<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
REGISTRATION NO. 33-41830
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 7
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------------------
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
MERRILL LYNCH LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BARRY G. SKOLNICK, ESQ.
Senior Vice President & General Counsel
MERRILL LYNCH LIFE INSURANCE COMPANY
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQ.
KIMBERLY J. SMITH, ESQ.
SUTHERLAND, ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, NW
WASHINGTON, DC 20004-2415
------------------------
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Units of Interest in Flexible Premium
Variable Life Insurance Contracts.
Check box if it is proposed that the filing will become effective on (date)
at (time) pursuant to Rule 487 [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
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<C> <S>
1 Cover Page
2 Cover Page
3 Summary of the Contract (The Investment Divisions); Facts
About the Separate Account, the Funds, the Zero Trusts and
Merrill Lynch Life
4 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About the Contract (Selling the Contracts)
5 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About Merrill Lynch Life Insurance Company
6 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About the Separate Account and its Divisions (Charges to
Fund Assets)
7 Not Applicable
8 Not Applicable
9 More About Merrill Lynch Life Insurance Company (Legal
Proceedings)
10 Summary of the Contract; Facts About the Contract; More
About the Contract; More About the Separate Account and its
Divisions
11 Summary of the Contract (The Investment Divisions); Facts
About the Separate Account, the Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its
Divisions (About the Separate Account; the Zero Trusts)
12 Summary of the Contract (The Investment Divisions); Facts
About the Separate Account, the Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its
Divisions
13 Summary of the Contract (Loans; Fees and Charges); Facts
About The Contract [Charges Deducted from your Investment
Base; Charges to the Separate Account; Guarantee Period; Net
Cash Surrender Value; Loans; Partial Withdrawals; Death
Benefit Proceeds; Payment of Death Benefit Proceeds; Your
Right to Cancel ("Free Look" Period) or Exchange]; More
About the Contract; More About the Separate Account and its
Divisions (Charges to Fund Assets)
14 Facts About the Contract (Purchasing a Contract; Planned
Payments); More About the Contract (Other Contract
Provisions)
15 Summary of the Contract (Availability and Payments); Facts
About the Contract (Initial Payment; Making Additional
Payments); More About the Contract (Income Plans)
16 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life; More About the Separate Account and
its Divisions
17 Summary of the Contract [Net Cash Surrender Value and Cash
Surrender Value; Right to Cancel ("Free Look" Period) or
Exchange; Partial Withdrawals]; Facts About the Contract
[Net Cash Surrender Value; Partial Withdrawals; Right to
Cancel ("Free Look" Period) or Exchange]; More About the
Contract (Some Administrative Procedures)
18 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life; More About the Separate Account and
its Divisions
19 More About Merrill Lynch Life Insurance Company
20 More About the Separate Account and its Divisions (Charges
Within the Account; Charges to Fund Assets)
</TABLE>
<PAGE> 3
<TABLE>
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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21 Summary of the Contract (Loans); Facts About the Contract
(Loans)
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About Merrill Lynch Life Insurance Company
26 Not Applicable
27 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About Merrill Lynch Life Insurance Company
28 More About Merrill Lynch Life Insurance Company
29 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S)
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S)
36 Not Applicable
37 Not Applicable
38 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About the Contract (Selling the Contracts)
39 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About the Contract (Selling the Contracts)
40 Not Applicable
41 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About the Contract (Selling the Contracts)
42 Not Applicable
43 Not Applicable
44 Facts About the Contract; More About the Contract
45 Not Applicable
46 Summary of the Contract; Facts About the Contract (Net Cash
Surrender Value; Partial Withdrawals)
47 Summary of the Contract (The Investment Divisions); Facts
About the Separate Account, the Funds, the Zero Trusts and
Merrill Lynch Life; More About the Separate Account and its
Divisions
48 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About the Contract (Selling the Contracts)
49 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About the Contract (Selling the Contracts)
50 Not Applicable
51 Facts About the Contract; More About the Contract
52 Facts About the Separate Account, the Funds, the Zero Trusts
and Merrill Lynch Life (Merrill Lynch Life and MLPF&S); More
About the Contract (Selling the Contracts)
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
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53 More About the Contract (Tax Considerations; Merrill Lynch
Life's Income Taxes)
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 More About Merrill Lynch Life Insurance Company (Financial
Statements)
</TABLE>
<PAGE> 5
PROSPECTUS
MAY 1, 1998
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, generally 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 generally is a modified endowment contract,
any loan, partial withdrawal, capitalized interest, collateral assignment, 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.
Generally, through the first 14 days following the in force date, the initial
payment will be invested only in the investment division of the Merrill Lynch
Variable Life Separate Account (the "Separate Account") investing in the Money
Reserve Portfolio. Thereafter, the investment base will be reallocated to any
five of the 37 investment divisions of the Separate Account, a Merrill Lynch
Life separate investment account available under the Contract. The investments
available through the investment divisions include ten mutual fund portfolios of
the Merrill Lynch Series Fund, Inc.; seven mutual fund portfolios of the Merrill
Lynch Variable Series Funds, Inc.; two mutual fund portfolios of the AIM
Variable Insurance Funds, Inc.; one mutual fund portfolio of the Alliance
Variable Products Series Fund, Inc.; two mutual fund portfolios of the MFS
Variable Insurance Trust; and fifteen 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 the initial 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.
<PAGE> 6
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 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 IF
TAKEN 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.; THE AIM VARIABLE INSURANCE FUNDS,
INC.; THE ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.; THE MFS VARIABLE
INSURANCE TRUST; 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.
2
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
IMPORTANT TERMS............................................. 5
SUMMARY OF THE CONTRACT
Purpose of the Contract................................... 6
Availability and Payments................................. 6
Joint Insureds............................................ 7
CMA(R) 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......... 8
Illustrations............................................. 8
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..................................................... 9
Fees and Charges.......................................... 9
FACTS ABOUT THE SEPARATE ACCOUNT, THE FUNDS, THE ZERO TRUSTS
AND MERRILL LYNCH LIFE
The Separate Account...................................... 10
The Series Fund........................................... 10
The Variable Series Funds................................. 11
The AIM V.I. Funds........................................ 12
The Alliance Fund......................................... 13
The MFS Trust............................................. 13
Certain Risks of the Funds................................ 14
The Zero Trusts........................................... 14
Merrill Lynch Life and MLPF&S............................. 15
FACTS ABOUT THE CONTRACT
Who May be Covered........................................ 15
Initial Payment........................................... 16
Making Additional Payments................................ 17
Changing the Face Amount.................................. 19
Investment Base........................................... 19
Charges Deducted from the Investment Base................. 20
Charges to the Separate Account........................... 22
Charges to Fund Assets.................................... 23
Guarantee Period.......................................... 24
Net Cash Surrender Value.................................. 24
Partial Withdrawals....................................... 25
Loans..................................................... 25
Death Benefit Proceeds.................................... 26
Payment of Death Benefit Proceeds......................... 27
Right to Cancel ("Free Look" Period) or Exchange.......... 28
Reports to Contract Owners................................ 28
MORE ABOUT THE CONTRACT
Using the Contract........................................ 28
Some Administrative Procedures............................ 30
Other Contract Provisions................................. 31
Income Plans.............................................. 32
Group or Sponsored Arrangements........................... 33
</TABLE>
3
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Unisex Legal Considerations for Employers................. 33
Selling the Contracts..................................... 34
Tax Considerations........................................ 34
Merrill Lynch Life's Income Taxes......................... 37
Reinsurance............................................... 38
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account................................ 38
Changes Within the Account................................ 38
Net Rate of Return for an Investment Division............. 38
The Funds................................................. 39
The Zero Trusts........................................... 41
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Cash
Surrender Values and Accumulated Payments................ 41
EXAMPLES
Additional Payments....................................... 48
Changing the Face Amount.................................. 48
Partial Withdrawals....................................... 49
JOINT INSUREDS.............................................. 50
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
Directors and Executive Officers.......................... 53
Services Arrangement...................................... 54
State Regulation.......................................... 54
Year 2000................................................. 54
Legal Proceedings......................................... 55
Experts................................................... 55
Legal Matters............................................. 55
Registration Statements................................... 55
Financial Statements...................................... 55
Financial Statements of Merrill Lynch Variable Life
Separate Account....................................... S-1
Financial Statements of Merrill Lynch Life Insurance
Company................................................ G-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
4
<PAGE> 9
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 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 at the Service Center.
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.
5
<PAGE> 10
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" on page 34.)
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 17.)
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 50.
6
<PAGE> 11
JOINT INSUREDS
The Contract is also available to provide coverage on the lives of two insureds
with a death benefit payable upon 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 50.)
CMA(R) INSURANCE SERVICE
Contract owners who subscribe to the Merrill Lynch Cash Management Account(R)
financial service ("CMA account") may elect to have their Contract linked to
their CMA account electronically. Certain transactions will be reflected in
monthly CMA account statements. Payments may be transferred to and from the
Contract through a CMA account.
THE INVESTMENT DIVISIONS
Generally, through the first 14 days following the in force date, the initial
payment will be invested only in the investment division of the Separate Account
investing in the Money Reserve Portfolio. Thereafter, the investment base will
be reallocated to up to five of the 37 investment divisions in the Separate
Account. (See "Changing the Allocation" on page 20.)
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 Class A shares of designated mutual fund portfolios of the
Merrill Lynch Variable Series Funds, Inc. (the "Variable Series Funds"). Two
investment divisions of the Separate Account invest exclusively in shares of
designated mutual fund portfolios of the AIM Variable Insurance Funds, Inc. (the
"AIM V.I. Funds"). One investment division of the Separate Account invests
exclusively in shares of a designated mutual fund portfolio of the Alliance
Variable Products Series Fund, Inc. (the "Alliance Fund"). Two investment
divisions of the Separate Account invest exclusively in shares of designated
mutual fund portfolios of the MFS Variable Insurance Trust (the "MFS Trust").
Each mutual fund portfolio has a different investment objective. The other
fifteen 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, the AIM V.I. Funds, the Alliance
Fund, or the MFS Trust (each, a "Fund"; collectively, the "Funds"); or in 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 the investment base to two or more investment
divisions.
- ------------------------------
Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce Fenner & Smith Incorporated.
7
<PAGE> 12
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.
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 -- Tax Treatment of Loans and Other
Distributions" on page 35.
PARTIAL WITHDRAWALS
Beginning in Contract year two, the contract owner may withdraw up to 80% of the
net cash surrender value. (See "Partial Withdrawals" on page 25.)
8
<PAGE> 13
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 25.)
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 PAID EACH YEAR, IT IS CAPITALIZED AND ADDED TO THE OUTSTANDING LOAN
AMOUNT. If the Contract is a modified endowment contract, the amount of
capitalized interest will be treated as a taxable distribution. 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. Policy debt is considered part of total
cash value which is used to calculate gain. (See "Tax Considerations -- Tax
Treatment of Loans and Other Distributions" on page 35.)
FEES AND CHARGES
Investment Base Charges. Merrill Lynch Life invests the entire amount of all
premium payments in the Separate Account. It then deducts certain charges from
the investment base on processing dates. The charges deducted are as follows:
- deferred contract loading equals 9% of each payment. It consists of a
sales load of 4.5%, a charge for federal taxes of 2% and a state and
local premium tax charge of 2.5%. For joint insureds the deferred
contract loading equals 11% of each payment and consists of a sales load
of 6.5%, a charge for federal taxes of 2% and a state and local premium
tax charge of 2.5%. Deferred contract loading is deducted in equal
installments of .90% (1.1% for joint insureds) of each payment. The
deduction is taken on the ten contract anniversaries following the date
Merrill Lynch Life receives and accepts the payment. However, Merrill
Lynch Life subtracts the balance of the deferred contract loading not yet
deducted in determining a Contract's net cash surrender value. Thus, this
balance is deducted in determining the amount payable on surrender of the
Contract.
- on all processing dates after the contract date, Merrill Lynch Life makes
deductions for mortality cost (see "Mortality Cost" on page 21); 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 20).
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 Funds pay monthly advisory fees and other
expenses. (See "Charges to Fund Assets" on page 23.)
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.
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<PAGE> 14
FACTS ABOUT THE SEPARATE ACCOUNT, THE 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 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 37 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Seven invest in Class A
shares of a specific portfolio of the Variable Series Funds. Two invest in
shares of a specific portfolio of the AIM V.I. Funds. One invests in shares of a
specific portfolio of the Alliance Fund. Two invest in shares of a specific
portfolio of the MFS Trust. Fifteen invest in units of a specific Zero Trust.
Complete information about the Funds and the Zero Trusts, including the risks
associated with each portfolio (including specific 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 investment objectives and policies of certain of these underlying portfolios
may be similar to the investment objectives and policies of other portfolios
that may be managed by the same investment adviser or manager. The investment
results of the underlying portfolios, however, may be higher or lower than the
results of such other portfolios. There can be no assurance, and no
representation is made, that the investment results of any of the underlying
portfolios will be comparable to the investment results of any other portfolio,
even if the other portfolio has the same investment adviser or manager.
THE SERIES FUND
The Series Fund is registered with the Securities and Exchange Commission as an
open-end management investment company and its investment adviser is Merrill
Lynch Asset Management, L.P. ("MLAM"). All of its ten mutual fund portfolios are
currently available through the Separate Account. The investment objectives and
certain investment policies of the Series Fund portfolios are described below.
There is no guarantee that any portfolio will be able to 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.
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<PAGE> 15
Intermediate Government Bond Portfolio seeks to obtain the highest level of
current income consistent with the protection of capital afforded by investing
in intermediate-term debt securities issued or guaranteed by the U.S. Government
or its agencies. The Portfolio will invest in such securities 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. In
addition, the Portfolio seeks the preservation of capital. In seeking to achieve
these objectives, under normal circumstances the Portfolio invests at least 80%
of the value of its total assets in debt securities that have a rating within
the three highest grades of Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("Standard & Poor's").
High Yield Portfolio primarily seeks as high a level of current income as is
believed to be consistent with prudent management. Secondarily, the Portfolio
seeks 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 (including securities
commonly known as "junk bonds").
Capital Stock Portfolio seeks long-term growth of capital and income, plus
moderate current income. It generally invests in equity securities 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.
MLAM 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 Fund Assets" on page 23.)
THE VARIABLE SERIES FUNDS
The Variable Series Funds is registered with the Securities and Exchange
Commission as an open-end management investment company and its investment
adviser is MLAM. Seven of its 18 mutual fund portfolios are currently available
through the Separate Account. The investment objectives and certain investment
policies of the seven available Variable Series Funds portfolios are described
below. There is no guarantee that any portfolio will be able to 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. The
Fund seeks special opportunities in securities that are selling
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<PAGE> 16
at a discount, either from book value or historical price-earnings ratios, or
seem capable of recovering from temporarily out of favor considerations.
Particular emphasis is placed on securities that provide an above-average
dividend return and sell at a below-average price/earnings ratio.
Global Bond Focus Fund (formerly the World Income Focus Fund) seeks to provide
high total investment return by investing in a global portfolio of fixed income
securities denominated in various currencies, including multinational currency
units. The Fund will invest in fixed income securities that have a credit rating
of A or better by Standard & Poor's or by Moody's or commercial paper rated A-1
by Standard & Poor's or Prime-1 by Moody's or obligations that MLAM has
determined to be of similar creditworthiness.
Global Utility Focus Fund seeks both 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
MLAM, 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 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
and at least 65% of the Fund's total assets will be invested in the securities
of issuers from at least three different foreign countries.
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.
Special Value Focus Fund (formerly the Equity Growth Fund) seeks long-term
growth of capital by investing in a diversified portfolio of securities,
primarily common stocks, of relatively small companies that management of the
Variable Series Funds believes have special investment value, and of emerging
growth companies regardless of size. 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 the selection of securities.
Index 500 Fund seeks to provide investment results that, before expenses,
correspond to the aggregate price and yield performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index").
The Variable Series Funds, as part of its operating expenses, pays an investment
advisory fee to MLAM. (See "Charges to Fund Assets" on page 23.)
THE AIM V.I. FUNDS
The AIM V.I. Funds is registered with the Securities and Exchange Commission as
an open-end, series, management investment company and its investment adviser is
A I M Advisors, Inc. ("AIM"). Two of its mutual fund portfolios are currently
available through the Separate Account. The investment objectives of the two
available AIM V.I. Funds portfolios are described below. There is no guarantee
that any portfolio will be able to meet its investment objective.
AIM V.I. Capital Appreciation Fund seeks capital appreciation through
investments in common stocks, with emphasis on medium-sized and smaller emerging
growth companies. The portfolio is primarily comprised of securities of two
basic categories of companies: (1) "core" companies, which AIM considers to have
experienced above-average and consistent long-term growth in earnings with
excellent prospects for outstanding future growth, and (2) "earnings
acceleration" companies which AIM believes are currently enjoying a dramatic
increase in profits.
AIM V.I. Value Fund seeks to achieve long-term growth of capital by investing
primarily in equity securities judged by AIM to be undervalued relative to the
current or projected earnings of the
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<PAGE> 17
companies issuing the securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to the equity markets
generally. Income is a secondary objective. The investment division
corresponding to this Fund should not be selected by contract owners who seek
income as their primary investment objective.
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, is a wholly owned
subsidiary of A I M Management Group Inc., a holding company engaged in the
financial services business and an indirect wholly owned subsidiary of AMVESCAP
PLC. AIM is a registered adviser under the Investment Advisers Act of 1940. AIM
was organized in 1976, and, together with its subsidiaries, manages or advises
over 50 investment company portfolios (including the AIM V.I. Funds)
encompassing a broad range of investment objectives. The AIM V.I. Funds, as part
of its operating expenses, pays an investment advisory fee to AIM. (See "Charges
to Fund Assets" on page 23.)
THE ALLIANCE FUND
The Alliance Fund is registered with the Securities and Exchange Commission as
an open-end management investment company and its investment adviser is Alliance
Capital Management L.P. ("Alliance"). One of its mutual fund portfolios is
currently available through the Separate Account. The investment objective of
the available Alliance Fund portfolio is described below. There is no guarantee
that this portfolio will be able to meet its investment objective.
