 7 15 5,667
Capital Shares Transactions:
Transfers of Net Premiums 0 0 0 0
Transfers of Policy Loading, Net (150) 100 0 1,250
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (28) (1) (4) (75)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (175) (39) (12) (393)
Transfers of Loan Processing Charges (4) 0 (1) (12)
Transfers Among Investment Divisions 50,452 917 6,713 145,512
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 51,353 984 6,711 151,949
Net Assets Beginning Balance 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 51,353 $ 984 $ 6,711 $ 151,949
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2010 2011 2013 2014
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (23,419) 899 (2,567) 1
Unrealized 3,586 (22,160) (2,191) 5,374
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (19,833) (21,261) (4,758) 5,375
Mortality and Expense Charges (Note C) (1,584) (1,458) (476) (112)
Transaction Charges (Note D) (598) (550) (180) (41)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (22,015) (23,269) (5,414) 5,222
Capital Shares Transactions:
Transfers of Net Premiums 787 0 987 1,337
Transfers of Policy Loading, Net 2,479 (2,030) 195 163
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 13 8 (46) (63)
Transfers Due to Policy Loans 0 0 (12,300) 0
Transfers of Cost of Insurance (1,159) (1,439) (1,771) (272)
Transfers of Loan Processing Charges 0 0 (6) (9)
Transfers Among Investment Divisions 49,193 228 85,368 102,653
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 29,298 (26,502) 67,013 109,031
Net Assets Beginning Balance 129,694 183,965 4,381 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 158,992 $ 157,463 $ 71,394 $ 109,031
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
======================
Total
===================
<S> <C>
Reinvested Dividends $ 3,610,497
Net Gains (Losses):
Realized (218,534)
Unrealized (4,239,903)
-------------------
Investment Earnings (Losses) (847,940)
Mortality and Expense Charges (Note C) (542,446)
Transaction Charges (Note D) (3,767)
-------------------
Net Earnings (Losses) (1,394,153)
Capital Shares Transactions:
Transfers of Net Premiums 51,971,799
Transfers of Policy Loading, Net 3,241,522
Transfers Due to Deaths (29,512)
Transfers Due to Other Terminations (493,701)
Transfers Due to Policy Loans (1,463,743)
Transfers of Cost of Insurance (1,296,287)
Transfers of Loan Processing Charges (8,161)
Transfers Among Investment Divisions 0
-------------------
Increase (Decrease) in Net Assets 50,527,764
Net Assets Beginning Balance 35,579,401
-------------------
Net Assets Ending Balance $ 86,107,165
===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) 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
Net Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 11,722 $ 35,996 $ 40,979 $ 764
Net Gains (Losses):
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 (Decrease) 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 (LOSSES) 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 Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
1995 1996 1997 1998
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
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 (Decrease) 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 (LOSSES) 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 Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===========================================================
2011 2013
Trust Trust Total
=================== =================== ===================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 566,325
Net Gains (Losses):
Realized 1,078 0 63,152
Unrealized 38,549 (86) 1,022,845
------------------- ------------------- -------------------
Investment Earnings (Losses) 39,627 (86) 1,652,322
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 (Decrease) 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 (LOSSES) 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 Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 179 $ 0
Net Gains (Losses):
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 (Decrease) 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 (LOSSES) 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 Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2001 2010 2011
Trust Trust Trust Total
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 21,362
Net Gains (Losses):
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 (Decrease) 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, 1994
and 1993, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1994. 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 provide 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, 1994 and 1993, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1994 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
Accounting Standards No. 115.
/s/ Deloitte & Touche LLP
February 27, 1995
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
===============================================================================
<TABLE>
<CAPTION>
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1994 - $4,014,272; 1993 - $5,369,236) $ 3,867,833 $ 5,597,359
Fixed maturity securities held for trading, at estimated fair value
(amortized cost: 1993 - $140,635) 0 144,035
Equity securities available for sale, at estimated fair value
(cost: 1994 - $15,946; 1993 - $24,424) 16,777 24,970
Equity securities held for trading, at estimated fair value
(cost: 1993 - $19,694) 0 20,585
Mortgage loans on real estate 149,249 191,214
Real estate available for sale
(accumulated depreciation: 1994 - $515; 1993 - $850) 12,955 29,761
Policy loans on insurance contracts 985,213 924,579
------------ ------------
Total Investments 5,032,027 6,932,503
CASH AND CASH EQUIVALENTS 139,087 122,218
ACCRUED INVESTMENT INCOME 95,133 120,337
DEFERRED POLICY ACQUISITION COSTS 466,334 318,903
FEDERAL INCOME TAXES - DEFERRED 38,919 16,878
REINSURANCE RECEIVABLES 1,832 1,190
RECEIVABLES FROM AFFILIATES - NET 3,113 789
OTHER ASSETS 28,656 21,481
SEPARATE ACCOUNTS ASSETS 5,798,973 4,715,278
------------ ------------
TOTAL ASSETS $11,604,074 $12,249,577
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
==============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993
------------ ------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 5,148,971 $ 6,691,811
Claims and claims settlement expenses 26,177 20,295
------------ ------------
Total policy liabilities and accruals 5,175,148 6,712,106
OTHER POLICYHOLDER FUNDS 21,221 28,768
LIABILITY FOR GUARANTY FUND ASSESSMENTS 24,774 28,083
OTHER LIABILITIES 36,775 68,165
FEDERAL INCOME TAXES - CURRENT 2,274 10,122
SEPARATE ACCOUNTS LIABILITIES 5,784,311 4,715,278
------------ ------------
Total Liabilities 11,044,503 11,562,522
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 535,450 637,590
Retained earnings 66,005 47,860
Net unrealized investment loss (43,884) (395)
------------ ------------
Total Stockholder's Equity 559,571 687,055
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $11,604,074 $12,249,577
============ ============
</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, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 433,536 $ 586,461 $ 712,739
Net realized investment gains (losses) (14,543) 63,052 (29,639)
Policy charge revenue 126,284 95,684 81,653
------------ ------------ ------------
Total Revenues 545,277 745,197 764,753
------------ ------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 313,585 454,671 546,979
Market value adjustment expense 6,307 30,816 6,229
Policy benefits (net of reinsurance recoveries: 1994 - $6,338;
1993 - $6,004; 1992 - $5,555) 16,858 17,030 12,066
Reinsurance premium ceded 13,909 12,665 12,457
Amortization of deferred policy acquisition costs 69,662 109,456 88,795
Insurance expenses and taxes 35,073 47,784 72,560
------------ ------------ ------------
Total Benefits and Expenses 455,394 672,422 739,086
------------ ------------ ------------
Earnings Before Federal Income Tax Provision 89,883 72,775 25,667
------------ ------------ ------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 22,503 20,112 28,549
Deferred 1,375 4,803 (19,913)
------------ ------------ ------------
Total Federal Income Tax Provision 23,878 24,915 8,636
------------ ------------ ------------
NET EARNINGS $ 66,005 $ 47,860 $ 17,031
============ ============ ============
</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, 1994, 1993 AND 1992
(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, 1992 $ 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 (3,279) (3,279)
------------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1993 2,000 637,590 47,860 ( 395) 687,055
Dividend to Parent (102,140) (47,860) (150,000)
Net earnings 66,005 66,005
Net unrealized investment loss (43,489) (43,489)
------------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1994 $ 2,000 $ 535,450 $ 66,005 $ (43,884) $ 559,571
============= =========== =========== ============ =============
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, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 66,005 $ 47,860 $ 17,031
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 69,662 109,456 88,795
Capitalization of policy acquisition costs (108,829) (91,189) (39,146)
Depreciation and amortization (4,516) 1,142 (16,033)
Net realized investment (gains) losses 14,543 (63,052) 29,639
Interest credited to policyholders' account balances 313,585 454,671 546,979
Provision for deferred Federal income tax 1,375 4,803 (19,913)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 25,204 18,460 6,018
Receivables from affiliates - net (2,324) (3,427) (20,027)
Policy liabilities and accruals 5,882 12,730 7,775
Federal income taxes - current (7,848) (19,888) 14,955
Other policyholder funds (7,547) 14,131 12,826
Liability for guaranty fund assessments (3,309) 979 16,439
Policy loans (60,634) (90,118) (126,925)
Investment trading securities 11,352 (145,972) 0
Other, net (39,206) 49,424 (6,269)
-------------- -------------- --------------
Net cash and cash equivalents provided
by operating activities 273,395 300,010 512,144
-------------- -------------- --------------
</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, 1994, 1993 AND 1992
(Concluded) (Dollars In Thousands)
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Fixed maturity securities sold 845,227 571,337 1,281,705
Fixed maturity securities matured 1,323,705 2,776,992 2,206,447
Fixed maturity securities purchased (676,976) (1,866,857) (2,806,416)
Equity securities available for sale purchased (1,998) (8,983) (17,843)
Equity securities available for sale sold 18,868 6,451 44,188
Mortgage loans on real estate principal payments received 32,341 35,561 8,548
Mortgage loans on real estate acquired 0 (674) (853)
Real estate available for sale - improvements acquired (1,060) 0 (340)
Real estate available for sale sold 25,346 7,408 178
Interest rate swaps sold 0 0 2,302
Recapture of investment in Separate Accounts 0 29,389 0
Investment in Separate Accounts (15,212) (20,000) (3,841)
-------------- -------------- --------------
Net cash and cash equivalents provided
by investing activities 1,550,241 1,530,624 714,075
-------------- -------------- --------------
FINANCING ACTIVITIES:
Dividend paid to parent (150,000) (120,000) 0
Affiliated notes payable 0 0 (83,200)
Policyholders' account balances:
Deposits 966,861 814,314 217,410
Withdrawals (net of transfers to/from Separate Accounts) (2,623,628) (2,574,854) (1,338,034)
-------------- -------------- --------------
Net cash and cash equivalents used
by financing activities (1,806,767) (1,880,540) (1,203,824)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 16,869 (49,906) 22,395
CASH AND CASH EQUIVALENTS
Beginning of year 122,218 172,124 149,729
-------------- -------------- --------------
End of year $ 139,087 $ 122,218 $ 172,124
============== ============== ==============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 30,351 $ 40,000 $ 13,594
Intercompany interest $ 679 $ 737 $ 5,409
</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
(Dollars in Thousands)
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 non-participating 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 retail network of
Merrill Lynch Pierce, Fenner & Smith, Inc. ("MLPF&S"), a wholly
owned subsidiary of Merrill Lynch & Co..
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 4.00% - 8.30%
Interest sensitive deferred annuities 2.78% - 8.58%
Immediate annuities 4.00% - 10.00%
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.
Reinsurance: 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. The maximum amount of mortality risk
retained by the Company is approximately $500 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 $912 that can be
drawn upon for delinquent reinsurance recoverables.
<PAGE>
As of December 31, 1994, the Company had life insurance in-
force which was ceded to other life insurance companies of
$2,027,303.
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 are 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 an unaffiliated insurer. 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,:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Beginning balance $ 139,647 $ 150,450 $ 160,235
Capitalized amounts 12,517 6,987 6,060
Interest accrued 12,582 13,136 15,401
Amortization (31,358) (30,926) (31,246)
----------- ----------- -----------
Ending balance $ 133,388 $ 139,647 $ 150,450
=========== =========== ===========
</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.
1995 $17,840
1996 16,056
1997 12,488
1998 8,925
1999 8,399
Investments: Effective December 31, 1993, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). In compliance with SFAS No. 115,
the Company, at December 31, 1993, 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. If a decline in value of a security
is determined by
<PAGE>
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 represented securities that were managed
with an investment objective to maximize total return
subject to the Company's quality guidelines. Investments in
this portfolio consisted primarily of marketable fixed
maturity and equity investments. These securities were
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 permits 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 has not utilized this
classification since the adoption of SFAS No. 115.
During 1994, the Company ceased utilizing the trading
securities classification. All securities that were classified
as trading securities on November 1, 1994 were transferred to
the available for sale classification at their respective
estimated fair values on that date. The difference between the
market value at November 1, 1994 and par value will be
amortized into income based on the Company's premium
amortization and discount accrual policies.
In compliance with a Securities and Exchange Commissions
("SEC") staff announcement, the Company has recorded certain
adjustments to deferred policy acquisition costs and
policyholders' account balances in connection 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
stockholder's equity. The following reconciles the net
unrealized investment gain (loss) as of December 31,:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale $(146,439) $ 228,123
Equity securities available for sale 831 546
Deferred policy acquisition costs 72,220 (36,044)
Federal income taxes - deferred 23,629 213
Separate Account Assets (549) 0
----------- -----------
(50,308) 192,838
----------- -----------
Liabilities:
Policyholders' account balances (6,424) 193,233
----------- -----------
Stockholder's equity:
Net unrealized investment loss $ (43,884) $ (395)
=========== ===========
</TABLE>
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. For
equity securities, dividends are recognized on the ex-dividend
date. 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
<PAGE>
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.
During 1994, the Company adopted SFAS No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of
Financial Instruments" ("SFAS No. 119"). SFAS No. 119 requires
increased disclosures regarding derivative financial
instruments. SFAS No. 119 defines derivative financial
instruments as futures, forward, swap and option contracts or
other financial instruments with similar characteristics. As of
December 31, 1994, the Company holds only interest rate swap
contracts.
The Company has outstanding certain interest rate swap
contracts which are carried at estimated fair value and
recorded as a component of fixed maturity securities available
for sale. Interest income, realized gains and losses and
unrealized gains and losses are recorded on the same basis as
fixed maturity securities available for sale.
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 recognizes income from mortgage loans on real
estate based on the cash payment interest rate of the loan,
which may be different from the accrual interest rate of the
loan for certain outstanding mortgage loans. The Company will
recognize a realized gain at the date of the satisfaction of
the loan at contractual terms for loans where there is a
difference between the cash payment interest rate and the
accrual interest rate. For all loans the Company stops accruing
income when an interest payment default either occurs or is
probable.
The Company has previously made commercial mortgage loans
collateralized by real estate and direct investments in
commercial 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 vacancy rates in excess of
historical averages, 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. 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") which was amended during 1994 by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures". SFAS No. 114, as amended,
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 or losses. SFAS No.
114, as amended, 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, as amended, would be immaterial.
<PAGE>
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. 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.
Federal Income Taxes: The results of 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.
The Company accounts for Federal Income Taxes in compliance
with 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.
Separate Accounts: The Separate Accounts are established in
conformity with Arkansas insurance law, the Company's
domiciliary state, and are generally not 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.
Postretirement Benefits Other Than Pensions: The Company
accounts for postretirement benefits in compliance with 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.
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.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments which approximates
the estimated fair value of these financial instruments as of
December 31 are:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale:
Securities (1) $ 3,866,886 $ 5,593,042
Interest rate swaps (2) 947 4,317
------------ ------------
Total fixed maturity securities available for sale 3,867,833 5,597,359
------------ ------------
Fixed maturity securities held for trading (1) 0 144,035
Equity securities available for sale (1) 16,777 24,970
Equity securities held for trading (1) 0 20,585
Mortgage loans on real estate (3) 149,249 191,214
Policy loans on insurance contracts (4) 985,213 924,579
Cash and cash equivalents (5) 139,087 122,218
Receivables from affiliates - net (6) 3,113 789
Separate accounts assets (7) 5,798,973 4,715,278
------------ ------------
Total financial instruments recorded as assets $10,960,245 $11,741,027
============ ============
</TABLE>
(1) 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, 1994 and 1993, securities
without a readily ascertainable market value, having an
amortized cost of approximately $564,665 and $773,965, had
an estimated fair value of approximately $564,682 and
$819,866, respectively.
(2) Estimated fair values for the Company's interest rate
swaps are based on a discounted cashflow approach.
(3) The estimated fair value of mortgage loans on real estate
approximates the carrying value. See Note 1 for a
discussion of the Company's valuation process.
(4) 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.
(5) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(6) The fair value of the Company's receivables from
affiliates is estimated at carrying value. These
borrowings are payable on demand and accrue a variable
interest rate based on LIBOR.
(7) Assets held in the Separate Accounts are carried at quoted
market values.
<PAGE>
NOTE 3. INVESTMENTS
The amortized cost (cost for equity securities) and estimated
fair value of investments in fixed maturity securities and
equity securities as of December 31 are:
<TABLE>
<CAPTION>
1994
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 2,795,543 $ 20,378 $ 133,534 $ 2,682,387
Mortgage-backed securities 1,070,430 5,772 35,624 1,040,578
U.S. Government and agencies 139,513 1,059 4,392 136,180
Municipals 4,588 115 0 4,703
Foreign governments 4,198 0 213 3,985
------------ ----------- ----------- ------------
Total fixed maturity securities
available for sale $ 4,014,272 $ 27,324 $ 173,763 $ 3,867,833
============ =========== =========== ============
Equity securities available for sale:
Common stocks $ 8,489 $ 641 $ 632 $ 8,498
Non-redeemable preferred stocks 7,457 1,092 270 8,279
------------ ----------- ----------- ------------
Total equity securities available for sale $ 15,946 $ 1,733 $ 902 $ 16,777
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
1993
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 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. Government and agencies 159,329 10,887 126 170,090
Municipals 12,912 922 0 13,834
------------ ----------- ----------- ------------
Total fixed maturity securities
available for sale $ 5,369,236 $ 250,687 $ 22,564 $ 5,597,399
============ =========== =========== ============
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>
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1994 by
contractual maturity are shown below:
<PAGE>
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 101,138 $ 102,400
Due after one year through five years 1,323,119 1,282,668
Due after five years through ten years 1,249,759 1,183,803
Due after ten years 269,826 258,384
------------ ------------
2,943,842 2,827,255
Mortgage-backed securities 1,070,430 1,040,578
Total fixed maturity securities ------------ ------------
available for sale $ 4,014,272 $ 3,867,833
============ ============
</TABLE>
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 may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1994 by rating
agency equivalent are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
AAA $ 995,888 $ 964,385
AA 630,459 614,948
A 857,103 821,906
BBB 1,245,045 1,190,554
Non-investment grade 285,777 276,040
------------ ------------
$ 4,014,227 $ 3,867,833
============ ============
</TABLE>
The Company has entered 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, 1994 and 1993 was
approximately $30,000 and $149,250, respectively. The Company
has outstanding at December 31, 1994 three interest rate swap
contracts for which the Company pays the six month LIBOR
interest rate and receives a weighted average 9.8%. The
outstanding interest rate swap contracts at December 31, 1994
will expire at various times during 1996. The average unexpired
term at December 31, 1994 and 1993 was 1.2 years and 3.2 years,
respectively. All three interest rate swap contracts were with
investment grade counterparties at December 31, 1994.
There are no outstanding matched swaps in a loss position at
December 31, 1994 and 1993. During 1994, 1993 and 1992, a net
investment gain of approximately $470, $0 and $2,302,
respectively, was recorded in connection with interest rate
swap activity.
During 1994, 1993 and 1992, the Company did not enter into
either matched or unmatched interest rate swap arrangements and
did not act as an intermediary or broker in interest rate
swaps.
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,:
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds $ 2,168,932 $ 3,348,329 $ 3,488,152
Realized investment gains 8,398 71,599 51,925
Realized investment losses 9,823 4,126 36,018
</TABLE>
During 1994, the Company ceased utilizing the trading
securities classification. At the date of this action, the
securities classified as trading were transferred to the
available for sale portfolio at their estimated fair value. The
estimated fair value of fixed maturity securities and equity
securities transferred at the date of transfer was $134,984 and
$6,989, respectively. At the date of transfer, amortized cost
exceeded estimated fair value by $2,995. During 1994 and 1993,
approximately $(7,285) and $4,291, respectively, of unrealized
holding gains (losses) from investment trading securities were
recorded in net realized investment gains/(losses).
The Company had investment securities of $26,651 and $28,702
held on deposit with insurance regulatory authorities at
December 31, 1994 and 1993, respectively.
At December 31, 1994, the Company retained $14,662 in the
Separate Accounts, including unrealized losses of $549. The
investments in the Separate Accounts are 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's investment in mortgage loans on real estate are
principally collateralized by commercial real estate. At
December 31, 1994, the largest concentrations of commercial
real estate mortgage loans, as measured by the outstanding
principal balance, are for properties located in California
($53,282 or 28%), Illinois ($28,294 or 15%) and Rhode Island
($19,769 or 10%).
The carrying value and established valuation allowances of
impaired mortgage loans on real estate as of December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Carrying value $71,973 $63,952
Valuation allowance 40,070 45,924
</TABLE>
For the years ended December 31, 1994 and 1993, $4,652 and
$29,555, 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>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities $ 368,023 $ 511,655 $ 652,136
Equity securities 2,408 4,143 4,813
Mortgage loans on real estate 15,014 20,342 25,954
Real estate available for sale 406 32 1,004
Policy loans on insurance contracts 50,232 46,129 40,843
Other 5,489 11,135 5,924
---------- ---------- ----------
Gross investment income 441,572 593,436 730,674
Less expenses (8,036) (6,975) (17,935)
---------- ---------- ----------
Net investment income $ 433,536 $ 586,461 $ 712,739
========== ========== ==========
</TABLE>
<PAGE>
Net realized investment gains (losses), including changes in
valuation allowances, for the years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ (1,425) $ 67,473 $ 15,907
Fixed maturity securities held for trading (11,889) 5,562 0
Equity securities available for sale 1,490 22 (3,051)
Equity securities held for trading (580) 2,587 0
Mortgage loans on real estate (4,967) (9,310) (42,997)
Real estate available for sale 2,828 (4,733) (1,800)
Other 0 1,451 2,302
---------- ---------- ----------
Net realized investment gains (losses) $ (14,543) $ 63,052 $ (29,639)
========== ========== ==========
</TABLE>
The following is a reconciliation of the change in valuation
allowances which have been deducted in arriving at investment
carrying values, as presented in the balance sheet, and changes
thereto of the following classifications of investments for the
years ended December 31,:
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage loans on real estate:
1994 $ 45,924 $ 4,966 $ 10,820 $ 40,070
1993 55,610 9,310 18,996 45,924
1992 14,413 42,997 1,800 55,610
Real estate available for sale:
1994 7,628 0 1,862 5,766
1993 4,300 3,328 0 7,628
1992 4,500 1,800 2,000 4,300
</TABLE>
The Company held investments at December 31, 1994 of $20,391
which have been non-income producing for the preceding twelve
months.
The Company has restructured the terms of certain of its
investments in fixed maturity securities and mortgage loans on
real estate during 1994 and 1993. 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>
1994 1993
-------- --------
<S> <C> <C>
Fixed maturity securities:
Amortized cost $ 1,134 $ 3,743
Expected income 189 916
Actual income 112 103
Equity interest received 28 1,833
Mortgage loans on real estate:
Amortized cost less valuation allowance 49,595 79,624
Expected income 4,673 6,859
Actual income 3,725 5,076
</TABLE>
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1994 no funds had been advanced towards the
Company's $10,000 commitment to the limited partnership.
NOTE 4. FEDERAL INCOME TAXES
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 years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 31,459 $ 25,471 $ 8,726
Increase (decrease) in income taxes resulting from:
Federal tax rate increase (631)
Dividend received deduction (7,363) (28) (33)
Other (218) 103 (57)
---------- ---------- ---------
Federal income tax provision $ 23,878 $ 24,915 $ 8,636
========== ========== =========
</TABLE>
The Federal statutory rate for 1994, 1993 and 1992 was 35%, 35%
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 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 6,416 $ (9,030) $(17,633)
Policyholders' account balances 5,322 6,433 21,301
Estimated liability for guaranty fund assessments (153) (1,066) (2,735)
Investment adjustments 3,276 7,941 (21,875)
Other (13,486) 525 1,029
Deferred Federal income tax ---------- ---------- ---------
provision (benefit) $ 1,375 $ 4,803 $(19,913)
========== ========== =========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31, are
determined as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 94,153 $ 99,475
Net unrealized investment losses 23,629 213
Investment adjustments 16,320 19,596
Estimated liability for guaranty fund assessments 7,580 7,427
---------- ----------
Total deferred tax asset 141,682 126,711
---------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs 99,041 92,625
Other 3,722 17,208
---------- ----------
Total deferred tax liability 102,763 109,833
---------- ----------
Net deferred tax asset $ 38,919 $ 16,878
========== ==========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
NOTE 5. 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 $44,176, $55,843 and $63,300 for the years ended
December 31, 1994, 1993 and 1992, respectively. The Company is
allocated interest expense on its accounts payable to MLIG
which approximates the daily Federal funds rate. Total
intercompany interest paid was $679, $737 and $5,409 for 1994,
1993 and 1992, 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. Charges attributable to this agreement and
allocated to the Company by MLIG were $2,732, $2,800 and $3,700
for the years ended December 31, 1994, 1993 and 1992,
respectively.
During 1994, the Company and MLAM entered into an agreement
pursuant to which MLAM paid to the Company a fee in an amount
equal to a portion of the annual gross investment advisory fees
received by MLAM from Merrill Lynch Series Fund, Inc. ("Series
Fund") and Merrill Lynch Variable Series Funds, Inc. ("Variable
Series Funds"). The Company invests in the various mutual fund
portfolios of the Series Fund and the Variable Series Funds in
connection with the variable life insurance and variable
annuities the Company has in-force. The Company received $12,600
of revenue as a result of this agreement during 1994.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S who are the 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 $84,231, $67,102 and $25,158 for
1994, 1993 and 1992, 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
<PAGE>
transaction. 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 was approximately $4,025.
