<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 1999
REGISTRATION NO. 33-41830
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 9
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, 1999 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/X/ 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 / /
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<PAGE>
PROSPECTUS
May 1, 1999
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 describes contracts which generally are modified endowment
contracts under federal tax law. Most distributions will have tax consequences
and/or penalties.
Generally, through the first 14 days following a Contract's in force date, we
will invest your initial payment in the investment division of the Merrill Lynch
Variable Life Separate Account (the "Separate Account") investing in the Money
Reserve Portfolio. Afterward, you may reallocate your investment base to any
five of the investment divisions of the Separate Account. We then invest each
investment division's assets in corresponding portfolios of the following:
- - MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
- Basic Value Focus Fund
- Global Bond Focus Fund
- Global Utility Focus Fund
- International Equity Focus Fund
- Developing Capital Markets Focus Fund
- Special Value Focus Fund
- Index 500 Fund
- - MERRILL LYNCH SERIES FUND, INC.
- Money Reserve Portfolio
- Intermediate Government Bond Portfolio
- Long-Term Corporate Bond Portfolio
- High Yield Portfolio
- Capital Stock Portfolio
- Growth Stock Portfolio
- Multiple Strategy Portfolio
- Natural Resources Portfolio
- Global Strategy Portfolio
- Balanced Portfolio
- - AIM VARIABLE INSURANCE FUNDS, INC.
- AIM V.I. Capital Appreciation Fund
- AIM V.I. Value Fund
- - ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
- Premier Growth Portfolio
- - MFS VARIABLE INSURANCE TRUST
- MFS Emerging Growth Series
- MFS Research Series
- - MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES
fourteen maturity dates ranging from February 15, 2000--February 15, 2014
Currently, you may change your investment allocation as often as you like.
We guarantee that regardless of investment results, insurance coverage will
continue for the insured's life, or, as you may select, for a shorter time if
the face amount chosen is above the minimum face amount required for the initial
payment. During this guarantee period, we will terminate the Contract only if
any loan debt exceeds certain contract values. After the guarantee period ends,
the Contract will remain in effect as long as the net cash surrender value is
sufficient to cover all charges due. While the Contract is in effect, the death
benefit may vary to reflect the investment results of the investment divisions
chosen, but will never be less than the face amount.
<PAGE>
You may:
- make additional payments subject to certain conditions
- change the face amount of your Contract subject to certain conditions
- redeem the Contract for its net cash surrender value
- make partial withdrawals
- borrow from your Contract
The net cash surrender value will vary with the investment results of the
investment divisions chosen. We don't guarantee any minimum cash surrender
value.
Within certain limits, you may return the Contract or exchange it for a contract
with benefits that don't vary with the investment results of a separate account.
It may not be advantageous to replace existing insurance with the Contract.
PURCHASING THIS CONTRACT INVOLVES CERTAIN RISKS. INVESTMENT RESULTS CAN VARY
BOTH UP AND DOWN AND CAN EVEN DECREASE THE VALUE OF PREMIUM PAYMENTS. THEREFORE,
YOU COULD LOSE ALL OR PART OF THE MONEY YOU INVEST. EXCEPT FOR THE GUARANTEED
DEATH BENEFIT WE PROVIDE, YOU BEAR ALL INVESTMENT RISKS. WE DO NOT GUARANTEE HOW
ANY OF THE INVESTMENT DIVISIONS OR FUNDS WILL PERFORM.
LIFE INSURANCE IS INTENDED TO BE A LONG TERM INVESTMENT. YOU SHOULD EVALUATE
YOUR INSURANCE NEEDS AND THE CONTRACT'S LONG-TERM INVESTMENT POTENTIAL AND RISKS
BEFORE PURCHASING THE CONTRACT.
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;
THE HOTCHKIS AND WILEY VARIABLE TRUST; THE MERCURY ASSET MANAGEMENT V.I. FUNDS,
INC.; AND THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES
MUST ACCOMPANY THIS PROSPECTUS. PLEASE READ THESE DOCUMENTS CAREFULLY AND RETAIN
THEM FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE CONTRACTS OR
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
IMPORTANT TERMS.................................................................................. 1
SUMMARY OF THE CONTRACT.......................................................................... 2
What the Contract Provides................................................................... 2
Availability and Payments.................................................................... 3
The Investment Base.......................................................................... 3
The Investment Divisions..................................................................... 3
Illustrations ............................................................................... 4
Replacement of Existing Coverage............................................................. 4
Right to Cancel ("Free Look" Period) or Exchange............................................. 4
Distributions From The Contract.............................................................. 4
Fees and Charges............................................................................. 5
Joint Insureds............................................................................... 5
FACTS ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY, MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, THE SEPARATE ACCOUNT, THE FUNDS, AND THE ZERO TRUSTS............................. 6
Merrill Lynch Life Insurance Company......................................................... 6
Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S).................................. 6
The Separate Account......................................................................... 6
Net Rate of Return for an Investment Division................................................ 7
Changes Within the Separate Account.......................................................... 8
THE FUNDS ....................................................................................... 8
The Series Fund.............................................................................. 8
The Variable Series Funds.................................................................... 9
The AIM V.I. Funds........................................................................... 11
The Alliance Fund............................................................................ 11
The MFS Trust................................................................................ 12
Hotchkis and Wiley Variable Trust............................................................ 12
Mercury Asset Management V.I. Funds, Inc..................................................... 13
Special Risks In Certain Funds............................................................... 13
The Operation of the Funds................................................................... 14
The Zero Trusts.............................................................................. 16
FACTS ABOUT THE CONTRACT......................................................................... 17
Who May be Covered........................................................................... 17
Initial Payment.............................................................................. 18
Right to Cancel ("Free Look" Period)......................................................... 19
Making Additional Payments................................................................... 19
Changing the Face Amount..................................................................... 21
Investment Base.............................................................................. 23
Charges Deducted from the Investment Base.................................................... 23
Charges to the Separate Account.............................................................. 25
Charges to Fund Assets....................................................................... 25
Guarantee Period............................................................................. 27
Net Cash Surrender Value..................................................................... 27
Partial Withdrawals.......................................................................... 28
Loans ....................................................................................... 29
Death Benefit Proceeds....................................................................... 30
Payment of Death Benefit Proceeds............................................................ 31
Dollar Cost Averaging........................................................................ 31
Right to Exchange Contract................................................................... 32
Income Plans................................................................................. 32
Reports to Contract Owners................................................................... 33
MORE ABOUT THE CONTRACT.......................................................................... 34
Using the Contract........................................................................... 34
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Some Administrative Procedures............................................................... 35
Other Contract Provisions.................................................................... 36
Group or Sponsored Arrangements.............................................................. 37
Unisex Legal Considerations.................................................................. 38
Selling the Contracts........................................................................ 38
Tax Considerations........................................................................... 39
Merrill Lynch Life's Income Taxes............................................................ 41
Reinsurance ................................................................................. 41
ILLUSTRATIONS.................................................................................... 41
Illustrations of Death Benefits, Investment Base, Cash Surrender Values and Accumulated
Payments .................................................................................. 41
JOINT INSUREDS................................................................................... 48
Availability and Payments.................................................................... 48
Who May be Covered........................................................................... 48
Initial Payment.............................................................................. 48
Making Additional Payments................................................................... 48
Changing the Face Amount..................................................................... 49
Charges Deducted from the Investment Base.................................................... 49
Guarantee Period............................................................................. 49
Net Cash Surrender Value..................................................................... 49
Death Benefit Proceeds....................................................................... 49
Payment of Death Benefit Proceeds............................................................ 50
Right to Cancel ("Free Look" Period) or Exchange............................................. 50
Using the Contract........................................................................... 50
Other Contract Provisions.................................................................... 50
Income Plans................................................................................. 51
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY.................................................. 51
Directors and Executive Officers............................................................. 51
Services Arrangement......................................................................... 52
State Regulation............................................................................. 52
Year 2000 ................................................................................... 52
Legal Proceedings............................................................................ 53
Experts ..................................................................................... 53
Legal Matters................................................................................ 53
Registration Statements...................................................................... 53
Financial Statements......................................................................... 53
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. WE HAVE NOT AUTHORIZED ANY PERSON TO
MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS.
2
<PAGE>
IMPORTANT TERMS
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 investment base less the balance of any
deferred contract load we have not yet deducted and, depending on the date it is
calculated, less all or a portion of certain other charges not yet deducted,
plus any loan 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
contract 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.
FACE AMOUNT: is the minimum death benefit as long as the Contract remains in
force. You can change the face amount; it may increase as a result of an
additional payment; or it may decrease as a result of a partial withdrawal.
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 "investment base" reflects net premiums at 4% instead of the net
rate of return, and substitutes the guaranteed maximum cost of insurance rates
for the current rates. In addition, the fixed base is calculated without taking
into account 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.
We use the fixed base to limit the mortality cost deduction and our right to
cancel the Contract during the guarantee period.
GUARANTEE PERIOD: is the time that the Contract is guaranteed to remain in force
regardless of investment experience, unless the loan debt exceeds certain
values. It is the period that a comparable fixed life insurance contract (with
the 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.
INVESTMENT BASE: is the amount available under a Contract for investment in the
Separate Account at any time.
ISSUE AGE: is the insured's age as of his or her birthday nearest the contract
date.
LOAN DEBT: is the sum of all outstanding loans on a Contract plus accrued
interest.
NET AMOUNT AT RISK: is the excess of the death benefit over the cash surrender
value.
NET CASH SURRENDER VALUE: is equal to cash surrender value less any loan debt.
NET SINGLE PREMIUM FACTOR: is used to determine the amount of death benefit
purchased by $1.00 of cash surrender value. We use 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.
<PAGE>
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
we deduct 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.
SUMMARY OF THE CONTRACT
-----------------------------------
WHAT THE CONTRACT PROVIDES
The 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.
We don't guarantee that contract values will increase. Depending on the
investment results of the investment divisions you select, the investment base,
net cash surrender value and death benefit may go up or down on any day. You
bear the investment risk for any amount allocated to an investment division.
DEATH BENEFIT. The death benefit equals the face amount or variable insurance
amount, whichever is larger. The variable insurance amount increases or
decreases depending on the investment results of the investment divisions you
select. The death benefit may go up or down, depending on investment
performance. However, it will never drop below the face amount. We will reduce
any death benefit by any loan debt.
TAX BENEFITS AND TAX CONSIDERATIONS. In general, the Contract provides a death
benefit that cannot be less than the minimum death benefit required under
federal tax law. (While there is less guidance when the Contract is issued on a
substandard basis or insures two lives, we believe it is reasonable to conclude
that such a Contract also provides the minimum death benefit required under
federal tax law.) By satisfying this requirement, the Contract provides two
important tax benefits:
1) Its death benefit is not subject to income tax;
2) Any increases in the Contract's cash surrender value are not taxable until
distributed from the Contract. (Since the Contract generally is a modified
endowment contract, distribution from a modified endowment contract is
subject to tax, and, if taken before you reach age 59 1/2, may also be
subject to a 10% federal penalty tax.)
GUARANTEE PERIOD. Generally, during the guarantee period, we guarantee the
Contract will remain in effect and provide the death benefit regardless of
investment performance unless loan debt exceeds certain contract values (See
"Loans" for an explanation of how any loan debt affects the Contract's value).
If your Contract's face amount is the minimum death benefit required under
federal tax law, the guarantee period is for the insured's lifetime. If you
select a higher face amount, your guarantee period is shorter. The chart below
shows how the face amount of your contract affects the guarantee period
(assuming the same premium).
<TABLE>
<CAPTION>
INSURED MALE AGE 60
INITIAL PREMIUM 100,000
LENGTH OF GUARANTEE PERIOD (YEARS) FACE AMOUNT
- ------------------------------------------------------------------------------------------- ------------
<S> <C>
5........................................................................................ $ 1,079,637
10....................................................................................... 501,909
20....................................................................................... 235,437
30....................................................................................... 177,763
Insured's lifetime....................................................................... 170,482
</TABLE>
2
<PAGE>
A guarantee period for the insured's lifetime provides certainty. Your own
individual insurance needs and risk tolerance should determine the face amount
of your Contract and therefore your guarantee period.
You should purchase the Contract for its death benefit. You may use the
Contract's net cash surrender value, as well as its death benefit, 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 terminate. Because the Contract
is designed to provide benefits on a long-term basis, before purchasing a
Contract in connection with a specialized purpose, you should consider whether
the long-term nature of the Contract, its investment risks, and the potential
impact of any contemplated loans and partial withdrawals, are consistent with
the purposes you may be considering. Moreover, using a Contract for a
specialized purpose may have tax consequences. (See "Tax Considerations".)
AVAILABILITY AND PAYMENTS
We will issue a Contract for an insured up to age 75 (or up to age 80 for joint
insureds). We 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 pay planned periodic payments
instead of a single payment. If you elect planned periodic payments, the minimum
initial planned periodic payment is $2,000 provided that the initial payment
plus the planned payments will total $10,000 or more during the first five
contract years.
We will not accept an initial payment that provides a guarantee period of less
than one year.
Subject to certain conditions, you may make additional unplanned payments (See
"Making Additional Payments.")
The Contract is not available to insure residents of certain municipalities in
Kentucky where premium taxes in excess of a certain level are imposed.
THE INVESTMENT BASE
A Contract's investment base is the amount available for investment at any time.
On the contract date (usually the next business day after our Service Center
receives your initial payment), the investment base is equal to the initial
payment. Afterwards, it varies daily based on the investment performance of your
selected investment divisions. You bear the risk of poor investment performance
and receive the benefit of favorable investment performance. You may wish to
consider diversifying your investment in the Contract by allocating the
investment base to two or more investment divisions.
THE INVESTMENT DIVISIONS
Payments are invested in investment divisions of the Separate Account.
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. Afterwards, the investment base is
reallocated to up to five of the investment divisions. (See "Changing the
Allocation".)
3
<PAGE>
ILLUSTRATIONS
Illustrations in this Prospectus or used in connection with the purchase of the
Contract are based on hypothetical investment rates of return. We don't
guarantee these rates. They are illustrative only, and not a representation of
past or future performance. Actual rates of return may be more or less than
those shown in the illustrations. Actual values will be different than those
illustrated.
REPLACEMENT OF EXISTING COVERAGE
Generally, it is not advisable to purchase an insurance contract as a
replacement for existing coverage. Before you buy a Contract, ask your Merrill
Lynch Financial Consultant if changing, or adding to, current insurance coverage
would be advantageous. Don't base your decision to replace existing coverage
solely on a comparison of contract illustrations.
RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR EXCHANGE
Once you receive the Contract, review it carefully to make sure it is what you
want. Generally, you may return a Contract for a refund within ten days after
you receive it. Some states allow a longer period of time to return the
Contract. If required by your state, you may return the Contract within the
later of ten days after receiving it or 45 days from the date the application is
completed. If you return the Contract during the "free look" period, we will
refund the payment without interest.
You may also exchange your Contract within 18 months for a contract with
benefits that do not vary with the investment results of a separate account.
DISTRIBUTIONS FROM THE CONTRACT
PARTIAL WITHDRAWALS. Beginning in Contract year two, you may withdraw up to 80%
of the net cash surrender value. (See "Partial Withdrawals".) Partial
withdrawals may have tax consequences. (See "Tax Considerations".)
SURRENDERS. You may surrender your Contract at any time and receive the net cash
surrender value. The net cash surrender value equals the investment base minus:
- The balance of any deferred contract loading not yet deducted; and
- Other contract charges not yet deducted.
Surrendering your Contract may have tax consequences. (See "Tax
Considerations".)
LOANS. You may borrow money from us, using your Contract as collateral, subject
to limits. We deduct loan debt from the amount payable on surrender of the
Contract and 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. With a modified endowment contract, both the loan amount and the amount
of capitalized interest are treated as taxable distributions. Depending upon
investment performance of the investment divisions and the amounts borrowed,
loans may cause a Contract to lapse. If the Contract lapses with loan debt
outstanding, adverse tax consequences may result. (See "Loans" and "Tax
Considerations--Tax Treatment of Loans and Other Distributions".)
4
<PAGE>
FEES AND CHARGES
INVESTMENT BASE CHARGES. We invest the entire amount of all premium payments in
the Separate Account. We then deduct certain charges from your investment base
on processing dates. These charges are:
- DEFERRED CONTRACT LOAD equal to 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 load 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%. We deduct the deferred contract load in equal
installments of .90% (1.1% for joint insureds) of each payment. We make
this deduction on the ten contract anniversaries following the date we
receive and accept the payment. However, in determining a Contract's net
cash surrender value, we subtract the balance of the deferred contract
load not yet deducted.
- MORTALITY COST--on all quarterly processing dates after the contract
date, we deduct a cost for the life insurance coverage we provide (see
"Mortality Cost"); and
- NET LOAN COST--on each contract anniversary, if there has been any loan
debt during the prior year, we deduct a net loan cost. It equals a
maximum of 2.0% of the loan debt per year (see "Charges Deducted From
the Investment Base" and "Net Loan Cost").
SEPARATE ACCOUNT CHARGES. We deduct certain charges daily from the investment
results of the investment divisions in the Separate Account. These charges are:
- a MORTALITY AND EXPENSE RISK CHARGE deducted from all investment
divisions. It 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. It is currently equivalent to .34% annually at the
beginning of the year. It will never exceed .50% annually.
ADVISORY FEES AND FUND EXPENSES. The portfolios in the Funds pay monthly
advisory fees and other expenses. (See "Charges to Fund Assets".)
JOINT INSUREDS
The Contract can 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. (See "Joint
Insureds.")
THIS SUMMARY PROVIDES ONLY A BRIEF OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF
THE CONTRACT. THIS PROSPECTUS AND THE CONTRACT PROVIDE FURTHER DETAIL. YOU
SHOULD RETAIN THE CONTRACT TOGETHER WITH ITS ATTACHED APPLICATIONS, MEDICAL
EXAM(S), AMENDMENTS, RIDERS, AND ENDORSEMENTS. THESE ARE THE ENTIRE AGREEMENT
BETWEEN YOU AND US.
FOR THE DEFINITIONS OF SOME IMPORTANT TERMS USED IN THIS PROSPECTUS, SEE
"IMPORTANT TERMS."
5
<PAGE>
FACTS ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY, MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED, THE SEPARATE ACCOUNT,
THE FUNDS, AND THE ZERO TRUSTS
MERRILL LYNCH LIFE INSURANCE COMPANY
Merrill Lynch Life Insurance Company ("we" or "us") is a stock life insurance
company organized under the laws of the State of Washington on January 27, 1986
and redomesticated under the laws of the State of Arkansas on August 31, 1991.
We are an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. We are
authorized to sell life insurance and annuities in 49 states, Guam, the U.S.
Virgin Islands and the District of Columbia. We are also authorized to sell
variable life insurance and variable annuities in most jurisdictions.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S")
MLPF&S provides a world-wide broad range of securities brokerage and investment
banking services. It provides marketing services for us and is the principal
underwriter of the Contracts issued through the Separate Account. We retain
MLPF&S to provide services relating to the Contracts under a distribution
agreement. (See "Selling the Contracts".)
CMA ACCOUNT REPORTING
If you have a Merrill Lynch Cash Management
Account-Registered Trademark-,* you may elect to have your
Contract linked electronically to your CMA account. We call this
the CMA Insurance Service. With this service, you will have
certain Contract information included as part of your regular
monthly CMA account statement. It will list the investment base
allocation, death benefit, net cash surrender value, loan debt and
any CMA account activity affecting the Contract during the month.
*Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
THE SEPARATE ACCOUNT
We established the Separate Account, a separate investment account, on November
16, 1990. It is registered with the Securities and Exchange Commission as a unit
investment trust under 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. The Separate
Account meets the definition of a separate account under the federal securities
laws. We use the Separate Account to support the Contract as well as other
variable life insurance contracts we issue. The Separate Account is also
governed by the laws of the State of Arkansas, our state of domicile.
We own all of the assets in the Separate Account. We keep the Separate Account's
assets apart from our general account and any other separate accounts we 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 we conduct.