Premier Growth Portfolio seeks growth of capital by pursuing aggressive
investment policies. Since investments will be made based upon their potential
for capital appreciation, current income will be incidental to the objective of
capital growth. Because of the market risks inherent in any investment, the
selection of securities on the basis of their appreciation possibilities cannot
ensure against possible loss in value.
Alliance, a Delaware limited partnership with principal offices at 1345 Avenue
of the Americas, New York, New York 10105, is a registered adviser under the
Investment Advisers Act of 1940. Alliance Capital Management Corporation
("ACMC"), the sole general partner of Alliance, is an indirect wholly-owned
subsidiary of The Equitable Life Assurance Society of the United States, which
is in turn a wholly-owned subsidiary of the Equitable Companies Incorporated, a
holding company which is controlled by AXA, a French insurance holding company.
The Alliance Fund, as part of its operating expenses, pays an investment
advisory fee to Alliance. (See "Charges to Fund Assets" on page 23.)
THE MFS TRUST
The MFS Trust is registered with the Securities and Exchange Commission as an
open-end management investment company and its investment adviser is
Massachusetts Financial Services Company ("MFS"). Two of its mutual fund
portfolios are currently available through the Separate Account. The investment
objectives of the available MFS Trust portfolios are described below. There is
no guarantee that any portfolio will be able to meet its investment objective.
MFS Emerging Growth Series seeks to provide long-term growth of capital by
investing primarily (i.e., at least 80% of its assets under normal
circumstances) in common stocks of emerging growth companies. Emerging growth
companies include companies that MFS believes are early in their life cycle but
which have the potential to become major enterprises. Dividend and interest
income from portfolio securities, if any, is incidental to the Fund's objective
of long-term growth of capital.
MFS Research Series seeks to provide long-term growth of capital and future
income. The portfolio securities of the MFS Research Series are selected by a
committee of investment research analysts. This committee includes investment
analysts employed not only by the Adviser but also by MFS International (U.K.)
Limited, a wholly-owned subsidiary of MFS. The Series' assets are allocated
among industries by the analysts acting together as a group. Individual analysts
are then responsible for selecting what they view as the securities best suited
to meet the Series' investment objective within their assigned industry
responsibility.
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<PAGE> 18
MFS, a Delaware corporation, 500 Boylston Street, Boston, Massachusetts 02116,
is a subsidiary of Sun Life of Canada (U.S.), which, in turn, is a wholly-owned
subsidiary of Sun Life Assurance Company of Canada, and is a registered adviser
under the Investment Advisers Act of 1940. MFS is America's oldest mutual fund
organization. MFS and its predecessor organizations have a history of money
management dating from 1924 and the founding of the first mutual fund in the
United States, Massachusetts Investors Trust. The MFS Trust, as part of its
operating expenses, pays an investment advisory fee to MFS. (See "Charges to
Fund Assets" on page 23.)
CERTAIN RISKS OF THE FUNDS
Investment in lower-rated debt securities, such as those in which the High Yield
Portfolio of the Series Fund, and the Developing Capital Markets Focus and
International Equity Focus Funds of the Variable Series Funds, expect to invest,
entails relatively greater risk of loss of income or principal. 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 risk, these portfolios will
diversify holdings among many issuers. However, there can be no assurance that
diversification will protect these portfolios from widespread defaults during
periods of sustained economic downturn.
In seeking to protect the purchasing power of capital, the Natural Resources
Portfolio of the Series Fund reserves the right, when management anticipates
significant economic, political, or financial instability, such as high
inflationary pressures or upheaval in foreign currency exchange markets, to
invest a majority of its assets in companies that explore for, extract, process
or deal in gold or in asset-based securities indexed to the value of gold
bullion. The Natural Resources Portfolio will not concentrate its investments in
such securities until it has been advised that the Contracts' federal tax status
will not be adversely affected as a result.
In selecting investments for the AIM V.I. Capital Appreciation Fund, AIM is
particularly interested in companies that are likely to benefit from new or
innovative products, services or processes that should enhance such companies'
prospects for future growth in earnings. As a result of this policy, the market
prices of many of the securities purchased and held by this portfolio may
fluctuate widely. Any income received from securities held by the portfolio will
be incidental, and a contract owner should not consider a purchase of shares of
the portfolio as equivalent to a complete investment program.
For the MFS Emerging Growth Series, the nature of investing in emerging growth
companies involves greater risk than is customarily associated with investments
in more established companies. Emerging growth companies often have limited
product lines, markets or financial resources, and they may be dependent on
one-person management. In addition, there may be less research available on many
promising small and medium sized emerging growth companies, making it more
difficult to find and analyze these companies. The securities of emerging growth
companies may have limited marketability and may be subject to abrupt or erratic
market movements than securities of larger, more established growth companies or
the market averages in general. Shares of the MFS Emerging Growth Series,
therefore, are subject to greater fluctuation in value than shares of a
conservative equity fund or of a growth fund which invests entirely in proven
growth stocks.
Investment in these portfolios entails relatively greater risk of loss of income
or principal. In addition, as described in the accompanying prospectus for the
portfolios, many portfolios should be considered a long-term investment and a
vehicle for diversification, and not as a balanced investment program. It may
not be appropriate to allocate all payments and investment base to a single
investment division.
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,
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<PAGE> 19
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 1999 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 22.)
MERRILL LYNCH LIFE AND MLPF&S
Merrill Lynch Life is a stock life insurance company organized under the laws of
the State of Washington in 1986 and redomesticated under the laws of the State
of Arkansas in 1991. It is an indirect wholly owned subsidiary of Merrill Lynch
& Co., Inc. Merrill Lynch Life is authorized to sell life insurance and
annuities in 49 states, Guam, the U.S. Virgin Islands and the District of
Columbia. It is also authorized to sell variable life insurance and variable
annuities in most jurisdictions.
MLPF&S is a wholly owned subsidiary of Merrill Lynch & Co., Inc. and provides a
broad range of securities brokerage and investment banking services in the
United States. It provides marketing services for Merrill Lynch Life and is the
principal underwriter of the Contracts issued through the Separate Account.
Merrill Lynch Life retains MLPF&S to provide services relating to the Contracts
under a distribution agreement. (See "Selling the Contracts" on page 34.)
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
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<PAGE> 20
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> <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" below), 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 21.
For joint insureds, see modifications to this section on page 50.
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 generally 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 17.)
Merrill Lynch Life will not accept an initial payment for a specified face
amount that will provide a guarantee period of less than one year.
Insurance coverage generally begins on the contract date, which is usually the
next business day following receipt of the initial payment at Merrill Lynch
Life's Service Center. Temporary life insurance coverage may be provided under
the terms of a temporary insurance agreement. In accordance with Merrill Lynch
Life's underwriting rules, in most states, temporary life insurance coverage may
not exceed $300,000 and may not be in effect for more than 90 days. As provided
for under state insurance law the contract-owner, to preserve insurance age, may
be permitted to backdate the Contract. In no case may the contract date be more
than six months prior to the date the application was completed. Charges for
cost of insurance 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 51.
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
16
<PAGE> 21
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. Failure to pay planned
payments will not necessarily cause a Contract to lapse. Conversely, unless the
guarantee period is in effect, PAYING ALL PLANNED PAYMENTS ON A TIMELY BASIS
DOES NOT GUARANTEE THAT A CONTRACT WILL NOT LAPSE. After the end of the
guarantee period, Merrill Lynch Life may cancel a Contract if the cash surrender
value on a processing date is negative. (See "Guarantee Period" on page 24.)
Contract owners elect the amount, duration and frequency of the payments but the
minimum planned payment (including the initial payment) is $2,000 per contract
year and the amounts elected must be level. In any one year the maximum amount
of the planned payments elected cannot exceed the initial payment. Currently,
the duration of a plan cannot exceed five years.
Under a periodic payment plan, as long as the initial payment plus the planned
payments elected will total $10,000 or more during the first five contract
years, the minimum initial payment is $2,000.
Contract owners may elect a periodic plan in the application. The amount and
duration of the payments elected, as well as other factors, such as the face
amount specified and the insured's age and sex (except where unisex rates are
required by state law), will affect whether Merrill Lynch Life will do
underwriting on a simplified or medical basis. Once the elected plan is
approved, the planned payments may be made at any time without any additional
evidence of insurability unless it increases the face amount.
Contract owners may elect a periodic plan at a date later than in the
application. The amount and duration of the payments elected, as well as other
factors such as the current death benefit and the
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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 generally 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 20);
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount" on page 27); 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 24).
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. In
addition, planned payments received on the day prior to a due date will be
credited on the due date to facilitate compliance with the 7-pay test; planned
payments received more than one day prior to a due date will be returned to the
contract owner with instructions for timing planned payments to facilitate
compliance with the 7-pay test.
As of the processing date on or next following receipt and acceptance of an
additional payment, Merrill Lynch Life will increase either the guarantee period
or face amount or both. If the guarantee period prior to receipt and acceptance
of an additional payment is less than for life, payments will first be used to
extend the guarantee period. Any amount in excess of that required to extend the
guarantee period to the whole of life or any subsequent additional payment will
be used to increase the Contract's face amount.
Merrill Lynch Life will determine the increase in face amount by taking any
excess amount or the additional payment, deducting the applicable deferred
contract loading, bringing the result up at an annual rate of 4% interest from
the date the additional payment is received and accepted to the next processing
date, and then multiplying by the applicable net single premium factor. If the
additional
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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 48.
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 25.)
For joint insureds, see the modifications to this section on page 51.
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
21.)
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 48.
For joint insureds, see the modifications to this section on page 51.
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 38.) The investment performance
reflects the deduction of Separate Account charges. (See "Charges to the
Separate Account" on page 22.)
Deductions for deferred contract loading, mortality cost, and net loan cost, and
partial withdrawals and loans decrease the investment base. (See "Charges
Deducted from the Investment Base" on
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page 20, "Partial Withdrawals" on page 25, and "Loans" on page 25.) 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 17.)
Initial Investment Allocation and Preallocation. Generally, 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 37 investment divisions of the Separate Account.
Changing the Allocation. After the first 14 days following the in force date, 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 30.)
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
Merrill Lynch Life deducts the charges described below to cover costs and
expenses, services provided, and risks assumed under the Contracts. The amount
of a charge may not necessarily correspond to the costs associated with
providing the services or benefits indicated by the designation of the charge or
associated with the particular Contract. For example, the deferred contract
loading may not fully cover all of the sales and distribution expenses actually
incurred by Merrill Lynch Life, and proceeds from other charges, including the
mortality and expense risk charge, may be used in part to cover such expenses.
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 22.) The portfolios in the
Funds also pay monthly advisory fees and other expenses. (See "Charges to Fund
Assets" on page 23.)
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.
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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 33.
The charge for federal taxes is equal to 2% of each payment.
The state and local premium tax charge is equal to 2.5% of each payment.
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 51.
Mortality Cost. Merrill Lynch Life deducts a mortality cost from the investment
base on each processing date after the contract date. This charge compensates
Merrill Lynch Life for the cost of providing life insurance coverage for the
insured. It is based on the underwriting class assigned to the insured, the
insured's sex (except where unisex rates are required by state law) and attained
age and the Contract's net amount at risk.
To determine the mortality cost, Merrill Lynch Life multiplies the current cost
of insurance rate by the Contract's net amount at risk (adjusted for interest at
an annual rate of 4%). The net amount at risk is the difference, as of the
previous processing date, between the death benefit and the cash surrender
value.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates depending on the insured's underwriting class, sex (except
where unisex rates are required by state law) and attained age. For all
insureds, current cost of insurance rates distinguish between insureds in the
simplified underwriting class and medical underwriting class. For insureds age
20 and over, current cost of insurance rates also distinguish between insureds
in a smoker (standard) underwriting class and insureds in a non-smoker
underwriting class. For Contracts issued on insureds under the same underwriting
method, current cost of insurance rates are lower for an insured in a non-smoker
underwriting class than for an insured of the same age and sex in a smoker
(standard) underwriting class. Also, current cost of insurance rates are lower
for an insured in a medical underwriting class than for a similarly situated
insured in a simplified underwriting class. The simplified current cost of
insurance rates are higher because less underwriting is performed and therefore
more risk is incurred.
Merrill Lynch Life guarantees that the current cost of insurance rates will
never exceed the maximum guaranteed rates shown in the Contract. The maximum
guaranteed rates for Contracts (other than those issued on a substandard basis)
do not exceed the rates based on the 1980 Commissioners Standard Ordinary
Mortality Table (CSO Table). Merrill Lynch Life may use rates that are equal to
or less than these rates, but never greater. The maximum rates for Contracts
issued on a substandard basis are based on a multiple of the 1980 CSO Table. Any
change in the cost of insurance rates will apply to all insureds of the same
age, sex and underwriting class whose Contracts have been in force for the same
length of time.
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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 51.
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 24.)
Net Loan Cost. The net loan cost is explained under "Loans" on page 25.
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).
If the asset charge is inadequate to cover the actual expenses of mortality,
maintenance, and administration, Merrill Lynch Life will bear the loss. If the
charge exceeds the actual expenses, the excess will be added to Merrill Lynch
Life's profit and may be used to finance distribution expenses. The total charge
may not be increased.
Charges to Divisions Investing in the Zero Trusts. Merrill Lynch Life assesses
a daily trust charge against the assets of each division investing in the Zero
Trusts. This charge reimburses Merrill Lynch Life for the transaction charge
paid to MLPF&S when units are sold to the Separate Account.
The trust charge is currently equivalent to .34% annually at the beginning of
the year. It may be increased, but will not exceed .50% annually at the
beginning of the year. The charge is based on cost (taking into account loss of
interest) with no expected profit.
Tax Charges. Merrill Lynch Life has the right under the Contract to impose a
charge against Separate Account assets for its taxes, if any. Such a charge is
not currently imposed, but it may be in the future. However, see page 20 for a
discussion of tax charges included in deferred contract loading.
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CHARGES TO FUND ASSETS
Charges to Series Fund Assets. The Series Fund incurs operating expenses and
pays a monthly advisory fee to MLAM. This fee equals an annual rate of:
- .50% of the first $250 million of the aggregate average daily net assets
of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
One or more of the insurance companies investing in the Series Fund has agreed
to reimburse the Series Fund so that the ordinary expenses of each portfolio
(which include the monthly advisory fee) do not exceed .50% of the portfolio's
average daily net assets. These companies have also agreed to reimburse MLAM for
any amounts it pays under the investment advisory agreement, as described below.
These reimbursement obligations will remain in effect so long as the advisory
agreement remains in effect and cannot be amended or terminated without Series
Fund approval.
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, Global Bond Focus Fund and Global Utility Focus Fund. This fee equals an
annual rate of .30%, .75%, 1.00%, and .75% of the average daily net assets of
the Index 500 Fund, the International Equity Focus Fund, the Developing Capital
Markets Focus Fund, and the Special Value Focus Fund, respectively.
MLAM and Merrill Lynch Life Agency, Inc. have entered into agreements which
limit the operating expenses, exclusive of any distribution fees imposed on
Class B shares, paid by each fund in a given year to 1.25% of its average daily
net assets. These reimbursement agreements provide that any such 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.
Charges to AIM V.I. Funds Assets. The AIM V.I. Funds incurs operating expenses
and pays a monthly advisory fee to AIM, which serves as the investment adviser
to each fund of the AIM V.I. Funds. As the investment adviser, AIM receives from
the AIM V.I. Capital Appreciation Fund and the AIM V.I. Value Fund an advisory
fee at an annual rate of .65% of the first $250 million of each fund's average
daily net assets and .60% of each fund's average daily net assets in excess of
$250 million.
Effective May 1, 1998, the AIM V.I. Funds reimburse AIM in an amount up to 0.25%
of the average net asset value of each fund, for expenses incurred in providing,
or assuring that participating insurance companies provide, certain
administrative services. Currently the fee only applies to the average net asset
value of each fund in excess of the net asset value of each fund as calculated
on April 30, 1998.
Charges to Alliance Fund Assets. The Alliance Fund incurs operating expenses
and pays a monthly advisory fee to Alliance, which serves as the investment
adviser to each fund of the Alliance Fund. As the investment adviser, Alliance
receives from the Alliance Premier Growth Portfolio an advisory fee at an annual
rate of 1.00% of the fund's average daily net assets.
Charges to MFS Trust Assets. The MFS Trust incurs operating expenses and pays a
monthly advisory fee to MFS, which serves as the investment adviser to each of
the funds of MFS Trust. As the investment adviser, MFS receives from the MFS
Emerging Growth Series and MFS Research Series an advisory fee, computed and
paid monthly, at an annual rate of .75% of the average daily net assets of the
respective fund.
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GUARANTEE PERIOD
Subject to certain conditions, 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 26.) 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 20.)
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 52.
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 20).
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.
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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 32. 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 52.
PARTIAL WITHDRAWALS
Currently, beginning in Contract year two, 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 will receive the withdrawal amount in a single payment.
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 49.
Partial withdrawals are treated as distributions under the Contract for federal
tax purposes and may be subject to a 10% penalty tax. For a discussion of the
tax issues associated with a partial withdrawal, see "Tax Treatment of Loans and
Other Distributions" on page 35.
LOANS
Contract owners may use the Contract as collateral to borrow funds from Merrill
Lynch Life. The minimum loan is $1,000 unless the contract owner is borrowing to
make a payment on another Merrill Lynch Life variable life insurance contract.
In that case, the contract owner may borrow the exact amount required even if
it's less than $1,000. Contract owners may repay all or part of the loan any
time during the insured's lifetime. Each repayment must be for at least $1,000
or the amount of the debt, if less. Certain states won't permit a minimum amount
that can be borrowed or repaid.
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Loans are treated as distributions under the Contract for federal tax purposes
and may be subject to a 10% penalty tax. For a discussion of the tax issues
associated with a loan, see "Tax Treatment of Loans and Other Distributions" on
page 35.