The Company has entered into certain interest rate swap
contracts with Merrill Lynch Capital Services, Inc. ("MLCS")
with a guarantee from Merrill Lynch & Co.. As of December 31,
1994 and 1993, the notional amount of interest rate swap
contracts outstanding were $10,000 and $109,250, respectively.
During 1994 the Company and MLCS terminated certain interest
rate swap contracts resulting in the Company paying a net
consideration of $2,043. Net interest received from these
interest rate swap contracts was $2,096, $6,876, and $9,849 for
the years ended December 31, 1994, 1993 and 1992, respectively.
(See Note 3)
During 1993 and 1992, the Company allowed the recapture of
certain policies previously indemnity reinsured by the Company
from Family Life Insurance Company. 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 and $2,000 of policy reserves during 1993 and 1992,
respectively. During 1994 certain adjustments to the 1993
assumption reinsurance transactions resulted in a transfer of
$9,299 of policy reserves from ML Life to the Company.
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1994 and 1993, the Company paid dividends of $150,000
and $120,000, respectively, to MLIG. Of these stockholder's
dividends, $112,779 and $75,012, respectively, were
extraordinary dividends as defined by Arkansas Insurance Law
and were paid pursuant to approval granted by the Arkansas
Insurance Commissioner.
At December 31, 1994 and 1993, approximately $26,243 and
$37,221, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1994 and 1993, was $264,432 and $374,209,
respectively.
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,
1994, 1993 and 1992 was $42,382, $45,604 and $60,140,
respectively.
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.
<PAGE>
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, 1994 and 1993, based on the RBC formula, the
Company's total adjusted capital level was 270% and 279%,
respectively, of the basic RBC level.
NOTE 7. 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 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, 1994 and 1993, the Company has established an
estimated liability for future guaranty fund assessments of
$24,774 and $28,083 respectively. The Company regularly
monitors public information regarding insurer insolvencies and
will adjust its estimated liability when appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
<PAGE> 55
PROSPECTUS
May 1, 1995
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: LITTLE ROCK, ARKANSAS 72201
SERVICE CENTER: P.O. BOX 9025
SPRINGFIELD, MASSACHUSETTS 01102-9025
1414 MAIN STREET, THIRD FLOOR
SPRINGFIELD, MASSACHUSETTS 01104-1007
PHONE: (800) 354-5333
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This Prospectus is for a flexible premium variable universal life insurance
contract (the "Contract") offered by Merrill Lynch Life Insurance Company
("Merrill Lynch Life"), a subsidiary of Merrill Lynch & Co., Inc.
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
35 investment divisions of Merrill Lynch Variable Life Separate Account (the
"Separate Account"), the Merrill Lynch Life separate investment account
available under the Contract. The investments available through the investment
divisions include 10 mutual fund portfolios of the Merrill Lynch Series Fund,
Inc., six mutual fund portfolios of the Merrill Lynch Variable Series Funds,
Inc., and 19 unit investment trusts in The Merrill Lynch Fund of Stripped
("Zero") U.S. Treasury Securities. Currently, the contract owner may change his
or her investment allocation as many times as desired.
The Contract provides an estate benefit through life insurance coverage on the
life of the insured. The Contract offers two death benefit options. At the
election of the contract owner, the death benefit may include the Contract's
cash value. Contract owners may purchase additional insurance through an
additional insurance rider, the amount of which may be increased or decreased
subject to certain conditions. Merrill Lynch Life guarantees that the coverage
will remain in force for the guarantee period. Each payment will extend the
guarantee period until such time as the guarantee period is established for the
whole of life of the 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
generally 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 does not guarantee any minimum net cash surrender value.
It may not be advantageous to replace existing insurance with the Contract.
Within certain limits the Contract may be converted to a contract with benefits
that do not vary with the investment results of a separate account.
THE PURCHASE OF THIS CONTRACT INVOLVES CERTAIN RISKS. BECAUSE IT IS A VARIABLE
LIFE INSURANCE CONTRACT, THE VALUE OF THE CONTRACT REFLECTS THE INVESTMENT
PERFORMANCE OF THE SELECTED INVESTMENT OPTIONS. INVESTMENT RESULTS CAN VARY BOTH
UP AND DOWN AND CAN EVEN DECREASE THE VALUE OF PREMIUM PAYMENTS. THEREFORE,
CONTRACT OWNERS COULD LOSE ALL OR PART OF THE MONEY THEY HAVE INVESTED. MERRILL
LYNCH LIFE DOES NOT GUARANTEE THE VALUE OF THE CONTRACT. RATHER, CONTRACT OWNERS
BEAR ALL INVESTMENT RISKS.
LIFE INSURANCE IS INTENDED TO BE A LONG-TERM INVESTMENT. CONTRACT OWNERS SHOULD
EVALUATE THEIR INSURANCE NEEDS AND THE CONTRACT'S LONG-TERM INVESTMENT POTENTIAL
AND RISKS BEFORE PURCHASING THE CONTRACT.
PARTIAL WITHDRAWALS AND SURRENDER OF THE CONTRACT ARE SUBJECT TO TAX, AND BEFORE
THE CONTRACT OWNER ATTAINS AGE 59 1/2 MAY ALSO BE SUBJECT TO A 10% FEDERAL
PENALTY TAX. LOANS MAY BE TAXABLE IF THE CONTRACT BECOME A "MODIFIED ENDOWMENT
CONTRACT."
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT MUST BE
ACCOMPANIED BY CURRENT PROSPECTUSES FOR THE MERRILL LYNCH SERIES FUND, INC., THE
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND THE MERRILL LYNCH FUND OF STRIPPED
("ZERO") U.S. TREASURY SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
IMPORTANT TERMS........................................................................ 4
SUMMARY OF THE CONTRACT
Purpose of the Contract.............................................................. 5
Availability and Payments............................................................ 5
CMA(R) Insurance Service............................................................. 6
The Investment Divisions............................................................. 6
How the Death Benefit Varies......................................................... 6
How the Investment Base Varies....................................................... 6
Net Cash Surrender Value............................................................. 6
Illustrations........................................................................ 6
Replacement of Existing Coverage..................................................... 7
Rights to Cancel ("Free Look" Period) or Convert..................................... 7
How Death Benefit and Cash Value Increases are Taxed................................. 7
Loans................................................................................ 7
Partial Withdrawals.................................................................. 8
Fees and Charges..................................................................... 8
FACTS ABOUT THE SEPARATE ACCOUNT, THE SERIES FUND, THE VARIABLE
SERIES FUNDS, THE ZERO TRUSTS AND MERRILL LYNCH LIFE
The Separate Account................................................................. 9
The Series Fund...................................................................... 9
The Variable Series Funds............................................................ 10
Equity Growth Fund -- Exemptive Relief............................................... 11
Certain Risks of the Series Fund and the Variable Series Funds....................... 11
The Zero Trusts...................................................................... 12
Merrill Lynch Life and MLPF&S........................................................ 12
FACTS ABOUT THE CONTRACT
Who May be Covered................................................................... 12
Purchasing a Contract................................................................ 13
Additional Insurance Rider........................................................... 14
Additional Payments.................................................................. 14
Effect of Additional Payments........................................................ 14
Investment Base...................................................................... 15
Charges Deducted from the Investment Base............................................ 16
Contract Loading..................................................................... 17
Charges to the Separate Account...................................................... 17
Guarantee Period..................................................................... 18
Cash Value........................................................................... 19
Loans................................................................................ 19
Partial Withdrawals.................................................................. 20
Death Benefit Proceeds............................................................... 21
Payment of Death Benefit Proceeds.................................................... 22
Rights to Cancel or Convert.......................................................... 23
Reports to Contract Owners........................................................... 23
MORE ABOUT THE CONTRACT
Using the Contract................................................................... 23
Some Administrative Procedures....................................................... 25
Other Contract Provisions............................................................ 25
Income Plans......................................................................... 26
</TABLE>
2
<PAGE> 57
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Group or Sponsored Arrangements........................................................ 27
Unisex Legal Considerations for Employers.............................................. 27
Selling the Contracts.................................................................. 27
Tax Considerations..................................................................... 28
Merrill Lynch Life's Income Taxes...................................................... 31
Reinsurance.......................................................................... 31
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account........................................................... 31
Changes Within the Account........................................................... 32
Net Rate of Return for an Investment Division........................................ 32
The Series Fund and the Variable Series Funds........................................ 33
Charges to Series Fund Assets........................................................ 34
Charges to Variable Series Funds Assets.............................................. 34
The Zero Trusts...................................................................... 35
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Net Cash Surrender Values
and Accumulated Payments.......................................................... 36
EXAMPLES
Additional Payments.................................................................. 42
Partial Withdrawals.................................................................. 43
Changing the Death Benefit Option.................................................... 44
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
Directors and Executive Officers..................................................... 45
Services Arrangement................................................................. 46
State Regulation..................................................................... 46
Legal Proceedings.................................................................... 46
Experts.............................................................................. 46
Legal Matters........................................................................ 46
Registration Statements.............................................................. 47
Financial Statements................................................................. 47
Financial Statements of Merrill Lynch Variable Life Separate Account................. 48
Financial Statements of Merrill Lynch Life Insurance Company......................... 65
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
3
<PAGE> 58
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 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 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 the amount of any
insurance provided by a rider less any debt.
debt: is the sum of all outstanding loans on a Contract plus accrued interest.
excess sales load: a portion of the sales load calculated during the first two
policy years which is in excess of the amount specified under applicable
regulations in effect under the Investment Company Act of 1940 and therefore may
be refunded in the event of surrender during the first two policy years. After
policy year two, the excess sales load is zero.
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. After the end of the
guarantee period, the fixed base is zero.
guarantee period: is the time guaranteed that the Contract will remain in force
regardless of investment experience, unless the debt exceeds certain values. It
is the period that a comparable fixed life insurance 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.
4
<PAGE> 59
investment base: is the amount available under a Contract for investment in the
Separate Account at any time. A contract owner's investment base is the sum of
the amounts invested in each of the selected investment divisions.
investment division: is any division in the Separate Account.
issue age: is the insured's age as of his or her birthday nearest the contract
date.
issue date: is the date that the Contract is issued. The contestable and
suicide periods are measured from this date.
net amount at risk: is the excess, as of a processing date, of the death
benefit (adjusted for interest at an annual rate of 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.
processing dates: are the contract date and the first day of each contract
quarter thereafter. Processing dates are the days when Merrill Lynch Life
deducts certain charges from the investment base.
processing period: is the period between consecutive processing dates.
target premium: is equal to 75% of the base premium.
variable insurance amount: is computed daily by multiplying the cash value
(plus certain excess sales load during the first 24 months after the Contract is
issued) by the cash value corridor factor for the insured at his or her attained
age.
SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACT
This flexible premium variable universal life insurance contract offers a choice
of investments and an opportunity for the Contract's investment base, cash value
and death benefit to grow based on investment results.
Merrill Lynch Life does not guarantee that contract values will increase.
Depending on the investment results of selected investment divisions, the
investment base, cash value and death benefit may increase or decrease on any
day. The contract owner bears the investment risk. Merrill Lynch Life guarantees
to keep the Contract in force during the guarantee period subject to the effect
of any debt.
Life insurance is not a short-term investment. The contract owner should
evaluate the need for insurance and the Contract's long-term investment
potential and risks before purchasing a Contract.
AVAILABILITY AND PAYMENTS
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. A Contract may be issued for an insured from age 20 through age 85.
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.
5
<PAGE> 60
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 35 investment divisions in the Separate Account. (See
"Changing the Allocation" on page 16.)
Payments are invested in investment divisions of the Separate Account. Ten
investment divisions of the Separate Account invest exclusively in shares of
designated mutual fund portfolios of the Merrill Lynch Series Fund, Inc. (the
"Series Fund"). Six investment divisions of the Separate Account invest
exclusively in shares of designated mutual fund portfolios of the Merrill Lynch
Variable Series Funds, Inc. (the "Variable Series Funds"). Each mutual fund
portfolio has a different investment objective. The other 19 investment
divisions invest in units of designated unit investment trusts in The Merrill
Lynch Fund of Stripped ("Zero") U.S. Treasury Securities (the "Zero Trusts").
The contract owner's payments are not invested directly in the Series Fund, the
Variable Series Funds or the Zero Trusts.
HOW THE DEATH BENEFIT VARIES
Contract owners elect a death benefit option on the application. Under option 1,
the death benefit equals the larger of the face amount or the variable insurance
amount. Under option 2, the death benefit equals the larger of the sum of the
face amount plus the cash value or the variable insurance amount. Subject to
certain conditions, contract owners may change the death benefit option. The
death benefit may increase or decrease on any day depending on the investment
results of the investment divisions chosen by the contract owner. Death benefit
proceeds equal the death benefit reduced by any debt and increased by any rider
benefits payable. (See "Death Benefit Proceeds" on page 21.)
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
certain excess sales load. (See "Contract Loading--Excess Sales Load" on page
17.)
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
- ---------------
Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
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not be deemed a representation of past or future performance. Actual rates of
return may be more or less than those reflected in the illustrations and,
therefore, actual values will be different than those illustrated.
REPLACEMENT OF EXISTING COVERAGE
Before purchasing a Contract, the contract owner should ask his or her Merrill
Lynch registered representative if changing, or adding to, current insurance
coverage would be advantageous. Generally, it is not advisable to purchase
another contract as a replacement for existing coverage. In particular,
replacement should be carefully considered if the decision to replace existing
coverage is based solely on a comparison of contract illustrations.
RIGHTS TO CANCEL ("FREE LOOK" PERIOD) OR CONVERT
Once the contract owner receives the Contract, he or she should review it
carefully to make sure it is what he or she intended to purchase. Generally, a
Contract may be returned for a refund within the later of ten days after the
contract owner receives it, 45 days after the contract owner completes the
application, or ten days after Merrill Lynch Life mails or personally delivers
the Notice of Withdrawal Right to the contract owner. If the Contract is
returned during the "free look" period, Merrill Lynch Life will refund the
initial payment without interest.
Once the Contract is issued, a contract owner may also convert the Contract
within 24 months after issue to a contract with benefits that do not vary with
the investment results of a separate account. (See "Converting the Contract" on
page 23.)
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.
A Contract may be a "modified endowment contract" under federal tax law
depending upon the amount of payments made in relation to the death benefit
provided under the Contract. If the Contract is a modified endowment contract,
certain distributions made during the insured's lifetime, such as loans and
partial withdrawals from, and collateral assignments of, the Contract are
includable in gross income on an income-first basis. A 10% penalty tax may also
be imposed on distributions made before the contract owner attains age 59 1/2.
Contracts that are not modified endowment contracts under federal tax law
receive preferential tax treatment with respect to certain distributions.
For a discussion of the tax issues associated with this Contract, see "Tax
Considerations" on page 28.
LOANS
Contract owners may borrow up to the loan value of their Contracts, which is 90%
of the cash value. The maximum amount which may be borrowed at any time is the
difference between the loan value and debt. (See "Loans" on page 19.)
Debt is deducted from the amount payable on surrender of the Contract and is
also subtracted from any death benefit payable. Loan interest accrues daily and,
if it is not repaid each year, it is capitalized and added to the debt. If the
Contract is a modified endowment contract, the amount of capitalized interest
will be treated as a taxable withdrawal. Depending upon investment performance
of the divisions and the amounts borrowed, loans may cause a Contract to lapse.
If the Contract lapses with a loan outstanding, adverse tax consequences may
result. (See "Tax Considerations" on page 28.)
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PARTIAL WITHDRAWALS
Contract owners may make partial withdrawals beginning in contract year sixteen,
subject to certain conditions. (See "Partial Withdrawals" on page 20.)
FEES AND CHARGES
Contract Loading. Merrill Lynch Life deducts certain charges from all payments
before they are invested in the investment divisions. These charges are:
- Sales load equal to 46.25% of each payment through the second base
premium and 1.25% of each payment thereafter.
- State and local premium tax charge of 2.5% of each payment.
- A charge for federal taxes of 1.25% of each payment.
(See "Contract Loading" on page 17.)
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 16) and any rider costs (see "Additional Insurance
Rider" on page 14).
- On each contract anniversary, Merrill Lynch Life makes deductions for the
net loan cost if there has been any debt during the prior year. It equals
a maximum of 2% of the debt per year.
Separate Account Charges. There are certain charges deducted daily from the
investment results of the investment divisions in the Separate Account. These
charges are:
- an asset charge designed to cover mortality and expense risks deducted
from all investment divisions which is equivalent to .90% annually at the
beginning of the year; and
- a trust charge deducted from only those investment divisions investing in
the Zero Trusts, which is currently equivalent to .34% annually at the
beginning of the year and will never exceed .50% annually.
Advisory Fees. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 34 and "Charges to Variable Series Funds Assets" on page 34.)
This summary is intended to provide only a very brief overview of the more
significant aspects of the Contract. Further detail is provided in this
Prospectus and in the Contract. The Contract together with its attached
applications, medical exam(s), amendments, riders and endorsements constitutes
the entire agreement between the contract owner and Merrill Lynch Life and
should be retained.
For the definition of certain terms used in this Prospectus, see "Important
Terms" on page 4.
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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
The Separate Account is a separate investment account established by Merrill
Lynch Life on November 16, 1990. It is registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the Investment
Company Act of 1940. This registration does not involve any supervision by the
Securities and Exchange Commission over the investment policies or practices of
the Separate Account. It meets the definition of a separate account under the
federal securities laws. The Separate Account is used to support the Contract as
well as to support other variable life insurance contracts issued by Merrill
Lynch Life.
Merrill Lynch Life owns all of the assets in the Separate Account. The assets of
the Separate Account are kept separate from Merrill Lynch Life's general account
and any other separate accounts it may have and, to the extent of its reserves
and liabilities, may not be charged with liabilities arising out of any other
business Merrill Lynch Life conducts.
Obligations to contract owners and beneficiaries that arise under the Contract
are obligations of Merrill Lynch Life. Income, gains, and losses, whether or not
realized, from assets allocated are, in accordance with the Contracts, credited
to or charged against the Separate Account without regard to other income, gains
or losses of Merrill Lynch Life. As required, the assets in the Separate Account
will always be at least equal to the reserves and other liabilities of the
Separate Account. If the assets exceed the required reserves and other Contract
liabilities (which will always be at least equal to the aggregate contract value
allocated to the Separate Account under the Contracts), Merrill Lynch Life may
transfer the excess to its general account.
There are currently 35 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Six invest in shares of a
specific portfolio of the Variable Series Funds. Nineteen invest in units of a
specific Zero Trust. Complete information about the Series Fund, the Variable
Series Funds and the Zero Trusts, including the risks associated with each
portfolio (including any risks associated with investment in the High Yield
Portfolio of the Series Fund) can be found in the accompanying prospectuses.
They should be read in conjunction with this Prospectus.
THE SERIES FUND
The Merrill Lynch Series Fund, Inc. is registered with the Securities and
Exchange Commission as an open-end management investment company. All of its ten
mutual fund portfolios are currently available through the Separate Account. The
investment objectives of the Series Fund portfolios are described below. There
is no guarantee that any portfolio will meet its investment objective.
Money Reserve Portfolio seeks to preserve capital, maintain liquidity and
achieve the highest possible current income consistent with those objectives by
investing in short-term money market securities.
Intermediate Government Bond Portfolio seeks the highest possible current income
consistent with the protection of capital by investing in debt securities issued
or guaranteed by the U.S. Government or its agencies with a maximum maturity of
15 years.
Long-Term Corporate Bond Portfolio primarily seeks as high a level of current
income as is believed to be consistent with prudent investment risk and
secondarily to preserve shareholders' capital. It invests primarily in corporate
bonds which have been rated within the three highest grades of a major rating
agency.
High Yield Portfolio seeks as high a level of current income as is believed to
be consistent with prudent management, and secondarily capital appreciation, 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").
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Capital Stock Portfolio seeks long-term growth of capital and income, plus
moderate current income. It principally 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 long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks of aggressive
growth companies considered to have special investment value.
Multiple Strategy Portfolio seeks a high total investment return consistent with
prudent risk through a fully managed investment policy utilizing equity
securities, 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, including
convertible securities, of U.S. and foreign issuers.
Balanced Portfolio seeks a level of current income and a degree of stability of
principal not normally available from an investment solely in equity securities
and the opportunity for capital appreciation greater than that normally
available from an investment solely in debt securities by investing in a
balanced portfolio of fixed-income and equity securities.
The investment adviser for the Series Fund is Merrill Lynch Investment
Management, Inc., doing business as Merrill Lynch Asset Management, L.P.
("MLAM"), a subsidiary of Merrill Lynch & Co., Inc. and a registered adviser
under the Investment Advisers Act of 1940. The Series Fund, as part of its
operating expenses, pays an investment advisory fee to MLAM. (See "Charges to
Series Fund Assets" on page 34.)
THE VARIABLE SERIES FUNDS
The Merrill Lynch Variable Series Funds, Inc. is registered with the Securities
and Exchange Commission as an open-end management investment company. Six of its
18 mutual fund portfolios are currently available through the Separate Account.
The investment objectives of the six available Variable Series Funds portfolios
are described below. There is no guarantee that any portfolio will meet its
investment objective.
Basic Value Focus Fund seeks capital appreciation, and secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio.
World Income Focus Fund seeks to achieve high current income by investing in a
global portfolio of fixed-income securities denominated in various currencies,
including multinational currency units. The Fund may invest in United States and
foreign government and corporate fixed-income securities, including high yield,
high risk, lower rated and unrated securities. The Fund will allocate its
investment among different types of fixed-income securities denominated in
various currencies.
Global Utility Focus Fund seeks to obtain capital appreciation and current
income through investment of at least 65% of its total assets in equity and debt
securities issued by domestic and foreign companies which are, in the opinion of
management of the Fund, primarily engaged in the ownership or operation of
facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water.
International Equity Focus Fund seeks to obtain capital appreciation through
investment in securities, principally equities, of issuers in countries other
than the United States. Under normal conditions, at least 65% of the Fund's net
assets will be invested in such equity securities.
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.
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Developing Capital Markets Focus Fund seeks to achieve long-term capital
appreciation by investing in securities, principally equities, of issuers in
countries having smaller capital markets. For purposes of its investment
objective, the Fund considers countries having smaller capital markets to be all
countries other than the four countries having the largest equity market
capitalizations. Currently, these four countries are Japan, the United Kingdom,
the United States, and Germany.
MLAM is the investment adviser for the Variable Series Funds. The Variable
Series Funds, as part of its operating expenses, pays an investment advisory fee
to MLAM. (See "Charges to Variable Series Funds Assets" on page 34.)
EQUITY GROWTH FUND -- EXEMPTIVE RELIEF
An application for exemptive relief has been filed with the Securities and
Exchange Commission on behalf of the Variable Series 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 34.) 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.
CERTAIN RISKS OF THE SERIES FUND AND VARIABLE SERIES FUNDS
Investment in lower-rated debt securities, such as those in which the High Yield
Portfolio of the Series Fund and the High Current Income Fund of the Variable
Series Funds invest, entails relatively greater risk of loss of income or
principal. In an effort to minimize risk, the Funds will diversify holdings
among many issuers. However, there can be no assurance that diversification will
protect the Funds from widespread defaults during periods of sustained economic
downturn.
In seeking to protect the purchasing power of capital, the Natural Resources
Portfolio of the Series Fund reserves the right, when management anticipates
significant economic, political, or financial instability, such as high
inflationary pressures or upheaval in foreign currency exchange markets, to
invest a majority of its assets in companies that explore for, extract, process
or deal in gold or in asset-based securities indexed to the value of gold
bullion. The Natural Resources Portfolio will not concentrate its investments in
such securities until it has been advised that no adverse tax consequences will
result.
The World Income Focus Fund of the Variable Series Funds has no established
rating criteria for the securities in which it may invest. In an effort to
minimize risk, the Fund will diversify its holdings among many issuers. However,
there can be no assurance that diversification will protect the Fund from
widespread defaults during periods of sustained economic downturn.
The Developing Capital Markets Focus Fund of the Variable Series Funds has
established no rating criteria for the debt securities in which it may invest,
and will rely on the investment adviser's judgment in evaluating the
creditworthiness of an issuer of such securities. In an effort to minimize the
risk, the Fund will diversify its holdings among many issuers. However, there
can be no assurance that diversification will protect the Fund from widespread
defaults during periods of sustained economic downturn.
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Because investment in these Portfolios and Funds entails relatively greater risk
of loss of income or principal, it may not be appropriate to allocate all
payments and investment base to an investment division that invests in one of
these Portfolios or Funds.
THE ZERO TRUSTS
The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities was formed
to provide safety of capital and a high yield to maturity. It seeks this through
U.S. Government-backed investments which make no periodic interest payments and,
therefore, are purchased at a deep discount. When held to maturity the
investments should receive approximately a fixed yield. The value of Zero Trust
units before maturity varies more than it would if the Zero Trusts contained
interest-bearing U.S. Treasury securities of comparable maturities.
The Zero Trust portfolios consist mainly of:
- bearer debt obligations issued by the U.S. Government stripped of their
unmatured interest coupons;
- coupons stripped from U.S. debt obligations; and
- receipts and certificates for such stripped debt obligations and coupons.