Obligations to contract owners and beneficiaries that arise under the Contract
are our obligations. Income, gains, and losses, whether or not realized, from
assets allocated to the Separate Account are, in accordance with the Contracts,
credited to or charged against the Separate Account without regard to our other
income, gains or losses. The assets in the Separate Account will always be at
least equal to the reserves and other liabilities of the Separate Account. If
the Separate Account's assets exceed the required reserves and other
6
<PAGE>
Contract liabilities, (which will always be at least equal to the aggregate
investment base allocated to the Separate Account under the Contracts), we may
transfer the excess to our general account.
There are currently 36 investment divisions in the Separate Account.
- Seven invest in Class A shares of a specific portfolio of the Merrill
Lynch Variable Series Funds, Inc. (the "Variable Series Funds").
- Ten invest in shares of a specific portfolio of the Merrill Lynch Series
Fund, Inc. (the "Series Fund").
- Two invest in shares of a specific portfolio of the AIM Variable
Insurance Funds, Inc. (the "AIM V.I. Funds").
- One invests in shares of a specific portfolio of the Alliance Variable
Products Series Fund, Inc. (the "Alliance Fund").
- Two invest in shares of a specific portfolio of the MFS Variable
Insurance Trust (the "MFS Trust").
- Fourteen invest in specific units of The Merrill Lynch Fund of Stripped
("Zero") U.S. Treasury Securities (the "Zero Trust").
On or about July 15, 1999, six additional investment divisions become available
in the Separate Account.
- Two invest in Class A shares of a specific portfolio of the Variable
Series Funds.
- One invests in shares of a specific portfolio of the Alliance Fund.
- One invests in shares of a specific portfolio of the Hotchkis and Wiley
Variable Trust.
- One invests in shares of a specific portfolio of the Mercury Asset
Management V.I. Funds, Inc.
- One invests in specific units of Zero Trust maturing on February 15,
2019.
On or about July 15, 1999, two subaccounts previously available under the
Separate Account (the International Equity Focus Fund and the Global Bond Focus
Fund) close to allocations of premiums and contract value.
You'll find complete information about the Funds and the Zero Trusts, including
the risks associated with each portfolio in the accompanying prospectuses. They
should be read along with this Prospectus.
Although the investment objectives and policies of certain Funds are similar to
the investment objectives and policies of other portfolios that may be managed
or sponsored by the same investment adviser, manager, or sponsor, we do not
represent or assure that the investment results will be comparable to any other
portfolio, even where the investment advisors or manager is the same.
Differences in portfolio size, actual investments held, fund expenses, and other
factors all contribute to differences in fund performance. For all of these
reasons, you should expect investment results to differ. In particular, certain
Funds available only through the Contract have names similar to funds not
available through the Contract. The performance of any fund not available
through the Contract is not indicative of performance of the similarly named
fund available through the Contract.
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 we furnish to you). When we allocate your
payments or investment base to an investment division, we purchase units based
on the value of a unit of the investment division as of the end of the valuation
period during which the allocation occurs. When we transfer or deduct amounts
out of an investment division, we redeem units 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.
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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. We determine 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
investment division for the valuation period and the charges to the Separate
Account.
For investment 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 investment 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.
CHANGES WITHIN THE SEPARATE ACCOUNT
We may add new investment divisions. We can also eliminate investment divisions,
combine two or more investment divisions, or substitute a new portfolio for the
portfolio in which an investment division invests. A substitution may become
necessary if, in our 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. If necessary,
we would get prior approval from the Arkansas State Insurance Department and the
Securities and Exchange Commission and any other required approvals before
making such a substitution.
Subject to any required regulatory approvals, we can transfer assets of the
Separate Account or of any of the investment divisions to another separate
account or investment division.
When permitted by law, we also can:
- 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.
THE FUNDS
Below we list the funds into which the investment divisions may invest. There is
no guarantee that any fund or portfolio will be able to meet its investment
objective.
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.
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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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".)
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. Class A shares of seven of its portfolios are currently
available through the Separate Account. Class A shares of two additional
portfolios become available on or about July 15, 1999. The investment objectives
and certain investment policies of the seven available Variable Series Funds
portfolios are described below.
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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 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.
The investment division corresponding to this Fund closes to allocations of
premiums and contract value on or
about July 15, 1999.
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.
The investment division corresponding to this Fund closes to allocations of
premiums and contract value on or about July 15, 1999.
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").
CAPITAL FOCUS FUND seeks to achieve the highest total investment return
consistent with prudent risk. To do this, management of the Fund uses a flexible
"fully managed" investment policy that shifts the emphasis among equity, debt
(including money market), and convertible securities.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
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GLOBAL GROWTH FOCUS FUND seeks long-term growth of capital. The Fund invests in
a diversified portfolio of equity securities of issuers located in various
countries and the United States, placing particular emphasis on companies that
have exhibited above-average growth rates in earnings.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
The Variable Series Funds, as part of its operating expenses, pays an investment
advisory fee to MLAM. (See "Charges to Fund Assets".)
THE AIM V.I. FUNDS
The AIM V.I. Funds is registered with the Securities and Exchange Commission as
an open-end 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.
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 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. The AIM V.I. Funds, as part of its operating expenses, pays an investment
advisory fee to AIM. (See "Charges to Fund Assets".)
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. One additional portfolio
becomes available on or about July 15, 1999. The investment objectives of these
Alliance Fund portfolios are described below.
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 is 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 QUASAR PORTFOLIO seeks growth of capital by pursuing aggressive
investment policies. The Fund invests principally in a diversified portfolio of
equity securities of any company and industry and in any type of security which
is believed to offer possibilities for capital appreciation, and invests only
incidentally for current income. The selection of securities based on the
possibility of appreciation cannot prevent loss in value. Moreover,
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because the Fund's investment policies are aggressive, an investment in the Fund
is risky and is not intended for contract owners who want assured income or
preservation of capital.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
Alliance is a Delaware limited partnership with principal offices at 1345 Avenue
of the Americas, New York, New York 10105. 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".)
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.
MFS EMERGING GROWTH SERIES will seek long-term growth of capital. The series
invests, under normal market conditions, at least 65% of its total assets in
common stocks and related securities, such as preferred stocks, convertible
securities and depositary receipts for those securities, of emerging growth
companies. These companies are companies that the series' adviser believes are
either early in their life cycle but have the potential to become major
enterprises or are major enterprises whose rates of earnings growth are expected
to accelerate.
MFS RESEARCH SERIES will seek to provide long-term growth of capital and future
income. The series invests, under normal market conditions, at least 80% of its
total assets in common stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts. The series focuses on companies
that the series' adviser believes have favorable prospects for long-term growth,
attractive valuations based on current and expected earnings or cash flow,
dominant or growing market share and superior management.
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. The MFS Trust, as part of
its operating expenses, pays an investment advisory fee to MFS. (See "Charges to
Fund Assets".)
HOTCHKIS AND WILEY VARIABLE TRUST
Hotchkis and Wiley Variable Trust ("Hotchkis and Wiley Trust") is registered
with the Securities and Exchange Commission as an open-end management investment
company, and its adviser is Hotchkis and Wiley. One if its mutual fund
portfolios becomes available through the Separate Account on or about July 15,
1999. The investment objectives of the available Hotchkis and Wiley Trust
portfolio is described below.
HOTCHKIS AND WILEY INTERNATIONAL VIP PORTFOLIO seeks to provide current income
and long term growth of income, accompanied by growth of capital. The Fund
invests at least 65% of its total assets in stocks in at least ten foreign
markets. Ordinarily, the Fund invests in stocks of companies located in the
developed foreign markets and invests at least 80% of its total assets in stocks
that pay dividends. It also may invest in stocks that don't pay dividends or
interest, but have growth potential unrecognized by the market or changes in
business or management that indicate growth potential. In investing the Fund,
Hotchkis and Wiley follows a value style.
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This means that it buys stocks that it believes are currently undervalued by the
market and thus have a lower price than their true worth. Typical value
characteristics include:
- low price-to-earnings ratio relative to the market
- high dividend yield relative to the market
- low price-to-book value ratio relative to the market
- financial strength
Stocks may be "undervalued" because they are part of an industry that is out of
favor with investors generally. Even in those industries, though, individual
companies may have high rates of growth of earnings and be financially sound. At
the same time, the price of their common stock may be depressed because
investors associate the companies with their industries. The value discipline
sometimes prevents investments in stocks that are in well-known indexes, like
the S&P 500 or similar foreign indexes.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
Hotchkis and Wiley, 725 S. Figueroa Street, Suite 4000, Los Angeles, California
90017-5400, is a division of MLAM. The Hotchkis and Wiley Trust, as part of its
operating expenses, pays an investment advisory fee to Hotchkis and Wiley. (See
"Charges to Fund Assets".)
MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
Mercury Asset Management V.I. Funds, Inc. ("Mercury V.I. Funds") is registered
with the Securities and Exchange Commission as an open-end management investment
company, and its adviser is Mercury Asset Management International Ltd. One of
its mutual fund portfolios becomes available through the Separate Account on or
about July 15, 1999. The investment objective of the Mercury V.I. U.S. Large Cap
Fund is described below.
MERCURY V.I. U.S. LARGE CAP FUND seeks long-term capital growth by investing
primarily in a diversified portfolio of equity securities of large cap companies
located in the U.S. that Fund management believes are undervalued or have good
prospects for earnings growth. Generally, the Fund will invest at least 65% of
its total assets in these equity securities. It may also invest in small or
medium capitalization companies located in the U.S. and up to 10% of its assets
in equity securities of companies of any market capitalization located in
Canada.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
Mercury Asset Management International Ltd. is located at 33 King William
Street, London EC4R 9AS, England. Its immediate parent is Mercury Asset
Management Group Ltd. a London-based holding company. The ultimate parent of
Mercury Asset Management Group Ltd. is Merrill Lynch & Co., Inc. The Mercury
V.I. U.S. Large Cap Fund, as part of its operating expenses, pays an investment
advisory fee to Mercury Asset Management International Ltd. (See "Charges to
Fund Assets".)
SPECIAL RISKS IN CERTAIN 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
MLAM'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,
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there can be no assurance that diversification will protect these portfolios
from widespread defaults during periods of sustained economic downturn.
Because a substantial portion of the Global Growth Focus Fund's assets may be
invested on an international basis, you should be aware of certain risks, such
as fluctuations in foreign exchange rates, future political and economic
developments, different legal systems, and the possible imposition of exchange
controls or other foreign government laws or restrictions. An investment in the
Fund may be appropriate only for long-term investors who can assume the risk of
loss of principal, and do not seek current income.
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.
For the Hotchkis and Wiley International VIP Portfolio, investing in emerging
market and other foreign securities involves certain risk considerations not
typically associated with investing in securities of U.S. issuers, including
currency devaluations and other currency exchange rate fluctuations, political
uncertainty and instability, more substantial government involvement in the
economy, higher rates of inflation, less government supervision and regulation
of the securities markets and participants in those markets, controls on foreign
investment and limitations on repatriation of invested capital and on the Fund's
ability to exchange local currencies for U.S. dollars, greater price volatility,
substantially less liquidity and significantly smaller capitalization of
securities markets, absence of uniform accounting and auditing standards,
generally higher commission expenses, delay in settlement of securities
transactions, and greater difficulty in enforcing shareholder rights and
remedies.
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 OPERATION OF 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.
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VOTING RIGHTS. We are the legal owner of all Fund shares held in the Separate
Account. We have the right to vote on any matter put to vote at the Funds'
shareholder meetings. However, we will vote all Fund shares attributable to
Contracts according to instructions we receive from contract owners. We will
vote shares attributable to Contracts for which we receive no voting
instructions in the same proportion as shares in the respective investment
divisions for which we receive instructions. We will also vote shares not
attributable to Contracts in the same proportion as shares in the respective
divisions for which we received instructions. We may vote Fund shares in our own
right if any federal securities laws or regulations, or their present
interpretation, change to permit us to do so.
We determine the number of shares attributable to you by dividing your
Contract's investment base in a division by the net asset value of one share of
the corresponding portfolio. We count fractional votes.
Under certain circumstances, state regulatory authorities may require us 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.
We may also disregard instructions to vote for changes in the investment policy
or the investment adviser if it disapproves of the proposed changes. We would
disapprove a proposed change only if it was:
- contrary to state law;
- prohibited by state regulatory authorities; or
- decided by management that the change would result in overly speculative
or unsound investments.
If we disregard voting instructions, we will include a summary of our actions in
the next semi-annual report.
RESOLVING MATERIAL CONFLICTS. Shares of the Series Fund are available for
investment by us, 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 us or Merrill Lynch & Co.,
Inc.). Shares of the Variable Series Funds, the AIM V.I. Funds, the Alliance
Fund, the MFS Trust and the Hotchkis and Wiley Trust are sold to separate
accounts of ours, ML Life Insurance Company of New York, and insurance companies
not affiliated with us or Merrill Lynch & Co., Inc. to fund benefits under
variable life insurance and variable annuity contracts, and may be sold to
certain qualified plans. Shares of the Mercury V.I. Funds are sold to separate
accounts of ours, ML Life Insurance Company of New York, and may in the future
be sold to insurance companies not affiliated with us 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 our 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 our contract owners and those
of the other insurance companies, or for other reasons. We will monitor events
to determine how to respond to conflicts. If a conflict occurs, we may need 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, we will take the action we believe
necessary to protect you consistent with applicable legal requirements.
ADMINISTRATIVE SERVICE ARRANGEMENTS. MLAM has entered into an agreement with
Merrill Lynch Insurance Group, Inc. ("MLIG"), our parent, for 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 compensates 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.
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AIM V.I. Funds has entered into an Administrative Services Agreement with AIM,
under 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 us for administrative
services for the AIM V.I. Funds in connection with the Contracts. Under this
agreement, AIM compensates us 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 us for administrative services for the Alliance Fund in
connection with the Contracts. Under this agreement, AFD compensates us 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 for 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.
Hotchkis and Wiley has entered into an agreement with MLIG with respect to
administrative services for the Hotchkis and Wiley Trust in connection with the
Contracts and certain contracts issued by ML Life Insurance Company of New York.
Under this agreement, Hotchkis and Wiley pays compensation to MLIG in an amount
equal to a portion of the annual gross investment advisory fees paid by the
Hotchkis and Wiley International VIP Portfolio to Hotchkis and Wiley
attributable to such contracts.
Mercury Asset Management International Ltd. has entered into an agreement with
MLIG with respect to administrative services for the Mercury V.I. Funds in
connection with the Contracts and certain contracts issued by ML Life Insurance
Company of New York. Under this agreement, Mercury Asset Management
International Ltd. pays compensation to MLIG in an amount equal to a portion of
the annual gross investment advisory fees paid by the Mercury V.I. U.S. Large
Cap Fund to Mercury Asset Management International Ltd. attributable to such
contracts.
THE ZERO TRUSTS
The Zero Trusts are intended to provide safety of capital and a competitive
yield to maturity. The Zero Trusts purchase at a deep discount U.S.
Government-backed investments which make no periodic interest payments. 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.
16
<PAGE>
The Zero Trusts currently available are shown below:
<TABLE>
<CAPTION>
TARGETED RATE OF RETURN TO
MATURITY AS
ZERO TRUST MATURITY DATE OF APRIL 9, 1999
- --------------------------------------------------------- ----------------------- ---------------------------
<S> <C> <C>
2000................................................... February 15, 2000 3.15%
2001................................................... February 15, 2001 3.37%
2002................................................... February 15, 2002 3.65%
2003................................................... August 15, 2003 3.71%
2004................................................... February 15, 2004 3.82%
2005................................................... February 15, 2005 3.72%
2006................................................... February 15, 2006 3.55%
2007................................................... February 15, 2007 3.72%
2008................................................... February 15, 2008 4.08%
2009................................................... February 15, 2009 4.14%
2010................................................... February 15, 2010 4.31%
2011................................................... February 15, 2011 4.29%
2013................................................... February 15, 2013 4.45%
2014................................................... February 15, 2014 4.58%
</TABLE>
One Zero Trust maturing on February 15, 2019 becomes available for allocations
of premium payments and contract value on or about July 15, 1999.
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 we need to sell them to pay benefits and make reallocations. We
pay the sponsor a fee for these transactions and are reimbursed through the
trust charge assessed to the divisions investing in the Zero Trusts. (See
"Charges to Divisions Investing in the Zero Trusts".)
TARGETED RATE OF RETURN TO MATURITY. Because the underlying securities in the
Zero Trusts will grow to their face value on the maturity date, we can estimate
a compound rate of return to maturity for the Zero Trust units. But because the
Separate Account held the units, we need to take into account the asset charge
and the trust charge (described in "Charges to the Separate Account") in
estimating the net rate of return. It depends on the compound rate of return
adjusted for these charges. It does not, however, represent the actual return on
a payment that we might receive under the Contract on that date, since it does
not reflect the charges for deferred contract load, mortality costs and any net
loan cost deducted from a Contract's investment base (described in "Charges
Deducted from the Investment Base").
Since the value of the Zero Trust units will vary daily to reflect the market
value of the underlying securities, the compound rate of return to maturity for
the Zero Trust units and the net rate of return to maturity for the Separate
Account will vary correspondingly.
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
You may apply for a Contract for an insured up to issue age 75. We 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. Before we'll issue a Contract, the insured must meet our medical and other
underwriting and insurability requirements.
17
<PAGE>
We use two methods of underwriting:
- simplified underwriting, with no physical exam; and
- para-medical or medical underwriting with a physical exam.
The initial payment amount plus any planned periodic payments elected and the
age and sex of the insured determine whether we'll do underwriting on a
simplified or medical basis. The chart below shows the maximum initial payment
plus any planned payments that we'll underwrite on a simplified basis:
<TABLE>
<CAPTION>
AGE MAXIMUM
- --------------------------------------------------------------------------- ----------
<S> <C>
0-29....................................................................... $ 25,000
30-39...................................................................... 40,000
40-49...................................................................... 50,000
50-59...................................................................... 100,000
60-75...................................................................... 120,000
</TABLE>
However, if the face amount is above the minimum face amount required for an
initial payment (see "Selecting the Initial Face Amount" below), we will also
take "the net amount at risk" into account in determining the method of
underwriting. The net amount at risk is the death benefit minus the cash
surrender value.
We assign insureds to underwriting classes in calculating mortality cost
deductions. In assigning insureds to underwriting classes, we distinguish
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 we may issue Contracts either in the standard or non-smoker
underwriting class. We may also issue Contracts on insureds in a "substandard"
underwriting class. Individuals in substandard classes have health or lifestyle
factors less favorable than the average person. For a discussion of the effect
of underwriting classification on mortality cost deductions, see "Mortality
Cost".
For joint insureds, see "Joint Insureds".
INITIAL PAYMENT
MINIMUM. To purchase a Contract, you must complete an application and make a
payment. We require the payment to put the Contract into effect. 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). We won't, however, accept an initial payment for a specified face
amount that will provide a guarantee period of less than one year. You may make
additional payments. (See "Making Additional Payments".)
COVERAGE. Insurance coverage generally begins on the contract date. This is
usually the next business day following receipt of the initial payment at our
Service Center. We may provide temporary life insurance coverage under a
temporary insurance agreement. Under our underwriting rules, in most states,
temporary life insurance coverage may not exceed $300,000 and may not last more
than 90 days.
BACKDATING. As provided for under state insurance law, you may backdate the
Contract to preserve the insured's age. However, you can't backdate more than
six months before the date the application was completed. We deduct cost of
insurance charges for the backdated period on the first processing date after
the contract date.
For joint insureds, see "Joint Insureds".
18
<PAGE>
SELECTING THE INITIAL FACE AMOUNT. Your initial payment determines the face
amount. For a given initial payment you may choose your initial face amount. The
minimum face amount is the amount which will provide a guarantee period for the
insured's entire life. If the face amount you choose exceeds the minimum, the
guarantee period will be shorter.
INITIAL GUARANTEE PERIOD. We determine the initial guarantee period for a
Contract based on the initial payment and face amount. The guarantee period is
the period of time we guarantee that the Contract will remain in force
regardless of investment experience unless the loan debt exceeds certain
contract values. We base the guarantee period on the guaranteed maximum cost of
insurance rates in the Contract, the deferred contract load 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.
