<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1994
REGISTRATION NO. 33-43057
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 4
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 LIFE VARIABLE LIFE SEPARATE ACCOUNT II
(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 AND GENERAL COUNSEL
MERRILL LYNCH LIFE INSURANCE COMPANY
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
------------------------------
COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2404
--------------------
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 486
/ / on (date) pursuant to paragraph (b) of Rule 486
/X/ 60 days after filing pursuant to paragraph (a) of Rule 486
/ / on (date) pursuant to paragraph (a) of Rule 486.
Check box if it is proposed that the filing will become effective on (date) at
(time) pursuant to Rule 487 / /
PURSUANT TO RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT
HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES UNDER THE SECURITIES ACT OF
1933. THE REGISTRANT FILED THE 24F-2 NOTICE FOR THE YEAR ENDED DECEMBER 31, 1993
ON FEBRUARY 28, 1994.
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<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE
SEPARATE ACCOUNT II
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
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<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUSES
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<C> <S>
1 Cover Page
2 Cover Page
3 Distribution Agreement and Other Contractual Arrangements
4 Cover Page
5 The Separate Account
6 The Separate Account; Distribution Agreement and Other
Contractual Agreements
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 Summary of the Policies; Death Benefits; Policy Rights and
Obligations; How Policy Benefits Vary to Reflect the Separate
Account's Investment Results; Voting Rights; Appendix B
11 Summary of the Policies; The Separate Account
12 Cover Page; Summary of the Policies; The Separate Account
13 Summary of the Policies; The Separate Account; Charges and
Expenses; Tax Considerations; Servicing Agent
14 Summary of the Policies
15 Summary of the Policies; Policy Rights and Obligations
16 Summary of the Policies; Policy Rights and Obligations; The
Separate Account
17 Death Benefits; Policy Rights and Obligations
18 The Separate Account
19 Servicing Agent
20 Distribution Agreement and Other Contractual Agreements
21 Summary of the Policies; Policy Rights and Obligations
22 Not Applicable
23 Not Applicable
24 Appendix B
25 Summary of the Policies
26 Not Applicable
27 Summary of the Policies; State Regulation
28 Management
29 Summary of the Policies
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Summary of the Policies
36 Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUSES
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<C> <S>
37 Not Applicable
38 Summary of the Policies; Distribution Agreement and Other
Contractual Arrangements
39 Summary of the Policies; Distribution Agreement and Other
Contractual Arrangements
40 Distribution Agreement and other Contractual Arrangements
41 Summary of the Policies; Servicing Agent
42 Not Applicable
43 Not Applicable
44 Summary of the Policies; Death Benefits; Policy Rights and
Obligations; Charges and Expenses
45 Not Applicable
46 Summary of the Policies; The Separate Account
47 The Separate Account
48 Distribution Agreement and Other Contractual Arrangements
49 Distribution Agreement and Other Contractual Arrangements
50 Not Applicable
51 Cover Page; Summary of the Policies; Death Benefits
52 The Separate Account
53 Tax Considerations
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
</TABLE>
<PAGE>
The prospectus dated January 2, 1991 for the Directed Life Scheduled Premium
Variable Life Insurance Policies issued by Tandem Insurance Group, Inc., as
supplemented by Supplement Dated September 9,1991 and Supplement dated October
1, 1991, all of which are contained in the Registrant's registration statement
on Form S-6, File No. 33-43057, filed with the Commission on October 1, 1991,
are incorporated herein by this reference.
The prospectus dated May 1, 1993 for the Prime Plan I, Prime Plan II and
Prime Plan III Single Premium Variable Life Insurance Policies issued by Merrill
Lynch Life Insurance Company, all of which are contained in the Registrant's
registration statement on Form S-6, File No. 33-443057, filed with the
Commission on April 30, 1993, is incorporated herein by this reference.
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes Single Premium Variable Life Insurance Policies
("Policies") issued by Merrill Lynch Life Insurance Company (the "Insurance
Company" or "we" or "us"), a subsidiary of Merrill Lynch & Co., Inc. Policies
were issued by Monarch Life Insurance Company through 1988 and assumed by Tandem
Insurance Group, Inc., which was merged into the Insurance Company, as described
under "Summary of the Policies: Assumption of Previously Issued Policies and
Subsequent Merger." A Policy is designed to provide lifetime insurance coverage
on the insured named in the Policy. A Policy also may be surrendered for its net
cash value while the insured is living. The death benefits and cash values under
a Policy will vary based on investments made in the Merrill Lynch Life Variable
Life Separate Account II (the "Separate Account" or the "Account"). The
Insurance Company also has issued Annual Premium and Flexible Premium Variable
Life Insurance Policies through the Separate Account which are described in
other prospectuses.