The Zero Trusts currently available have maturity dates in years 1995 through
2011, 2013 and 2014.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
Merrill Lynch & Co., Inc., is the sponsor for the Zero Trusts. The sponsor will
sell units of the Zero Trusts to the Separate Account and has agreed to
repurchase units when Merrill Lynch Life needs to sell them to pay benefits and
make reallocations. Merrill Lynch Life pays the sponsor a fee for these
transactions and is reimbursed through the trust charge assessed to the
divisions investing in the Zero Trusts. (See "Charges to Divisions Investing in
the Zero Trusts" on page 18.)
MERRILL LYNCH LIFE AND MLPF&S
Merrill Lynch Life is a stock life insurance company organized under the laws of
the State of Washington in 1986 and redomesticated under the laws of the State
of Arkansas in 1991. It is an indirect wholly owned subsidiary of Merrill Lynch
& Co., Inc. Merrill Lynch Life is authorized to sell life insurance and
annuities in 49 states, Guam, the U.S. Virgin Islands and the District of
Columbia. It is also authorized to 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 27.)
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. Merrill Lynch Life will issue a Contract on the life of the insured
provided the relationship between the applicant and the insured meets Merrill
Lynch Life's insurable interest requirements and provided the insured is not
over age 85 or under age 20. The insured's issue age will be determined using
the insured's age as of his or her birthday nearest the contract date. The
insured must also meet Merrill Lynch Life's medical and other underwriting
requirements, which will include undergoing a medical examination.
Merrill Lynch Life assigns insureds to underwriting classes which determine the
current cost of insurance rates used in calculating cost of insurance
deductions. Contracts may be issued on insureds in standard, non-
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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 16.
PURCHASING A CONTRACT
To purchase a Contract, the contract owner must complete an application and make
a payment. The payment is required to put the Contract into effect. In the
application, the contract owner selects the face amount of the Contract. The
amount of the minimum initial payment for a given Contract depends on the face
amount selected and the issue age, sex and underwriting class of the insured.
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" below). Merrill Lynch Life
also will not accept an initial payment that would cause the Contract to fail to
qualify as life insurance under federal tax law as interpreted by Merrill Lynch
Life.
Insurance coverage generally begins as of the contract date, which is usually
the next business day following receipt of the initial payment at Merrill Lynch
Life's Service Center. Temporary life insurance coverage may be provided prior
to the contract date under the terms of a temporary insurance agreement. In
accordance with Merrill Lynch Life's underwriting rules, temporary life
insurance coverage may not exceed $300,000 and may not be in effect for more
than 90 days. As provided for under state insurance law, the contract owner, to
preserve insurance age, may be permitted to backdate the Contract. In no case
may the contract date be more than six months prior to the date the application
was completed. Charges for cost of insurance and rider costs for the backdated
period are deducted on the contract date.
If Merrill Lynch Life determines that, based on the contract owner's initial
payment and face amount, the Contract will be a modified endowment contract,
Merrill Lynch Life will issue the Contract provided the contract owner signs a
statement acknowledging that the Contract is a modified endowment contract or
agrees either to reduce the initial payment or to increase the face amount to a
level at which the Contract will not be a modified endowment contract. For a
discussion of the tax consequences of purchasing a modified endowment contract,
see "Tax Considerations" on page 28.
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 purchase additional
insurance coverage through an additional insurance rider. (See "Additional
Insurance Rider" on page 14.)
Initial Guarantee Period. The initial guarantee period for a Contract will be
determined by the initial payment, face amount and any additional insurance
rider face amount. The guarantee period will be adjusted each time an additional
payment is made, when a partial withdrawal is taken, when a death benefit option
change results in a change in face amount, and when the additional insurance
rider face amount is increased or decreased.
The guarantee period is the period of time Merrill Lynch Life guarantees that
the Contract will remain in force regardless of investment experience unless the
debt exceeds certain values. The guarantee period is based on the guaranteed
maximum cost of insurance rates in the Contract, guaranteed maximum rider costs
(if an additional insurance rider is elected), the contract loading and a 5%
interest assumption. This means that for a given initial payment and face
amount, different insureds will have different guarantee periods depending on
the age, sex and underwriting class of the insureds. For example, an older
insured will have a shorter guarantee period than a younger insured in the same
underwriting class.
The maximum guarantee period is for the whole of life of the insured.
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ADDITIONAL INSURANCE RIDER
The contract owner may purchase additional insurance coverage payable to the
beneficiary on the death of the insured. Additional insurance coverage may be
purchased through an additional insurance rider when the Contract is purchased.
Under Merrill Lynch Life's current procedures, the maximum additional insurance
rider face amount at the time the Contract is purchased is three times the face
amount of the Contract. The rider can also be added on any contract anniversary
thereafter, as long as an application is completed, satisfactory evidence of
insurability of the insured is provided, and the insured has not attained the
age of 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 16.) Because insurance coverage through an
additional insurance rider is purchased through deductions from the Contract's
investment base that are not taken into account in determining the base premium,
there is no additional contract loading associated with this coverage.
Once each year, the additional insurance rider face amount may be increased
(subject to evidence of insurability of the insured) or decreased (after the
seventh contract anniversary); however, any change in the additional insurance
rider face amount must be at least $100,000. The effective date of the change
will be the contract anniversary next following underwriting approval of the
change. As of the effective date of the increase or decrease in the additional
insurance rider face amount, Merrill Lynch Life uses the existing fixed base and
the face amount of the Contract plus the new additional insurance rider face
amount to calculate a new guarantee period. A decrease in the additional
insurance rider face amount will increase the guarantee period. An increase in
the additional insurance rider face amount will decrease the guarantee period.
An increase will not be allowed on the first contract anniversary if the face
amount of the Contract plus the new rider face amount provide a guarantee period
of less than one year from the effective date of the increase.
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 28.
ADDITIONAL PAYMENTS
After the "free look" period, contract owners may make additional payments while
the insured is living. Additional payments must be submitted with an additional
payment form. The minimum Merrill Lynch Life will accept for these payments is
$100. For Contracts that are not modified endowment contracts, making an
additional payment may cause them to become modified endowment contracts. (See
"Tax Considerations" on page 28.) 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 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 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
Generally, any additional payments will be accepted the day they are received at
the Service Center. However, if acceptance of any portion of the payment would
cause a Contract which is not a modified endowment contract to become a modified
endowment contract, to the extent feasible, Merrill Lynch Life will not accept
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that portion of the payment unless the contract owner confirms in writing his or
her intent to convert the Contract to a modified endowment contract. Merrill
Lynch Life may return that portion of the payment pending receipt of
instructions from the contract owner.
On the date Merrill Lynch Life receives and accepts an additional payment,
Merrill Lynch Life will:
- increase the Contract's investment base by the amount of the payment less
contract loading applicable to the payment;
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount" on page 21); and
- increase the fixed base by the amount of the payment less contract
loading applicable to the payment (see "The Contract's Fixed Base" on
page 18).
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment is
less than for the whole of life of the insured.
Merrill Lynch Life will determine the increase in the guarantee period by taking
the immediate increase in the cash value resulting from the additional payment
and adding to that interest at the annual rate of 5% for the period from the
date Merrill Lynch Life receives and accepts the payment to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is added to the fixed base and the
resulting new fixed base is used to calculate a new guarantee period. For a
discussion of the effect of additional payments on a Contract's guarantee
period, see "Additional Payments" in the Examples on page 42.
If any excess sales load has been applied to keep the Contract in force, any
additional payment, less contract loading, will first be applied to recover such
excess load (see "Excess Sales Load" on page 17). Next, unless specified
otherwise, if there is any debt, any payment made will be applied as a loan
repayment, with any excess applied as an additional payment. (See "Loans" on
page 19.)
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 32.) The investment performance reflects the
deduction of Separate Account charges. (See "Charges to the Separate Account" on
page 17.)
Partial withdrawals, loans and deductions for cost of insurance, rider costs and
net loan cost decrease the investment base. (See "Charges Deducted from the
Investment Base" on page 16, "Partial withdrawals" on page 20, and "Loans" on
page 19.) 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 35 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
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on the application, if different. The contract owner may select up to five of
the 35 investment divisions in the Separate Account.
Changing the Allocation. After the "free look" period, a contract owner's
investment base may be invested in up to five investment divisions at any one
time. Currently, investment allocations may be changed as often as desired.
Merrill Lynch Life reserves the right to charge up to $25 for each change in
excess of six each year. In order to change their investment base allocation,
contract owners must call or write to the Service Center. (See "Some
Administrative Procedures" on page 25.)
Zero Trust Allocations. Merrill Lynch Life will notify contract owners 30 days
before a Zero Trust in which they have invested matures. Contract owners must
notify Merrill Lynch Life by calling or writing at least seven days before the
maturity date how to reinvest their funds in the division investing in that Zero
Trust. If Merrill Lynch Life is not notified, it will move the contract owner's
investment base in that division to the investment division investing in the
Money Reserve Portfolio.
Units of a specific Zero Trust may no longer be available when a request for
allocation is received. Should this occur, Merrill Lynch Life will attempt to
notify the contract owner immediately so that the request can be changed.
Allocation to the Division Investing in the Natural Resources
Portfolio. Merrill Lynch Life and the Separate Account reserve the right to
suspend the sale of units of the investment division investing in the Natural
Resources Portfolio in response to conditions in the securities markets or
otherwise.
CHARGES DEDUCTED FROM THE INVESTMENT BASE
The charges described below are deducted pro-rata from the investment base on
processing dates.
Cost of Insurance. Merrill Lynch Life deducts the cost of insurance from the
investment base on the contract date and on each processing date thereafter.
This charge compensates Merrill Lynch Life for the cost of providing life
insurance coverage for the insured. It is based on the underwriting class, sex
(except where unisex rates are required by state law) and attained age of the
insured and the Contract's net amount at risk.
To determine the cost of insurance, Merrill Lynch Life multiplies the current
cost of insurance rate by the Contract's net amount at risk. The net amount at
risk is the difference, as of a processing date, between the death benefit
(adjusted for interest at an annual rate of 5%) and the cash value, but before
the deduction for cost of insurance.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates depending on the underwriting class, sex (except where unisex
rates are required by state law) and attained age of the insured. Current cost
of insurance rates are lower for insureds in a preferred non-smoker underwriting
class than for insureds of the same age in a non-smoker underwriting class and
are lower for insureds in a non-smoker underwriting class than for insureds of
the same age and sex in a standard underwriting class.
Merrill Lynch Life guarantees that the current cost of insurance rates will
never exceed the maximum guaranteed rates shown in the Contract. The maximum
guaranteed rates for Contracts (other than those issued on a substandard basis)
do not exceed the rates based on the 1980 Commissioners Standard Ordinary
Mortality Table (CSO Table). Merrill Lynch Life may use rates that are equal to
or less than these rates, but never greater. The maximum rates for Contracts
issued on a substandard basis are based on a multiple of the 1980 CSO Table. Any
change in the cost of insurance rates will apply to all insureds of the same
age, sex and underwriting class whose Contracts have been in force for the same
length of time.
Net Loan Cost. The net loan cost is explained under "Loans" on page 19.
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 14.
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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
27. Merrill Lynch Life anticipates that the sales load charge may be
insufficient to cover its distribution expenses. Any shortfall will be made up
from Merrill Lynch Life's general account which may include amounts derived from
mortality gains and asset charges. In no event will the sales load exceed the
amount permitted by the Investment Company Act of 1940.
The charge for federal taxes, equal to 1.25% of each payment, compensates
Merrill Lynch Life for a higher corporate income tax liability resulting from
Section 848 of the Internal Revenue Code as enacted by the Omnibus Budget
Reconciliation Act of 1990. (See "Merrill Lynch Life's Income Taxes" on page
31). The charge for federal taxes is reasonable in relation to Merrill Lynch
Life's increased federal tax burden under Section 848 resulting from the receipt
of premiums under the Contract.
The state and local premium tax charge, equal to 2.5% of each payment,
compensates Merrill Lynch Life for state and local premium taxes Merrill Lynch
Life must pay when a payment is accepted. Premium taxes vary from state to
state. The 2.5% rate is the average rate expected on payments from all states.
Excess Sales Load. Excess sales load is equal to any sales load deducted from
the first two base premiums in excess of 30% of premiums paid up to an amount
equal to the first base premium, and then 10% of premiums paid up to an amount
equal to the second base premium. It is calculated and applied in the following
situations only during the first 24 months after the Contract is issued:
- It is refunded if the Contract is surrendered during the first 24 months
after issue.
- It is added to the cash value so as to keep the Contract in force if debt
exceeds the larger of (i) cash value plus any excess sales load not
previously applied to keep the Contract in force and (ii) the fixed base
during the first 24 months after issue.
- It is added to the cash value in determining the variable insurance
amount during the first 24 months after issue.
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.
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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
31.)
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 34 and "Charges to Variable Series Funds Assets" on page 34.)
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 19.) Additional payments will extend the guarantee period until such
time as it is guaranteed for the whole of life of the insured. The guarantee
period will be affected by partial withdrawals, by changes in death benefit
options and by increases and decreases in the face amount of the additional
insurance rider. A reserve is held in Merrill Lynch Life's general account to
support this guarantee.
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 plus
certain excess sales load on a processing date is insufficient to cover charges
due on that date. (See "Charges Deducted from the Investment Base" on page 16
and "Contract Loading -- Excess Sales Load" on page 17.)
Merrill Lynch Life will notify the contract owner at the owner's last known
address before cancelling the Contract. The contract owner will then have 61
days to pay an amount which, after deducting contract loading, equals at least
three times the charges that were due (and not deducted) on the processing date
when the cash value was determined to be insufficient, plus any excess sales
load previously applied to keep the Contract in force. If this amount is paid,
Merrill Lynch Life will deduct the charges due on the processing date and will
apply the balance to the investment base. Merrill Lynch Life will cancel the
Contract at the end of this grace period if payment has not yet been received.
At that time, Merrill Lynch Life will deduct any charges for cost of insurance
and rider costs that were applicable to the grace period and refund any unearned
charges for the cost of insurance, rider costs and any excess sales load not
previously applied to keep the Contract in force.
Subject to state regulation, if Merrill Lynch Life cancels a Contract, it may be
reinstated while the insured is still living if:
- the reinstatement is requested within three years after the end of the
grace period;
- Merrill Lynch Life receives satisfactory evidence of the insured's
insurability; and
- the reinstatement payment is made. The reinstatement payment is the
minimum payment for which Merrill Lynch Life would then issue a Contract
for the minimum guarantee period with the same face amount as the
original Contract, based on the insured's attained age and underwriting
class as of the effective date of the reinstated Contract.
A reinstated Contract will be effective on the processing date on or next
following the date the reinstatement application is approved.
The Contract's Fixed Base. On the contract date, the fixed base equals the cash
value. From then on, the fixed base is calculated in the same manner as the cash
value except that the calculation substitutes 5% for the
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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 insured, the guarantee period will be extended to the whole of
life of the insured.
CASH VALUE
A Contract's cash value fluctuates daily with the investment results of the
investment divisions selected. Merrill Lynch Life does not guarantee any minimum
cash value. The cash value on any date equals the total investment base plus
debt plus unearned charges for cost of insurance and rider costs less any
accrued net loan cost since the last contract anniversary (or since the contract
date during the first contract year).
Cancelling the Contract. A contract owner may cancel the Contract at any time
while the insured is living. The request must be in writing in a form
satisfactory to Merrill Lynch Life. All rights to death benefits will end on the
date the written request is sent to Merrill Lynch Life.
The contract owner will then receive the net cash surrender value. The contract
owner may elect to receive this amount either in a single payment or under one
or more income plans described on page 26. The net cash surrender value will be
determined as of the date of receipt of the written request at the Service
Center.
If the Contract is cancelled during the first 24 months after the issue date of
the Contract, excess sales load, as described above, will be refunded except to
the extent previously applied to keep the Contract in force. (See "Contract
Loading -- Excess Sales Load" on page 17.)
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 the insured's lifetime. Each repayment must be for
at least $1,000 or the amount of the debt, if less. Certain states won't permit
establishing a minimum amount that can be borrowed or repaid. If any excess
sales load was previously applied to keep the Contract in force, any loan
repayment will first be applied to repay such excess sales load.
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
does not participate in the performance of the investment divisions while the
loan is outstanding. If the amount credited to the collateral is more than what
is earned in the investment divisions, the cash value may be higher as a result
of the loan, as may be the death benefit. Conversely, if the amount credited is
less, the cash value will be lower, as may be the death benefit. In that case,
the lower cash value may cause the Contract to lapse sooner than if no loan had
been taken.
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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 may charge interest
at a maximum rate of 6% annually, subject to state regulation. Currently Merrill
Lynch Life charges interest of 5.75% 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 5%.
Merrill Lynch Life may change the interest rates currently charged on loans and
the rates of interest earned on the loan collateral amounts. Any such changes
will be effective on the contract anniversary following the date such rates are
declared.
Net Loan Cost. Whether or not loan interest is paid when due, on the contract
anniversary, Merrill Lynch Life reduces the investment base by the net loan cost
(the difference between the interest charged and the earnings on the amount held
as collateral in the general account) and adds that amount to the amount held in
the general account as collateral for the loan. Since the interest charged is
5.75% and the collateral earnings on such amounts are 5%, 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 on a processing date the debt exceeds the
larger of (i) the cash value plus certain excess sales load, and less charges
due on that date, and (ii) the fixed base (if any), Merrill Lynch Life will
cancel the Contract 61 days after a notice of intent to terminate the Contract
is mailed to the contract owner unless Merrill Lynch Life has received at least
the minimum repayment amount specified in the notice. During the first 24 months
after the Contract is issued, Merrill Lynch Life will add excess sales load to
the cash value as necessary to keep the Contract in force if debt exceeds the
larger of the cash value less charges due and the fixed base. (See "Contract
Loading -- Excess Sales Load" on page 17.) Upon termination, Merrill Lynch Life
will deduct any charges for cost of insurance and rider costs that may be
applicable to the 61-day period and refund any unearned charges for cost of
insurance, riders costs and any excess sales load not previously applied to keep
the Contract in force. If the Contract lapses with a loan outstanding, adverse
tax consequences may result. (See "Tax Considerations" on page 28.)
PARTIAL WITHDRAWALS
Beginning in contract year sixteen, and subject to state regulation, a contract
owner may make partial withdrawals by submitting a request in a form
satisfactory to Merrill Lynch Life. The effective date of the withdrawal is the
date a withdrawal request is received at the Service Center. Contract owners may
elect to receive the withdrawal amount either in a single payment or, subject to
Merrill Lynch Life's rules, under one or more income plans.
Contract owners may make one partial withdrawal each contract year. The minimum
amount for each partial withdrawal is $1,000. The remaining cash value following
a partial withdrawal must equal or exceed $5,000. The amount of any partial
withdrawal may not exceed the loan value as of the effective date of the partial
withdrawal less any debt. A partial withdrawal may not be repaid.
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.
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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 the withdrawal to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is subtracted from the fixed base and
the resulting new fixed base is used to calculate a new guarantee period. For a
discussion of the effect of partial withdrawals on a Contract's guarantee
period, see "Partial Withdrawals" in the Examples on page 43.
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 28.
DEATH BENEFIT PROCEEDS
Merrill Lynch Life will pay the death benefit proceeds to the beneficiary upon
receipt of all information needed to process the payment, including due proof of
the death of the insured.
If the insured should die within two years from the Contract's issue date,
within two years from the effective date of any requested change in the death
benefit option requiring evidence of insurability, or within two years of an
increase in the additional insurance rider face amount, due proof of the
insured's death should be sent promptly to the Service Center since Merrill
Lynch Life may pay only a limited benefit or contest the Contract. (See
"Incontestability" on page 25 and "Payment in Case of Suicide" on page 26.)
Death Benefit Proceeds. The death benefit payable depends on the death benefit
option in effect on the date of death.
- Under option 1, the death benefit is equal to the larger of the face
amount or the variable insurance amount.
- Under option 2, the death benefit is equal to the larger of the face
amount plus the cash value or the variable insurance amount.
Contract owners who wish to have investment experience reflected in insurance
coverage should choose option 2. Contract owners who wish to have insurance
coverage that generally does not vary in amount should choose option 1.
The death benefit will never be less than the amount required to keep the
Contract qualified as life insurance under federal income tax laws.
To determine the death benefit proceeds, Merrill Lynch Life will subtract from
the death benefit any debt and add to the death benefit any rider benefits
payable.
The values used in calculating the death benefit proceeds are as of the date of
death. If the insured dies during the grace period, the death benefit proceeds
equal the death benefit proceeds in effect immediately prior to the grace period
reduced by any overdue charges. (See "When the Guarantee Period is Less Than for
Life" on page 18.)
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 insured at his or her attained age.
The variable insurance amount will never be less than required by federal tax
law.
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Cash Value Corridor Factor. The cash value corridor factor is used to determine
the amount of death benefit purchased by $1.00 of cash value. It is based on the
attained age of the insured on the date of calculation. It decreases daily as
the insured's age increases. As a result, the variable insurance amount as a
multiple of the cash value will decrease over time. A table of cash value
corridor factors as of each anniversary is included in the Contract.
Table of Illustrative Cash Value Corridor Factors
on Anniversaries
<TABLE>
<CAPTION>
ATTAINED AGE FACTOR
----------------------------------- ------
<S> <C>
40 and under 250%
45 215%
55 150%
65 120%
75-90 105%
95 and over 100%
</TABLE>
Changing the Death Benefit Option. On each contract anniversary beginning with
the 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 44.
If the contract owner requests a change in the death benefit option from option
1 to option 2, evidence of insurability in a form satisfactory to Merrill Lynch
Life that the insured is insurable may be required. In no event will a change be
permitted if, after the change, the Contract would not qualify as life insurance
under federal tax laws as interpreted by Merrill Lynch Life.
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 28.
PAYMENT OF DEATH BENEFIT PROCEEDS
Merrill Lynch Life will generally pay the death benefit proceeds to the
beneficiary within seven days after all the information needed to process the
payment is received at its Service Center. Merrill Lynch Life will add interest
from the date of the insured's death to the date of payment at an annual rate of
at least 4%. The beneficiary may elect to receive the proceeds either in a
single payment or under one or more income plans described on page 26.
Payment may be delayed if the Contract is being contested or under the
circumstances described in "Using the Contract" on page 23 and "Other Contract
Provisions" on page 25. If a delay is necessary and death of the insured occurs
prior to the end of the guarantee period, Merrill Lynch Life may delay payment
of any excess of the death benefit over the face amount. After the guarantee
period has expired, Merrill Lynch Life may delay payment of the entire death
benefit.
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RIGHTS TO CANCEL OR CONVERT
"Free Look" Period. A contract owner may cancel his or her Contract during the
"free look" period by returning it for a refund. Generally, the "free look"
period ends the later of ten days after the Contract is received, 45 days after
the contract owner completes the application or ten days after Merrill Lynch
Life mails or personally delivers to the contract owner the Notice of Withdrawal
Right. To cancel the Contract during the "free look" period, the contract owner
must mail or deliver the Contract to Merrill Lynch Life's Service Center or to
the registered representative who sold it. Merrill Lynch Life will refund the
payment made without interest. If cancelled, Merrill Lynch Life may require the
contract owner to wait six months before applying again.
Converting the Contract. A contract owner may convert the Contract for a
contract with benefits that do not vary with the investment results of a
separate account. Once a contract owner exercises this right, the investment
base and additional payments may not be allocated to the Separate Account. A
request to convert must be made in writing within 24 months after the issue date
of the Contract while the insured is living. The conversion will not require
evidence of insurability.
The conversion will be accomplished by adding an endorsement to the Contract and
transferring, without charge, the investment base in the Separate Account to the
guaranteed interest division ("GID"). Assets in the guaranteed interest division
are held in Merrill Lynch Life's general account. The investment base at the
time of conversion and any additional payments will remain in the guaranteed
interest division and be credited with interest at a rate declared by Merrill
Lynch Life. A declared interest rate for any amount allocated to the guaranteed
interest division will be in effect for at least one year. After conversion, the
Contract will not be subject to charges to the Separate Account. For a
discussion of the tax consequences of converting the Contract, see "Tax
Considerations" on page 28.
REPORTS TO CONTRACT OWNERS
After the end of each processing period, contract owners will be sent a
statement of the allocation of their investment base, death benefit, cash value,
any debt and, if there has been a change, the face amount, the guarantee period
and the additional insurance rider face amount. All figures will be as of the
end of the immediately preceding processing period. The statement will show the
amounts deducted from or added to the investment base during the processing
period. The statement will also include any other information that may be
currently required by a contract owner's state.
Contract owners will receive confirmation of all financial transactions. Such
confirmations will show the price per unit of each of the contract owner's
investment divisions, the number of units a contract owner has in the investment
division and the value of the investment division computed by multiplying the
quantity of units by the price per unit. (See "Net Rate of Return for an
Investment Division" on page 32.) The sum of the values in each investment
division is a contract owner's investment base.
Contract owners will also be sent an annual and a semi-annual report containing
financial statements and a list of portfolio securities of the Series Fund and
the Variable Series Funds, as required by the Investment Company Act of 1940.
CMA Account Reporting. Contract owners who have the CMA Insurance Service will
have certain Contract information included as part of their regular monthly CMA
account statement. It will list the investment base allocation, death benefit,
cash value, debt and any CMA account activity affecting the Contract during the
month.
MORE ABOUT THE CONTRACT
USING THE CONTRACT
Ownership. The contract owner is usually the insured, unless another owner has
been named in the application. The contract owner has all rights and options
described in the Contract.