RIGHT TO CANCEL ("FREE LOOK" PERIOD)
You may cancel your Contract during the "free look" period by returning it for a
refund. Generally, the "free look" period ends 10 days after you receive the
Contract. Some states allow a longer period of time to return the Contract. If
required by your state, the "free look" period ends the later of 10 days after
you receive the Contract and 45 days from the date you complete the application.
To cancel the Contract during the "free look" period, you must mail or deliver
the Contract to our Service Center or to the Financial Consultant who sold it.
We will refund your payment without interest. We may require you to wait six
months before applying for another contract.
MAKING ADDITIONAL PAYMENTS
After the end of the "free look" period, you may make additional payments. You
may make payments under a periodic plan. You may also make unplanned payments.
In Kentucky, you cannot make additional payments until after the first contract
year.
PAYMENTS UNDER A PERIODIC PLAN. Planned periodic payments are subject to our
rules. 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 WILL NOT NECESSARILY PREVENT A CONTRACT FROM LAPSING.
After the end of the guarantee period, we may cancel a Contract if the net cash
surrender value on a processing date is negative. (See "Guarantee Period".)
You may elect the amount, duration and frequency of the planned 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.
You 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, will affect whether we will underwrite on a
simplified or medical basis. Once we approve the plan, any planned payment may
be made without any additional evidence of insurability unless it increases the
face amount.
You may elect a periodic plan later than the time of the application. The amount
and duration of the payments elected, as well as other factors such as the
current death benefit and the insured's age and sex, will affect whether we will
require additional evidence of insurability. Currently, we won't allow the later
election of a
19
<PAGE>
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.
You may elect to make planned payments annually, semiannually or quarterly. You
may also make payments on a monthly basis if you authorize us to deduct the
payment from your checking account (pre-authorized checking) or to withdraw the
payment from your CMA account. We reserve the right to change the procedures or
discontinue your ability to make planned payments. If you have the CMA Insurance
Service, planned payments under any of the above frequencies may be withdrawn
automatically from your CMA account and transferred to your Contract. The
withdrawals will continue under the plan specified until we are notified
otherwise. For planned payments not made under pre-authorized checking or
withdrawn from a CMA account, we will send you reminder notices.
You may change the frequency, duration and the amount of planned payments by
sending a written request to our Service Center. You may request one change in
the amount, one change in the duration and one change in the frequency of
payments each contract year. We may require satisfactory evidence of
insurability before you increase the duration or the amount of planned payments.
PAYMENTS NOT UNDER A PERIODIC PLAN. You may make additional payments not under a
periodic payment plan provided the attained age of the insured is not over 80.
You may make additional payments up to four times each contract year. You need
to use an Application for Additional Payment. The minimum payment is $500. You
may make these unplanned payments whether or not you're making planned payments.
We may require satisfactory evidence of insurability before we accept a payment:
1. if the payment immediately increases the net amount at risk under the
Contract, or
2. if the contract owner is already making planned payments, or
3. if the guarantee period at the time of the payment is one year or less.
Currently, we won't 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, we will invest that
payment in the division investing in the Money Reserve Portfolio. Once we
complete the underwriting and accept the payment, we will credit the payment to
your Contract and allocate the payment either according to instructions or, if
we don't get instructions, proportionately to the investment base in the
Contract's investment divisions.
EFFECT OF ADDITIONAL PAYMENTS. Currently, we will generally accept any
additional payment not requiring evidence of insurability the day we receive it.
On the date we accept an additional payment we will:
- increase the Contract's investment base by the amount of the payment;
- increase the deferred contract load (see "Deferred Contract Load");
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount"); and
- increase the fixed base by the amount of the payment less the deferred
contract load applicable to the payment.
If an additional payment requires evidence of insurability, once we complete
underwriting and accept the payment, we will reflect the additional payment in
contract values as described above.
20
<PAGE>
As of the processing date on or next following receipt and acceptance of an
additional payment, we will increase either the guarantee period or face amount
or both. If the guarantee period before acceptance of an additional payment is
less than for life, we will first use payments to extend the guarantee period.
Any amount greater than that required to extend the guarantee period to the
insured's lifetime or any subsequent additional payment will be used to increase
the Contract's face amount.
The Examples below show the effect of additional payments.
If the guarantee period is for the insured's entire life at the
time we receive and accept an additional payment, as of the
processing date on or next following the date of the additional
payment, we 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 we receive and accept it. If you make
additional payments of different amounts 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 you make additional payments of the same amounts
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
- ----------------------------------------------------------------------------------------------
ADDITIONAL CHANGE IN NEW FACE
CONTRACT YEAR PAYMENT FACE AMOUNT AMOUNT
- ------------------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
2...................................................... $ 2,000 $ 3,790 $ 62,228
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
- ----------------------------------------------------------------------------------------------
ADDITIONAL CHANGE IN NEW FACE
CONTRACT YEAR PAYMENT FACE AMOUNT AMOUNT
- ------------------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
2...................................................... $ 4,000 $ 7,580 $ 66,018
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
- ----------------------------------------------------------------------------------------------
ADDITIONAL CHANGE IN NEW FACE
CONTRACT YEAR PAYMENT FACE AMOUNT AMOUNT
- ------------------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
5...................................................... $ 2,000 $ 3,499 $ 61,937
</TABLE>
Unless you specify otherwise, if there is any loan debt, we will apply any
unplanned payment made first as a loan repayment with any excess applied as an
additional payment. (See "Loans".)
For joint insureds, see "Joint Insureds".
CHANGING THE FACE AMOUNT
After the first contract year, if the insured is in a standard or non-smoker
underwriting class, you may request a change in the face amount of your Contract
without making an additional payment or taking a partial withdrawal, subject to
the rules and conditions discussed below. We won't permit a change in face
amount if the insured's attained age is over 80. The minimum change in face
amount is $10,000, and only one change may be
21
<PAGE>
made each contract year. A change in face amount may affect the mortality cost
deduction. (See "Mortality Cost".)
The effective date of the change will be the next processing date following the
receipt and acceptance of a written request, provided our Service Center
receives it at least seven days before the processing date.
INCREASING THE FACE AMOUNT. To increase the face amount of a Contract, we 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 that provides the minimum guarantee period for which we
would issue a Contract at the time of the request based on the insured's
attained age. Currently, we won't 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 you decrease the face amount of a Contract, we
increase the guarantee period. The maximum decrease in face amount is that
decrease which would provide the minimum face amount for which we would issue a
Contract at the time of the request based on the insured's attained age, sex and
underwriting class. We 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, we use the fixed base on that date and, based on the attained age
and sex of the insured and the new face amount, we redetermine the guarantee
period. We use a 4% interest assumption and the guaranteed maximum cost of
insurance rates in these calculations.
The Examples below show the effect of changing the face amount. 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
INCREASE IN GUARANTEE
CONTRACT YEAR FACE AMOUNT PERIOD
- ----------------------------------------------------------------- ----------- -------------
<S> <C> <C>
5................................................................ $ 10,000 16.00 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
- ---------------------------------------------------------------------------------------------
DECREASE IN
INCREASE IN GUARANTEE
CONTRACT YEAR FACE AMOUNT PERIOD
- ----------------------------------------------------------------- ----------- -------------
<S> <C> <C>
5................................................................ $ 20,000 19.75 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
- ---------------------------------------------------------------------------------------------
DECREASE IN
INCREASE IN GUARANTEE
CONTRACT YEAR FACE AMOUNT PERIOD
- ----------------------------------------------------------------- ----------- -------------
<S> <C> <C>
8................................................................ $ 10,000 15.50 years
</TABLE>
For joint insureds, see "Joint Insureds".
22
<PAGE>
INVESTMENT BASE
A Contract's investment base is the sum of the amounts invested in each of the
investment divisions. On the contract date, the investment base equals the
initial payment. We adjust the investment base daily to reflect the investment
performance of the investment divisions you've selected. (See "Net Rate of
Return for an Investment Division".) The investment performance reflects the
deduction of Separate Account charges. (See "Charges to the Separate Account".)
Deductions for deferred contract load, mortality cost, and net loan cost, and
partial withdrawals and loans, decrease the investment base. (See "Charges
Deducted from the Investment Base", "Partial Withdrawals", and "Loans".) Loan
repayments and additional payments increase it. You may elect from which
investment divisions loans and partial withdrawals are taken and to which
investment divisions repayments and additional payments are added. If you don't
make an election, we will allocate increases and decreases proportionately to
your investment base in the investment divisions selected. (For special rules on
allocation of additional payments which require evidence of insurability, see
"Payments Not Under a Periodic Plan".)
INITIAL INVESTMENT ALLOCATION AND PREALLOCATION. Generally, during the first 14
days following the in force date, the initial payment will remain in the
division investing in the Money Reserve Portfolio. Afterward, we'll reallocate
the investment base to the investment divisions you've selected. You may invest
in up to five of the investment divisions.
CHANGING THE ALLOCATION. Currently, you may change investment allocations as
often as you wish. However, we may limit the number of changes permitted but not
to less than five each contract year. We'll notify you if we impose any
limitations. To change your investment base allocation, call or write our
Service Center. (See "Some Administrative Procedures".) A dollar cost averaging
feature is also available. (See "Dollar Cost Averaging".)
ZERO TRUST ALLOCATIONS. If your investment base is in any of the Zero Trusts,
we'll notify you 30 days before that Trust matures. Tell us in writing at least
seven days before the maturity date how to reinvest the proceeds. If you don't
tell us, we'll move the proceeds to the investment division investing in the
Money Reserve Portfolio. When we receive a request for allocation, units of a
specific Zero Trust may no longer be available. Should this occur, we'll attempt
to notify you immediately so that you can change the request.
ALLOCATION TO THE DIVISION INVESTING IN THE NATURAL RESOURCES PORTFOLIO. We
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
We deduct 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 load may not fully cover
all of the sales and distribution expenses we actually incur. We may use
proceeds from other charges, including the mortality and expense risk charge, in
part to cover such expenses.
We deduct these charges pro-rata from the investment base on processing dates.
We also deduct certain mortality and expense risk 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 mortality and expense risk and
trust charges are equivalent to .90% and .34% annually at the beginning of the
year. (See "Charges to the Separate Account".) The portfolios in the Funds also
pay monthly advisory fees and other expenses. (See "Charges to Fund Assets".)
23
<PAGE>
DEFERRED CONTRACT LOAD. We assess a deferred contract load charge of 9% of each
payment. This charge consists of a sales load, a charge for federal taxes and a
state and local premium tax charge.
The sales load is equal to 4.5% of each payment. We may reduce the sales load 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.
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, we advance the amount of the deferred
contract load to the investment divisions as part of your investment base. We
then take back these funds in equal installments of .90% on the ten contract
anniversaries following the date we receive and accept a payment. However, in
determining the amount payable on surrender of the Contract, we subtract from
the investment base the balance of the deferred contract load chargeable to any
payment made that has not yet been deducted.
For joint insureds, see "Joint Insureds".
MORTALITY COST (COST OF INSURANCE). We deduct a mortality cost from the
investment base on each processing date after the contract date. This charge
compensates us for the cost of providing life insurance coverage on the insured.
It is based on the insured's underwriting class, sex and attained age, and the
Contract's net amount at risk.
To determine the mortality cost, we multiply the current cost of insurance rate
by the Contract's net amount at risk. 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. 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 non-smokers than for smokers. 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 we perform less underwriting and therefore
we incur more risk.
We guarantee that the current cost of insurance rates will never exceed the
maximum guaranteed rates shown in the Contract. The maximum guaranteed rates for
Contracts (except those issued on a substandard basis) do not exceed the rates
based on the 1980 Commissioners Standard Ordinary Mortality Table (1980 CSO
Table). We may use rates that are equal to or less than these rates, but never
greater. The maximum rates for Contracts issued on a substandard basis are based
on a multiple of the 1980 CSO Table. Any change in the cost of insurance rates
will apply to all insureds of the same age, sex and underwriting class whose
Contracts have been in force for the same length of time.
During the period between processing dates, the net cash surrender value takes
the mortality cost into account on a pro-rated basis. Thus, we deduct a pro-rata
portion of the mortality cost in determining the amount payable on surrender of
the Contract if the date of surrender is not a processing date.
For joint insureds, see "Joint Insureds".
24
<PAGE>
MAXIMUM MORTALITY COST. During the guarantee period, we limit 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. We will deduct this alternate amount from the investment base
when it is less than the mortality cost that would normally have been deducted.
NET LOAN COST. The net loan cost is explained under "Loans".
CHARGES TO THE SEPARATE ACCOUNT
Each day we deduct a mortality and expense risk charge from each division of the
Separate Account. The total amount of this charge is .90% annually at the
beginning of the year. Of this amount, .75% is for
- the risk we assume that insureds as a group will live for a shorter time
than actuarial tables predict. As a result, we would be paying more in
death benefits than planned; and
- the risk we assume that it will cost us more to issue and administer the
Contracts than expected.
The remaining amount, .15%, is for
- the risks we assume for 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 we may
have to limit the deduction for mortality cost (see "Maximum Mortality
Cost" above).
If the asset charge is not enough to cover the actual expenses of mortality,
maintenance, and administration, we will bear the loss. If the charge exceeds
the actual expenses, the excess will be added to our profit and may be used to
finance distribution expenses. We cannot increase the total charge.
CHARGES TO DIVISIONS INVESTING IN THE ZERO TRUSTS. We assess a daily trust
charge against the assets of each division investing in the Zero Trusts. This
charge reimburses us 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. We may increase it, but it won't exceed
.50% annually at the beginning of the year. The charge is based on cost with no
expected profit.
TAX CHARGES. We have the right under the Contract to impose a charge against
Separate Account assets for its taxes, if any. We don't currently impose such a
charge, but we may in the future. Also, see above for a discussion of tax
charges included in deferred contract load.
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.
We have 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. We have also agreed
25
<PAGE>
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 at an annual rate of
the average daily net assets of each portfolio. The fee for each is shown as
follows:
<TABLE>
<CAPTION>
PORTFOLIO NAME ADVISORY FEE
- ---------------------------------------------------------------------------------------------- ---------------
<S> <C>
Basic Value Focus Fund........................................................................ .60%
Global Bond Focus Fund........................................................................ .60%
Global Utility Focus Fund..................................................................... .60%
Index 500 Fund................................................................................ .30%
International Equity Focus Fund............................................................... .75%
Developing Capital Markets Focus Fund......................................................... 1.00%
Special Value Focus Fund...................................................................... .75%
Capital Focus Fund............................................................................ .60%
Global Growth Focus Fund...................................................................... .75%
</TABLE>
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
greater than 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 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 at an annual rate of 1.00% of each of
the Alliance Premier Growth Portfolio's and the Alliance Quasar Portfolio's
average daily net assets.
CHARGES TO MFS TRUST ASSETS. The MFS Trust incurs operating expenses and pays a
monthly advisory fee to MFS at an annual rate of .75% of the average daily net
assets of each of the MFS Emerging Growth Series and MFS Research Series.
CHARGES TO HOTCHKIS AND WILEY TRUST ASSETS. The Hotchkis and Wiley Trust incurs
operating expenses and pays a monthly advisory fee to Hotchkis and Wiley at an
annual rate of .75% of the average daily net assets of the Hotchkis and Wiley
International VIP Portfolio.
CHARGES TO MERCURY V.I. FUNDS ASSETS. The Mercury V.I. Funds incurs operating
expenses and pays a monthly advisory fee to Mercury Asset Management
International Ltd. at an annual rate of .65% of the average daily net assets of
the Mercury V.I. U.S. Large Cap Fund.
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<PAGE>
GUARANTEE PERIOD
Subject to certain conditions, we guarantee that regardless of investment
performance the Contract will stay in effect for the guarantee period. 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. We won't cancel the Contract during
the guarantee period unless any loan debt exceeds certain contract values. We
hold a reserve in our general account to support this guarantee.
WHEN THE GUARANTEE PERIOD IS LESS THAN FOR LIFE. After the end of the guarantee
period, we will cancel the Contract if the net cash surrender value on a
processing date is negative. We will consider this negative cash surrender value
an overdue charge. (See "Charges Deducted from the Investment Base".)
We will notify you before cancelling the Contract. You will then have 61 days to
pay these overdue charges. If we haven't received the required payment by the
end of this grace period, we'll cancel the Contract.
Subject to state regulation, if we cancel a Contract, it may be reinstated while
the insured is still living if:
- You request the reinstatement within three years after the end of the
grace period;
- We receive satisfactory evidence of insurability; and
- You pay the reinstatement payment. The reinstatement payment is the
minimum payment for which we 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.
The effective date of a reinstated contract is the processing date on or next
following the date the reinstatement application is approved. Thus, if the
insured dies before the effective date of the reinstated Contract, we won't pay
a death benefit.
For joint insureds, see "Joint Insureds".
NET CASH SURRENDER VALUE
Because investment results vary daily, we don't guarantee any minimum net cash
surrender value. On a processing date the net cash surrender value equals:
- the Contract's investment base on that date;
- minus the balance of the 9% deferred contract load which has not yet
been deducted from the investment base (see "Deferred Contract
Loading").
If the date of calculation is not a processing date, we also subtract a pro-rata
portion of the mortality cost which would otherwise be deducted on the next
processing date. If a date of calculation is not a contract anniversary, we also
subtract a pro rata portion of the net loan cost, which would otherwise be
deducted on the next contract anniversary.
CANCELLING TO RECEIVE NET CASH SURRENDER VALUE. A contract owner may cancel the
Contract at any time while the insured is living to receive the net cash
surrender value. You must make the request in writing in a form satisfactory to
us. All rights to death benefits will end on the date you send the written
request to us.
For joint insureds, see "Joint Insureds".
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<PAGE>
PARTIAL WITHDRAWALS
Currently, beginning in the second Contract year, and subject to state
regulation, you may make partial withdrawals up to the withdrawal value by
submitting a request in a form satisfactory to us. The withdrawal value is
determined by adding to the current net cash surrender value all prior
withdrawals, multiplying the result by 80%, and subtracting from the result all
prior withdrawals.
The amount of any partial withdrawal may not exceed the loan value less any loan
debt. The effective date of the withdrawal is the valuation date our Service
Center receives a withdrawal request. You may make one partial withdrawal each
contract year.
The minimum amount for each partial withdrawal is $500. A partial withdrawal may
not be repaid.
EFFECT ON INVESTMENT BASE, FIXED BASE, AND VARIABLE INSURANCE AMOUNT. As of the
effective date of the withdrawal, we reduce the investment base and fixed base
by the amount of the partial withdrawal. Unless you tell us differently, we
allocate this reduction proportionately to the investment base in your
investment divisions. In addition, we reduce the variable insurance amount on a
proportional basis to the amount of the withdrawal. This means the reduction in
the variable insurance amount will always be greater than the amount of the
withdrawal.
EFFECT ON GUARANTEED BENEFITS. As of the processing date on or next following a
partial withdrawal, we reduce the Contract's face amount. We do this 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, we will reduce the
face amount to that minimum, and then reduce the guarantee period, based on the
reduced face amount, the fixed base and the insured's sex, attained age and
underwriting class. The minimum face amount for a Contract is the greater of the
minimum face amount for which we 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.
The examples below show the effect of partial withdrawals. The amount of the
reduction in the face amount will depend on the amount of the partial
withdrawal, the guarantee period at the time of the withdrawal and the contract
year in which the withdrawal is made. If made at the same time to equivalent
Contracts, a larger withdrawal would result in a greater reduction in the face
amount than a smaller withdrawal. The same partial withdrawal made at the same
time from Contracts with the same face amounts but with different guarantee
periods would result in a greater reduction in the face amount for the Contract
with the longer guarantee period. A partial withdrawal made in a later contract
year would result in a smaller decrease in the face amount than if the same
amount was withdrawn in an earlier year.
Examples 1 and 2 show the effect on the face amount of partial withdrawals for
$500 and $1,000 taken at the beginning of contract year three. Example 3 shows
the effect on the face amount of a $500 partial withdrawal taken at the
beginning of contract year eight. All three examples assume that the guarantee
period was for the lifetime of the insured before the partial withdrawal and
assume no other contract transactions have been made.