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. Policy debt is considered part of
total cash value which is used to calculate gain. This amount added to the loan
is taxable income if the Contract is a modified endowment contract. In addition,
interest paid on a loan generally is not tax-deductible.
The amount held in Merrill Lynch Life's general account as collateral for a loan
earns interest at a minimum of 4% annually.
Net Loan Cost. On each contract anniversary, Merrill Lynch Life reduces the
investment base by the net loan cost (the difference between the interest
charged and the earnings on the amount held as collateral in the general
account) and adds that amount to the amount held in the general account as
collateral for the loan. Since the interest charged is 5% and the collateral
earnings on such amounts are 4%, the current net loan cost on loaned amounts is
1%. The net loan cost is taken into account in determining the net cash
surrender value of the Contract if the date of surrender is not a contract
anniversary.
Cancellation Due to Excess Debt. If the debt exceeds the larger of the cash
surrender value and the fixed base on a processing date, Merrill Lynch Life will
cancel the Contract 61 days after a notice of intent to terminate the Contract
is mailed to the contract owner unless Merrill Lynch Life has received at least
the minimum repayment amount specified in notice.
DEATH BENEFIT PROCEEDS
Merrill Lynch Life will pay the death benefit proceeds to the beneficiary upon
receipt of all information needed to process the payment, including due proof of
the insured's death. When Merrill Lynch Life is first provided reliable
notification of the insured's death by a representative of
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<PAGE> 31
the owner or the insured, investment base may be transferred to the division
investing in the Money Reserve Portfolio, pending payment of death benefit
proceeds.
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
24.)
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 52.
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 32. Payment may be delayed if the Contract is being
contested or under the circumstances described in "Using the Contract" on page
28 and "Other Contract Provisions" on page 31.
For joint insureds, see the modifications to this section on page 52.
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<PAGE> 32
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 52.
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 38.) 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 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
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<PAGE> 33
contract owner's rights. If the contract owner does not name a contingent owner,
the contract owner's estate will own the contract owner's interest in the
Contract upon the owner's death.
If there is more than one contract owner, Merrill Lynch Life will treat the
owners as joint tenants with rights of survivorship unless the ownership
designation provides otherwise. Completion of additional forms may be required.
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 with the consent of any irrevocable
beneficiary. 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 34.)
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 34.
Naming Beneficiaries. Merrill Lynch Life will pay the primary beneficiary the
death benefit proceeds of the Contract upon 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 signed by 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. The new insured must have been alive at the time the Contract was
issued. Merrill Lynch Life will also require evidence of insurability for the
proposed new insured. The proposed new insured must qualify for a standard or
better underwriting classification. Outstanding debt must first be repaid and
the Contract cannot be collaterally assigned. 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 and the Contract is still in force.
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);
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<PAGE> 34
- 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 33;
- 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 generally available for joint insureds.
For a discussion of the tax issues associated with changing the insured, see
"Tax Considerations" on page 34.
Maturity Proceeds. The maturity date is the contract anniversary nearest the
insured's 100th birthday. On the maturity date, Merrill Lynch Life will pay the
net cash surrender value to the contract owner, provided the insured is still
living at that time and the Contract is in effect 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 or Fund 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 52.
SOME ADMINISTRATIVE PROCEDURES
Described below are certain administrative procedures. Merrill Lynch Life
reserves the right to modify them or to eliminate them. For administrative and
tax purposes, Merrill Lynch Life may from time to time require that specific
forms be completed in order to accomplish certain transactions, including
surrenders.
Personal Identification Number. Merrill Lynch Life will send each contract
owner a four-digit personal identification number ("PIN") shortly after the
Contract is placed in force and before the end of the "free look" period. This
number must be given when the contract owner calls the Service
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<PAGE> 35
Center to get information about the Contract, to make a loan (if an
authorization is on file), or to make other requests. Each PIN will be
accompanied by a notice reminding the contract owner that all of the investment
base is in the division investing in the Money Reserve Portfolio, and will be
reallocated to the investment divisions selected at the time of application. The
notice sent to contract owners who did not choose to preallocate the investment
base will indicate that the allocation to the Money Reserve Portfolio may be
changed by calling or writing to the Service Center. (See "Changing the
Allocation" on page 20.)
Reallocating the Investment Base. Contract owners can reallocate their
investment base either in writing in a form satisfactory to Merrill Lynch Life
or by telephone. If the reallocation is requested by telephone, contract owners
must give their personal identification number as well as their Contract number.
Merrill Lynch Life will give a confirmation number over the telephone and then
follow up in writing.
Requesting a Loan. A loan may be requested in writing in a form satisfactory to
Merrill Lynch Life or, if all required authorization forms are on file, by
telephone. 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. Beginning in the second contract year, partial
withdrawals may be requested in writing in a form satisfactory to Merrill Lynch
Life. A contract owner may request a partial withdrawal by telephone if all
required telephone 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.
Merrill Lynch Life will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures may
include, but are not limited to, possible recording of telephone calls and
obtaining appropriate identification before effecting any telephone
transactions. Merrill Lynch Life will not be liable for following telephone
instructions that it reasonably believes to be genuine.
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
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<PAGE> 36
death benefit which wouldn't be payable except for the fact that an additional
payment was made if any material misstatements are made in the application
required with the additional payment.
Subject to state regulation, Merrill Lynch Life won't contest the validity of a
Contract after it has been in effect during the insured's lifetime for two years
from the date of issue. Any change in face amount will not be contested after
the change has been in effect during the insured's lifetime for two years from
the date of the change. Nor will Merrill Lynch Life contest any amount of death
benefit attributable to an additional payment after the death benefit has been
in effect during the insured's lifetime for two years from the date the payment
was received and accepted.
Payment in Case of Suicide. Subject to state regulation, if the insured commits
suicide within two years from the Contract's issue date, Merrill Lynch Life will
pay only a limited death benefit. The benefit will be equal to the amount of the
payments made.
Subject to state regulation, if the insured commits suicide within two years of
the effective date of any increase in face amount requested, any amount of death
benefit which would not be payable except for the fact that the face amount was
increased will be limited to the amount of mortality cost deductions made for
the increase.
If the insured commits suicide within two years of any date an additional
payment is received and accepted, any amount of death benefit which would not be
payable except for the fact that the additional payment was made will be limited
to the amount of the payment.
The death benefit will be reduced by any debt.
Contract Changes -- Applicable Federal Tax Law. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. Therefore, to maintain this qualification to the
maximum extent of the law, Merrill Lynch Life reserves the right to return any
additional payments that would cause the Contract to fail to qualify as life
insurance under applicable federal tax law as interpreted by Merrill Lynch Life.
Further, Merrill Lynch Life reserves the right to make changes in the Contract
or its riders or to make distributions from the Contract to the extent it is
necessary to continue to qualify the Contract as life insurance. Any changes
will apply uniformly to all Contracts that are affected and contract owners will
be given advance written notice of such changes.
State Variations. Certain Contract features, including the "free look" right,
are subject to state variation. The contract owner should read his or her
Contract carefully to determine whether any variations apply in the state in
which the Contract is issued.
For joint insureds, see the modifications to this section on page 53.
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. 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 53.
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.)
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<PAGE> 37
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. Other
designated periods and payment schedules may be available on request.
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. Other payment schedules may
be available on request. While both are living, full payments are made. If
one dies, payments of at least two-thirds of the full amount are made.
Payments end completely when both named persons die.
Once in effect, some of the plans may not provide any surrender rights.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, Merrill Lynch Life may reduce the
sales load, cost of insurance rates and the minimum payment and may modify
underwriting classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows Merrill Lynch Life to
sell Contracts to its employees on an individual basis.
Costs for sales, administration, and mortality generally vary with the size and
stability of the group and the reasons the Contracts are purchased, among other
factors. Merrill Lynch Life takes all these factors into account when reducing
charges. To qualify for reduced charges, a group or sponsored arrangement must
meet certain requirements, including requirements for size and number of years
in existence. Group or sponsored arrangements that have been set up solely to
buy Contracts or that have been in existence less than six months will not
qualify for reduced charges.
Merrill Lynch Life makes any reductions according to rules in effect when an
application for a Contract or additional payment is approved. It may change
these rules from time to time. However, reductions in charges will not
discriminate unfairly against any person.
UNISEX LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983 the Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
The Contracts offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Contract pays different
benefits to men and women of the same age. Employers and employee organizations
should check with their legal advisers before purchasing these Contracts.
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.
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<PAGE> 38
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 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, 1997, December 31, 1996, and December
31, 1995 were $15,107,535, $10,059,108, and $8,375,065, 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
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<PAGE> 39
- the contract owner should not be considered in constructive receipt of
the cash surrender value, including any increases, unless and until
actual receipt of distributions from the Contract (see "Tax Treatment of
Loans and Other Distributions" below).
Because of the absence of final regulations or any other pertinent
interpretations of the Section 7702 tests, it, however, is unclear whether
substandard risk Contracts or Contracts insuring more than one person will, in
all cases, meet the statutory life insurance contract definition. If a contract
were determined not to be a life insurance contract for purposes of Section
7702, such contract would not provide most of the tax advantages normally
provided by life insurance contracts.
Merrill Lynch Life thus reserves the right to make changes in the Contract if
such changes are deemed necessary to attempt to assure its qualification as a
life insurance contract for tax purposes. (See "Contract Changes -- Applicable
Federal Tax Law" on page 32.)
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 Funds, intends to comply
with these requirements. Each Fund is obligated to comply with the
diversification requirements prescribed by the Treasury Department.
In connection with the issuance of the diversification regulations, the Treasury
Department stated that it anticipates the issuance of regulations or rulings
prescribing the circumstances in which an owner's control of the investments of
a separate account may cause the contract owner, rather than the insurance
company, to be treated as the owner of the assets in the account. If the
contract owner is considered the owner of the assets of the Separate Account,
income and gains from the account would be included in the owner's gross income.
The ownership rights under the Contract offered in this Prospectus are similar
to, but different in certain respects from, those described by the Internal
Revenue Service in rulings in which it determined that the owners were not
owners of separate account assets. For example, the owner of this Contract has
additional flexibility in allocating payments and cash surrender values. These
differences could result in the owner being treated as the owner of the assets
of the Separate Account. In addition, Merrill Lynch Life does not know what
standards will be set forth in the regulations or rulings which the Treasury has
stated it expects to be issued. Merrill Lynch Life therefore reserves the right
to modify the Contract as necessary to attempt to prevent the contract owner
from being considered the owner of the assets of the Separate Account.
Tax Treatment of Loans and Other Distributions. Federal tax law establishes a
class of life insurance contracts referred to as modified endowment contracts.
In most cases, this Contract will be a modified endowment contract. (See,
however, the discussion below on a Contract issued in exchange for another life
insurance contract.) Loans and partial withdrawals from, as well as collateral
assignments of, modified endowment contracts will be treated as distributions to
the owner. All pre-death distributions (including loans, partial withdrawals,
capitalized interest, collateral assignments and complete surrenders) 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, complete surrenders, and
capitalized interest) 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.
35
<PAGE> 40
Any Contract issued in exchange for a modified endowment contract will be
subject to the tax treatment accorded to modified endowment contracts. However,
Merrill Lynch Life believes that any Contract issued in exchange for a life
insurance contract that is not a modified endowment contract will generally not
be treated as a modified endowment contract if the face amount of the Contract
is greater than or equal to the death benefit of the policy being exchanged. The
payment of any premiums at the time of or after the exchange may, however, cause
the Contract to become a modified endowment contract. A contract owner may, of
course, choose not to exercise the right to make additional payments (whether
planned or unplanned) in order to prevent a Contract from being treated as a
modified endowment contract.
Merrill Lynch Life also believes that a Contract received in an exchange for a
life insurance contract that is not a modified endowment contract should not be
treated as a modified endowment contract in situations where the face amount of
the Contract received is less than the death benefit of the contract being
exchanged, provided no additional premium is paid into the Contract. This matter
is, however, not free from doubt because neither Treasury regulations nor
Internal Revenue Service rulings have been issued on this situation. A
prospective contract owner should therefore consult a tax advisor before
effecting such an exchange.
Unlike loans from modified endowment contracts, a loan from a Contract that is
not a modified endowment contract will be considered indebtedness of the owner
and no part of a loan will constitute income to the owner. However, a lapse of a
contract with an outstanding loan will result in the treatment of the loan
cancellation (including the accrued interest) as a distribution under the
contract. Pre-death distributions from such a contract will generally not be
included in gross income to the extent that the amount received does not exceed
the owner's investment in the Contract. An exception to this general rule may
occur in the case of a decrease in the death benefit provided in respect of a
Contract (possibly resulting from a partial withdrawal) or any other change that
reduces benefits under the Contract in the first 15 years after the Contract is
issued and that results in a cash distribution to the contract owner in order
for the Contract to continue complying with the Section 7702 definitional
limits. Such a cash distribution may be taxed in whole or in part as ordinary
income (to the extent of any gain in the Contract) under rules prescribed in
Section 7702. 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 generally is not tax deductible.
Aggregation of Modified Endowment Contracts. In the case of a pre-death
distribution (including a loan, partial withdrawal, collateral assignment,
complete surrender, or capitalized interest) 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
36
<PAGE> 41
if there is no debt and no cash or other property is received, according to
Section 1035(a)(1) of the Code. In addition, exchanging this Contract for more
than one contract, or exchanging this Contract and one or more other contracts
for a single contract, in certain circumstances, may be treated as an exchange
under Section 1035, as long as all such contracts involve the same insured(s).
An exchange for a new contract or contracts may result in a loss of
grandfathering status for statutory changes made after the old contract or
contracts were issued. Changing the insured under this Contract may not be
treated as an exchange under Section 1035 but rather as a taxable exchange. A
tax advisor should be consulted before effecting any exchange, since even if an
exchange is within Section 1035(a), the exchange may have tax consequences other
than immediate recognition of income.
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. In recent years, moreover, Congress has
adopted new rules relating to life insurance owned by businesses. Any 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.
Possible Changes in Taxation. Although the likelihood of legislative change is
uncertain, there is always the possibility that the tax treatment of the
Contracts could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted, would
adversely modify the federal taxation of the Contracts. It is also possible that
any change could be retroactive (that is, effective prior to the date of the
change). A tax advisor should be consulted with respect to legislative
developments and their effect on the Contract.
Merrill Lynch Life does not make any guarantee regarding the tax status of any
Contract or any transaction regarding the Contract.
The above discussion is not intended as tax advice. For tax advice contract
owners should consult a competent tax adviser. Although this tax discussion is
based on Merrill Lynch Life's understanding of federal income tax laws as they
are currently interpreted, it can't guarantee that those laws or interpretations
will remain unchanged.
MERRILL LYNCH LIFE'S INCOME TAXES
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 20.)
37
<PAGE> 42
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 shares
of the Funds and units of the Zero Trusts 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;
- 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
38
<PAGE> 43
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 Funds, shares are valued at net asset value and
reflect reinvestment of any dividends or capital gains distributions declared by
the 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 FUNDS
Buying and Redeeming Shares. The 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 Fund 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 Funds' shareholder meetings. However, Merrill
Lynch Life will vote all Fund 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 Fund 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
Fund meeting. Merrill Lynch Life will request voting instructions by mail at
least 14 days before the meeting.
Under certain circumstances, Merrill Lynch Life may be required by state
regulatory authorities to disregard voting instructions. This may happen if
following the instructions would mean voting to change the sub-classification or
investment objectives of the portfolios, or to approve or disapprove an
investment advisory contract.
Merrill Lynch Life may also disregard instructions to vote for changes in the
investment policy or the investment adviser if it disapproves of the proposed
changes. Merrill Lynch Life would disapprove a proposed change only if it was:
- contrary to state law;
- prohibited by state regulatory authorities; or
- decided by management that the change would result in overly speculative
or unsound investments.
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<PAGE> 44
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, the AIM V.I.
Funds, the Alliance Fund, and the MFS Trust are sold to separate accounts of
Merrill Lynch Life, ML Life Insurance Company of New York, and insurance
companies not affiliated with Merrill Lynch Life or Merrill Lynch & Co., Inc. to
fund benefits under variable life insurance and variable annuity contracts, and
may be sold to certain qualified plans.
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 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 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.
AIM V.I. Funds has entered into an Administrative Services Agreement with AIM,
pursuant to which AIM has agreed to provide certain accounting and other
administrative services to the AIM V.I. Funds, including the services of a
principal financial officer and related staff. As compensation to AIM for its
services under the Administrative Services Agreement, the AIM V.I. Funds
reimburse AIM for expenses incurred by AIM or its affiliates in connection with
such services. AIM has entered into an agreement with Merrill Lynch Life with
respect to administrative services for the AIM V.I. Funds in connection with the
Contracts. Under this agreement, AIM pays compensation to Merrill Lynch Life in
an amount equal to a percentage of the average net assets of the AIM V.I. Funds
attributable to the Contracts.
Alliance Fund Distributors, Inc. ("AFD"), an affiliate of Alliance, has entered
into an agreement with Merrill Lynch Life with respect to administrative
services for the Alliance Fund in connection with the Contracts. Under this
agreement, AFD pays compensation to Merrill Lynch Life in an amount equal to a
percentage of the average net assets of the Alliance Fund attributable to the
Contracts.
MFS has entered into an agreement with MLIG with respect to administrative
services for the MFS Trust in connection with the Contracts and certain
contracts issued by ML Life Insurance Company of New York. Under this agreement,
MFS pays compensation to MLIG in an amount equal to a percentage of the average
net assets of the MFS Trust attributable to such contracts.
