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PROSPECTUS
MAY 1, 1996
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: LITTLE ROCK, ARKANSAS 72201
SERVICE CENTER: P.O. BOX 9025
SPRINGFIELD, MASSACHUSETTS 01102-9025
1414 MAIN STREET
SPRINGFIELD, MASSACHUSETTS 01144-1007
PHONE: (800) 354-5333
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This Prospectus is for a flexible premium variable life insurance contract (the
"Contract") offered by Merrill Lynch Life Insurance Company ("Merrill Lynch
Life"), a subsidiary of Merrill Lynch & Co., Inc. It describes contracts which,
at the time of issue, are modified endowment contracts under federal tax law. A
prospective contract owner who wants to purchase a contract that is not a
modified endowment contract should consult a Merrill Lynch registered
representative. Because the Contract is a modified endowment contract, any loan,
partial withdrawal or surrender may result in adverse tax consequences and/or
penalties. However, a contract owner should not be considered in constructive
receipt of the cash surrender value of the Contract, including increases, unless
and until he or she is in actual receipt of distributions from the Contract.
The initial payment will be invested only in the investment division of the
Separate Account investing in the Money Reserve Portfolio. After the "free look"
period, the contract owner may select up to any five of the 34 investment
divisions of Merrill Lynch Variable Life Separate Account (the "Separate
Account"), a Merrill Lynch Life separate investment account available under the
Contract. The investments available through the investment divisions include 10
mutual fund portfolios of the Merrill Lynch Series Fund, Inc., seven mutual fund
portfolios of the Merrill Lynch Variable Series Funds, Inc. and 17 unit
investment trusts in The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities. Currently, the contract owner may change his or her investment
allocation as many times as desired.
The Contract provides an estate benefit through life insurance coverage on the
insured. Merrill Lynch Life guarantees that coverage will remain in force for
life, or for a shorter time if the face amount chosen is above the minimum face
amount required for that payment. During this guarantee period, Merrill Lynch
Life will terminate the Contract only if the debt exceeds certain contract
values. After the guarantee period, the Contract will remain in force as long as
there is not excessive debt and as long as the cash surrender value is
sufficient to cover the charges due. While the Contract is in force, the death
benefit may vary to reflect the investment results of the investment divisions
chosen, but will never be less than the current face amount.
Contract owners may also purchase a Contract to provide insurance coverage on
the lives of two insureds with proceeds payable upon the death of the last
surviving insured.
Contract owners may make additional payments subject to certain conditions,
change the face amount of their Contract, turn in the Contract for its net cash
surrender value and make partial withdrawals. The net cash surrender value will
vary with the investment results of the investment divisions chosen. Merrill
Lynch Life doesn't guarantee any minimum cash surrender value.
It may not be advantageous to replace existing insurance with the Contract.
Within certain limits, the Contract may be returned or exchanged for a contract
with benefits that do not vary with the investment results of a separate
account.
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
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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 under the Contract are also generally taxable and subject to
the 10% federal penalty tax if taken before age 59 1/2.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT MUST BE
ACCOMPANIED BY CURRENT PROSPECTUSES FOR THE MERRILL LYNCH SERIES FUND, INC., THE
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND THE MERRILL LYNCH FUND OF STRIPPED
("ZERO") U.S. TREASURY SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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IMPORTANT TERMS.............................................................. 5
SUMMARY OF THE CONTRACT
Purpose of the Contract.................................................... 6
Availability and Payments.................................................. 6
Joint Insureds............................................................. 6
CMA-Registered Trademark- Insurance Service................................ 7
The Investment Divisions................................................... 7
How the Death Benefit Varies............................................... 7
How the Investment Base Varies............................................. 7
Net Cash Surrender Value and Cash Surrender Value.......................... 7
Illustrations.............................................................. 7
Replacement of Existing Coverage........................................... 8
Right to Cancel ("Free Look" Period) or Exchange........................... 8
How Death Benefit and Cash Surrender Value Increases are Taxed............. 8
Partial Withdrawals........................................................ 8
Loans...................................................................... 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............................................................ 10
The Variable Series Funds.................................................. 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......................................................... 13
Initial Payment............................................................ 13
Making Additional Payments................................................. 14
Changing the Face Amount................................................... 16
Investment Base............................................................ 16
Charges Deducted from the Investment Base.................................. 17
Charges to the Separate Account............................................ 19
Guarantee Period........................................................... 20
Net Cash Surrender Value................................................... 20
Partial Withdrawals........................................................ 21
Loans...................................................................... 21
Death Benefit Proceeds..................................................... 23
Payment of Death Benefit Proceeds.......................................... 23
Right to Cancel ("Free Look" Period) or Exchange........................... 24
Reports to Contract Owners................................................. 24
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MORE ABOUT THE CONTRACT
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Using the Contract......................................................... 24
Some Administrative Procedures............................................. 26
Other Contract Provisions.................................................. 27
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.......................................... 33
Reinsurance................................................................ 33
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account................................................. 33
Changes Within the Account................................................. 33
Net Rate of Return for an Investment Division.............................. 34
The Series Fund and the Variable Series Funds.............................. 34
Charges to Series Fund Assets.............................................. 35
Charges to Variable Series Fund Assets..................................... 36
The Zero Trusts............................................................ 36
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Cash Surrender Values and
Accumulated Payments...................................................... 37
EXAMPLES
Additional Payments........................................................ 44
Changing the Face Amount................................................... 44
Partial Withdrawals........................................................ 45
JOINT INSUREDS............................................................... 46
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
Directors and Executive Officers........................................... 49
Services Arrangement....................................................... 49
State Regulation........................................................... 50
Legal Proceedings.......................................................... 50
Experts.................................................................... 50
Legal Matters.............................................................. 50
Registration Statements.................................................... 50
Financial Statements....................................................... 50
Financial Statements of Merrill Lynch Variable Life Separate Account....... S-1
Financial Statements of Merrill Lynch Life Insurance Company............... G-1
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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IMPORTANT TERMS
ADDITIONAL PAYMENT: is a payment which may be made after the "free look"
period.
ATTAINED AGE: is the issue age of the insured plus the number of full years
since the contract date.
CASH SURRENDER VALUE: is equal to the net cash surrender value plus any debt.
CONTRACT ANNIVERSARY: is the same date of each year as the contract date.
CONTRACT DATE: is used to determine processing dates, contract years and
anniversaries. It is usually the business day next following the receipt of the
initial payment at the Service Center. It is also referred to as the policy
date.
DEATH BENEFIT: is the larger of the face amount and the variable insurance
amount.
DEATH BENEFIT PROCEEDS: are equal to the death benefit less any debt and less
any overdue charges.
DEBT: is the sum of all outstanding loans on a Contract plus accrued interest.
DEFERRED CONTRACT LOADING: is chargeable to all payments for sales load,
federal tax and premium tax charges. Merrill Lynch Life advances the amount of
the loading to the divisions as part of the investment base. This loading is
then deducted in equal installments on the next ten contract anniversaries
following the date the initial payment is received and accepted. Merrill Lynch
Life deducts the balance of the deferred contract loading not yet recouped in
determining a Contract's net cash surrender value.
FACE AMOUNT: is the minimum death benefit as long as the Contract remains in
force. The face amount will change if the change in face amount option is
chosen; it may increase as a result of an additional payment; or it may decrease
as a result of a partial withdrawal.
FIXED BASE: is calculated like the cash surrender value except that 4% is
substituted for the net rate of return, the guaranteed maximum cost of insurance
rates are substituted for current rates and loans and repayments are not taken
into account.
GUARANTEE PERIOD: is the time guaranteed that the Contract will remain in force
regardless of investment experience, unless the debt exceeds certain values. It
is the period that a comparable fixed life insurance contract (same face amount,
payments made, guaranteed mortality table and loading) would remain in force if
credited with 4% interest per year.
IN FORCE DATE: is the date when the underwriting process is complete, the
initial payment is received and outstanding contract amendments (if any) are
received.
INITIAL PAYMENT: is the payment required to put the Contract into effect.
INVESTMENT BASE: is the amount available under a Contract for investment in the
Separate Account at any time. A contract owner's investment base is the sum of
the amounts invested in each of the selected investment divisions.
INVESTMENT DIVISION: is any division in the Separate Account.
ISSUE AGE: is the insured's age as of his or her birthday nearest the contract
date.
NET AMOUNT AT RISK: is the excess of the death benefit over the cash surrender
value.
NET CASH SURRENDER VALUE: is equal to the investment base less the balance of
any deferred contract loading not yet recouped and, depending on the date it is
calculated, less all or a portion of certain other charges not yet deducted.
NET SINGLE PREMIUM FACTOR: is used to determine the amount of death benefit
purchased by $1.00 of cash surrender value. Merrill Lynch Life uses this factor
in the calculation of the variable insurance amount to make sure that the
Contract always meets the guidelines of what constitutes a life insurance
contract under the Internal Revenue Code.
PROCESSING DATES: are the contract date and the first day of each contract
quarter thereafter. Processing dates after the contract date are the days when
Merrill Lynch Life deducts charges from the investment base.
PROCESSING PERIOD: is the period between consecutive processing dates.
VARIABLE INSURANCE AMOUNT: is computed daily by multiplying the cash surrender
value by the net single premium factor.
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SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACT
This variable life insurance contract offers a choice of investments and an
opportunity for the Contract's investment base, net cash surrender value and
death benefit to grow based on investment results.
Merrill Lynch Life doesn't guarantee that contract values will increase.
Depending on the investment results of selected investment divisions, the
investment base, net cash surrender value and death benefit may increase or
decrease on any day. The contract owner bears the investment risk. Merrill Lynch
Life guarantees to keep the Contract in force during the guarantee period,
subject to the effect of any debt.
Life insurance is not a short term investment. The contract owner should
evaluate the need for insurance and the Contract's long term investment
potential and risks before purchasing a Contract.
The Contract should be purchased as a long-term investment designed to provide a
death benefit. The Contract's net cash surrender value, as well as its death
benefit, may be used to provide proceeds for various individual and business
planning purposes. However, loans and partial withdrawals will affect the net
cash surrender value and death benefit proceeds, and may cause the Contract to
lapse; in addition, loans and partial withdrawals may be currently taxable. If
the performance of the investment divisions to which investment base is
allocated is not sufficient to provide funds for the specific planning purpose
contemplated, or if insufficient payments are made or Contract values
maintained, then the purchaser may not be able to utilize the Contract to
achieve the purposes for which it was purchased. Because the Contract is
designed to provide benefits on a long-term basis, before purchasing a Contract
in connection with a specialized purpose, a purchaser should consider whether
the long-term nature of the Contract, and the potential impact of any
contemplated loans and partial withdrawals, are consistent with the purposes for
which the Contract is being considered. Using a Contract for a specialized
purpose may have tax consequences. (See "Tax Considerations.")
AVAILABILITY AND PAYMENTS
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. A Contract may be issued for an insured up to age 75 (or up to age 80
for joint insureds). Merrill Lynch Life will consider issuing Contracts for
insureds above age 75 on an individual basis. A Contract can be purchased with a
single payment. The minimum single payment for a Contract is the lesser of (a)
$5,000 for an insured under age 20 and $10,000 for an insured age 20 and over,
or (b) the payment required to purchase a face amount of at least $100,000 (but
that payment may not be less than $2,000).
Subject to state regulation, contract owners may elect to pay planned periodic
payments instead of a single payment. If so, the minimum initial planned
periodic payment is $2,000 provided that the initial payment plus the planned
payments elected in the application will total $10,000 or more during the first
five contract years.
Merrill Lynch Life will not accept an initial payment that provides a guarantee
period of less than one year.
Subject to certain conditions, contract owners may make additional payments (See
"Making Additional Payments" on page 14.)
The Contract is not available to insure residents of certain municipalities in
Kentucky where premium taxes in excess of a certain level are imposed.
For joint insureds, see modifications to this section on page 46.
JOINT INSUREDS
The Contract is also available to provide coverage on the lives of two insureds
with a death benefit payable on the death of the last surviving insured. Most of
the discussions in this Prospectus referencing a single insured may also be read
as though the single insured were the two insureds under a joint Contract. Those
discussions which are different for joint insureds are noted accordingly. (See
"Joint Insureds" on page 46.)
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CMA-REGISTERED TRADEMARK- INSURANCE SERVICE
Contract owners who subscribe to the Merrill Lynch Cash Management
Account-Registered Trademark- financial service ("CMA account") may elect to
have their Contract linked to their CMA account electronically. Certain
transactions will be reflected in monthly CMA account statements. Payments may
be transferred to and from the Contract through a CMA account.
THE INVESTMENT DIVISIONS
The initial payment will be invested only in the investment division of the
Separate Account investing in the Money Reserve Portfolio. After the "free look"
period, the contract owner may select up to five of the 34 investment divisions
in the Separate Account. (See "Changing the Allocation" on page 17.)
Payments are invested in investment divisions of the Separate Account. Ten
investment divisions of the Separate Account invest exclusively in shares of
designated mutual fund portfolios of the Merrill Lynch Series Fund, Inc. (the
"Series Fund"). Seven 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 17 investment
divisions invest in units of designated unit investment trusts in The Merrill
Lynch Fund of Stripped ("Zero") U.S. Treasury Securities (the "Zero Trusts").
The contract owner's payments are not invested directly in the Series Fund, the
Variable Series Funds or the Zero Trusts.
HOW THE DEATH BENEFIT VARIES
The death benefit equals the face amount or variable insurance amount, whichever
is larger. It may increase or decrease on any day depending on the investment
results of the investment divisions chosen by the contract owner. Death benefit
proceeds are reduced by any debt.
HOW THE INVESTMENT BASE VARIES
A Contract's investment base is the amount available for investment at any time.
On the contract date (usually the business day next following receipt of the
initial payment at the Service Center), the investment base is equal to the
initial payment. Afterwards, it varies daily based on investment performance of
the investment divisions chosen. The contract owner bears the risk of poor
investment performance and receives the benefit of favorable investment
performance. Contract owners may wish to consider diversifying their investment
in the Contract by allocating investment base to two or more investment
divisions.
NET CASH SURRENDER VALUE AND CASH SURRENDER VALUE
Contract owners may surrender their Contracts at any time and receive the net
cash surrender value. On a contract anniversary, the net cash surrender value
equals the investment base minus the balance of any deferred contract loading
not yet deducted. The net cash surrender value varies daily based on investment
performance of the investment divisions chosen and accrual of contract charges.
Merrill Lynch Life doesn't guarantee any minimum net cash surrender value.
For purposes of certain computations under the Contract, Merrill Lynch Life uses
the cash surrender value. It is calculated by adding the amount of any debt to
the net cash surrender value.
ILLUSTRATIONS
Illustrations in this Prospectus or used in connection with the purchase of the
Contract are based on hypothetical investment rates of return. These rates are
not guaranteed. They are illustrative only and should not be deemed a
representation of past or future performance. Actual rates of return may be more
or less than those reflected in the illustrations and, therefore, actual values
will be different than those illustrated.
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Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
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REPLACEMENT OF EXISTING COVERAGE
Before purchasing a Contract, the contract owner should ask his or her Merrill
Lynch registered representative if changing, or adding to, current insurance
coverage would be advantageous. Generally, it is not advisable to purchase
another contract as a replacement for existing coverage. In particular,
replacement should be carefully considered if the decision to replace existing
coverage is based solely on a comparison of contract illustrations.
RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR EXCHANGE
Once the contract owner receives the Contract, he or she should review it
carefully to make sure it is what he or she intended to purchase. Generally, a
Contract may be returned for a refund within ten days after the contract owner
receives it. Some states allow a longer period of time to return the Contract.
If required by the contract owner's state, the Contract may be returned within
the later of ten days after receiving it and 45 days from the date the
application is completed. If the Contract is returned during the "free look"
period, Merrill Lynch Life will refund the payment without interest.
A contract owner may also exchange his or her Contract within 18 months for a
contract with benefits that do not vary with the investment results of a
separate account.
HOW DEATH BENEFIT AND CASH SURRENDER VALUE INCREASES ARE TAXED
Under current federal tax law, life insurance contracts receive tax-favored
treatment. The death benefit is fully excludable from the beneficiary's gross
income for federal income tax purposes, according to Section 101(a)(1) of the
Internal Revenue Code. A contract owner is not taxed on any increase in the cash
surrender value while a life insurance contract remains in force. In most cases,
the Contract will be a modified endowment contract. If a Contract is a modified
endowment contract, certain distributions made during an insured's lifetime,
such as loans and partial withdrawals from, and collateral assignments of, the
Contract are includable in gross income on an income-first basis. A 10% penalty
tax may be imposed on income distributed before the contract owner attains age
59 1/2. Contracts that are not modified endowment contracts receive preferential
tax treatment with respect to certain distributions. For a discussion of the tax
issues associated with this Contract, including distributions under the
Contract, see "Tax Considerations" on page 30.
PARTIAL WITHDRAWALS
After a Contract has been in force for one year, the contract owner may withdraw
up to 80% of the net cash surrender value. (See "Partial Withdrawals" on page
21.)
LOANS
A contract owner may borrow against his or her Contract. The maximum amount that
can be borrowed at any time is the difference between the loan value and the
debt. (See "Loans" on page 21.)
Loans are deducted from the amount payable on surrender of the Contract and are
also subtracted from any death benefit payable. Loan interest accrues daily and,
if it is not repaid each year, it is capitalized and added to the debt. If the
Contract is a modified endowment contract, the amount of capitalized interest
will be treated as a taxable withdrawal. Depending upon investment performance
of the divisions and the amounts borrowed, loans may cause a Contract to lapse.
If the Contract lapses with a loan outstanding, adverse tax consequences may
result. (See "Tax Considerations" on page 30.)
FEES AND CHARGES
INVESTMENT BASE CHARGES. Merrill Lynch Life invests the entire amount of all
premium payments in the Separate Account. It then deducts certain charges from
the investment base on processing dates. The charges deducted are as follows:
- deferred contract loading equals 9% of each payment. It consists of a
sales load of 4.5%, a charge for federal taxes of 2% and a state and local
premium tax charge of 2.5%. For joint insureds the deferred contract
loading equals 11% of each payment and consists of a sales load of 6.5%, a
charge for federal taxes of 2% and a state and local premium tax charge of
2.5%. Deferred contract loading is deducted in equal installments of .90%
(1.1% for joint insureds) of each payment. The
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deduction is taken on the ten contract anniversaries following the date
Merrill Lynch Life receives and accepts the payment. However, Merrill
Lynch Life subtracts the balance of the deferred contract loading not yet
deducted in determining a Contract's net cash surrender value. Thus, this
balance is deducted in determining the amount payable on surrender of the
Contract.
- on all processing dates after the contract date, Merrill Lynch Life makes
deductions for mortality cost (see "Mortality Cost" on page 18); and
- on each contract anniversary, Merrill Lynch Life makes deductions for the
net loan cost if there has been any debt during the prior year. It equals
a maximum of 2.0% of the debt per year (see "Charges Deducted From the
Investment Base" on page 17).
SEPARATE ACCOUNT CHARGES. There are certain charges deducted daily from the
investment results of the investment divisions in the Separate Account. These
charges are:
- an asset charge designed to cover mortality and expense risks deducted
from all investment divisions, which is equivalent to .90% annually at the
beginning of the year; and
- a trust charge deducted from only those investment divisions investing in
the Zero Trusts, which is currently equivalent to .34% annually at the
beginning of the year and will never exceed .50% annually.
ADVISORY FEES. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 35 and "Charges to Variable Series Funds Assets on page 36.)
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 5.
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. Arkansas insurance law provides
that the Separate Account's assets, 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
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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 34 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Seven invest in shares of
a specific portfolio of the Variable Series Funds. Seventeen 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 Series Fund 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 to obtain the highest level of
current income consistent with the protection of capital afforded 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 to provide as high a level of
current income as is believed to be consistent with prudent investment risk, and
secondarily seeks the preservation of capital. In seeking to achieve these
objectives, the Portfolio invests at least 80% of the value of its assets in
debt securities which have a rating within the three highest grades of a major
rating agency.
HIGH YIELD PORTFOLIO primarily seeks as high a level of current income as is
believed to be consistent with prudent management, and secondarily capital
appreciation when consistent with its primary objective. The Portfolio seeks to
achieve its investment objective by investing principally in fixed income
securities rated in the lower categories of the established rating services or
in unrated securities of comparable quality (commonly known as "junk bonds").
CAPITAL STOCK PORTFOLIO seeks long-term growth of capital and income, plus
moderate current income. It 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, 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.
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The investment adviser for the Series Fund is Merrill Lynch Asset Management,
L.P. ("MLAM"), which is indirectly owned and controlled by Merrill Lynch & Co.,
Inc. and is a registered adviser under the Investment Advisers Act of 1940. The
Series Fund, as part of its operating expenses, pays an investment advisory fee
to MLAM. (See "Charges to Series Fund Assets" on page 35.)
THE VARIABLE SERIES FUNDS
The Variable Series Funds is registered with the Securities and Exchange
Commission as an open-end management investment company. Seven of its 18 mutual
fund portfolios are currently available through the separate account. The
investment objectives of the seven 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 provide shareholders with 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.
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, and
secondarily, income by investing in a diversified portfolio of equity securities
of issuers located 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 a high total investment return by investing in an
international portfolio of non-U.S. debt instruments denominated in various
currencies and multi-national currency units.
DEVELOPING CAPITAL MARKETS FOCUS FUND seeks 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.
EQUITY GROWTH FUND seeks to attain long-term growth of capital by investing in a
diversified portfolio of securiites, primarily 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 is the investment adviser for the Variable Series Funds. The Variable
Series Funds, as part of its operating expenses, pays an investment advisory fee
to MLAM. (See "Charges to Variable Series Funds Assets" on page 36.)
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 invests, entails relatively greater risk of loss of
income or principal. In an effort to minimize risk, the High Yield Portfolio
will diversify holdings among many issuers. However, there can be no assurance
that diversification will protect the High Yield Portfolio from widespread
defaults during periods of sustained economic downturn.
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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 no
established 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.
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 Zero Trusts 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 1997 through
2011, 2013 and 2014.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
Merrill Lynch & Co., Inc., is the sponsor for the Zero Trusts. The sponsor will
sell units of the Zero Trusts to the Separate Account and has agreed to
repurchase units when Merrill Lynch Life needs to sell them to pay benefits and
make reallocations. Merrill Lynch Life pays the sponsor a fee for these
transactions and is reimbursed through the trust charge assessed to the
divisions investing in the Zero Trusts. (See "Charges to Divisions Investing in
the Zero Trusts" on page 19.)