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<PAGE>
MALE ISSUE AGE: 55
INITIAL PAYMENT: $30,000 FACE AMOUNT: $58,438
<TABLE>
<CAPTION>
EXAMPLE 1
- ---------------------------------------------------------------------------------------------
PARTIAL
CONTRACT YEAR WITHDRAWAL FACE AMOUNT
- ------------------------------------------------------------------ ----------- ------------
<S> <C> <C>
3................................................................. $ 500 $ 57,425
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
- ---------------------------------------------------------------------------------------------
PARTIAL
CONTRACT YEAR WITHDRAWAL FACE AMOUNT
- ------------------------------------------------------------------ ----------- ------------
<S> <C> <C>
3................................................................. $ 1,000 $ 56,411
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
- ---------------------------------------------------------------------------------------------
PARTIAL
CONTRACT 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, we 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.
Partial withdrawals are treated as distributions under the Contract for federal
tax purposes and may be subject to a 10% penalty tax. (See "Tax
Considerations".)
LOANS
You may use the Contract as collateral to borrow funds from us. The minimum loan
is $1,000 unless you are borrowing to make a payment on another of our variable
life insurance contracts. In that case, you may borrow the exact amount required
even if it's less than $1,000. You 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 loan debt, if less. Certain states won't permit a minimum amount
that can be borrowed or repaid. Loans are generally treated as distributions
under the Contract for federal tax purposes and may be subject to a 10% penalty
tax. (See "Tax Considerations".)
When you take a loan, we transfer from your investment base the amount of the
loan and hold it as collateral in our general account. When a loan repayment is
made, we transfer the amount of the repayment from the general account to the
investment divisions. You may select the divisions you want to borrow from, and
the divisions you want to repay (including interest payments). If you don't
specify, we'll take the borrowed amounts proportionately from and make
repayments proportionately to your investment base as then allocated to the
investment divisions.
If you have the CMA Insurance Service, you can transfer loans and loan
repayments to and from your CMA account.
EFFECT ON DEATH BENEFIT AND CASH SURRENDER VALUE. Whether or not you repay a
loan, 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
29
<PAGE>
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 loan
debt. The maximum amount that can be borrowed at any time is the difference
between the loan value and the loan debt. The cash surrender value is the net
cash surrender value plus any loan debt.
INTEREST. While a loan remains unpaid, we charge interest of 5% annually,
subject to state regulation. Interest accrues each day and payments are due at
the end of each contract year. IF YOU DON'T PAY THE INTEREST WHEN DUE, WE ADD IT
TO THE UNPAID LOAN AMOUNT. Loan debt is considered part of cash value used to
calculate gain. SINCE THIS IS A MODIFIED ENDOWMENT CONTRACT, THE UNPAID INTEREST
ADDED TO THE UNPAID LOAN AMOUNT IS TAXABLE INCOME.
The amount held in our general account as collateral for a loan earns interest
at a minimum rate of 4% annually.
NET LOAN COST. In addition to the loan interest we charge, on each contract
anniversary we reduce 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 add 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%. We take the net loan cost 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 loan debt exceeds the larger of the cash
surrender value and the fixed base on a processing date, INCLUDING A PROCESSING
DATE DURING THE GUARANTEE PERIOD, we will cancel the Contract 61 days after we
mail a notice of intent to terminate the Contract to you unless we have received
at least the minimum repayment amount specified in the notice.
DEATH BENEFIT PROCEEDS
We will pay the death benefit proceeds to the beneficiary when we receive all
information needed to process the payment, including due proof of the insured's
death. When we first receive reliable notification of the insured's death by a
representative of the owner or the insured, we may transfer the investment base
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 the larger of
the face amount and the variable insurance amount, less any loan debt.
The values used in calculating the death benefit proceeds are as of the date of
death. If the insured dies during the grace period, the death benefit proceeds
equal the death benefit proceeds in effect immediately before the grace period
minus any overdue charges. (See "When the Guarantee Period is Less Than for
Life".)
VARIABLE INSURANCE AMOUNT. We determine the variable insurance amount daily by
multiplying the cash surrender value by the net single premium factor.
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<PAGE>
NET SINGLE PREMIUM FACTOR
We use the net single premium factor to determine the amount of
death benefit purchased by $1.00 of cash surrender value. It is
based on the insured's sex, attained age, and underwriting
class 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. Your contract contains a
table of net single premium factors as of each anniversary.
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 "Joint Insureds".
PAYMENT OF DEATH BENEFIT PROCEEDS
We will generally pay the death benefit proceeds to the beneficiary within seven
days after our Service Center receives all the information needed to process the
payment. We may delay payment, however, if we are contesting the Contract or
under the circumstances described in "Using the Contract" and "Other Contract
Provisions".
We 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
below.
For joint insureds, see "Joint Insureds".
DOLLAR COST AVERAGING
WHAT IS IT?
The Contract offers an optional transfer feature called Dollar Cost Averaging
("DCA"). This feature allows you to make automatic monthly transfers from the
Money Reserve Portfolio to up to four other investment divisions depending on
your current allocation of investment base. The DCA program will terminate and
no transfers will be made if transfers under DCA would cause you to be invested
in more than 5 divisions.
The DCA feature is intended to reduce the effect of short-term price
fluctuations on investment cost. Since the same dollar amount is transferred to
selected divisions each month, more units of a division are purchased when their
value is low and fewer units are purchased when their value is high. Therefore,
over the long haul a
31
<PAGE>
DCA program may let you buy units at a lower average cost. However, a DCA
program does not assure a profit or protect against a loss in declining markets.
You can choose the DCA feature any time. Once you start using it, you must
continue it for at least three months. You can select a duration in months for
the DCA program. If you do not choose a duration we will make reallocations at
monthly intervals until the balance in the Money Reserve Portfolio is zero.
While the DCA program is in place any amount in the Money Reserve Portfolio is
available for transfer.
MINIMUM AMOUNTS
To elect DCA, you need to have a minimum amount in the Money Reserve Portfolio.
We determine the amount required by multiplying the specified length of your DCA
program in months by your specified monthly transfer amount. If you do not
select a duration we determine the minimum amount required by multiplying your
monthly transfer amount by 3 months. You must specify at least $100 or more for
transfer each month. Allocations may be made in specific whole dollar amounts or
in percentage increments of 1%. We reserve the right to change these minimums.
Should the amount in your Money Reserve Portfolio be less than the selected
monthly transfer amount, we'll notify you that you need to put more money in the
Money Reserve Portfolio to continue DCA. If you do not specify a duration or the
specified duration has not been reached and the amount in the Money Reserve
Portfolio is less than the monthly transfer amount, the entire amount will be
transferred. Transfers are made based on your selected DCA percentage
allocations or are made pro-rata based on your specified DCA transfer amounts.
WHEN DO WE MAKE DCA TRANSFERS?
We'll make the first DCA transfer on the first monthiversary date after the
later of the date our Service Center receives your election or the initial
reallocation of your premium. We'll make subsequent DCA transfers as of the end
of the valuation period on each monthiversary date. We don't charge for DCA
transfers. These transfers are in addition to the annual transfers permitted
under the Contract.
RIGHT TO EXCHANGE CONTRACT
Within 18 months of the issue date you may exchange your Contract for a contract
with benefits that do not vary with the investment results of a separate
account. Your request must be in writing. Also, you must return the original
Contract to our 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 also 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
loan debt will be carried over to the new contract.
We won't require evidence of insurability to exchange for a new "fixed"
contract.
For joint insureds, see "Joint Insureds".
INCOME PLANS
We offer several income plans to provide for payment of the death benefit
proceeds to the beneficiary. Payments under these plans do not depend on the
investment results of a separate account. You may choose one or more income
plans at any time during the insured's lifetime. If you haven't selected a plan
when the insured dies, the beneficiary has one year to apply the death benefit
proceeds either paid or payable to one or more of the plans.
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<PAGE>
In addition, if you cancel the Contract for its net cash surrender value, you
may also choose one or more income plans for payment of the proceeds. We need to
approve any plan where any income payment would be less than $100.
For joint insureds, see "Joint Insureds".
Income plans include:
- ANNUITY PLAN. An amount can be used to purchase a single premium
immediate annuity. (Annuity purchase rates will be enhanced by 3%.)
- INTEREST PAYMENT. You can leave amounts with us 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. We make payments in equal installments for up
to a fixed number of years.
- INCOME FOR LIFE. We make payments 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. We make payments 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. We make payments 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.
UNDER THE INCOME FOR LIFE AND JOINT LIFE INCOME OPTIONS, OUR CONTRACTUAL
OBLIGATION MAY BE SATISFIED WITH ONLY ONE PAYMENT IF AFTERWARD THE NAMED PERSON
OR PERSONS DIES. IN ADDITION, ONCE IN EFFECT, SOME OF THE INCOME PLANS MAY NOT
PROVIDE ANY SURRENDER RIGHTS.
REPORTS TO CONTRACT OWNERS
After the end of each processing period, we will send you a statement showing
the allocation of your investment base, death benefit, cash surrender value, any
loan 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 your state.
You will receive confirmation of all financial transactions. These confirmations
will show the price per unit of each of your investment divisions, the number of
units you have 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".)
We will also send you 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.
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<PAGE>
MORE ABOUT THE CONTRACT
USING THE CONTRACT
OWNERSHIP. The contract owner is the insured, unless someone other than the
insured has been named as the owner in the application. The contract owner has
all rights and options described in the Contract.
If you are not the insured, you may want to name a contingent owner. If you die
before the insured, the contingent owner will own your interest in the contract
and have all your rights. If you don't name a contingent owner and you die
before the insured, your estate will then own your interest in the Contract.
If there is more than one contract owner, we will treat the owners as joint
tenants with rights of survivorship unless the ownership designation provides
otherwise. We may require completion of additional forms. 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, you have the right to
transfer ownership of the Contract. However, if you've named an irrevocable
beneficiary, that person will need to consent. The new owner will have all
rights and options described in the Contract. The change will be effective as of
the date the notice is signed, but will not affect any payment we've made or
action we've taken before our Service Center receives the notice of the change.
Changing the owner will generally be treated as a taxable transaction.
ASSIGNING THE CONTRACT AS COLLATERAL. You may assign the Contract as collateral
security for a loan or other obligation. This does not change the ownership.
However, your rights and any beneficiary's rights are subject to the terms of
the assignment. You must give satisfactory written notice at our Service Center
in order to make or release an assignment. We are not responsible for the
validity of any assignment.
A collateral assignment will generally be treated as a taxable distribution.
NAMING BENEFICIARIES. We will pay the primary beneficiary the death benefit
proceeds of the Contract on the insured's death. If the primary beneficiary has
died before the insured, we will pay the contingent beneficiary. If no
contingent beneficiary is living, we will pay the insured's estate.
You may name more than one person as primary or contingent beneficiaries. We
will pay proceeds in equal shares to the surviving beneficiaries unless the
beneficiary designation provides differently.
You have the right to change beneficiaries during the insured's lifetime.
However, if your primary beneficiary designation is irrevocable, the primary
beneficiary must consent when certain contract rights and options are exercised.
If you change the beneficiary, the change will take effect as of the date the
notice is signed, but will not affect any payment we've made or action we've
taken before our Service Center receives the notice of the change.
CHANGING THE INSURED. If permitted by state regulation, and subject to certain
requirements, you may request a change of insured once each contract year. We
must receive a written request signed by you and the proposed new insured.
Neither the original nor the new insured can have attained ages as of the
effective date of the change of less than 21 or more than 75. The new insured
must have been alive at the time the Contract was issued. We 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
loan debt must first be repaid and
34
<PAGE>
the Contract cannot be under a collateral assignment. If we approve the request
for change, 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.
We will change the Contract as follows on the effective date:
- the issue age will be the new insured's issue age (the new insured's age
as of the birthday nearest the contract date);
- the guaranteed maximum cost of insurance rates will be those in effect
on the contract date for the new insured's issue age, sex and
underwriting class;
- we will deduct a charge for changing the insured from the Contract's
investment base on the effective date. This charge will also then 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;
- the variable insurance amount will reflect the change of insured; and
- the Contract's issue date will be the effective date of the change.
We may also change the face amount or guarantee period on the effective date
depending on the new insured's age, sex and underwriting class. The new
guarantee period cannot be less than the minimum guarantee period for which we
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.
Changing the insured will generally be treated as a taxable transaction.
MATURITY PROCEEDS. The maturity date is the contract anniversary nearest the
insured's 100th birthday. On the maturity date, we will pay you the net cash
surrender value, provided the insured is still living at that time and the
Contract is in effect at that time.
WHEN WE MAKE PAYMENTS. We generally pay death benefit proceeds, partial
withdrawals, loans and net cash surrender value within seven days after our
Service Center receives all the information needed to process the payment.
However, we may delay payment if it isn't practical for us 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 "Joint Insureds".
SOME ADMINISTRATIVE PROCEDURES
We reserve the right to modify or eliminate the procedures described below. For
administrative and tax purposes, we may from time to time require that specific
forms be completed for certain transactions. These include reallocations, loans
and partial withdrawals.
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<PAGE>
PERSONAL IDENTIFICATION NUMBER. We will send you a four-digit personal
identification number ("PIN") shortly after the Contract is placed in force and
before the end of the "free look" period. You must give this number when you
call the Service Center to get information about the Contract, to make a loan
(if an authorization is on file), or to make other requests.
REALLOCATING THE INVESTMENT BASE. Contract owners can reallocate their
investment base either in writing or by telephone. If you request the
reallocation by telephone, you must give your PIN as well as your Contract
number. We will give a confirmation number over the telephone and then follow up
in writing.
REQUESTING A LOAN. You may request a loan in writing or, if all required
authorization forms are on file, by telephone. Once our Service Center receives
the authorization, you can call the Service Center, give your Contract number,
name and PIN, and tell us the loan amount and the divisions from which the loan
should be taken.
Upon request, we will wire the funds to the account at the financial institution
named on your authorization. We will generally wire the funds within two working
days of receipt of the request. If you have the CMA Insurance Service, funds may
be transferred directly to that CMA account.
REQUESTING PARTIAL WITHDRAWALS. Beginning in the second contract year, you may
request partial withdrawals in writing or by telephone if all required telephone
authorization forms are on file. Once our Service Center receives the
authorization, you can call the Service Center, give your Contract number, name
and PIN, and tell us how much to withdraw and from which investment divisions.
Upon request, we will wire the funds to the account at the financial institution
named on your authorization. We will usually wire the funds within two working
days of receipt of the request. If you have 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. We reserve the right to change procedures or discontinue ability
to make telephone transfers.
We 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. We will not be liable for following
telephone instructions that we reasonably believe to be genuine.
OTHER CONTRACT PROVISIONS
IN CASE OF ERRORS IN THE APPLICATION. If an age or sex stated in the application
is wrong, it could mean that the face amount or any other Contract benefit is
wrong. We will pay the correct benefits for the true age or sex.
INCONTESTABILITY. We will rely on statements made in the applications. We can
contest the validity of a Contract if any material misstatements are made in the
application. We 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, we can contest any amount of death benefit
attributable to an additional payment if any material misstatements are made in
the application required with the additional payment.
Subject to state regulation, we 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. We won't contest any change in face amount after the
36
<PAGE>
change has been in effect during the insured's lifetime for two years from the
date of the change. Nor will we 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, we 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 attributable to the increase in the face amount 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 attributable to
the additional payment will be limited to the amount of the payment.
The death benefit will be reduced by any loan 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. To maintain this qualification to the maximum
extent of the law, we reserve 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 we may interpret it. Further, we reserve the right to make
changes in the Contract or its riders or to make distributions from the Contract
to the extent necessary to continue to qualify the Contract as life insurance.
Any changes will apply uniformly to all Contracts that are affected and you will
be given advance written notice of such changes.
STATE VARIATIONS. Certain Contract features, including the "free look" right,
are subject to state variation. You should read your Contract carefully to
determine whether any variations apply in the state in which the Contract is
issued.
For joint insureds, see "Joint Insureds".
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the deferred 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 us 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. We take 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.
37
<PAGE>
We make any reductions according to rules in effect when an application for a
Contract or additional payment is approved. We may change these rules from time
to time. However, reductions in charges will not discriminate unfairly against
any person.
UNISEX LEGAL CONSIDERATIONS
In 1983 the Supreme Court held in ARIZONA GOVERNING COMMITTEE V. NORRIS that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
The Contracts offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Contract pays different
benefits to men and women of the same age. Employers and employee organizations
should check with their legal advisers before purchasing these Contracts.
Some states prohibit the use of actuarial tables that distinguish between men
and women in determining payments and contract benefits for contracts issued on
the lives of their residents. Therefore, Contracts offered in this Prospectus to
insure residents of these states will have unisex payments and benefits which
are based on actuarial tables that do not differentiate on the basis of sex. You
should disregard references made in this prospectus to such sex-based
distinctions.
SELLING THE CONTRACTS
ROLE OF MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. 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 we issue, as well as variable life insurance and variable annuity
contracts issued by ML Life Insurance Company of New York, an affiliate of ours.
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.
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 Financial Consultants.
ROLE OF MERRILL LYNCH LIFE AGENCIES. Contracts are sold by registered
representatives of MLPF&S who are also licensed through various Merrill Lynch
Life Agencies as insurance agents for us. We have entered into a distribution
agreement with MLPF&S and companion sales agreements with the Merrill Lynch Life
Agencies through which 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 amounts paid
under the distribution and sales agreements for the Separate Account for the
year ended December 31, 1998, December 31, 1997, and December 31, 1996 were
$22,517,219, $15,107,535, and $10,059,108, respectively.
COMMISSIONS. The maximum commission we will pay to Financial Consultants ("FCs")
is 3.7% of each premium. Additional annual compensation of no more than 0.13% of
the investment base may also be paid to your FC. FCs may elect to receive a
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
38
<PAGE>
compensation is 0.51% of the investment base. Commissions may be paid in the
form of non-cash compensation.
The maximum commission we will pay to the applicable insurance agency to be used
to pay commissions to the FCs is 7.1% of each premium, and 0.80% of the
investment base.
For sales of Contracts to Merrill Lynch employees FCs receive reduced
commissions.
TAX CONSIDERATIONS
INTRODUCTION. The following summary discussion is based on our understanding of
current Federal income tax law as the Internal Revenue Service (IRS) now
interprets it. We can't guarantee that the law or the IRS's interpretation won't
change. It does not purport to be complete or to cover all tax situations. This
discussion is not intended as tax advice. Counsel or other tax advisors should
be consulted for further information.
We haven't considered any applicable federal gift, estate or any state or other
tax laws. Of course, your own tax status or that of your beneficiary can affect
the tax consequences of ownership or receipt of distributions.
TAX STATUS OF THE CONTRACT. In order to qualify as a life insurance contract for
Federal income tax purposes and to receive the tax treatment normally accorded
life insurance contracts under Federal tax law, a Contract must satisfy certain
requirements which are set forth in the Internal Revenue Code (IRC). Guidance as
to how these requirements are to be applied is limited. Nevertheless, we believe
that a Contract issued on the basis of a standard risk class should satisfy the
applicable requirements. There is less guidance with respect to Contracts issued
on a substandard basis (i.e., a premium class involving a higher than standard
mortality risk and Contracts insuring two lives), and it is not clear whether
such a Contract would satisfy the applicable requirements, particularly if the
owner pays the full amount of premiums permitted under the Contract. If it is
subsequently determined that a Contract does not satisfy the applicable
requirements, we may take appropriate steps to bring the Contract into
compliance with such requirements and reserve the right to restrict Contract
transactions in order to do so.
DIVERSIFICATION REQUIREMENTS. IRC section 817(h) and the regulations under it
provide that separate account investments underlying a Contract must be
"adequately diversified" for it to qualify as a life insurance contract under
IRC section 7702. The separate account intends to comply with the
diversification requirements of the regulations under section 817(h). This will
affect how we make investments.