40
<PAGE> 45
THE ZERO TRUSTS
The 15 Zero Trusts:
<TABLE>
<CAPTION>
TARGETED RATE OF RETURN TO
MATURITY AS
ZERO TRUST MATURITY DATE OF APRIL 17, 1998
---------- ----------------- --------------------------
<C> <S> <C>
1999 February 15, 1999 4.06%
2000 February 15, 2000 4.12%
2001 February 15, 2001 4.10%
2002 February 15, 2002 4.25%
2003 August 15, 2003 4.30%
2004 February 15, 2004 4.38%
2005 February 15, 2005 4.26%
2006 February 15, 2006 4.08%
2007 February 15, 2007 4.19%
2008 February 15, 2008 4.47%
2009 February 15, 2009 4.51%
2010 February 15, 2010 4.63%
2011 February 15, 2011 4.57%
2013 February 15, 2013 4.66%
2014 February 15, 2014 4.75%
</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 22) 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 20).
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 43 through 47 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 43 is for a Contract issued to a male age 5 in
the standard-simplified underwriting class with a single payment of $10,000, a
face amount of $93,421 and a guarantee period for life.
2. The illustration on page 44 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 $89,668 and a guarantee period for life.
3. The illustration on page 45 is for a Contract issued to a male age 55
in the standard-simplified underwriting class with a single payment of $30,000,
a face amount of $58,438 and a guarantee period for life.
41
<PAGE> 46
4. The illustration on page 46 is for a Contract issued to a male age 65
in the standard-simplified underwriting class with a single payment of $35,000,
a face amount of $52,803 and a guarantee period for life.
5. The illustration on page 47 is for a Contract issued to a male age 65
and a female age 65 in the standard-simplified underwriting class with a single
payment of $35,000, a face amount of $67,012 and a guarantee period for life.
The tables show how the death benefit, investment base and cash surrender value
may vary over an extended period of time assuming hypothetical rates of return
(i.e., investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross annual rates of 0%, 6% and 12%.
The death benefit, investment base and cash surrender value for a Contract would
be different from those shown if the actual rates of return averaged 0%, 6% and
12% over a period of years, but also fluctuated above or below those averages
for individual contract years.
The amounts shown for the death benefit, investment base and cash surrender
value as of the end of each contract year take into account the daily asset
charge in the Separate Account equivalent to .90% (annually at the beginning of
the year) of assets attributable to the Contracts at the beginning of the year.
The amounts shown in the tables also assume an additional charge of .52%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1997 expenses (including monthly advisory fees)
for the Funds, and the current trust charge. This charge also reflects expense
reimbursements made in 1997 to certain portfolios by the investment adviser to
the respective portfolio. These reimbursements, amounted to .17% and .09% of the
average daily net assets of the Developing Capital Markets Focus Fund and the
Natural Resources Portfolio, respectively. (See "Charges to Fund Assets" on page
23.) The actual charge under a Contract for Fund 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 .52%
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of -1.42%, 4.53%, and 10.48%,
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 20). In order to produce after
tax returns of 0%, 6% and 12%, the 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.
42
<PAGE> 47
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 5
$10,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $93,421 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ----------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
------------- ------------ ----------------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
1.................... $10,000 $ 10,500 $93,421 $ 94,304 $ 100,187
2.................... 0 11,025 93,421 95,139 107,255
3.................... 0 11,576 93,421 95,929 114,649
4.................... 0 12,155 93,421 96,677 122,395
5.................... 0 12,763 93,421 97,384 130,522
6.................... 0 13,401 93,421 98,053 139,060
7.................... 0 14,071 93,421 98,687 148,039
8.................... 0 14,775 93,421 99,288 157,496
9.................... 0 15,513 93,421 99,858 167,465
10.................... 0 16,289 93,421 100,399 177,984
15.................... 0 20,789 93,421 102,993 240,923
20 (age 25)........... 0 26,533 93,421 105,654 326,114
30 (age 35)........... 0 43,219 93,421 111,180 597,272
60 (age 65)........... 0 186,792 93,422 129,570 3,675,056
</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.................... $9,691 $10,284 $ 10,875 $8,881 $ 9,474 $ 10,065
2.................... 9,390 10,583 11,839 8,670 9,863 11,119
3.................... 9,100 10,903 12,908 8,470 10,273 12,278
4.................... 8,818 11,240 14,087 8,278 10,700 13,547
5.................... 8,541 11,593 15,384 8,091 11,143 14,934
6.................... 8,270 11,965 16,818 7,910 11,605 16,458
7.................... 8,001 12,349 18,390 7,731 12,079 18,120
8.................... 7,729 12,745 20,111 7,549 12,565 19,931
9.................... 7,448 13,143 21,981 7,358 13,053 21,891
10.................... 7,159 13,546 24,014 7,159 13,546 24,014
15.................... 6,030 16,115 37,698 6,030 16,115 37,698
20 (age 25)........... 4,903 19,196 59,252 4,903 19,196 59,252
30 (age 35)........... 3,019 27,991 150,371 3,019 27,991 150,371
60 (age 65)........... 0 78,155 2,216,734 0 78,155 2,216,734
</TABLE>
- ------------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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 FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE> 48
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
FEMALE ISSUE AGE 40
$25,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $89,668 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 $89,668 $ 90,515 $ 96,160
2.................... 0 27,563 89,668 91,315 102,941
3.................... 0 28,941 89,668 92,074 110,038
4.................... 0 30,388 89,668 92,791 117,475
5.................... 0 31,907 89,668 93,471 125,280
6.................... 0 33,502 89,668 94,115 133,482
7.................... 0 35,178 89,668 94,724 142,110
8.................... 0 36,936 89,668 95,302 151,196
9.................... 0 38,783 89,668 95,850 160,773
10.................... 0 40,722 89,668 96,370 170,876
15.................... 0 51,973 89,668 98,859 231,302
20 (age 60)........... 0 66,332 89,668 101,415 313,120
30 (age 70)........... 0 108,049 89,668 106,727 573,960
</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.................... $24,259 $25,741 $ 27,220 $22,234 $23,716 $ 25,195
2.................... 23,517 26,503 29,648 21,717 24,703 27,848
3.................... 22,772 27,283 32,299 21,197 25,708 30,724
4.................... 22,027 28,086 35,198 20,677 26,736 33,848
5.................... 21,280 28,910 38,366 20,155 27,785 37,241
6.................... 20,531 29,757 41,828 19,631 28,857 40,928
7.................... 19,781 30,628 45,613 19,106 29,953 44,938
8.................... 19,028 31,523 49,746 18,578 31,073 49,296
9.................... 18,272 32,441 54,262 18,047 32,216 54,037
10.................... 17,515 33,386 59,198 17,515 33,386 59,198
15.................... 14,741 39,713 92,918 14,741 39,713 92,918
20 (age 60)........... 11,737 47,016 145,164 11,737 47,016 145,164
30 (age 70)........... 4,610 64,808 348,528 4,610 64,808 348,528
</TABLE>
- ------------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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 FUNDS OR THE ZERO
TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
44
<PAGE> 49
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 55
$30,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $58,438 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS -------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
------------- ------------ ----------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1.................... $30,000 $ 31,500 $58,438 $58,991 $ 62,675
2.................... 0 33,075 58,438 59,515 67,104
3.................... 0 34,729 58,438 60,012 71,741
4.................... 0 36,465 58,438 60,483 76,602
5.................... 0 38,288 58,438 60,929 81,705
6.................... 0 40,203 58,438 61,353 87,069
7.................... 0 42,213 58,438 61,753 92,711
8.................... 0 44,324 58,438 62,133 98,653
9.................... 0 46,540 58,438 62,493 104,917
10 (age 65)........... 0 48,867 58,438 62,833 111,523
15.................... 0 62,368 58,438 64,460 151,051
20.................... 0 79,599 58,438 66,130 204,634
30.................... 0 129,658 58,438 69,605 375,849
</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.................... $28,982 $30,758 $ 32,527 $26,552 $28,328 $ 30,097
2.................... 27,956 31,523 35,267 25,796 29,363 33,107
3.................... 26,923 32,297 38,240 25,033 30,407 36,350
4.................... 25,883 33,081 41,465 24,263 31,461 39,845
5.................... 24,835 33,873 44,963 23,485 32,523 43,613
6.................... 23,778 34,673 48,753 22,698 33,593 47,673
7.................... 22,712 35,479 52,858 21,902 34,669 52,048
8.................... 21,631 36,286 57,297 21,091 35,746 56,757
9.................... 20,535 37,094 62,093 20,265 36,824 61,823
10 (age 65)........... 19,422 37,900 67,269 19,422 37,900 67,269
15.................... 14,904 43,335 101,549 14,904 43,335 101,549
20.................... 9,777 48,842 151,137 9,777 48,842 151,137
30.................... 0 58,973 318,440 0 58,973 318,440
</TABLE>
- ------------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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 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.
45
<PAGE> 50
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 65
$35,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $52,803 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS -------------------------------
CONTRACT YEAR PAYMENTS (1) OF END OF YEAR 0% 6% 12%
------------- ------------ ----------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1.................... $35,000 $ 36,750 $52,803 $53,304 $ 56,637
2.................... 0 38,588 52,803 53,779 60,647
3.................... 0 40,517 52,803 54,231 64,848
4.................... 0 42,543 52,803 54,660 69,254
5.................... 0 44,670 52,803 55,066 73,880
6.................... 0 46,903 52,803 55,452 78,742
7.................... 0 49,249 52,803 55,817 83,858
8.................... 0 51,711 52,803 56,163 89,245
9.................... 0 54,296 52,803 56,490 94,923
10 (age 75)........... 0 57,011 52,803 56,799 100,912
15.................... 0 72,762 52,803 58,272 136,746
20.................... 0 92,865 52,803 59,784 185,344
30.................... 0 151,268 52,803 62,929 340,637
</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.................... $33,660 $35,727 $ 37,784 $30,825 $32,892 $ 34,949
2.................... 32,307 36,450 40,783 29,787 33,930 38,263
3.................... 30,944 37,169 44,014 28,739 34,964 41,809
4.................... 29,570 37,884 47,495 27,680 35,994 45,605
5.................... 28,186 38,595 51,243 26,611 37,020 49,668
6.................... 26,789 39,299 55,275 25,529 38,039 54,015
7.................... 25,377 39,991 59,606 24,432 39,046 58,661
8.................... 23,946 40,668 64,251 23,316 40,038 63,621
9.................... 22,491 41,322 69,221 22,176 41,007 68,906
10 (age 75)........... 21,010 41,950 74,531 21,010 41,950 74,531
15.................... 14,810 46,422 108,937 14,810 46,422 108,937
20.................... 8,106 50,653 157,034 8,106 50,653 157,034
30.................... 0 58,641 317,423 0 58,641 317,423
</TABLE>
- ------------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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 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.
46
<PAGE> 51
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 $67,715 $ 72,020
2.................... 0 38,588 67,012 68,373 77,229
3.................... 0 40,517 67,012 68,990 82,661
4.................... 0 42,543 67,012 69,568 88,335
5.................... 0 44,670 67,012 70,110 94,273
6.................... 0 46,903 67,012 70,618 100,499
7.................... 0 49,249 67,012 71,096 107,037
8.................... 0 51,711 67,012 71,543 113,909
9.................... 0 54,296 67,012 71,964 121,145
10 (age 75)........... 0 57,011 67,012 72,358 128,769
15.................... 0 72,762 67,012 74,230 174,358
20.................... 0 92,865 67,012 76,153 236,201
30.................... 0 151,268 67,012 80,156 433,911
</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.................... $34,107 $36,187 $ 38,268 $30,642 $32,722 $ 34,803
2.................... 33,197 37,399 41,844 30,117 34,319 38,764
3.................... 32,268 38,631 45,752 29,573 35,936 43,057
4.................... 31,318 39,881 50,016 29,008 37,571 47,706
5.................... 30,342 41,146 54,663 28,417 39,221 52,738
6.................... 29,339 42,422 59,721 27,799 40,882 58,181
7.................... 28,303 43,705 65,215 27,148 42,550 64,060
8.................... 27,229 44,987 71,171 26,459 44,217 70,401
9.................... 26,111 46,259 77,610 25,726 45,874 77,225
10 (age 75)........... 24,941 47,514 84,555 24,941 47,514 84,555
15.................... 20,083 55,395 130,117 20,083 55,395 130,117
20.................... 13,565 62,564 194,051 13,565 62,564 194,051
30.................... 0 74,580 403,724 0 74,580 403,724
</TABLE>
- ------------------------------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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 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.
47
<PAGE> 52
EXAMPLES
ADDITIONAL PAYMENTS
If the guarantee period is for the whole of life at the time an additional
payment is received and accepted, as of the processing date on or next following
the date of the additional payment, Merrill Lynch Life will increase the face
amount to the amount that the Contract's fixed base, as of such processing date,
would support for the life of the insured.
Under these circumstances the amount of the increase in face amount will depend
on the amount of the additional payment and the contract year in which it is
received and accepted. If additional payments of different amounts were made at
the same time to equivalent Contracts, the Contract to which the larger payment
is applied would have a proportionately larger increase in face amount. And if
additional payments of the same amounts were made in earlier and later years,
those made in the later years would result in smaller increases to the face
amount.
Example 1 shows the effect on face amount of a $2,000 additional payment
received and accepted at the beginning of contract year two. Example 2 shows the
effect of a $4,000 additional payment received and accepted at the beginning of
contract year two. Example 3 shows the effect of a $2,000 additional payment
received and accepted at the beginning of contract year five. All three examples
assume that the guarantee period at the time of the additional payment is for
life and assume no other contract transactions have been made.
Male Issue Age: 55
Initial Payment: $30,000 Face Amount: $58,438
<TABLE>
<CAPTION>
EXAMPLE 1
- -------------------------------------------
CONTRACT ADDITIONAL CHANGE IN NEW FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
- -------- ---------- ----------- --------
<S> <C> <C> <C>
2 $2,000 $3,790 $62,228
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
- -------------------------------------------
CONTRACT ADDITIONAL CHANGE IN NEW FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
- -------- ---------- ----------- --------
<S> <C> <C> <C>
2 $4,000 $7,580 $66,018
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
- -------------------------------------------
CONTRACT ADDITIONAL CHANGE IN NEW FACE
YEAR PAYMENT FACE AMOUNT AMOUNT
- -------- ---------- ----------- --------
<S> <C> <C> <C>
5 $2,000 $3,499 $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.
48
<PAGE> 53
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.
Male Issue Age: 55
Initial Payment: $30,000 Face Amount: $58,438
<TABLE>
<CAPTION>
EXAMPLE 1
- ----------------------------------
DECREASE IN
CONTRACT INCREASE IN GUARANTEE
YEAR FACE AMOUNT PERIOD
- -------- ----------- -----------
<S> <C> <C>
5 $10,000 16.00 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
- ----------------------------------
DECREASE IN
CONTRACT INCREASE IN GUARANTEE
YEAR FACE AMOUNT PERIOD
- -------- ----------- -----------
<S> <C> <C>
5 $20,000 19.75 years
</TABLE>
<TABLE>
<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
49
<PAGE> 54
the guarantee period was for the lifetime of the insured before the partial
withdrawal and assume no other contract transactions have been made.
Male Issue Age: 55
Initial Payment: $30,000 Face Amount: $58,438
<TABLE>
<CAPTION>
EXAMPLE 1
- ----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
- -------- ---------- -----------
<S> <C> <C>
3 $ 500 $57,425
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
- ----------------------------------
CONTRACT PARTIAL
YEAR WITHDRAWAL FACE AMOUNT
- -------- ---------- -----------
<S> <C> <C>
3 $1,000 $56,411
</TABLE>
<TABLE>
<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.
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 15)
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.
50
<PAGE> 55
INITIAL PAYMENT (REFERENCE PAGE 16)
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 17). 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 17). 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 18). 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 19). 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 19). Contract owners may decrease
the face amount of their Contracts if either insured is living.
CHARGES DEDUCTED FROM THE INVESTMENT BASE
Deferred Contract Loading (reference page 20). 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 37.) 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 21). 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.
51
<PAGE> 56
GUARANTEE PERIOD
When the Guarantee Period is Less Than for Life (reference page 24). 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
24.
NET CASH SURRENDER VALUE
Cancelling to Receive Net Cash Surrender Value (reference page 25). Contract
owners may cancel their Contracts at any time while either insured is living.
DEATH BENEFIT PROCEEDS (REFERENCE PAGE 26)
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. When Merrill Lynch Life is first provided reliable notification
of the last surviving insured's death by a representative of the owner or the
insured, investment base may be transferred to the division investing in the
Money Reserve Portfolio, pending payment of death benefit proceeds.
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 pages 31 and 32.)
Net Single Premium Factor (reference page 27). 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 27)
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 28). 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 28). The contract owner is usually one of the
insureds, unless another owner has been named in the application.
The contract owner may want to name a contingent owner in the event the contract
owner dies before the last surviving insured. The contingent owner would then
own the contract owner's interest in the Contract and have all the contract
owner's rights.
Naming Beneficiaries (reference page 29). Merrill Lynch Life pays the primary
beneficiary the proceeds of this Contract upon 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 29). Not available for joint insureds.
Maturity Proceeds (reference page 30). 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.
52
<PAGE> 57
OTHER CONTRACT PROVISIONS
Incontestability (reference page 31). 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 32). 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 32)
If no plan has been chosen when the last surviving insured dies, the beneficiary
has one year to apply the death benefit proceeds either paid or payable to him
or her to one or more of the income plans.
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Merrill Lynch Life's directors and executive officers and their positions with
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>
53
<PAGE> 58
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.
Mr. Crowne joined Merrill Lynch Life in June 1991.
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 and Assistant General Counsel of MLPF&S.
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.
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,
1997.
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.
YEAR 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Separate Account could be adversely
affected if the computer systems used by Merrill Lynch Life or the other service
providers do not properly address this problem prior to January 1, 2000. Merrill
Lynch & Co., Inc. has established a dedicated group to analyze these issues and
to implement any systems modifications necessary to prepare for the Year 2000.
The resources that are being devoted to this effort are substantial. It is
difficult to predict with precision whether the amount of resources ultimately
devoted, or the outcome of these efforts, will have any negative impact on
Merrill Lynch
54
<PAGE> 59
Life. Currently, Merrill Lynch Life does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Contracts at current levels. In addition, Merrill Lynch Life has
sought assurances from the other service providers that they are taking all
necessary steps to ensure that their computer systems will accurately reflect
the Year 2000, and Merrill Lynch Life will continue to monitor the situation. At
this time, however, no assurance can be given that the other service providers
have anticipated every step necessary to avoid any adverse effect on the
Separate Account attributable to the Year 2000 Problem.