MERRILL LYNCH LIFE AND MLPF&S
Merrill Lynch Life is a stock life insurance company organized under the laws of
the State of Washington in 1986 and redomesticated under the laws of the State
of Arkansas in 1991. It is an indirect wholly owned subsidiary of Merrill Lynch
& Co., Inc. Merrill Lynch Life is authorized to sell life insurance and
annuities in 49 states, Guam, the U.S. Virgin Islands and the District of
Columbia. It is also authorized to sell variable life insurance and variable
annuities in most jurisdictions.
MLPF&S is a wholly owned subsidiary of Merrill Lynch & Co., Inc. and provides a
broad range of securities brokerage and investment banking services in the
United States. It provides marketing services for Merrill
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Lynch Life and is the principal underwriter of the Contracts issued through the
Separate Account. Merrill Lynch Life retains MLPF&S to provide services relating
to the Contracts under a distribution agreement. (See "Selling the Contracts" on
page 29.)
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
The Contract is available in most jurisdictions in which Merrill Lynch Life does
business. A Contract may be issued for an insured up to issue age 75. Merrill
Lynch Life will consider issuing Contracts for insureds above age 75 on an
individual basis. The insured's issue age is his or her age as of the birthday
nearest the contract date. The insured must meet Merrill Lynch Life's medical
and other underwriting requirements.
Merrill Lynch Life uses two methods of underwriting:
- simplified underwriting, with no physical exam; and
- para-medical or medical underwriting with a physical exam.
The initial payment plus any planned periodic payments elected and the age and
sex (except where unisex rates are required by state law) of the insured
determine whether Merrill Lynch Life will do underwriting on a simplified or
medical basis. The maximum initial payment plus any planned payments that will
be underwritten on a simplified basis is set out in the chart below:
<TABLE>
<CAPTION>
AGE MAXIMUM
---------------------------- ---------
<S> <C>
0-29....................... $ 25,000
30-39....................... 40,000
40-49....................... 50,000
50-59....................... 100,000
60-75....................... 120,000
</TABLE>
However, if the face amount is above the minimum face amount required for an
initial payment (see "Selecting the Initial Face Amount" on page 14), Merrill
Lynch Life will also take the net amount at risk into account in determining the
method of underwriting.
Merrill Lynch Life assigns insureds to underwriting classes which determine the
current cost of insurance rates used in calculating mortality cost deductions.
In assigning insureds to underwriting classes, Merrill Lynch Life distinguishes
between those insureds underwritten on a simplified basis and those on a para-
medical or medical basis. Under both the simplified and medical underwriting
methods, Contracts may be issued on insureds either in the standard or
non-smoker underwriting class. Contracts may also be issued on insureds in a
substandard underwriting class. For a discussion of the effect of underwriting
classification on mortality cost deductions, see "Mortality Cost" on page 18.
For joint insureds, see modifications to this section on page 46.
INITIAL PAYMENT
To purchase a Contract, the contract owner must complete an application and make
a payment. The payment is required to put the Contract into effect. This
Prospectus is for a Contract which is a modified endowment contract at the time
of issue. The minimum single payment for a Contract is the lesser of (a) $5,000
for an insured under age 20 and $10,000 for an insured age 20 and over, or (b)
the payment required to purchase a face amount of at least $100,000 (but that
payment may not be less than $2,000). Contract owners may make additional
payments which may, but need not be, under a periodic plan. (See "Making
Additional Payments" on page 14.)
Merrill Lynch Life will not accept an initial payment for a specified face
amount that will provide a guarantee period of less than one year.
Insurance coverage generally begins on the contract date, which is usually the
next business day following receipt of the initial payment at Merrill Lynch
Life's Service Center. Temporary life insurance coverage may be provided under
the terms of a temporary insurance agreement. In accordance with
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Merrill Lynch Life's underwriting rules, temporary life insurance coverage may
not exceed $250,000 and may not be in effect for more than 60 days. As provided
for under state insurance law the contract-owner, to preserve insurance age, may
be permitted to backdate the Contract. In no case may the contract date be more
than six months prior to the date the application was completed. Charges for
cost of insurance for the backdated period are deducted on the first processing
date after the contract date.
For joint insureds, see modifications to this section on page 46.
SELECTING THE INITIAL FACE AMOUNT. Contract owners purchase a face amount of
insurance with the initial payment. The face amount is based on the initial
payment less the deferred contract loading. For a given initial payment contract
owners may choose their initial face amount. The minimum face amount is the
amount which will provide a guarantee period for the whole of life. If the face
amount chosen is in excess of the minimum, the guarantee period will be shorter.
INITIAL GUARANTEE PERIOD. The initial guarantee period for a Contract will be
determined by the initial payment and face amount. The guarantee period is the
period of time Merrill Lynch Life guarantees that the Contract will remain in
force regardless of investment experience unless the debt exceeds certain
values. The guarantee period is based on the guaranteed maximum cost of
insurance rates in the Contract, the deferred contract loading and a 4% interest
assumption. This means that for a given initial payment and face amount
different insureds will have different guarantee periods depending on their age,
sex and underwriting class. For example, an older insured will have a shorter
guarantee period than a younger insured of the same sex and in the same
underwriting class.
MAKING ADDITIONAL PAYMENTS
After the end of the "free look" period, contract owners may make additional
payments. Payments may be made under a periodic plan. Payments may also be made
which are not under a periodic plan. In Kentucky, no additional payments may be
made until after the first contract year.
PAYMENTS WHICH ARE NOT UNDER A PERIODIC PLAN. Contract owners may make
additional payments which are not under a periodic payment plan provided the
attained age of the insured is not over 80. Additional payments may be made at
any time up to four times each contract year and must be submitted with an
Application for Additional Payment. The minimum Merrill Lynch Life will accept
for these payments is $500. They may be made whether or not the contract owner
is making planned payments.
Merrill Lynch Life may require satisfactory evidence of insurability before a
payment is accepted if the payment immediately increases the net amount at risk
under the Contract, if the contract owner is otherwise making planned payments
or if the guarantee period at the time of the payment is one year or less.
Currently, Merrill Lynch Life will not accept an additional payment which is not
under a periodic plan where the evidence of insurability would put the insured
in a different underwriting class with different guaranteed or higher current
cost of insurance rates.
If an additional payment requires evidence of insurability, Merrill Lynch Life
will invest that payment in the division investing in the Money Reserve
Portfolio. The additional payment will be invested in this division on the
business day next following receipt at the Service Center. Once the underwriting
is completed and the payment is accepted, the payment invested in the Money
Reserve Portfolio will automatically be allocated either according to
instructions or, if no instructions have been received, proportionately to the
investment base in the Contract's investment divisions.
PAYMENTS UNDER A PERIODIC PLAN. Contract owners may elect to make planned
periodic payments subject to the rules discussed below. They elect the amount,
duration and frequency of the payments but the minimum planned payment
(including the initial payment) is $2,000 per contract year and the amounts
elected must be level. In any one year the maximum amount of the planned
payments elected cannot exceed the initial payment. Currently, the duration of a
plan cannot exceed five years.
Under a periodic payment plan, as long as the initial payment plus the planned
payments elected will total $10,000 or more during the first five contract
years, the minimum initial payment is $2,000.
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Contract owners may elect a periodic plan in the application. The amount and
duration of the payments elected, as well as other factors, such as the face
amount specified and the insured's age and sex (except where unisex rates are
required by state law), will affect whether Merrill Lynch Life will do
underwriting on a simplified or medical basis. Once the elected plan is
approved, the planned payments may be made at any time without any additional
evidence of insurability unless it increases the face amount.
Contract owners may elect a periodic plan at a date later than in the
application. The amount and duration of the payments elected, as well as other
factors such as the current death benefit and the insured's age and sex (except
where unisex rates are required by state law), will affect whether Merrill Lynch
Life will require additional evidence of insurability. Currently, Merrill Lynch
Life will not allow the later election of a plan where additional evidence of
insurability would put the insured in a different underwriting class with
different guaranteed or higher current cost of insurance rates.
Contract owners may elect to make planned payments annually, semiannually or
quarterly. Payments may also be made on a monthly basis if the contract owner
authorizes Merrill Lynch Life to deduct the payment from his or her checking
account (pre-authorized checking) or to withdraw the payment from his or her CMA
account. Merrill Lynch Life reserves the right to change or discontinue payment
deduction procedures. If a contract owner has the CMA Insurance Service, planned
payments under any of the above frequencies may be withdrawn automatically from
his or her CMA account and transferred to his or her Contract. The withdrawals
will continue under the plan specified until Merrill Lynch Life is notified
otherwise. For planned payments not being made under pre-authorized checking or
withdrawn from a CMA account, Merrill Lynch Life will send the contract owner
reminder notices.
Merrill Lynch Life may require satisfactory evidence of insurability before the
contract owner will be permitted to make any payments under a periodic payment
plan if the payment increases the face amount of the Contract.
Contract owners may change the frequency, duration and the amount of planned
payments by sending a written request to the Service Center. They may request
one change in the amount, one change in the duration and one change in the
frequency of payments each contract year. Satisfactory evidence of insurability
may be required before the duration or the amount of planned payments can be
increased. The evidence requirements will be based on the amount of the increase
in payment and the duration, as well as other factors such as the current death
benefit and the insured's age and sex (except where unisex rates are required by
state law).
EFFECT OF ADDITIONAL PAYMENTS. Currently, any additional payment not requiring
evidence of insurability will be accepted the day it is received. On the date
Merrill Lynch Life receives and accepts an additional payment, whether under a
periodic plan or not, Merrill Lynch Life will:
- increase the Contract's investment base by the amount of the payment;
- increase the deferred contract loading (see "Deferred Contract Loading" on
page 18);
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount" on page 23); and
- increase the fixed base by the amount of the payment less the deferred
contract loading applicable to the payment (see "The Contract's Fixed
Base" on page 20).
If an additional payment requires evidence of insurability, once underwriting is
completed and the payment is accepted, acceptance will be effective, and the
additional payment will be reflected in contract values as described above, as
of the next business day after the payment is received at the Service Center.
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase either the guarantee period
or face amount or both. If the guarantee period prior to receipt and acceptance
of an additional payment is less than for life, payments will first be used to
extend the guarantee period. Any amount in excess of that required to extend the
guarantee period to the whole of life or any subsequent additional payment will
be used to increase the Contract's face amount.
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Merrill Lynch Life will determine the increase in face amount by taking any
excess amount or the additional payment, deducting the applicable deferred
contract loading, bringing the result up at an annual rate of 4% interest from
the date the additional payment is received and accepted to the next processing
date, and then multiplying by the applicable net single premium factor. If the
additional payment is received and accepted on a processing date, the payment
minus the deferred contract loading is multiplied by the applicable net single
premium factor. For a further discussion of the effect of additional payments on
a Contract's face amount, see "Additional Payments" in the Examples on page 44.
Unless specified otherwise, if there is any debt, any payment made, other than
planned payments, will be used first as a loan repayment with any excess applied
as an additional payment. (See "Loans" on page 21.)
For joint insureds, see the modifications to this section on page 46.
CHANGING THE FACE AMOUNT
After the first contract year, if the insured is in a standard or non-smoker
underwriting class, a contract owner may request a change in the face amount of
his or her Contract without making an additional payment, subject to the rules
and conditions discussed below. A change in face amount is not permitted if the
attained age of the insured is over 80. The minimum change in face amount is
$10,000 and only one change may be made each contract year. A change in face
amount may affect the mortality cost deduction. (See "Mortality Cost" on page
18.)
The effective date of the change will be the next processing date following the
receipt and acceptance of a written request, provided it is received at the
Service Center at least seven days before the processing date.
INCREASING THE FACE AMOUNT. To increase the face amount of a Contract, Merrill
Lynch Life may require satisfactory evidence of insurability. When the face
amount is increased, the guarantee period is decreased. The maximum increase in
face amount is the amount which will provide the minimum guarantee period for
which Merrill Lynch Life would issue a Contract at the time of the request based
on the insured's attained age. Currently, Merrill Lynch Life will not permit an
increase in face amount where evidence of insurability, if required, would put
the insured in a different underwriting class with different guaranteed or
higher current cost of insurance rates.
DECREASING THE FACE AMOUNT. When the face amount of a Contract is decreased,
the guarantee period is increased. The maximum decrease in face amount is that
decrease which would provide the minimum face amount for which Merrill Lynch
Life would issue a Contract at the time of the request based on the insured's
attained age, sex (except where unisex rates are required by state law) and
underwriting class. Merrill Lynch Life won't permit a decrease in face amount
below the amount required to keep the Contract qualified as life insurance under
federal income tax laws.
DETERMINING THE NEW GUARANTEE PERIOD. As of the effective date of any change in
face amount, Merrill Lynch Life takes the fixed base on that date and, based on
the attained age and sex (except where unisex rates are required by state law)
of the insured and the new face amount of the Contract, it redetermines the
guarantee period. A 4% interest assumption and the guaranteed maximum cost of
insurance rates is used in these calculations. For a discussion of the effect of
changes in the face amount on a Contract's guarantee period, see "Changing the
Face Amount" in the Examples on page 44.
For joint insureds, see the modifications to this section on page 46.
INVESTMENT BASE
A Contract's investment base is the amount available for investment at any time.
It is the sum of the amounts invested in each of the investment divisions. On
the contract date, the investment base equals the initial payment. Merrill Lynch
Life adjusts the investment base daily to reflect the investment performance of
the investment divisions the contract owner has selected. (See "Net Rate of
Return for an Investment Division" on page 34.) The investment performance
reflects the deduction of Separate Account charges. (See "Charges to the
Separate Account" on page 19.)
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Deductions for deferred contract loading, mortality cost, and net loan cost, and
partial withdrawals and loans decrease the investment base. (See "Charges
Deducted from the Investment Base" below, "Partial Withdrawals" and "Loans" on
page 21.) Loan repayments and additional payments increase it. Contract owners
may elect from which investment divisions loans and partial withdrawals are
taken and to which investment divisions repayments and additional payments are
added. If an election is not made, Merrill Lynch Life will allocate increases
and decreases proportionately to the contract owner's investment base in the
investment divisions selected. (For special rules on allocation of additional
payments which require evidence of insurability, see "Payments Which are Not
Under a Periodic Plan" on page 14.)
INVESTMENT ALLOCATION DURING THE "FREE LOOK" PERIOD AND PREALLOCATION. The
initial payment will be invested only in the investment division of the Separate
Account investing in the Money Reserve Portfolio. After the "free look" period,
the contract owner may invest in up to five of the 34 investment divisions in
the Separate Account.
Once Merrill Lynch Life's preallocation procedures are available in the state in
which the Contract is issued, the following process will apply to initial
payments. Through the first 14 days following the in force date, the initial
payment will remain in the division investing in the Money Reserve Portfolio.
Thereafter, the investment base will be reallocated to the investment divisions
selected by the contract owner on the application, if different. The contract
owner may invest in up to five of the 34 investment divisions of the Separate
Account.
CHANGING THE ALLOCATION. After the "free look" period, a contract owner's
investment base may be invested in up to five investment divisions at any one
time. Currently, investment allocations may be changed as often as desired.
However, Merrill Lynch Life may limit the number of changes permitted but not to
less than five each contract year. Contract owners will be notified if
limitations are imposed.
In order to change their investment base allocation, contract owners must call
or write to the Service Center. (See "Some Administrative Procedures" on page
26.) If the "free look" period has expired, Merrill Lynch Life will make the
change as soon as the request is received. Contract owners may give allocation
requests during the "free look" period and the allocation will be made
immediately following the end of the "free look" period.
ZERO TRUST ALLOCATIONS. Merrill Lynch Life will notify contract owners 30 days
before a Zero Trust in which they have invested matures. Contract owners must
tell Merrill Lynch Life in writing at least seven days before the maturity date
how to reinvest their funds in the investment division investing in that Zero
Trust. If Merrill Lynch Life is not notified, it will move the contract owner's
investment base in that division to the investment division investing in the
Money Reserve Portfolio.
Units of a specific Zero Trust may no longer be available when a request for
allocation is received. Should this occur, Merrill Lynch Life will attempt to
notify the contract owner immediately so that the request can be changed.
ALLOCATION TO THE DIVISION INVESTING IN THE NATURAL RESOURCES
PORTFOLIO. Merrill Lynch Life and the Separate Account reserve the right to
suspend the sale of units of the investment division investing in the Natural
Resources Portfolio in response to conditions in the securities markets or
otherwise.
CHARGES DEDUCTED FROM THE INVESTMENT BASE
The charges described below are deducted pro-rata from the investment base on
processing dates. Merrill Lynch Life also deducts certain asset and trust
charges daily from the investment results of each investment division in the
Separate Account in determining its net rate of return. Currently the asset and
trust charges are equivalent to .90% and .34% annually at the beginning of the
year. (See "Charges to the Separate Account" on page 19.) The portfolios in the
Series Fund and the Variable Series Funds also pay monthly advisory fees and
other expenses. (See "Charges to Series Fund Assets" on page 35 and "Charges to
Variable Series Funds Assets" on page 36.)
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DEFERRED CONTRACT LOADING. 100% of all premium payments are invested in the
Separate Account. Chargeable to each payment is an amount called the deferred
contract loading. The deferred contract loading equals 9% of each payment. This
charge consists of a sales load, a charge for federal taxes and a state and
local premium tax charge.
The sales load, equal to 4.5% of each payment, compensates Merrill Lynch Life
for sales expenses. The sales load may be reduced if cumulative payments are
sufficiently high to reach certain breakpoints (2% of payments in excess of $1.5
million and 0% of payments in excess of $4 million) and in certain group or
sponsored arrangements as described on page 29. Merrill Lynch Life anticipates
that the sales load charge may be insufficient to cover distribution expenses.
Any shortfall will be made up from Merrill Lynch Life's general account which
may include amounts derived from mortality gains and asset charges.
The charge for federal taxes equal to 2% of each payment, compensates Merrill
Lynch Life for a significantly higher corporate income tax liability resulting
from changes made to the Internal Revenue Code by the Omnibus Reconciliation Act
of 1990. (See " Merrill Lynch Life's Income Taxes" on page 33.) This charge is
treated as a sales load for purposes of determining compliance with the
limitations on sales loads imposed by the Investment Company Act of 1940 and
applicable regulations thereunder.
The state and local premium tax charge, equal to 2.5% of each payment,
compensates Merrill Lynch Life for state and local premium taxes Merrill Lynch
Life must pay when a payment is accepted. Premium taxes vary from state to
state. The 2.5% rate is the minimum rate expected on payments from all states.
Although chargeable to each payment, Merrill Lynch Life advances the amount of
the deferred contract loading to the investment divisions as part of a contract
owner's investment base. It then takes back these funds in equal installments on
the ten contract anniversaries following the date a payment is received and
accepted. This means that an amount equal to .90% of each payment is deducted
from the investment base on each of the ten contract anniversaries following the
payment. However, in determining a Contract's net cash surrender value, Merrill
Lynch Life subtracts from the investment base the balance of the deferred
contract loading which is chargeable to any payment made but which has not yet
been deducted. Thus, this balance is deducted in determining the amount payable
on surrender of the Contract.
During the period that the deferred contract loading is included in the
investment base, a positive net rate of return will give greater increases in
net cash surrender value and a negative net rate of return will give greater
decreases in net cash surrender value than if the loading had not been included
in the investment base.
For joint insureds, see the modifications to this subsection on page 47.
MORTALITY COST. Merrill Lynch Life deducts a mortality cost from the investment
base on each processing date after the contract date. This charge compensates
Merrill Lynch Life for the cost of providing life insurance coverage for the
insured. It is based on the underwriting class assigned to the insured, the
insured's sex (except where unisex rates are required by state law) and attained
age and the Contract's net amount at risk.
To determine the mortality cost, Merrill Lynch Life multiplies the current cost
of insurance rate by the Contract's net amount at risk (adjusted for interest at
an annual rate of 4%). The net amount at risk is the difference, as of the
previous processing date, between the death benefit and the cash surrender
value.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates depending on the insured's underwriting class, sex (except
where unisex rates are required by state law) and attained age. For all
insureds, current cost of insurance rates distinguish between insureds in the
simplified underwriting class and medical underwriting class. For insureds age
20 and over, current cost of insurance rates also distinguish between insureds
in a smoker (standard) underwriting class and insureds in a non-smoker
underwriting class. For Contracts issued on insureds under the same underwriting
method, current cost of insurance rates are lower for an insured in a non-smoker
underwriting class than for an insured of the same age and sex in a smoker
(standard) underwriting class. Also, current
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cost of insurance rates are lower for an insured in a medical underwriting class
than for a similarly situated insured in a simplified underwriting class. The
simplified current cost of insurance rates are higher because less underwriting
is performed and therefore more risk is incurred.
Merrill Lynch Life guarantees that the current cost of insurance rates will
never exceed the maximum guaranteed rates shown in the Contract. The maximum
guaranteed rates for Contracts (other than those issued on a substandard basis)
do not exceed the rates based on the 1980 Commissioners Standard Ordinary
Mortality Table (CSO Table). Merrill Lynch Life may use rates that are equal to
or less than these rates, but never greater. The maximum rates for Contracts
issued on a substandard basis are based on a multiple of the 1980 CSO Table. Any
change in the cost of insurance rates will apply to all insureds of the same
age, sex and underwriting class whose Contracts have been in force for the same
length of time.
During the period between processing dates, the net cash surrender value takes
the mortality cost into account on a pro-rated basis. Thus, a pro-rata portion
of the mortality cost is deducted in determining the amount payable on surrender
of the Contract if the date of surrender is not a processing date.
For joint insureds, see the modifications to this subsection on page 47.
MAXIMUM MORTALITY COST. During the guarantee period, Merrill Lynch Life limits
the deduction for mortality cost if investment results are unfavorable. This is
done by substituting the fixed base for the cash surrender value in determining
the net amount at risk and by multiplying by the guaranteed cost of insurance
rate. Merrill Lynch Life will deduct this alternate amount from the investment
base when it is less than the mortality cost that would have otherwise been
deducted. In effect, during the guarantee period, a contract owner will not be
charged for mortality costs that are greater than those for a comparable fixed
contract, based on 4% interest and the same guaranteed cost of insurance rates.