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The contract owner may want to name a contingent owner. If the contract owner
dies before the insured, the contingent owner will own the contract owner's
interest in the Contract and have the contract owner's rights. If the contract
owner doesn't name a contingent owner, the contract owner's estate will own the
contract owner's interest in the Contract upon the owner's death.
If there is more than one contract owner, Merrill Lynch Life will treat the
owners as joint tenants with rights of survivorship unless the ownership
designation provides otherwise. The owners must exercise their rights and
options jointly, except that any one of the owners may reallocate the Contract's
investment base by phone if the owner provides the personal identification
number as well as the Contract number. One contract owner must be designated, in
writing, to receive all notices, correspondence and tax reporting to which
contract owners are entitled under the Contract.
Changing the Owner. During the insured's lifetime, with the consent of any
irrevocable beneficiary, the contract owner has the right to transfer ownership
of the Contract. The new owner will have all rights and options described in the
Contract. The change will be effective as of the day the notice is signed, but
will not affect any payment made or action taken by Merrill Lynch Life before
receipt of the notice of the change at the Service Center. Changing the owner
may have tax consequences. (See "Tax Considerations" on page 28.)
Assigning the Contract as Collateral. Contract owners may assign the Contract
as collateral security for a loan or other obligation. This does not change the
ownership. However, the contract owner's rights and any beneficiary's rights are
subject to the terms of the assignment. Contract owners must give satisfactory
written notice at the Service Center in order to make or release an assignment.
Merrill Lynch Life is not responsible for the validity of any assignment.
For a discussion of the tax issues associated with a collateral assignment, see
"Tax Considerations" on page 28.
Naming Beneficiaries. Merrill Lynch Life will pay the primary beneficiary the
death benefit proceeds of the Contract on the insured's death. If the primary
beneficiary has died, Merrill Lynch Life will pay the contingent beneficiary. If
no contingent beneficiary is living, Merrill Lynch Life will pay the estate of
the insured.
A contract owner may name more than one person as primary or contingent
beneficiaries. Merrill Lynch Life will pay proceeds in equal shares to the
surviving beneficiaries unless the beneficiary designation provides otherwise.
A contract owner has the right to change beneficiaries during the insured's
lifetime, unless the primary beneficiary designation has been made irrevocable.
If the designation is irrevocable, the primary beneficiary must consent when
certain rights and options are exercised under this Contract. If the beneficiary
is changed, 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
insured's 100th birthday. On the maturity date, Merrill Lynch Life will pay the
net cash surrender value to the contract owner, provided the insured is still
living at that time.
How Merrill Lynch Life Makes Payments. Merrill Lynch Life generally pays death
benefit proceeds, partial withdrawals, loans and net cash surrender value on
cancellation from the Separate Account within seven days after the Service
Center receives all the information needed to process the payment.
However, it may delay payment from the Separate Account if it isn't practical
for Merrill Lynch Life to value or dispose of Trust units, Series Fund shares or
Variable Series Funds shares because:
- the New York Stock Exchange is closed, other than for a customary weekend
or holiday; or
- trading on the New York Stock Exchange is restricted by the Securities
and Exchange Commission; or
- the Securities and Exchange Commission declares that an emergency exists
such that it is not reasonably practical to dispose of securities held in
the Separate Account or to determine the value of their assets; or
- the Securities and Exchange Commission by order so permits for the
protection of contract owners.
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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
16.)
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.
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
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increase in the additional insurance rider face amount requested if any material
misstatements are made in any application required for the change or increase.
Subject to state regulation, Merrill Lynch Life will not contest the validity of
a Contract after it has been in effect during the lifetime of the insured for
two years from the date of issue or the date of any reinstatement. A change in
face amount due to a change in the death benefit option or any increase in the
additional insurance rider face amount won't be contested after the change or
increase has been in effect during the lifetime of the insured for two years
from the date of the change.
Payment in Case of Suicide. Subject to state regulation, if the insured commits
suicide within two years from the Contract's issue date or the date of any
reinstatement, Merrill Lynch Life will pay only a limited death benefit and then
terminate the Contract. The benefit will be equal to the amount of the payments
made, reduced by any debt.
Subject to state regulation, if the insured commits suicide within two years of
the effective date of a change in the death benefit option requiring evidence of
insurability or of the effective date of an increase in the additional insurance
rider face amount, any amount of death benefit which would not be payable except
for the fact that the face amount was increased will be limited to the amount of
cost of insurance deductions made for the increase.
Contract Changes -- Applicable Federal Tax Law. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. Therefore, to maintain this qualification to the
maximum extent of the law, Merrill Lynch Life reserves the right to return any
additional payments that would cause the Contract to fail to qualify as life
insurance under applicable tax law as interpreted by Merrill Lynch Life.
Further, Merrill Lynch Life reserves the right to make changes in the Contract
or its riders or to make distributions from the Contract to the extent it is
necessary to continue to qualify the Contract as life insurance. Any changes
will apply uniformly to all Contracts that are affected and contract owners will
be given advance written notice of such changes.
State Variations. Certain Contract features, including the "free look" right,
are subject to state variation. The contract owner should read his or her
Contract carefully to determine whether any variations apply in the state in
which the Contract is issued.
INCOME PLANS
Merrill Lynch Life offers several income plans to provide for payment of the
death benefit proceeds to the beneficiary. The contract owner may choose one or
more income plans at any time during the lifetime of the insured. If no plan has
been chosen when the insured dies, the beneficiary has one year to apply the
death benefit proceeds either paid or payable to that beneficiary to one or more
of the plans. The contract owner may also choose one or more income plans if the
Contract is cancelled or a partial withdrawal is taken. Merrill Lynch Life's
approval is needed for any plan where any income payment would be less than
$100. Payments under these plans do not depend on the investment results of a
separate account.
Income plans include:
Annuity Plan. An amount can be used to purchase a single premium immediate
annuity.
Interest Payment. Amounts can be left with Merrill Lynch Life to earn
interest at an annual rate of at least 3%. Interest payments can be made
annually, semi-annually, quarterly or monthly.
Income for a Fixed Period. Payments are made in equal installments for a
fixed number of years.
Income for Life. Payments are made in equal monthly installments until
death of a named person or end of a designated period, whichever is later.
The designated period may be for 10 or 20 years.
Income of a Fixed Amount. Payments are made in equal installments until
proceeds applied under the option and interest on unpaid balance at not
less than 3% per year are exhausted.
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Joint Life Income. Payments are made in monthly installments as long as at
least one of two named persons is living. While both are living, full
payments are made. If one dies, payments at two-thirds of the full amount
are made. Payments end completely when both named persons die.
Once in effect, some of the plans may not provide any surrender rights.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, Merrill Lynch Life may reduce the
sales load, cost of insurance rates and the minimum payment and may modify
underwriting classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows Merrill Lynch Life to
sell Contracts to its employees on an individual basis. Costs for sales,
administration and mortality generally vary with the size and stability of the
group and the reasons the Contracts are purchased, among other factors. Merrill
Lynch Life takes all these factors into account when reducing charges. To
qualify for reduced charges, a group or sponsored arrangement must meet certain
requirements, including requirements for size and number of years in existence.
Group or sponsored arrangements that have been set up solely to buy Contracts or
that have been in existence less than six months will not qualify for reduced
charges.
Merrill Lynch Life makes any reductions according to rules in effect when an
application for a Contract or additional payment is approved. It may change
these rules from time to time. However, reductions in charges will not
discriminate unfairly against any person.
UNISEX LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983 the Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title Vll of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
Generally, the Contracts offered by this Prospectus are based on mortality
tables that distinguish between men and women. As a result, the Contract pays
different benefits to men and women of the same age. Employers and employee
organizations should check with their legal advisers before purchasing these
Contracts.
Some states prohibit the use of actuarial tables that distinguish between men
and women in determining payments and contract benefits for contracts issued on
the lives of their residents. Therefore, Contracts offered 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
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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, 1994, December 31, 1993 and December
31, 1992 were $8,456,418, $2,513,335 and $119,298, respectively.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD. Registered representatives of these other broker-dealers may be
compensated on a different basis than MLPF&S registered representatives.
TAX CONSIDERATIONS
Definition of Life Insurance. In order to qualify as a life insurance contract
for federal tax purposes, the Contract must meet the definition of a life
insurance contract which is set forth in Section 7702 of the Internal Revenue
Code of 1986, as amended (the "Code"). The manner in which Section 7702 should
be applied to certain features of the Contract offered in this Prospectus is not
directly addressed by Section 7702. Nevertheless, Merrill Lynch Life believes
that the Contract will meet the Section 7702 definition of a life insurance
contract. This means that:
- the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
- the contract owner should not be considered in constructive receipt of
the cash value, including any increases, until actual cancellation of the
Contract (see "Tax Treatment of Loans and Other Distributions" on page
29).
In the absence of final regulations or other pertinent interpretations of
Section 7702, however, there is necessarily some uncertainty as to whether a
substandard risk Contract will meet the statutory life insurance contract
definition. There may also be some uncertainty with respect to a Contract with
an additional insurance rider attached. If a Contract were determined not to be
a life insurance contract for purposes of Section 7702, such Contract would not
provide most of the tax advantages normally provided by a life insurance
contracts.
Merrill Lynch Life thus reserves the right to make changes in the Contract if
such changes are deemed necessary to attempt to assure its qualification as a
life insurance contract for tax purposes. (See "Contract Changes -- Applicable
Federal Tax Law" on page 26.)
Diversification. Section 817(h) of the Code provides that separate account
investments (or the investments of a mutual fund, the shares of which are owned
by separate accounts of insurance companies) underlying the Contract must be
"adequately diversified" in accordance with Treasury regulations in order for
the Contract to qualify as life insurance. The Treasury Department has issued
regulations prescribing the diversification requirements in connection with
variable contracts. The Separate Account, through the Series Fund and the
Variable Series Funds, intends to comply with these requirements. Although
Merrill Lynch Life doesn't control the Series Fund or the Variable Series Funds,
it intends to monitor the investments of the Series Fund and the Variable Series
Funds to ensure compliance with the requirements prescribed by the Treasury
Department.
In connection with the issuance of the temporary diversification regulations,
the Treasury Department stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which an owner's control of the
investments of a separate account may cause the owner, rather than the insurance
company, to
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be treated as the owner of the assets in the account. If the contract owner is
considered the owner of the assets of the Separate Account, income and gains
from the account would be included in the owner's gross income.
The ownership rights under the Contract offered in this Prospectus are similar
to, but different in certain respects from, those described by the Internal
Revenue Service in rulings in which it determined that the owners were not
owners of separate account assets. For example, the owner of the Contract has
additional flexibility in allocating payments and cash values. These differences
could result in the owner being treated as the owner of the assets of the
Separate Account. In addition, Merrill Lynch Life does not know what standards
will be set forth in the regulations or rulings which the Treasury has stated it
expects to be issued. Merrill Lynch Life therefore reserves the right to modify
the Contract as necessary to attempt to prevent the contract owner from being
considered the owner of the assets of the Separate Account.
Tax Treatment of Loans and Other Distributions. Federal tax law establishes a
class of life insurance contracts referred to as modified endowment contracts. A
modified endowment contract is any contract which satisfies the definition of
life insurance set forth in Section 7702 of the Code but fails to meet the 7-pay
test. This test applies a cumulative limit on the amount of payments that can be
made into a contract each year in the first seven contract years in order to
avoid modified endowment treatment. In effect, compliance with the 7-pay test
requires that contracts be purchased with a higher face amount for a given
initial payment than would otherwise be required, at a minimum, to meet the
definition of life insurance. Contracts that do not satisfy the 7-pay test,
including contracts which initially satisfied the 7-pay test but later failed
the test, will be considered modified endowment contracts subject to the
following distribution rules. Loans and partial withdrawals from, as well as
collateral assignments of, modified endowment contracts will be treated as
distributions to the contract owner. Furthermore, if the loan interest is
capitalized by adding the amount due to the balance of the loan, the amount of
the capitalized interest will be treated as a distribution which may be subject
to income tax, to the extent of the income in the contract. All pre-death
distributions (including loans, partial withdrawals and collateral assignments)
from these contracts will be included in gross income on an income-first basis
to the extent of any income in the contract (the cash value less the contract
owner's investment in the contract) immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, capitalized interest, collateral assignments, partial withdrawals and
complete surrenders) from modified endowment contracts to the extent they are
included in income, unless such amounts are distributed on or after the taxpayer
attains age 59 1/2, because the taxpayer is disabled, or as substantially equal
periodic payments over the taxpayer's life (or life expectancy) or over the
joint lives (or joint life expectancies) of the taxpayer and his or her
beneficiary.
Contracts that comply with the 7-pay test will not be classified as modified
endowment contracts. Loans from contracts that are not modified endowment
contracts 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 during the first seven contract years will require retroactive
retesting and may well result in a failure of the 7-pay test regardless of any
efforts by Merrill Lynch Life to provide a payment schedule that will not
violate the 7-pay test.
Any contract received in an exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts that is described in the
Prospectus. A contract that is not originally classified as a modified endowment
contract can become so classified if there is a reduction in benefits during the
first seven contract years (including, for example, by a decrease in the
additional insurance rider face amount or a change in death benefit option) or
if
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a material change is made in the contract at any time. A material change
includes, but is not limited to, a change in the benefits that was not reflected
in a prior 7-pay test computation, such as a change in death benefit option.
This could result from additional payments made after 7-pay test calculations
done at the time of the contract exchange. Contract owners may choose not to
exercise their right to make additional payments, in order to preserve their
contract's current tax treatment.
If a contract becomes a modified endowment contract, distributions that occur
during the contract year it becomes a modified endowment contract and any
subsequent contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a contract within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a contract that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Special Treatment of Loans on the Contract. If there is any borrowing against
the Contract, whether a modified endowment contract or not, the interest paid on
loans may not be tax deductible.
Aggregation of Modified Endowment Contracts. In the case of a pre-death
distribution (including a loan, partial withdrawal, collateral assignment or
complete surrender) from a contract that is treated as a modified endowment
contract under the rules described above, a special aggregation requirement may
apply for purposes of determining the amount of the income on the contract.
Specifically, if Merrill Lynch Life or any of its affiliates issues to the same
contract owner more than one modified endowment contract within a calendar year,
then for purposes of measuring the income on the contract with respect to a
distribution from any of those contracts, the income on the contract for all
those contracts will be aggregated and attributed to that distribution.
Tax Treatment of Policy Split. The Contract may be issued upon exercise of
rights provided by a policy split rider under certain joint and last survivor
contracts issued by Merrill Lynch Life. (For more information about this rider
and the conditions and rules relating to the exercise of any rights under the
rider, the contract owner should call the Service Center.) A policy split could
have adverse tax consequences; for example, it is not clear whether a policy
split will be treated as a nontaxable exchange under Sections 1031 through 1043
of the Code. If a policy split is not treated as a nontaxable exchange, a split
could result in the recognition of taxable income in an amount up to any gain in
the joint and last survivor contract at the time of the split. In addition, it
is not clear whether the individual contracts that result from a policy split
would in all circumstances be treated as life insurance contracts for federal
income tax purposes and, if so treated, whether the contracts would be
classified as modified endowment contracts. (See "Tax Treatment of Loans and
Other Distributions" on page 29.) Before the contract owner exercises rights
provided by a policy split rider in order to obtain this Contract, it is
important that he or she consult with a competent tax advisor regarding the
possible consequences of a policy split.
Other Tax Considerations. The transfer of the Contract or the designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation skipping
transfer taxes. For example, the transfer of the Contract to, or the designation
as beneficiary of, or the payment of proceeds to, a person who is assigned to a
generation which is two or more generations below the generation assignment of
the contract owner, may have generation skipping transfer tax considerations
under Section 2601 of the Code.
The individual situation of each contract owner or beneficiary will determine
the extent, if any, to which federal, state and local transfer taxes may be
imposed. The contract owner should consult with a tax advisor for specific
information in connection with these taxes.
The particular situation of each contract owner or beneficiary will determine
how ownership or receipt of contract proceeds will be treated for purpose of
federal or state tax, as well as state and local estate, inheritance, generation
skipping and other taxes.
Other Transactions. Changing the contract owner or an additional insurance
rider's face amount may have tax consequences. Exchanging this Contract for
another involving the same insured should have no federal income consequences if
there is no debt and no cash or other property is received, according to Sec-
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tion 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.
In addition, the Contract may be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a contract in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.
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.
MERRILL LYNCH LIFE'S INCOME TAXES
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 17.)
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
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Separate Account. The Separate Account is also governed by the laws of the State
of Arkansas, Merrill Lynch Life's state of domicile.
Merrill Lynch Life owns all of the assets of the Separate Account. These assets
are held separate and apart from all of Merrill Lynch Life's other assets.
Merrill Lynch Life maintains records of all purchases and redemptions of Series
Fund, Variable Series Funds and Zero Trust shares by each of the investment
divisions.
CHANGES WITHIN THE ACCOUNT
Merrill Lynch Life may from time to time make additional investment divisions
available to contract owners. These divisions will invest in investment
portfolios Merrill Lynch Life finds suitable for the Contracts. Merrill Lynch
Life also has the right to eliminate investment divisions from the Separate
Account, to combine two or more investment divisions, or to substitute a new
portfolio for the portfolio in which an investment division invests. A
substitution may become necessary if, in Merrill Lynch Life's judgment, a
portfolio no longer suits the purposes of the Contracts. This may happen due to
a change in laws or regulations or in a portfolio's investment objectives or
restrictions, or because the portfolio is no longer available for investment, or
for some other reason. Merrill Lynch Life would get any required prior approval
from the Arkansas State Insurance Department and the Securities and Exchange
Commission before making such a substitution. It would also get any other
required approvals before making such a substitution.
Subject to any required regulatory approvals, Merrill Lynch Life reserves the
right to transfer assets of the Separate Account or of any of the investment
divisions to another separate account or investment division.
When permitted by law, Merrill Lynch Life reserves the right to:
- deregister the Separate Account under the Investment Company Act of 1940;
- operate the Separate Account as a management company under the Investment
Company Act of 1940;
- restrict or eliminate any voting rights of contract owners, or other
persons who have voting rights as to the Separate Account; and
- combine the Separate Account with other separate accounts.
NET RATE OF RETURN FOR AN INVESTMENT DIVISION
Each investment division has a distinct unit value (also referred to as "price"
or "separate account index" in reports furnished to the contract owner by
Merrill Lynch Life). When payments or other amounts are allocated to an
investment division, a number of units are purchased based on the value of a
unit of the investment division as of the end of the valuation period during
which the allocation is made. When amounts are transferred out of, or deducted
from, an investment division, units are redeemed in a similar manner. A
valuation period is each business day together with any non-business days before
it. A business day for an investment division is any day the New York Stock
Exchange is open or the SEC requires that the net asset value of an investment
division be determined.
For each investment division, the separate account index was initially set at
$10.00. The separate account index for each subsequent valuation period
fluctuates based upon the net rate of return for that period. Merrill Lynch Life
determines the net rate of return of an investment division at the end of each
valuation period. The net rate of return reflects the investment performance of
the division for the valuation period and is net of the charges to the Separate
Account described on page 17.
For divisions investing in the Series Fund or the Variable Series Funds, shares
are valued at net asset value and reflect reinvestment of any dividends or
capital gains distributions declared by the Series Fund or the Variable Series
Funds.
For divisions investing in the Zero Trusts, units of each Zero Trust are valued
at the sponsor's repurchase price, as explained in the prospectus for the Zero
Trusts.
32
<PAGE> 87
THE SERIES FUND AND THE VARIABLE SERIES FUNDS
Buying and Redeeming Shares. The Series Fund and the Variable Series Funds sell
and redeem their shares at net asset value. Any dividend or capital gain
distribution will be reinvested at net asset value in shares of the same
portfolio.
Voting Rights. Merrill Lynch Life is the legal owner of all Series Fund and
Variable Series Funds shares held in the Separate Account. As the owner, Merrill
Lynch Life has the right to vote on any matter put to vote at the Series Fund's
and the Variable Series Funds' shareholder meetings. However, Merrill Lynch Life
will vote all Series Fund and Variable Series Funds shares attributable to
Contracts according to instructions received from contract owners. Shares
attributable to Contracts for which no voting instructions are received will be
voted in the same proportion as shares in the respective investment divisions
for which instructions are received. Shares not attributable to Contracts will
also be voted in the same proportion as shares in the respective divisions for
which instructions are received. If any federal securities laws or regulations,
or their present interpretation, change to permit Merrill Lynch Life to vote
Series Fund or Variable Series Funds shares in its own right, it may elect to do
so.
Merrill Lynch Life determines the number of shares that contract owners have in
an investment division by dividing their Contract's investment base in that
division by the net asset value of one share of the portfolio. Fractional votes
will be counted. Merrill Lynch Life will determine the number of shares for
which a contract owner may give voting instructions 90 days or less before each
Series Fund or Variable Series Funds meeting. Merrill Lynch Life will request
voting instructions by mail at least 14 days before the meeting.
Under certain circumstances, Merrill Lynch Life may be required by state
regulatory authorities to disregard voting instructions. This may happen if
following the instructions would mean voting to change the sub-classification or
investment objectives of the portfolios, or to approve or disapprove an
investment advisory contract.
Merrill Lynch Life may also disregard instructions to vote for changes in the
investment policy or the investment adviser if it disapproves of the proposed
changes. Merrill Lynch Life would disapprove a proposed change only if it was:
- contrary to state law;
- 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. Shares of each Fund of the Variable
Series Funds may be made available to the separate accounts of other insurance
companies in the future.
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
33
<PAGE> 88
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 consistent with applicable
legal requirements.
Administrative Arrangement. MLAM and Merrill Lynch Life have entered into an
agreement pursuant to which MLAM pays to Merrill Lynch Life a fee in an amount
equal to a portion of the annual gross investment advisory fees paid by the
Series Fund and the Variable Series Funds to MLAM attributable to contracts
issued by Merrill Lynch Life. This agreement reflects administrative services
provided by Merrill Lynch Life and affiliates.
CHARGES TO SERIES FUND ASSETS
The Series Fund incurs operating expenses and pays a monthly advisory fee to
MLAM. This fee equals an annual rate of:
- .50% of the first $250 million of the aggregate average daily net assets
of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
One or more of the insurance companies investing in the Series Fund has agreed
to reimburse the Series Fund so that the ordinary expenses of each portfolio
(which include the monthly advisory fee) do not exceed .50% of the portfolio's
average daily net assets. These companies have also agreed to reimburse MLAM for
any amounts it pays under the investment advisory agreement, as described below.
These reimbursement obligations will remain in effect so long as the advisory
agreement remains in effect and cannot be amended or terminated without Series
Fund approval.
Under its investment advisory agreement, MLAM has agreed that if any portfolio's
aggregate ordinary expenses (excluding interest, taxes, brokerage commissions
and extraordinary expenses) exceed the expense limitations for investment
companies in effect under any state securities law or regulation, it will reduce
its fee for that portfolio by the amount of the excess. If required, it will
reimburse the Series Fund for the excess. This reimbursement agreement will
remain in effect so long as the advisory agreement remains in effect and cannot
be amended without Series Fund approval.
CHARGES TO VARIABLE SERIES FUNDS ASSETS
The Variable Series Funds incurs operating expenses and pays a monthly advisory
fee to MLAM. This fee equals an annual rate of .60% of the average daily net
assets of the Basic Value Focus Fund, World Income Focus Fund and Global Utility
Focus Fund. This fee equals an annual rate of .75%, .60% and 1.00% of the
average daily net assets of the International Equity Focus Fund, the
International Bond Fund and the Developing Capital Markets Focus Fund,
respectively.
Under its investment advisory agreement, MLAM has agreed to reimburse the
Variable Series Funds if and to the extent that in any fiscal year the operating
expenses of any Fund exceeds the most restrictive expense limitations then in
effect under any state securities laws or published regulations thereunder.
Expenses for this purpose include MLAM's fee but exclude interest, taxes,
brokerage commissions and extraordinary expenses, such as litigation. No fee
payments will be made to MLAM with respect to any Fund during any fiscal year
34
<PAGE> 89
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 19 Zero Trusts:
<TABLE>
<CAPTION>
TARGETED RATE OF RETURN
TO MATURITY AS OF
ZERO TRUST MATURITY DATE APRIL 27, 1995
- ----------- ------------------- -----------------------
<C> <S> <C>
1995 November 15, 1995 4.17%
1996 February 15, 1996 4.70%
1997 February 15, 1997 4.98%
1998 February 15, 1998 5.33%
1999 February 15, 1999 5.49%
2000 February 15, 2000 5.50%
2001 February 15, 2001 5.55%
2002 February 15, 2002 5.70%
2003 August 15, 2003 5.83%
2004 February 15, 2004 5.89%
2005 February 15, 2005 5.85%
2006 February 15, 2006 5.80%
2007 February 15, 2007 5.89%
2008 February 15. 2008 6.14%
2009 February 15, 2009 6.17%
2010 February 15, 2010 6.28%
2011 February 15, 2011 6.29%
2013 February 15, 2013 6.39%
2014 February 15, 2014 6.39%
</TABLE>
Targeted Rate of Return to Maturity
Because the underlying securities in the Zero Trusts will grow to their face
value on the maturity date, it is possible to estimate a compound rate of growth
to maturity for the Zero Trust units.
But because the units are held in the Separate Account, the asset charge and the
trust charge (described in "Charges to the Separate Account" on page 17) must be
taken into account in estimating a 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.