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, 1997 and 1996
and for each of the three years in the period ended December 31, 1997 and of the
Separate Account as of December 31, 1997 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 LLP 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.
55
<PAGE> 60
<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, 1997 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, 1997. 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 Account
at December 31, 1997 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.
January 30, 1998
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS: Cost Shares Market Value
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investments in Merrill Lynch Series Fund, Inc. (Note 1):
Money Reserve Portfolio $ 63,548,989 63,548,989 $ 63,548,989
Intermediate Government Bond Portfolio 16,287,173 1,499,605 16,615,628
Long-Term Corporate Bond Portfolio 14,688,340 1,286,854 15,081,929
Capital Stock Portfolio 31,767,842 1,432,533 38,377,551
Growth Stock Portfolio 31,877,145 1,299,502 42,649,668
Multiple Strategy Portfolio 23,862,232 1,462,641 27,746,299
High Yield Portfolio 24,354,668 2,683,014 24,656,900
Natural Resources Portfolio 2,458,404 274,536 2,229,229
Global Strategy Portfolio 35,197,639 2,253,795 39,306,193
Balanced Portfolio 11,034,733 781,572 12,333,202
--------------------- ---------------------
255,077,165 282,545,588
--------------------- ---------------------
Investments in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Global Utility Focus Fund 1,558,534 130,418 1,935,402
International Equity Focus Fund 11,156,709 974,056 10,519,807
Global Bond Focus Fund 1,025,067 107,954 1,006,132
Basic Value Focus Fund 35,554,181 2,579,307 40,856,227
Developing Capital Markets Focus Fund 6,278,665 620,296 5,719,129
Special Value Focus Fund 3,373,872 127,997 3,551,930
Index 500 Fund 4,171,380 331,379 4,466,348
--------------------- ---------------------
63,118,408 68,054,975
--------------------- ---------------------
Investments in Alliance Variable Products Series Funds, Inc. (Note 1):
Premier Growth Portfolio 5,998,849 295,092 6,193,975
--------------------- ---------------------
5,998,849 6,193,975
--------------------- ---------------------
Investments in MFS Variable Insurance Trust (Note 1):
MFS Emerging Growth Series 3,249,675 205,369 3,314,658
MFS Research Series 3,500,889 225,966 3,568,009
--------------------- ---------------------
6,750,564 6,882,667
--------------------- ---------------------
Investments in AIM Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund 4,009,482 188,947 3,935,762
AIM V.I. Capital Appreciation Fund 1,397,918 61,976 1,347,969
--------------------- ---------------------
5,407,400 5,283,731
--------------------- ---------------------
</TABLE>
(continued)
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Units
-------------------
<S> <C> <C> <C>
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through K (Note 1):
1998 Trust 839,634 1,014,604 1,009,270
1999 Trust 1,011,110 1,300,432 1,222,783
2000 Trust 781,003 1,051,825 936,408
2001 Trust 275,431 353,946 298,380
2002 Trust 623,381 895,700 711,490
2003 Trust 306,347 482,014 351,393
2004 Trust 1,035,942 1,774,066 1,253,773
2005 Trust 645,329 1,134,921 763,564
2006 Trust 247,754 461,086 297,451
2007 Trust 155,638 299,730 181,444
2008 Trust 358,569 750,730 419,335
2009 Trust 59,970 154,854 81,380
2010 Trust 530,796 1,107,010 541,904
2011 Trust 122,023 363,895 169,517
2013 Trust 160,468 493,562 202,637
2014 Trust 2,895,201 9,692,115 3,711,886
--------------------- ---------------------
10,048,596 12,152,615
--------------------- ---------------------
TOTAL ASSETS $ 346,400,982 381,113,551
===================== =====================
LIABILITIES:
Payable to Merrill Lynch Life Insurance Company 13,766,872
---------------------
TOTAL LIABILITIES 13,766,872
---------------------
NET ASSETS $ 367,346,679
=====================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 18,534,136 $ 12,043,745 $ 7,040,646
Mortality and Expense Charges (Note 3) (2,791,171) (1,751,522) (1,098,797)
Transaction Charges (Note 4) (36,928) (28,838) (18,263)
--------------------- --------------------- ---------------------
Net Investment Income 15,706,037 10,263,385 5,923,586
--------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 2,063,224 (45,179) (309,482)
Net Unrealized Gains 18,236,659 8,986,838 10,659,883
--------------------- --------------------- ---------------------
Net Realized and Unrealized Gains 20,299,883 8,941,659 10,350,401
--------------------- --------------------- ---------------------
Increase in Net Assets
Resulting from Operations 36,005,920 19,205,044 16,273,987
--------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 99,960,767 70,164,840 57,600,863
Transfers of Policy Loading, Net (Note 3) 4,809,499 3,408,619 2,992,695
Transfers Due to Deaths (1,185,686) (813,683) (1,461,703)
Transfers Due to Other Terminations (3,656,934) (2,808,710) (2,139,618)
Transfers Due to Policy Loans (2,605,297) (2,600,351) (1,721,984)
Transfers of Cost of Insurance (4,830,049) (3,101,640) (2,101,569)
Transfers of Loan Processing Charges (75,863) (50,705) (28,928)
--------------------- --------------------- ---------------------
Increase in Net Assets
Resulting from Principal Transactions 92,416,437 64,198,370 53,139,756
--------------------- --------------------- ---------------------
Increase in Net Assets 128,422,357 83,403,414 69,413,743
Net Assets Beginning Balance 238,924,322 155,520,908 86,107,165
--------------------- --------------------- ---------------------
Net Assets Ending Balance $ 367,346,679 $ 238,924,322 $ 155,520,908
===================== ===================== =====================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
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-eight investment
divisions (thirty-nine during the year). At any point in
time, the Account may or may not be invested in all
available divisions. Ten of the investment divisions each
invest in the securities of a single mutual fund
portfolio of the Merrill Lynch Series Fund, Inc. Seven of
the investment divisions each invest in the securities of
a single mutual fund portfolio of the Merrill Lynch
Variable Series Funds, Inc. One of the investment
divisions invests in the securities of a single mutual
fund portfolio of the Alliance Variable Products Series
Fund, Inc. Two of the investments divisions each invest
in the securities of a single mutual fund portfolio of
the MFS Variable Insurance Trust. Two of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the AIM Variable Insurance
Funds, Inc. Sixteen of the investment divisions
(seventeen 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.
The financial statements included herein have been
prepared in accordance with generally accepted accounting
principles for variable life separate accounts registered
as unit investment trusts. 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.
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
shares and units 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.
3. Merrill Lynch Life assumes mortality and expense risks
related to Contracts investing in the Account and deducts
daily charges at a rate of .9% (on an annual basis) of
the net assets of the Account to cover these risks.
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 income
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.
4. Merrill Lynch Life pays all transaction charges to
Merrill Lynch, Pierce, Fenner & Smith Inc., a subsidiary
of Merrill and sponsor of the Zero Trusts, on the sale of
Zero 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.
5. Effective following the close of business on August 15,
1997,the Equity Growth Fund was renamed the Special Value
Focus Fund. The Fund's investment objective was not
modified.
Effective following the close of business on December 6,
1996, the International Bond Fund was merged with and
into the former World Income Focus Fund; the World Income
Focus Fund was renamed the Global Bond Focus Fund; and
the Fund's investment objective was modified.
<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, 1997
<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 $ 18,534,136 $ 3,061,142 $ 1,024,278 $ 853,881
Mortality and Expense Charges (2,791,171) (432,030) (139,164) (116,107)
Transaction Charges (36,928) 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 15,706,037 2,629,112 885,114 737,774
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 2,063,224 0 28,903 (129,911)
Net Unrealized Gains (Losses) 18,236,659 0 202,623 399,513
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 20,299,883 0 231,526 269,602
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 36,005,920 2,629,112 1,116,640 1,007,376
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 99,960,767 80,752,279 309,156 618,629
Transfers of Policy Loading, Net 4,809,499 5,431,651 (94,415) (65,801)
Transfers Due to Deaths (1,185,686) (211,759) (34,457) (48,608)
Transfers Due to Other Terminations (3,656,934) (527,652) (199,221) (257,966)
Transfers Due to Policy Loans (2,605,297) (661,570) (19,762) (84,885)
Transfers of Cost of Insurance (4,830,049) (961,359) (186,799) (177,136)
Transfers of Loan Processing Charges (75,863) (14,418) (2,364) (2,193)
Transfers Among Investment Divisions 0 (79,759,226) 988,023 3,327,999
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 92,416,437 4,047,946 760,161 3,310,039
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 128,422,357 6,677,058 1,876,801 4,317,415
Net Assets Beginning Balance 238,924,322 44,182,360 14,833,421 10,756,980
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 367,346,679 $ 50,859,418 $ 16,710,222 $ 15,074,395
===================== ===================== ===================== =====================
</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, 1997
<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 $ 1,534,321 $ 2,954,096 $ 1,430,984 $ 1,815,929
Mortality and Expense Charges (304,549) (317,291) (222,898) (175,173)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 1,229,772 2,636,805 1,208,086 1,640,756
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 177,958 519,115 (43,217) 66,054
Net Unrealized Gains (Losses) 4,630,014 6,064,599 2,796,441 (5,499)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 4,807,972 6,583,714 2,753,224 60,555
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 6,037,744 9,220,519 3,961,310 1,701,311
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,655,250 3,002,127 1,618,485 1,133,832
Transfers of Policy Loading, Net 23,121 23,716 (122,374) (57,681)
Transfers Due to Deaths (93,442) (110,623) (132,745) (97,350)
Transfers Due to Other Terminations (484,772) (324,025) (390,645) (204,648)
Transfers Due to Policy Loans (235,369) (485,892) (84,527) (113,971)
Transfers of Cost of Insurance (486,711) (543,329) (360,114) (275,393)
Transfers of Loan Processing Charges (7,416) (9,043) (4,636) (5,844)
Transfers Among Investment Divisions 5,273,125 6,858,211 2,873,888 9,318,948
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 6,643,786 8,411,142 3,397,332 9,697,893
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 12,681,530 17,631,661 7,358,642 11,399,204
Net Assets Beginning Balance 25,862,344 24,989,798 20,376,299 13,166,433
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 38,543,874 $ 42,621,459 $ 27,734,941 $ 24,565,637
===================== ===================== ===================== =====================
</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, 1997
<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 $ 16,971 $ 1,984,898 $ 1,063,388 $ 48,805
Mortality and Expense Charges (22,152) (322,626) (95,480) (13,670)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (5,181) 1,662,272 967,908 35,135
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 111,013 196,560 49,619 49,962
Net Unrealized Gains (Losses) (413,042) 1,050,704 545,849 269,176
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (302,029) 1,247,264 595,468 319,138
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (307,210) 2,909,536 1,563,376 354,273
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 171,332 3,285,567 747,249 111,780
Transfers of Policy Loading, Net (10,221) (115,769) (66,625) (4,198)
Transfers Due to Deaths 0 (138,684) (45,737) 0
Transfers Due to Other Terminations (44,526) (511,741) (94,509) (11,478)
Transfers Due to Policy Loans 362 (258,709) (63,906) (14,092)
Transfers of Cost of Insurance (32,834) (576,387) (156,716) (19,823)
Transfers of Loan Processing Charges (319) (10,810) (2,576) (130)
Transfers Among Investment Divisions 212,353 6,664,342 1,705,254 374,103
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 296,147 8,337,809 2,022,434 436,162
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (11,063) 11,247,345 3,585,810 790,435
Net Assets Beginning Balance 2,239,532 28,040,964 8,573,557 1,144,485
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 2,228,469 $ 39,288,309 $ 12,159,367 $ 1,934,920
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
International Global Basic Developing
Equity Bond Value Capital
Focus Focus Focus Markets Focus
Fund Fund Fund Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 214,325 $ 61,646 $ 2,148,291 $ 92,408
Mortality and Expense Charges (92,275) (8,564) (280,173) (58,702)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 122,050 53,082 1,868,118 33,706
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 193,102 (8,217) 319,132 87,634
Net Unrealized Gains (Losses) (1,033,706) (32,725) 2,665,523 (718,388)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (840,604) (40,942) 2,984,655 (630,754)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (718,554) 12,140 4,852,773 (597,048)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,097,659 112,341 2,539,207 796,454
Transfers of Policy Loading, Net (9,101) (502) (81,910) 1,174
Transfers Due to Deaths (108,221) 0 (98,994) (37,303)
Transfers Due to Other Terminations (55,367) (9,771) (200,584) (63,117)
Transfers Due to Policy Loans (19,024) (11,222) (322,540) (63,397)
Transfers of Cost of Insurance (169,695) (15,333) (502,869) (93,497)
Transfers of Loan Processing Charges (2,465) (14) (5,680) (1,150)
Transfers Among Investment Divisions 2,569,724 (20,382) 15,311,530 779,810
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 3,303,510 55,117 16,638,160 1,318,974
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 2,584,956 67,257 21,490,933 721,926
Net Assets Beginning Balance 7,794,744 938,559 19,345,706 4,934,396
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 10,379,700 $ 1,005,816 $ 40,836,639 $ 5,656,322
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
Special MFS
Value Index Premier Emerging
Focus 500 Growth Growth
Fund Fund Portfolio Series
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 85,609 $ 0 $ 888 $ 0
Mortality and Expense Charges (25,040) (15,755) (16,038) (10,636)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 60,569 (15,755) (15,150) (10,636)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 25,948 4,833 17,322 31,933
Net Unrealized Gains (Losses) 139,551 294,968 195,126 64,983
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 165,499 299,801 212,448 96,916
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 226,068 284,046 197,298 86,280
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 132,757 53,563 201,131 68,836
Transfers of Policy Loading, Net (4,099) (2,313) 7,645 3,043
Transfers Due to Deaths 0 (15,178) 0 0
Transfers Due to Other Terminations (5,437) (2,863) (1,986) (4,728)
Transfers Due to Policy Loans (4,230) (395) (18,646) (10,611)
Transfers of Cost of Insurance (31,479) (19,968) (30,555) (30,261)
Transfers of Loan Processing Charges (311) (626) (1,029) (518)
Transfers Among Investment Divisions 1,570,344 4,154,793 5,681,005 3,187,612
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,657,545 4,167,013 5,837,565 3,213,373
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 1,883,613 4,451,059 6,034,863 3,299,653
Net Assets Beginning Balance 1,667,274 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 3,550,887 $ 4,451,059 $ 6,034,863 $ 3,299,653
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
AIM V.I.