(See "The Contract's Fixed Base" on page 20.)
NET LOAN COST. The net loan cost is explained under "Loans" on page 22.
CHARGES TO THE SEPARATE ACCOUNT
Each day Merrill Lynch Life deducts an asset charge from each division of the
Separate Account. The total amount of this charge is computed at .90% annually
at the beginning of the year. Of this amount, .75% is for
- the risk assumed by Merrill Lynch Life that insureds as a group will live
for a shorter time than actuarial tables predict. As a result, Merrill
Lynch Life would be paying more in death benefits than planned; and
- the risk assumed by Merrill Lynch Life that it will cost more to issue and
administer the Contracts than expected.
The remaining amount, .15%, is for
- the risks assumed by Merrill Lynch Life with respect to potentially
unfavorable investment results. One risk is that the Contract's cash
surrender value cannot cover the charges due during the guarantee period.
The other risk is that Merrill Lynch Life may have to limit the deduction
for mortality cost (see "Maximum Mortality Cost" above).
The total charge may not be increased. Merrill Lynch Life will realize a gain
from this charge to the extent it is not needed to provide for benefits and
expenses under the Contracts.
CHARGES TO DIVISIONS INVESTING IN THE ZERO TRUSTS. Merrill Lynch Life assesses
a daily trust charge against the assets of each division investing in the Zero
Trusts. This charge reimburses Merrill Lynch Life for the transaction charge
paid to MLPF&S when units are sold to the Separate Account.
The trust charge is currently equivalent to .34% annually at the beginning of
the year. It may be increased, but will not exceed .50% annually at the
beginning of the year. The charge is based on cost (taking into account loss of
interest) with no expected profit.
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TAX CHARGES. Merrill Lynch Life has the right under the Contract to impose a
charge against Separate Account assets for its taxes, if any. Such a charge is
not currently imposed, but it may be in the future. However, see page 18 for a
discussion of tax charges included in deferred contract loading.
GUARANTEE PERIOD
Merrill Lynch Life guarantees that the Contract will stay in force for the
insured's life, or for a shorter guarantee period depending on the face amount
selected and payments made to date. The guarantee period will be affected by a
requested change in the face amount and may also be affected by additional
payments. A partial withdrawal may affect the guarantee period in certain
circumstances. Merrill Lynch Life won't cancel the Contract during the guarantee
period unless the debt exceeds certain contract values. (See "Interest" on page
22.) A reserve is held in Merrill Lynch Life's general account to support this
guarantee.
WHEN THE GUARANTEE PERIOD IS LESS THAN FOR LIFE. After the end of the guarantee
period, Merrill Lynch Life will cancel the Contract if the cash surrender value
on a processing date is negative. This negative cash surrender value will be
considered an overdue charge. (See "Charges Deducted from the Investment Base"
on page 17.)
Merrill Lynch Life will notify the contract owner before cancelling the
Contract. He or she will then have 61 days to pay the charges due on the
processing date when the cash surrender value became negative. Merrill Lynch
Life will cancel the Contract at the end of this grace period if the payment has
not yet been received.
Subject to state regulation, if Merrill Lynch Life cancels a Contract, it may be
reinstated while the insured is still living if:
- the reinstatement is requested within three years after the end of the
grace period;
- Merrill Lynch Life receives satisfactory evidence of insurability; and
- the reinstatement payment is paid. The reinstatement payment is the
minimum payment for which Merrill Lynch Life would then issue a Contract
for the minimum guarantee period with the same face amount as the original
Contract, based on the insured's attained age and underwriting class as of
the effective date of the reinstated Contract.
A reinstated Contract will be effective on the processing date on or next
following the date the reinstatement application is approved.
For joint insureds, see the modifications to this subsection on page 47.
THE CONTRACT'S FIXED BASE. On the contract date, the fixed base equals the cash
surrender value. From then on, the fixed base is calculated like the cash
surrender value except that the calculation substitutes 4% for the net rate of
return, the guaranteed maximum cost of insurance rates are substituted for the
current rates and it is calculated as though there had been no loans or
repayments. The fixed base is equivalent to the cash surrender value for a
comparable fixed benefit contract with the same face amount and guarantee
period. After the guarantee period, the fixed base is zero. The fixed base is
used to limit the mortality cost deduction and Merrill Lynch Life's right to
cancel the Contract during the guarantee period.
NET CASH SURRENDER VALUE
A Contract's net cash surrender value fluctuates daily with the investment
results of the investment divisions selected. Merrill Lynch Life doesn't
guarantee any minimum net cash surrender value. On a processing date which is
also a contract anniversary, the net cash surrender value equals:
- the Contract's investment base on that date;
- minus the balance of the deferred contract loading which has not yet been
deducted from the investment base (see "Deferred Contract Loading" on page
18).
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If the date of calculation is not a processing date, the net cash surrender
value is calculated in a similar manner but Merrill Lynch Life also subtracts a
pro-rata portion of the mortality cost which would otherwise be deducted on the
next processing date. And, if there is any existing debt, Merrill Lynch Life
will also subtract a pro-rata net loan cost on dates other than the contract
anniversary.
CANCELLING TO RECEIVE NET CASH SURRENDER VALUE. A contract owner may cancel the
Contract at any time while the insured is living. The request must be in writing
in a form satisfactory to Merrill Lynch Life. All rights to death benefits will
end on the date the written request is sent to Merrill Lynch Life.
That contract owner will then receive the net cash surrender value. The contract
owner may elect to receive this amount either in a single payment or under one
or more income plans described on page 28. The net cash surrender value will be
determined upon receipt of the written request at the Service Center.
For joint insureds, see the modifications to this subsection on page 47.
PARTIAL WITHDRAWALS
Currently, after a Contract is in force for one year, and subject to state
regulation, a contract owner may make partial withdrawals of amounts up to the
withdrawal value by submitting a request in a form satisfactory to Merrill Lynch
Life. The withdrawal value is equal to 80% X (a+b) - b where:
- a = the current net cash surrender value, and
- b = the sum of all prior withdrawals.
The effective date of the withdrawal is the date a withdrawal request is
received at the Service Center. Contract owners may make one partial withdrawal
each contract year and may elect to receive the withdrawal amount either in a
single payment or, subject to Merrill Lynch Life's rules, under one or more
income plans.
The minimum amount for each partial withdrawal is $500. The amount of any
partial withdrawal may not exceed the loan value less any debt. A partial
withdrawal may not be repaid.
EFFECT ON INVESTMENT BASE, FIXED BASE AND DEATH BENEFIT. As of the effective
date of the withdrawal, the investment base and fixed base will be reduced by
the amount of the partial withdrawal. Merrill Lynch Life allocates this
reduction proportionately to the investment base in the contract owner's
investment divisions unless notified otherwise. The variable insurance amount
will also reflect the partial withdrawal as of the effective date.
EFFECT ON GUARANTEED BENEFITS. As of the processing date on or next following a
partial withdrawal, Merrill Lynch Life reduces the Contract's face amount. This
is done by taking the fixed base as of that processing date and determining what
face amount that fixed base would support for the Contract's guarantee period.
If this produces a face amount below the minimum face amount for the Contract,
Merrill Lynch Life will reduce the face amount to that minimum, and reduce the
guarantee period, based on the reduced face amount, the fixed base and the
insured's sex (except where unisex rates are required by state law), attained
age and underwriting class. The minimum face amount for a Contract is the
greater of the minimum face amount for which Merrill Lynch Life would then issue
the Contract, based on the insured's sex, attained age, and underwriting class,
and the minimum amount required to keep the Contract qualified as life insurance
under applicable tax law. For a discussion of the effect of partial withdrawals
on a Contract's guaranteed benefits, see "Partial Withdrawals" in the Examples
on page 45.
Partial withdrawals are treated as distributions under the Contract for federal
tax purposes and may be subject to a penalty tax. For a discussion of the tax
issues associated with a partial withdrawal, see "Tax Considerations" on page
30.
LOANS
Contract owners may use the Contract as collateral to borrow funds from Merrill
Lynch Life. The minimum loan is $1,000 unless the contract owner is borrowing to
make a payment on another Merrill
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Lynch Life variable life insurance contract. In that case, the contract owner
may borrow the exact amount required even if it's less than $1,000. Contract
owners may repay all or part of the loan any time during the insured's lifetime.
Each repayment must be for at least $1,000 or the amount of the debt, if less.
Certain states won't permit a minimum amount that can be borrowed or repaid.
Loans are treated as distributions under the Contract for federal tax purposes
and may be subject to a penalty tax. For a discussion of the tax issues
associated with a loan, see "Tax Considerations" on page 30.
When a loan is taken, Merrill Lynch Life transfers a portion of the contract
owner's investment base equal to the amount borrowed out of the investment
divisions and holds it as collateral in its general account. When a loan
repayment is made, Merrill Lynch Life transfers an amount equal to the repayment
from the general account to the investment divisions. The contract owner may
select from which divisions borrowed amounts should be taken and which divisions
should receive repayments (including interest payments). Otherwise, Merrill
Lynch Life will take the borrowed amounts proportionately from and make
repayments proportionately to the contract owner's investment base as then
allocated to the investment divisions.
If a contract owner has the CMA Insurance Service, loans may be transferred to
and loan repayments transferred from his or her CMA account.
EFFECT ON DEATH BENEFIT AND CASH SURRENDER VALUE. Whether or not a loan is
repaid, taking a loan will have a permanent effect on a Contract's cash
surrender value and may have a permanent effect on its death benefit. This is
because the collateral for a loan does not participate in the performance of the
investment divisions while the loan is outstanding. If the amount credited to
the collateral is more than what is earned in the investment divisions, the cash
surrender value will be higher as a result of the loan, as may be the death
benefit. Conversely, if the amount credited is less, the cash surrender value
will be lower, as may be the death benefit. In that case, the lower cash
surrender value may cause the Contract to lapse sooner than if no loan had been
taken.
LOAN VALUE. The loan value of a Contract equals 90% of its cash surrender
value. The sum of all outstanding loan amounts plus accrued interest is called
debt. The maximum amount that can be borrowed at any time is the difference
between the loan value and the debt. The cash surrender value is the net cash
surrender value plus any debt.
INTEREST. While a loan is outstanding, Merrill Lynch Life charges interest of
5% annually, subject to state regulation. Interest accrues each day and payments
are due at the end of each contract year. If the interest isn't paid when due,
it is added to the outstanding loan amount. THIS AMOUNT ADDED TO THE LOAN IS
TAXABLE INCOME IF THE CONTRACT IS A MODIFIED ENDOWMENT CONTRACT. In addition,
interest paid on a loan may not be tax-deductible.
The amount held in Merrill Lynch Life's general account as collateral for a loan
earns interest at a minimum of 4% annually.
NET LOAN COST. On each contract anniversary, Merrill Lynch Life reduces the
investment base by the net loan cost (the difference between the interest
charged and the earnings on the amount held as collateral in the general
account) and adds that amount to the amount held in the general account as
collateral for the loan. Since the interest charged is 5% and the collateral
earnings on such amounts are 4%, the current net loan cost on loaned amounts is
1%. The net loan cost is taken into account in determining the net cash
surrender value of the Contract if the date of surrender is not a contract
anniversary.
CANCELLATION DUE TO EXCESS DEBT. If the debt exceeds the larger of the cash
surrender value and the fixed base on a processing date, Merrill Lynch Life will
cancel the Contract 61 days after a notice of intent to terminate the Contract
is mailed to the contract owner unless Merrill Lynch Life has received at least
the minimum repayment amount specified in notice.
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DEATH BENEFIT PROCEEDS
Merrill Lynch Life will pay the death benefit proceeds to the beneficiary upon
receipt of all information needed to process the payment, including due proof of
the insured's death.
AMOUNT OF DEATH BENEFIT PROCEEDS. The death benefit proceeds are equal to the
death benefit, which is the larger of the current face amount and the variable
insurance amount, less any debt.
The values used in calculating the death benefit proceeds are as of the date of
death. The death benefit will never be less than the amount required to keep the
Contract qualified as life insurance under federal income tax laws. If the
insured dies during the grace period, the death benefit proceeds equal the death
benefit proceeds in effect immediately prior to the grace period reduced by any
overdue charges. (See "When the Guarantee Period is Less Than for Life" on page
20.)
VARIABLE INSURANCE AMOUNT. Merrill Lynch Life determines the variable insurance
amount daily by:
- calculating the cash surrender value; and
- multiplying by the net single premium factor (explained below).
The variable insurance amount will never be less than required by federal tax
law.
NET SINGLE PREMIUM FACTOR. The net single premium factor is used to determine
the amount of death benefit purchased by $1.00 of cash surrender value. It is
based on the insured's sex (except where unisex rates are required by state
law), underwriting class, and attained age on the date of calculation. It
decreases daily as the insured's age increases. As a result, the variable
insurance amount as a multiple of the cash surrender value will decrease over
time. Also, net single premium factors may be higher for a woman than for a man
of the same age. A table of net single premium factors as of each anniversary is
included in the Contract.
TABLE OF ILLUSTRATIVE NET SINGLE PREMIUM FACTORS
ON ANNIVERSARIES
STANDARD UNDERWRITING CLASS
<TABLE>
<CAPTION>
ATTAINED AGE MALE FEMALE
- --------------- ----------- -----------
<S> <C> <C>
5 10.26609 12.37715
15 7.41160 8.96255
25 5.50386 6.47763
35 3.97199 4.64820
45 2.87751 3.36402
55 2.14059 2.48932
65 1.65787 1.87555
75 1.35396 1.45951
85 1.18028 1.21264
</TABLE>
For joint insureds, see the modifications to this section on page 47.
PAYMENT OF DEATH BENEFIT PROCEEDS
Merrill Lynch Life will generally pay the death benefit proceeds to the
beneficiary within seven days after all the information needed to process the
payment is received at its Service Center.
Merrill Lynch Life will add interest from the date of the insured's death to the
date of payment at an annual rate of at least 4%. The beneficiary may elect to
receive the proceeds either in a single payment or under one or more income
plans described on page 28. Payment may be delayed if the Contract is being
contested or under the circumstances described in "Using the Contract" on page
24 and "Other Contract Provisions" on page 27.
For joint insureds, see the modifications to this section on page 47.
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RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR EXCHANGE
A contract owner may cancel his or her Contract during the "free look" period by
returning it for a refund. Generally, the "free look" period ends ten days after
the Contract is received. Some states allow a longer period of time to return
the Contract. If required by the contract owner's state, the "free look" period
ends the later of ten days after receiving the Contract and 45 days from the
date the application is completed. To cancel the Contract during the "free look"
period, the contract owner must mail or deliver the Contract to Merrill Lynch
Life's Service Center or to the registered representative who sold it. Merrill
Lynch Life will refund the payment made without interest. If cancelled, Merrill
Lynch Life may require the contract owner to wait six months before applying
again.
EXCHANGING THE CONTRACT. Contract owners may exchange their Contracts for a
contract with benefits that do not vary with the investment results of a
separate account. A request to exchange must be in writing within 18 months of
the issue date of the Contract. Also, the original Contract must be returned to
Merrill Lynch Life's Service Center.
The new contract will have the same owner and beneficiary as those of the
original Contract on the date of the exchange. It will have the same issue age,
issue date, face amount, cash surrender value, benefit riders and underwriting
class as the original Contract on the date of the exchange. Any debt will be
carried over to the new contract.
Merrill Lynch Life will not require evidence of insurability to exchange for a
new contract.
For joint insureds, see the modifications to this subsection on page 47.
REPORTS TO CONTRACT OWNERS
After the end of each processing period, contract owners will be sent a
statement of the allocation of their investment base, death benefit, cash
surrender value, any debt and, if there has been a change, new face amount and
guarantee period. All figures will be as of the end of the immediately preceding
processing period. The statement will show the amounts deducted from or added to
the investment base during the processing period. The statement will also
include any other information that may be currently required by a contract
owner's state.
Contract owners will receive confirmation of all financial transactions. Such
confirmations will show the price per unit of each of the contract owner's
investment divisions, the number of units a contract owner has in the investment
division and the value of the investment division computed by multiplying the
quantity of units by the price per unit. (See "Net Rate of Return for an
Investment Division" on page 34.) The sum of the values in each investment
division is a contract owner's investment base.
Contract owners will also be sent an annual and a semi-annual report containing
financial statements and a list of portfolio securities of the Series Fund and
the Variable Series Funds, as required by the Investment Company Act of 1940.
CMA ACCOUNT REPORTING. Contract owners who have the CMA Insurance Service, will
have certain Contract information included as part of their regular monthly CMA
account statement. It will list the investment base allocation, death benefit,
net cash surrender value, debt and any CMA account activity affecting the
Contract during the month.
MORE ABOUT THE CONTRACT
USING THE CONTRACT
OWNERSHIP. The contract owner is usually the insured, unless another owner has
been named in the application. The contract owner has all rights and options
described in the Contract.
The contract owner may want to name a contingent owner. If the contract owner
dies before the insured, the contingent owner will own the contract owner's
interest in the contract and have all the contract owner's rights. If the
contract owner does not name a contingent owner, the contract owner's estate
will own the contract owner's interest in the Contract upon the owner's death.
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If there is more than one contract owner, Merrill Lynch Life will treat the
owners as joint tenants with rights of survivorship unless the ownership
designation provides otherwise. The owners must exercise their rights and
options jointly, except that any one of the owners may reallocate the Contract's
investment base by phone if the owner provides the personal identification
number as well as the Contract number. One contract owner must be designated, in
writing, to receive all notices, correspondence and tax reporting to which
contract owners are entitled under the Contract.
CHANGING THE OWNER. During the insured's lifetime, the contract owner has the
right to transfer ownership of the Contract. The new owner will have all rights
and options described in the Contract. The change will be effective as of the
day the notice is signed, but will not affect any payment made or action taken
by Merrill Lynch Life before receipt of the notice of the change at the Service
Center. Changing the owner may have tax consequences. (See "Tax Considerations"
on page 30.)
ASSIGNING THE CONTRACT AS COLLATERAL. Contract owners may assign the Contract
as collateral security for a loan or other obligation. This does not change the
ownership. However, the contract owner's rights and any beneficiary's rights are
subject to the terms of the assignment. Contract owners must give satisfactory
written notice at the Service Center in order to make or release an assignment.
Merrill Lynch Life is not responsible for the validity of any assignment.
For a discussion of the tax issues associated with a collateral assignment, see
"Tax Considerations" on page 30.
NAMING BENEFICIARIES. Merrill Lynch Life will pay the primary beneficiary the
death benefit proceeds of the Contract on the insured's death. If the primary
beneficiary has died, Merrill Lynch Life will pay the contingent beneficiary. If
no contingent beneficiary is living, Merrill Lynch Life will pay the insured's
estate.
A contract owner may name more than one person as primary or contingent
beneficiaries. Merrill Lynch Life will pay proceeds in equal shares to the
surviving beneficiary unless the beneficiary designation provides otherwise.
A contract owner has the right to change beneficiaries during the insured's
lifetime, unless the primary beneficiary designation has been made irrevocable.
If the designation is irrevocable, the primary beneficiary must consent when
certain rights and options are exercised under this Contract. If the beneficiary
is changed, the change will take effect as of the day the notice is signed, but
will not affect any payment made or action taken by Merrill Lynch Life before
receipt of the notice of the change at the Service Center.
CHANGING THE INSURED. If permitted by state regulation, and subject to certain
requirements, contract owners may request a change of insured once each contract
year. Merrill Lynch Life must receive a written request from the contract owner
and the proposed new insured. Neither the original nor the new insured can have
attained ages as of the effective date of the change less than 21 or more than
75. Merrill Lynch Life will also require evidence of insurability for the
proposed new insured. If the request for change is approved, insurance coverage
on the new insured will take effect on the processing date on or next following
the date of approval, provided the new insured is still living at that time.
The Contract will be changed as follows on the effective date:
- the issue age will be the new insured's issue age (the new insured's age
as of the birthday nearest the contract date);
- the guaranteed maximum cost of insurance rates will be those in effect on
the contract date for the new insured's issue age, sex (except where
unisex rates are required by state law) and underwriting class;
- a charge for changing the insured will be deducted from the Contract's
investment base on the effective date. This charge will also be reflected
in the Contract's fixed base. The charge will equal $1.50 per $1,000 of
face amount with a minimum charge of $200 and a maximum of $1,500. This
charge may be reduced in certain group or sponsored arrangements as
described on page 29;
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- the variable insurance amount will reflect the change of insured; and
- the Contract's issue date will be the effective date of the change.
The face amount or guarantee period may also change on the effective date
depending on the new insured's age, sex (except where unisex rates are required
by state law) and underwriting class. The new guarantee period cannot be less
than the minimum guarantee period for which Merrill Lynch Life would then issue
a Contract based on the new insured's attained age as of the effective date of
the change.
This option is not available for joint insureds.
For a discussion of the tax issues associated with changing the insured, see
"Tax Considerations" on page 30.
MATURITY PROCEEDS. The maturity date is the anniversary nearest the insured's
100th birthday. On the maturity date, Merrill Lynch Life will pay the net cash
surrender value to the contract owner, provided the insured is still living at
that time.
HOW MERRILL LYNCH LIFE MAKES PAYMENTS. Merrill Lynch Life generally pays death
benefit proceeds, partial withdrawals, loans and net cash surrender value on
cancellation from the Separate Account within seven days after the Service
Center receives all the information needed to process the payment.
However, it may delay payment from the Separate Account if it isn't practical
for Merrill Lynch Life to value or dispose of Trust units, Series Fund shares or
Variable Series Funds shares because:
- the New York Stock Exchange is closed, other than for a customary weekend
or holiday; or
- trading on the New York Stock Exchange is restricted by the Securities and
Exchange Commission; or
- the Securities and Exchange Commission declares that an emergency exists
such that it is not reasonably practical to dispose of securities held in
the Separate Account or to determine the value of their assets; or
- the Securities and Exchange Commission by order so permits for the
protection of contract owners.
For joint insureds, see the modifications to this section on page 47.
SOME ADMINISTRATIVE PROCEDURES
Described below are certain administrative procedures. Merrill Lynch Life
reserves the right to modify them or to eliminate them. For administrative and
tax purposes, Merrill Lynch Life may from time to time require that specific
forms be completed in order to accomplish certain transactions, including
surrenders.