35
<PAGE> 90
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, NET CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables on pages 38 through 41 demonstrate the way in which the Contract
works. The tables are based on the following ages, face amounts, payments and
guarantee periods and show values based upon both current and maximum mortality
charges.
1. The illustration on page 38 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,055 through contract year 52, an initial face amount of $500,000, an
initial guarantee period of 2.5 years and coverage under death benefit
option 1. It assumes current mortality charges.
2. The illustration on page 39 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,055 through contract year 52, an initial face amount of $500,000, an
initial guarantee period of 2.5 years and coverage under death benefit
option 1. It assumes maximum mortality charges.
3. The illustration on page 40 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$27,729 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 9.5 years and coverage under death benefit
option 2. It assumes current mortality charges.
4. The illustration on page 41 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$27,729 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 9.5 years and coverage under death benefit
option 2. It assumes maximum mortality charges.
The tables show how the death benefit, investment base and net cash surrender
value may vary over an extended period of time assuming hypothetical rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) equivalent to constant gross annual rates of 0%, 6% and 12%.
The death benefit, investment base and net cash surrender value for a Contract
would be different from those shown if the actual rates of return averaged 0%,
6% and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years.
The amounts shown for the death benefit, investment base and net cash surrender
value as of the end of each contract year take into account the daily asset
charge in the Separate Account equivalent to .90% (annually at the beginning of
the year) of assets attributable to the Contracts at the beginning of the year.
The amounts shown in the tables also assume an additional charge of .490%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1994 expenses (including monthly advisory fees)
for the Series Fund and the Variable Series Funds, and the current trust charge.
This charge does not reflect expenses incurred by the Natural Resources
Portfolio of the Series Fund and the Developing Capital Markets Focus Fund of
the Variable Series Funds in 1994, which were reimbursed to the Series Fund and
Variable Series Funds, respectively, by MLAM. The reimbursements amounted to
.09% and .06%, respectively, of the average daily net assets of these
portfolios. (See "Charges to Series Fund Assets" on page 33.) 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.
36
<PAGE> 91
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 17.) In order to produce after tax returns of 0%, 6%
and 12%, the Series Fund and the Variable Series Funds would have to earn a
sufficient amount in excess of 0% or 6% or 12% to cover any tax charges
attributable to the Separate Account.
The second column of the tables shows the amount which would accumulate if an
amount equal to the payments were invested to earn interest (after taxes) at 5%
compounded annually.
Merrill Lynch Life will furnish upon request a personalized illustration
reflecting the proposed insured's age, face amount and the payment amounts
requested. The illustration will also use current cost of insurance rates and
will assume that the proposed insured is in a standard non-smoker underwriting
class.
37
<PAGE> 92
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,055 THROUGH CONTRACT YEAR 52
FACE AMOUNT(1) : $500,000 INITIAL GUARANTEE PERIOD: 2.5 YEARS
DEATH BENEFIT OPTION 1
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ----------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ------------------------------------------------- -------------- ----------------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
1............................................... 9,055 9,508 500,000 500,000 500,000
2............................................... 9,055 19,491 500,000 500,000 500,000
3............................................... 9,055 29,973 500,000 500,000 500,000
4............................................... 9,055 40,979 500,000 500,000 500,000
5............................................... 9,055 52,536 500,000 500,000 500,000
6............................................... 9,055 64,671 500,000 500,000 500,000
7............................................... 9,055 77,412 500,000 500,000 500,000
8............................................... 9,055 90,790 500,000 500,000 500,000
9............................................... 9,055 104,837 500,000 500,000 500,000
10............................................... 9,055 119,587 500,000 500,000 500,000
15............................................... 9,055 205,163 500,000 500,000 500,000
20............................................... 9,055 314,383 500,000 500,000 500,000
30............................................... 9,055 631,684 500,000 500,000 1,097,351
age 99........................................... 0 2,562,914 500,000 946,600 11,726,636
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
------------------------------------ ----------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ------------------------------------------- ------- -------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1......................................... 3,801 4,046 4,291 3,801 4,046 4,291
2......................................... 7,322 8,041 8,790 7,322 8,041 8,790
3......................................... 14,614 16,276 18,056 14,614 16,276 18,056
4......................................... 21,673 24,751 28,161 21,673 24,751 28,161
5......................................... 28,537 33,520 39,237 28,537 33,520 39,237
6......................................... 35,224 42,609 51,405 35,224 42,609 51,405
7......................................... 41,742 52,045 64,795 41,742 52,045 64,795
8......................................... 48,135 61,888 79,585 48,135 61,888 79,585
9......................................... 54,380 72,133 95,904 54,380 72,133 95,904
10......................................... 60,422 82,747 113,871 60,422 82,747 113,871
15......................................... 85,740 140,253 234,146 85,740 140,253 234,146
20......................................... 102,226 206,911 387,863 102,226 206,911 387,863
30......................................... 92,418 353,683 1,025,562 92,418 353,683 1,025,562
age 99..................................... 0 946,600 11,726,636 0 946,600 11,726,636
</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 insured in
contract years 27 and 16, 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> 93
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,055 THROUGH CONTRACT YEAR 52
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 2.5 YEARS
DEATH BENEFIT OPTION 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ---------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
- ---------------------------------------------- -------------- ----------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1............................................ 9,055 9,508 500,000 500,000 500,000
2............................................ 9,055 19,491 500,000 500,000 500,000
3............................................ 9,055 29,973 500,000 500,000 500,000
4............................................ 9,055 40,979 500,000 500,000 500,000
5............................................ 9,055 52,536 500,000 500,000 500,000
6............................................ 9,055 64,671 500,000 500,000 500,000
7............................................ 9,055 77,412 500,000 500,000 500,000
8............................................ 9,055 90,790 500,000 500,000 500,000
9............................................ 9,055 104,837 500,000 500,000 500,000
10............................................ 9,055 119,587 500,000 500,000 500,000
15............................................ 9,055 205,163 500,000 500,000 500,000
20............................................ 9,055 314,383 500,000 500,000 500,000
30............................................ 9,055 631,684 500,000 500,000 905,681
age 99........................................ 0 2,562,914 500,000 500,000 9,125,105
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
--------------------------------- -------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- -------------------------------------------------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
1................................................ 2,839 3,047 3,257 2,839 3,047 3,257
2................................................ 5,517 6,110 6,729 5,517 6,110 6,729
3................................................ 12,058 13,452 14,947 12,058 13,452 14,947
4................................................ 18,386 21,006 23,907 18,386 21,006 23,907
5................................................ 24,488 28,769 33,677 24,488 28,769 33,677
6................................................ 30,360 36,747 44,342 30,360 36,747 44,342
7................................................ 35,978 44,923 55,977 35,978 44,923 55,977
8................................................ 41,316 53,284 68,667 41,316 53,284 68,667
9................................................ 46,354 61,819 82,518 46,354 61,819 82,518
10................................................ 51,062 70,509 97,637 51,062 70,509 97,637
15................................................ 68,835 115,949 197,824 68,835 115,949 197,824
20................................................ 73,463 163,159 329,244 73,463 163,159 329,244
30................................................ 0 243,410 846,431 0 243,410 846,431
age 99............................................ 0 0 9,125,105 0 0 9,125,105
</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 insured in contract year
17. 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> 94
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $27,729 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 9.5 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............................................. 27,729 29,115 517,273 518,331 519,389
2............................................. 27,729 59,686 542,102 545,769 549,563
3............................................. 27,729 91,786 566,371 574,236 582,678
4............................................. 27,729 125,491 590,147 603,840 619,106
5............................................. 27,729 160,881 613,472 634,668 659,234
6............................................. 27,729 198,041 636,363 666,789 703,462
7............................................. 27,729 237,059 658,832 700,267 752,227
8............................................. 27,729 278,027 680,929 735,210 806,054
9............................................. 27,729 321,044 702,627 771,651 865,440
10............................................ 27,729 366,212 723,867 809,592 930,901
15............................................ 27,729 628,671 820,985 1,021,620 1,371,227
20............................................ 27,729 962,731 901,945 1,275,523 1,987,424
30............................................ 27,729 1,934,397 996,732 1,925,801 4,379,101
age 99........................................ 0 7,476,715 500,000 3,215,908 43,708,613
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
-------------------------------- --------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ------------------------------------------------- ------- -------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1................................................ 17,273 18,331 19,389 17,273 18,331 19,389
2................................................ 42,102 45,769 49,563 42,102 45,769 49,563
3................................................ 66,371 74,236 82,678 66,371 74,236 82,678
4................................................ 90,147 103,840 119,106 90,147 103,840 119,106
5................................................ 113,472 134,668 159,234 113,472 134,668 159,234
6................................................ 136,363 166,789 203,462 136,363 166,789 203,462
7................................................ 158,832 200,267 252,227 158,832 200,267 252,227
8................................................ 180,929 235,210 306,054 180,929 235,210 306,054
9................................................ 202,627 271,651 365,440 202,627 271,651 365,440
10............................................... 223,867 309,592 430,901 223,867 309,592 430,901
15............................................... 320,985 521,620 871,227 320,985 521,620 871,227
20............................................... 401,945 775,523 1,487,424 401,945 775,523 1,487,424
30............................................... 496,732 1,425,801 3,879,101 496,732 1,425,801 3,879,101
age 99........................................... 0 2,715,908 43,208,613 0 2,715,908 43,208,613
</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 insured in
contract years 37 and 17, 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.
40
<PAGE> 95
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $27,729 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 9.5 YEARS
DEATH BENEFIT OPTION 2
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............................................. 27,729 29,115 516,303 517,325 518,347
2............................................. 27,729 59,686 540,282 543,821 547,483
3............................................. 27,729 91,786 563,783 571,377 579,529
4............................................. 27,729 125,491 586,806 600,031 614,778
5............................................. 27,729 160,881 609,336 629,813 653,547
6............................................. 27,729 198,041 631,370 660,764 696,196
7............................................. 27,729 237,059 652,881 692,902 743,094
8............................................. 27,729 278,027 673,841 726,244 794,653
9............................................. 27,729 321,044 694,228 760,816 851,329
10............................................. 27,729 366,212 714,006 796,626 913,614
15............................................. 27,729 628,671 802,821 995,000 1,330,670
20............................................. 27,729 962,731 870,918 1,226,055 1,902,027
30............................................. 27,729 1,934,397 901,077 1,760,815 4,034,590
age 99......................................... 0 7,476,715 500,000 500,000 35,275,824
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
-------------------------------- --------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ------------------------------------------------- ------- -------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1............................................... 16,303 17,325 18,347 16,303 17,325 18,347
2............................................... 40,282 43,821 47,483 40,282 43,821 47,483
3............................................... 63,783 71,377 79,529 63,783 71,377 79,529
4............................................... 86,806 100,031 114,778 86,806 100,031 114,778
5............................................... 109,336 129,813 153,547 109,336 129,813 153,547
6............................................... 131,370 160,764 196,196 131,370 160,764 196,196
7............................................... 152,881 192,902 243,094 152,881 192,902 243,094
8............................................... 173,841 226,244 294,653 173,841 226,244 294,653
9............................................... 194,228 260,816 351,329 194,228 260,816 351,329
10............................................... 214,006 296,626 413,614 214,006 296,626 413,614
15............................................... 302,821 495,000 830,670 302,821 495,000 830,670
20............................................... 370,918 726,055 1,402,027 370,918 726,055 1,402,027
30............................................... 401,077 1,260,815 3,534,590 401,077 1,260,815 3,534,590
age 99........................................... 0 0 34,775,824 0 0 34,775,824
</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 insured in contract year
17. 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.
41
<PAGE> 96
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 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 $5,000 additional
payment received and accepted at the beginning of contract year five. Example 2
shows the effect of a $10,000 additional payment received and accepted at the
beginning of contract year five. Example 3 shows the effect of a $5,000
additional payment received and accepted at the beginning of contract year six.
All three examples assume that death benefit option 1 has been elected, that
annual payments of $9,055 have been made through the contract year reflected in
the example and that no other contract transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $9,055
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.5 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
5 $5,000 1.5 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
5 $10,000 3 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
6 $5,000 1.25 years
</TABLE>
42
<PAGE> 97
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 $5,000 and $10,000 taken at the beginning of contract year sixteen. Example
3 shows the effect on the guarantee period of a $10,000 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 $9,055 have been made
through the contract year reflected in the example and that no other contract
transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS EIGHT ANNUAL PAYMENTS OF $9,055
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.5 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
16 $5,000 .5 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
16 $10,000 1 year
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C> <C>
18 $10,000 .75 years
</TABLE>
43
<PAGE> 98
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
44
<PAGE> 99
MORE ABOUT MERRLLL LYNCH LIFE INSURANCE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Merrill Lynch Life's directors and executive officers and their positions with
the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY
- ------------------------------ -------------------------------------
<S> <C>
Anthony J. Vespa Chairman of the Board, President, and
Chief Executive Officer
Joseph E. Crowne Director, Senior Vice President,
Chief Financial Officer, Chief
Actuary, and Treasurer
Barry G. Skolnick Director, Senior Vice President, and
General Counsel
David M. Dunford Director, Senior Vice President,
and Chief Investment Officer
John C.R. Hele Director and Senior Vice President
Allen N. Jones Director
Robert J. Boucher Senior Vice President, Variable Life
Administration
</TABLE>
Each director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and shall have qualified. Each has held
various executive positions with insurance company subsidiaries of the Company's
indirect parent, Merrill Lynch & Co., Inc. The principal positions of the
Company's directors and executive officers for the past five years are listed
below:
Mr. Vespa joined Merrill Lynch Life in January 1994. Since February 1994, he has
held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From February 1991 to February 1994, he held the position of
District Director and First Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From September 1988 to February 1991, he held the position
of Senior Resident Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
Mr. Crowne joined Merrill Lynch Life in June 1991. From January 1989 to May
1991, he was a Principal with Coopers & Lybrand.
Mr. Skolnick joined Merrill Lynch Life in November 1990. He joined Merrill
Lynch, Pierce, Fenner & Smith Incorporated in July 1984. Since May 1992, he has
held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and
First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Prior to May 1992, he held the position of Senior Counsel of Merrill Lynch &
Co., Inc.
Mr. Dunford joined Merrill Lynch Life in July 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in September 1989. Prior to September 1989,
he held the position of President of Travelers Investment Management Co.
Mr. Hele joined Merrill Lynch Life in December 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in August 1988.
Mr. Jones joined Merrill Lynch Life in June 1992. Since May 1992, he has held
the position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. From June 1992 to February 1994, he held the position of Chairman
of the Board, President, and Chief Executive Officer of Merrill Lynch Life. From
January 1992 to June 1992, he held the position of First Vice President of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From January 1991 to January
1992, he held the position of District Director of Merrill Lynch, Pierce, Fenner
& Smith Incorporated. Prior to January 1991, he held the position of Senior
Regional Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Mr. Boucher joined Merrill Lynch Life in May 1992. Prior to May 1992, he held
the position of Vice President of Monarch Financial Services, Inc. (formerly
Monarch Resources, Inc.).
45
<PAGE> 100
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
$44.2 million for the year ended December 31, 1994.
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, 1994 and 1993
and for each of the three years in the period ended December 31, 1994 and of the
Separate Account as of December 31, 1994 and for the periods presented, included
in this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein, and have been so included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing. Deloitte & Touche's principal business address is
Two World Financial Center, New York, New York 10281-1433.
Actuarial matters included in this Prospectus have been examined by Joseph E.
Crowne, F.S.A., Chief Actuary and Chief Financial Officer of Merrill Lynch Life,
as stated in his opinion filed as an exhibit to the registration statement.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contract, and the
validity of the form of the Contract have been passed upon by Barry G. Skolnick,
Merrill Lynch Life's Senior Vice President and General Counsel. Sutherland,
Asbill & Brennan of Washington, D.C. has provided advice on certain matters
relating to federal securities and tax laws.
46
<PAGE> 101
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.
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statement of net assets of
Merrill Lynch Variable Life Separate Account (the "Account")
as of December 31, 1994 and the related statements of
earnings (losses) and changes in net assets for each of the
three years in the period then ended. 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, 1994, 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, 1994 and the results of its operations and
the changes in its net assets for the above periods 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 LLP
February 8, 1995
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
================= ================= =================
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note A):
Money Reserve Portfolio $ 31,759,631 31,759,631 $ 31,759,631
Intermediate Government Bond Portfolio 5,179,862 468,308 4,832,936
Long-Term Corporate Bond Portfolio 5,170,218 428,717 4,595,847
Capital Stock Portfolio 7,719,283 340,716 7,373,091
Growth Stock Portfolio 4,596,005 226,869 4,355,880
Multiple Strategy Portfolio 10,596,030 610,464 9,901,732
High Yield Portfolio 2,962,288 323,044 2,755,564
Natural Resources Portfolio 1,120,419 146,180 1,086,121
Global Strategy Portfolio 15,045,602 1,004,393 14,603,870
Balanced Portfolio 3,160,730 228,418 3,031,114
----------------- -----------------
87,310,068 84,295,786
----------------- -----------------
Investment in Merrill Lynch Variable Series Funds, Inc. (Note A):
Global Utility Focus Fund 66,047 6,746 63,753
International Equity Focus Fund 2,273,756 201,442 2,195,715
World Income Focus Fund 53,297 5,693 52,204
Basic Value Focus Fund 1,368,693 123,678 1,372,824
International Bond Fund 85,539 8,751 84,888
Developing Capital Markets Focus Fund 1,615,101 156,876 1,491,889
----------------- -----------------
5,462,433 5,261,273
----------------- -----------------
Investment in Unit Investment Trusts (Note A):
Stripped ("Zero") U.S. Treasury Securities, Series A through K:
1995 Trust 115,066 123,060 116,262
1996 Trust 39,897 43,647 40,324
1997 Trust 31,827 37,210 31,846
1998 Trust 115,113 144,858 114,447
1999 Trust 154,295 210,747 154,037
2000 Trust 287,452 422,634 286,875
2001 Trust 49,909 79,413 50,084
2002 Trust 98,125 168,121 97,971
2003 Trust 5,880 11,459 5,925
2004 Trust 403,249 821,983 408,106
2005 Trust 29,625 65,815 29,675
2006 Trust 49,207 116,660 51,382
2007 Trust 973 2,465 984
2008 Trust 6,697 18,532 6,715
2009 Trust 145,928 452,723 152,001
2010 Trust 155,299 516,810 159,043
2011 Trust 133,116 552,622 157,513
2013 Trust 73,693 295,289 71,415
2014 Trust 103,688 486,991 109,061
----------------- -----------------
1,999,039 2,043,666
----------------- -----------------
Dividends Receivable 32,364
-----------------
Total Assets $ 94,771,540 91,633,089
----------------- -----------------
</TABLE>
(Continued)
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1994 (Concluded)
==============================================================================
<TABLE>
<CAPTION>
Market
Value
=================
<S> <C>
LIABILITIES
Payable to Merrill Lynch Series Fund, Inc. 239,300
Payable to Merrill Lynch Variable Series Funds, Inc. 99,232
Payable to Merrill Lynch Life Insurance Company 5,187,392
-----------------
Total Liabilities 5,525,924
-----------------
Net Assets $ 86,107,165
=================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF EARNINGS (LOSSES) AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND FOR THE PERIOD
FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
==============================================================================
<TABLE>
1994 1992 1992
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 3,610,497 $ 566,325 $ 21,362
Net Gains (Losses):
Realized (218,534) 63,152 (775)
Unrealized (4,239,903) 1,022,845 46,241
----------------- ----------------- -----------------
Investment Earnings (Losses) (847,940) 1,652,322 66,828
Mortality and Expense Charges (Note C) (542,446) (140,002) (6,442)
Transaction Charges (Note D) (3,767) (1,237) (166)
----------------- ----------------- -----------------
Net Earnings (Losses) (1,394,153) 1,511,083 60,220
Capital Shares Transactions:
Transfers of Net Premiums 51,971,799 29,211,942 3,099,255
Transfers of Policy Loading, Net 3,241,522 2,330,207 310,111
Transfers Due to Deaths (29,512) (89,520) 0
Transfers Due to Other Terminations (493,701) (69,256) 0
Transfers Due to Policy Loans (1,463,743) (387,136) 0
Transfers of Cost of Insurance (1,296,287) (377,409) (15,902)
Transfers of Loan Processing Charges (8,161) (4,194) 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 50,527,764 32,125,717 3,453,684
Net Assets Beginning Balance 35,579,401 3,453,684 0
----------------- ----------------- -----------------
Net Assets Ending Balance $ 86,107,165 $ 35,579,401 $ 3,453,684
================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
Note A - Merrill Lynch Variable Life Separate Account
("Account"), a separate account of Merrill Lynch Life
Insurance Company ("Merrill Lynch Life") was established by
a board of directors resolution on November 16, 1990 and is
governed by Arkansas State Insurance Law. The Account is
registered as a unit investment trust under the Investment
Company Act of 1940 and consists of thirty-five investment
divisions (thirty-six during the year). Ten of the divisions
each invest in the securities of a single mutual fund
portfolio of Merrill Lynch Series Fund, Inc. ("Series
Fund"). Six of the divisions each invest in the securities
of a single mutual fund portfolio of Merrill Lynch Variable
Series Funds, Inc. ("Variable Series Funds"). The portfolios
of the Series Fund and Variable Series Funds have varying
investment objectives relative to growth of capital and
income. The Series Fund receives investment advice from
Merrill Lynch Asset Management, L.P. ("MLAM") for a fee
calculated at an effective annual rate of .50% of the first
$250 million of the aggregate average daily net assets of
the investment divisions investing in the Series Fund with
declining rates to .30% of such assets over $800 million.
The Variable Series Funds receives investment advise from
MLAM for a fee at an effective annual rate of .60% of the
average daily net assets of the Basic Value Focus, World
Income Focus, Global Utility Focus and International Bond
Funds, .75% of such assets of the International Equity Focus
Fund and 1.00% of such assets of the Developing Capital
Markets Fund. Nineteen of the divisions (twenty during the
year) each invest in the securities of a single trust of the
Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities, Series A through K. Each trust of the Series
consists of Stripped Treasury Securities with a fixed
maturity date and a Treasury Note deposited to provide
income to pay expenses of the trust.
The Account was formed by Merrill Lynch Life, an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill") to support Merrill Lynch Life's operations
respecting certain variable life insurance contracts
("Contracts"). The assets of the Account are the property of
Merrill Lynch Life. The portion of the Account's assets
attributable to the Contracts are not chargeable with
liabilities arising out of any other business Merrill Lynch
Life may conduct.
The change in net assets maintained in the Account provides
the basis for the periodic determination of the amount of
increased or decreased benefits under the Contracts.
The net assets may not be less than the amount required
under Arkansas State Insurance Law to provide for death
benefits (without regard to the minimum death benefit
guarantee) and other Contract benefits.
Note B - The significant accounting policies of the Account
are as follows:
Investments are made in the divisions and are valued at the
net asset values of the respective Portfolios.
Transactions are recorded on the trade date.
Income from dividends is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Realized gains and losses on the sales of investments are
computed on the first in first out method.
The operations of the Account are included in the Federal
income tax return of Merrill Lynch Life. Under the
provisions of the Contracts, Merrill Lynch Life has the
right to charge the Account for any Federal income tax
attributable to the Account. No charge is currently being
made against the Account for income taxes since, under
current tax law, Merrill Lynch Life pays no tax on
investment income and capital gains reflected in variable
life insurance contract reserves. However, Merrill Lynch
Life retains the right to charge for any Federal income tax
incurred which is attributable to the Account if the law is
changed. Contract loading, however, includes a charge for a
significantly higher Federal income tax liability of Merrill
Lynch Life (see Note C). Charges for state and local
taxes, if any, attributable to the Account may also be
made.
Note C - Merrill Lynch Life assumes mortality and expense
risks related to the operations of the Account and deducts a
daily charge from the assets of the Account to cover these
risks. The daily charges are equal to a rate of .90% (on an
annual basis) of the net assets for contract owners.
Merrill Lynch Life makes certain deductions from each
premium. For certain Contracts, the deductions are made
before the premium is allocated to the Account. For other
Contracts, the deductions are taken in equal installments on
the first through tenth contract anniversaries. The
deductions are for (1) sales load, (2) Federal taxes, and
(3) state and local premium taxes.
In addition, for certain Contracts, the cost of providing
life insurance coverage for the insureds will be deducted
from the investment base on the contract date and all
subsequent processing dates. For other Contracts, the cost
of providing life insurance coverage will be deducted only
on processing dates. This cost will vary dependent upon the
insured's underwriting class, sex (except where unisex rates
are required by state law), attained age of each insured and
the Contract's net amount at risk.
Note D - Merrill Lynch Life pays all transaction charges to
Merrill Lynch, Pierce, Fenner & Smith Inc., sponsor of the
unit investment trusts, on the sale of Series A through K
Unit Investment Trust units to the Account and deducts a
daily asset charge against the assets of each trust for the
reimbursement of these transaction charges. The asset
charge is equivalent to an effective annual rate of .34%
(annually at the beginning of the year) of net assets for
Contract owners.