MFS AIM V.I. Capital
Research Value Appreciation 1997
Series Fund Fund Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 124,894 $ 17,382 $ 0
Mortality and Expense Charges (10,708) (9,699) (4,667) (356)
Transaction Charges 0 0 0 (129)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (10,708) 115,195 12,715 (485)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 14,825 7,233 18,270 32,599
Net Unrealized Gains (Losses) 67,120 (73,720) (49,949) (30,951)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 81,945 (66,487) (31,679) 1,648
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 71,237 48,708 (18,964) 1,163
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 86,976 56,856 55,299 0
Transfers of Policy Loading, Net 2,776 (53) 1,870 (1,313)
Transfers Due to Deaths 0 (11,341) 0 0
Transfers Due to Other Terminations (2,421) (3,980) (150) 216
Transfers Due to Policy Loans (25,774) 24 (11,453) 0
Transfers of Cost of Insurance (19,326) (18,707) (8,800) (331)
Transfers of Loan Processing Charges (542) (664) (191) 44
Transfers Among Investment Divisions 3,299,288 3,432,485 1,329,926 (353,324)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 3,340,977 3,454,620 1,366,501 (354,708)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 3,412,214 3,503,328 1,347,537 (353,545)
Net Assets Beginning Balance 0 0 0 353,545
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 3,412,214 $ 3,503,328 $ 1,347,537 $ 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, 1997
<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 (8,966) (10,685) (8,105) (2,038)
Transaction Charges (3,384) (4,034) (3,061) (772)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (12,350) (14,719) (11,166) (2,810)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 5,521 9,645 14,192 3,810
Net Unrealized Gains (Losses) 49,493 61,471 45,718 14,238
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 55,014 71,116 59,910 18,048
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 42,664 56,397 48,744 15,238
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,016 3,172 9,609 3,327
Transfers of Policy Loading, Net (7,846) (9,449) (6,592) (5,055)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 59 55 (29,935) (79)
Transfers Due to Policy Loans (1,787) 2,400 (6,763) (20,654)
Transfers of Cost of Insurance (7,118) (13,088) (10,007) (2,772)
Transfers of Loan Processing Charges (50) (812) (234) (48)
Transfers Among Investment Divisions 4,943 22,918 135,012 143,929
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (9,783) 5,196 91,090 118,648
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Net Assets Beginning Balance 32,881 61,593 139,834 133,886
975,982 1,160,676 796,195 164,361
Net Assets Ending Balance --------------------- --------------------- --------------------- ---------------------
$ 1,008,863 $ 1,222,269 $ 936,029 $ 298,247
===================== ===================== ===================== =====================
</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, 1997
<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 (6,076) (2,431) (9,680) (6,524)
Transaction Charges (2,295) (920) (3,658) (2,463)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (8,371) (3,351) (13,338) (8,987)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 6,813 5,427 38,160 10,438
Net Unrealized Gains (Losses) 48,467 22,626 73,112 69,622
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 55,280 28,053 111,272 80,060
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 46,909 24,702 97,934 71,073
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 6,610 28,786 18,132
Transfers of Policy Loading, Net (4,924) (992) (60) (4,530)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 1 (75) 3,305 (8,291)
Transfers Due to Policy Loans (9,150) (15,991) (28,232) 0
Transfers of Cost of Insurance (7,559) (3,882) (11,795) (8,283)
Transfers of Loan Processing Charges (37) (415) (109) (19)
Transfers Among Investment Divisions 65,946 130,100 208,675 (13,957)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 44,277 115,355 200,570 (16,948)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 91,186 140,057 298,504 54,125
Net Assets Beginning Balance 620,003 211,188 954,766 709,126
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 711,189 $ 351,245 $ 1,253,270 $ 763,251
===================== ===================== ===================== =====================
</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, 1997
<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 (2,228) (1,059) (2,939) (705)
Transaction Charges (842) (402) (1,111) (266)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (3,070) (1,461) (4,050) (971)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,717 801 3,163 9,593
Net Unrealized Gains (Losses) 27,825 19,338 47,651 (248)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 29,542 20,139 50,814 9,345
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 26,472 18,678 46,764 8,374
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 39,168 1,717 38,579 16,681
Transfers of Policy Loading, Net (919) (845) (1,053) (1,800)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (14) (93) (80) (30,350)
Transfers Due to Policy Loans 0 0 (4,900) 0
Transfers of Cost of Insurance (1,902) (1,181) (3,846) (1,535)
Transfers of Loan Processing Charges (5) (18) (338) 1
Transfers Among Investment Divisions 79 130,235 100,294 (20)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 36,407 129,815 128,656 (17,023)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 62,879 148,493 175,420 (8,649)
Net Assets Beginning Balance 234,452 32,876 243,741 90,000
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 297,331 $ 181,369 $ 419,161 $ 81,351
===================== ===================== ===================== =====================
</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, 1997
<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
Mortality and Expense Charges (4,808) (1,691) (1,378) (28,105)
Transaction Charges (1,815) (637) (521) (10,618)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (6,623) (2,328) (1,899) (38,723)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 85,341 73,982 479 23,472
Net Unrealized Gains (Losses) (3,039) 49,240 31,648 651,287
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 82,302 123,222 32,127 674,759
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 75,679 120,894 30,228 636,036
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 5,603 2,413 46,077 132,112
Transfers of Policy Loading, Net 7,604 (8,160) 3,553 (8,054)
Transfers Due to Deaths (1,244) 0 0 0
Transfers Due to Other Terminations 375 (190,109) (33) (299)
Transfers Due to Policy Loans 0 0 0 (10,631)
Transfers of Cost of Insurance (4,517) (2,471) (1,587) (31,084)
Transfers of Loan Processing Charges (81) 13 (51) (765)
Transfers Among Investment Divisions (100,379) (75,903) 6,517 461,780
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (92,639) (274,217) 54,476 543,059
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (16,960) (153,323) 84,704 1,179,095
Net Assets Beginning Balance 558,584 322,763 117,834 2,531,378
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 541,624 $ 169,440 $ 202,538 $ 3,710,473
===================== ===================== ===================== =====================
</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, 1996
<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 $ 12,043,745 $ 2,259,703 $ 882,178 $ 625,900
Mortality and Expense Charges (1,751,522) (338,561) (118,016) (83,645)
Transaction Charges (28,838) 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 10,263,385 1,921,142 764,162 542,255
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (45,179) 0 18,190 (69,537)
Net Unrealized Gains (Losses) 8,986,838 0 (494,507) (262,935)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 8,941,659 0 (476,317) (332,472)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 19,205,044 1,921,142 287,845 209,783
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 70,164,840 57,111,336 274,240 441,258
Transfers of Policy Loading, Net 3,408,619 3,817,075 (65,305) (45,661)
Transfers Due to Deaths (813,683) (279,751) (18,739) (40,588)
Transfers Due to Other Terminations (2,808,710) (380,432) (76,682) (101,534)
Transfers Due to Policy Loans (2,600,351) (1,084,294) (52,385) (42,333)
Transfers of Cost of Insurance (3,101,640) (629,669) (140,278) (119,430)
Transfers of Loan Processing Charges (50,705) (10,186) (1,605) (1,801)
Transfers Among Investment Divisions 0 (49,154,498) 2,922,480 2,331,559
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 64,198,370 9,389,581 2,841,726 2,421,470
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 83,403,414 11,310,723 3,129,571 2,631,253
Net Assets Beginning Balance 155,520,908 32,871,637 11,703,850 8,125,727
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 238,924,322 $ 44,182,360 $ 14,833,421 $ 10,756,980
===================== ===================== ===================== =====================
</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, 1996
<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 $ 2,849,273 $ 474,609 $ 2,134,807 $ 991,648
Mortality and Expense Charges (189,168) (168,016) (161,312) (93,784)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 2,660,105 306,593 1,973,495 897,864
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (192,580) 76,061 (205,247) (38,619)
Net Unrealized Gains (Losses) 677,575 2,799,507 511,360 263,711
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 484,995 2,875,568 306,113 225,092
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 3,145,100 3,182,161 2,279,608 1,122,956
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,079,423 1,942,040 1,309,262 764,317
Transfers of Policy Loading, Net (43,754) (21,164) (65,905) (51,806)
Transfers Due to Deaths (92,681) (8,492) (75,789) (3,979)
Transfers Due to Other Terminations (321,383) (260,142) (312,254) (358,814)
Transfers Due to Policy Loans (145,225) (397,438) (171,503) (204,029)
Transfers of Cost of Insurance (328,889) (333,742) (276,061) (163,545)
Transfers of Loan Processing Charges (5,535) (6,120) (4,502) (4,660)
Transfers Among Investment Divisions 4,872,794 7,878,892 1,654,189 4,143,862
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 6,014,750 8,793,834 2,057,437 4,121,346
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 9,159,850 11,975,995 4,337,045 5,244,302
Net Assets Beginning Balance 16,702,494 13,013,803 16,039,254 7,922,131
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 25,862,344 $ 24,989,798 $ 20,376,299 $ 13,166,433
===================== ===================== ===================== =====================
</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, 1996
<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 $ 35,904 $ 658,077 $ 339,821 $ 26,694
Mortality and Expense Charges (18,240) (216,109) (61,936) (6,067)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 17,664 441,968 277,885 20,627
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 88,450 51,512 16,557 6,978
Net Unrealized Gains (Losses) 143,526 2,581,792 341,710 68,172
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 231,976 2,633,304 358,267 75,150
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 249,640 3,075,272 636,152 95,777
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 181,972 2,473,052 553,126 47,855
Transfers of Policy Loading, Net (3,920) (44,092) (27,821) 40
Transfers Due to Deaths 0 (158,560) (1,125) 0
Transfers Due to Other Terminations (55,127) (514,227) (209,048) (554)
Transfers Due to Policy Loans (22,880) (192,425) (60,254) (5,578)
Transfers of Cost of Insurance (28,415) (421,815) (118,014) (10,007)
Transfers of Loan Processing Charges (167) (6,017) (2,108) (145)
Transfers Among Investment Divisions 291,252 3,487,282 2,554,987 650,138
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 362,715 4,623,198 2,689,743 681,749
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 612,355 7,698,470 3,325,895 777,526
Net Assets Beginning Balance 1,627,177 20,342,494 5,247,662 366,959
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 2,239,532 $ 28,040,964 $ 8,573,557 $ 1,144,485
===================== ===================== ===================== =====================
</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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
International Global Basic
Equity Bond Value International
Focus Focus Focus Bond
Fund Fund Fund Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 58,526 $ 29,074 $ 596,893 $ 19,027
Mortality and Expense Charges (55,091) (3,779) (118,246) (2,285)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 3,435 25,295 478,647 16,742
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,353 347 54,169 (2,241)
Net Unrealized Gains (Losses) 266,897 7,902 1,807,802 (796)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 268,250 8,249 1,861,971 (3,037)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 271,685 33,544 2,340,618 13,705
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 756,559 40,516 1,276,821 44,422
Transfers of Policy Loading, Net (3,515) 509 (5,302) 902
Transfers Due to Deaths (33,903) 0 (68,358) (877)
Transfers Due to Other Terminations (41,605) (552) (123,456) 1,893
Transfers Due to Policy Loans (64,171) 0 (76,540) (988)
Transfers of Cost of Insurance (114,440) (5,978) (241,687) (4,818)
Transfers of Loan Processing Charges (1,964) (147) (2,269) (41)
Transfers Among Investment Divisions 2,803,185 284,230 7,975,786 218,985
Transfer of Merged Funds 0 367,255 0 (367,255)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 3,300,146 685,833 8,734,995 (107,777)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 3,571,831 719,377 11,075,613 (94,072)
Net Assets Beginning Balance 4,222,913 219,182 8,270,093 94,072
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 7,794,744 $ 938,559 $ 19,345,706 $ 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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
Developing Special
Capital Value
Markets Focus Focus 1996 1997
Fund Fund Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 61,179 $ 432 $ 0 $ 0
Mortality and Expense Charges (36,040) (4,712) (249) (2,858)
Transaction Charges 0 0 (91) (1,075)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 25,139 (4,280) (340) (3,933)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (20,703) (914) 10,567 1,373
Net Unrealized Gains (Losses) 250,904 38,506 (9,400) 14,566
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 230,201 37,592 1,167 15,939
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 255,340 33,312 827 12,006
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 610,043 25,818 0 3,518
Transfers of Policy Loading, Net 11,064 1,255 (728) (2,396)
Transfers Due to Deaths (30,841) 0 0 0
Transfers Due to Other Terminations (31,692) (1,214) 159 (67)
Transfers Due to Policy Loans (57,503) 0 0 1,090
Transfers of Cost of Insurance (64,681) (7,114) (210) (3,936)
Transfers of Loan Processing Charges (863) (221) 23 (46)
Transfers Among Investment Divisions 1,835,923 1,615,438 (222,425) 65,390
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,271,450 1,633,962 (223,181) 63,553
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 2,526,790 1,667,274 (222,354) 75,559
Net Assets Beginning Balance 2,407,606 0 222,354 277,986
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 4,934,396 $ 1,667,274 $ 0 $ 353,545
===================== ===================== ===================== =====================
</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, 1996
<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 (8,548) (9,461) (6,622) (967)
Transaction Charges (3,218) (3,562) (2,493) (365)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (11,766) (13,023) (9,115) (1,332)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 6,017 5,854 12,442 700
Net Unrealized Gains (Losses) 37,385 37,303 12,222 4,215
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 43,402 43,157 24,664 4,915
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 31,636 30,134 15,549 3,583
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,729 2,079 11,888 1,320
Transfers of Policy Loading, Net (7,282) (9,924) (4,276) (634)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (17,187) 13,021 (80) (9,468)
Transfers Due to Policy Loans (34) 3,211 (12,327) 0
Transfers of Cost of Insurance (6,841) (12,333) (7,564) (930)
Transfers of Loan Processing Charges (90) (606) (122) (44)
Transfers Among Investment Divisions 151,070 136,353 52,712 114,790
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 122,365 131,801 40,231 105,034
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 154,001 161,935 55,780 108,617
Net Assets Beginning Balance 821,981 998,741 740,415 55,744
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 975,982 $ 1,160,676 $ 796,195 $ 164,361
===================== ===================== ===================== =====================
</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, 1996
<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 (4,865) (1,249) (7,310) (7,624)
Transaction Charges (1,836) (471) (2,753) (2,871)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (6,701) (1,720) (10,063) (10,495)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 3,431 936 17,968 48,027
Net Unrealized Gains (Losses) 10,227 4,471 (10,934) (65,787)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 13,658 5,407 7,034 (17,760)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 6,957 3,687 (3,029) (28,255)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 9,067 24,881 21,785
Transfers of Policy Loading, Net (2,544) (127) (5,811) (3,031)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (335) (86) 17,456 (23,693)
Transfers Due to Policy Loans (3,280) 0 (3,357) (2,263)
Transfers of Cost of Insurance (6,687) (2,134) (11,301) (8,848)
Transfers of Loan Processing Charges (65) (369) (254) (38)
Transfers Among Investment Divisions 429,537 95,804 127,953 115,644
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 416,626 102,155 149,567 99,556
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 423,583 105,842 146,538 71,301
Net Assets Beginning Balance 196,420 105,346 808,228 637,825
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 620,003 $ 211,188 $ 954,766 $ 709,126
===================== ===================== ===================== =====================
</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, 1996
<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 (1,207) (282) (1,849) (689)
Transaction Charges (456) (107) (697) (259)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (1,663) (389) (2,546) (948)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 655 202 2,072 542
Net Unrealized Gains (Losses) 3,403 (764) (4,484) (1,142)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 4,058 (562) (2,412) (600)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,395 (951) (4,958) (1,548)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 1,301 33,415 0
Transfers of Policy Loading, Net (506) (218) 556 (158)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (15) (2) (65) (22)
Transfers Due to Policy Loans 0 0 1,630 0
Transfers of Cost of Insurance (1,015) (385) (2,980) (1,195)
Transfers of Loan Processing Charges (23) (1) (304) (4)
Transfers Among Investment Divisions 162,335 2 22,434 20,781
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 160,776 697 54,686 19,402
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 163,171 (254) 49,728 17,854
Net Assets Beginning Balance 71,281 33,130 194,013 72,146
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 234,452 $ 32,876 $ 243,741 $ 90,000
===================== ===================== ===================== =====================
</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, 1996
<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 (3,648) (2,818) (822) (15,447)
Transaction Charges (1,376) (1,061) (310) (5,837)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (5,024) (3,879) (1,132) (21,284)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (1,501) 3,521 2,269 55,970
Net Unrealized Gains (Losses) 5,242 (124,824) (1,550) 75,563
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 3,741 (121,303) 719 131,533
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (1,283) (125,182) (413) 110,249
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,719 2,406 47,499 68,173
Transfers of Policy Loading, Net 4,058 (1,867) 4,531 (13,624)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (218) (13) 26 (1,298)
Transfers Due to Policy Loans (7,845) 0 370 0
Transfers of Cost of Insurance (3,366) (3,609) (1,853) (17,870)
Transfers of Loan Processing Charges (48) (6) (69) (288)
Transfers Among Investment Divisions 266,394 108,244 120 1,986,378
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 261,694 105,155 50,624 2,021,471
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 260,411 (20,027) 50,211 2,131,720
Net Assets Beginning Balance 298,173 342,790 67,623 399,658
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 558,584 $ 322,763 $ 117,834 $ 2,531,378
===================== ===================== ===================== =====================
</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
-----------------------------------------------------------------
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 Global Basic
Equity Bond 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>
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, 1997 and 1996, and the related statements of
earnings, comprehensive income, stockholder's equity, and cash
flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
February 23, 1998
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
- ------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1997 - $2,927,562; 1996 - $3,232,643) $ 3,008,608 $ 3,301,588
Equity securities, at estimated fair value
(cost: 1997 - $72,599; 1996 - $32,988) 73,612 35,977
Trading account securities, at estimated fair value 15,625 -
Mortgage loans - 70,503
Real estate held-for-sale 31,805 28,851
Policy loans on insurance contracts 1,118,139 1,092,071
-------------- --------------
Total Investments 4,247,789 4,528,990
-------------- --------------
CASH AND CASH EQUIVALENTS 86,388 94,991
ACCRUED INVESTMENT INCOME 78,224 86,186
DEFERRED POLICY ACQUISITION COSTS 365,105 366,461
REINSURANCE RECEIVABLES 1,617 2,642
AFFILIATED RECEIVABLES - NET 166 -
RECEIVABLES FROM SECURITIES SOLD 75,820 -
OTHER ASSETS 49,353 42,861
SEPARATE ACCOUNTS ASSETS 9,149,119 7,615,362
-------------- --------------
TOTAL ASSETS $ 14,053,581 $ 12,737,493
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 4,188,110 $ 4,480,048
Claims and claims settlement expenses 50,574 39,666
-------------- --------------
Total policy liabilities and accruals 4,238,684 4,519,714
OTHER POLICYHOLDER FUNDS 27,160 19,420
LIABILITY FOR GUARANTY FUND ASSESSMENTS 15,374 18,773
FEDERAL INCOME TAXES - DEFERRED 1,183 6,714
FEDERAL INCOME TAXES - CURRENT 24,438 20,968
AFFILIATED PAYABLES - NET - 6,164
PAYABLES FOR SECURITIES PURCHASED 95,135 13,483
OTHER LIABILITIES 54,434 37,243
SEPARATE ACCOUNTS LIABILITIES 9,149,119 7,605,194
-------------- --------------
Total Liabilities 13,605,527 12,247,673
-------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 347,324 402,937
Retained earnings 80,735 79,387
Accumulated other comprehensive income 17,995 5,496
-------------- --------------
Total Stockholder's Equity 448,054 489,820
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 14,053,581 $ 12,737,493
============== ==============
</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, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 308,702 $ 336,661 $ 376,166
Net realized investment gains 13,289 8,862 4,525
Policy charge revenue 178,933 158,829 141,722
-------------- -------------- --------------
Total Revenues 500,924 504,352 522,413
-------------- -------------- --------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 209,542 235,255 261,760
Market value adjustment expense 4,079 6,071 5,805
Policy benefits (net of reinsurance recoveries: 1997 - $10,439;
1996 - $8,317; 1995 - $6,482) 27,029 21,052 19,374
Reinsurance premium ceded 17,879 15,582 13,896
Amortization of deferred policy acquisition costs 72,111 62,036 58,669
Insurance expenses and taxes 49,105 47,077 44,124
------------- -------------- --------------
Total Benefits and Expenses 379,745 387,073 403,628
------------- -------------- --------------
Earnings Before Federal Income Tax Provision 121,179 117,279 118,785
------------- -------------- --------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 52,705 22,814 38,335
Deferred (12,261) 15,078 3,968
-------------- -------------- --------------
Total Federal Income Tax Provision 40,444 37,892 42,303
-------------- -------------- --------------
NET EARNINGS $ 80,735 $ 79,387 $ 76,482
============== ============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
NET EARNINGS $ 80,735 $ 79,387 $ 76,482
-------------- -------------- --------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period 22,347 (79,749) 310,981
Reclassification adjustment for gains included in net earnings (12,390) (8,622) (4,351)
-------------- -------------- --------------
Net unrealized gains (losses) on investment securities 9,957 (88,371) 306,630
Adjustments for:
Policyholder liabilities 10,094 58,415 (123,856)
Deferred policy acquisition costs (822) 12,411 (89,261)
Income tax (expense) benefit related to items of
other comprehensive income (6,730) 6,141 (32,729)
-------------- -------------- --------------
Other comprehensive income, net of tax 12,499 (11,404) 60,784
-------------- -------------- --------------
COMPREHENSIVE INCOME $ 93,234 $ 67,983 $ 137,266
============== ============== ==============
</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, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common paid-in Retained Comprehensive stockholder's
stock capital earnings Income equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 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
Other comprehensive income, net of tax 60,784 60,784
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1995 2,000 501,455 76,482 16,900 596,837
Dividend to Parent (98,518) (76,482) (175,000)
Net earnings 79,387 79,387
Other comprehensive income, net of tax (11,404) (11,404)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 2,000 402,937 79,387 5,496 489,820
Dividend to Parent (55,613) (79,387) (135,000)
Net earnings 80,735 80,735
Other comprehensive income, net of tax 12,499 12,499
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,000 $ 347,324 $ 80,735 $ 17,995 $ 448,054
============= ============= ============= ============= =============
</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, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 80,735 $ 79,387 $ 76,482
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 72,111 62,036 58,669
Capitalization of policy acquisition costs (71,577) (43,668) (54,014)
Amortization, (accretion) and depreciation of investments (4,672) (4,836) (6,763)
Net realized investment gains (13,289) (8,862) (4,525)
Interest credited to policyholders' account balances 209,542 235,255 261,760
Provision (benefit) for deferred Federal income tax (12,261) 15,078 3,968
Changes in operating assets and liabilities:
Accrued investment income 7,962 5,756 3,191
Claims and claims settlement expenses 10,908 9,854 3,635
Federal income taxes - current 3,470 13,935 4,759
Other policyholder funds 7,740 5,813 (7,614)
Liability for guaranty fund assessments (3,399) (2,371) (3,630)
Affiliated payables (6,330) 3,735 5,542
Policy loans on insurance contracts (26,068) (52,804) (54,054)
Trading account securities (14,928) - -
Other, net 11,721 (2,393) (12,280)
-------------- -------------- --------------
Net cash and cash equivalents provided
by operating activities 251,665 315,915 275,126
-------------- -------------- ---------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 846,041 847,091 620,853
Maturities of available-for-sale securities 595,745 536,449 570,923
Purchases of available-for-sale securities (1,156,222) (956,840) (816,564)
Mortgage loans principal payments received 68,864 22,789 30,767
Purchases of mortgage loans (5,375) - (3,608)
Sales of real estate held-for-sale 6,060 5,407 9,710
Improvements to real estate held-for-sale - - (683)
Recapture of investment in Separate Accounts 11,026 8,829 6,559
Investment in Separate Accounts (21) (10,063) (377)
-------------- -------------- ---------------
Net cash and cash equivalents provided
by investing activities 366,118 453,662 417,580
-------------- -------------- ---------------
</TABLE>
See notes to financial statements. (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, 1997, 1996 AND 1995
(Concluded) (Dollars In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ (135,000) $ (175,000) $ (100,000)
Policyholders' account balances:
Deposits 1,101,934 542,062 567,430
Withdrawals (including transfers to/from Separate Accounts) (1,593,320) (1,090,572) (1,250,299)
-------------- -------------- --------------
Net cash and cash equivalents used
by financing activities (626,386) (723,510) (782,869)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (8,603) 46,067 (90,163)
CASH AND CASH EQUIVALENTS
Beginning of year 94,991 48,924 139,087
-------------- ------------- -------------
End of year $ 86,388 $ 94,991 $ 48,924
============== ============= =============
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal Federal iincome taxes $ 49,235 $ 8,880 $ 33,576
Interest 842 988 1,310
</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 variable life
insurance, variable annuities, market value adjusted annuities,
and immediate 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
broker-dealer subsidiary of Merrill Lynch & Co.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles and
prevailing industry practices, both of which require
management to make estimates that affect the reported amounts
and disclosure of contingencies in the financial statements.