PERSONAL IDENTIFICATION NUMBER. Merrill Lynch Life will send each contract
owner a four-digit personal identification number ("PIN") shortly after the
Contract is placed in force and before the end of the "free look" period. This
number must be given when a contract owner calls the Service Center to get
information about the Contract, to make a loan (if an authorization is on file),
or to make other requests. Unless the contract owner has preallocated the
Contract's investment base, the personal identification number will be
accompanied by a notice reminding the contract owner that all of the investment
base is in the division investing in the Money Reserve Portfolio and that this
allocation may be changed by calling or writing to the Service Center. (See
"Changing the Allocation" on page 17.)
REALLOCATING THE INVESTMENT BASE. Contract owners can reallocate their
investment base either in writing in a form satisfactory to Merrill Lynch Life
or by phone. If the reallocation is requested by phone, contract owners must
give their personal identification number as well as their Contract number.
Merrill Lynch Life will give a confirmation number over the phone and then
follow up in writing.
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<PAGE>
REQUESTING A LOAN. A loan may be requested in writing in a form satisfactory to
Merrill Lynch Life or, if all required authorization forms are on file, by
phone. Once the authorization has been received at the Service Center, contract
owners can call the Service Center, give their Contract number, name and
personal identification number, and tell Merrill Lynch Life the loan amount and
from which divisions the loan should be taken.
Upon request, Merrill Lynch Life will wire the funds to the account at the
financial institution named on the contract owner's authorization. Merrill Lynch
Life will generally wire the funds within two working days of receipt of the
request. If the contract owner has the CMA Insurance Service, funds may be
transferred directly to that CMA account.
REQUESTING PARTIAL WITHDRAWALS. Partial withdrawals may be requested in writing
in a form satisfactory to Merrill Lynch Life. A contract owner may request a
partial withdrawal by phone if all required phone authorization forms are on
file. Once the authorization has been received at the Service Center, contract
owners can call the Service Center, give their Contract number, name and
personal identification number, and tell Merrill Lynch Life how much to withdraw
and from which investment divisions.
Upon request, Merrill Lynch Life will wire the funds to the account at the
financial institution named on the contract owner's authorization. Merrill Lynch
Life will usually wire the funds within two working days of receipt of the
request. If the contract owner has the CMA Insurance Service, funds can be
transferred directly to that CMA account.
TELEPHONE REQUESTS. A telephone request for a loan, partial withdrawal or a
reallocation received before 4 p.m. (ET) generally will be processed the same
day. A request received at or after 4 p.m. (ET) will be processed the following
business day. Merrill Lynch Life reserves the right to change or discontinue
telephone transfer procedures.
OTHER CONTRACT PROVISIONS
IN CASE OF ERRORS IN THE APPLICATION. If an age or sex given in the application
is wrong, it could mean that the face amount or any other Contract benefit is
wrong. Merrill Lynch Life will pay what the payments made would have bought for
the guarantee period at the true age or sex.
INCONTESTABILITY. Merrill Lynch Life will rely on statements made in the
applications. Legally, they are considered representations, not warranties.
Merrill Lynch Life can contest the validity of a Contract if any material
misstatements are made in the initial application. Merrill Lynch Life can also
contest the validity of any change in face amount requested if any material
misstatements are made in any application required for that change. In addition,
Merrill Lynch Life can contest any amount of death benefit which wouldn't be
payable except for the fact that an additional payment was made if any material
misstatements are made in the application required with the additional payment.
Subject to state regulation, Merrill Lynch Life won't contest the validity of a
Contract after it has been in effect during the insured's lifetime for two years
from the date of issue. Any change in face amount will not be contested after
the change has been in effect during the insured's lifetime for two years from
the date of the change. Nor will Merrill Lynch Life contest any amount of death
benefit attributable to an additional payment after the death benefit has been
in effect during the insured's lifetime for two years from the date the payment
was received and accepted.
PAYMENT IN CASE OF SUICIDE. Subject to state regulation, if the insured commits
suicide within two years from the Contract's issue date, Merrill Lynch Life will
pay only a limited death benefit. The benefit will be equal to the amount of the
payments made.
Subject to state regulation, if the insured commits suicide within two years of
the effective date of any increase in face amount requested, any amount of death
benefit which would not be payable except for the fact that the face amount was
increased will be limited to the amount of mortality cost deductions made for
the increase.
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If the insured commits suicide within two years of any date an additional
payment is received and accepted, any amount of death benefit which would not be
payable except for the fact that the additional payment was made will be limited
to the amount of the payment.
The death benefit will be reduced by any debt.
CONTRACT CHANGES -- APPLICABLE FEDERAL TAX LAW. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. Therefore, to maintain this qualification to the
maximum extent of the law, Merrill Lynch Life reserves the right to return any
additional payments that would cause the Contract to fail to qualify as life
insurance under applicable federal tax law as interpreted by Merrill Lynch Life.
Further, Merrill Lynch Life reserves the right to make changes in the Contract
or its riders or to make distributions from the Contract to the extent it is
necessary to continue to qualify the Contract as life insurance. Any changes
will apply uniformly to all Contracts that are affected and contract owners will
be given advance written notice of such changes.
STATE VARIATIONS. Certain Contract features, including the "free look" right,
are subject to state variation. The contract owner should read his or her
Contract carefully to determine whether any variations apply in the state in
which the Contract is issued.
For joint insureds, see the modifications to this section on page 48.
INCOME PLANS
Merrill Lynch Life offers several income plans to provide for payment of the
death benefit proceeds to the beneficiary. The contract owner may choose one or
more income plans at any time during the insured's lifetime. If no plan has been
chosen when the insured dies, the beneficiary has one year to apply the death
benefit proceeds either paid or payable to that beneficiary to one or more of
the plans. The contract owner may also choose one or more income plans if the
Contract is cancelled for its net cash surrender value or a partial withdrawal
is taken. Merrill Lynch Life's approval is needed for any plan where any income
payment would be less than $100. Payments under these plans do not depend on the
investment results of a separate account.
For joint insureds, see the modifications to this section on page 48.
Income plans include:
ANNUITY PLAN. An amount can be used to purchase a single premium
immediate annuity. (Annuity purchase rates will be 3% less than for new
annuitants.)
INTEREST PAYMENT. Amounts can be left with Merrill Lynch Life to earn
interest at an annual rate of at least 3%. Interest payments can be made
annually, semi-annually, quarterly or monthly.
INCOME FOR A FIXED PERIOD. Payments are made in equal installments for
up to a fixed number of years.
INCOME FOR LIFE. Payments are made in equal monthly installments until
the death of a named person or the end of a designated period, whichever is
later. The designated period may be for 10 or 20 years.
INCOME OF A FIXED AMOUNT. Payments are made in equal installments until
proceeds applied under this option and interest on the unpaid balance at not
less than 3% per year are exhausted.
JOINT LIFE INCOME. Payments are made in monthly installments as long as
at least one of two named persons is living. While both are living, full
payments are made. If one dies, payments at two-thirds of the full amount
are made. Payments end completely when both named persons die.
Once in effect, some of the plans may not provide any surrender rights.
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GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, Merrill Lynch Life may reduce the
sales load, cost of insurance rates and the minimum payment and may modify
underwriting classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows Merrill Lynch Life to
sell Contracts to its employees on an individual basis.
Costs for sales, administration, and mortality generally vary with the size and
stability of the group and the reasons the Contracts are purchased, among other
factors. Merrill Lynch Life takes all these factors into account when reducing
charges. To qualify for reduced charges, a group or sponsored arrangement must
meet certain requirements, including requirements for size and number of years
in existence. Group or sponsored arrangements that have been set up solely to
buy Contracts or that have been in existence less than six months will not
qualify for reduced charges.
Merrill Lynch Life makes any reductions according to rules in effect when an
application for a Contract or additional payment is approved. It may change
these rules from time to time. However, reductions in charges will not
discriminate unfairly against any person.
UNISEX LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983 the Supreme Court held in ARIZONA GOVERNING COMMITTEE V. NORRIS that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
The Contracts offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Contract pays different
benefits to men and women of the same age. Employers and employee organizations
should check with their legal advisers before purchasing these Contracts.
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
MLPF&S is the principal underwriter of the Contract. It was organized in 1958
under the laws of the state of Delaware and is registered as a broker-dealer
under the Securities Exchange Act of 1934. It is a member of the National
Association of Securities Dealers, Inc. ("NASD"). The principal business address
of MLPF&S is World Financial Center, 250 Vesey Street, New York, New York 10281.
MLPF&S also acts as principal underwriter of other variable life insurance and
variable annuity contracts issued by Merrill Lynch Life, as well as variable
life insurance and variable annuity contracts issued by ML Life Insurance
Company of New York, an affiliate of Merrill Lynch Life. MLPF&S also acts as
principal underwriter of certain mutual funds managed by Merrill Lynch Asset
Management, the investment adviser for the Series Fund and the Variable Series
Funds.
Contracts are sold by registered representatives of MLPF&S who are also licensed
through various Merrill Lynch Life Agencies as insurance agents for Merrill
Lynch Life. Merrill Lynch Life has entered into a distribution agreement with
MLPF&S and companion sales agreements with the Merrill Lynch Life Agencies
through which agreements the Contracts and other variable life insurance
contracts issued through the Separate Account are sold and the registered
representatives are compensated by Merrill Lynch Life Agencies and/or MLPF&S.
The maximum commission Merrill Lynch Life will pay to the applicable insurance
agency to be used to pay commissions to registered representatives is 7.1% of
each premium. Additional annual compensation of no more than 0.10% of the
investment base may also be paid to the registered representatives. Registered
representatives may elect to receive lower commission as a percent of each
premium in
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exchange for higher compensation as a percent of the investment base. In such a
case, the maximum additional annual compensation is 0.30% of the investment
base. Commissions may be paid in the form of non-cash compensation.
The amounts paid under the distribution and sales agreements for the Separate
Account for the year ended December 31, 1995, December 31, 1994 and December 31,
1993 were $8,375,065, $8,456,418, and $2,513,335, respectively.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD. Registered representatives of these other broker-dealers may be
compensated on a different basis than MLPF&S registered representatives.
TAX CONSIDERATIONS
DEFINITION OF LIFE INSURANCE. In order to qualify as a life insurance contract
for federal tax purposes, the Contract must meet the definition of a life
insurance contract which is set forth in Section 7702 of the Internal Revenue
Code of 1986 as amended (the "Code"). The Section 7702 definition can be met if
a life insurance contract satisfies either one of two tests set forth in that
section. The manner in which these tests should be applied to certain innovative
features of the Contract offered by this Prospectus is not directly addressed by
Section 7702 or the proposed regulations issued thereunder. The presence of
these innovative Contract features, and the absence of final regulations or any
other pertinent interpretations of the tests, thus creates some uncertainty
about the application of the tests to the Contract.
Merrill Lynch Life believes that the Contract qualifies as a life insurance
contract for federal tax purposes. This means that:
- the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
- the contract owner should not be considered in constructive receipt of the
cash surrender value, including any increases, unless and until actual
receipt of distributions from the Contract (see "Tax Treatment of Loans
and Other Distributions" on page 31).
Because of the absence of final regulations or any other pertinent
interpretations of the Section 7702 tests, it, however, is unclear whether
substandard risk Contracts or Contracts insuring more than one person will, in
all cases, meet the statutory life insurance contract definition. If a contract
were determined not to be a life insurance contract for purposes of Section
7702, such contract would not provide most of the tax advantages normally
provided by life insurance contracts.
Merrill Lynch Life thus reserves the right to make changes in the Contract if
such changes are deemed necessary to attempt to assure its qualification as a
life insurance contract for tax purposes. (See "Contract Changes -- Applicable
Federal Tax Law" on page 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 requirements in connection with
variable contracts. The Separate Account, through the Series Fund and the
Variable Series Funds, intends to comply with these requirements. Although
Merrill Lynch Life doesn't control the Series Fund or the Variable Series Funds,
it intends to monitor the investments of the Series Fund and the Variable Series
Funds to ensure compliance with the requirements prescribed by the Treasury
Department.
In connection with the issuance of the temporary diversification regulations,
the Treasury Department stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which an owner's control of the
investments of a separate account may cause the contract owner, rather than the
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insurance company, to be treated as the owner of the assets in the account. If
the contract owner is considered the owner of the assets of the Separate
Account, income and gains from the account would be included in the owner's
gross income.
The ownership rights under the Contract offered in this Prospectus are similar
to, but different in certain respects from, those described by the Internal
Revenue Service in rulings in which it determined that the owners were not
owners of separate account assets. For example, the owner of this Contract has
additional flexibility in allocating payments and cash surrender values. These
differences could result in the owner being treated as the owner of the assets
of the Separate Account. In addition, Merrill Lynch Life does not know what
standards will be set forth in the regulations or rulings which the Treasury has
stated it expects to be issued. Merrill Lynch Life therefore reserves the right
to modify the Contract as necessary to attempt to prevent the contract owner
from being considered the owner of the assets of the Separate Account.
TAX TREATMENT OF LOANS AND OTHER DISTRIBUTIONS. Federal tax law establishes a
class of life insurance contracts referred to as modified endowment contracts.
In most cases, this Contract will be a modified endowment contract. (See,
however, the discussion below on a Contract issued in exchange for another life
insurance contract.) Loans and partial withdrawals from, as well as collateral
assignments of, modified endowment contracts will be treated as distributions to
the owner. All pre-death distributions (including loans, partial withdrawals and
collateral assignments) from these Contracts will be included in gross income on
an income-first basis to the extent of any income in the Contract (the cash
surrender value less the owner's investment in the Contract) immediately before
the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments, partial withdrawals and complete surrenders) from
modified endowment contracts to the extent they are included in income, unless
such amounts are distributed on or after the taxpayer attains age 59 1/2,
because the taxpayer is disabled, or as substantially equal periodic payments
over the taxpayer's life (or life expectancy) or over the joint lives (or joint
life expectancies) of the taxpayer and his or her beneficiary. Furthermore, if
the loan interest is capitalized by adding the amount due to the balance of the
loan, the amount of the capitalized interest will be treated as an additional
distribution subject to income tax as well as the 10% penalty tax, if
applicable, to the extent of income in the Contract.
Any Contract issued in exchange for a modified endowment contract will be
subject to the tax treatment accorded to modified endowment contracts. However,
Merrill Lynch Life believes that any Contract issued in exchange for a life
insurance contract that is not a modified endowment contract will generally not
be treated as a modified endowment contract if the face amount of the Contract
is greater than or equal to the death benefit of the policy being exchanged. The
payment of any premiums at the time of or after the exchange may, however, cause
the Contract to become a modified endowment contract. A contract owner may, of
course, choose not to exercise the right to make additional payments (whether
planned or unplanned) in order to prevent a Contract from being treated as a
modified endowment contract.
Merrill Lynch Life also believes that a Contract received in an exchange for a
life insurance contract that is not a modified endowment contract should not be
treated as a modified endowment contract in situations where the face amount of
the Contract received is less than the death benefit of the contract being
exchanged, provided no additional premium is paid into the Contract. This matter
is, however, not free from doubt because neither Treasury regulations nor
Internal Revenue Service rulings have been issued on this situation. A
prospective contract owner should therefore consult a tax advisor before
effecting such an exchange.
Unlike loans from modified endowment contracts, a loan from a Contract that is
not a modified endowment contract will be considered indebtedness of the owner
and no part of a loan will constitute income to the owner. However, a lapse of a
contract with an outstanding loan will result in the treatment of the loan
cancellation (including the accrued interest) as a distribution under the
contract. Pre-death
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distributions from such a contract will generally not be included in gross
income to the extent that the amount received does not exceed the owner's
investment in the Contract. Further, the 10% penalty tax on pre-death
distributions does not apply to Contracts that are not modified endowment
contracts.
Certain changes to Contracts that are not modified endowment contracts may cause
such Contracts to be treated as modified endowment contracts. A Contract that is
not originally classified as a modified endowment may become so classified if
there is a reduction in benefits during the first seven contract years after the
exchange (including, for example, by a decrease in face amount) or if a material
change (E.G., an increase in certain benefits) is made in the Contract at any
time. Further, in the case of a Contract with joint insureds, reducing the
Contract's death benefit at any time below the lowest death benefit provided
under the Contract may cause the Contract to become a modified endowment
contract. A contract owner should therefore consult a tax advisor before
effecting any change to a Contract that is not a modified endowment contract.
SPECIAL TREATMENT OF LOANS ON THE CONTRACT. If there is any borrowing against
the Contract, the interest paid on loans may not be tax deductible.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death
distribution (including a loan, partial withdrawal, collateral assignment or
complete surrender) from a contract that is treated as a modified endowment
contract, a special aggregation requirement may apply for purposes of
determining the amount of the income on the contract. Specifically, if Merrill
Lynch Life or any of its affiliates issues to the same contract owner more than
one modified endowment contract within a calendar year, then for purposes of
measuring the income on the contract with respect to a distribution from any of
those contracts, the income on the contract for all those contracts will be
aggregated and attributed to that distribution.
OTHER TRANSACTIONS. Changing the contract owner or the insured may have tax
consequences. Exchanging this Contract for another involving the same insured(s)
will have no tax consequences if there is no debt and no cash or other property
is received, according to Section 1035(a)(1) of the Code. Changing the insured
under this Contract may not be treated as an exchange under Section 1035 but
rather as a taxable exchange.
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.
OTHER TAXES. Federal estate and state and local estate, inheritance and other
taxes depend on the contract owner's or the beneficiary's specific situation.
OWNERSHIP OF THIS CONTRACT BY NON-NATURAL PERSONS. The above discussion of the
tax consequences arising from the purchase, ownership, and transfer of the
Contract has assumed that the owner of the Contract consists of one or more
individuals. Organizations exempt from taxation under Section 501(a) of the Code
may be subject to additional or different tax consequences with respect to
transactions such as contract loans. Further, organizations purchasing Contracts
covering the life of an individual who is an officer or employee of, or is
financially interested in the taxpayer's trade or business, should consult a tax
advisor regarding possible tax consequences associated with a Contract 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.
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THE ABOVE DISCUSSION IS NOT INTENDED AS TAX ADVICE. FOR TAX ADVICE CONTRACT
OWNERS SHOULD CONSULT A COMPETENT TAX ADVISER. ALTHOUGH THIS TAX DISCUSSION IS
BASED ON MERRILL LYNCH LIFE'S UNDERSTANDING OF FEDERAL INCOME TAX LAWS AS THEY
ARE CURRENTLY INTERPRETED, IT CAN'T GUARANTEE THAT THOSE LAWS OR INTERPRETATIONS
WILL REMAIN UNCHANGED.
MERRILL LYNCH LIFE'S INCOME TAXES
Insurance companies are generally required to capitalize and amortize certain
policy acquisition expenses over a ten year period rather than currently
deducting such expenses. This treatment applies to the deferred acquisition
expenses of a Contract and will result in a significantly higher corporate
income tax liability for Merrill Lynch Life in early contract years. Merrill
Lynch Life makes a charge, which is included in the Contract's deferred contract
loading, to compensate Merrill Lynch Life for the anticipated higher corporate
income taxes that result from the sale of a Contract. (See "Deferred Contract
Loading" on page 18.)
Merrill Lynch Life makes no other charges to the Separate Account for any
federal, state or local taxes that it incurs that may be attributable to the
Separate Account or to the Contracts. Merrill Lynch Life, however, reserves the
right to make a charge for any tax or other economic burden resulting from the
application of tax laws that it determines to be properly attributable to the
Separate Account or to the Contracts.
REINSURANCE
Merrill Lynch Life intends to reinsure some of the risks assumed under the
Contracts.
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
ABOUT THE SEPARATE ACCOUNT
The Separate Account is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 as a unit investment trust. This
registration does not involve any supervision by the Securities and Exchange
Commission of Merrill Lynch Life's management or the management of the Separate
Account. The Separate Account is also governed by the laws of the State of
Arkansas, Merrill Lynch Life's state of domicile.
Merrill Lynch Life owns all of the assets of the Separate Account. These assets
are held separate and apart from all of Merrill Lynch Life's other assets.
Merrill Lynch Life maintains records of all purchases and redemptions of Series
Fund, Variable Series Funds and Zero Trust shares by each of the investment
divisions.
CHANGES WITHIN THE ACCOUNT
Merrill Lynch Life may from time to time make additional investment divisions
available to contract owners. These divisions will invest in investment
portfolios Merrill Lynch Life finds suitable for the Contracts. Merrill Lynch
Life also has the right to eliminate investment divisions from the Separate
Account, to combine two or more investment divisions, or to substitute a new
portfolio for the portfolio in which an investment division invests. A
substitution may become necessary if, in Merrill Lynch Life's judgment, a
portfolio no longer suits the purposes of the Contracts. This may happen due to
a change in laws or regulations, or a change in a portfolio's investment
objectives or restrictions, or because the portfolio is no longer available for
investment, or for some other reason. Merrill Lynch Life would get prior
approval from the Arkansas State Insurance Department and the Securities and
Exchange Commission before making such a substitution. It would also get any
other required approvals before making such a substitution.
Subject to any required regulatory approvals, Merrill Lynch Life reserves the
right to transfer assets of the Separate Account or of any of the investment
divisions to another separate account or investment division.
When permitted by law, Merrill Lynch Life reserves the right to:
- deregister the Separate Account under the Investment Company Act of 1940;
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- operate the Separate Account as a management company under the Investment
Company Act of 1940;
- restrict or eliminate any voting rights of contract owners, or other
persons who have voting rights as to the Separate Account; and
- combine the Separate Account with other separate accounts.
NET RATE OF RETURN FOR AN INVESTMENT DIVISION
Each investment division has a distinct unit value (also referred to as "price"
or "separate account index" in reports furnished to the contract owner by
Merrill Lynch Life). When payments or other amounts are allocated to an
investment division, a number of units are purchased based on the value of a
unit of the investment division as of the end of the valuation period during
which the allocation is made. When amounts are transferred out of, or deducted
from, an investment division, units are redeemed in a similar manner. A
valuation period is each business day together with any non-business days before
it. A business day is any day the New York Stock Exchange is open or there's
enough trading in portfolio securities to materially affect the net asset value
of an investment division.
For each investment division, the separate account index was initially set at
$10.00. The separate account index for each subsequent valuation period
fluctuates based upon the net rate of return for that period. Merrill Lynch Life
determines the net rate of return of an investment division at the end of each
valuation period. The net rate of return reflects the investment performance of
the division for the valuation period and is net of the charges to the Separate
Account described above.