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<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 $ 950,581 $ 285,253 $ 425,190 $ 361,177
Net Gains (Losses):
Realized 0 (60,234) (25,319) (4,588)
Unrealized 0 (350,295) (600,392) (631,923)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 950,581 (125,276) (200,521) (275,334)
Mortality and Expense Charges (Note C) (170,748) (28,708) (37,653) (49,108)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 779,833 (153,984) (238,174) (324,442)
Capital Shares Transactions:
Transfers of Net Premiums 47,324,731 187,931 92,352 740,725
Transfers of Policy Loading, Net 3,195,360 (8,955) (18,352) (121,761)
Transfers Due to Deaths (6,644) 0 (2,647) 0
Transfers Due to Other Terminations (172,019) (13,442) (12,312) (52,016)
Transfers Due to Policy Loans (610,255) (142,120) (12,546) (71,717)
Transfers of Cost of Insurance (390,815) (43,069) (51,233) (108,205)
Transfers of Loan Processing Charges (1,637) (913) (376) (928)
Transfers Among Investment Divisions (35,662,412) 2,882,108 1,212,618 4,257,528
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 14,456,142 2,707,556 969,330 4,319,184
Net Assets Beginning Balance 12,057,968 2,124,452 3,625,591 3,039,052
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 26,514,110 $ 4,832,008 $ 4,594,921 $ 7,358,236
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 287,424 $ 661,067 $ 215,561 $ 11,993
Net Gains (Losses):
Realized (38,883) (57,248) (21,634) 1,420
Unrealized (347,941) (957,925) (232,926) (24,535)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (99,400) (354,106) (38,999) (11,122)
Mortality and Expense Charges (Note C) (26,158) (68,143) (18,453) (6,508)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (125,558) (422,249) (57,452) (17,630)
Capital Shares Transactions:
Transfers of Net Premiums 500,203 513,551 258,413 163,578
Transfers of Policy Loading, Net 19,520 36,858 5,702 9,677
Transfers Due to Deaths 0 (4,590) (2,687) 0
Transfers Due to Other Terminations (12,269) (45,256) (27,551) (1,141)
Transfers Due to Policy Loans (15,306) (142,921) (131,734) (7,332)
Transfers of Cost of Insurance (81,834) (133,481) (56,140) (17,949)
Transfers of Loan Processing Charges (741) (1,011) (255) (96)
Transfers Among Investment Divisions 2,313,575 6,058,382 1,520,909 520,012
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 2,597,590 5,859,283 1,509,205 649,119
Net Assets Beginning Balance 1,721,346 4,012,687 1,232,356 370,599
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 4,318,936 $ 9,871,970 $ 2,741,561 $ 1,019,718
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Global International
Global Utility Equity
Strategy Balanced Focus Focus
Portfolio Portfolio Fund Fund
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 307,203 $ 96,724 $ 489 $ 1,561
Net Gains (Losses):
Realized 42,186 (22,332) (4) (231)
Unrealized (712,889) (174,733) (2,295) (78,043)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (363,500) (100,341) (1,810) (76,713)
Mortality and Expense Charges (Note C) (95,867) (22,533) (111) (3,570)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (459,367) (122,874) (1,921) (80,283)
Capital Shares Transactions:
Transfers of Net Premiums 1,592,234 220,509 0 111,017
Transfers of Policy Loading, Net 90,005 26,326 (162) 2,406
Transfers Due to Deaths (7,628) (5,316) 0 0
Transfers Due to Other Terminations (121,934) (39,643) (38) (3,405)
Transfers Due to Policy Loans (174,375) (107,866) 0 310
Transfers of Cost of Insurance (301,516) (50,834) (387) (20,300)
Transfers of Loan Processing Charges (1,317) (156) (6) (266)
Transfers Among Investment Divisions 8,328,156 1,725,495 66,253 2,178,719
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 8,944,258 1,645,641 63,739 2,188,198
Net Assets Beginning Balance 5,615,068 1,370,514 0 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 14,559,326 $ 3,016,155 $ 63,739 $ 2,188,198
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
World Basic Developing
Income Value International Capital
Focus Focus Bond Markets Focus
Fund Fund Fund Fund
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 1,593 $ 1,754 $ 2,927 $ 0
Net Gains (Losses):
Realized (988) 169 147 (98)
Unrealized (1,095) 4,130 (651) (123,212)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (490) 6,053 2,423 (123,310)
Mortality and Expense Charges (Note C) (106) (2,016) (257) (2,550)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (596) 4,037 2,166 (125,860)
Capital Shares Transactions:
Transfers of Net Premiums 0 72,775 33,800 112,249
Transfers of Policy Loading, Net (11) (675) 180 3,647
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (30) 776 (1) (3,448)
Transfers Due to Policy Loans (7,961) (1,349) (8,041) (7,813)
Transfers of Cost of Insurance (1,034) (9,133) (1,325) (14,744)
Transfers of Loan Processing Charges (4) (140) (7) (184)
Transfers Among Investment Divisions 61,824 1,299,178 58,099 1,518,993
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 52,188 1,365,469 84,871 1,482,840
Net Assets Beginning Balance 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 52,188 $ 1,365,469 $ 84,871 $ 1,482,840
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
1994 1995 1996 1997
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 80 7 15 57
Unrealized (16) 1,196 386 (104)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 64 1,203 401 (47)
Mortality and Expense Charges (Note C) (15) (406) (156) (110)
Transaction Charges (Note D) (6) (154) (60) (41)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 43 643 185 (198)
Capital Shares Transactions:
Transfers of Net Premiums 0 0 1,679 6,745
Transfers of Policy Loading, Net (230) (80) (378) 335
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (23) 42 (22) (14)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (81) (636) (259) (531)
Transfers of Loan Processing Charges 0 (10) (3) (3)
Transfers Among Investment Divisions (1,690) 116,007 36,857 18,538
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets (1,981) 115,966 38,059 24,872
Net Assets Beginning Balance 1,981 255 2,241 6,942
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 0 $ 116,221 $ 40,300 $ 31,814
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
1998 1999 2000 2001
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (4,839) (6) (1,056) 42
Unrealized (2,597) (259) (816) (670)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (7,436) (265) (1,872) (628)
Mortality and Expense Charges (Note C) (2,744) (312) (847) (161)
Transaction Charges (Note D) (1,035) (119) (321) (61)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (11,215) (696) (3,040) (850)
Capital Shares Transactions:
Transfers of Net Premiums 661 0 23,597 0
Transfers of Policy Loading, Net (860) (408) 1,020 (180)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 9,883 (88) (342) (24)
Transfers Due to Policy Loans (1,199) 0 (9,218) 0
Transfers of Cost of Insurance (423) (560) (4,141) (111)
Transfers of Loan Processing Charges (8) (12) (19) (3)
Transfers Among Investment Divisions 99,872 155,745 233,354 41,783
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 96,711 153,981 241,211 40,615
Net Assets Beginning Balance 17,703 0 45,561 9,431
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 114,414 $ 153,981 $ 286,772 $ 50,046
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2002 2003 2004 2005
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (4) (53) (22) (29)
Unrealized (154) 58 4,857 830
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (158) 5 4,835 801
Mortality and Expense Charges (Note C) (326) (25) (759) (66)
Transaction Charges (Note D) (124) (9) (290) (25)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (608) (29) 3,786 710
Capital Shares Transactions:
Transfers of Net Premiums 0 2,254 9,684 0
Transfers of Policy Loading, Net 38 (223) 566 150
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 419 1 409 (17)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (297) (150) (1,422) (417)
Transfers of Loan Processing Charges (8) 0 (24) (2)
Transfers Among Investment Divisions 98,392 (3,544) 394,979 29,234
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 97,936 (1,691) 407,978 29,658
Net Assets Beginning Balance 0 7,614 0 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 97,936 $ 5,923 $ 407,978 $ 29,658
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2006 2007 2008 2009
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (2) (1) 0 1
Unrealized 1,397 12 19 6,074
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 1,395 11 19 6,075
Mortality and Expense Charges (Note C) (99) (3) (3) (295)
Transaction Charges (Note D) (38) (1) (1) (113)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 1,258 7 15 5,667
Capital Shares Transactions:
Transfers of Net Premiums 0 0 0 0
Transfers of Policy Loading, Net (150) 100 0 1,250
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (28) (1) (4) (75)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (175) (39) (12) (393)
Transfers of Loan Processing Charges (4) 0 (1) (12)
Transfers Among Investment Divisions 50,452 917 6,713 145,512
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 51,353 984 6,711 151,949
Net Assets Beginning Balance 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 51,353 $ 984 $ 6,711 $ 151,949
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2010 2011 2013 2014
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (23,419) 899 (2,567) 1
Unrealized 3,586 (22,160) (2,191) 5,374
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (19,833) (21,261) (4,758) 5,375
Mortality and Expense Charges (Note C) (1,584) (1,458) (476) (112)
Transaction Charges (Note D) (598) (550) (180) (41)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (22,015) (23,269) (5,414) 5,222
Capital Shares Transactions:
Transfers of Net Premiums 787 0 987 1,337
Transfers of Policy Loading, Net 2,479 (2,030) 195 163
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 13 8 (46) (63)
Transfers Due to Policy Loans 0 0 (12,300) 0
Transfers of Cost of Insurance (1,159) (1,439) (1,771) (272)
Transfers of Loan Processing Charges 0 0 (6) (9)
Transfers Among Investment Divisions 49,193 228 85,368 102,653
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 29,298 (26,502) 67,013 109,031
Net Assets Beginning Balance 129,694 183,965 4,381 0
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 158,992 $ 157,463 $ 71,394 $ 109,031
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
======================
Total
===================
<S> <C>
Reinvested Dividends $ 3,610,497
Net Gains (Losses):
Realized (218,534)
Unrealized (4,239,903)
-------------------
Investment Earnings (Losses) (847,940)
Mortality and Expense Charges (Note C) (542,446)
Transaction Charges (Note D) (3,767)
-------------------
Net Earnings (Losses) (1,394,153)
Capital Shares Transactions:
Transfers of Net Premiums 51,971,799
Transfers of Policy Loading, Net 3,241,522
Transfers Due to Deaths (29,512)
Transfers Due to Other Terminations (493,701)
Transfers Due to Policy Loans (1,463,743)
Transfers of Cost of Insurance (1,296,287)
Transfers of Loan Processing Charges (8,161)
Transfers Among Investment Divisions 0
-------------------
Increase (Decrease) in Net Assets 50,527,764
Net Assets Beginning Balance 35,579,401
-------------------
Net Assets Ending Balance $ 86,107,165
===================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) 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
Net Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 11,722 $ 35,996 $ 40,979 $ 764
Net Gains (Losses):
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 (Decrease) 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 (LOSSES) 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 Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
1995 1996 1997 1998
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
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 (Decrease) 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 (LOSSES) 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 Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===========================================================
2011 2013
Trust Trust Total
=================== =================== ===================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 566,325
Net Gains (Losses):
Realized 1,078 0 63,152
Unrealized 38,549 (86) 1,022,845
------------------- ------------------- -------------------
Investment Earnings (Losses) 39,627 (86) 1,652,322
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 (Decrease) 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 (LOSSES) 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 Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 179 $ 0
Net Gains (Losses):
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 (Decrease) 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 (LOSSES) 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 Gains (Losses):
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 (Decrease) 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>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE PERIOD FEBRUARY 28, 1992 (Date of Inception) TO DECEMBER 31, 1992
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2001 2010 2011
Trust Trust Trust Total
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 21,362
Net Gains (Losses):
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 (Decrease) 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, 1994
and 1993, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1994. 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 provide 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, 1994 and 1993, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1994 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
Accounting Standards No. 115.
/s/ Deloitte & Touche LLP
February 27, 1995
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
===============================================================================
<TABLE>
<CAPTION>
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1994 - $4,014,272; 1993 - $5,369,236) $ 3,867,833 $ 5,597,359
Fixed maturity securities held for trading, at estimated fair value
(amortized cost: 1993 - $140,635) 0 144,035
Equity securities available for sale, at estimated fair value
(cost: 1994 - $15,946; 1993 - $24,424) 16,777 24,970
Equity securities held for trading, at estimated fair value
(cost: 1993 - $19,694) 0 20,585
Mortgage loans on real estate 149,249 191,214
Real estate available for sale
(accumulated depreciation: 1994 - $515; 1993 - $850) 12,955 29,761
Policy loans on insurance contracts 985,213 924,579
------------ ------------
Total Investments 5,032,027 6,932,503
CASH AND CASH EQUIVALENTS 139,087 122,218
ACCRUED INVESTMENT INCOME 95,133 120,337
DEFERRED POLICY ACQUISITION COSTS 466,334 318,903
FEDERAL INCOME TAXES - DEFERRED 38,919 16,878
REINSURANCE RECEIVABLES 1,832 1,190
RECEIVABLES FROM AFFILIATES - NET 3,113 789
OTHER ASSETS 28,656 21,481
SEPARATE ACCOUNTS ASSETS 5,798,973 4,715,278
------------ ------------
TOTAL ASSETS $11,604,074 $12,249,577
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
==============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993
------------ ------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 5,148,971 $ 6,691,811
Claims and claims settlement expenses 26,177 20,295
------------ ------------
Total policy liabilities and accruals 5,175,148 6,712,106
OTHER POLICYHOLDER FUNDS 21,221 28,768
LIABILITY FOR GUARANTY FUND ASSESSMENTS 24,774 28,083
OTHER LIABILITIES 36,775 68,165
FEDERAL INCOME TAXES - CURRENT 2,274 10,122
SEPARATE ACCOUNTS LIABILITIES 5,784,311 4,715,278
------------ ------------
Total Liabilities 11,044,503 11,562,522
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 535,450 637,590
Retained earnings 66,005 47,860
Net unrealized investment loss (43,884) (395)
------------ ------------
Total Stockholder's Equity 559,571 687,055
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $11,604,074 $12,249,577
============ ============
</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, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 433,536 $ 586,461 $ 712,739
Net realized investment gains (losses) (14,543) 63,052 (29,639)
Policy charge revenue 126,284 95,684 81,653
------------ ------------ ------------
Total Revenues 545,277 745,197 764,753
------------ ------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 313,585 454,671 546,979
Market value adjustment expense 6,307 30,816 6,229
Policy benefits (net of reinsurance recoveries: 1994 - $6,338;
1993 - $6,004; 1992 - $5,555) 16,858 17,030 12,066
Reinsurance premium ceded 13,909 12,665 12,457
Amortization of deferred policy acquisition costs 69,662 109,456 88,795
Insurance expenses and taxes 35,073 47,784 72,560
------------ ------------ ------------
Total Benefits and Expenses 455,394 672,422 739,086
------------ ------------ ------------
Earnings Before Federal Income Tax Provision 89,883 72,775 25,667
------------ ------------ ------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 22,503 20,112 28,549
Deferred 1,375 4,803 (19,913)
------------ ------------ ------------
Total Federal Income Tax Provision 23,878 24,915 8,636
------------ ------------ ------------
NET EARNINGS $ 66,005 $ 47,860 $ 17,031
============ ============ ============
</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, 1994, 1993 AND 1992
(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, 1992 $ 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 (3,279) (3,279)
------------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1993 2,000 637,590 47,860 ( 395) 687,055
Dividend to Parent (102,140) (47,860) (150,000)
Net earnings 66,005 66,005
Net unrealized investment loss (43,489) (43,489)
------------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1994 $ 2,000 $ 535,450 $ 66,005 $ (43,884) $ 559,571
============= =========== =========== ============ =============
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, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 66,005 $ 47,860 $ 17,031
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 69,662 109,456 88,795
Capitalization of policy acquisition costs (108,829) (91,189) (39,146)
Depreciation and amortization (4,516) 1,142 (16,033)
Net realized investment (gains) losses 14,543 (63,052) 29,639
Interest credited to policyholders' account balances 313,585 454,671 546,979
Provision for deferred Federal income tax 1,375 4,803 (19,913)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 25,204 18,460 6,018
Receivables from affiliates - net (2,324) (3,427) (20,027)
Policy liabilities and accruals 5,882 12,730 7,775
Federal income taxes - current (7,848) (19,888) 14,955
Other policyholder funds (7,547) 14,131 12,826
Liability for guaranty fund assessments (3,309) 979 16,439
Policy loans (60,634) (90,118) (126,925)
Investment trading securities 11,352 (145,972) 0
Other, net (39,206) 49,424 (6,269)
-------------- -------------- --------------
Net cash and cash equivalents provided
by operating activities 273,395 300,010 512,144
-------------- -------------- --------------
</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, 1994, 1993 AND 1992
(Concluded) (Dollars In Thousands)
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Fixed maturity securities sold 845,227 571,337 1,281,705
Fixed maturity securities matured 1,323,705 2,776,992 2,206,447
Fixed maturity securities purchased (676,976) (1,866,857) (2,806,416)
Equity securities available for sale purchased (1,998) (8,983) (17,843)
Equity securities available for sale sold 18,868 6,451 44,188
Mortgage loans on real estate principal payments received 32,341 35,561 8,548
Mortgage loans on real estate acquired 0 (674) (853)
Real estate available for sale - improvements acquired (1,060) 0 (340)
Real estate available for sale sold 25,346 7,408 178
Interest rate swaps sold 0 0 2,302
Recapture of investment in Separate Accounts 0 29,389 0
Investment in Separate Accounts (15,212) (20,000) (3,841)
-------------- -------------- --------------
Net cash and cash equivalents provided
by investing activities 1,550,241 1,530,624 714,075
-------------- -------------- --------------
FINANCING ACTIVITIES:
Dividend paid to parent (150,000) (120,000) 0
Affiliated notes payable 0 0 (83,200)
Policyholders' account balances:
Deposits 966,861 814,314 217,410
Withdrawals (net of transfers to/from Separate Accounts) (2,623,628) (2,574,854) (1,338,034)
-------------- -------------- --------------
Net cash and cash equivalents used
by financing activities (1,806,767) (1,880,540) (1,203,824)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 16,869 (49,906) 22,395
CASH AND CASH EQUIVALENTS
Beginning of year 122,218 172,124 149,729
-------------- -------------- --------------
End of year $ 139,087 $ 122,218 $ 172,124
============== ============== ==============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 30,351 $ 40,000 $ 13,594
Intercompany interest $ 679 $ 737 $ 5,409
</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
(Dollars in Thousands)
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 non-participating 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 retail network of
Merrill Lynch Pierce, Fenner & Smith, Inc. ("MLPF&S"), a wholly
owned subsidiary of Merrill Lynch & Co..
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 4.00% - 8.30%
Interest sensitive deferred annuities 2.78% - 8.58%
Immediate annuities 4.00% - 10.00%
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.
Reinsurance: 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. The maximum amount of mortality risk
retained by the Company is approximately $500 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 $912 that can be
drawn upon for delinquent reinsurance recoverables.
<PAGE>
As of December 31, 1994, the Company had life insurance in-
force which was ceded to other life insurance companies of
$2,027,303.
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 are 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 an unaffiliated insurer. 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,:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Beginning balance $ 139,647 $ 150,450 $ 160,235
Capitalized amounts 12,517 6,987 6,060
Interest accrued 12,582 13,136 15,401
Amortization (31,358) (30,926) (31,246)
----------- ----------- -----------
Ending balance $ 133,388 $ 139,647 $ 150,450
=========== =========== ===========
</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.
1995 $17,840
1996 16,056
1997 12,488
1998 8,925
1999 8,399
Investments: Effective December 31, 1993, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). In compliance with SFAS No. 115,
the Company, at December 31, 1993, 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. If a decline in value of a security
is determined by
<PAGE>
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 represented securities that were managed
with an investment objective to maximize total return
subject to the Company's quality guidelines. Investments in
this portfolio consisted primarily of marketable fixed
maturity and equity investments. These securities were
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 permits 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 has not utilized this
classification since the adoption of SFAS No. 115.
During 1994, the Company ceased utilizing the trading
securities classification. All securities that were classified
as trading securities on November 1, 1994 were transferred to
the available for sale classification at their respective
estimated fair values on that date. The difference between the
market value at November 1, 1994 and par value will be
amortized into income based on the Company's premium
amortization and discount accrual policies.
In compliance with a Securities and Exchange Commissions
("SEC") staff announcement, the Company has recorded certain
adjustments to deferred policy acquisition costs and
policyholders' account balances in connection 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
stockholder's equity. The following reconciles the net
unrealized investment gain (loss) as of December 31,:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale $(146,439) $ 228,123
Equity securities available for sale 831 546
Deferred policy acquisition costs 72,220 (36,044)
Federal income taxes - deferred 23,629 213
Separate Account Assets (549) 0
----------- -----------
(50,308) 192,838
----------- -----------
Liabilities:
Policyholders' account balances (6,424) 193,233
----------- -----------
Stockholder's equity:
Net unrealized investment loss $ (43,884) $ (395)
=========== ===========
</TABLE>
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. For
equity securities, dividends are recognized on the ex-dividend
date. 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
<PAGE>
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.
During 1994, the Company adopted SFAS No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of
Financial Instruments" ("SFAS No. 119"). SFAS No. 119 requires
increased disclosures regarding derivative financial
instruments. SFAS No. 119 defines derivative financial
instruments as futures, forward, swap and option contracts or
other financial instruments with similar characteristics. As of
December 31, 1994, the Company holds only interest rate swap
contracts.
The Company has outstanding certain interest rate swap
contracts which are carried at estimated fair value and
recorded as a component of fixed maturity securities available
for sale. Interest income, realized gains and losses and
unrealized gains and losses are recorded on the same basis as
fixed maturity securities available for sale.
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 recognizes income from mortgage loans on real
estate based on the cash payment interest rate of the loan,
which may be different from the accrual interest rate of the
loan for certain outstanding mortgage loans. The Company will
recognize a realized gain at the date of the satisfaction of
the loan at contractual terms for loans where there is a
difference between the cash payment interest rate and the
accrual interest rate. For all loans the Company stops accruing
income when an interest payment default either occurs or is
probable.
The Company has previously made commercial mortgage loans
collateralized by real estate and direct investments in
commercial 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 vacancy rates in excess of
historical averages, 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. 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") which was amended during 1994 by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures". SFAS No. 114, as amended,
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 or losses. SFAS No.
114, as amended, 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, as amended, would be immaterial.
<PAGE>
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. 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.
Federal Income Taxes: The results of 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.
The Company accounts for Federal Income Taxes in compliance
with 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.
Separate Accounts: The Separate Accounts are established in
conformity with Arkansas insurance law, the Company's
domiciliary state, and are generally not 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.
Postretirement Benefits Other Than Pensions: The Company
accounts for postretirement benefits in compliance with 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.
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.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments which approximates
the estimated fair value of these financial instruments as of
December 31 are:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale:
Securities (1) $ 3,866,886 $ 5,593,042
Interest rate swaps (2) 947 4,317
------------ ------------
Total fixed maturity securities available for sale 3,867,833 5,597,359
------------ ------------
Fixed maturity securities held for trading (1) 0 144,035
Equity securities available for sale (1) 16,777 24,970
Equity securities held for trading (1) 0 20,585
Mortgage loans on real estate (3) 149,249 191,214
Policy loans on insurance contracts (4) 985,213 924,579
Cash and cash equivalents (5) 139,087 122,218
Receivables from affiliates - net (6) 3,113 789
Separate accounts assets (7) 5,798,973 4,715,278
------------ ------------
Total financial instruments recorded as assets $10,960,245 $11,741,027
============ ============
</TABLE>
(1) 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, 1994 and 1993, securities
without a readily ascertainable market value, having an
amortized cost of approximately $564,665 and $773,965, had
an estimated fair value of approximately $564,682 and
$819,866, respectively.
(2) Estimated fair values for the Company's interest rate
swaps are based on a discounted cashflow approach.
(3) The estimated fair value of mortgage loans on real estate
approximates the carrying value. See Note 1 for a
discussion of the Company's valuation process.
(4) 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.
(5) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(6) The fair value of the Company's receivables from
affiliates is estimated at carrying value. These
borrowings are payable on demand and accrue a variable
interest rate based on LIBOR.
(7) Assets held in the Separate Accounts are carried at quoted
market values.
<PAGE>
NOTE 3. INVESTMENTS
The amortized cost (cost for equity securities) and estimated
fair value of investments in fixed maturity securities and
equity securities as of December 31 are:
<TABLE>
<CAPTION>
1994
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 2,795,543 $ 20,378 $ 133,534 $ 2,682,387
Mortgage-backed securities 1,070,430 5,772 35,624 1,040,578
U.S. Government and agencies 139,513 1,059 4,392 136,180
Municipals 4,588 115 0 4,703
Foreign governments 4,198 0 213 3,985
------------ ----------- ----------- ------------
Total fixed maturity securities
available for sale $ 4,014,272 $ 27,324 $ 173,763 $ 3,867,833
============ =========== =========== ============
Equity securities available for sale:
Common stocks $ 8,489 $ 641 $ 632 $ 8,498
Non-redeemable preferred stocks 7,457 1,092 270 8,279
------------ ----------- ----------- ------------
Total equity securities available for sale $ 15,946 $ 1,733 $ 902 $ 16,777
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
1993
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 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. Government and agencies 159,329 10,887 126 170,090
Municipals 12,912 922 0 13,834
------------ ----------- ----------- ------------
Total fixed maturity securities
available for sale $ 5,369,236 $ 250,687 $ 22,564 $ 5,597,399
============ =========== =========== ============
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>
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1994 by
contractual maturity are shown below:
<PAGE>
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 101,138 $ 102,400
Due after one year through five years 1,323,119 1,282,668
Due after five years through ten years 1,249,759 1,183,803
Due after ten years 269,826 258,384
------------ ------------
2,943,842 2,827,255
Mortgage-backed securities 1,070,430 1,040,578
Total fixed maturity securities ------------ ------------
available for sale $ 4,014,272 $ 3,867,833
============ ============
</TABLE>
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 may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1994 by rating
agency equivalent are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
AAA $ 995,888 $ 964,385
AA 630,459 614,948
A 857,103 821,906
BBB 1,245,045 1,190,554
Non-investment grade 285,777 276,040
------------ ------------
$ 4,014,227 $ 3,867,833
============ ============
</TABLE>
The Company has entered 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, 1994 and 1993 was
approximately $30,000 and $149,250, respectively. The Company
has outstanding at December 31, 1994 three interest rate swap
contracts for which the Company pays the six month LIBOR
interest rate and receives a weighted average 9.8%. The
outstanding interest rate swap contracts at December 31, 1994
will expire at various times during 1996. The average unexpired
term at December 31, 1994 and 1993 was 1.2 years and 3.2 years,
respectively. All three interest rate swap contracts were with
investment grade counterparties at December 31, 1994.