In certain circumstances, owners of variable life contracts have been considered
for Federal income tax purposes to be the owners of the assets of the separate
account supporting their contracts due to their ability to exercise investment
control over those assets. Where this is the case, the contract owners have been
currently taxed on income and gains attributable to the separate account assets.
There is little guidance in this area, and some features of the Contract such as
the flexibility of an owner to allocate premium payments and transfer contract
accumulation values have not been explicitly addressed in published rulings.
While we believe that the contracts do not give owners investment control over
variable account assets, we reserve the right to modify the Contracts as
necessary to prevent an owner from being treated as the owner of the variable
account assets supporting the Contract.
The following discussion assumes that the Contract will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF CONTRACT BENEFITS IN GENERAL. We believe that the death benefit
under a Contract should be excludible from the gross income of the beneficiary.
Federal, state and local transfer, and other tax
39
<PAGE>
consequences of ownership or receipt of Contract proceeds depend on the
circumstances of each owner or beneficiary. A tax advisor should be consulted on
these consequences.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new Contract or a
change in an existing Contract should consult a tax advisor.
Generally, the owner will not be deemed to be in constructive receipt of the
contract value until there is a distribution. When distributions from a Contract
occur, or when loans are taken out from or secured by (e.g., by assignment), a
Contract, the tax consequences depend on whether the Contract is classified as a
"Modified Endowment Contract."
"MODIFIED ENDOWMENT CONTRACT". Under the IRC, certain life insurance contracts
are classified as "Modified Endowment Contracts," with less favorable tax
treatment than other life insurance contracts. In most cases the Contract will
be classified as a Modified Endowment Contract. Any Contract issued in exchange
for a Modified Endowment Contract will be a Modified Endowment Contract. A
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. The payment of additional premiums at the time of or after the
exchange or certain changes to the Contract after it is issued may, however,
cause the Contract to become a Modified Endowment Contract. A prospective owner
should consult a tax advisor before effecting an exchange.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Contracts classified as
Modified Endowment Contracts are subject to the following tax rules:
(1) All pre-death distributions, (including partial withdrawals, loans,
collateral assignments, capitalized interest or complete surrender) will
be treated as ordinary income on an income first basis up to the amount of
any income in the Contract (the cash surrender value less the owner's
investment in the Contract) immediately before the distribution.
(2) A 10 percent additional income tax is imposed on the amount included in
income except where the distribution (including loans, capitalized
interest, assignments, partial withdrawals or complete surrender) is made
when the owner has attained age 59 1/2 or is disabled, or where the
distribution is part of a series of substantially equal periodic payments
for the life (or life expectancy) of the owner or the joint lives (or
joint life expectancies) of the owner and the owner's beneficiary.
DISTRIBUTIONS FROM CONTRACTS THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS.
Distributions from a Contract that is not a Modified Endowment Contact are
generally treated first as a recovery of an owner's investment in the Contract
and, only after the recovery of all investment in the Contract, as taxable
income. However, certain distributions which must be made in order to enable the
Contract to continue to qualify as a life insurance contract for Federal income
tax purposes, if Contract benefits are reduced during the first 15 contract
years, may be treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Contract that is not a Modified Endowment Contract
are generally not treated as distributions. Finally, neither distributions from
nor loans from or secured by a Contract that is not a Modified Endowment
Contract are subject to the 10 percent additional tax.
INVESTMENT IN THE CONTRACT. Your investment in the Contract is generally your
aggregate premiums. When a distribution is taken from the Contract, your
investment in the Contract is reduced by the amount of the distribution that is
tax-free.
LOANS. In general, interest on a loan from a Contract will not be deductible.
Before taking out a Contract loan, an Owner should consult a tax advisor as to
the tax consequences.
MULTIPLE CONTRACTS. All Modified Endowment Contracts that are issued by us (or
our affiliates) to the same owner during any calendar year are treated as one
Modified Endowment Contract for purposes of determining the amount includible in
the owner's income when a taxable distribution occurs.
40
<PAGE>
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or otherwise. It is possible that any
legislative change could be retroactive (that is, effective prior to the date of
the change). Consult a tax advisor with respect to legislative developments and
their effect on the Contract.
WE DON'T 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 YOU SHOULD
CONSULT A COMPETENT TAX ADVISER. ALTHOUGH THIS TAX DISCUSSION IS BASED ON OUR
UNDERSTANDING OF FEDERAL INCOME TAX LAWS AS THEY ARE CURRENTLY INTERPRETED, WE
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 us in early contract years. We make a charge, included
in the Contract's deferred contract load, to compensate us for the anticipated
higher corporate income taxes that result from the sale of a Contract. (See
"Deferred Contract Load".)
We currently make no other charges to the Separate Account for any federal,
state or local taxes that we incur that may be attributable to the Separate
Account or to the Contracts. We reserve the right, however, to make a charge for
any tax or other economic burden resulting from the application of tax laws that
we determine to be properly attributable to the Separate Account or to the
Contracts.
REINSURANCE
We intend to reinsure some of the risks assumed under the Contracts.
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables below 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 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 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 is for a Contract issued to a male age 55 in
the standard-simplified underwriting class with a single payment of $30,000, a
face amount of $58,438 and a guarantee period for life.
4. The illustration on page 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.
41
<PAGE>
5. The illustration on page 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 .58%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1998 expenses (including monthly advisory fees and
operating expenses) for the Funds, and the current trust charge. This charge
also reflects expense reimbursements made in 1998 to certain portfolios by the
investment adviser to the respective portfolio. These reimbursements, amounted
to .17%, .13%, .03%, and .35% of the average daily net assets of the Developing
Capital Markets Focus Fund, the Natural Resources Portfolio, the Alliance
Premier Growth Portfolio, and the Alliance Quasar Portfolio, respectively. (See
"Charges to Fund Assets".) 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 .58%
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of -1.47%, 4.47%, and 10.42%,
respectively. The gross returns are before any deductions and should not be
compared to rates which reflect 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 Load"). 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.
We 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.
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<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 5
$10,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $93,421 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL END OF YEAR
PAYMENTS DEATH BENEFIT(2)
MADE PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% ANNUAL INVESTMENT RETURN OF
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 $ 94,245 $ 100,129
2............................. 0 11,025 93,421 95,021 107,131
3............................. 0 11,576 93,421 95,752 114,451
4............................. 0 12,155 93,421 96,441 122,116
5............................. 0 12,763 93,421 97,089 130,153
6............................. 0 13,401 93,421 97,699 138,591
7............................. 0 14,071 93,421 98,274 147,460
8............................. 0 14,775 93,421 98,815 158,795
9............................. 0 15,513 93,421 99,325 166,629
10............................ 0 16,289 93,421 99,805 177,000
15............................ 0 20,789 93,421 102,092 238,947
20 (age 25)................... 0 26,533 93,421 104,432 322,567
30 (age 35)................... 0 43,219 93,421 109,269 587,599
60 (age 65)................... 0 186,792 93,421 125,183 3,557,489
</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............................. $ 9,685 $ 10,278 $ 10,869 $ 8,875 $ 9,468 $ 10,059
2............................. 9,379 10,571 11,826 8,659 9,851 11,106
3............................. 9,083 10,884 12,886 8,453 10,254 12,256
4............................. 8,796 11,214 14,056 8,256 10,674 13,516
5............................. 8,514 11,559 15,342 8,064 11,109 14,892
6............................. 8,239 11,923 16,762 7,879 11,563 16,402
7............................. 7,965 12,299 18,319 7,695 12,029 18,049
8............................. 7,689 12,685 20,022 7,509 12,505 19,842
9............................. 7,404 13,074 21,872 7,314 12,984 21,782
10............................ 7,111 13,466 23,882 7,111 13,466 23,882
15............................ 5,966 15,975 37,388 5,966 15,975 37,388
20 (age 25)................... 4,828 18,974 58,607 4,828 18,974 58,607
30 (age 35)................... 2,932 27,510 147,936 2,932 27,510 147,936
60 (age 65)................... 0 75,508 2,145,807 0 75,508 2,145,807
</TABLE>
- --------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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.
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<PAGE>
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
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 $ 90,458 $ 96,103
2............................. 0 27,563 89,668 91,202 102,822
3............................. 0 28,941 89,668 91,904 109,848
4............................. 0 30,388 89,668 92,565 117,208
5............................. 0 31,907 89,668 93,187 124,926
6............................. 0 33,502 89,668 93,774 133,032
7............................. 0 35,178 89,668 94,327 141,554
8............................. 0 36,936 89,668 94,847 150,523
9............................. 0 38,783 89,668 95,338 159,970
10............................ 0 40,722 89,668 95,800 169,932
15............................ 0 51,973 89,668 97,995 229,404
20 (age 60)................... 0 66,332 89,668 100,241 309,714
30 (age 70)................... 0 108,049 89,668 104,892 564,659
</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............................. $ 24,244 $ 25,726 $ 27,206 $ 22,219 $ 23,701 $ 25,181
2............................. 23,488 26,472 29,615 21,688 24,672 27,815
3............................. 22,730 27,236 32,246 21,155 25,661 30,671
4............................. 21,972 28,021 35,121 20,622 26,671 33,771
5............................. 21,212 28,826 38,261 20,087 27,701 37,136
6............................. 20,452 29,653 41,690 19,552 28,753 40,790
7............................. 19,691 30,503 45,437 19,016 29,828 44,762
8............................. 18,927 31,374 49,527 18,477 30,924 49,077
9............................. 18,162 32,269 53,993 17,937 32,044 53,768
10............................ 17,395 33,189 58,871 17,395 33,189 58,871
15............................ 14,583 39,366 92,155 14,583 39,366 92,155
20 (age 60)................... 11,551 46,472 143,585 11,551 46,472 143,585
30 (age 70)................... 4,404 63,694 342,880 4,404 63,694 342,880
</TABLE>
- --------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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>
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>
TOTAL END OF YEAR
PAYMENTS DEATH BENEFIT(2)
MADE PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% ANNUAL INVESTMENT RETURN OF
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 $ 58,954 $ 62,638
2............................. 0 33,075 58,438 59,441 67,026
3............................. 0 34,729 58,438 59,901 71,617
4............................. 0 36,465 58,438 60,335 76,428
5............................. 0 38,288 58,438 60,744 81,474
6............................. 0 40,203 58,438 61,130 86,775
7............................. 0 42,213 58,438 61,494 92,348
8............................. 0 44,324 58,438 61,836 98,213
9............................. 0 46,540 58,438 62,158 104,392
10 (age 65)................... 0 48,867 58,438 62,461 110,906
15............................ 0 62,368 58,438 63,895 149,810
20............................ 0 79,599 58,438 65,363 202,404
30............................ 0 129,658 58,438 68,406 369,744
</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............................. $ 28,965 $ 30,740 $ 32,509 $ 26,535 $ 28,310 $ 30,079
2............................. 27,921 31,487 35,229 25,761 29,327 33,069
3............................. 26,872 32,241 38,178 24,982 30,351 36,288
4............................. 25,817 33,004 41,374 24,197 31,384 39,754
5............................. 24,755 33,774 44,839 23,405 32,424 43,489
6............................. 23,685 34,551 48,592 22,605 33,471 47,512
7............................. 22,605 35,333 52,654 21,795 34,523 51,844
8............................. 21,513 36,116 57,044 20,973 35,576 56,504
9............................. 20,406 36,897 61,784 20,136 36,627 61,514
10 (age 65)................... 19,283 37,675 66,897 19,283 37,675 66,897
15............................ 14,725 42,956 100,714 14,725 42,956 100,714
20............................ 9,575 48,276 149,490 9,575 48,276 149,490
30............................ 0 57,957 313,268 0 57,957 313,268
</TABLE>
- --------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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>
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>
TOTAL END OF YEAR
PAYMENTS DEATH BENEFIT(2)
MADE PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% ANNUAL INVESTMENT RETURN OF
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 $ 53,271 $ 56,604
2............................. 0 38,588 52,803 53,712 60,577
3............................. 0 40,517 52,803 54,131 64,736
4............................. 0 42,543 52,803 54,526 69,096
5............................. 0 44,670 52,803 54,899 73,670
6............................. 0 46,903 52,803 55,251 78,476
7............................. 0 49,249 52,803 55,582 83,528
8............................. 0 51,711 52,803 55,894 88,846
9............................. 0 54,296 52,803 56,187 94,448
10 (age 75)................... 0 57,011 52,803 56,462 100,353
15............................ 0 72,762 52,803 57,761 135,620
20............................ 0 92,865 52,803 59,090 183,321
30............................ 0 151,268 52,803 61,843 335,096
</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............................. $ 33,639 $ 35,706 $ 37,763 $ 30,804 $ 32,871 $ 34,928
2............................. 32,267 36,408 40,738 29,747 33,888 38,218
3............................. 30,885 37,104 43,941 28,680 34,899 41,736
4............................. 29,494 37,796 47,390 27,604 35,906 45,500
5............................. 28,094 38,482 51,102 26,519 36,907 49,527
6............................. 26,682 39,161 55,092 25,422 37,901 53,832
7............................. 25,255 39,827 59,376 24,310 38,882 58,431
8............................. 23,811 40,476 63,967 23,181 39,846 63,337
9............................. 22,344 41,102 68,876 22,029 40,787 68,561
10 (age 75)................... 20,852 41,701 74,118 20,852 41,701 74,118
15............................ 14,611 46,014 108,040 14,611 46,014 108,040
20............................ 7,888 50,064 155,320 7,888 50,064 155,320
30............................ 0 57,629 312,260 0 57,629 312,260
</TABLE>
- --------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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>
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>
TOTAL END OF YEAR
PAYMENTS DEATH BENEFIT(2)
MADE PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% ANNUAL INVESTMENT RETURN OF
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 $ 67,672 $ 71,977
2............................. 0 38,588 67,012 68,287 77,138
3............................. 0 40,517 67,012 68,861 82,516
4............................. 0 42,543 67,012 69,396 88,131
5............................. 0 44,670 67,012 69,895 94,004
6............................. 0 46,903 67,012 70,360 100,158
7............................. 0 49,249 67,012 70,794 106,615
8............................. 0 51,711 67,012 71,199 113,399
9............................. 0 54,296 67,012 71,576 120,537
10 (age 75)................... 0 57,011 67,012 71,927 128,053
15............................ 0 72,762 67,012 73,577 172,922
20............................ 0 92,865 67,012 75,268 233,623
30............................ 0 151,268 67,012 78,772 426,855
</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............................. $ 34,086 $ 36,167 $ 38,247 $ 30,621 $ 32,702 $ 34,782
2............................. 33,156 37,355 41,798 30,076 34,275 38,718
3............................. 32,209 38,563 45,677 29,514 35,868 42,982
4............................. 31,239 39,788 49,906 28,929 37,478 47,596
5............................. 30,247 41,025 54,513 28,322 39,100 52,588
6............................. 29,226 42,273 59,523 27,686 40,733 57,983
7............................. 28,175 43,525 64,963 27,020 42,370 63,808
8............................. 27,087 44,774 70,856 26,317 44,004 70,086
9............................. 25,954 46,012 77,223 25,569 45,627 76,838
10 (age 75)................... 24,771 47,230 84,085 24,771 47,230 84,085
15............................ 19,859 54,908 129,045 19,859 54,908 129,045
20............................ 13,308 61,837 191,933 13,308 61,837 191,933
30............................ 0 73,292 397,159 0 73,292 397,159
</TABLE>
- --------
(1) All payments are illustrated as if made at the beginning of the contract
year.
(2) Assumes no loan has been made.
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>
JOINT INSUREDS
The Contract can insure two lives. 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 applying to two insureds.
AVAILABILITY AND PAYMENTS (REFERENCE PAGE CAPSULE SUMMARY)
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.
We will not accept an initial payment that will provide a guarantee period of
less than the minimum guarantee period for which we would then issue a Contract
based on the age of the younger insured. This minimum will range from 10 to 40
years depending on the age of the younger insured.
WHO MAY BE COVERED (REFERENCE PAGE )
We will issue a Contract on the lives of two insureds provided the relationship
among the applicant and the insureds meets our insurable interest requirements
and provided neither insured is over age 80 and no more than one insured is
under age 20. We will determine the insureds' issue ages 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 our administrative rules in effect at the time of
underwriting.
Under both simplified and medical underwriting methods, Contracts may be issued
on joint insureds in a standard underwriting class only.
INITIAL PAYMENT (REFERENCE PAGE )
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.
We 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
we 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 NOT UNDER A PERIODIC PLAN (REFERENCE PAGE ). You 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 ). You 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.
48
<PAGE>
EFFECT OF ADDITIONAL PAYMENTS (REFERENCE PAGE ). 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 ). You may increase the face amount
of your Contract 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 ). You may decrease the face amount
of your Contract if either insured is living.
CHARGES DEDUCTED FROM THE INVESTMENT BASE
DEFERRED CONTRACT LOADING (REFERENCE PAGE ). The deferred contract load 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 us 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 is equal
to 2% of each payment. (See "Merrill Lynch Life's Income Taxes".) The state and
local premium tax charge, equal to 2.5% of payments, compensates us for state
and local premium taxes that must be paid when a payment is accepted.
We deduct 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 ). For Contracts issued on joint insureds,
current cost of insurance rates are equal to the guaranteed maximum cost of
insurance rates set forth in the Contract. Those rates are based on the 1980
Commissioners Aggregate Mortality Table and do not distinguish between insureds
in a smoker underwriting class and insureds in a non-smoker underwriting class.
The cost of insurance rates are based on an aggregate class which is made up of
a blend of smokers and non-smokers.
GUARANTEE PERIOD
WHEN THE GUARANTEE PERIOD IS LESS THAN FOR LIFE (REFERENCE PAGE ). If we
cancel a Contract, you may reinstate it only if neither insured has died between
the date the Contract was terminated and the effective date of the reinstatement
and you meet the other conditions listed.
NET CASH SURRENDER VALUE
CANCELLING TO RECEIVE NET CASH SURRENDER VALUE (REFERENCE PAGE ). You may
cancel your Contracts at any time while either insured is living.
DEATH BENEFIT PROCEEDS (REFERENCE PAGE )
We will pay the death benefit proceeds to the beneficiary when our Service
Center receives all information needed to process the payment, including due
proof of the last surviving insured's death. We must receive proof of death for
both insureds. There is no death benefit payable at the first death. When we are
first provided reliable notification of the last surviving insured's death by a
representative of the owner or the insured, we
49
<PAGE>
may transfer the investment base 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 our
Service Center since we may only pay a limited benefit or contest the Contract.
(See "Incontestability" and "Payment in Case of Suicide".)
NET SINGLE PREMIUM FACTOR (REFERENCE PAGE ). The net single premium factors
are based on the insureds' sexes, attained ages, and underwriting classes on the
date of calculation.
PAYMENT OF DEATH BENEFIT PROCEEDS (REFERENCE PAGE )
If payment is delayed, we 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 ). You may exchange your 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 ). 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 ). We pay the primary beneficiary the
proceeds of this Contract upon the last surviving insured's death. If no
contingent beneficiary is living, we pay the last surviving insured's estate.
CHANGING THE INSURED (REFERENCE PAGE ). 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,
we will pay the net cash surrender value to you, provided either insured is
living.
OTHER CONTRACT PROVISIONS
INCONTESTABILITY (REFERENCE PAGE ). We 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. We 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 we 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.
50
<PAGE>
PAYMENT IN CASE OF SUICIDE (REFERENCE PAGE ). If either insured commits
suicide within two years from the issue date, we 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 we are unable
to determine which of the insureds was the last survivor on the basis of the
proofs of death provided, we will consider insured No. 1 as designated in the
application to be the last surviving insured.
INCOME PLANS (REFERENCE PAGE )
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
Our directors and executive officers and their positions with us are as
follows:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY
- -------------------------------- --------------------------------------------------------------------------
<S> <C>
Anthony J. Vespa................ Chairman of the Board, President, and Chief Executive Officer
Joseph E. Crowne, Jr............ Director, Senior Vice President, Chief Financial Officer, Chief Actuary,
and Treasurer
Barry G. Skolnick............... Director, Senior Vice President, General Counsel, and Secretary
David M. Dunford................ Director, Senior Vice President, and Chief Investment Officer
Gail R. Farkas.................. Director and Senior Vice President
Robert J. Boucher............... Senior Vice President, Variable Life Administration
</TABLE>
Each director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and shall have qualified. Each has held
various executive positions with insurance company subsidiaries of our indirect
parent, Merrill Lynch & Co., Inc. The principal positions of our 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.