For divisions investing in the Series Fund or the Variable Series Funds, shares
are valued at net asset value and reflect reinvestment of any dividends or
capital gains distributions declared by the Series Fund or the Variable Series
Funds.
For divisions investing in the Zero Trusts, units of each Zero Trust are valued
at the sponsor's repurchase price, as explained in the prospectus for the Zero
Trusts.
THE SERIES FUND AND THE VARIABLE SERIES FUNDS
BUYING AND REDEEMING SHARES. The Series Fund and Variable Series Funds sell and
redeem their shares at net asset value. Any dividend or capital gain
distribution will be reinvested at net asset value in shares of the same
portfolio.
VOTING RIGHTS. Merrill Lynch Life is the legal owner of all Series Fund and
Variable Series Funds shares held in the Separate Accounts. As the owner,
Merrill Lynch Life has the right to vote on any matter put to vote at the Series
Funds' and Variable Series Funds' shareholder meetings. However, Merrill Lynch
Life will vote all Series Fund and Variable Series Funds shares attributable to
Contracts according to instructions received from contract owners. Shares
attributable to Contracts for which no voting instructions are received will be
voted in the same proportion as shares in the respective investment divisions
for which instructions are received. Shares not attributable to Contracts will
also be voted in the same proportion 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.
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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 several insurance companies not affiliated with Merrill Lynch
Life or Merrill Lynch & Co., Inc. to fund benefits under certain variable life
insurance and variable annuity contracts. Shares of each Fund of Variable Series
Funds may be made available to the separate accounts of additional 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 differences
in voting instructions from Merrill Lynch Life's contract owners and those of
the other insurance companies, or for other reasons. Merrill Lynch Life will
monitor events to determine how to respond to conflicts. If a conflict occurs,
Merrill Lynch Life may be required to eliminate one or more investment divisions
of the Separate Account which invest in the Series Fund or the Variable Series
Funds or substitute a new portfolio for a portfolio in which a division invests.
In responding to any conflict, Merrill Lynch Life will take the action which it
believes necessary to protect its contract owners consistent with applicable
legal requirements.
ADMINISTRATION SERVICES ARRANGEMENT. MLAM has entered into an agreement with
Merrill Lynch Insurance Group, Inc. ("MLIG"), Merrill Lynch Life's parent, with
respect to administration services for the Series Fund and the Variable Series
Funds in connection with the Contracts and other variable life insurance and
variable annuity contracts issued by Merrill Lynch Life. Under this agreement,
MLAM pays compensation to MLIG 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 variable contracts issued by Merrill Lynch Life.
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;
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- .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%, 1.00%, and .75% of the
average daily net assets of the International Equity Focus Fund, the
International Bond Fund, the Developing Capital Markets Focus Fund, and the
Equity Growth Fund, respectively.
Under its investment advisory agreement, MLAM has agreed to reimburse the
Variable Series Funds if and to the extent that in any fiscal year the operating
expenses of any Fund exceeds the most restrictive expense limitations then in
effect under any state securities laws or published regulations thereunder.
Expenses for this purpose include MLAM's fee but exclude interest, taxes,
brokerage commissions and extraordinary expenses, such as litigation. No fee
payments will be made to MLAM with respect to any Fund during any fiscal year
which would cause the expenses of such Fund to exceed the pro rata expense
limitation applicable to such Fund at the time of such payment. This
reimbursement agreement will remain in effect so long as the advisory agreement
remains in effect and cannot be amended without Variable Series Funds approval.
MLAM and Merrill Lynch Life Agency, Inc. have entered into two agreements which
limit the operating expenses paid by each Fund in a given year to 1.25% of its
average daily net assets, which is less than the expense limitations imposed by
state securities laws or published regulations thereunder. These reimbursement
agreements provide that any expenses in excess of 1.25% of average daily net
assets will be reimbursed to the Fund by MLAM which, in turn, will be reimbursed
by Merrill Lynch Life Agency, Inc.
THE ZERO TRUSTS
THE 17 ZERO TRUSTS:
<TABLE>
<CAPTION>
Targeted Rate of Return to
Maturity as
Zero Trust Maturity Date of April 17, 1996
- ---------- ------------------ -----------------------------
<C> <S> <C>
1997 February 15, 1997 3.74%
1998 February 15, 1998 4.58%
1999 February 15, 1999 4.84%
2000 February 15, 2000 4.91%
2001 February 15, 2001 4.97%
2002 February 15, 2002 5.11%
2003 August 15, 2003 5.27%
2004 February 15, 2004 5.35%
2005 February 15, 2005 5.34%
</TABLE>
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<TABLE>
<CAPTION>
Targeted Rate of Return to
Maturity as
Zero Trust Maturity Date of April 17, 1996
- ---------- ------------------ -----------------------------
2006 February 15, 2006 5.25%
<C> <S> <C>
2007 February 15, 2007 5.36%
2008 February 15, 2008 5.62%
2009 February 15, 2009 5.66%
2010 February 15, 2010 5.77%
2011 February 15, 2011 5.74%
2013 February 15, 2013 5.86%
2014 February 15, 2014 5.95%
</TABLE>
TARGETED RATE OF RETURN TO MATURITY. Because the underlying securities in the
Zero Trusts will grow to their face value on the maturity date, it is possible
to estimate a compound rate of growth to maturity for the Zero Trust units.
But because the units are held in the Separate Account, the asset charge and the
trust charge (described in "Charges to the Separate Account" on page 19) must be
taken into account in estimating a net rate of return for the Separate Account.
The net rate of return to maturity for the Separate Account depends on the
compound rate of growth adjusted for these charges. It does not, however,
represent the actual return on a payment that Merrill Lynch Life might receive
under the Contract on that date, since it does not reflect the charges for
deferred contract loading, mortality costs and any net loan cost deducted from a
Contract's investment base (described in "Charges Deducted from the Investment
Base" on page 17).
Since the value of the Zero Trust units will vary daily to reflect the market
value of the underlying securities, the compound rate of growth to maturity for
the Zero Trust units and the net rate of return to maturity for the Separate
Account will vary correspondingly.
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables on pages 39 through 43 demonstrate the way in which the Contract
works. The tables are based on the following ages, face amounts, payments and
guarantee periods and assume maximum mortality charges.
1. The illustration on page 39 is for a Contract issued to a male age 5 in
the standard-simplified underwriting class with a single payment of $10,000, a
face amount of $93,422 and a guarantee period for life.
2. The illustration on page 40 is for a Contract issued to a female age 40
in the standard-simplified underwriting class with a single payment of $25,000,
a face amount of $89,686 and a guarantee period for life.
3. The illustration on page 41 is for a Contract issued to a male age 55 in
the standard-simplified underwriting class with a single payment of $30,000, a
face amount of $58,439 and a guarantee period for life.
4. The illustration on page 42 is for a Contract issued to a male age 65 in
the standard-simplified underwriting class with a single payment of $35,000, a
face amount of $52,804 and a guarantee period for life.
5. The illustration on page 43 is for a Contract issued to a male age 65
and a female age 65 in the standard-simplified underwriting class with a single
payment of $35,000, a face amount of $67,012 and a guarantee period for life.
37
<PAGE>
The tables show how the death benefit, investment base and cash surrender value
may vary over an extended period of time assuming hypothetical rates of return
(i.e., investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross annual rates of 0%, 6% and 12%.
The death benefit, investment base and cash surrender value for a Contract would
be different from those shown if the actual rates of return averaged 0%, 6% and
12% over a period of years, but also fluctuated above or below those averages
for individual contract years.
The amounts shown for the death benefit, investment base and cash surrender
value as of the end of each contract year take into account the daily asset
charge in the Separate Account equivalent to .90% (annually at the beginning of
the year) of assets attributable to the Contracts at the beginning of the year.
The amounts shown in the tables also assume an additional charge of .490%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1995 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 Developing Capital Markets
Focus Fund of the Variable Series Funds in 1995, which were reimbursed to the
Variable Series Funds by MLAM. The reimbursements amounted to .11% of the
average daily net assets of this portfolio. (See "Charges to Variable Series
Funds 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 income taxes included in the deferred contract
loading, see "Deferred Contract Loading" on page 18). In order to produce after
tax returns of 0%, 6% and 12%, the Series Fund and the Variable Series Funds
would have to earn a sufficient amount in excess of 0% or 6% or 12% to cover any
tax charges attributable to the Separate Account.
The second column of the tables shows the amount which would accumulate if an
amount equal to the payments were invested to earn interest (after taxes) at 5%
compounded annually.
Merrill Lynch Life will furnish upon request a personalized illustration
reflecting the proposed insured's age, face amount and the payment amounts
requested. The illustration will also use current cost of insurance rates and
will assume that the proposed insured is in a standard underwriting class.
38
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 5
$10,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $93,422 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
--------------------- --------------- ----------------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
1................... $10,000 $ 10,500 $93,422 $ 94,333 $ 100,217
2................... 0 11,025 93,422 95,198 107,317
3................... 0 11,576 93,422 96,017 114,748
4................... 0 12,155 94,422 96,795 122,535
5................... 0 12,763 93,422 97,532 130,707
6................... 0 13,401 93,422 98,231 139,294
7................... 0 14,071 93,422 98,895 148,330
8................... 0 14,775 93,422 99,526 157,847
9................... 0 15,513 93,422 100,126 167,884
10................... 0 16,289 93,422 100,696 178,477
15................... 0 20,789 93,422 103,446 241,917
20 (age 25) ......... 0 26,533 93,422 106,270 327,901
30 (age 35) ......... 0 43,219 93,422 112,147 602,166
60 (age 65) ......... 0 186,791 93,422 131,820 3,735,274
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
----------------------------- -----------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
--------------------- ------ -------- ----------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1................... $9,694 $ 10,287 $ 10,878 $8,884 $ 9,477 $ 10,068
2................... 9,396 10,589 11,846 8,676 9,869 11,126
3................... 9,109 10,912 12,918 8,479 10,282 12,288
4................... 8,829 11,253 14,102 8,289 10,713 13,562
5................... 8,554 11,610 15,406 8,104 11,160 14,956
6................... 8,286 11,986 16,845 7,926 11,626 16,485
7................... 8,019 12,375 18,426 7,749 12,105 18,156
8................... 7,749 12,775 20,155 7,569 12,595 19,975
9................... 7,470 13,178 22,036 7,380 13,088 21,946
10................... 7,183 13,586 24,081 7,183 13,586 24,081
15................... 6,062 16,186 37,853 6,062 16,186 37,853
20 (age 25) ......... 4,941 19,308 59,577 4,941 19,308 59,577
30 (age 35) ......... 3,063 28,234 151,603 3,063 28,234 151,603
60 (age 65) ......... 0 79,512 2,253,056 0 79,512 2,253,056
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND
CASH SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATIONS CAN BE MADE BY MERRILL LYNCH LIFE OR THE SERIES FUND OR THE
VARIABLE SERIES FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
39
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
FEMALE ISSUE AGE 40
$25,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $89,686 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
DEATH BENEFIT (2)
TOTAL ASSUMING HYPOTHETICAL GROSS
PAYMENTS ANNUAL INVESTMENT RETURN OF
END OF MADE PLUS ---------------------------
CONTRACT YEAR PAYMENTS (1) INTEREST AT 5% 0% 6% 12%
--------------------- --------------- ----------------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
1................... $25,000 $ 26,250 $89,686 $ 90,543 $ 96,188
2................... 0 27,562 89,686 91,372 103,001
3................... 0 28,941 89,686 92,158 110,133
4................... 0 30,388 89,686 92,904 117,609
5................... 0 31,907 89,686 93,612 125,458
6................... 0 33,502 89,686 94,285 133,708
7................... 0 35,178 89,686 94,923 142,388
8................... 0 36,936 89,686 95,530 151,533
9................... 0 38,783 89,686 96,107 161,175
10................... 0 40,722 89,686 96,656 171,350
15................... 0 51,973 89,686 99,294 232,256
20 (age 60) ......... 0 66,332 89,686 102,006 314,836
30 (age 70) ......... 0 108,049 89,686 107,656 578,666
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ----------------------------- -----------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
--------------------- -------- ------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1................... $ 24,266 $25,749 $ 27,228 $ 22,241 $23,724 $ 25,203
2................... 23,531 26,518 29,664 21,731 24,718 27,864
3................... 22,793 27,307 32,325 21,218 25,732 30,750
4................... 22,055 28,119 35,237 20,705 26,769 33,887
5................... 21,314 28,953 38,419 20,189 27,828 37,294
6................... 20,570 29,810 41,897 19,670 28,910 40,997
7................... 19,826 30,691 45,701 19,151 30,016 45,026
8................... 19,078 31,597 49,856 18,628 31,147 49,406
9................... 18,327 32,528 54,398 18,102 32,303 54,173
10................... 17,574 33,485 59,362 17,574 33,485 59,362
15................... 14,819 39,888 93,301 14,819 39,888 93,301
20 (age 60) ......... 11,828 47,290 145,960 11,828 47,290 145,960
30 (age 70) ......... 4,711 65,372 351,386 4,711 65,372 351,386
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND
CASH SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATIONS CAN BE MADE BY MERRILL LYNCH LIFE OR THE SERIES FUND OR THE
VARIABLE SERIES FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 55
$30,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $58,439 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
--------------------- --------------- ----------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1................... $30,000 $ 31,500 $58,439 $59,009 $ 62,693
2................... 0 33,075 58,439 59,552 67,143
3................... 0 34,729 58,439 60,067 71,803
4................... 0 36,465 58,439 60,557 76,690
5................... 0 38,288 58,439 61,022 81,821
6................... 0 40,203 58,439 61,464 87,216
7................... 0 42,213 58,439 61,883 92,893
8................... 0 44,324 58,439 62,282 98,874
9................... 0 46,540 58,439 62,661 105,180
10 (age 65) ......... 0 48,867 58,439 63,020 111,833
15................... 0 62,368 58,439 64,744 151,676
20................... 0 79,599 58,439 66,516 205,758
30................... 0 129,658 58,439 70,213 378,938
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
------------------------------ ------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
--------------------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1................... $28,991 $30,767 $ 32,536 $26,561 $28,337 $ 30,106
2................... 27,973 31,541 35,286 25,813 29,381 33,126
3................... 26,948 32,326 38,272 25,058 30,436 36,382
4................... 25,916 33,119 41,511 24,296 31,499 39,891
5................... 24,875 33,922 45,025 23,525 32,572 43,675
6................... 23,825 34,734 48,834 22,745 33,654 47,754
7................... 22,765 35,552 52,961 21,955 34,742 52,151
8................... 21,690 36,372 57,424 21,150 35,832 56,884
9................... 20,600 37,193 62,248 20,330 36,923 61,978
10 (age 65) ......... 19,492 38,012 67,456 19,492 38,012 67,456
15................... 14,995 43,526 101,969 14,995 43,526 101,969
20................... 9,879 49,127 151,967 9,879 49,127 151,967
30................... 0 59,488 321,057 0 59,488 321,057
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND
CASH SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATIONS CAN BE MADE BY MERRILL LYNCH LIFE OR THE SERIES FUND OR THE
VARIABLE SERIES FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 65
$35,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $52,804 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
--------------------- --------------- ----------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1................... $35,000 $ 36,750 $52,804 $53,321 $ 56,654
2................... 0 38,588 52,804 53,813 60,683
3................... 0 40,517 52,804 54,281 64,904
4................... 0 42,543 52,804 54,727 69,333
5................... 0 44,670 52,804 55,150 73,985
6................... 0 46,903 52,804 55,553 78,875
7................... 0 49,249 52,804 55,935 84,023
8................... 0 51,711 52,804 56,298 89,444
9................... 0 54,296 52,804 56,642 95,161
10 (age 75) ......... 0 57,011 52,804 56,968 101,193
15................... 0 72,762 52,804 58,529 137,312
20................... 0 92,865 52,804 60,134 186,364
30................... 0 151,268 52,804 63,479 343,440
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
------------------------------ ------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
--------------------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1................... $33,670 $35,737 $ 37,794 $30,835 $32,902 $ 34,959
2................... 32,327 36,471 40,805 29,807 33,951 38,285
3................... 30,973 37,201 44,050 28,768 34,996 41,845
4................... 29,608 37,928 47,547 27,718 36,038 45,657
5................... 28,233 38,651 51,314 26,658 37,076 49,739
6................... 26,843 39,368 55,367 25,583 38,108 54,107
7................... 25,438 40,074 59,722 24,493 39,129 58,777
8................... 24,013 40,764 64,394 23,383 40,134 63,764
9................... 22,564 41,433 69,394 22,249 41,118 69,079
10 (age 75) ......... 21,089 42,075 74,738 21,089 42,075 74,738
15................... 14,910 46,626 109,388 14,910 46,626 109,388
20................... 8,214 50,949 157,898 8,214 50,949 157,898
30................... 0 59,154 320,036 0 59,154 320,036
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND
CASH SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATIONS CAN BE MADE BY MERRILL LYNCH LIFE OR THE SERIES FUND OR THE
VARIABLE SERIES FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
JOINT INSUREDS: FEMALE ISSUE AGE 65/MALE ISSUE AGE 65
$35,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $67,012 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
--------------------- --------------- ----------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1................... $35,000 $ 36,750 $67,012 $67,736 $ 72,041
2................... 0 38,588 67,012 68,416 77,275
3................... 0 40,517 67,012 69,054 82,733
4................... 0 42,543 67,012 69,654 88,437
5................... 0 44,670 67,012 70,218 94,408
6................... 0 46,903 67,012 70,748 100,670
7................... 0 49,249 67,012 71,247 107,248
8................... 0 51,711 67,012 71,716 114,165
9................... 0 54,296 67,012 72,159 121,450
10 (age 75) ......... 0 57,011 67,012 72,575 129,127
15................... 0 72,762 67,012 74,558 175,080
20................... 0 92,865 67,012 76,599 237,500
30................... 0 151,268 67,012 80,857 437,481
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
----------------------------- ------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
--------------------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1................... $34,117 $36,198 $38,278 $30,652 $32,733 $ 34,813
2................... 33,218 37,420 41,867 30,138 34,340 38,787
3................... 32,298 38,664 45,789 29,603 35,969 43,094
4................... 31,357 39,927 50,071 29,047 37,617 47,761
5................... 30,390 41,206 54,739 28,465 39,281 52,814
6................... 29,395 42,497 59,820 27,855 40,957 58,280
7................... 28,367 43,795 65,342 27,212 42,640 64,187
8................... 27,301 45,094 71,329 26,531 44,324 70,559
9................... 26,190 46,383 77,805 25,805 45,998 77,420
10 (age 75) ......... 25,027 47,656 84,790 25,027 47,656 84,790
15................... 20,196 55,640 130,656 20,196 55,640 130,656
20................... 13,695 62,930 195,119 13,695 62,930 195,119
30................... 0 75,232 407,046 0 75,232 407,046
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND
CASH SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATIONS CAN BE MADE BY MERRILL LYNCH LIFE OR THE SERIES FUND OR THE
VARIABLE SERIES FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE>
EXAMPLES
ADDITIONAL PAYMENTS
If the guarantee period is for the whole of life at the time an additional
payment is received and accepted, as of the processing date on or next following
the date of the additional payment, Merrill Lynch Life will increase the face
amount to the amount that the Contract's fixed base, as of such processing date,
would support for the life of the insured.
Under these circumstances the amount of the increase in face amount will depend
on the amount of the additional payment and the contract year in which it is
received and accepted. If additional payments of different amounts were made at
the same time to equivalent Contracts, the Contract to which the larger payment
is applied would have a proportionately larger increase in face amount. And if
additional payments of the same amounts were made in earlier and later years,
those made in the later years would result in smaller increases to the face
amount.
Example 1 shows the effect on face amount of a $2,000 additional payment
received and accepted at the beginning of contract year two. Example 2 shows the
effect of a $4,000 additional payment received and accepted at the beginning of
contract year two. Example 3 shows the effect of a $2,000 additional payment
received and accepted at the beginning of contract year five. All three examples
assume that the guarantee period at the time of the additional payment is for
life and assume no other contract transactions have been made.
MALE ISSUE AGE: 55
INITIAL PAYMENT: $30,000 FACE AMOUNT: $58,439
<TABLE>
<CAPTION>
EXAMPLE 1
--------------------------------------------
NEW
CONTRACT ADDITIONAL CHANGE IN FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
-------- ---------- ----------- -------
<S> <C> <C> <C>
2 $2,000 $3,789 $62,228
<CAPTION>
EXAMPLE 2
--------------------------------------------
NEW
CONTRACT ADDITIONAL CHANGE IN FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
-------- ---------- ----------- -------
<S> <C> <C> <C>
2 $4,000 $7,579 $66,018
<CAPTION>
EXAMPLE 3
--------------------------------------------
NEW
CONTRACT ADDITIONAL CHANGE IN FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
-------- ---------- ----------- -------
<S> <C> <C> <C>
5 $2,000 $3,498 $61,937
</TABLE>
CHANGING THE FACE AMOUNT
As of the processing date on or next following receipt and acceptance of a
request for a change in face amount, Merrill Lynch Life will make the requested
change and adjust the guarantee period. For an increase in face amount, Merrill
Lynch Life will decrease the guarantee period and for a decrease in face amount,
Merrill Lynch Life will increase the guarantee period. To decrease the face
amount, the guarantee period must be less than for the whole of life at the time
of the request. A new guarantee period is established by taking the Contract's
fixed base as of the processing date and determining how long that fixed base
would support the face amount.
The amount of the increase or decrease in the guarantee period will depend on
the amount of increase or decrease in the face amount and the contract year in
which the change is made. If made at the same time to equivalent Contracts, a
larger increase in face amount would result in a greater decrease in the
guarantee period than a smaller increase in face amount. The same increase made
in two different years would result in a smaller decrease in the guarantee
period for the increase in face amount made in the later year.
Examples 1 and 2 show the effect on the guarantee period of an increase in face
amount of $10,000 and $20,000 made at the beginning of contract year five.
Example 3 shows the effect on the guarantee period of an increase in face amount
of $10,000 made in contract year eight. All three examples assume that the
guarantee period at the time of the requested increase in face amount is for
life and assume no other Contract transactions have been made.