There are no outstanding matched swaps in a loss position at
December 31, 1994 and 1993. During 1994, 1993 and 1992, a net
investment gain of approximately $470, $0 and $2,302,
respectively, was recorded in connection with interest rate
swap activity.
During 1994, 1993 and 1992, the Company did not enter into
either matched or unmatched interest rate swap arrangements and
did not act as an intermediary or broker in interest rate
swaps.
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,:
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds $ 2,168,932 $ 3,348,329 $ 3,488,152
Realized investment gains 8,398 71,599 51,925
Realized investment losses 9,823 4,126 36,018
</TABLE>
During 1994, the Company ceased utilizing the trading
securities classification. At the date of this action, the
securities classified as trading were transferred to the
available for sale portfolio at their estimated fair value. The
estimated fair value of fixed maturity securities and equity
securities transferred at the date of transfer was $134,984 and
$6,989, respectively. At the date of transfer, amortized cost
exceeded estimated fair value by $2,995. During 1994 and 1993,
approximately $(7,285) and $4,291, respectively, of unrealized
holding gains (losses) from investment trading securities were
recorded in net realized investment gains/(losses).
The Company had investment securities of $26,651 and $28,702
held on deposit with insurance regulatory authorities at
December 31, 1994 and 1993, respectively.
At December 31, 1994, the Company retained $14,662 in the
Separate Accounts, including unrealized losses of $549. The
investments in the Separate Accounts are 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's investment in mortgage loans on real estate are
principally collateralized by commercial real estate. At
December 31, 1994, the largest concentrations of commercial
real estate mortgage loans, as measured by the outstanding
principal balance, are for properties located in California
($53,282 or 28%), Illinois ($28,294 or 15%) and Rhode Island
($19,769 or 10%).
The carrying value and established valuation allowances of
impaired mortgage loans on real estate as of December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Carrying value $71,973 $63,952
Valuation allowance 40,070 45,924
</TABLE>
For the years ended December 31, 1994 and 1993, $4,652 and
$29,555, 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>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities $ 368,023 $ 511,655 $ 652,136
Equity securities 2,408 4,143 4,813
Mortgage loans on real estate 15,014 20,342 25,954
Real estate available for sale 406 32 1,004
Policy loans on insurance contracts 50,232 46,129 40,843
Other 5,489 11,135 5,924
---------- ---------- ----------
Gross investment income 441,572 593,436 730,674
Less expenses (8,036) (6,975) (17,935)
---------- ---------- ----------
Net investment income $ 433,536 $ 586,461 $ 712,739
========== ========== ==========
</TABLE>
<PAGE>
Net realized investment gains (losses), including changes in
valuation allowances, for the years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ (1,425) $ 67,473 $ 15,907
Fixed maturity securities held for trading (11,889) 5,562 0
Equity securities available for sale 1,490 22 (3,051)
Equity securities held for trading (580) 2,587 0
Mortgage loans on real estate (4,967) (9,310) (42,997)
Real estate available for sale 2,828 (4,733) (1,800)
Other 0 1,451 2,302
---------- ---------- ----------
Net realized investment gains (losses) $ (14,543) $ 63,052 $ (29,639)
========== ========== ==========
</TABLE>
The following is a reconciliation of the change in valuation
allowances which have been deducted in arriving at investment
carrying values, as presented in the balance sheet, and changes
thereto of the following classifications of investments for the
years ended December 31,:
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage loans on real estate:
1994 $ 45,924 $ 4,966 $ 10,820 $ 40,070
1993 55,610 9,310 18,996 45,924
1992 14,413 42,997 1,800 55,610
Real estate available for sale:
1994 7,628 0 1,862 5,766
1993 4,300 3,328 0 7,628
1992 4,500 1,800 2,000 4,300
</TABLE>
The Company held investments at December 31, 1994 of $20,391
which have been non-income producing for the preceding twelve
months.
The Company has restructured the terms of certain of its
investments in fixed maturity securities and mortgage loans on
real estate during 1994 and 1993. 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>
1994 1993
-------- --------
<S> <C> <C>
Fixed maturity securities:
Amortized cost $ 1,134 $ 3,743
Expected income 189 916
Actual income 112 103
Equity interest received 28 1,833
Mortgage loans on real estate:
Amortized cost less valuation allowance 49,595 79,624
Expected income 4,673 6,859
Actual income 3,725 5,076
</TABLE>
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1994 no funds had been advanced towards the
Company's $10,000 commitment to the limited partnership.
NOTE 4. FEDERAL INCOME TAXES
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 years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 31,459 $ 25,471 $ 8,726
Increase (decrease) in income taxes resulting from:
Federal tax rate increase (631)
Dividend received deduction (7,363) (28) (33)
Other (218) 103 (57)
---------- ---------- ---------
Federal income tax provision $ 23,878 $ 24,915 $ 8,636
========== ========== =========
</TABLE>
The Federal statutory rate for 1994, 1993 and 1992 was 35%, 35%
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 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 6,416 $ (9,030) $(17,633)
Policyholders' account balances 5,322 6,433 21,301
Estimated liability for guaranty fund assessments (153) (1,066) (2,735)
Investment adjustments 3,276 7,941 (21,875)
Other (13,486) 525 1,029
Deferred Federal income tax ---------- ---------- ---------
provision (benefit) $ 1,375 $ 4,803 $(19,913)
========== ========== =========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31, are
determined as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 94,153 $ 99,475
Net unrealized investment losses 23,629 213
Investment adjustments 16,320 19,596
Estimated liability for guaranty fund assessments 7,580 7,427
---------- ----------
Total deferred tax asset 141,682 126,711
---------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs 99,041 92,625
Other 3,722 17,208
---------- ----------
Total deferred tax liability 102,763 109,833
---------- ----------
Net deferred tax asset $ 38,919 $ 16,878
========== ==========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
NOTE 5. 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 $44,176, $55,843 and $63,300 for the years ended
December 31, 1994, 1993 and 1992, respectively. The Company is
allocated interest expense on its accounts payable to MLIG
which approximates the daily Federal funds rate. Total
intercompany interest paid was $679, $737 and $5,409 for 1994,
1993 and 1992, 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. Charges attributable to this agreement and
allocated to the Company by MLIG were $2,732, $2,800 and $3,700
for the years ended December 31, 1994, 1993 and 1992,
respectively.
During 1994, the Company and MLAM entered into an agreement
pursuant to which MLAM paid to the Company a fee in an amount
equal to a portion of the annual gross investment advisory fees
received by MLAM from Merrill Lynch Series Fund, Inc. ("Series
Fund") and Merrill Lynch Variable Series Funds, Inc. ("Variable
Series Funds"). The Company invests in the various mutual fund
portfolios of the Series Fund and the Variable Series Funds in
connection with the variable life insurance and variable
annuities the Company has in-force. The Company received $12,600
of revenue as a result of this agreement during 1994.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S who are the 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 $84,231, $67,102 and $25,158 for
1994, 1993 and 1992, 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
<PAGE>
transaction. 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 was approximately $4,025.
The Company has entered into certain interest rate swap
contracts with Merrill Lynch Capital Services, Inc. ("MLCS")
with a guarantee from Merrill Lynch & Co.. As of December 31,
1994 and 1993, the notional amount of interest rate swap
contracts outstanding were $10,000 and $109,250, respectively.
During 1994 the Company and MLCS terminated certain interest
rate swap contracts resulting in the Company paying a net
consideration of $2,043. Net interest received from these
interest rate swap contracts was $2,096, $6,876, and $9,849 for
the years ended December 31, 1994, 1993 and 1992, respectively.
(See Note 3)
During 1993 and 1992, the Company allowed the recapture of
certain policies previously indemnity reinsured by the Company
from Family Life Insurance Company. 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 and $2,000 of policy reserves during 1993 and 1992,
respectively. During 1994 certain adjustments to the 1993
assumption reinsurance transactions resulted in a transfer of
$9,299 of policy reserves from ML Life to the Company.
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1994 and 1993, the Company paid dividends of $150,000
and $120,000, respectively, to MLIG. Of these stockholder's
dividends, $112,779 and $75,012, respectively, were
extraordinary dividends as defined by Arkansas Insurance Law
and were paid pursuant to approval granted by the Arkansas
Insurance Commissioner.
At December 31, 1994 and 1993, approximately $26,243 and
$37,221, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1994 and 1993, was $264,432 and $374,209,
respectively.
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,
1994, 1993 and 1992 was $42,382, $45,604 and $60,140,
respectively.
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.
<PAGE>
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, 1994 and 1993, based on the RBC formula, the
Company's total adjusted capital level was 270% and 279%,
respectively, of the basic RBC level.
NOTE 7. 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 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, 1994 and 1993, the Company has established an
estimated liability for future guaranty fund assessments of
$24,774 and $28,083 respectively. The Company regularly
monitors public information regarding insurer insolvencies and
will adjust its estimated liability when appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
<PAGE> 102
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> 103
Any persons serving as an officer, director or trustee of a corporation,
trust, or other enterprise, including the Registrant, at the request of Merrill
Lynch are entitled to indemnification from Merrill Lynch, to the fullest extent
authorized or permitted by law, for liabilities with respect to actions taken or
omitted by such persons in any capacity in which such persons serve Merrill
Lynch or such other corporation, trust, or other enterprise. Any action
initiated by any such person for which indemnification is provided shall be
approved by the Board of Directors of Merrill Lynch prior to such initiation.
DIRECTORS' AND OFFICERS' INSURANCE
Merrill Lynch has purchased from Corporate Officers' and Directors'
Assurance Company directors' and officers' liability insurance policies which
cover, in addition to the Indemnification described above, liabilities for which
indemnification is not provided under the By-Laws. The Company will pay an
allocable portion of the insurance premium paid by Merrill Lynch with respect to
such insurance policies.
ARKANSAS BUSINESS CORPORATION LAW
In addition, Section 4-26-814 of the Arkansas Business Corporation Law
generally provides that a corporation has the power to indemnify a director or
officer of the corporation, or a person serving at the request of the
corporation as a director or officer of another corporation or other enterprise
against any judgments, amounts paid in settlement, and reasonably incurred
expenses in a civil or criminal action or proceeding if the director or officer
acted in good faith in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation (or, in the case of a criminal
action or proceeding, if he or she in addition had no reasonable cause to
believe that his or her conduct was unlawful).
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company
Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the policies described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk and guaranteed
benefits risk charge is within the range of industry practice for
comparable flexible or scheduled contracts.
(3) Registrant has concluded that there is a reasonable likelihood
that the distribution financing arrangement of the Separate Account will
benefit the separate account and policyowners and will keep and make
available to the Commission on request a memorandum setting forth the basis
for this representation.
II-2
<PAGE> 104
(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> 105
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Two Prospectuses consisting of 87 and 85 pages, respectively.
Undertaking to file reports.
Rule 484 Undertaking.
Representations Pursuant to Rule 6e-3(T).
The signatures.
Written Consents of the Following Persons:
(a) Barry G. Skolnick, Esq.
(b) Joseph E. Crowne, F.S.A.
(c) Sutherland, Asbill & Brennan
(d) Deloitte & Touche LLP, Independent Auditors
The following exhibits:
<TABLE>
<S> <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
(5)(a) (1) Flexible Premium Variable Universal Life Insurance Policy (Incorporated by Reference to
Registrant's Form S-6 Registration No. 33-55678 Filed December 11, 1992)
(5)(a) (2) Flexible Premium Variable Universal Life Insurance Policy (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form S-6 Registration No. 33-55678 Filed December
9, 1994)
(b) (1) Backdating Endorsement (Incorporated by Reference to Registrant's Form S-6 Registration No.
33-55678 Filed December 11, 1992)
(2)(a) Additional Insurance Rider for Flexible Premium Variable Universal Life Insurance Policy
(Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55678 Filed December 11,
1992)
(2)(b) Additional Insurance Rider for Flexible Premium Variable Universal Life Insurance Policy
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 4 to Form S-6
Registration No. 33-55678 Filed December 9, 1994)
(3) Endorsement for Guaranteed Interest Division for Flexible Premium Variable Universal Life
Insurance Policy (Incorporated by Reference to Registrant's Form S-6 Registration No. 33-55678
Filed December 11, 1992)
(4) Endorsement for Flexible Premium Variable Universal Life Insurance Policy (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 4 to Form S-6 Registration No. 33-55678
Filed December 9, 1994)
(5) Accelerated Benefit Rider (Incorporated by Reference to Registrant's Post-Effective Amendment
No. 4 to Form S-6 Registration No. 33-55472 Filed December 9, 1994)
(6) Unisex Rider (Form No. EIUN192S)
(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
</TABLE>
II-4
<PAGE> 106
<TABLE>
<S> <C>
(8)(a) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Series Fund, Inc.
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
(b) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Funds Distributor, Inc.
(Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6
Registration No. 33-55472 Filed April 26, 1993)
(c) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to Form
S-6 Registration No. 33-55472 Filed April 26, 1993)
(d) Participation Agreement among Merrill Lynch Life Insurance Company, ML Life Insurance Company of
New York and Monarch Life Insurance Company (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 3 to Form S-6 Registration No. 33-55472 Filed April 27, 1994)
(e) Management Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Asset
Management, Inc. (Incorporated by Reference to Registrant's Pre-Effective Amendment No. 1 to
Form S-6 Registration No. 33-55472 Filed April 26, 1993.)
(9)(a) Service Agreement among Merrill Lynch Insurance Group, Inc., Family Life Insurance Company and
Merrill Lynch Life Insurance Company (Incorporated by Reference to Registrant's Pre-Effective
Amendment No. 1 to Form S-6 Registration No. 33-41830 Filed April 16, 1992)
(10)(a) (1) Variable Life Insurance Application (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-55678 Filed December 11, 1992)
(10)(a) (2) Variable Life Insurance Application (Incorporated by Reference to Registrant's Post Effective
Amendment No. 4 to Form S-6 Registration No. 33-55472 Filed December 9, 1994)
(b) Application for Reinstatement (Incorporated by Reference to Registrant's Form S-6 Registration
No. 33-55678 Filed December 11, 1992)
(c) Variable Life Insurance Application, Part 1 (Form No. A1016)
(d) Variable Life Insurance Application, Part 2 (Form No. A1011)
(e) Temporary Insurance Agreement (Form No. A1010)
(11)(a) Memorandum describing Merrill Lynch Life Insurance Company's Issuance, Transfer and Redemption
Procedures (Incorporated by Reference to Registrant's Post-Effective Amendment No. 2 to Form S-6
Registration No. 33-55678 Filed March 1, 1994)
(11)(b) Amended and restated memorandum describing Merrill Lynch Life Insurance Company's Issuance,
Transfer and Redemption Procedures (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 to Form S-6 Registration No. 33-55678 Filed December 9, 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 LLP, Independent Auditors
</TABLE>
II-5
<PAGE> 107
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. 5 MEETS ALL OF THE REQUIREMENTS FOR EFFECTIVENESS
PURSUANT TO PARAGRAPH (B) OF RULE 485 UNDER THE SECURITIES ACT OF 1933, AND HAS
DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 5 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 25TH DAY OF APRIL 1995.
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
BY: MERRILL LYNCH LIFE INSURANCE COMPANY
(Depositor)
<TABLE>
<S> <C>
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
-------------------------------- ----------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 5 to the Registration Statement has been signed below by the
following persons in the capacities indicated on April 25, 1995.
<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> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------- ------------
<S> <C> <C>
1. A. (4) Undertaking of Merrill Lynch Life Insurance Company pursuant to Rule 27d-2
(5) (b)(6) Unisex Rider (Form No. EIUN192S)
(10) (c) Variable Life Insurance Application, Part 1 (Form No. A1016)
(10) (d) Variable Life Insurance Application, Part 2 (Form No. A1011)
(10) (e) Temporary Insurance Agreement (Form No. A1010)
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the legality of the securities
being registered
6. Opinion and Consent of Joseph E. Crowne, F.S.A. as to actuarial matters pertaining to
the securities being registered
8. c) Written Consent of Sutherland, Asbill & Brennan
d) Written Consent of Deloitte & Touche LLP, Independent Auditors
</TABLE>
<PAGE> 1
UNDERTAKING OF MERRILL LYNCH LIFE INSURANCE COMPANY
PURSUANT TO RULE 27D-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 27d-2 and Rule 6e-3(T)(b)(13)(vi) under the Investment Company
Act of 1940, as amended, Merrill Lynch Life Insurance Company makes the
following undertaking in connection with the Registration Statement on Form S-6
(File No. 33-55678) for certain flexible premium variable life insurance
contracts issued by Merrill Lynch Life Insurance Company:
Merrill Lynch Life Insurance Company undertakes to guarantee the
performance of all obligations of Merrill Lynch, Pierce, Fenner
and Smith Incorporated imposed by Section 27(d) or Section 27(f)
of the Investment Company Act of 1940, as amended (the "1940
Act"), or Rule 27d-2 thereunder, to make refunds of charges to
owners of Contracts that are required by Section 27(d) or
Section 27(f) of the 1940 Act or the condition of any exemptions
therefrom.
MERRILL LYNCH LIFE INSURANCE COMPANY
By: /s/ BARRY G. SKOLNICK
------------------------------------
Barry G. Skolnick
Senior Vice President and
General Counsel
<PAGE> 1
----------------------------------------------------
[MERRILL LYNCH LOGO] MERRILL LYNCH LIFE INSURANCE COMPANY
Little Rock, Arkansas
----------------------------------------------------
UNISEX RIDER
- -------------------------------------------------------------------------------
This rider deletes any reference in the basic
policy and any attached riders to an individual's
sex and controls over any contrary provisions of the
policy.
- -------------------------------------------------------------------------------
Charges Deducted From The Charges Deducted From Investment Base provision
Investment Base in this policy is modified by replacing item (3) in
the Cost of Insurance section with the following:
(3) We determine the current cost of insurance
rate per $1,000 based on the policy year
and underwriting class of the insured.
- -------------------------------------------------------------------------------
The Income Plans The Income Plans provision in this policy is
modified by the following:
Plan 2. Income for Life
The Tables for Income for Life are deleted and
replaced with the following:
TABLE FOR INCOME FOR LIFE
(Monthly Payments for Each $1,000 Applied)
<TABLE>
<CAPTION>
10 Years 20 Years Refund
Age Certain Certain Certain
---- -------- -------- -------
<S> <C> <C> <C>
0-10 $3.24 $3.23 $3.22
15 3.32 3.31 3.30
20 3.41 3.40 3.39
25 3.52 3.51 3.50
30 3.66 3.64 3.63
35 3.84 3.81 3.79
40 4.07 4.00 3.99
45 4.36 4.23 4.24
50 4.71 4.50 4.54
55 5.14 4.79 4.92
60 5.68 5.10 5.39
65 6.35 5.38 6.01
70 7.17 5.60 6.83
75 8.07 5.72 7.94
80 8.95 5.75 9.48
85 & over 9.54 5.75 --
</TABLE>
SPECIMEN
<PAGE> 2
________________________________________________________________________________
The Income Plans Plan 5. Joint Life Income
(Continued) The Table of Joint Life Income is deleted and replaced with
the following:
TABLE OF JOINT LIFE INCOME
(Monthly Payments for Each $1,000 Applied)
OLDER AGE
<TABLE>
<CAPTION>
55 60 65 70 75
---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $4.55 $4.76 $4.99 $5.26 $5.56
55 4.75 4.99 5.27 5.59 5.95
60 -- 5.25 5.59 5.98 6.42
YOUNGER 65 -- -- 5.94 6.43 6.99
AGE 70 -- -- -- 6.94 7.66
75 -- -- -- -- 8.41
---------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Error in Age The Error in Age or Sex provision is deleted and replaced
with the following:
If an age for the insured as stated on the application is
wrong, it could mean the face amount or any other policy
benefit is wrong. Therefore, amounts payable under this
policy or its riders will be what the premiums paid would
have bought for the guarantee period at the true age.
- --------------------------------------------------------------------------------
Cost of Rider The Cost of Rider provision in the ADDITIONAL INSURANCE
RIDER is deleted and replaced with the following:
The cost of the rider is determined by dividing the rider
face amount by $1000 and multiplying the result by the
current cost of insurance rate per $1000 based on the
policy year and underwriting class of the insured. The cost
of the rider is deducted from the investment base as
described in the policy. See Investment Base In Each
Investment Division in the policy.
- --------------------------------------------------------------------------------
General This endorsement is part of the policy to which it is
attached.
MERRILL LYNCH LIFE INSURANCE COMPANY
[SIG] [SIG]
Secretary President
<PAGE> 1
<TABLE>
<CAPTION>
Life Insurance
Application
Part 1
Uses this form when applying for or requesting a
change to Merrill Lynch Funds
o Investor Life(SM)
o Investor Life Plus(SM)
o Estate Investor I(SM)
o Estate Investor II(SM)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
In the questions below, the terms you Merrill Lynch Account Number: Policy Number
and your refer to the policy owner.
The instructions following the question
in each section apply to the Financial
Consultant/Agent. The terms we, our
and us refer to Merrill Lynch Life IF YOU ARE REQUESTING A CHANGE TO YOUR EXISTING POLICY, PLEASE SKIP TO
Insurance Company. SECTION 14.
---------------------------------------------------------------------------------------------------------------------------
[1] WHO WILL BE INSURED BY Title (Mr., Mrs., etc.) Name of Proposed Insured #1 (first, middle, last)
THIS POLICY?
Permanent residence address (street name and number)
City State Zip code Social Security Number
Sex Marital status Date of birth (m/d/y) Place of birth (city, state)
Employer's name and address
Occupation (duties) Annual income Net worth
--------------------------------------------------------------------------------------------------------------------------
[2] COMPLETE THIS SECTION ONLY IF Title (Mr., Mrs., etc.) Name of Proposed Insured #2 (first, middle, last)
THERE IS A SECOND PERSON TO BE
INSURED BY THIS POLICY Permanent residence address (street name and number)
City State Zip code Social Security Number
Sex Marital status Date of birth (m/d/y) Place of birth (city, state)
Relationship to Proposed Insured #1
Employer's name and address
Occupation (duties) Annual income Net worth
</TABLE>
[MERRILL LYNCH LOGO]
Merrill Lynch Life Insurance Company
Little Rock, Arkansas
page 1 of 10
<PAGE> 2
<TABLE>
<CAPTION>
Life Insurance
Application
Part 1
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[3] PLEASE TELL US WHERE AND Proposed Insured #1
WHEN WE CAN CALL
Home phone number Business phone number
Please be sure to indicate ( ) ( )
the time zone in the space
provided. The most convenient place to call Best days
Business Home
Time zone Atlantic Eastern
Best times Central Mountain Pacific
Proposed Insured #2
Home phone number Business phone number
( ) ( )
The most convenient place to call Best days
Business Home
Time zone Atlantic Eastern
Best times Central Mountain Pacific
-----------------------------------------------------------------------------------------------------------------------
[4] WHO WILL OWN THE POLICY? [ ] Proposed Insured #1 [ ] Trust
(Please check a box) [ ] Proposed Insured #2 [ ] Corporation
[ ] Both, with right of survivorship [ ] Other
If the policy has more than
one owner, we will send If you checked "Trust," "Corporation" or "Other," please complete the following.
the policy information to
the owner whose address Full name of policy owner (first, middle, last)
appears here.
Permanent residence address (street name and number)
City State Zip code Telephone number
( )
Social Security or Date of birth/trust date (m/d/y)
Taxpayer ID number
If you wish to name Relationship to Proposed Insured #1 Relationship to Proposed Insured #2
a contingent owner,
please provide details Full name of policy co-owner Date of birth (m/d/y)
in Section 15, Comments. (first, middle, last)
Relationship to Proposed Insured #1 Relationship to Proposed Insured #2
If this is a trust-owned policy with more than one trustee,
does the trust agreement give trustees the power to act
independently of each other? [ ] Yes [ ] No
-----------------------------------------------------------------------------------------------------------------------
[5] WHO WILL BE YOUR Primary beneficiaries
BENEFICIARY?
Name of beneficiary Relationship to Proposed Insured #1 and #2
%
%
Contingent beneficiaries
Name of beneficiary Relationship to Proposed Insured #1 and #2
%
%
</TABLE>
Page 2 of 10
<PAGE> 3
<TABLE>
<CAPTION>
Life Insurance
Application
Part 1
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[6] COMPLETE THIS SECTION IF YOU [ ] Merrill Lynch Funds Investor Life(SM)
ARE APPLYING FOR INVESTOR LIFE Premium amount Face amount (if specifying)
$ $
------------------------------------------------------------------------------------------------------------------------------
[7] COMPLETE THIS SECTION [ ] Merrill Lynch Funds Investor Life Plus(SM)
IF YOU ARE APPLYING FOR Premium amount Face amount (if specifying)
INVESTOR LIFE PLUS $ $
Number of years Payment frequency: Annually Quarterly
Semi-Annually Monthly
The first annual premium must be paid in one lump sum. Future premiums
may be paid monthly, quarterly, semi-annually or annually.