An owner of a Policy may allocate the investment base for a Policy among up to
5 of 37 investment divisions in the Separate Account. Some of the investment
divisions use their assets to buy shares at net asset value in a designated
mutual fund portfolio. Each of these portfolios is a part of the Merrill Lynch
Series Fund, Inc. ("Series Fund") or the Merrill Lynch Variable Series Funds,
Inc. ("Variable Series Funds"), (collectively, the "Funds"). The Funds use the
investment advisory services of Merrill Lynch Asset Management, L.P. ("MLAM"),
which is a wholly owned subsidiary of Merrill Lynch & Co., Inc. The other
investment divisions use their assets to purchase units of designated unit
investment trusts. Each of these unit investment trusts (collectively the
"Trusts", and individually, a "Trust") is part of The Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities. Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill Lynch & Co.,
Inc., serves as sponsor for each unit investment trust.
Regardless of a Policy's investment return, the death benefit can never be
less than the GUARANTEED INSURANCE AMOUNT. This amount is the Policy's face
amount during the first policy year. Afterwards, the GUARANTEED INSURANCE AMOUNT
increases each year by 0.48%.
During the first policy year the death benefit equals the Guaranteed Insurance
Amount. Afterwards, the death benefit may increase or decrease on each policy
anniversary,
depending on a Policy's investment return, but it will never decrease below the
Guaranteed Insurance Amount.
A Policy's cash value may increase or decrease on any day, depending on a
Policy's investment return. No minimum amount of cash value is guaranteed. In
early policy years the cash value may be lower than the single premium
accumulated at interest. Therefore, a policy should be purchased only if the
owner intends to keep it in effect for a reasonable period of time.
Certain deductions and charges are assessable against the single premium paid
under a Policy (see "Charges Deducted from Premium", page 17). The amount of the
charges ("POLICY LOADING") initially will be added to the investment base of a
Policy by the Insurance Company. The total amount of the policy loading will
then be subtracted from the Policy's investment base in equal installments at
the beginning of the second through eleventh policy years. During the period of
time that any portion of the policy loading is included in the Policy's
investment base, the benefits under the Policy will be greater if the actual
rate of return is greater than zero, but will create larger decreases in
benefits if the actual rate of return is less than zero (see "Investment Return
Adjustment", page 9).
A Policy may be exchanged for fixed life insurance under certain conditions
(see "Right to Exchange for Fixed Life Insurance", page 11, and "Substitution of
Investments", page 16).
It may not be advantageous to replace existing insurance with a Policy. In
addition, employers and employee organizations should consider whether, in light
of a Supreme Court decision, it is appropriate to purchase a Policy for any
employment-related insurance or benefit program (see "Legal Considerations",
page 22).
If you make certain changes to your contract, including additional payments,
it may be treated as a "modified endowment contract" under Federal tax law. If
the contract is a modified endowment contract, any loan, partial withdrawal or
surrender may result in adverse tax consequences and/or penalties. (See "Tax
Considerations", page 19.) This entire prospectus should be read to completely
understand the Policies being offered.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUSES
FOR THE MERRILL LYNCH SERIES FUND, THE MERRILL LYNCH VARIABLE SERIES FUNDS
AND THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES
WHICH CONTAIN FULL DESCRIPTIONS OF THOSE INVESTMENTS.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
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<TABLE>
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Issued by: Administered at:
Merrill Lynch Life Insurance Company Service Center
Plainsboro, New Jersey 08536 P.O. Box 9025
Distributed by: Springfield, Massachusetts
Merrill Lynch, Pierce, Fenner & 01102-9025
Smith Incorporated 1414 Main Street, Third Floor
("MLPF&S") Springfield, Massachusetts
Plainsboro, New Jersey 08536 01104-1007
Phone: (800) 354-5333
</TABLE>
DATE: JULY , 1994
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
<S> <C> <C>
PAGE
---------
Summary of the Policy................................................................................... 3
How Does This Policy Differ from a Traditional Single Premium Life Insurance Policy?................ 3
What Is the Guaranteed Insurance Amount?............................................................ 3
How Does a Policy's Death Benefit Vary?............................................................. 3
How Is The Premium Determined?...................................................................... 4
How Does the Separate Account Operate?.............................................................. 4
What Is the Policy's Net Premium?................................................................... 4
How Much of a Policy's Premium Is Allocated to the Separate Account?................................ 5
What Are the Different Investment Portfolios in the Merrill Lynch Series Fund, Inc.?................ 5
What Are the Different Investment Portfolios in the Merrill Lynch Variable Series Funds, Inc.?...... 5
What Are the Different Unit Investment Trusts of The Merrill Lynch Fund of Stripped ("Zero") U.S.