44
<PAGE>
MALE ISSUE AGE: 55
INITIAL PAYMENT: $30,000 FACE AMOUNT: $58,439
<TABLE>
<CAPTION>
EXAMPLE 1
----------------------------------------
DECREASE IN
CONTRACT INCREASE IN GUARANTEE
YEAR FACE AMOUNT PERIOD
-------- ----------- ----------------
<S> <C> <C>
5 $10,000 16.00 years
<CAPTION>
EXAMPLE 2
----------------------------------------
DECREASE IN
CONTRACT INCREASE IN GUARANTEE
YEAR FACE AMOUNT PERIOD
-------- ----------- ----------------
<S> <C> <C>
5 $20,000 19.75 years
<CAPTION>
EXAMPLE 3
----------------------------------------
DECREASE IN
CONTRACT INCREASE IN GUARANTEE
YEAR FACE AMOUNT PERIOD
-------- ----------- ----------------
<S> <C> <C>
8 $10,000 15.50 years
</TABLE>
PARTIAL WITHDRAWALS
As of the processing date on or next following any partial withdrawal,
Merrill Lynch Life will reduce the Contract's face amount. The new face amount
is established by taking the Contract's fixed base as of the processing date and
determining what face amount that fixed base would support for the Contract's
guarantee period.
The amount of the reduction in the face amount will depend on the amount of the
partial withdrawal, the guarantee period at the time of the withdrawal and the
contract year in which the withdrawal is made. If made at the same time to
equivalent Contracts, a larger withdrawal would result in a greater reduction in
the face amount than a smaller withdrawal. The same partial withdrawal made at
the same time from Contracts with the same face amounts but with different
guarantee periods would result in a greater reduction in the face amount for the
Contract with the longer guarantee period. A partial withdrawal made in a later
contract year would result in a smaller decrease in the face amount than if the
same amount was withdrawn in an earlier year.
Examples 1 and 2 show the effect on the face amount of partial withdrawals for
$500 and $1,000 taken at the beginning of contract year three. Example 3 shows
the effect on the face amount of a $500 partial withdrawal taken at the
beginning of contract year eight. All three examples assume that the guarantee
period was for the lifetime of the insured before the partial withdrawal and
assume no other contract transactions have been made.
MALE ISSUE AGE: 55
INITIAL PAYMENT: $30,000 FACE AMOUNT: $58,439
<TABLE>
<CAPTION>
EXAMPLE 1
----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
-------- ---------- -----------
<S> <C> <C>
3 $ 500 $57,425
<CAPTION>
EXAMPLE 2
----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
-------- ---------- -----------
<S> <C> <C>
3 $1,000 $56,411
<CAPTION>
EXAMPLE 3
----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
-------- ---------- -----------
<S> <C> <C>
8 $ 500 $57,547
</TABLE>
If the reduction in face amount would be below the minimum face amount for a
Contract, Merrill Lynch Life will reduce the face amount to the minimum face
amount, and then reduce the guarantee period by taking the Contract's fixed base
as of the processing date and determining how long that fixed base would support
the reduced face amount.
45
<PAGE>
JOINT INSUREDS
Contract owners may purchase a Contract on the lives of two insureds. Some
of the discussions in this Prospectus applicable to the Contract apply only to a
Contract on a single insured. Set out below are the modifications to the
designated sections of this Prospectus for joint insureds. Except in the
sections noted below, the discussions in this Prospectus referencing a single
insured can be read as though the single insured were the two insureds under a
joint Contract.
AVAILABILITY AND PAYMENTS (REFERENCE PAGE 6)
A Contract may be issued for insureds up to age 80. The minimum initial
payment for a Contract is $5,000 if either insured is under age 20. If neither
insured is under age 20 the minimum initial payment is $10,000.
Merrill Lynch Life will not accept an initial payment that will provide a
guarantee period of less than the minimum guarantee period for which it would
then issue a Contract based on the age of the younger insured. Such minimum will
range from 10 to 40 years depending on the age of the younger insured.
WHO MAY BE COVERED (REFERENCE PAGE 13)
Merrill Lynch Life will issue a Contract on the lives of two insureds
provided the relationship among the applicant and the insureds meets its
insurable interest requirements and provided neither insured is over age 80 and
no more than one insured is under age 20. The insureds' issue ages will be
determined using their ages as of their birthdays nearest the contract date.
The initial payment, or the planned periodic payments elected, and the average
age of the insureds determine whether underwriting will be done on a simplified
or medical basis. The maximum amount underwritten on a simplified basis for
joint insureds depends on Merrill Lynch Life's administrative rules in effect at
the time of underwriting.
Under both simplified and medical underwriting methods, Contracts may be issued
on joint insureds in a standard underwriting class only.
INITIAL PAYMENT (REFERENCE PAGE 13)
The minimum initial payment for a Contract is $5,000 if either insured is
under age 20. If neither insured is under age 20 the minimum initial payment is
$10,000.
Merrill Lynch Life will not accept an initial payment for a specified face
amount that will provide a guarantee period of less than the minimum guarantee
period for which Merrill Lynch Life would then issue a Contract based on the age
of the younger insured. The minimum will range from 10 to 40 years depending on
the age of the younger insured.
MAKING ADDITIONAL PAYMENTS
PAYMENTS WHICH ARE NOT UNDER A PERIODIC PLAN (REFERENCE PAGE 14). Contract
owners may make additional payments which are not under a periodic payment plan
only if both insureds are living and the attained ages of both insureds are not
over 80.
PAYMENTS UNDER A PERIODIC PLAN (REFERENCE PAGE 14). Contract owners may change
the frequency and the amount of planned payments provided both insureds are
living.
Planned payments must be received while at least one insured is living and not
more than 30 days before or 30 days after the date specified for payment.
EFFECT OF ADDITIONAL PAYMENTS (REFERENCE PAGE 15). If the guarantee period
prior to receipt and acceptance of an additional payment is less than for the
life of the last surviving insured, the payment will first be used to extend the
guarantee period to the whole of life of the younger insured.
CHANGING THE FACE AMOUNT
INCREASING THE FACE AMOUNT (REFERENCE PAGE 16). Contract owners may increase
the face amount of their Contracts only if both insureds are living. A change in
face amount is not permitted if the attained age of either insured is over 80.
DECREASING THE FACE AMOUNT (REFERENCE PAGE 16). Contract owners may decrease
the face amount of their Contracts if either insured is living.
46
<PAGE>
CHARGES DEDUCTED FROM THE INVESTMENT BASE
DEFERRED CONTRACT LOADING (REFERENCE PAGE 18). The deferred contract loading
equals 11.0% of each payment. This charge consists of a sales load, a charge for
federal income taxes measured by premiums and a state and local premium tax
charge.
The sales load, equal to 6.5% of each payment, compensates Merrill Lynch Life
for sales expenses. The sales load may be reduced if cumulative payments are
sufficiently high to reach certain breakpoints (4% of payments in excess of $1.5
million and 2% of payments in excess of $4 million). The charge for federal
taxes, equal to 2% of each payment, compensates Merrill Lynch Life for a
significantly higher corporate income tax liability resulting from changes made
to the Internal Revenue Code by the Omnibus Budget Reconciliation Act of 1990.
(See "Merrill Lynch Life's Income Taxes" on page 33.) The state and local
premium tax charge, equal to 2.5% of payments, compensates Merrill Lynch Life
for state and local premium taxes that must be paid when a payment is accepted.
Merrill Lynch Life deducts an amount equal to 1.1% of each payment from the
investment base on each of the ten contract anniversaries following payment.
MORTALITY COST (REFERENCE PAGE 18). For Contracts issued on joint insureds,
current cost of insurance rates are equal to the guaranteed maximum cost of
insurance rates set forth in the Contract. Those rates are based on the 1980
Commissioners Aggregate Mortality Table and do not distinguish between insureds
in a smoker underwriting class and insureds in a non-smoker underwriting class.
The cost of insurance rates are based on an aggregate class which is made up of
a blend of smokers and non-smokers.
GUARANTEE PERIOD
WHEN THE GUARANTEE PERIOD IS LESS THAN FOR LIFE (REFERENCE PAGE 20). If Merrill
Lynch Life cancels a Contract, it may be reinstated only if neither insured has
died between the date the Contract was terminated and the effective date of the
reinstatement and the contract owner meets the other conditions listed on page
20.
NET CASH SURRENDER VALUE
CANCELLING TO RECEIVE NET CASH SURRENDER VALUE (REFERENCE PAGE 21). Contract
owners may cancel their Contracts at any time while either insured is living.
DEATH BENEFIT PROCEEDS (REFERENCE PAGE 23)
Merrill Lynch Life will pay the death benefit proceeds to the beneficiary
when all information needed to process the payment, including due proof of the
last surviving insured's death, has been received at the Service Center. Proof
of death for both insureds must be received. There is no death benefit payable
at the first death.
If one of the insureds should die within two years from the Contract's issue
date, within two years from the effective date of any increase in face amount
requested or within two years from the date an additional payment was received
and accepted, proof of the insured's death should be sent promptly to the
Service Center since Merrill Lynch Life may only pay a limited benefit or
contest the Contract. (See "Incontestability" and "Payment in Case of Suicide"
on page 27.)
NET SINGLE PREMIUM FACTOR (REFERENCE PAGE 23). The net single premium factors
are based on the insureds' sexes and underwriting classes and the attained ages
on the date of calculation.
PAYMENT OF DEATH BENEFIT PROCEEDS (REFERENCE PAGE 23)
If payment is delayed, Merrill Lynch Life will add interest from the date of
the last surviving insured's death to the date of payment at an annual rate of
at least 4%.
RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR EXCHANGE
EXCHANGING THE CONTRACT (REFERENCE PAGE 24). A contract owner may exchange his
or her Contract for a joint and last survivor Contract with benefits that don't
vary with the investment results of a separate account.
USING THE CONTRACT
OWNERSHIP (REFERENCE PAGE 24). The contract owner is usually one of the
insureds, unless another owner has been named in the application.
47
<PAGE>
The contract owner may want to name a contingent owner in the event the contract
owner dies before the last surviving insured. The contingent owner would then
own the contract owner's interest in the Contract and have all the contract
owner's rights.
NAMING BENEFICIARIES (REFERENCE PAGE 25). Merrill Lynch Life pays the primary
beneficiary the proceeds of this Contract on the last surviving insured's death.
If no contingent beneficiary is living, Merrill Lynch Life pays the last
surviving insured's estate.
CHANGING THE INSURED (REFERENCE PAGE 25). Not available for joint insureds.
MATURITY PROCEEDS (REFERENCE PAGE 26). The maturity date is the contract
anniversary nearest the younger insured's 100th birthday. On the maturity date,
Merrill Lynch Life will pay the net cash surrender value to the contract owner,
provided either insured is living.
OTHER CONTRACT PROVISIONS
INCONTESTABILITY (REFERENCE PAGE 27). Merrill Lynch Life won't contest the
validity of a Contract after it has been in effect during the lifetimes of both
insureds for two years from the issue date. It won't contest any change in face
amount requested after the change has been in effect during the lifetimes of
both insureds for two years from the date of the change. Nor will Merrill Lynch
Life contest any amount of death benefit attributable to an additional payment
after the death benefit has been in effect during the lifetimes of both insureds
for two years from the date the payment has been received and accepted.
PAYMENT IN CASE OF SUICIDE (REFERENCE PAGE 27). If either insured commits
suicide within two years from the issue date, Merrill Lynch Life will pay only a
limited benefit and terminate the Contract. The benefit will be equal to the
payments made reduced by any debt.
If either insured commits suicide within two years of the effective date of any
increase in face amount requested, the coverage attributable to the increase
will be terminated and a limited benefit will be paid. The benefit will be
limited to the amount of mortality cost deductions made for the increase.
If either insured commits suicide within two years of any date an additional
payment is received and accepted, the coverage attributable to the payment will
be terminated and only a limited benefit will be paid. The benefit will be equal
to the payment less any debt attributable to amounts borrowed during the two
years from the date the payment was received and accepted.
ESTABLISHING SURVIVORSHIP (ONLY APPLICABLE TO JOINT INSUREDS). If Merrill Lynch
Life is unable to determine which of the insureds was the last survivor on the
basis of the proofs of death provided, it will consider insured No. 1 as
designated in the application to be the last surviving insured.
INCOME PLANS (REFERENCE PAGE 28)
If no plan has been chosen when the last surviving insured dies, the
beneficiary has one year to apply the death benefit proceeds either paid or
payable to him or her to one or more of the income plans.
48
<PAGE>
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Merrill Lynch Life's directors and executive officers and their positions
with Merrill Lynch Life 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, Jr. Director, Senior Vice President, Chief
Financial Officer, Chief Actuary, and
Treasurer
Barry G. Skolnick Director, Senior Vice President,
General Counsel, and Secretary
David M. Dunford Director, Senior Vice President, and
Chief Investment Officer
Gail R. Farkas Director and Senior Vice President
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 Merrill Lynch
Life's indirect parent, Merrill Lynch & Co., Inc. The principal positions of
Merrill Lynch Life'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 MLPF&S. From February 1991 to
February 1994, he held the position of District Director and First Vice
President of MLPF&S. Prior to February 1991, he held the position of Senior
Resident Vice President of MLPF&S.
Mr. Crowne joined Merrill Lynch Life in June 1991. Prior to June 1991, he was a
Principal with Coopers & Lybrand.
Mr. Skolnick joined Merrill Lynch Life in November 1990. Since May 1992, he has
held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and
First Vice President of MLPF&S. 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.
Ms. Farkas joined Merrill Lynch Life in August 1995. Prior to August 1995, she
held the position of Director of Market Planning of MLPF&S.
Mr. Boucher joined Merrill Lynch Life in May 1992. Prior to May 1992, he held
the position of Vice President of Monarch Financial Services, Inc. (formerly
Monarch Resources Inc.)
No shares of Merrill Lynch Life are owned by any of its officers or directors,
as it is a wholly owned subsidiary of MLIG. 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 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 $43.0 million for the year ended December 31,
1995.
49
<PAGE>
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
MLPF&S 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 MLPF&S.
EXPERTS
The financial statements of Merrill Lynch Life as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995 and
of the Separate Account as of December 31, 1995 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, Jr., F.S.A., Chief Actuary and Chief Financial Officer of Merrill Lynch
Life, as stated in his opinion filed as an exhibit to the registration
statement.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contract, and
the validity of the form of the Contract have been passed upon by Barry G.
Skolnick, Merrill Lynch Life's Senior Vice President and General Counsel.
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on certain
matters relating to federal securities laws.
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940 that relate to the Contract and its investment options. This Prospectus
does not contain all of the information in the registration statements as
permitted by Securities and Exchange Commission regulations. The omitted
information can be obtained from the Securities and Exchange Commission's
principal office in Washington, D.C., upon payment of a prescribed fee.
FINANCIAL STATEMENTS
The financial statements of Merrill Lynch Life, included herein, should be
distinguished from the financial statements of the Separate Account and should
be considered only as bearing upon the ability of Merrill Lynch Life to meet its
obligations under the Contracts.
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, 1995 and the related statements of
operations 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 and unit investment trust securities owned at
December 31, 1995, by correspondence with their respective
custodians. 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, 1995 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, 1996
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note 1):
Money Reserve Portfolio $ 37,356,959 37,356,959 $ 37,356,959
Intermediate Government Bond Portfolio 11,092,329 1,026,527 11,712,669
Long-Term Corporate Bond Portfolio 7,890,030 677,790 8,147,041
Capital Stock Portfolio 15,412,378 699,937 16,714,499
Growth Stock Portfolio 11,088,265 540,178 12,996,683
Multiple Strategy Portfolio 15,466,528 930,556 16,042,793
High Yield Portfolio 7,901,025 883,765 7,945,045
Natural Resources Portfolio 1,587,200 199,209 1,627,541
Global Strategy Portfolio 19,836,022 1,331,940 20,312,077
Balanced Portfolio 4,837,860 353,215 5,248,769
----------------- -----------------
132,468,596 138,104,076
----------------- -----------------
Investment in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Global Utility Focus Fund 362,005 35,533 401,526
International Equity Focus Fund 4,098,887 382,350 4,228,794
World Income Focus Fund 213,354 22,394 219,241
Basic Value Focus Fund 7,459,244 632,669 8,287,965
International Bond Fund 126,063 12,059 126,859
Developing Capital Markets Focus 2,500,230 258,388 2,408,178
----------------- -----------------
14,759,783 15,672,563
----------------- -----------------
Investment in Unit Investment Trusts (Note 1):
Stripped ("Zero") U.S. Treasury Securities, Series A through K:
1996 Trust 213,018 223,583 222,418
1997 Trust 261,679 293,295 278,064
1998 Trust 739,421 914,823 822,178
1999 Trust 886,079 1,173,460 998,978
2000 Trust 643,627 917,385 741,091
2001 Trust 51,261 72,751 55,758
2002 Trust 167,062 271,975 196,478
2003 Trust 87,420 159,433 105,370
2004 Trust 640,352 1,244,197 796,000
2005 Trust 523,588 1,050,063 637,987
2006 Trust 52,831 122,788 71,300
2007 Trust 25,913 60,877 33,144
2008 Trust 176,461 387,346 194,060
2009 Trust 49,381 153,246 72,182
2010 Trust 289,344 681,493 298,249
2011 Trust 219,774 830,290 342,852
2013 Trust 55,567 187,856 67,638
2014 Trust 310,253 1,197,654 400,088
----------------- -----------------
5,393,031 6,333,835
----------------- -----------------
Total Assets $ 152,621,410 160,110,474
================= -----------------
LIABILITIES
Payable to Merrill Lynch Series Fund, Inc. 164,982
Payable to Merrill Lynch Variable Series Funds, Inc. 202,563
Payable to Merrill Lynch Life Insurance Company 4,222,021
-----------------
Total Liabilities 4,589,566
-----------------
Net Assets $ 155,520,908
=================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 7,040,646 $ 3,610,497 $ 566,325
Mortality and Expense Charges (Note 3) (1,098,797) (542,446) (140,002)
Transaction Charges (Note 4) (18,263) (3,767) (1,237)
----------------- ----------------- -----------------
Net Investment Income 5,923,586 3,064,284 425,086
----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (309,482) (218,534) 63,152
Net Unrealized Gains (Losses) 10,659,883 (4,239,903) 1,022,845
----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 10,350,401 (4,458,437) 1,085,997
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 16,273,987 (1,394,153) 1,511,083
----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 57,600,863 51,971,799 29,211,942
Transfers of Policy Loading, Net (Note 3) 2,992,695 3,241,522 2,330,207
Transfers Due to Deaths (1,461,703) (29,512) (89,520)
Transfers Due to Other Terminations (2,139,618) (493,701) (69,256)
Transfers Due to Policy Loans (1,721,984) (1,463,743) (387,136)
Transfers of Cost of Insurance (2,101,569) (1,296,287) (377,409)
Transfers of Loan Processing Charges (28,928) (8,161) (4,194)
----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Principal Transactions 53,139,756 51,921,917 30,614,634
----------------- ----------------- -----------------
Increase in Net Assets 69,413,743 50,527,764 32,125,717
Net Assets Beginning Balance 86,107,165 35,579,401 3,453,684
----------------- ----------------- -----------------
Net Assets Ending Balance $ 155,520,908 $ 86,107,165 $ 35,579,401
================= ================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
Note 1 - Merrill Lynch Variable Life Separate Account
("Account"), a separate account of Merrill Lynch Life
Insurance Company ("Merrill Lynch Life") was
established to support the operations with respect to
certain variable life insurance contracts
("Contracts"). The Account is governed by Arkansas
State Insurance Law. Merrill Lynch Life is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill"). The Account is registered as a unit
investment trust under the Investment Company Act of
1940 and consists of thirty-four investment divisions
(thirty-five 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"), an indirect subsidiary
of Merrill, 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. Eighteen of the divisions
(nineteen during the year) each invest in the
securities of a single trust of the Merrill Lynch Fund
of Stripped ("Zero") U.S. Treasury Securities, Series A
through K ("Zero Trusts"). Each trust of the Zero
Trusts 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 assets of the Account are registered in the name 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 accumulated 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.
To facilitate comparisons with the current year,
certain amounts in the prior years have been
reclassified.
Note 2 - The following is a summary of significant
accounting policies of the Account:
Investments in the divisions are included in the
statement of net assets at the net asset value of the
respective Series Fund, Variable Series Funds and Zero
Trusts shares held.
Dividend income 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 such tax 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 3). Charges for state and local taxes, if any,
attributable to the Account may also be made.