Mr. Crowne joined Merrill Lynch Life in June 1991.
51
<PAGE>
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.
None of our shares are owned by any of our officers or directors, as it is a
wholly owned subsidiary of MLIG. Our officers and directors, 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
We and MLIG are parties to a service agreement pursuant to which MLIG has agreed
to provide certain accounting, data processing, legal, actuarial, management,
advertising and other services to us, including services related to the Separate
Account and the Contracts. We reimburse expenses incurred by MLIG under this
service agreement on an allocated cost basis. Charges billed to us by MLIG under
the agreement were $43.2 million for the year ended December 31, 1998.
STATE REGULATION
We are subject to the laws of the State of Arkansas and to the regulations of
the Arkansas Insurance Department (the "Insurance Department"). We file a
detailed financial statement in the prescribed form (the "Annual Statement")
with the Insurance Department each year covering our operations for the
preceding year and our 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. Our books and accounts are subject to
review by the Insurance Department at all times. A full examination of our
operations is conducted periodically by the Insurance Department and under the
auspices of the National Association of Insurance Commissioners. We are also
subject to the insurance laws and regulations of all jurisdictions in which we
are 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 we or the other service providers use do not
properly address this problem before 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. Substantial
resources are being devoted to this effort. It is difficult to predict whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on us. Currently, we don't anticipate that the
transition to the 21st century will have any material impact on our ability to
continue to service the Contracts at current levels. In addition, we have 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. We will continue to monitor the situation. At this time, however, we
cannot give assurance that the other service providers have anticipated
52
<PAGE>
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. We and MLPF&S are engaged
in various kinds of routine litigation that, in our judgment, is not material to
our total assets or to MLPF&S.
EXPERTS
Our financial statements as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998 and of the Separate Account as
of December 31, 1998 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., our Chief Actuary and Chief Financial Officer, 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,
our 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
Our financial statements, included herein, should be distinguished from the
financial statements of the Separate Account and should be considered only as
bearing upon our ability to meet our obligations under the Contracts.
53
<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, 1998 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 (the "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, 1998. 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, 1998 and the results of its operations and
the changes in its net assets for each of the three years in
the period then ended 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.
February 4, 1999
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS: Cost Shares Market Value
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investments in Merrill Lynch Series Fund, Inc. (Note 1):
Money Reserve Portfolio $ 86,585,835 86,585,835 $ 86,585,835
Intermediate Government Bond Portfolio 21,343,673 1,941,670 21,979,706
Long-Term Corporate Bond Portfolio 21,965,632 1,903,747 22,673,624
Capital Stock Portfolio 40,157,899 1,759,745 47,565,902
Growth Stock Portfolio 45,212,262 1,723,506 63,252,677
Multiple Strategy Portfolio 28,639,028 1,754,015 31,870,459
High Yield Portfolio 32,281,551 3,584,085 28,314,275
Natural Resources Portfolio 1,812,547 218,219 1,496,986
Global Strategy Portfolio 42,573,590 2,749,630 43,994,080
Balanced Portfolio 13,776,731 962,481 15,572,940
--------------------- ---------------------
334,348,748 363,306,484
--------------------- ---------------------
Investments in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Global Utility Focus Fund 2,684,153 182,299 3,113,667
International Equity Focus Fund 10,865,894 986,194 10,532,548
Global Bond Focus Fund 1,349,087 141,774 1,403,561
Basic Value Focus Fund 51,905,445 3,671,360 53,858,851
Developing Capital Markets Focus Fund 5,327,376 544,303 3,499,867
Special Value Focus Fund 4,478,605 191,550 3,821,418
Index 500 Fund 12,434,362 879,576 14,274,760
--------------------- ---------------------
89,044,922 90,504,672
--------------------- ---------------------
Investments in Alliance
Variable Products Series Fund, Inc. (Note 1):
Premier Growth Portfolio 19,503,725 798,385 24,773,881
--------------------- ---------------------
19,503,725 24,773,881
--------------------- ---------------------
Investments in MFS Variable Insurance Trust (Note 1):
MFS Emerging Growth Series 8,618,103 485,272 10,418,786
MFS Research Series 8,497,279 507,047 9,659,247
--------------------- ---------------------
17,115,382 20,078,033
--------------------- ---------------------
Investments in AIM Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund 11,990,076 528,360 13,869,452
AIM V.I. Capital Appreciation Fund 3,785,782 164,933 4,156,320
--------------------- ---------------------
15,775,858 18,025,772
--------------------- ---------------------
</TABLE>
(continued)
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Cost Units Market Value
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through K (Note 1):
1999 Trust 927,818 1,182,644 1,177,227
2000 Trust 738,402 971,580 926,022
2001 Trust 277,131 352,080 320,868
2002 Trust 605,383 864,864 751,549
2003 Trust 254,055 372,581 302,178
2004 Trust 976,985 1,582,037 1,248,718
2005 Trust 621,857 1,061,762 804,147
2006 Trust 336,924 573,077 421,487
2007 Trust 201,726 361,461 251,219
2008 Trust 445,286 888,718 573,703
2009 Trust 71,344 162,017 98,779
2010 Trust 758,153 1,345,565 764,039
2011 Trust 163,044 436,263 235,359
2013 Trust 282,043 757,106 359,413
2014 Trust 3,751,251 11,348,708 5,011,703
--------------------- ---------------------
10,411,402 13,246,411
--------------------- ---------------------
TOTAL ASSETS $ 486,200,037 529,935,253
===================== =====================
LIABILITIES:
Payable to Merrill Lynch Life Insurance Company 10,341,771
---------------------
TOTAL LIABILITIES 10,341,771
---------------------
NET ASSETS $ 519,593,482
=====================
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 43,140,141 $ 18,534,136 $ 12,043,745
Mortality and Expense Charges (Note 3) (4,032,700) (2,791,171) (1,751,522)
Transaction Charges (Note 3) (42,609) (36,928) (28,838)
--------------------- --------------------- ---------------------
Net Investment Income 39,064,832 15,706,037 10,263,385
--------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses) on Investments:
Net Realized Gains (Losses) 4,254,287 2,063,224 (45,179)
Net Change in Unrealized Gains 9,022,651 18,236,659 8,986,838
--------------------- --------------------- ---------------------
Net Gain on Investments 13,276,938 20,299,883 8,941,659
--------------------- --------------------- ---------------------
Increase in Net Assets
Resulting from Operations 52,341,770 36,005,920 19,205,044
--------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 115,096,996 99,960,767 70,164,840
Transfers of Policy Loading, Net (Note 3) 4,617,057 4,809,499 3,408,619
Transfers Due to Deaths (3,013,716) (1,185,686) (813,683)
Transfers Due to Other Terminations (5,398,486) (3,656,934) (2,808,710)
Transfers Due to Policy Loans (4,179,365) (2,605,297) (2,600,351)
Transfers of Cost of Insurance (7,106,344) (4,830,049) (3,101,640)
Transfers of Loan Processing Charges (111,109) (75,863) (50,705)
--------------------- --------------------- ---------------------
Increase in Net Assets
Resulting from Principal Transactions 99,905,033 92,416,437 64,198,370
--------------------- --------------------- ---------------------
Increase in Net Assets 152,246,803 128,422,357 83,403,414
Net Assets Beginning Balance 367,346,679 238,924,322 155,520,908
--------------------- --------------------- ---------------------
Net Assets Ending Balance $ 519,593,482 $ 367,346,679 $ 238,924,322
===================== ===================== =====================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Merrill Lynch Variable Life Separate Account ("Account"),
a separate account of Merrill Lynch Life Insurance
Company ("Merrill Lynch Life"),was established to support
Merrill Lynch Life's 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 Lynch &
Co."). The Account is registered as a unit investment
trust under the Investment Company Act of 1940 and
consists of thirty - seven investment divisions (thirty-
eight during the year). The investment divisions are as
follows:
Merrill Lynch Series Fund, Inc.: Ten of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the Merrill Lynch Series Fund,
Inc. ("Merrill Series Fund"). The investment advisor to
the funds of the Merrill Series Fund is Merrill Lynch
Asset Management, L.P. ("MLAM"), an indirect subsidiary
of Merrill Lynch & Co.
Merrill Lynch Variable Series Funds, 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. ("Merrill Variable Funds").
The investment advisor to the funds of the Merrill
Variable funds is MLAM.
Alliance Variable Products Series Fund, Inc.: One of
the investment divisions invests in the securities of a
single mutual fund portfolio of the Alliance Variable
Products Series Fund, Inc.("Alliance Variable Fund").
The investment advisor to the fund of the Alliance
Variable Fund is Alliance Capital Management L.P.
MFS Variable Insurance Trust: Two of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the MFS Variable Insurance
Trust ("MFS Variable Trust"). The investment advisor to
the funds of the MFS Variable Trust is Massachusetts
Financial Services Company.
AIM Variable Insurance Funds: Two of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the AIM Variable Insurance
Funds,Inc.("AIM Variable Funds").The investment advisor
to the funds of the AIM Variable Funds is AIM Advisors,
Inc.
The Merrill Lynch Fund of Stripped (" Zero") U.S.
Treasury Securities, Series A through K: Fifteen of the
investment divisions (sixteen 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 ("Merrill Zero Trusts").
Each trust of the Merrill 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. Merrill Zero Trusts are sponsored
by Merrill Lynch, Pierce,Fenner & Smith Inc.("MLPF&S"),
a wholly-owned subsidiary of Merrill Lynch & Co.
The assets of the Account are registered in the name of
Merrill Lynch Life. The portion of the Account's assets
applicable to the Contracts are not chargeable with
liabilities arising out of any other business Merrill
Lynch Life may conduct.
The change in net assets 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. SIGNIFICANT ACCOUNTING POLICIES
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.
Investment transactions are recorded on the trade date.
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 that 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. CHARGES AND FEES
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 is 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.
. Merrill Lynch Life pays all transaction charges to MLPF&S
on the sale of Zero Trusts 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.
4. OTHER
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, 1998
<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 $ 43,140,141 $ 3,784,922 $ 1,186,920 $ 1,163,464
Mortality and Expense Charges (4,032,700) (571,710) (169,923) (165,743)
Transaction Charges (42,609) 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 39,064,832 3,213,212 1,016,997 997,721
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 4,254,287 0 88,736 2,505
Net Change in Unrealized Gains (Losses) 9,022,651 0 307,577 314,402
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 13,276,938 0 396,313 316,907
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 52,341,770 3,213,212 1,413,310 1,314,628
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 115,096,996 90,763,244 501,432 767,159
Transfers of Policy Loading, Net 4,617,057 5,761,930 (94,769) (85,276)
Transfers Due to Deaths (3,013,716) (659,242) (41,709) (44,002)
Transfers Due to Other Terminations (5,398,486) (895,577) (125,850) (149,634)
Transfers Due to Policy Loans (4,179,365) (791,727) (201,618) (141,339)
Transfers of Cost of Insurance (7,106,344) (1,267,360) (239,342) (257,209)
Transfers of Loan Processing Charges (111,109) (21,627) (2,317) (4,170)
Transfers Among Investment Divisions 0 (70,544,251) 4,025,316 6,191,523
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 99,905,033 22,345,390 3,821,143 6,277,052
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 152,246,803 25,558,602 5,234,453 7,591,680
Net Assets Beginning Balance 367,346,679 50,859,418 16,710,222 15,074,395
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 519,593,482 $ 76,418,020 $ 21,944,675 $ 22,666,075
===================== ===================== ===================== =====================
</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, 1998
<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 $ 4,910,196 $ 8,255,444 $ 3,777,893 $ 2,782,900
Mortality and Expense Charges (384,794) (468,862) (272,772) (261,160)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 4,525,402 7,786,582 3,505,121 2,521,740
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 622,301 1,652,032 (12,684) (240,001)
Net Change in Unrealized Gains (Losses) 798,294 7,267,892 (652,635) (4,269,509)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 1,420,595 8,919,924 (665,319) (4,509,510)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 5,945,997 16,706,506 2,839,802 (1,987,770)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,845,144 3,842,590 1,631,368 1,690,810
Transfers of Policy Loading, Net (94,382) (114,341) (115,876) (100,463)
Transfers Due to Deaths (230,259) (247,841) (169,612) (329,226)
Transfers Due to Other Terminations (686,343) (453,901) (600,699) (322,159)
Transfers Due to Policy Loans (536,062) (391,815) (164,457) (208,837)
Transfers of Cost of Insurance (620,516) (797,583) (455,610) (431,770)
Transfers of Loan Processing Charges (10,890) (17,291) (5,454) (7,336)
Transfers Among Investment Divisions 2,395,537 2,089,356 1,166,213 5,434,295
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 3,062,229 3,909,174 1,285,873 5,725,314
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 9,008,226 20,615,680 4,125,675 3,737,544
Net Assets Beginning Balance 38,543,874 42,621,459 27,734,941 24,565,637
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 47,552,100 $ 63,237,139 $ 31,860,616 $ 28,303,181
===================== ===================== ===================== =====================
</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, 1998
<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 $ 50,415 $ 6,432,490 $ 1,194,303 $ 154,262
Mortality and Expense Charges (16,413) (382,968) (128,481) (22,067)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 34,002 6,049,522 1,065,822 132,195
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (177,750) 38,112 84,875 341,481
Net Change in Unrealized Gains (Losses) (86,387) (2,688,064) 497,741 52,645
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (264,137) (2,649,952) 582,616 394,126
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (230,135) 3,399,570 1,648,438 526,321
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 69,914 3,451,783 664,904 111,728
Transfers of Policy Loading, Net (7,687) (115,886) (70,497) (8,674)
Transfers Due to Deaths (14,856) (312,128) (102,541) (181,968)
Transfers Due to Other Terminations (37,332) (796,317) (146,013) 8,662
Transfers Due to Policy Loans (4,856) (232,828) (52,985) (22,854)
Transfers of Cost of Insurance (25,346) (699,514) (218,141) (35,313)
Transfers of Loan Processing Charges (210) (10,920) (3,053) (1,036)
Transfers Among Investment Divisions (481,598) 7,379 1,688,726 780,958
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (501,971) 1,291,569 1,760,400 651,503
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (732,106) 4,691,139 3,408,838 1,177,824
Net Assets Beginning Balance 2,228,469 39,288,309 12,159,367 1,934,920
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 1,496,363 $ 43,979,448 $ 15,568,205 $ 3,112,744
===================== ===================== ===================== =====================
</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, 1998
<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 $ 878,329 $ 68,920 $ 6,396,025 $ 72,168
Mortality and Expense Charges (99,996) (10,846) (451,849) (41,977)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 778,333 58,074 5,944,176 30,191
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (477,812) 965 809,105 (354,595)
Net Change in Unrealized Gains (Losses) 303,555 73,408 (3,348,639) (1,267,972)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (174,257) 74,373 (2,539,534) (1,622,567)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 604,076 132,447 3,404,642 (1,592,376)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 944,661 99,868 3,320,167 479,712
Transfers of Policy Loading, Net (15,821) (912) (149,703) (3,984)
Transfers Due to Deaths (3,996) 0 (322,056) 0
Transfers Due to Other Terminations (79,523) (4,048) (238,988) (124,916)
Transfers Due to Policy Loans (39,056) (2,021) (804,084) (69,653)
Transfers of Cost of Insurance (178,969) (19,010) (797,844) (69,597)
Transfers of Loan Processing Charges (1,715) (96) (8,750) (1,004)
Transfers Among Investment Divisions (1,057,338) 191,053 8,620,910 (766,164)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (431,757) 264,834 9,619,652 (555,606)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 172,319 397,281 13,024,294 (2,147,982)
Net Assets Beginning Balance 10,379,700 1,005,816 40,836,639 5,656,322
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 10,552,019 $ 1,403,097 $ 53,860,933 $ 3,508,340
===================== ===================== ===================== =====================
</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, 1998
<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 $ 825,649 $ 271,124 $ 13,280 $ 47,674
Mortality and Expense Charges (35,524) (85,396) (128,005) (59,653)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 790,125 185,728 (114,725) (11,979)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (261,247) 236,637 716,239 238,795
Net Change in Unrealized Gains (Losses) (835,245) 1,545,430 5,075,031 1,735,700
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (1,096,492) 1,782,067 5,791,270 1,974,495
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (306,367) 1,967,795 5,676,545 1,962,516
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 193,130 400,013 1,074,723 673,718
Transfers of Policy Loading, Net (9,818) (41,068) (29,864) 6,204
Transfers Due to Deaths (174,493) 0 0 0
Transfers Due to Other Terminations 8,829 (292,386) (115,677) (85,357)
Transfers Due to Policy Loans (5,789) (13,850) (74,234) (110,624)
Transfers of Cost of Insurance (51,015) (132,596) (228,224) (142,709)
Transfers of Loan Processing Charges (377) (1,941) (3,152) (1,093)
Transfers Among Investment Divisions 614,892 7,922,238 12,406,559 4,787,878
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 575,359 7,840,410 13,030,131 5,128,017
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 268,992 9,808,205 18,706,676 7,090,533
Net Assets Beginning Balance 3,550,887 4,451,059 6,034,863 3,299,653
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 3,819,879 $ 14,259,264 $ 24,741,539 $ 10,390,186
===================== ===================== ===================== =====================
</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, 1998
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
AIM V.I.