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% - 5.70%
Interest-sensitive deferred annuities 3.55% - 8.77%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company, subject
to minimum guarantees, after initial guaranteed rates expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are unreported
as of the valuation date.
Reinsurance: In the normal course of business, the Company seeks
to limit its exposure to loss on any single insured life and to
recover a portion of benefits paid by ceding reinsurance to
other insurance enterprises or reinsurers under indemnity
reinsurance agreements, primarily excess coverage and
coinsurance agreements. The maximum amount of mortality risk
retained by the Company is approximately $500 on a single life.
Indemnity reinsurance agreements do not relieve the Company from
its obligations to policyholders. Failure of reinsurers to honor
their obligations could result in losses to the Company. The
Company regularly evaluates the financial condition of its
reinsurers so as to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under
reinsurance agreements in the form of letters of credit and
funds withheld totaling $635 that can be drawn upon for
delinquent reinsurance recoverables.
As of December 31, 1997, the Company had life insurance inforce
that was ceded to other life insurance companies of $2,879,306.
The Company entered into an indemnity reinsurance agreement with
an unaffiliated insurer whereby the Company coinsures, on a
modified coinsurance basis, 50% of the unaffiliated insurer's
variable annuity premiums sold through the Merrill Lynch & Co.
distribution system. At December 31, 1997, the Company's quota
share of variable annuity premiums related to this agreement was
$35 million.
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, that 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. 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 are 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:
1997 1996 1995
------------ ------------ ------------
Beginning balance $ 112,249 $ 124,833 $ 133,388
Capitalized amounts 5,077 5,077 13,708
Interest accrued 9,653 10,669 11,620
Amortization (24,727) (28,330) (33,883)
------------ ------------ ------------
Ending balance $ 102,252 $ 112,249 $ 124,833
============ ============ ============
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.
1998 11,030
1999 9,927
2000 8,935
2001 8,041
2002 7,237
Investments: The Company's investments in debt and equity securities
are classified as either available-for-sale or trading and are
reported at estimated fair value. Unrealized gains and losses on
available-for-sale securities are included in stockholder's equity,
net of tax. Unrealized gains and losses on trading account
securities are included in net realized investment gains. 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 as net realized
investment gains (losses).
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 specific identification.
Certain fixed maturity securities are considered non-investment
grade. The Company defines non-investment grade fixed maturity
securities as unsecured debt obligations that do not have a
rating equivalent to Standard and Poor's (or similar rating
agency) BBB- or higher.
During the first quarter 1997, the Company terminated its
interest rate swap contracts that were carried at estimated fair
value and recorded as a component of fixed maturity securities.
Interest income and realized and unrealized gains and losses
were recorded on the same basis as fixed maturity securities
available-for-sale.
As of December 31, 1997, the Company had no mortgage loans
outstanding. Mortgage loans were stated at unpaid principal
balances, net of valuation allowances. Such valuation allowances
were based on the decline in value expected to be realized on
mortgage loans that may not be collectible in full. In
establishing valuation allowances, management considered, among
other things, the estimated fair value of the underlying collateral.
The Company recognized income from mortgage loans 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 recognized a realized
gain at the date of the satisfaction of the loan at contractual
terms for loans where there was a difference between the cash
payment interest rate and the accrual interest rate. For all
loans the Company stopped accruing income when an interest
payment default either occurred or was probable. Impairments of
mortgage loans were established as valuation allowances and
recorded to net realized investment gains or losses.
Real estate held-for-sale, is stated at estimated fair value
less estimated selling costs.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Investments in limited partnerships are carried at cost.
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 uses the asset and liability method in providing
income taxes on all transactions that have been recognized in
the financial statements. The asset and liability method
requires that deferred taxes be adjusted to reflect the tax
rates at which future taxable amounts will be settled or
realized. The effects of tax rate changes on future deferred
tax liabilities and deferred tax assets, as well as other
changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums
and in substantially all states are exempt from state income
taxes.
Separate Accounts: Separate Accounts are established in
conformity with Arkansas State 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 claims of the
Company only to the extent the value of such assets exceeds
Separate Accounts liabilities.
Assets and liabilities of 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 Comprehensive Income: During 1997, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 defines comprehensive income as all non-
owner changes in equity during a period. Comprehensive
income is reported in the Statements of Comprehensive Income
included in the financial statements for the years ended
December 31, 1997, 1996 and 1995.
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
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial
instruments as of December 31 were:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets:
Fixed maturity securities:
Securities (1) $ 3,008,608 $ 3,301,858
Interest rate swaps (2) - (270)
-------------- -------------
Total fixed maturity securities 3,008,608 3,301,588
-------------- -------------
Equity securities (1) 73,612 35,977
Trading account securities (1) 15,625 -
Mortgage loans (3) - 70,503
Policy loans on insurance contracts (4) 1,118,139 1,092,071
Cash and cash equivalents (5) 86,388 94,991
Separate Accounts assets (6) 9,149,119 7,615,362
-------------- --------------
Total financial instruments recorded as assets $ 13,451,491 $ 12,210,492
============== ==============
</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 model, 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, 1997 and 1996, securities without a readily
ascertainable market value, having an amortized cost of
$389,728 and $338,515, had an estimated fair value of
$396,253 and $348,066, respectively.
(2) Estimated fair values for the Company's interest rate swaps
are based on a discounted cash flow model.
(3) The estimated fair value of mortgage loans approximates
the carrying value.
(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 Separate Accounts are carried at quoted
market values.
<PAGE>
NOTE 3. INVESTMENTS
The amortized cost and estimated fair value of investments in
fixed maturity securities and equity securities (excluding
trading account securities) as of December 31 were:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 2,412,171 $ 73,318 $ 6,963 $ 2,478,526
Mortgage-backed securities 339,015 12,320 224 351,111
U.S. Government and agencies 119,107 2,767 111 121,763
Foreign governments 36,585 198 1,125 35,658
Municipals 20,684 866 - 21,550
------------- ------------- ------------- -------------
Total fixed maturity securities $ 2,927,562 $ 89,469 $ 8,423 $ 3,008,608
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 67,845 $ 1,187 $ 185 $ 68,847
Common stocks 4,754 11 - 4,765
------------- ------------- ------------- -------------
Total equity securities $ 72,599 $ 1,198 $ 185 $ 73,612
============= ============= ============= =============
1996
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Fixed maturity securities:
Corporate debt securities $ 2,652,225 $ 67,590 $ 11,765 $ 2,708,050
Mortgage-backed securities 503,997 12,447 1,948 514,496
U.S. Government and agencies 54,386 2,303 158 56,531
Foreign governments 18,111 182 140 18,153
Municipals 3,924 434 - 4,358
------------- ------------- ------------- -------------
Total fixed maturity securities $ 3,232,643 $ 82,956 $ 14,011 $ 3,301,588
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 30,554 $ 2,983 $ 85 $ 33,452
Common stocks 2,434 91 - 2,525
------------- ------------- ------------- -------------
Total equity securities $ 32,988 $ 3,074 $ 85 $ 35,977
============= ============= ============= =============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
------------- --------------
Fixed maturity securities:
Due in one year or less $ 224,663 $ 225,887
Due after one year through five years 1,343,383 1,380,248
Due after five years through ten years 740,784 764,272
Due after ten years 279,717 287,090
------------- --------------
2,588,547 2,657,497
Mortgage-backed securities 339,015 351,111
------------- --------------
Total fixed maturity securities $ 2,927,562 $ 3,008,608
============= ==============
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 at December 31, 1997 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
------------- -------------
AAA $ 623,503 $ 642,188
AA 169,805 172,454
A 926,398 950,610
BBB 1,046,614 1,080,036
Non-investment grade 161,242 163,320
------------- -------------
Total fixed maturity securities $ 2,927,562 $ 3,008,608
============= =============
<PAGE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with investments classified as available-for-sale. The Company
adjusts those assets and liabilities as if the unrealized investment gains
or losses from securities classified as available-for-sale had actually
been realized, with corresponding credits or charges reported directly to
stockholder's equity. The following reconciles the net unrealized
investment gain on investment securities classified as available- for-
sale as of December 31:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets:
Fixed maturity securities $ 81,046 $ 68,945
Equity securities 1,013 2,989
Deferred policy acquisition costs (5,452) (4,630)
Separate Accounts assets - 168
-------------- --------------
76,607 67,472
-------------- --------------
Liabilities:
Policyholders' account balances 48,923 59,017
Federal income taxes - deferred 9,689 2,959
-------------- --------------
58,612 61,976
-------------- --------------
Stockholder's equity:
Net unrealized investment gain on investment securities $ 17,995 $ 5,496
============== ==============
</TABLE>
During the third quarter 1997, the Company provided $15,000
initial funding for a trading portfolio, composed of
convertible debt and equity securities. The net unrealized
holdings gains on trading account securities earned as of
December 31, 1997, and included in net realized investment gains
are $520.
During the first quarter 1997, the Company terminated its
interest rate swap contracts which it held for the purpose of
minimizing exposure to fluctuations in interest rates related
to specific investment securities held. The notional
amount of such swaps outstanding at December 31 1996 was
approximately $9,000. The swaps were transacted with
investment grade counterparties. As of December 31, 1996, the
Company's interest rate swap contracts were in a $270
unrealized loss position. During 1997, 1996
and 1995, there were no realized investment gains or losses
recorded.
<PAGE>
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1997 1996 1995
----------- ----------- -----------
Proceeds $ 846,041 $ 847,091 $ 620,853
Gross realized investment gains 16,783 19,078 14,196
Gross realized investment losses 7,193 10,749 10,813
The Company had investment securities with a carrying value
of $26,508 and $27,726 that were deposited with insurance
regulatory authorities at December 31, 1997 and 1996,
respectively.
During 1997, the Company realized a $1,005 gain on the sale of
its remaining investment in the Separate Accounts. At December
31, 1996, the Company had invested $10,168 in Separate Accounts,
including $168 of unrealized gains. The investments in 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.
At December 31, 1997, the Company held no mortgage loans on real
estate. The carrying value and established valuation allowances
of impaired mortgage loans on real estate as of December 31,
1996 were $44,239 and $17,652, respectively.
Additional information on impaired loans for the years ended
December 31 follows:
1997 1996 1995
----------- ----------- -----------
Average investment in impaired loans $ 30,945 $ 79,668 $ 124,089
Interest income recognized (cash-basis) 2,830 4,848 5,482
For the years ended December 31, 1997, 1996 and 1995, $7,891,
$28,555 and $1,300, respectively, of real estate held-for-sale
was acquired in satisfaction of debt.
<PAGE>
Net investment income arose from the following sources for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Fixed maturity securities $ 236,325 $ 266,916 $ 305,648
Equity securities 3,020 1,876 1,329
Mortgage loans 4,627 9,764 12,250
Real estate held-for-sale 1,939 563 153
Policy loans on insurance contracts 57,998 56,512 53,576
Cash and cash equivalents 9,570 6,710 8,463
Other 709 899 1,753
------------ ------------ ------------
Gross investment income 314,188 343,240 383,172
Less investment expenses (5,486) (6,579) (7,006)
------------ ------------ ------------
Net investment income $ 308,702 $ 336,661 $ 376,166
============ ============ ============
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Fixed maturity securities $ 6,149 $ 4,690 $ 1,908
Equity securities 3,441 3,639 1,475
Trading account securities 697 - -
Investment in Separate Accounts 1,005 106 (369)
Mortgage loans 6,252 599 334
Real estate held-for-sale (4,252) (171) 1,177
Cash and cash equivalents (3) (1) -
------------ ------------ ------------
Net realized investment gains $ 13,289 $ 8,862 $ 4,525
============ ============ ============
</TABLE>
<PAGE>
The following is a reconciliation of the change in valuation
allowances that have been recorded to reflect other-than-
temporary declines in estimated fair value of mortgage loans
for the years ended December 31:
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
----------- ------------ ----------- -----------
Mortgage loans:
1997 $ 17,652 $ - $ 17,652 $ -
1996 35,881 - 18,229 17,652
1995 40,070 - 4,189 35,881
The Company held no investments at December 31, 1997 which have
been non-income producing for the preceding twelve months.
The Company has committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1997, $4,744 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 earnings before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 42,413 $ 41,048 $ 41,575
Increase (decrease) in income taxes resulting
from:
Dividend received deduction (1,969) (3,135) (532)
Release of policyholders' surplus - - 1,991
Tax deductible interest - - (718)
Other - (21) (13)
---------- ---------- ----------
Federal income tax provision $ 40,444 $ 37,892 $ 42,303
========== ========== ==========
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1997 was 35%.
The Company provides for deferred income taxes resulting from
temporary differences that 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>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred policy acquisition costs $ (2,422) $ (5,770) $ (2,179)
Policyholders' account balances (16,099) 15,004 66
Liability for guaranty fund assessments 1,190 760 249
Investment adjustments 5,070 5,122 5,563
Other - (38) 269
-------------- -------------- --------------
Deferred Federal income tax
provision (benefit) $ (12,261) $ 15,078 $ 3,968
============== ============== ==============
</TABLE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 95,182 $ 79,083
Investment adjustments 601 5,671
Liability for guaranty fund assessments 5,381 6,571
-------------- --------------
Total deferred tax assets 101,164 91,325
-------------- --------------
Deferred tax liabilities:
Deferred policy acquisition costs 88,670 91,092
Net unrealized investment gain on investment securities 9,689 2,959
Other 3,988 3,988
-------------- --------------
Total deferred tax liabilities 102,347 98,039
-------------- --------------
Net deferred tax liability $ 1,183 $ 6,714
================ ==============
</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 accounting, 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 $43,028, $43,515 and $41,729 for the years
ended December 31, 1997, 1996 and 1995, 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 $842, $988 and $1,310 for 1997,
1996 and 1995, 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
$1,913, $2,279 and $2,635 for 1997, 1996 and 1995,
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 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 its allocable share of such compensation in the
amount of $19,057, $16,514 and $13,293 during 1997, 1996 and
1995, 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 $72,729, $42,639 and $43,984 for
1997, 1996 and 1995, 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.