Treasury Securities?................................................................................ 6
How Can the Owner Allocate the Investment Base for a Policy?........................................ 6
Is the Death Benefit Excludable from Gross Income for Tax Purposes?................................. 6
What Is the Tax Treatment of Cash Value Increases?.................................................. 6
What Is the Loan Privilege?......................................................................... 6
Who Are the Insurance Company and MLPF&S?........................................................... 7
Who Sells the Policies?............................................................................. 7
What Are the Insurance Underwriting Requirements?................................................... 7
Assumption of Previously Issued Policies and Subsequent Merger...................................... 7
Death Benefits.......................................................................................... 8
Policy Rights and Obligations........................................................................... 10
Premiums............................................................................................ 10
Allocation of Net Premium and Investment Base....................................................... 10
Cash Value Benefits................................................................................. 10
Policy Loan......................................................................................... 10
Increase in Guaranteed Insurance Amount............................................................. 11
Right to Exchange for Fixed Life Insurance.......................................................... 11
Right to Examine a Policy ("Free Look")............................................................. 12
The Separate Account.................................................................................... 12
The Separate Account................................................................................ 12
Investments of the Separate Account................................................................. 12
The Series Fund..................................................................................... 13
The Variable Series Fund............................................................................ 13
Resolving Material Conflicts........................................................................ 15
The Trusts.......................................................................................... 15
Substitution of Investments......................................................................... 16
How Policy Benefits Vary to Reflect the Separate Account's Investment Results........................... 16
The Amount Invested: The Investment Base............................................................ 16
Policy's Rate of Return and Resultant Investment Return............................................. 17
Charges and Expenses.................................................................................... 17
Allocation to the Separate Account.................................................................. 17
Charges Deducted from Premium....................................................................... 17
Expenses Charged to All Divisions of the Separate Account........................................... 18
Charge For the Cost of Insurance.................................................................... 18
Group or Sponsored Arrangements..................................................................... 18
Expenses Charged to the Trusts...................................................................... 18
Guarantee of Certain Charges........................................................................ 19
Other Charges....................................................................................... 19
Administrative Services................................................................................. 19
Distribution Agreement and Other Contractual Arrangements............................................... 19
Tax Considerations...................................................................................... 19
Policy Proceeds..................................................................................... 19
Charge for the Insurance Company's Income Taxes..................................................... 21
Legal Considerations.................................................................................... 22
Management.............................................................................................. 22
Voting Rights........................................................................................... 23
Right to Instruct Voting of Shares of the Funds..................................................... 23
Disregard of Voting Instructions.................................................................... 23
Reports................................................................................................. 23
State Regulation........................................................................................ 23
Legal Proceedings....................................................................................... 24
Legal Matters........................................................................................... 24
Additional Information.................................................................................. 24
Experts................................................................................................. 24
Appendix A--Illustrations............................................................................... 25
Appendix B--Other Policy Provisions..................................................................... 34
Income Plans........................................................................................ 34
Other Important Provisions.......................................................................... 34
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
2
<PAGE>
THE PRIMARY PURPOSE OF THE POLICY IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY
WAY SIMILAR OR COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
SUMMARY OF THE POLICY
This section will answer many questions about a Policy.
HOW DOES THIS POLICY DIFFER FROM A TRADITIONAL SINGLE PREMIUM LIFE INSURANCE
POLICY?
Like other single premium life insurance, a Policy provides a death benefit
that is payable to the beneficiary upon the insured's death.
Unlike a traditional fixed single premium life insurance policy, the owner of
a Policy can choose where the investment base for a Policy is to be placed. The
choice is among up to any 5 of the investment divisions of the Separate Account.
Some of the divisions invest in shares of a designated mutual fund portfolio in
the Merrill Lynch Series Fund, Inc. or the Merrill Lynch Variable Series Funds,
Inc. Each portfolio of the Funds are managed by Merrill Lynch Asset Management,
Inc. The other investment divisions invest in units of a designated unit
investment trust in The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities. MLPF&S serves as sponsor for each unit investment trust.
Like other life insurance, a Policy provides a guaranteed minimum death
benefit.
Unlike traditional life insurance, the death benefit may increase above a
Policy's guaranteed minimum. There can be no assurance, however, that this will
occur. A Policy's death benefit may increase or decrease on each policy
anniversary, depending on the investment return for a Policy. Regardless of
investment return, the death benefit can never be less than a Policy's
Guaranteed Insurance Amount.
For any amount of death benefit above the Guaranteed Insurance Amount, the
owner bears the investment risk on any change occurring on a policy anniversary.