Note 3 - 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, the cost of providing life insurance
coverage for the insureds will be deducted on the dates
specified by the Contract. 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 4 - Merrill Lynch Life pays all transaction charges to
Merrill Lynch, Pierce, Fenner & Smith Inc., a
subsidiary of Merrill and sponsor of the unit
investment trusts, on the sale of Series A through K
Unit Investment Trust units to the Account. Merrill
Lynch Life 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 OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<Caption
Divisions Investing In
-----------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 7,040,646 $ 2,042,506 $ 590,260 $ 471,729
Mortality and Expense Charges (1,098,797) (276,122) (77,890) (60,109)
Transaction Charges (18,263) 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 5,923,586 1,766,384 512,370 411,620
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (309,482) 0 (161,089) (84,296)
Net Unrealized Gains (Losses) 10,659,883 0 967,267 831,382
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 10,350,401 0 806,178 747,086
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 16,273,987 1,766,384 1,318,548 1,158,706
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 57,600,863 48,585,875 237,242 206,770
Transfers of Policy Loading, Net 2,992,695 3,263,562 (47,077) (58,349)
Transfers Due to Deaths (1,461,703) (89,375) (242,713) (243,177)
Transfers Due to Other Terminations (2,139,618) (281,643) (15,301) (159,890)
Transfers Due to Policy Loans (1,721,984) (662,050) (21,269) (22,813)
Transfers of Cost of Insurance (2,101,569) (539,265) (95,544) (78,535)
Transfers of Loan Processing Charges (28,928) (4,005) (2,139) (1,110)
Transfers Among Investment Divisions 0 (45,681,956) 5,740,096 2,729,204
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 53,139,756 4,591,143 5,553,295 2,372,100
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 69,413,743 6,357,527 6,871,843 3,530,806
Net Assets Beginning Balance 86,107,165 26,514,110 4,832,007 4,594,921
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 155,520,908 $ 32,871,637 $ 11,703,850 $ 8,125,727
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 702,946 $ 332,737 $ 1,029,923 $ 530,868
Mortality and Expense Charges (109,563) (73,632) (120,845) (48,511)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 593,383 259,105 909,078 482,357
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (57,970) (58,237) (148,847) (47,719)
Net Unrealized Gains (Losses) 1,648,314 2,148,543 1,270,564 250,744
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 1,590,344 2,090,306 1,121,717 203,025
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,183,727 2,349,411 2,030,795 685,382
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,137,847 1,068,231 1,066,156 579,214
Transfers of Policy Loading, Net (62,080) 6,422 (44,104) 3,154
Transfers Due to Deaths (306,000) (10,301) (65,938) (2,080)
Transfers Due to Other Terminations (273,101) (97,817) (337,461) (42,371)
Transfers Due to Policy Loans (216,960) (102,930) (92,141) (72,558)
Transfers of Cost of Insurance (192,230) (159,365) (203,001) (105,754)
Transfers of Loan Processing Charges (2,660) (2,120) (2,802) (2,953)
Transfers Among Investment Divisions 7,075,715 5,643,336 3,815,780 4,138,536
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 7,160,531 6,345,456 4,136,489 4,495,188
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 9,344,258 8,694,867 6,167,284 5,180,570
Net Assets Beginning Balance 7,358,236 4,318,936 9,871,970 2,741,561
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 16,702,494 $ 13,013,803 $ 16,039,254 $ 7,922,131
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Global
Natural Global Utility
Resources Strategy Balanced Focus
Portfolio Portfolio Portfolio Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 23,752 $ 808,709 $ 274,872 $ 7,374
Mortality and Expense Charges (12,008) (159,374) (37,964) (1,669)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 11,744 649,335 236,908 5,705
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 47,638 56,413 (36,077) 2,396
Net Unrealized Gains (Losses) 74,639 917,790 540,526 41,816
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 122,277 974,203 504,449 44,212
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 134,021 1,623,538 741,357 49,917
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 173,219 2,484,243 437,292 12,013
Transfers of Policy Loading, Net (227) (1,635) (32,229) (1,185)
Transfers Due to Deaths 0 (257,767) (244,352) 0
Transfers Due to Other Terminations (27,497) (449,161) (88,275) (305)
Transfers Due to Policy Loans (11,517) (299,628) (12,334) 0
Transfers of Cost of Insurance (25,805) (358,387) (80,463) (3,959)
Transfers of Loan Processing Charges (319) (4,268) (1,398) (34)
Transfers Among Investment Divisions 365,584 3,046,233 1,511,909 246,773
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 473,438 4,159,630 1,490,150 253,303
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 607,459 5,783,168 2,231,507 303,220
Net Assets Beginning Balance 1,019,718 14,559,326 3,016,155 63,739
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,627,177 $ 20,342,494 $ 5,247,662 $ 366,959
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
International World Basic
Equity Income Value International
Focus Focus Focus Bond
Fund Fund Fund Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 87,517 $ 8,615 $ 106,693 $ 8,339
Mortality and Expense Charges (23,269) (756) (34,416) (909)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 64,248 7,859 72,277 7,430
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (50,146) 23 2,816 1,587
Net Unrealized Gains (Losses) 207,950 6,982 824,592 1,447
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 157,804 7,005 827,408 3,034
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 222,052 14,864 899,685 10,464
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 484,768 18,466 527,518 12,428
Transfers of Policy Loading, Net (7,642) 825 (2,243) (784)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (123,171) (121) (59,804) (2,748)
Transfers Due to Policy Loans (98,219) 9,020 (13,838) 7,037
Transfers of Cost of Insurance (67,572) (1,412) (88,195) (3,757)
Transfers of Loan Processing Charges (704) (83) (1,106) (86)
Transfers Among Investment Divisions 1,625,203 125,435 5,642,607 (13,353)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,812,663 152,130 6,004,939 (1,263)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 2,034,715 166,994 6,904,624 9,201
Net Assets Beginning Balance 2,188,198 52,188 1,365,469 84,871
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 4,222,913 $ 219,182 $ 8,270,093 $ 94,072
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Developing
Capital
Markets Focus 1995 1996 1997
Fund Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 13,806 $ 0 $ 0 $ 0
Mortality and Expense Charges (13,411) (1,483) (1,358) (1,725)
Transaction Charges 0 (558) (514) (652)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 395 (2,041) (1,872) (2,377)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (43,247) 12,157 789 310
Net Unrealized Gains (Losses) 31,160 (1,196) 8,972 16,365
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (12,087) 10,961 9,761 16,675
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (11,692) 8,920 7,889 14,298
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 446,742 0 6,557 2,609
Transfers of Policy Loading, Net 6,365 (1,240) 186 237
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (24,891) (5,133) (118) (168)
Transfers Due to Policy Loans (17,128) 0 (9,116) 0
Transfers of Cost of Insurance (39,732) (1,291) (1,698) (2,572)
Transfers of Loan Processing Charges (2,002) 10 (40) (26)
Transfers Among Investment Divisions 567,104 (117,487) 178,394 231,794
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 936,458 (125,141) 174,165 231,874
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 924,766 (116,221) 182,054 246,172
Net Assets Beginning Balance 1,482,840 116,221 40,300 31,814
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,407,606 $ 0 $ 222,354 $ 277,986
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1998 1999 2000 2001
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (7,049) (7,718) (5,481) (915)
Transaction Charges (2,664) (2,917) (2,070) (345)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (9,713) (10,635) (7,551) (1,260)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 12,007 9,541 1,741 12,302
Net Unrealized Gains (Losses) 83,423 113,158 98,041 4,321
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 95,430 122,699 99,782 16,623
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 85,717 112,064 92,231 15,363
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,898 3,995 23,896 1,194
Transfers of Policy Loading, Net (17,373) (3,399) (2,494) (381)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (132,812) (540) 110 3
Transfers Due to Policy Loans 7 (60,000) (2,825) (3,268)
Transfers of Cost of Insurance (7,052) (9,302) (7,926) (1,541)
Transfers of Loan Processing Charges (95) (243) (205) (1)
Transfers Among Investment Divisions 777,277 802,185 350,856 (5,671)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 621,850 732,696 361,412 (9,665)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 707,567 844,760 453,643 5,698
Net Assets Beginning Balance 114,414 153,981 286,772 50,046
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 821,981 $ 998,741 $ 740,415 $ 55,744
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2002 2003 2004 2005
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (1,352) (911) (6,222) (4,063)
Transaction Charges (511) (344) (2,348) (1,537)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (1,863) (1,255) (8,570) (5,600)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 385 6,784 30,917 1,337
Net Unrealized Gains (Losses) 29,570 17,905 150,791 113,569
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 29,955 24,689 181,708 114,906
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 28,092 23,434 173,138 109,306
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 0 30,500 10,212
Transfers of Policy Loading, Net (831) 217 (3,307) 460
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (63) (59) (226) 245
Transfers Due to Policy Loans 0 0 (10,000) 0
Transfers of Cost of Insurance (1,137) (1,521) (8,914) (4,000)
Transfers of Loan Processing Charges (10) (9) (204) (54)
Transfers Among Investment Divisions 72,433 77,361 219,263 491,998
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 70,392 75,989 227,112 498,861
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 98,484 99,423 400,250 608,167
Net Assets Beginning Balance 97,936 5,923 407,978 29,658
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 196,420 $ 105,346 $ 808,228 $ 637,825
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2006 2007 2008 2009
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (540) (221) (614) (898)
Transaction Charges (204) (83) (233) (338)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (744) (304) (847) (1,236)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 293 163 3,614 20,240
Net Unrealized Gains (Losses) 17,073 7,219 17,580 16,726
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 17,366 7,382 21,194 36,966
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 16,622 7,078 20,347 35,730
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 1,010 20,456 5,576
Transfers of Policy Loading, Net (472) (226) 735 (225)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (10) (17) (122) 48
Transfers Due to Policy Loans 0 0 (7,000) 0
Transfers of Cost of Insurance (468) (401) (1,408) (719)
Transfers of Loan Processing Charges (2) (3) (19) 7
Transfers Among Investment Divisions 4,258 24,705 154,313 (120,220)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 3,306 25,068 166,955 (115,533)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 19,928 32,146 187,302 (79,803)
Net Assets Beginning Balance 51,353 984 6,711 151,949
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 71,281 $ 33,130 $ 194,013 $ 72,146
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2010 2011 2013 2014
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (2,316) (2,403) (525) (2,555)
Transaction Charges (875) (907) (198) (965)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (3,191) (3,310) (723) (3,520)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 87,387 2,349 12,386 52,571
Net Unrealized Gains (Losses) 5,161 98,680 14,348 84,461
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 92,548 101,029 26,734 137,032
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 89,357 97,719 26,011 133,512
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,682 0 105 12,149
Transfers of Policy Loading, Net (1,327) (1,656) (847) 1,865
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (16,958) (81) 2 (162)
Transfers Due to Policy Loans 0 0 (2,454) 0
Transfers of Cost of Insurance (1,969) (2,650) (1,359) (2,665)
Transfers of Loan Processing Charges (18) (13) (189) (25)
Transfers Among Investment Divisions 67,414 92,008 (25,040) 145,953
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 49,824 87,608 (29,782) 157,115
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 139,181 185,327 (3,771) 290,627
Net Assets Beginning Balance 158,992 157,463 71,394 109,031
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 298,173 $ 342,790 $ 67,623 $ 399,658
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 3,610,497 $ 950,581 $ 285,253 $ 425,190
Mortality and Expense Charges (542,446) (170,748) (28,708) (37,653)
Transaction Charges (3,767) 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 3,064,284 779,833 256,545 387,537
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (218,534) 0 (60,235) (25,319)
Net Unrealized Gains (Losses) (4,239,903) 0 (350,295) (600,392)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (4,458,437) 0 (410,530) (625,711)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (1,394,153) 779,833 (153,985) (238,174)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 51,971,799 47,324,731 187,931 92,352
Transfers of Policy Loading, Net 3,241,522 3,195,360 (8,955) (18,352)
Transfers Due to Deaths (29,512) (6,644) 0 (2,647)
Transfers Due to Other Terminations (493,701) (172,019) (13,442) (12,312)
Transfers Due to Policy Loans (1,463,743) (610,255) (142,120) (12,546)
Transfers of Cost of Insurance (1,296,287) (390,815) (43,069) (51,233)
Transfers of Loan Processing Charges (8,161) (1,637) (913) (376)
Transfers Among Investment Divisions 0 (35,662,412) 2,882,108 1,212,618
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 51,921,917 13,676,309 2,861,540 1,207,504
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 50,527,764 14,456,142 2,707,555 969,330
Net Assets Beginning Balance 35,579,401 12,057,968 2,124,452 3,625,591
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 86,107,165 $ 26,514,110 $ 4,832,007 $ 4,594,921
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 361,177 $ 287,424 $ 661,067 $ 215,561
Mortality and Expense Charges (49,108) (26,158) (68,143) (18,453)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 312,069 261,266 592,924 197,108
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (4,588) (38,883) (57,248) (21,634)
Net Unrealized Gains (Losses) (631,923) (347,941) (957,925) (232,926)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (636,511) (386,824) (1,015,173) (254,560)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (324,442) (125,558) (422,249) (57,452)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 740,725 500,203 513,551 258,413
Transfers of Policy Loading, Net (121,761) 19,520 36,858 5,702
Transfers Due to Deaths 0 0 (4,590) (2,687)
Transfers Due to Other Terminations (52,016) (12,269) (45,256) (27,551)
Transfers Due to Policy Loans (71,717) (15,306) (142,921) (131,734)
Transfers of Cost of Insurance (108,205) (81,834) (133,481) (56,140)
Transfers of Loan Processing Charges (928) (741) (1,011) (255)
Transfers Among Investment Divisions 4,257,528 2,313,575 6,058,382 1,520,909
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 4,643,626 2,723,148 6,281,532 1,566,657
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 4,319,184 2,597,590 5,859,283 1,509,205
Net Assets Beginning Balance 3,039,052 1,721,346 4,012,687 1,232,356
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 7,358,236 $ 4,318,936 $ 9,871,970 $ 2,741,561
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Global
Natural Global Utility
Resources Strategy Balanced Focus
Portfolio Portfolio Portfolio Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 11,993 $ 307,203 $ 96,724 $ 489
Mortality and Expense Charges (6,508) (95,867) (22,533) (111)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 5,485 211,336 74,191 378
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,420 42,186 (22,332) (4)
Net Unrealized Gains (Losses) (24,535) (712,889) (174,733) (2,295)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (23,115) (670,703) (197,065) (2,299)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (17,630) (459,367) (122,874) (1,921)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 163,578 1,592,234 220,509 0
Transfers of Policy Loading, Net 9,677 90,005 26,326 (162)
Transfers Due to Deaths 0 (7,628) (5,316) 0
Transfers Due to Other Terminations (1,141) (121,934) (39,643) (38)
Transfers Due to Policy Loans (7,332) (174,375) (107,866) 0
Transfers of Cost of Insurance (17,949) (301,516) (50,834) (387)
Transfers of Loan Processing Charges (96) (1,317) (156) (6)
Transfers Among Investment Divisions 520,012 8,328,156 1,725,495 66,253
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 666,749 9,403,625 1,768,515 65,660
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 649,119 8,944,258 1,645,641 63,739
Net Assets Beginning Balance 370,599 5,615,068 1,370,514 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,019,718 $ 14,559,326 $ 3,016,155 $ 63,739
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
International World Basic
Equity Income Value International
Focus Focus Focus Bond
Fund Fund Fund Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,561 $ 1,593 $ 1,754 $ 2,927
Mortality and Expense Charges (3,570) (106) (2,016) (257)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (2,009) 1,487 (262) 2,670
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (231) (988) 169 147
Net Unrealized Gains (Losses) (78,043) (1,095) 4,130 (651)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (78,274) (2,083) 4,299 (504)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (80,283) (596) 4,037 2,166
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 111,017 0 72,775 33,800
Transfers of Policy Loading, Net 2,406 (11) (675) 180
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (3,405) (30) 776 (1)
Transfers Due to Policy Loans 310 (7,961) (1,349) (8,041)
Transfers of Cost of Insurance (20,300) (1,034) (9,133) (1,325)
Transfers of Loan Processing Charges (266) (4) (140) (7)
Transfers Among Investment Divisions 2,178,719 61,824 1,299,178 58,099
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,268,481 52,784 1,361,432 82,705
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 2,188,198 52,188 1,365,469 84,871
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,188,198 $ 52,188 $ 1,365,469 $ 84,871
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Developing
Capital
Markets Focus 1994 1995 1996
Fund Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (2,550) (15) (406) (156)
Transaction Charges 0 (6) (154) (60)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (2,550) (21) (560) (216)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (98) 80 7 15
Net Unrealized Gains (Losses) (123,212) (16) 1,196 386
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (123,310) 64 1,203 401
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (125,860) 43 643 185
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 112,249 0 0 1,679
Transfers of Policy Loading, Net 3,647 (230) (80) (378)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (3,448) (23) 42 (22)
Transfers Due to Policy Loans (7,813) 0 0 0
Transfers of Cost of Insurance (14,744) (81) (636) (259)
Transfers of Loan Processing Charges (184) 0 (10) (3)
Transfers Among Investment Divisions 1,518,993 (1,690) 116,007 36,857
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,608,700 (2,024) 115,323 37,874
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 1,482,840 (1,981) 115,966 38,059
Net Assets Beginning Balance 0 1,981 255 2,241
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,482,840 $ 0 $ 116,221 $ 40,300
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1997 1998 1999 2000
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (110) (2,744) (312) (847)
Transaction Charges (41) (1,035) (119) (321)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (151) (3,779) (431) (1,168)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 57 (4,839) (6) (1,056)
Net Unrealized Gains (Losses) (104) (2,597) (259) (816)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (47) (7,436) (265) (1,872)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (198) (11,215) (696) (3,040)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 6,745 661 0 23,597
Transfers of Policy Loading, Net 335 (860) (408) 1,020
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (14) 9,883 (88) (342)
Transfers Due to Policy Loans 0 (1,199) 0 (9,218)
Transfers of Cost of Insurance (531) (423) (560) (4,141)
Transfers of Loan Processing Charges (3) (8) (12) (19)
Transfers Among Investment Divisions 18,538 99,872 155,745 233,354
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 25,070 107,926 154,677 244,251
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 24,872 96,711 153,981 241,211
Net Assets Beginning Balance 6,942 17,703 0 45,561
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 31,814 $ 114,414 $ 153,981 $ 286,772
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2001 2002 2003 2004
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (161) (326) (25) (759)
Transaction Charges (61) (124) (9) (290)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (222) (450) (34) (1,049)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 42 (4) (53) (22)
Net Unrealized Gains (Losses) (670) (154) 58 4,857
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (628) (158) 5 4,835
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (850) (608) (29) 3,786
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 0 2,254 9,684
Transfers of Policy Loading, Net (180) 38 (223) 566
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (24) 419 1 409
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (111) (297) (150) (1,422)
Transfers of Loan Processing Charges (3) (8) 0 (24)
Transfers Among Investment Divisions 41,783 98,392 (3,544) 394,979
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 41,465 98,544 (1,662) 404,192
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 40,615 97,936 (1,691) 407,978
Net Assets Beginning Balance 9,431 0 7,614 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 50,046 $ 97,936 $ 5,923 $ 407,978
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2005 2006 2007 2008
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (66) (99) (3) (3)
Transaction Charges (25) (38) (1) (1)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (91) (137) (4) (4)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (29) (2) (1) 0
Net Unrealized Gains (Losses) 830 1,397 12 19
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 801 1,395 11 19
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 710 1,258 7 15
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 0 0 0
Transfers of Policy Loading, Net 150 (150) 100 0
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (17) (28) (1) (4)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (417) (175) (39) (12)
Transfers of Loan Processing Charges (2) (4) 0 (1)
Transfers Among Investment Divisions 29,234 50,452 917 6,713
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 28,948 50,095 977 6,696
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 29,658 51,353 984 6,711
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 29,658 $ 51,353 $ 984 $ 6,711
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2009 2010 2011 2013
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (295) (1,584) (1,458) (476)
Transaction Charges (113) (598) (550) (180)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (408) (2,182) (2,008) (656)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1 (23,419) 899 (2,567)
Net Unrealized Gains (Losses) 6,074 3,586 (22,160) (2,191)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 6,075 (19,833) (21,261) (4,758)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 5,667 (22,015) (23,269) (5,414)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 787 0 987
Transfers of Policy Loading, Net 1,250 2,479 (2,030) 195
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (75) 13 8 (46)
Transfers Due to Policy Loans 0 0 0 (12,300)
Transfers of Cost of Insurance (393) (1,159) (1,439) (1,771)
Transfers of Loan Processing Charges (12) 0 0 (6)
Transfers Among Investment Divisions 145,512 49,193 228 85,368
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 146,282 51,313 (3,233) 72,427
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 151,949 29,298 (26,502) 67,013
Net Assets Beginning Balance 0 129,694 183,965 4,381
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 151,949 $ 158,992 $ 157,463 $ 71,394
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------
2014
Trust
-----------------
<S> <C>
Investment Income (Loss):
Reinvested Dividends $ 0
Mortality and Expense Charges (112)
Transaction Charges (41)
-----------------
Net Investment Income (Loss) (153)
-----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1
Net Unrealized Gains (Losses) 5,374
-----------------
Net Realized and Unrealized Gains (Losses) 5,375
-----------------
Increase (Decrease) in Net Assets
Resulting from Operations 5,222
-----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,337
Transfers of Policy Loading, Net 163
Transfers Due to Deaths 0
Transfers Due to Other Terminations (63)
Transfers Due to Policy Loans 0
Transfers of Cost of Insurance (272)
Transfers of Loan Processing Charges (9)
Transfers Among Investment Divisions 102,653
-----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 103,809
-----------------
Increase (Decrease) in Net Assets 109,031
Net Assets Beginning Balance 0
-----------------
Net Assets Ending Balance $ 109,031
=================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 566,325 $ 240,425 $ 52,396 $ 124,153
Mortality and Expense Charges (140,002) (52,658) (8,013) (18,583)
Transaction Charges (1,237) 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 425,086 187,767 44,383 105,570
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 63,152 0 (207) 2,694
Net Unrealized Gains (Losses) 1,022,845 0 5,540 25,757
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 1,085,997 0 5,333 28,451
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,511,083 187,767 49,716 134,021
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 29,211,942 28,807,995 13,443 16,325
Transfers of Policy Loading, Net 2,330,207 2,323,451 (488) (3,256)
Transfers Due to Deaths (89,520) (84,834) 0 0
Transfers Due to Other Terminations (69,256) (57,172) (980) (1,880)
Transfers Due to Policy Loans (387,136) (105,200) (46,544) (38,037)
Transfers of Cost of Insurance (377,409) (145,593) (13,605) (30,998)
Transfers of Loan Processing Charges (4,194) (1,554) (234) (400)
Transfers Among Investment Divisions 0 (20,973,874) 1,991,148 3,478,405
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 30,614,634 9,763,219 1,942,740 3,420,159
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 32,125,717 9,950,986 1,992,456 3,554,180
Net Assets Beginning Balance 3,453,684 2,106,982 131,996 71,411
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 35,579,401 $ 12,057,968 $ 2,124,452 $ 3,625,591
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 20,003 $ 11,722 $ 35,996 $ 40,979
Mortality and Expense Charges (11,653) (8,200) (12,028) (4,233)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 8,350 3,522 23,968 36,746
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 4,634 5,372 5,912 1,965
Net Unrealized Gains (Losses) 276,674 100,519 252,624 26,086
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 281,308 105,891 258,536 28,051
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 289,658 109,413 282,504 64,797
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 44,825 26,813 36,427 31,231
Transfers of Policy Loading, Net 172 1,357 (2,248) 794
Transfers Due to Deaths 0 0 (4,686) 0
Transfers Due to Other Terminations (1,387) (894) (2,110) (660)
Transfers Due to Policy Loans (60,377) (57,729) (56,074) (597)
Transfers of Cost of Insurance (32,240) (26,818) (31,498) (13,266)
Transfers of Loan Processing Charges (335) (190) (479) (141)
Transfers Among Investment Divisions 2,615,308 1,558,500 3,551,257 1,135,041
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,565,966 1,501,039 3,490,589 1,152,402
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 2,855,624 1,610,452 3,773,093 1,217,199
Net Assets Beginning Balance 183,428 110,894 239,594 15,157
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 3,039,052 $ 1,721,346 $ 4,012,687 $ 1,232,356
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Natural Global
Resources Strategy Balanced 1993
Portfolio Portfolio Portfolio Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 764 $ 17,738 $ 22,149 $ 0
Mortality and Expense Charges (1,214) (14,321) (5,819) (6)
Transaction Charges 0 0 0 (3)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (450) 3,417 16,330 (9)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 194 1,064 1,120 29
Net Unrealized Gains (Losses) (9,788) 269,003 40,816 0
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (9,594) 270,067 41,936 29
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (10,044) 273,484 58,266 20
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 23,747 88,757 12,081 6,446
Transfers of Policy Loading, Net 2,071 6,718 (1,566) 304
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (193) (2,936) (818) (2)
Transfers Due to Policy Loans (526) (14,337) (7,715) 0
Transfers of Cost of Insurance (6,103) (59,703) (13,088) 0
Transfers of Loan Processing Charges (41) (625) (151) 0
Transfers Among Investment Divisions 358,744 5,210,345 1,122,106 (6,768)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 377,699 5,228,219 1,110,849 (20)
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 367,655 5,501,703 1,169,115 0
Net Assets Beginning Balance 2,944 113,365 201,399 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 370,599 $ 5,615,068 $ 1,370,514 $ 0
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1994 1995 1996 1997
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (3) (1) (6) (25)
Transaction Charges (1) 0 (3) (10)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (4) (1) (9) (35)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 0 (8) 0 3
Net Unrealized Gains (Losses) 16 0 42 124
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 16 (8) 42 127
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 12 (9) 33 92
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,671 4,775 1,671 5,730
Transfers of Policy Loading, Net 79 225 79 272
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (1) 0 (11) (4)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (32) (1) (32) (151)
Transfers of Loan Processing Charges 0 0 0 (1)
Transfers Among Investment Divisions 252 (4,735) 501 1,004
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,969 264 2,208 6,850
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 1,981 255 2,241 6,942
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,981 $ 255 $ 2,241 $ 6,942
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1998 2000 2001 2003
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (149) (160) (81) (19)
Transaction Charges (56) (60) (31) (7)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (205) (220) (112) (26)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 34 1,181 753 320
Net Unrealized Gains (Losses) 1,697 239 615 (14)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 1,731 1,420 1,368 306
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,526 1,200 1,256 280
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 669 84,561 0 4,775
Transfers of Policy Loading, Net (31) 4,229 (36) 172
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (16) (19) (5) (4)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (119) (1,190) (56) (351)
Transfers of Loan Processing Charges (2) (5) (1) (1)
Transfers Among Investment Divisions 505 (43,215) 3 2,743
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,006 44,361 (95) 7,334
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 2,532 45,561 1,161 7,614
Net Assets Beginning Balance 15,171 0 8,270 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 17,703 $ 45,561 $ 9,431 $ 7,614
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
2010 2011 2013
Trust Trust Trust
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0
Mortality and Expense Charges (1,264) (1,559) (7)
Transaction Charges (476) (587) (3)
----------------- ----------------- -----------------
Net Investment Income (Loss) (1,740) (2,146) (10)
----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 37,014 1,078 0
Net Unrealized Gains (Losses) (5,568) 38,549 (86)
----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 31,446 39,627 (86)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 29,706 37,481 (96)
----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 0 0
Transfers of Policy Loading, Net (872) (1,220) 1
Transfers Due to Deaths 0 0 0
Transfers Due to Other Terminations (67) (95) (2)
Transfers Due to Policy Loans 0 0 0
Transfers of Cost of Insurance (754) (1,779) (32)
Transfers of Loan Processing Charges (14) (20) 0
Transfers Among Investment Divisions (3,816) 2,036 4,510
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (5,523) (1,078) 4,477
----------------- ----------------- -----------------
Increase in Net Assets 24,183 36,403 4,381
Net Assets Beginning Balance 105,511 147,562 0
----------------- ----------------- -----------------
Net Assets Ending Balance $ 129,694 $ 183,965 $ 4,381
================= ================= =================
</TABLE>
<PAGE>
<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, 1995
and 1994, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1995. 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, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
February 26, 1996
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1995 - $3,648,983; 1994 - $4,014,272) $ 3,807,870 $ 3,867,833
Equity securities available for sale, at estimated fair value
(cost: 1995 - $19,683; 1994 - $15,946) 21,433 16,777
Mortgage loans on real estate 121,248 149,249
Real estate held for sale
(accumulated depreciation: 1995 - $81; 1994 - $515) 5,874 12,955
Policy loans on insurance contracts 1,039,267 985,213
------------ ------------
Total Investments 4,995,692 5,032,027
CASH AND CASH EQUIVALENTS 48,924 139,087
ACCRUED INVESTMENT INCOME 91,942 95,133
DEFERRED POLICY ACQUISITION COSTS 372,418 466,334
FEDERAL INCOME TAXES - DEFERRED 2,222 38,919
REINSURANCE RECEIVABLES 1,552 1,832
RECEIVABLES FROM AFFILIATES - NET 0 3,113
OTHER ASSETS 54,900 28,656
SEPARATE ACCOUNTS ASSETS 6,834,353 5,798,973
------------ -------------
TOTAL ASSETS $12,402,003 $11,604,074
============ =============
</TABLE>
See notes to financial statements.