During the first quarter 1997, the Company terminated its
interest rate swap contracts which it entered into with Merrill
Lynch Capital Services, Inc. ("MLCS") with a guarantee from
Merrill Lynch & Co. At December 31, 1996, the notional amount
of such interest rate swap contracts outstanding was $9,000.
Net interest received from these interest rate swap contracts
was $4, ($117), and $256 for 1997, 1996 and 1995, respectively.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
During 1997, the Company sold its investment in 2141 E.
Camelback, Corp. to Merrill Lynch Mortgage Capital, Inc. The
investment was sold at its carrying value of $5,375.
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1997, 1996, and 1995 the Company paid dividends of
$135,000, $175,000, and $100,000, respectively, to MLIG. Of
these stockholder's dividends, $110,030, $175,000 and $73,757,
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, 1997 and 1996, approximately $24,304 and
$24,970, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1997 and 1996, was $245,042 and $251,697,
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
Company's statutory net income for 1997, 1996 and 1995 was
$81,963, $93,532 and $121,451, 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, 1997 and 1996, based on the
RBC formula, the Company's total adjusted capital level was
394% and 403%, 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,
1997 and 1996, the Company has established an estimated
liability for future guaranty fund assessments of $15,374 and
$18,773, respectively. The Company regularly monitors public
information regarding insurer insolvencies and adjusts its
estimated liability as appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
<PAGE>
<PAGE> 61
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
The Insurance Company's By-Laws provide, in Article VI, Section 1, 2, 3 and
4, as follows:
Section 1. Actions Other Than by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer or employee of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. Actions by or in the Right of the Corporation. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgement in its favor by reason of the fact
that he is or was a director, officer or employee of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the Court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other Court shall deem proper.
Section 3. Right to Indemnification. To the extent that a director,
officer of employee of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2 of this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith.
Section 4. Determination of Right to Indemnification. Any indemnification
under Sections 1 and 2 of this Article (unless ordered by a Court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, or employee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 and 2 of this Article. Such determination shall be made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
Any persons serving as an officer, director or trustee of a corporation,
trust, or other enterprise, including the Registrant, at the request of Merrill
Lynch are entitled to indemnification from Merrill Lynch, to the fullest extent
authorized or permitted by law, for liabilities with respect to actions taken or
omitted by such
II-1
<PAGE> 62
persons in any capacity in which such persons serve Merrill Lynch or such other
corporation, trust, or other enterprise. Any action initiated by any such person
for which indemnification is provided shall be approved by the Board of
Directors of Merrill Lynch prior to such initiation.
DIRECTORS' AND OFFICERS' INSURANCE
Merrill Lynch has purchased from Corporate Officers' and Directors'
Assurance Company directors' and officers' liability insurance policies which
cover, in addition to the indemnification described above, liabilities for which
indemnification is not provided under the By-Laws. The Company will pay an
allocable portion of the insurance premium paid by Merrill Lynch with respect to
such insurance policies.
ARKANSAS BUSINESS CORPORATION LAW
In addition, Section 4-26-814 of the Arkansas Business Corporation Law
generally provides that a corporation has the power to indemnify a director or
officer of the corporation, or a person serving at the request of the
corporation as a director or officer of another corporation or other enterprise
against any judgments, amounts paid in settlement, and reasonably incurred
expenses in a civil or criminal action or proceeding if the director or officer
acted in good faith in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation (or, in the case of a criminal
action or proceeding, if he or she in addition had no reasonable cause to
believe that his or her conduct was unlawful).
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)
Merrill Lynch Life Insurance Company hereby represents that the fees and
charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by Merrill Lynch Life Insurance Company.
II-2
<PAGE> 63
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 97 pages.
Undertaking to file reports.
Rule 484 Undertaking.
Representation Pursuant to Section 26(e).
The signatures.
Written Consents of the Following Persons:
(a) Barry G. Skolnick, Esq.
(b) Joseph E. Crowne, Jr., F.S.A.
(c) Sutherland, Asbill & Brennan LLP
(d) Deloitte & Touche LLP, Independent Auditors
The following exhibits:
<TABLE>
<S> <C> <C> <C> <C> <C>
1.A. (1) Resolution of the Board of Directors of Merrill Lynch Life
Insurance Company establishing the Separate Account
(Incorporated by Reference to Registrant's Post- Effective
Amendment No. 8 to Form S-6 Registration No. 33-55472 Filed
April 29, 1997)
(2) Not applicable
(3) (a) Distribution Agreement between Merrill Lynch Life Insurance
Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form S-6 Registration No.
33-55472 Filed April 29, 1997)
(b) Amended Sales Agreement between Merrill Lynch Life Insurance
Company and Merrill Lynch Life Agency Inc. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to
Form S-6 Registration No. 33-55472 Filed April 29, 1997)
(c) Schedules of Sales Commissions. See Exhibit A(3)(b)
(d) Indemnity Agreement between Merrill Lynch Life Insurance
Company and Merrill Lynch Life Agency, Inc. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to
Form S-6 Registration No. 33-55472 Filed April 29, 1997)
(4) Not applicable
(5) (a) (1) Flexible Premium Variable Life Insurance Policy
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 6 to Form S-6 Registration No. 33-41829 Filed
April 29, 1997)
(2) Flexible Premium Joint and Last Survivor Variable Life
Insurance Policy (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 6 to Form S-6 Registration No.
33-41829 Filed April 29, 1997)
(b) (1) Backdating Endorsement (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6
Registration No. 33-41829 Filed April 29, 1997)
(2) (a) Guarantee of Insurability Rider for Flexible Premium
Variable Life Insurance Policy (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6
Registration No. 33-41829 Filed April 29, 1997)
(b) Guarantee of Insurability Rider for Flexible Premium Joint
and Last Survivor Variable Life Insurance Policy
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 6 to Form S-6 Registration No. 33-41829 Filed
April 29, 1997)
(3) (a) Single Premium Immediate Annuity Rider for Flexible Premium
Variable Life Insurance Policy (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6
Registration No. 33-41829 Filed April 29, 1997)
</TABLE>
II-3
<PAGE> 64
<TABLE>
<S> <C> <C> <C> <C> <C>
(b) Single Premium Immediate Annuity Rider for Flexible Premium
Joint and Last Survivor Variable Life Insurance Policy
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 6 to Form S-6 Registration No. 33-41829 Filed
April 29, 1997)
(4) Flexible Premium Joint and Last Survivor Partial Withdrawal
Rider for use with Flexible Premium Joint and Last Survivor
Variable Life Insurance Policy (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6
Registration No. 33-41829 Filed April 29, 1997)
(5) Flexible Premium Partial Withdrawal Rider for use with
Flexible Premium Variable Life Insurance Policy
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 6 to Form S-6 Registration No. 33-41829 Filed
April 29, 1997)
(6) Change of Insured Rider for use with Flexible Premium
Variable Life Insurance Policy (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6
Registration No. 33-41829 Filed April 29, 1997)
(6) (a) Articles of Amendment, Restatement, and Redomestication of
the Articles of Incorporation of Merrill Lynch Life
Insurance Company (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form S-6 Registration No.
33-55472 Filed April 29, 1997)
(b) Amended and Restated By-Laws of Merrill Lynch Life Insurance
Company (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form S-6 Registration No.
33-55472 Filed April 29, 1997)
(7) Not applicable
(8) (a) Agreement between Merrill Lynch Life Insurance Company and
Merrill Lynch Series Fund, Inc. (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 8 to Form S-6
Registration No. 33-55472 Filed April 29, 1997)
(b) Agreement between Merrill Lynch Life Insurance Company and
Merrill Lynch Funds Distributor, Inc. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to
Form S-6 Registration No. 33-55472 Filed April 29, 1997)
(c) Agreement between Merrill Lynch Life Insurance Company and
Merrill Lynch, Pierce, Fenner & Smith Incorporated
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 8 to Form S-6 Registration No. 33-55472 Filed
April 29, 1997)
(d) Participation Agreement among Merrill Lynch Life Insurance
Company, ML Life Insurance Company of New York and Monarch
Life Insurance Company (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form S-6
Registration No. 33-55472 Filed April 29, 1997)
(e) Management Agreement between Merrill Lynch Life Insurance
Company and Merrill Lynch Asset Management, Inc.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 8 to Form S-6 Registration No. 33-55472 Filed
April 29, 1997)
(f) Form of Participation Agreement among Merrill Lynch Life
Insurance Company, ML Life Insurance Company of New York and
Family Life Insurance Company (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form S-6
Registration No. 33-55472 Filed April 29, 1997)
(g) Form of Participation Agreement Among Merrill Lynch Life
Insurance Company, Alliance Capital Management L.P., and
Alliance Fund Distributors, Inc. (Incorporated by Reference
to Merrill Lynch Life Variable Annuity Separate Account A's
Post-Effective Amendment No. 10 to Form N-4 Registration No.
33-43773 Filed December 10, 1996)
(h) Form of Participation Agreement Among MFS Variable Insurance
Trust, Merrill Lynch Life Insurance Company, and
Massachusetts Financial Services Company (Incorporated by
Reference to Merrill Lynch Life Variable Annuity Separate
Account A's Post-Effective Amendment No. 10 to Form N-4
Registration No. 33- 43773 Filed December 10, 1996)
</TABLE>
II-4
<PAGE> 65
<TABLE>
<S> <C> <C> <C> <C> <C>
(i) Participation Agreement By and Among AIM Variable Insurance
Funds, Inc., AIM Distributors, Inc., and Merrill Lynch Life
Insurance Company (Incorporated by Reference to Merrill
Lynch Life Variable Annuity Separate Account A's Post-
Effective Amendment No. 11 to Form N-4 Registration No.
33-43773 Filed April 24, 1997)
(9) Service Agreement among Merrill Lynch Insurance Group, Inc.,
Family Life Insurance Company and Merrill Lynch Life
Insurance Company (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form S-6 Registration No.
33-55472 Filed April 29, 1997)
(10) (a) Variable Life Insurance Application(Incorporated by
Reference to Registrant's Post-Effective Amendment No. 6 to
Form S-6 Registration No. 33-41829 Filed April 29, 1997)
(b) Variable Life Insurance Supplemental Application 1
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 6 to Form S-6 Registration No. 33-41829 Filed
April 29, 1997)
(c) Application for Additional Payment for Variable Life
Insurance (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 6 to Form S-6 Registration No.
33-41829 Filed April 29, 1997)
(d) Application for Reinstatement (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6
Registration No. 33-41829 Filed April 29, 1997)
(e) Variable Life Insurance Application, Part 1 (Form No. A1016)
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 to Form S-6 Registration No. 33-41830 Filed
April 28, 1995)
(f) Variable Life Insurance Application, Part 2 (Form No. A1011)
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 to Form S-6 Registration No. 33-41830 Filed
April 28, 1995)
(g) Temporary Insurance Agreement (Form No. A1010) (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 4
to Form S-6 Registration No. 33-41830 Filed April 28, 1995)
(h) Flexible Premium Variable Life Insurance Policy (Form No.
MFP87) (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 4 to Form S-6 Registration No.
33-41830 Filed April 28, 1995)
(i) Flexible Premium Joint and Last Survivor Variable Life
Insurance Policy (Form No. MFPLS87) (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 4 to
Form S-6 Registration No. 33-41830 Filed April 28, 1995)
(j) Variable Life Insurance Application (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to
Form S-6 Registration No. 33-55472 Filed April 29, 1997)
(11) (a) Memorandum describing Merrill Lynch Life Insurance Company's
Issuance, Transfer and Redemption Procedures (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 2
to Form S-6 Registration No. 33-41830 Filed March 1, 1994)
(b) Supplement to Memorandum describing Merrill Lynch Life
Insurance Company's Issuance, Transfer and Redemption
Procedures (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form S-6 Registration No.
33-55472 Filed April 29, 1997)
2. See Exhibit 1.A.(5)
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the
legality of the securities being registered (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 5 to
Form S-6 Registration No. 33-41830 Filed April 25, 1996)
4. Not applicable
5. Not applicable
6. Opinion and Consent of Joseph E. Crowne, Jr., F.S.A. as to
actuarial matters pertaining to the securities being
registered
</TABLE>
II-5
<PAGE> 66
<TABLE>
<S> <C> <C> <C> <C> <C>
7. (a) Power of Attorney of Joseph E. Crowne, Jr. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 2 to
Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(b) Power of Attorney of David E. Dunford (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 2 to
Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(c) Power of Attorney of Gail R. Farkas (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 6 to
Form S-6 Registration No. 33-55472 Filed February 29, 1996)
(d) Power of Attorney of John C.R. Hele (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 2 to
Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(e) Power of Attorney of Allen N. Jones (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 2 to
Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(f) Power of Attorney of Barry G. Skolnick (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 2 to
Form S-6 Registration No. 33-55472 Filed March 1, 1994)
(g) Power of Attorney of Anthony J. Vespa (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 2 to
Form S-6 Registration No. 33-55472 Filed March 1, 1994)
8. (a) Written Consent of Barry G. Skolnick, Esq.
(b) Written Consent of Joseph E. Crowne, Jr., F.S.A. (See
Exhibit 6)
(c) Written Consent of Sutherland, Asbill & Brennan LLP
(d) Written Consent of Deloitte & Touche LLP, Independent
Auditors
</TABLE>
II-6
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Merrill Lynch Variable Life Separate Account, hereby certifies that this
Post-Effective Amendment No. 7 meets all of the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, and has
duly caused this Post-Effective Amendment No. 7 to the Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Plainsboro and the
State of New Jersey, on the 22nd day of April 1998.
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: MERRILL LYNCH LIFE INSURANCE COMPANY
(Depositor)
<TABLE>
<S> <C>
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
---------------------------------------------- -------------------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 7 to the Registration Statement has been signed
below by the following persons in the capacities indicated on April 22, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman of the Board, President, and Chief
- ----------------------------------------------------- Executive Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief
- ----------------------------------------------------- Financial Officer, Chief Actuary, and
Joseph E. Crowne, Jr. Treasurer
* Director, Senior Vice President, and Chief
- ----------------------------------------------------- Investment Officer
David M. Dunford
* Director and Senior Vice President
- -----------------------------------------------------
Gail R. Farkas
*By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior Vice
------------------------------------------------ President, General Counsel, Secretary and as
Barry G. Skolnick Attorney-In-Fact
</TABLE>
II-7
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<S> <C>
6. Opinion and Consent of Joseph E. Crowne, Jr., F.S.A. as to
actuarial matters pertaining to the securities being
registered
8.(a) Written Consent of Barry G. Skolnick, Esq.
8.(c) Written Consent of Sutherland, Asbill & Brennan LLP
8.(d) Written Consent of Deloitte & Touche LLP, Independent
Auditors
</TABLE>
II-8
<PAGE> 1
EXHIBIT 6
[MERRILL LYNCH LIFE INSURANCE COMPANY]
April 22, 1998
Board of Directors
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
To The Board of Directors:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 7 to the Registration Statement on Form S-6 (the "Registration
Statement") (File No. 33-41830) which covers premiums received under certain
flexible premium variable life insurance contracts ("Contracts" or "Contract")
issued by Merrill Lynch Life Insurance Company (the "Company").
The Prospectus included in the Registration Statement describes Contracts which
are issued by the Company. The Contract forms were reviewed under my direction,
and I am familiar with the Registration Statement and Exhibits thereto. In my
opinion:
1. The illustrations of death benefits, investment base, cash surrender values
and accumulated premiums included in the Registration Statement for the Contract
and based on the assumptions stated in the illustrations, are consistent with
the provision of the Contract. The rate structure of the Contract has not been
designed so as to make the relationship between premiums and benefits, as shown
in the illustrations, appear more favorable to a prospective purchaser of a
Contract for the ages and sexes shown, than to prospective purchasers of a
Contract for other ages and sex.
2. The table of illustrative net single premium factors included in the "Death
Benefit Proceeds" section is consistent with the provision of the Contract.
3. The information with respect to the Contract contained in (i) the
illustrations of the change in face amount included in the "Additional Payments"
sections of the Examples, (ii) the illustrations of a change in Guarantee Period
included in the "Changing the Face Amount" section of the Examples and (iii) the
illustrations of the changes in face amount included in the "Partial
Withdrawals" section of the Examples, based in the assumptions specified, are
consistent with the provisions of the Contract.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of my name relating to actuarial matters under the
heading "Experts" in the Prospectus.
Very truly yours,
/s/ JOSEPH E. CROWNE
--------------------------------------
Joseph E. Crowne, FSA
Senior Vice President &
Chief Financial Officer
<PAGE> 1
EXHIBIT 8(A)
[MERRILL LYNCH LIFE INSURANCE COMPANY]
CONSENT
I hereby consent to the reference to my name under the heading "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 7 to the Registration
Statement on Form S-6 for certain variable life insurance contracts issued
through Merrill Lynch Variable Life Separate Account of Merrill Lynch Life
Insurance Company (File No. 33-41830).
/s/ BARRY G. SKOLNICK
--------------------------------------
Barry G. Skolnick, Esq.
Senior Vice President and General
Counsel
April 22, 1998
<PAGE> 1
EXHIBIT 8(C)
[SUTHERLAND, ASBILL & BRENNAN LLP]
CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters" in the
prospectus included in Post-Effective Amendment No. 7 to the Registration
Statement on Form S-6 for certain variable life insurance contracts issued
through Merrill Lynch Variable Life Separate Account of Merrill Lynch Life
Insurance Company (File No. 33-41830). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
/s/ SUTHERLAND, ASBILL & BRENNAN LLP
--------------------------------------
SUTHERLAND, ASBILL & BRENNAN LLP
Washington, D.C.
April 22, 1998
<PAGE> 1
EXHIBIT 8(D)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 7 to the Registration
Statement No. 33-41830 of Merrill Lynch Variable Life Separate Account on Form
S-6 of our reports on (i) Merrill Lynch Life Insurance Company dated February
23, 1998, and (ii) Merrill Lynch Variable Life Separate Account dated January
30, 1998, appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
--------------------------------------
New York, New York
April 22, 1998