MFS AIM V.I. Capital
Research Value Appreciation 1998
Series Fund Fund Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 128,956 $ 633,881 $ 110,926 $ 0
Mortality and Expense Charges (60,287) (76,327) (25,006) (1,138)
Transaction Charges 0 0 0 (413)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 68,669 557,554 85,920 (1,551)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 96,489 102,600 28,813 175,810
Net Change in Unrealized Gains (Losses) 1,094,848 1,953,097 420,487 (169,636)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 1,191,337 2,055,697 449,300 6,174
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,260,006 2,613,251 535,220 4,623
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 473,646 470,081 222,692 0
Transfers of Policy Loading, Net (13,727) (25,861) 610 (3,347)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (36,242) (18,603) (3,871) (142)
Transfers Due to Policy Loans (119,989) (55,689) (6,050) 0
Transfers of Cost of Insurance (113,258) (132,127) (45,690) (559)
Transfers of Loan Processing Charges (1,614) (1,575) (510) 115
Transfers Among Investment Divisions 4,795,291 7,512,526 2,105,081 (1,009,553)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 4,984,107 7,748,752 2,272,262 (1,013,486)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 6,244,113 10,362,003 2,807,482 (1,008,863)
Net Assets Beginning Balance 3,412,214 3,503,328 1,347,537 1,008,863
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 9,656,327 $ 13,865,331 $ 4,155,019 $ 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, 1998
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
1999 2000 2001 2002
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (11,024) (8,358) (2,797) (6,610)
Transaction Charges (4,155) (3,152) (1,055) (2,493)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (15,179) (11,510) (3,852) (9,103)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 31,978 30,788 3,390 7,762
Net Change in Unrealized Gains (Losses) 37,736 32,216 20,788 58,057
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 69,714 63,004 24,178 65,819
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 54,535 51,494 20,326 56,716
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 6,973 10,886 1,134 0
Transfers of Policy Loading, Net (9,434) (8,167) (1,588) (3,083)
Transfers Due to Deaths 0 (41,368) 0 0
Transfers Due to Other Terminations (46,021) (16,217) 5 61
Transfers Due to Policy Loans 0 (8,043) (8,561) (3,284)
Transfers of Cost of Insurance (14,275) (10,985) (3,965) (8,029)
Transfers of Loan Processing Charges (830) (315) (438) (110)
Transfers Among Investment Divisions (36,492) 12,309 15,559 (2,238)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (100,079) (61,900) 2,146 (16,683)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Net Assets Beginning Balance (45,544) (10,406) 22,472 40,033
1,222,269 936,029 298,247 711,189
Net Assets Ending Balance --------------------- --------------------- --------------------- ---------------------
$ 1,176,725 $ 925,623 $ 320,719 $ 751,222
===================== ===================== ===================== =====================
</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, 1998
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
2003 2004 2005 2006
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (3,169) (11,146) (6,986) (2,956)
Transaction Charges (1,194) (4,203) (2,634) (1,118)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (4,363) (15,349) (9,620) (4,074)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 36,875 82,668 27,351 7,005
Net Change in Unrealized Gains (Losses) 3,077 53,907 64,056 34,865
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 39,952 136,575 91,407 41,870
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 35,589 121,226 81,787 37,796
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 6,690 15,109 16,282 39,242
Transfers of Policy Loading, Net (12,446) (9,249) (6,280) (90)
Transfers Due to Deaths (94,266) 0 (44,153) 0
Transfers Due to Other Terminations (590) (97,003) 176 40
Transfers Due to Policy Loans (3,337) (9,730) 0 0
Transfers of Cost of Insurance (4,870) (13,052) (9,023) (2,284)
Transfers of Loan Processing Charges (1,023) (509) (28) (17)
Transfers Among Investment Divisions 25,606 (11,873) 3,618 49,273
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (84,236) (126,307) (39,408) 86,164
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (48,647) (5,081) 42,379 123,960
Net Assets Beginning Balance 351,245 1,253,270 763,251 297,331
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 302,598 $ 1,248,189 $ 805,630 $ 421,291
===================== ===================== ===================== =====================
</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, 1998
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
2007 2008 2009 2010
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (1,864) (4,472) (774) (6,108)
Transaction Charges (704) (1,689) (292) (2,310)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (2,568) (6,161) (1,066) (8,418)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 3,665 4,208 6,806 107,549
Net Change in Unrealized Gains (Losses) 23,688 67,650 6,024 (5,222)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 27,353 71,858 12,830 102,327
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 24,785 65,697 11,764 93,909
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 20,803 47,517 13,806 7,454
Transfers of Policy Loading, Net (468) (200) 0 456
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (18) (28) (3) (77)
Transfers Due to Policy Loans 0 0 0 457
Transfers of Cost of Insurance (1,987) (5,032) (1,585) (6,557)
Transfers of Loan Processing Charges (9) (418) (3) (135)
Transfers Among Investment Divisions 26,618 46,745 (6,614) 126,478
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 44,939 88,584 5,601 128,076
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 69,724 154,281 17,365 221,985
Net Assets Beginning Balance 181,369 419,161 81,351 541,624
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 251,093 $ 573,442 $ 98,716 $ 763,609
===================== ===================== ===================== =====================
</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, 1998
<TABLE>
<CAPTION>
Divisions Investing In
------------------------------------------------------------------
2011 2013 2014
Trust Trust Trust
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ $ 0
Mortality and Expense Charges (1,662) (2,391) (41,486)
Transaction Charges (628) (905) (15,664)
--------------------- --------------------- ---------------------
Net Investment Income (Loss) (2,290) (3,296) (57,150)
--------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 2,460 1,919 188,457
Net Change in Unrealized Gains (Losses) 24,821 35,201 443,767
--------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 27,281 37,120 632,224
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 24,991 33,824 575,074
--------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,561 58,559 157,493
Transfers of Policy Loading, Net (925) 8,492 (6,749)
Transfers Due to Deaths 0 0 0
Transfers Due to Other Terminations (85) (119) (42,520)
Transfers Due to Policy Loans 0 0 (96,450)
Transfers of Cost of Insurance (2,399) (2,072) (60,927)
Transfers of Loan Processing Charges (8) (53) (1,197)
Transfers Among Investment Divisions 41,671 58,079 774,434
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 40,815 122,886 724,084
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 65,806 156,710 1,299,158
Net Assets Beginning Balance 169,440 202,538 3,710,473
--------------------- --------------------- ---------------------
Net Assets Ending Balance $ 235,246 $ 359,248 $ 5,009,631
===================== ===================== =====================
</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
-----------------------------------------------------------------
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)
on Investments:
Net Realized Gains (Losses) 2,063,224 0 28,903 (129,911)
Net Change in Unrealized Gains (Losses) 18,236,659 0 202,623 399,513
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 177,958 519,115 (43,217) 66,054
Net Change in Unrealized Gains (Losses) 4,630,014 6,064,599 2,796,441 (5,499)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 111,013 196,560 49,619 49,962
Net Change in Unrealized Gains (Losses) (413,042) 1,050,704 545,849 269,176
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (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)
on Investments:
Net Realized Gains (Losses) 193,102 (8,217) 319,132 87,634
Net Change in Unrealized Gains (Losses) (1,033,706) (32,725) 2,665,523 (718,388)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (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)
on Investments:
Net Realized Gains (Losses) 25,948 4,833 17,322 31,933
Net Change in Unrealized Gains (Losses) 139,551 294,968 195,126 64,983
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 14,825 7,233 18,270 32,599
Net Change in Unrealized Gains (Losses) 67,120 (73,720) (49,949) (30,951)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 5,521 9,645 14,192 3,810
Net Change in Unrealized Gains (Losses) 49,493 61,471 45,718 14,238
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 6,813 5,427 38,160 10,438
Net Change in Unrealized Gains (Losses) 48,467 22,626 73,112 69,622
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 1,717 801 3,163 9,593
Net Change in Unrealized Gains (Losses) 27,825 19,338 47,651 (248)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 85,341 73,982 479 23,472
Net Change in Unrealized Gains (Losses) (3,039) 49,240 31,648 651,287
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) (45,179) 0 18,190 (69,537)
Net Change in Unrealized Gains (Losses) 8,986,838 0 (494,507) (262,935)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) (192,580) 76,061 (205,247) (38,619)
Net Change in Unrealized Gains (Losses) 677,575 2,799,507 511,360 263,711
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 88,450 51,512 16,557 6,978
Net Change in Unrealized Gains (Losses) 143,526 2,581,792 341,710 68,172
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 1,353 347 54,169 (2,241)
Net Change in Unrealized Gains (Losses) 266,897 7,902 1,807,802 (796)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) (20,703) (914) 10,567 1,373
Net Change in Unrealized Gains (Losses) 250,904 38,506 (9,400) 14,566
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 6,017 5,854 12,442 700
Net Change in Unrealized Gains (Losses) 37,385 37,303 12,222 4,215
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 3,431 936 17,968 48,027
Net Change in Unrealized Gains (Losses) 10,227 4,471 (10,934) (65,787)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 655 202 2,072 542
Net Change in Unrealized Gains (Losses) 3,403 (764) (4,484) (1,142)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) (1,501) 3,521 2,269 55,970
Net Change in Unrealized Gains (Losses) 5,242 (124,824) (1,550) 75,563
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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>
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, 1998
and 1997, 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, 1998. 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, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles.
February 22, 1999
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------- ------------- -------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1998 - $2,504,599; 1997 - $2,927,562) $ 2,543,097 $ 3,008,608
Equity securities, at estimated fair value
(cost: 1998 - $162,710; 1997 - $72,599) 158,591 73,612
Trading account securities, at estimated fair value 17,280 15,625
Real estate held-for-sale 25,960 31,805
Policy loans on insurance contracts 1,139,456 1,118,139
------------- -------------
Total Investments 3,884,384 4,247,789
CASH AND CASH EQUIVALENTS 95,377 86,388
ACCRUED INVESTMENT INCOME 73,459 78,224
DEFERRED POLICY ACQUISITION COSTS 405,640 365,105
FEDERAL INCOME TAXES - DEFERRED 9,403 -
REINSURANCE RECEIVABLES 2,893 1,617
AFFILIATED RECEIVABLES - NET - 166
RECEIVABLES FROM SECURITIES SOLD 14,938 75,820
OTHER ASSETS 46,512 49,353
SEPARATE ACCOUNTS ASSETS 10,571,489 9,149,119
------------- -------------
TOTAL ASSETS $ 15,104,095 $ 14,053,581
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
- ------------------------------------ ------------- -------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,816,744 $ 4,188,110
Claims and claims settlement expenses 63,925 50,574
------------- -------------
Total policy liabilities and accruals 3,880,669 4,238,684
OTHER POLICYHOLDER FUNDS 20,802 27,160
LIABILITY FOR GUARANTY FUND ASSESSMENTS 13,864 15,374
FEDERAL INCOME TAXES - DEFERRED - 1,183
FEDERAL INCOME TAXES - CURRENT 15,840 24,438
AFFILIATED PAYABLES - NET 822 -
PAYABLES FOR SECURITIES PURCHASED 10,541 95,135
UNEARNED POLICY CHARGE REVENUE 55,235 32,102
OTHER LIABILITIES 24,273 22,332
SEPARATE ACCOUNTS LIABILITIES 10,559,459 9,149,119
------------- -------------
Total Liabilities 14,581,505 13,605,527
------------- -------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 347,324 347,324
Retained earnings 173,496 80,735
Accumulated other comprehensive income (loss) (230) 17,995
------------- -------------
Total Stockholder's Equity 522,590 448,054
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 15,104,095 $ 14,053,581
============= =============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 272,038 $ 308,702 $ 336,661
Net realized investment gains 12,460 13,289 8,862
Policy charge revenue 197,662 178,933 158,829
------------ ------------ ------------
Total Revenues 482,160 500,924 504,352
------------ ------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 195,676 209,542 235,255
Market value adjustment expense 5,528 4,079 6,071
Policy benefits (net of reinsurance recoveries: 1998 - $9,761;
1997 - $10,439; 1996 - $8,317) 31,891 27,029 21,052
Reinsurance premium ceded 19,972 17,879 15,582
Amortization of deferred policy acquisition costs 44,835 72,111 62,036
Insurance expenses and taxes 51,735 49,105 47,077
------------ ------------ ------------
Total Benefits and Expenses 349,637 379,745 387,073
------------ ------------ ------------
Earnings Before Federal Income Tax Provision 132,523 121,179 117,279
------------ ------------ ------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 40,535 52,705 22,814
Deferred (773) (12,261) 15,078
------------ ------------ ------------
Total Federal Income Tax Provision 39,762 40,444 37,892
------------ ------------ ------------
NET EARNINGS $ 92,761 $ 80,735 $ 79,387
============ ============ ============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET EARNINGS $ 92,761 $ 80,735 $ 79,387
------------ ------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period (31,718) 22,347 (79,749)
Reclassification adjustment for gains included in net earnings (15,932) (12,390) (8,622)
------------ ------------ ------------
Net unrealized gains (losses) on investment securities (47,650) 9,957 (88,371)
Adjustments for:
Policyholder liabilities 14,483 10,094 58,415
Deferred policy acquisition costs 5,129 (822) 12,411
Income tax (expense) benefit related to items of
other comprehensive income 9,813 (6,730) 6,141
------------ ------------ ------------
Other comprehensive income (loss), net of tax (18,225) 12,499 (11,404)
------------ ------------ ------------
COMPREHENSIVE INCOME $ 74,536 $ 93,234 $ 67,983
============ ============ ============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholder's
Stock Capital Earnings Income (loss) Equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 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 loss, net of tax (11,404) (11,404)
----------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1996 2,000 402,937 79,387 5,496 498,820
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
Net earnings 92,761 92,761
Other comprehensive loss, net of tax (18,225) (18,225)
----------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1998 $ 2,000 $ 347,324 $ 173,496 $ (230) $ 522,590
=========== =========== =========== ============ =============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 92,761 $ 80,735 $ 79,387
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 44,835 72,111 62,036
Capitalization of policy acquisition costs (80,241) (71,577) (43,668)
Amortization (accretion) of investments (5,350) (4,672) (4,836)
Net realized investment gains (12,460) (13,289) (8,862)
Interest credited to policyholders' account balances 195,676 209,542 235,255
Provision (benefit) for deferred Federal income tax (773) (12,261) 15,078
Changes in operating assets and liabilities:
Accrued investment income 4,765 7,962 5,756
Claims and claims settlement expenses 13,351 10,908 9,854
Federal income taxes - current (8,598) 3,470 13,935
Other policyholder funds (6,358) 7,740 5,813
Liability for guaranty fund assessments (1,510) (3,399) (2,371)
Affiliated receivables/payables 988 (6,330) 3,735
Policy loans on insurance contracts (21,317) (26,068) (52,804)
Trading account securities (287) (14,928) -
Unearned policy charge revenue 23,133 11,269 7,801
Other, net 3,506 452 (10,194)
Net cash and cash equivalents provided ----------- ----------- -----------
by operating activities 242,121 251,665 315,915
----------- ----------- -----------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 893,619 846,041 847,091
Maturities of available-for-sale securities 451,759 595,745 536,449
Purchases of available-for-sale securities (1,028,086) (1,156,222) (956,840)
Mortgage loans principal payments received - 68,864 22,789
Purchases of mortgage loans - (5,375) -
Sales of real estate held-for-sale 14,135 6,060 5,407
Recapture of investment in Separate Accounts - 11,026 8,829
Investment in Separate Accounts (12,000) (21) (10,063)
Net cash and cash equivalents provided ----------- ----------- -----------
by investing activities 319,427 366,118 453,662
----------- ----------- -----------
</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, 1998, 1997 AND 1996
(Continued) (Dollars In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ - $ (135,000) $ (175,000)
Policyholders' account balances:
Deposits 1,042,509 1,101,934 542,062
Withdrawals (including transfers to/from Separate Accounts) (1,595,068) (1,593,320) (1,090,572)
Net cash and cash equivalents used ------------ ------------ ------------
by financing activities (552,559) (626,386) (723,510)
============ ============ ============
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,989 (8,603) 46,067
CASH AND CASH EQUIVALENTS
Beginning of year 86,388 94,991 48,924
------------ ------------ ------------
End of year $ 95,377 $ 86,388 $ 94,991
============ ============ ============
Supplementary Disclosure of Cash Flow Information
Cash paid to affiliates for:
Federal income taxes $ 49,133 $ 49,235 $ 8,880
Interest 860 842 988
</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
Description of Business: 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 primarily 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.
Basis of Reporting: 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.
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.
To facilitate comparisons with the current year, certain
amounts in the prior years have been reclassified.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for mortality
risk and the cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
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 as a component of accumulated other
comprehensive income (loss), net of tax. Unrealized gains and
losses on trading account securities are included in net
realized investment gains (losses). 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.
All outstanding mortgage loans were repaid during 1997. The
Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may have been
different from the accrual interest rate of the loan for
certain 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 (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.
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.
<PAGE>
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 7.5%. 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:
1998 1997 1996
----------- ----------- -----------
Beginning balance $ 102,252 $ 112,249 $ 124,833
Capitalized amounts 6,085 5,077 5,077
Interest accrued 7,669 9,653 10,669
Amortization (14,213) (24,727) (28,330)
----------- ----------- -----------
Ending balance $ 101,793 $ 102,252 $ 112,249
=========== =========== ===========
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.
1999 $ 7,045
2000 $ 6,110
2001 $ 5,670
2002 $ 5,400
2003 $ 5,386
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. At December 31, 1998, the
$12,030 excess of Separate Accounts Assets over Separate
Accounts liabilities represents the Company's temporary
investment in certain investment divisions that were made to
facilitate the establishment of those investment divisions.
Net investment income and net realized and unrealized gains
(losses) attributable to Separate Accounts assets accrue
directly to the policyholder and are not reported as revenue in
the Company's Statement of Earnings.
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.
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:
<PAGE>
Interest-sensitive life products 4.00% - 5.70%
Interest-sensitive deferred annuities 3.40% - 8.69%
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.
Claims and Claims Settlement Expenses: For life insurance
products, the liability equals the death benefit for claims
that have been reported to the Company and an estimate based
upon prior experience for unreported claims. For annuity
products, the liability equals the guaranteed minimum death
benefit reserve.
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.
Unearned Policy Charge Revenue: Certain variable life insurance
products contain policy charges that are assessed at policy
issuance. These policy charges are deferred and amortized into
policy charge revenue based on the estimated future gross
profits for each group of contracts. The Company records a
liability equal to the unamortized balance of these policy
charges.
Accounting Pronouncements: During 1998, the Company adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This pronouncement requires a Company to
present disaggregated information based on the internal
segments used in managing its business. Adoption did not impact
the Company's financial position or results of operations, but
it did affect the presentation of the Company's disclosures
(See Note 9).
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and for Hedging Activities". This
pronouncement will be effective for annual periods beginning
after June 15, 1999. Adoption of this pronouncement is not
expected to have a material impact on the Company's financial
position or results of operations.
<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:
1998 1997
------------ -------------
Assets:
Fixed maturity securities (1) $ 2,543,097 $ 3,008,608
Equity securities (1), (2) 158,591 73,612
Trading account securities (1) 17,280 15,625
Policy loans on insurance contracts (3) 1,139,456 1,118,139
Cash and cash equivalents (4) 95,377 86,388
Separate Accounts assets (5) 10,571,489 9,149,119
------------- -------------
Total financial instruments $ 14,525,290 $ 13,451,491
============= =============
(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, 1998 and 1997, securities without a
readily ascertainable market value, having an amortized cost of
$376,993 and $389,728, had an estimated fair value of $375,470
and $396,253, respectively.
(2) The Company has investments in two limited partnerships that
do not have readily ascertainable market values. Management has
estimated the fair value as equal to cost based on the review of
the underlying investments of the partnerships. At December 31,
1998 and 1997, the Company's limited partnership investments were
$11,569 and $4,744, respectively.
(3) 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.
(4) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(5) 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>
1998
-----------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 2,079,867 $ 56,703 $ 29,078 $ 2,107,492
Mortgage-backed securities 229,197 7,908 43 237,062
U.S. Government and agencies 150,500 6,393 1,328 155,565
Foreign governments 21,157 35 2,996 18,196
Municipals 23,878 905 1 24,782
------------ ------------ ------------ ------------
Total fixed maturity securities $ 2,504,599 $ 71,944 $ 33,446 $ 2,543,097
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 151,130 $ 699 $ 4,823 $ 147,006
Limited partnerships 11,569 - - 11,569
Common stocks 11 5 - 16
------------ ------------ ------------ ------------
Total equity securities $ 162,710 $ 704 $ 4,823 $ 158,591
============ ============ ============ ============
</TABLE>
<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
Limited partnerships 4,744 - - 4,744
Common stocks 10 11 - 21
------------ ------------ ------------ ------------
Total equity securities $ 72,599 $ 1,198 $ 185 $ 73,612
============ ============ ============ ============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
------------ ------------
Fixed maturity securities:
Due in one year or less $ 383,825 $ 383,628
Due after one year through five years 926,665 950,938
Due after five years through ten years 599,278 610,339
Due after ten years 365,634 361,130
------------ ------------
2,275,402 2,306,035
Mortgage-backed securities 229,197 237,062
------------ ------------
Total fixed maturity securities $ 2,504,599 $ 2,543,097
============ ============
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, 1998 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
------------ ------------
AAA $ 479,923 $ 495,661
AA 146,703 148,169
A 756,880 773,977
BBB 992,041 1,005,835
Non-investment grade 129,052 119,455
------------ ------------
Total fixed maturity securities $ 2,504,599 $ 2,543,097
============ ============
<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 available-for-sale
investments had actually been realized, with corresponding
credits or charges reported in stockholder's equity as a
component of accumulated other comprehensive income (loss), net
of taxes. The following reconciles net unrealized investment
gains (losses) on available-for-sale investments at December 31:
1998 1997
------------ ------------
Assets:
Fixed maturity securities $ 38,498 $ 81,046
Equity securities (4,119) 1,013
Deferred policy acquisition costs (323) (5,452)
Federal income taxes - deferred 124 -
Separate Accounts assets 30 -
------------ ------------
34,210 76,607
------------ ------------
Liabilities:
Policyholders' account balances 34,440 48,923
Federal income taxes - deferred - 9,689
------------ ------------
34,440 58,612
------------ ------------
Stockholder's equity:
Accumulated other comprehensive income (loss) $ (230) $ 17,995
============ ============
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 included in net
realized investment gains were $932 and $520 at December 31,
1998 and 1997, respectively.