<PAGE>
==============================================================================
<TABLE>
(caption>
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1994
-------------- ------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 4,851,718 $ 5,148,971
Claims and claims settlement expenses 29,812 26,177
------------- ------------
Total policy liabilities and accruals 4,881,530 5,175,148
OTHER POLICYHOLDER FUNDS 13,607 21,221
LIABILITY FOR GUARANTY FUND ASSESSMENTS 21,144 24,774
OTHER LIABILITIES 53,566 36,775
FEDERAL INCOME TAXES - CURRENT 7,033 2,274
AFFILIATED PAYABLES - NET 2,429 0
SEPARATE ACCOUNTS LIABILITIES 6,825,857 5,784,311
------------- ------------
Total Liabilities 11,805,166 11,044,503
------------- ------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 501,455 535,450
Retained earnings 76,482 66,005
Net unrealized investment gain (loss) 16,900 (43,884)
------------- ------------
Total Stockholder's Equity 596,837 559,571
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $12,402,003 $11,604,074
============= ============
</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, 1995, 1994 AND 1993
(Dollars in Thousands)
===================================================================
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 376,166 $ 433,536 $ 586,461
Net realized investment gains (losses) 4,525 (14,543) 63,052
Policy charge revenue 141,722 126,284 95,684
----------- ----------- -----------
Total Revenues 522,413 545,277 745,197
----------- ----------- -----------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 261,760 313,585 454,671
Market value adjustment expense 5,805 6,307 30,816
Policy benefits (net of reinsurance recoveries: 1995 - $6,482;
1994 - $6,338; 1993 - $6,004) 19,374 16,858 17,030
Reinsurance premium ceded 13,896 13,909 12,665
Amortization of deferred policy acquisition costs 58,669 69,662 109,456
Insurance expenses and taxes 44,124 35,073 47,784
----------- ----------- -----------
Total Benefits and Expenses 403,628 455,394 672,422
----------- ----------- -----------
Earnings Before Federal Income Tax Provision 118,785 89,883 72,775
----------- ----------- -----------
FEDERAL INCOME TAX PROVISION:
Current 38,335 22,503 20,112
Deferred 3,968 1,375 4,803
----------- ----------- -----------
Total Federal Income Tax Provision 42,303 23,878 24,915
----------- ----------- -----------
NET EARNINGS $ 76,482 $ 66,005 $ 47,860
=========== =========== ===========
</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, 1995, 1994 AND 1993
(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, 1993 $ 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
Dividend to Parent (33,995) (66,005) (100,000)
Net earnings 76,482 76,482
Net unrealized investment gain 60,784 60,784
---------- ------------ ------------ -------------- -----------------
BALANCE, DECEMBER 31, 1995 $ 2,000 $ 501,455 $ 76,482 $ 16,900 $ 596,837
========== ============ ============ ============== =================
</TABLE>
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, 1995, 1994 AND 1994
(Dollars in Thousands)
=========================================================================
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 76,482 $ 66,005 $ 47,860
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 58,669 69,662 109,456
Capitalization of policy acquisition costs (54,014) (108,829) (91,189)
Depreciation, (accretion) and amortization of investments (6,763) (4,516) 1,142
Net realized investment (gains) losses (4,525) 14,543 (63,052)
Interest credited to policyholders' account balances 261,760 313,585 454,671
Provision for deferred Federal income tax 3,968 1,375 4,803
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 3,191 25,204 18,460
Receivables from affiliates - net 5,542 (2,324) (3,427)
Claims and claims settlement expenses 3,635 5,882 12,730
Federal income taxes - current 4,759 (7,848) (19,888)
Other policyholder funds (7,614) (7,547) 14,131
Liability for guaranty fund assessments (3,630) (3,309) 979
Policy loans (54,054) (60,634) (90,118)
Investment trading securities 0 11,352 (145,972)
Other, net (9,296) (39,206) 49,424
Net cash and cash equivalents provided ------------- ------------ -------------
by operating activities 278,110 273,395 300,010
------------- ------------ -------------
</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, 1995, 1994 AND 1993
(Concluded) (Dollars In Thousands)
========================================================================
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Fixed maturity securities sold 618,101 845,227 571,337
Fixed maturity securities matured 570,923 1,323,705 2,776,992
Fixed maturity securities purchased (814,535) (676,976) (1,866,857)
Equity securities available for sale sold 15,723 18,868 6,451
Equity securities available for sale purchased (17,984) (1,998) (8,983)
Mortgage loans on real estate principal payments received 30,767 32,341 35,561
Mortgage loans on real estate acquired (3,608) 0 (674)
Real estate held for sale sold 9,710 25,346 7,408
Real estate held for sale - improvements acquired (683) (1,060) 0
Recapture of investment in Separate Accounts 6,559 0 29,389
Investment in Separate Accounts (377) (15,212) (20,000)
------------- ------------ -------------
Net cash and cash equivalents provided
by investing activities 414,596 1,550,241 1,530,624
------------- ------------ -------------
FINANCING ACTIVITIES:
Dividends paid to parent (100,000) (150,000) (120,000)
Policyholders' account balances:
Deposits 567,430 966,861 814,314
Withdrawals (net of transfers to/from Separate Accounts) (1,250,299) (2,623,628) (2,574,854)
------------- ------------ -------------
Net cash and cash equivalents used
by financing activities (782,869) (1,806,767) (1,880,540)
------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (90,163) 16,869 (49,906)
CASH AND CASH EQUIVALENTS
Beginning of year 139,087 122,218 172,124
------------- ------------ -------------
End of year $ 48,924 $ 139,087 $ 122,218
============= ============ =============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 33,576 $ 30,351 $ 40,000
Intercompany interest 1,310 679 737
</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, Incorporated ("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. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 policyholders' 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% - 6.90%
Interest sensitive deferred annuities 3.08% - 8.77%
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.
<PAGE>
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 $567 that can be
drawn upon for delinquent reinsurance recoverables.
As of December 31, 1995, the Company had life insurance in-
force which was ceded to other life insurance companies of
$2,302,776.
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. It is reasonably
possible that estimates of future gross profits could be
reduced in the future, resulting in a material reduction in the
carrying amount of deferred policy acquisition costs.
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 estimated future gross
profits over the anticipated life of the acquired insurance
contracts utilizing an interest methodology.
The Company has 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 related to the reinsurance agreement for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance $ 133,388 $ 139,647 $ 150,450
Capitalized amounts 13,708 12,517 6,987
Interest accrued 11,620 12,582 13,136
Amortization (33,883) (31,358) (30,926)
---------- ---------- ----------
Ending balance $ 124,833 $ 133,388 $ 139,647
========== ========== ==========
</TABLE>
The following table presents the expected amortization, net of
interest accrued, 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.
1996 $14,917
1997 11,418
1998 7,639
1999 6,676
2000 6,028
Investments: In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"),
<PAGE>
the Company classifies its investments in fixed maturity
securities and equity securities as available for sale
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 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.
During 1993 and 1994, the Company utilized the trading
securities classification available under SFAS No. 115. Trading
securities represented securities that were managed with an
investment objective to maximize total return subject to the
Company's quality guidelines. These securities were carried at
estimated fair value with unrealized gains and losses included
in the statement of earnings. 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.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted 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 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, 1995 and 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 to be realized on
those mortgage loans which 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.
During 1995 the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114") and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" which was an amendment to
SFAS No. 114. 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. There was no impact on
either financial position or earnings as a result of adopting
SFAS No. 114, as amended.
<PAGE>
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. 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.
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 primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
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 were:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale:
Securities (1) $ 3,807,310 $ 3,866,886
Interest rate swaps (2) 560 947
------------ ------------
Total fixed maturity securities available for sale 3,807,870 3,867,833
------------ ------------
Equity securities available for sale (1) 21,433 16,777
Mortgage loans on real estate (3) 121,248 149,249
Policy loans on insurance contracts (4) 1,039,267 985,213
Cash and cash equivalents (5) 48,924 139,087
Separate Accounts assets (6) 6,834,353 5,798,973
------------ ------------
Total financial instruments recorded as assets $11,873,095 $10,957,132
============ ============
</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, 1995 and 1994, securities
without a readily ascertainable market value, having an
amortized cost of $425,469 and $564,665, had an estimated
fair value of $448,785 and $564,682, respectively.
(2) Estimated fair values for the Company's interest rate
swaps are based on a discounted cash flow 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 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) 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 were:
<TABLE>
<CAPTION>
1995
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 2,917,628 $ 138,159 $ 7,526 $ 3,048,261
Mortgage-backed securities 625,866 22,098 717 647,247
U.S. Government and agencies 99,213 6,286 0 105,499
Municipals 4,277 532 0 4,809
Foreign governments 1,999 55 0 2,054
------------ ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 3,648,983 $ 167,130 $ 8,243 $ 3,807,870
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 2,746 $ 498 $ 63 $ 3,181
Non-redeemable preferred stocks 16,937 1,428 113 18,252
------------ ------------ ------------ ------------
Total equity securities available for sale $ 19,683 $ 1,926 $ 176 $ 21,433
============ ============ ============ ============
</TABLE>
<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 $ 2,968,683 $ 20,386 $ 139,915 $ 2,849,154
Mortgage-backed securities 897,290 5,764 29,243 873,811
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>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1995 by
contractual maturity were:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 288,438 $ 290,754
Due after one year through five years 1,678,038 1,741,211
Due after five years through ten years 904,067 964,956
Due after ten years 152,574 163,702
------------ ------------
3,023,117 3,160,623
Mortgage-backed securities 625,866 647,247
Total fixed maturity securities ------------ ------------
available for sale $ 3,648,983 $ 3,807,870
============ ============
</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, 1995 by rating
agency equivalent were:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
AAA $ 848,951 $ 881,712
AA 243,349 253,214
A 1,059,367 1,105,910
BBB 1,292,081 1,356,964
Non-investment grade 205,235 210,070
Total fixed maturity securities ------------ ------------
available for sale $ 3,648,983 $ 3,807,870
============ ============
</TABLE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with adjustments required by SFAS No. 115. The
Company adjusts 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:
<PAGE>
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale $ 158,887 $ (146,439)
Equity securities available for sale 1,750 831
Deferred policy acquisition costs (17,041) 72,220
Federal income taxes - deferred (9,100) 23,629
Separate Account assets (164) (549)
---------- -----------
134,332 (50,308)
---------- -----------
Liabilities:
Policyholders' account balances 117,432 (6,424)
---------- -----------
Stockholder's equity:
Net unrealized investment gain (loss) $ 16,900 $ (43,884)
========== ===========
</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, 1995 and 1994 was $30,000.
The Company has outstanding at December 31, 1995, 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,
1995 will expire at various times during 1996. The average
unexpired term at December 31, 1995 and 1994 was .25 years and
1.2 years, respectively. All three interest rate swap contracts
were with investment grade counterparties at December 31, 1995.
There are no outstanding interest rate swaps in a loss position
at December 31, 1995 and 1994. During 1995, 1994 and 1993, a
net investment gain of $0, $470 and $0, respectively, was
recorded in connection with interest rate swap activity.
During 1995, 1994 and 1993, 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 and gross realized investment gains and losses from
the sale of fixed maturity securities available for sale and
held to maturity for the years ended December 31 were:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Proceeds $ 618,101 $ 845,227 $ 571,337
Gross realized investment gains 11,694 8,398 71,599
Gross realized investment losses 9,786 9,823 4,126
</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,
$(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 $28,166 and $26,651
held on deposit with insurance regulatory authorities at
December 31, 1995 and 1994, respectively.
At December 31, 1995 and 1994, the Company retained $8,496 and
$14,662 in the Separate Accounts, including unrealized losses
of $164 and $549, respectively. The investments in the
<PAGE>
Separate Accounts are for the purpose of providing original
funding of certain mutual fund portfolios available as
investment options to variable life and annuity policyholders.
The Company's investment in mortgage loans on real estate are
principally collateralized by commercial real estate. The
largest concentrations of commercial real estate mortgage loans
at December 31, 1995, as measured by the outstanding principal
balance, are for properties located in California ($36,476 or
23%), Illinois ($28,299 or 18%) and Rhode Island ($19,404 or
12%).
The carrying value and established valuation allowances of
impaired mortgage loans on real estate as of December 31, 1995
and 1994 are:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Carrying value $ 88,068 $ 71,973
Valuation allowance 35,881 40,070
</TABLE>
Additional information on impaired loans for the years ended
December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Average investment in impaired loans $123,949 $112,043 $109,876
Interest income recognized (cash-basis) 5,482 6,542 7,387
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, $1,300,
$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>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities $ 305,648 $ 368,023 $ 511,655
Equity securities 1,329 2,408 4,143
Mortgage loans on real estate 12,250 15,014 20,342
Real estate held for sale 153 406 32
Policy loans on insurance contracts 53,576 50,232 46,129
Cash equivalents 8,463 5,936 3,480
Other 1,753 (447) 7,655
__________ __________ __________
Gross investment income 383,172 441,572 593,436
Less investment expenses (7,006) (8,036) (6,975)
__________ __________ __________
Net investment income $ 376,166 $ 433,536 $ 586,461
========== ========== ==========
</TABLE>
<PAGE>
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 1,908 $ (1,425) $ 67,473
Fixed maturity securities held for trading 0 (11,889) 5,562
Equity securities available for sale 1,475 1,490 22
Equity securities held for trading 0 (580) 2,587
Investment in Separate Account (369) 0 1,422
Mortgage loans on real estate 334 (4,967) (9,310)
Real estate held for sale 1,177 2,828 (4,733)
Other 0 0 29
-------- ---------- ---------
Net realized investment gains (losses) $ 4,525 $ (14,543) $ 63,052
======== ========== =========
</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:
1995 $ 40,070 $ 0 $ 4,189 $ 35,881
1994 45,924 4,966 10,820 40,070
1993 55,610 9,310 18,996 45,924
Real estate held for sale:
1995 5,766 0 3,566 2,200
1994 7,628 0 1,862 5,766
1993 4,300 3,328 0 7,628
</TABLE>
The Company held investments at December 31, 1995 of $8,609
which have been non-income producing for the preceding twelve
months.
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1995, $920 has 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:
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 41,575 $ 31,459 $ 25,471
Increase (decrease) in income taxes resulting from:
Release of policyholders' surplus 1,991 0 0
Tax deductible interest (718) 0 0
Federal tax rate increase 0 0 (631)
Dividend received deduction (532) (7,363) (28)
Other (13) (218) 103
--------- --------- ---------
Federal income tax provision $ 42,303 $ 23,878 $ 24,915
========= ========= =========
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1995 was 35%.
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>
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs $ (2,179) $ 6,416 $ (9,030)
Policyholders' account balances 66 5,322 6,433
Estimated liability for guaranty fund assessments 249 (153) (1,066)
Investment adjustments 5,563 3,276 7,941
Other 269 (13,486) 525
Deferred Federal income tax --------- ---------- ---------
provision $ 3,968 $ 1,375 $ 4,803
========= ========== =========
</TABLE>
Deferred tax assets and liabilities as of December 31, are
determined as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 94,087 $ 94,153
Net unrealized investment losses 0 23,629
Investment adjustments 10,793 16,356
Estimated liability for guaranty fund assessments 7,331 7,580
---------- ----------
Total deferred tax assets 112,211 141,718
---------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs 96,862 99,041
Net unrealized investment gains 9,100 0
Other 4,027 3,758
---------- ----------
Total deferred tax liabilities 109,989 102,799
---------- ----------
Net deferred tax asset $ 2,222 $ 38,919
========== ==========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
<PAGE>
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 $43,039, $44,176 and $55,843 for the years ended
December 31, 1995, 1994 and 1993, 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 $1,310, $679 and $737 for 1995,
1994 and 1993, 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 services 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
$2,635, $2,732 and $2,800 for 1995, 1994 and 1993,
respectively.
MLAM and MLIG have entered into an agreement with respect to
administrative services for the 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 and variable
annuities the Company has in-force. Under this agreement, MLAM
pays compensation to MLIG 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. The Company
received from MLIG it's allocable share of such compensation in
the amount of $13,293 and $12,600 during 1995 and 1994,
respectively.
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 $43,984, $84,231 and $67,102 for
1995, 1994 and 1993, 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.
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,
1995 and 1994, the notional amount of such interest rate swap
contracts outstanding was $10,000. 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
$256, $782, and $6,876 for 1995, 1994 and 1993, respectively
(See Note 3).
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1995, 1994, and 1993 the Company paid dividends of
$100,000, $150,000, and $120,000, respectively, to MLIG. Of
these stockholder's dividends, $73,757, $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, 1995 and 1994, approximately $30,195 and
$26,243, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1995 and 1994, was $303,950 and $264,432,
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
income taxes and valuing securities on a different basis. The
<PAGE>
Company's statutory net income for 1995, 1994 and 1993 was
$121,451, $42,382 and $45,604, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes 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. As of December 31, 1995 and 1994, based on the
RBC formula, the Company's total adjusted capital level was
395% and 270%, respectively, of the minimum amount of capital
required to avoid regulatory action.
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, 1995 and 1994, the Company has established an
estimated liability for future guaranty fund assessments of
$21,144 and $24,774, 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.
* * * * * *