-----------------------------------------------------------------------------------------------------------------------------
[8] COMPLETE THIS SECTION IF [ ] Merrill Lynch Funds Estate Investor I(SM)
YOU ARE APPLYING FOR [ ] Merrill Lynch Funds Estate Investor II(SM)
ESTATE INVESTOR I OR
ESTATE INVESTOR II Base policy face amount Initial premium
Please see the Estate Investor I Additional insurance Death benefit option (please check one)
or Estate Investor II rider (if any) $ Option 1 Option 2
prospectus to find out how Total face amount Other benefits (please list them here)
to calculate the minimum initial $
premium and for details about
making additional premium Additional premium amounts Number of years
payments. $
Payment frequency: Annually Quarterly
Semi-Annually Monthly
------------------------------------------------------------------------------------------------------------------------------
[9] HOW WOULD YOU LIKE TO PAY [ ] Check
YOUR PREMIUMS? [ ] CMA(C) Insurance Service
(please check a box) [ ] Other (e.g. SPIAR if available or 1035 exchange, etc. Please
provide details in Section 15, Comments.)
If premiums will be paid from
a CMA account that belongs Are you paying a premium with this application? [ ] Yes [ ] No
to someone other than the If yes, please complete the Temporary Insurance Agreement
owner or the owner's spouse, following this application, and give the original to the
please complete a Letter of policy owner.
Authorization.
------------------------------------------------------------------------------------------------------------------------------
[10] HOW WOULD YOU LIKE US TO Investment division
INVEST YOUR PREMIUM AFTER THE 1. %
FREE LOOK PERIOD?
2. %
While we are processing the
application and for the free 3. %
look period, the initial
premium will be invested in 4. %
the money market investment
division as described in the 5. %
prospectus.
Total 100 %
</TABLE>
page 3 of 10
<PAGE> 4
<TABLE>
<CAPTION>
Life Insurance
Application
Part 1
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
[11] WILL THIS POLICY REPLACE OR [ ] No - go to Section 12
CHANGE AN EXISTING LIFE [ ] Yes - please tell us the name(s) of the insured(s) and the Company that
INSURANCE POLICY OR ANNUITY? issued the policy being replaced, and complete all required
replacement forms for each insured. Complete all 1035 Exchange
If you are buying this policy using form requirements, if there are any.
a loan from an existing policy, Name(s) of insured(s) and company
it is considered a replacement.
---------------------------------------------------------------------------------------------------------------------------
[12] CAN YOUR FINANCIAL CONSULTANT Do we have your permission to accept telephone or written
ACT ON YOUR BEHALF? instructions from your Financial Consultant on record to
o make reallocations [ ] Yes [ ] No
Do not complete this o take out loans or make partial withdrawals on your behalf? [ ] Yes [ ] No
section if you are a Custodian
for the benefit of a minor
child under the Uniform Gifts If you are making this choice in the capacity of a trustee,
(or Transfers) to Minors Act. the trust agreement must give you the authority to appoint
an attorney-in-fact.
---------------------------------------------------------------------------------------------------------------------------
[13] CHECK A BOX TO TELL US [ ] You are not, and have never been, subject to backup withholding tax.
IF YOU ARE SUBJECT TO BACKUP
WITHHOLDING TAX [ ] You were previously subject to backup withholding tax, but the IRS has
told you that you are no longer subject to it.
Backup withholding tax is
implemented when the Internal [ ] You have been told by the IRS that you are currently subject to backup
Revenue Service determines withholding tax.
that a taxpayer has failed to
report all interest or dividends
on a tax return.
---------------------------------------------------------------------------------------------------------------------------
[14] COMPLETE THIS SECTION ONLY [ ] Exercise of Policy Split Rider Option
IF YOU ARE REQUESTING A CHANGE [ ] Change in Additional Insurance Rider
TO AN EXISTING POLICY [ ] Increase by $ (Complete Part 2)
-------------------
[ ] Decrease by $
ALSO COMPLETE SECTIONS 15-17 --------------------
OF THIS APPLICATION PART 1 [ ] Change in Death Benefit Option
[ ] Change from Option 2 to 1 (Complete Part 2)
[ ] Change from Option 1 to 2
Changing the Death Benefit Option may change the tax status of your policy and
subject it to the rules associated with Modified Endowment Contracts ("MEC").
If the change causes your policy to become a MEC, your Financial Consultant
will contact you to discuss the change and tell us how you wish to proceed.
[ ] Other
</TABLE>
page 4 of 10
<PAGE> 5
<TABLE>
<CAPTION>
Life Insurance
Application
Part 1
-----------------------------------------------------------------------------------------------------------------------
[15] COMMENTS
-----------------------------------------------------------------------------------------------------------------------
<S> <C>
[16] PLEASE READ THIS SECTION Your signature on Section 17 of this application confirms that you have read
BEFORE YOU SIGN THIS FORM and understood the following information.
Both the owner and those SUITABILITY OF YOUR POLICY
being insured by this policy WHEN YOU BUY THIS POLICY, YOU ARE MAKING A COMMITMENT TO MEETING
must read this section. YOUR LONG-TERM INSURANCE NEEDS AND FINANCIAL GOALS. THE DEATH BENEFIT,
CASH SURRENDER VALUE AND DURATION OF YOUR POLICY DEPEND ON THE POLICY'S
INVESTMENT EXPERIENCE AND MAY CHANGE.
WE GUARANTEE THAT THE DEATH BENEFIT OF YOU POLICY WILL NEVER BE LESS
THAN THE FACE AMOUNT AND THAT THE DURATION OF THE POLICY WILL NEVER BE
LESS THAN ITS GUARANTEE PERIOD.
WE DO NOT GUARANTEE A MINIMUM CASH SURRENDER VALUE. YOUR CASH
SURRENDER VALUE COULD BE LESS THAN THE PREMIUMS YOU PAID, EVEN IF THERE
ARE NO POLICY LOANS AND YOU MAKE NO PARTIAL WITHDRAWALS.
AGREEMENT
The information in this application is true and complete to the best of your
knowledge, and we may rely upon it when deciding whether to issue or
modify the policy.
Parts 1 and 2 of this application will be included in your insurance policy.
We may make a correction to the application in the corrections section on
the last page of this application, but will not change the plan, benefits
applied for, amount of insurance, age at issue or underwriting class unless
you agree to the change in writing. If there are any changes, you approve
them when you accept the policy. No other changes may be made.
Unless otherwise provided by the Temporary Insurance Agreement, your insurance
policy will take effect when you accept your policy, as long as:
o those being insured by the policy are still living
o the initial premium is paid
o the information in Parts 1 and 2 of this application continues to be true
and complete
o the health of those being insured is the same as stated in the application.
If you want, we will prepare an illustration for you that compares the death
benefit and cash surrender value of this policy to a fixed life insurance
policy. We will furnish any information that may be required by the
insurance supervisory official of the jurisdiction in which the policy is
delivered.
</TABLE>
Page 5 of 10
<PAGE> 6
<TABLE>
<CAPTION>
Life Insurance
Application
Part 1
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
PLEASE READ THIS SECTION AUTHORIZATION
BEFORE YOU SIGN THIS FORM By signing in Section 17 below you authorize us to:
(continued)
o obtain information from any physician, hospital or other health care
provider, insurance company, the Medical Information Bureau, or any
other organization, institution or person with records or knowledge of you
or your health, including information that is not health-related, that might
effect your insurability or the insurability of your minor children who are to
be insured by this policy.
o share that information with our reinsurers and other insurance companies
to which you may apply for life or health insurance.
o obtain consumer investigative reports, if necessary.
This authorization is valid for 2-1/2 years from the date you sign below. A
photocopy of this document is as valid as the original.
ACKNOWLEDGMENT
By signing in Section 17 below, you also acknowledge that you have received a
copy of the prospectus, the Fair Credit Reporting Act and Medical Information
Bureau notices. If you are applying for Estate Investor I or Estate Investor II
and the Accelerated Death Benefit Rider is available in your jurisdiction, you
acknowledge receipt of the disclosure statement for the Rider.
CERTIFICATION (FOR NEW ISSUES ONLY)
Under penalty of perjury you certify that the information in Section 13 is true,
and the social security and taxpayer ID numbers in Sections 1, 2 and 4 of this
application are correct.
---------------------------------------------------------------------------------------------------------------------------
[17] PLEASE SIGN HERE AFTER YOU Proposed Insured #1 (or parent/guardian if under age 15)
HAVE READ SECTION 16
Print name Signature
If the owner is signing
on behalf of a trust or Proposed Insured #2 (or parent/guardian if under age 15)
corporation, the title must
appear after the name Print name Signature
(e.g., Jane Smith, Trustee)
Policy owner (if other than above)
If there is more than one
owner, all must sign in Print name (include title if appropriate) Signature
this section.
Policy co-owner
Print name (include title if appropriate) Signature
Licensed Company Representative (Financial Consultant or Estate Planning
and Business Insurance Specialist)
Print name Signature
Signed at:
City State Date (m/d/y)
</TABLE>
page 6 of 10
<PAGE> 7
<TABLE>
<CAPTION>
Life Insurance
Application
Part 1
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[18] FINANCIAL CONSULTANT/ 1. Has a current prospectus been given to the policy owner? [ ] Yes [ ] No
ESTATE PLANNING AND
BUSINESS INSURANCE 2. To the best of your knowledge, is the policy replacing or
SPECIALIST ("EPBIS") changing an existing life insurance policy or annuity? [ ] Yes [ ] No
REPORT (If your client is buying this policy using a loan from
an existing policy, it is considered a replacement.)
This section must be
completed and signed by both By signing below the undersigned confirm that they believe the coverage
the Financial Consultant and is suitable, and the values, benefits and costs of the insurance suit the
the EPBIS before the objectives of the policy owner and those being insured by this policy.
application can be processed.
Complete this section for Print name of Financial Consultant Social Security Number Branch office
new applications only.
Signature of Financial Consultant Date (m/d/y)
Print name of EPBIS Social Security Number Branch office
Signature of EPBIS Date (m/d/y)
-------------------------------------------------------------------------------------------------------------
FOR MERRILL LYNCH USE ONLY
This section is for corrections.
</TABLE>
[MERRILL LYNCH LOGO]
Merrill Lynch Life Insurance Company
Little Rock, Arkansas
page 7 of 10
<PAGE> 1
<TABLE>
<CAPTION>
Life Insurance
Application
Part 2
Answer these medical questions only after you
have completed Part 1 of the application. If two
people are being insured by this policy, each
person must complete a separate form.
If you need more space for any of these
questions, please use the Comments section
at the end of this application.
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
In this form, the terms you and your Merrill Lynch Account Number: Policy Number
refer to the person to be insured
by the policy. The terms we, our
and us refer to the Merrill Lynch Life
Insurance Company.
-------------------------------------------------------------------------------------------------------------------
[1] PLEASE TELL US ABOUT YOURSELF Your name (first, middle, last)
Permanent residence address (street name and number)
City State Zip Code
Social Security Number Sex Marital status
Date of birth (m/d/y) Place of birth (city, state)
-------------------------------------------------------------------------------------------------------------------
[2] TELL US ABOUT YOUR TRAVELS A. Do you plan to travel or reside outside the U.S.
or Canada in the next two years? [ ] Yes [ ] No
If yes, please tell us where, why and how long
you intend to stay.
-------------------------------------------------------------------------------------------------------------------
[3] TELL US ABOUT YOUR OTHER B. Have you applied for life insurance with any
INSURANCE POLICIES other company within the last 90 days? [ ] Yes [ ] No
If yes, please list the company, face amount,
reason you applied for each policy, and status
of the application.
</TABLE>
[MERRILL LYNCH LOGO]
Merrill Lynch Life Insurance Company
Little Rock, Arkansas
page 1 of 6
<PAGE> 2
<TABLE>
<CAPTION>
Life Insurance
Application
Part 2
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELL US ABOUT YOUR OTHER C. Do you have other life insurance policies in force? [ ] Yes [ ] No
INSURANCE POLICIES If yes, please complete the following:
(continued)
Company Face amount Date issued (m/y)
Company Face amount Date issued (m/y)
If you need more space, please use the Comments
section at the end of this application.
D. Have you ever been refused life or health insurance
or been asked to pay extra premiums for a modified
or rated policy? [ ] Yes [ ] No
If yes, please list the company, date of each
application, and the decision made by the company.
-------------------------------------------------------------------------------------------------------------
[4] TELL US ABOUT YOUR E. What is your driver's license number?
DRIVING HISTORY AND
RECREATIONAL ACTIVITIES Driver's license number State
F. In the past three years have you had any motor vehicle
accidents or violations, or had your driver's license
suspended or revoked? [ ] Yes [ ] No
If yes, please list all dates with each violation.
G. In the past three years have you flown as pilot or
crew member, or do you plan to in the future? [ ] Yes [ ] No
If yes, please complete an Aviation Questionnaire.
H. In the past three years have you been skin diving,
scuba diving, sky diving, hang gliding, raced motor
vehicles, motorcycles or motor boats, or participated
in other hazardous sports or activities, or do you plan
to in the future? [ ] Yes [ ] No
If yes, please complete the questionnaire for the
specific activity.
</TABLE>
Page 2 of 6
<PAGE> 3
<TABLE>
<CAPTION>
Life Insurance
Application
Part 2
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[5] TELL US ABOUT I. i) Do you use tobacco in any form? [ ] Yes [ ] No
YOUR HEALTH If yes, please list the kind of tobacco you use, how much
you use, and how often you use it.
ii) If no, have you ever used tobacco in any form? [ ] Yes [ ] No
If yes, please list the kind of tobacco you used and
when you last used it.
J. Have you ever used drugs other than as prescribed by a
physician, been treated, or been advised to have counseling
or treatment for alcohol or drugs? [ ] Yes [ ] No
If yes, please list the substance you used, the date you had
treatment or counseling, the name and addres of your
physician and/or treatment center or counselor, and the
date you last used the substance.
K. i) What is your height? Your weight?
Feet/inches pounds
ii) Has your weight changed by more than 10 pounds
in the last year? [ ] Yes [ ] No
If yes, please tell us how much you have gained
or lost and why?
[ ] gained pounds Reason
[ ] lost
L. Has anyone in your immediate family (parents, brothers,
sisters), been diagnosed with or died from cardiovascular
disease before age 60? [ ] Yes [ ] No
If yes, please list each family member and the age when
diagnosed or death occurred.
</TABLE>
page 3 of 6
<PAGE> 4
<TABLE>
<CAPTION>
Life Insurance
Application
Part 2
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TELL US ABOUT M. Who is your personal physician or health care provider?
YOUR HEALTH
(continued) Name
Address Phone number
( )
Reason for last visit Date of last visit (m/y)
N. Are you under medical observation, receiving treatment
or taking medication? [ ] Yes [ ] No
If yes, please complete the following.
Medication or treatment Reason
Name and address of prescribing physician or health care provider Phone number
( )
Date of last visit (m/y)
Medication or treatment Reason
Name and address of prescribing physician or health care provider Phone number
( )
Date of last visit (m/y)
O. i) Other than as previously stated in this application,
in the last 10 years have you consulted a physician
or health care provider? [ ] Yes [ ] No
If yes, please complete the following.
Name and address of physician or health care provider Phone number
( )
Reason/diagnosis Date (m/y)
Name and address of physician or health care provider Phone number
( )
Reason/diagnosis Date (m/y)
</TABLE>
page 4 of 6
<PAGE> 5
<TABLE>
<CAPTION>
Life Insurance
Application
Part 2
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TELL US ABOUT ii) Other than as previously stated in this application, in
YOUR HEALTH the last 10 years have you had any electrocardiograms,
(continued) blood tests or other medical tests? [ ] Yes [ ] No
If yes, please complete the following:
Name and address of physician or health care provider Phone number
( )
Test/reason/results/diagnosis Date (m/y)
Name and address of physician or health care provider Phone number
( )
Test/reason/results/diagnosis Date (m/y)
P. Have you been hospitalized in the last 10 years other than
as previously stated in this application? [ ] Yes [ ] No
If yes, please complete the following: Do not include
normal pregnancies.
Name and address of hospital
Reason/diganosis Date (m/y)
Name and address of attending physician Phone number
( )
Name and address of hospital
Reason/diganosis Date (m/y)
Name and address of attending physician Phone number
( )
Q. During the past 10 years have you been diagnosed
for any disorders of the immune system, including
Acquired Immune Deficiency Syndrome (AIDS) or
AIDS-Related Complex (ARC)?
If yes, please provide details. [ ] Yes [ ] No
</TABLE>
page 5 or 6
<PAGE> 6
<TABLE>
<CAPTION>
Life Insurance
Application
Part 2
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELL US ABOUT R. Do you have any health impairment, disability
YOUR HEALT or disease not already described in this application? [ ] Yes [ ] No
(continued) If yes, please provide details.
-----------------------------------------------------------------------------------------------------------
COMMENTS AND
ADDITIONAL INFORMATION
-----------------------------------------------------------------------------------------------------------
[6] PLEASE READ THIS SECTION AGREEMENT
BEFORE YOU SIGN BELOW Your signature below confirms that you have read all of the questions
and answers in this application and its supplements (if any). To the best
of your knowledge, they are true and complete and may be relied upon
when deciding whether to issue the policy.
You agree to tell the company if your health or habits change from
what you have stated here, before the policy is issued and the first
premium is paid.
Parts 1 and 2 of this application will become part of your insurance policy.
Merrill Lynch Life Insurance Company's rights or requirements cannot be
modified or waived by any medical examiner or registered representative.
-----------------------------------------------------------------------------------------------------------
[7] PLEASE SIGN HERE Proposed Insured (or parent/guardian if under age 15)
Print name of proposed insured Signature of proposed insured
---------------------------------
Witness
Print name of witness Signature of witness
----------------------------------
Date (m/d/y)
[MERRILL LYNCH LOGO]
Merrill Lynch Life Insurance Company
Little Rock Arkansas
</TABLE>
page 6 of 6
<PAGE> 1
<TABLE>
<CAPTION>
Life Insurance
Temporary Insurance
Agreement
Complete this form if you are paying a premium with
your application, either by check or automatically
from you CMA account.
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
[1] READ THIS FIRST Please do not pay a premium or include this agreement with your
application if:
In the sections below, the terms o insurance coverage is to exceed one million dollars, or
you and your refer to the policy o either question in Section 7 of this agreement is left unanswered, or
owner. The terms we, our and us o either question is answered "yes."
refer to Merrill Lynch Life
Insurance Company.
----------------------------------------------------------------------------------------------------------------------------
[2] OUR ACKNOWLEDGMENT We acknowledge that we have received the premium indicated in Section 6
of this agreement. Subject to the information in Sections 3, 4, 5 and 7 of
this agreement and to the terms of the policy you have applied for, we agree
to provide temporary life insurance covereage under this agreement.
----------------------------------------------------------------------------------------------------------------------------
[3] COVERAGE PROVIDED BY If those to be insured by the policy die while this agreement is in effect,
THIS AGREEMENT the beneficiary you named in your policy application will receive whichever
is lowest of the following:
o the amount of coverage provided by the policy you applied for, or
o $300,000.
If we have issued you more than one temporary insurance agreement, total
coverage under all of them will not exceed $300,000. The payment, along
with any premium you paid for insurance coverage over $300,000, will be
divided equally between all the beneficiaries listed on the applications we
are reviewing.
----------------------------------------------------------------------------------------------------------------------------
[4] WHEN THE COVERAGE Coverage begins on the latest of the following:
BEGINS AND ENDS o the day you give us your application and your premium, or
o the day you give us your application and your permission to transfer
funds in a form satisfactory to us.
Coverage ends on the earliest of the following:
o the day you accept your policy
o 90 days from the day temporary coverage began
o the day you call us or write us, asking us to cancel or withdraw
the application
o five days after we mail a notice telling you that your policy has not
been approved
o the day we refund your premium to you for any reason, or
o the day we offer you a policy other than the one you applied for.
</TABLE>
[MERRILL LYNCH LOGO]
Merrill Lynch Life Insurance Company
Little Rock, Arkansas
page 7 of 8
<PAGE> 2
<TABLE>
<CAPTION>
Life Insurance
Temporary Insurance
Agreement
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<S> <C>
[5] LIMITATIONS ON THE COVERAGE Those to be insured by the policy will not be covered by this temporary
insurance agreement if:
o your bank does not honor your check
o funds are not available to cover the full amount of the premium when we
request a transfer from your account
o any of those to be insured by the policy do not answer the questions in
section 7 truthfully.
If any of those to be insured by the policy commit suicide while this
temporary insurance agreement is in effect, they will not be covered by
this agreement, and your premium will be refunded to you.
-------------------------------------------------------------------------------------------------------------------------
[6] PLEASE TELL US ABOUT Proposed Insured #1 Proposed Insured #2
YOUR POLICY
Premium amount paid with this application Date of your application
for life insurance
The following sections must be completed by those to be insured by the policy.
-------------------------------------------------------------------------------------------------------------------------
[7] PLEASE ANSWER THESE Proposed Proposed
HEALTH QUESTIONS Insured #1 Insured #2
1. Are you over the age of 75? [ ] Yes [ ] No [ ] Yes [ ] No
If any question is left
unanswered or checked 2. During the last two years, have you been
"yes," do not include this treated for heart trouble, stroke, cancer,
form or a check with the acquired immune deficiency syndrome (AIDS),
life insurance application. or AIDS related complex (ARC)? [ ] Yes [ ] No [ ] Yes [ ] No
-------------------------------------------------------------------------------------------------------------------------
[8] PLEASE SIGN HERE Proposed insured #1 Proposed Insured #2
(or parent/guardian if under age 15) (or parent/guardian if under age 15)
Be sure to read both sides of Signature Signature
this form before signing here.
------------------------------------- ------------------------------------
Financial Consultant/Witness:
Signature
-------------------------------------
Signed at:
City State Date (m/d/y)
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[9] THIS IS A TWO-PART FORM This is a two-part form. The original goes to the policy owner; we keep
the duplicate.
/s/ ANTHONY J. VESPA
------------------------------
Anthony J. Vespa, President
</TABLE>
page 8 of 8
<PAGE> 1
April 25, 1995
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. 5 to
the Registration Statement on Form S-6 (the "Registration Statement") (File No.
33-55678) filed by the Company and the Account with the Securities and Exchange
Commission under the Securities Act of 1933 for the registration of the
Contracts to be issued with respect to the Account.
I have made such examination of the law and examined such corporate records and
such other documents as in my judgment are necessary and appropriate to enable
me to render the following opinion that:
1. The Company has been duly organized under the laws of the State of
Arkansas and is a validly existing corporation.
2. The Contracts, when issued in accordance with the prospectus contained
in the aforesaid registration statement and upon compliance with applicable
local law, will be legal and binding obligations of the Company in
accordance with their terms.
3. The Account is duly created and validly existing as a separate account
pursuant to the aforesaid provisions of Arkansas law.
4. The assets held 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.
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
April 25, 1995
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. 5 to the Registration Statement on Form S-6 (File No. 33-55678)
which covers premiums received under certain flexible premium variable life
insurance contracts ("Contracts" or "Contract") issued by Merrill Lynch Life
Insurance Company (the "Company").
The Prospectus included in the Registration Statement describes Contracts which
are issued by the Company. The Contract forms were reviewed under my direction,
and I am familiar with the Registration Statement and exhibits thereto. In my
opinion:
1. The "sales load," as defined in paragraph (c)(4) of Rule 6(e)-3(T) under
the Investment Company Act of 1940, will not exceed 9% of the sum of the
guideline annual premiums that would be paid during the period equal to the
lesser of 20 years or the anticipated life expectancy of the named insured
based on the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker
Mortality Table (or the 1980 Commissioners Standard Ordinary Aggregate
Mortality Table for ages 0-19). The sales load on payments made in excess
of such sum will not exceed 9%. Sales load in excess of (1) 30% of payments
made which are less than or equal to one guideline annual premium; plus (2)
10% of payments greater than one but no greater than two guideline annual
premiums; plus (3) 9% of payments in excess of two guideline annual
premiums, will be refunded if the Contract is surrendered 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.
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
<PAGE> 2
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
2
<PAGE> 1
[Letterhead]
CONSENT OF SUTHERLAND, ASBILL & BRENNAN
We consent to the reference to our firm under the heading "Legal Matters" in the
prospectus included in Post-Effective Amendment No. 5 to the Registration
Statement on Form S-6 for certain variable universal life insurance contracts
issued through Merrill Lynch Variable Life Separate Account of Merrill Lynch
Life Insurance Company (File No. 33-55678). In giving this consent, we do not
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
/s/ Sutherland, Asbill & Brennan
SUTHERLAND, ASBILL & BRENNAN
Washington, D.C.
April 25, 1995
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 5 to Registration
Statement No. 33-55678 of Merrill Lynch Variable Life Separate Account on Form
S-6 of our reports on (i) Merrill Lynch Life Insurance Company dated February
27, 1995, and (ii) Merrill Lynch Variable Life Separate Account dated February
8, 1995, 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.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 25, 1995