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1998 1997 1996
---------- ---------- ----------
Proceeds $ 893,619 $ 846,041 $ 847,091
Gross realized investment gains 20,232 16,783 19,078
Gross realized investment losses 17,429 7,193 10,749
<PAGE>
The Company had investment securities with a carrying value of
$27,189 and $26,508 that were deposited with insurance
regulatory authorities at December 31, 1998 and 1997,
respectively.
At December 31, 1998, the Company's $12,030 investment in
Separate Account assets included $30 of unrealized gains.
During 1997, the Company realized a $1,005 gain on the sale of
its investment in the Separate Accounts.
All outstanding mortgage loans were repaid during 1997.
Information on impaired loans for the years ended December 31
follows:
1997 1996
----------- -----------
Average investment in impaired loans $ 30,945 $ 79,668
Interest income recognized (cash basis) 2,830 4,848
For the years ended December 31, 1997 and 1996, $7,891 and
$28,555, respectively, of real estate held-for-sale was
acquired in satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31:
1998 1997 1996
------------ ----------- -----------
Fixed maturity securities $ 202,313 $ 236,325 $ 266,916
Equity securities 9,234 3,020 1,876
Mortgage loans - 4,627 9,764
Real estate held-for-sale 2,264 1,939 563
Policy loans on insurance contracts 59,236 57,998 56,512
Cash and cash equivalents 3,912 9,570 6,710
Other 761 709 899
------------ ----------- -----------
Gross investment income 277,720 314,188 343,240
Less investment expenses (5,682) (5,486) (6,579)
------------ ----------- -----------
Net investment income $ 272,038 $ 308,702 $ 336,661
============ =========== ===========
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
1998 1997 1996
------------ ----------- -----------
Fixed maturity securities $ 2,617 $ 6,149 $ 4,690
Equity securities 186 3,441 3,639
Trading account securities 1,368 697 -
Investment in Separate Accounts - 1,005 106
Mortgage loans - 6,252 599
Real estate held-for-sale 8,290 (4,252) (171)
Cash and cash equivalents (1) (3) (1)
------------ ----------- -----------
Net realized investment gains $ 12,460 $ 13,289 $ 8,862
============ =========== ===========
<PAGE>
The following is a reconciliation of the change in valuation
allowances that were recorded to reflect other-than-temporary
declines in the estimated fair value of mortgage loans for the
years ended December 31, 1997 and 1996.
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
----------- ----------- ----------- -----------
1997 $ 17,652 $ - $ 17,652 $ -
1996 35,881 - 18,229 17,652
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>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Provision for income taxes computed at
Federal statutory rate $ 46,383 $ 42,413 $ 41,048
Decrease in income taxes resulting from:
Dividend received deduction (3,664) (1,969) (3,135)
Foreign tax credit (2,957) - -
Other - - (21)
------------ ------------ ------------
Federal income tax provision $ 39,762 $ 40,444 $ 37,892
============ ============ ============
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1998 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>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 11,062 $ (2,422) $ (5,770)
Policyholders' account balances (10,950) (16,099) 15,004
Liability for guaranty fund assessments 529 1,190 760
Investment adjustments (1,350) 5,070 5,122
Other (64) - (38)
------------ ------------ ------------
Deferred Federal income tax
provision (benefit) $ (773) $ (12,261) $ 15,078
============ ============ ============
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 106,132 $ 95,182
Investment adjustments 1,951 601
Liability for guaranty fund assessments 4,852 5,381
Net unrealized investment loss on investment securities 124 -
------------ ------------
Total deferred tax assets 113,059 101,164
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs 99,732 88,670
Net unrealized investment gain on investment securities - 9,689
Other 3,924 3,988
------------ ------------
Total deferred tax liabilities 103,656 102,347
------------ ------------
Net deferred tax (asset) liability $ (9,403) $ 1,183
============ ============
</TABLE>
The Company anticipates that all deferred tax assets will be
realized; therefore no valuation allowance has been provided.
NOTE 5. 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 $750 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 $589 that can be drawn upon for
delinquent reinsurance recoverables.
<PAGE>
As of December 31, 1998, the Company had the following life
insurance in-force:
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance
in force $13,124,108 $ 3,259,006 $ 1,771 $ 9,866,872 0%
</TABLE>
The Company has 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.
NOTE 6. 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 $43,179, $43,028 and $43,515 for the years
ended December 31, 1998, 1997 and 1996, respectively. The
Company is allocated interest expense on its accounts payable
to MLIG that approximates the daily Federal funds rate. Total
intercompany interest paid was $860, $842 and $988 for 1998,
1997 and 1996, 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
$1,915, $1,913 and $2,279 for 1998, 1997 and 1996,
respectively.
MLIG has entered into agreements with MLAM and Hotchkis & Wiley
("H&W"), a division of MLAM, with respect to administrative
services for the Merrill Lynch Series Fund, Inc., Merrill Lynch
Variable Series Funds, Inc., and Hotchkis & Wiley Variable
Trust (collectively, "the Funds"). The Company invests in the
various mutual fund portfolios of the Funds in connection with
the variable life insurance and annuity contracts the Company
has in-force. Under this agreement, MLAM and H&W pay
compensation to MLIG in an amount equal to a portion of the
annual gross investment advisory fees paid by the Funds to MLAM
and H&W. The Company received from MLIG its allocable share of
such compensation in the amount of $20,289, $19,057 and $16,514
during 1998, 1997 and 1996, respectively.
<PAGE>
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 $79,117, $72,729 and $42,639 for
1998, 1997 and 1996, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisitions
costs and are being amortized in accordance with the policy
discussed in Note 1.
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 7. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
The Company paid no dividends in 1998. During 1997 and 1996,
the Company paid dividends of $135,000 and $175,000,
respectively, to MLIG. Of these stockholders' dividends,
$110,030 and $175,000 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, 1998 and 1997, approximately $29,707 and
$24,304, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1998 and 1997, were $299,069 and $245,042,
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 1998, 1997 and 1996 was
$55,813, $81,963 and $93,532, 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 that
a life insurance company should have based upon that company's
risk profile. As of December 31, 1998 and 1997, based on the
RBC formula, the Company's total adjusted capital level was
473% and 394%, respectively, of the minimum amount of capital
required to avoid regulatory action.
<PAGE>
In March 1998, the NAIC adopted the Codification of Statutory
Accounting Principles ("Codification"). The Codification,
which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be
effective January 1, 2001. However, statutory accounting
principles will continue to be established by individual state
laws and permitted practices and it is uncertain when, or if,
the state of Arkansas will require adoption of Codification for
the preparation of statutory financial statements.
Codification is not expected to have a material impact on the
Company's capital requirements or statutory financial
statements.
NOTE 8. 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). The Company has utilized public information to
estimate what future assessments it will incur as a result of
insolvencies. At December 31, 1998 and 1997, the Company has
established an estimated liability for future guaranty fund
assessments of $13,864 and $15,374, 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.
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1998, $6,569 has been advanced towards the
Company's $10,000 commitment to the limited partnership.
NOTE 9. SEGMENT INFORMATION
In reporting to management, the Company's operating results are
categorized into two business segments: Life Insurance and
Annuities. The Company's Life Insurance segment consists of
variable life insurance products and interest-sensitive life
products. The Company's Annuity segment consists of variable
annuities and interest sensitive annuities
<PAGE>
The Company's organization is structured in accordance with its
two business segments. Each segment has its own administrative
service center that provides product support to the Company and
customer service support to the Company's policyholders.
Additionally, marketing and sales management functions, within
MLIG, are organized according to these two business segments.
The accounting policies of the business segments are the same
as those described in the summary of significant accounting
policies. All revenue and expense transactions are recorded at
the product level and accumulated at the business segment level
for review by management.
The "Other" category, presented in the following segment
financial information, represents assets and related earnings
that do not support policyholder liabilities.
The following table summarizes each business segment's
contribution to the consolidated amounts:
<TABLE>
<CAPTION>
Life
1998 Insurance Annuities Other Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 35,228 $ 32,765 $ 8,369 $ 76,362
Other revenues 84,836 124,864 422 210,122
------------ ------------ ------------ ------------
Net revenues 120,064 157,629 8,791 286,484
------------ ------------ ------------ ------------
Policy benefits 18,397 13,494 - 31,891
Reinsurance premiums ceded 19,972 - - 19,972
DAC amortization 13,040 31,795 - 44,835
Other non-interest expenses 18,030 39,233 - 57,263
------------ ------------ ------------ ------------
Total non-interest expenses 69,439 84,522 - 153,961
------------ ------------ ------------ ------------
Net earnings before Federal income
tax provision 50,625 73,107 8,791 132,523
Income tax expense 16,033 20,653 3,076 39,762
------------ ------------ ------------ ------------
Net earnings $ 34,592 $ 52,454 $ 5,715 $ 92,761
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 6,069,649 $ 8,885,981 $ 148,465 $15,104,095
Deferred policy acquisition costs $ 207,713 $ 197,927 $ - $ 405,640
Policy liabilities and accruals $ 2,186,001 $ 1,694,668 $ - $ 3,880,669
Other policyholder funds $ 16,033 $ - $ 4,769 $ 20,802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
1997 Insurance Annuities Other Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 38,826 $ 47,973 $ 12,361 $ 99,160
Other revenues 86,301 102,782 3,139 192,222
------------ ------------ ------------ ------------
Net revenues 125,127 150,755 15,500 291,382
------------ ------------ ------------ ------------
Policy benefits 15,876 11,153 - 27,029
Reinsurance premiums ceded 17,879 - - 17,879
DAC amortization 36,180 35,931 - 72,111
Other non-interest expenses 16,545 36,639 - 53,184
------------ ------------ ------------ ------------
Total non-interest expenses 86,480 83,723 - 170,203
------------ ------------ ------------ ------------
Net earnings before Federal
income tax provision 38,647 67,032 15,500 121,179
Income tax expense 12,753 22,265 5,426 40,444
------------ ------------ ------------ ------------
Net earnings $ 25,894 $ 44,767 $ 10,074 $ 80,735
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 5,925,872 $ 7,998,461 $ 129,248 $14,053,581
Deferred policy acquisition costs $ 182,610 $ 182,495 $ - $ 365,105
Policy liabilities $ 2,229,533 $ 2,009,151 $ - $ 4,238,684
Other policyholder funds $ 18,788 $ - $ 8,372 $ 27,160
</TABLE>
<TABLE>
<CAPTION>
Life
1996 Insurance Annuities Other Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 40,805 $ 44,994 $ 15,607 $ 101,406
Other revenues 78,759 86,430 2,502 167,691
------------ ------------ ------------ ------------
Net revenues 119,564 131,424 18,109 269,097
------------ ------------ ------------ ------------
Policy benefits 12,150 8,902 - 21,052
Reinsurance premiums ceded 15,582 - - 15,582
DAC amortization 30,988 31,048 - 62,036
Other non-interest expenses 18,169 34,979 - 53,148
------------ ------------ ------------ ------------
Total non-interest expenses 76,889 74,929 - 151,818
------------ ------------ ------------ ------------
Net earnings before Federal
income tax provision 42,675 56,495 18,109 117,279
Income tax expense 13,895 17,658 6,339 37,892
------------ ------------ ------------ ------------
Net earnings $ 28,780 $ 38,837 $ 11,770 $ 79,387
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 5,623,370 $ 6,957,228 $ 156,895 $12,737,493
Deferred policy acquisition costs $ 194,979 $ 171,482 $ - $ 366,461
Policy liabilities and accruals $ 2,638,177 $ 1,881,537 $ - $ 4,519,714
Other policyholder funds $ 16,256 $ - $ 3,164 $ 19,420
</TABLE>
<PAGE>
(a) Management considers investment income net of interest
credited to policyholders' account balances in evaluating
results.
The table below summarizes the Company's net revenues by
product for 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Life Insurance
Variable life insurance $ 91,806 $ 92,245 $ 89,897
Interest-sensitive life insurance 28,258 32,882 29,667
------------ ------------ ------------
Total Life Insurance 120,064 125,127 119,564
------------ ------------ ------------
Annuities
Variable annuities 105,545 88,509 70,116
Interest-sensitive annuities 52,084 62,246 61,308
------------ ------------ ------------
Total Annuities 157,629 150,755 131,424
------------ ------------ ------------
Other 8,791 15,500 18,109
------------ ------------ ------------
Total $ 286,484 $ 291,382 $ 269,097
============ ============ ============
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
The Insurance Company's By-Laws provide, in Article VI, Section 1, 2, 3 and
4, as follows:
SECTION 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer or employee of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgement in its favor by reason of the fact
that he is or was a director, officer or employee of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the Court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other Court shall deem proper.
SECTION 3. RIGHT TO INDEMNIFICATION. To the extent that a director,
officer of employee of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2 of this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith.
SECTION 4. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any indemnification
under Sections 1 and 2 of this Article (unless ordered by a Court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, or employee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 and 2 of this Article. Such determination shall be made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
1
<PAGE>
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
Any persons serving as an officer, director or trustee of a corporation,
trust, or other enterprise, including the Registrant, at the request of Merrill
Lynch are entitled to indemnification from Merrill Lynch, to the fullest extent
authorized or permitted by law, for liabilities with respect to actions taken or
omitted by such persons in any capacity in which such persons serve Merrill
Lynch or such other corporation, trust, or other enterprise. Any action
initiated by any such person for which indemnification is provided shall be
approved by the Board of Directors of Merrill Lynch prior to such initiation.
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.
2
<PAGE>
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
OFFICERS AND DIRECTORS
AS OF DECEMBER 3, 1998
DIRECTORS
Herbert M. Allison, Jr.
George A. Schieren
John L. Steffens
OFFICERS
<TABLE>
<S> <C>
Herbert M. Allison, Jr. ............. President and Chief Executive
Officer
John L. Steffens..................... Vice Chairman of the Board
George A. Schieren................... General Counsel
Theresa Lang......................... Treasurer
Andrea L. Dulberg Secretary
</TABLE>
EXECUTIVE VICE PRESIDENTS
<TABLE>
<S> <C>
Thomas W. Davis E. Stanley O'Neal
Barry S. Friedberg Thomas H. Patrick
Edward L. Goldberg Winthrop H. Smith,
Jerome P. Kenney Jr.
Roger M. Vasey
</TABLE>
SENIOR VICE PRESIDENTS
<TABLE>
<S> <C> <C>
Harry P. Allex Michael J.P. Marks Edward E. Sheridan
Rosemary T. Berkery G. Kelly Martin Robert D. Sherman
Daniel H. Bayly Andrew J. Melnick James F. Shoaf
Michael J. Robert J. McCann Howard P. Sorgen
Castellano Athanassios N. G. Stephen Thoma
Peter Clarke Michas Arthur L. Thomas
Michael R. Cowan Joseph H. Moglia J. Arthur Urciuoli
Richard A. Dunn Carlos M. Morales Anthony J. Vespa
Richard M. Fuscone Hisashi Moriya Conrad P. Volstad
Donald N. Gershuny Thomas O. Muller III Kevan V. Watts
J. Michael Giles Daniel T. Napoli Seth H. Waugh
Mark B. Goldfus John Qua Madeline A. Weinstein
Allen N. Jones Christopher R. Joseph T. Willet
John G. Heimann Reeves Robert W. Williamson
Theresa Lang George A. Schieren
Howard A. Shallcross
</TABLE>
3
<PAGE>
FIRST VICE PRESIDENTS
<TABLE>
<S> <C>
Robert E. Aherne Clarence O. Peterson,
Charles P. Borkowski, III
Jr. Lawrence W. Roberts
Matthias B. Bowman Eric M. Rosenberg
John R. Cummings Stanley Schaefer
Richard M. Drew Barry G. Skolnick
Alan R. Eckert Thomas W. Smith
Harry J. Ferguson Arthur H. Sobel
Richard K. Gordon Kenneth S. Spirer
Brian C. Henderson John B. Sprung
Michael Koeneke Paul A. Stein
Jack Levy Nathan C. Thorne
Frank M. Macioce, Jr. Edward J. Toohey
Donald N. Malawsky James R. Vallone
Barry J. Mandel O. Ray Vass
Orestes J. Mihaly Frank T. Vayda
G. Peter O'Brien David N. Webb
</TABLE>
<TABLE>
<S> <C>
VICE PRESIDENTS ASSISTANT VICE
PRESIDENTS
Leonard E. Accardo Gregory R. Krolikowski
Rudley B. Anthony Edward A. Mallaney
Joseph A. Boccuzzi ASSISTANT SECRETARIES
Robert G. Dieckmann Darryl W. Colletti
Freddy Enriquez Lawrence M. Egan, Jr.
Edward J. Gallagher, Andrea Lowenthal
Jr. Margaret E. Nelson
Scott C. Harrison
Peter C. Lee
Richard D. Lilleston
Daniel R. Mayo
Avadhesh K. Nigam
David D. Northrop
George A. Ruth
John M. Sabatino
Michael S. Schreier
John P. Smith
Robert H. Werthman
</TABLE>
4
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 100 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>
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)
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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)
(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)
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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)
(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)
(j) Form of Participation Agreement among Merrill Lynch Life Insurance
Company, Hotchkis and Wiley Variable Trust, and Hotchkis and Wiley
(Incorporated by reference to Merrill Lynch Life Variable Annuity
Separate Account A's Post-Effective Amendment No. 12 to Form N-4
Registration No. 33-43773 Filed May 1, 1998)
(k) Form of Participation Agreement between Merrill Lynch Life Insurance
Company and Mercury Asset Management V.I. Funds, Inc. (Incorporated by
reference to Merrill Lynch Life Variable Annuity Separate Account A's
Post-Effective Amendment No. 15 to Form N-4 Registration No. 33-43773
Filed April 14, 1999)
(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)
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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
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)
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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>
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Merrill Lynch Variable Life Separate Account, hereby certifies that this
Post-Effective Amendment No. 9 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. 9 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 13th day of April 1999.
Merrill Lynch Variable Life Separate Account
(Registrant)
By: Merrill Lynch Life Insurance Company
(Depositor)
<TABLE>
<S> <C> <C> <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. 9 to the Registration Statement has been signed
below by the following persons in the capacities indicated on April 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
* Chairman of the Board,
- ------------------------------ President, and Chief
Anthony J. Vespa Executive Officer
Director, Senior Vice
* President, Chief
- ------------------------------ Financial Officer, Chief
Joseph E. Crowne, Jr. Actuary, and Treasurer
* Director, Senior Vice
- ------------------------------ President, and Chief
David M. Dunford Investment Officer
*
- ------------------------------ Director and Senior Vice
Gail R. Farkas President
</TABLE>
<TABLE>
<S> <C> <C>
In his own capacity as
*By: /s/ BARRY G. SKOLNICK Director, Senior Vice
------------------------- President, General
Barry G. Skolnick Counsel, Secretary and
as Attorney-In-Fact
</TABLE>
10
<PAGE>
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>
11
<PAGE>
EXHIBIT 6
[MERRILL LYNCH LIFE INSURANCE COMPANY]
April 13, 1999
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. 9 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.
<TABLE>
<S> <C>
Very truly yours,
/s/ JOSEPH E. CROWNE
---------------------------------------------
Joseph E. Crowne, FSA
Senior Vice President & Chief Financial Officer
</TABLE>
12
<PAGE>
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. 9 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).
<TABLE>
<S> <C>
/s/ BARRY G. SKOLNICK
------------------------------------------------
Barry G. Skolnick, Esq.
Senior Vice President and General Counsel
</TABLE>
April 13, 1999
13
<PAGE>
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. 9 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.
<TABLE>
<S> <C>
/s/ SUTHERLAND ASBILL & BRENNAN LLP
------------------------------------------------
SUTHERLAND ASBILL & BRENNAN LLP
</TABLE>
Washington, D.C.
April 13, 1999
14
<PAGE>
EXHIBIT 8(d)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 9 to Registration
Statement No. 33-41830 of Merrill Lynch Variable Life Separate Account on Form
S-6 of our reports on (i) Merrill Lynch Life Insurance Company dated February
22, 1999, and (ii) Merrill Lynch Variable Life Separate Account dated February
4, 1999, 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 13, 1999
15