During a policy year, the Insurance Company will bear the investment risk on
such amount while the owner forgoes any increase in death benefit until the next
policy anniversary if investment results should be favorable. The Insurance
Company bears the investment risk for the entire amount of the Guaranteed
Insurance Amount, for which the Insurance Company imposes a risk charge (see
"Charges Deducted from Premium--Risk Charge", page 18).
Like other life insurance, the owner can cancel a Policy while the insured is
living and receive its net cash value.
Unlike traditional life insurance, a Policy offers the opportunity for
appreciation of its net cash value based upon investment results. There can be
no assurance that such appreciation will occur. The cash value may increase or
decrease on any day, depending on the investment return for a Policy.
The owner bears the investment risk on the cash value, since no minimum amount
is guaranteed, whereas in a traditional life insurance policy, cash values are
guaranteed as set forth in those policies.
AVAILABILITY. A Policy can be issued to an insured up to age 75. The minimum
single premium is $5,000 for age 0 through 19 and $10,000 for ages 20 and over.
In certain group or sponsored arrangements, the minimum single premium
requirement may be reduced (see "Group or Sponsored Arrangements", page 18). The
Policy is no longer available for new issuance.
WHAT IS THE GUARANTEED INSURANCE AMOUNT?
A Policy's Guaranteed Insurance Amount is its face amount during the first
policy year. Afterwards, the Guaranteed Insurance Amount increases each year by
0.48%.
Subject to state availability, the owner can purchase term insurance riders
which may be added to a Policy to increase the life insurance protection. The
amount of any term insurance will not vary with a Policy's investment return
(see "Single Premium Term Insurance Rider", page 8).
HOW DOES A POLICY'S DEATH BENEFIT VARY?
The death benefit of a Policy is the Guaranteed Insurance Amount plus the
VARIABLE INSURANCE AMOUNT, if positive. The Variable Insurance Amount reflects
the accumulation of each policy year's INVESTMENT RETURN (see "Policy's Rate of
Return and Resultant Investment Return", page 17). The Variable Insurance Amount
is zero during the first policy year. After that, it may be positive or negative
as calculated on each policy anniversary.
The change in the Variable Insurance Amount on a policy anniversary will
depend, subject to the investment return adjustment described below, upon the
relationship of a Policy's ACTUAL RATE OF RETURN (see "Actual Rate of Return",
page 17), for the policy year ending on the anniversary, to 4.5%, the Policy's
assumed rate of return. The actual rate of return under a Policy reflects,
through investment divisions in the Separate Account, increases or decreases in
the net asset value of the shares of the Funds plus any distribution made during
the policy year on such shares, and increases or decreases in the value of the
units of the Trusts. A Policy's investment return for a policy year is the
difference between a Policy's actual rate
3
<PAGE>
of return and 4.5%, multiplied by a Policy's total investment base (see "The
Amount Invested: The Investment Base", page 16.)
If the actual rate of return exceeds 4.5%, the investment return is positive
and the Variable Insurance Amount increases. The increase in the Variable
Insurance Amount is an amount of insurance that is purchased by the dollar
amount of investment return under a Policy.
An increase in the Variable Insurance Amount on a policy anniversary will not
result in an increase in the death benefit if:
- the Variable Insurance Amount on the previous policy
anniversary was negative (and the death benefit equalled the
Guaranteed Insurance Amount); and
- such increase in the Variable Insurance Amount is not
sufficient to make the resulting Variable Insurance Amount
positive.
If the actual rate of return is less than 4.5%, the investment return is
negative and the Variable Insurance Amount decreases. The decrease in the
Variable Insurance Amount is an amount of insurance that is canceled on account
of the negative investment return under a Policy. If the prior Variable
Insurance Amount was negative, such a decrease will make the Variable Insurance
Amount more negative. A decrease in the Variable Insurance Amount will not
result in a decrease in the death benefit below the Guaranteed Insurance Amount
(see "Death Benefits", page 8).
During the first ten policy years the investment return will be adjusted
("INVESTMENT RETURN ADJUSTMENT") by the product of (i) a Policy's actual rate of
return for the policy year, and (ii) the amount of the policy loading that has
not been recovered as of the beginning of the policy year. The investment return
adjustment may be positive or negative depending on whether the actual rate of
return is greater than or less than zero. In calculating the investment return
adjustment, the Policy's assumed rate of return is not subtracted from the
actual rate of return, as it is in calculating the investment return on the
balance of the investment base. This adjustment will be reflected in a change in
the Variable Insurance Amount and will have the effect of creating greater
increases in the benefits of a Policy if the actual rate of return is greater
than zero, but will create larger decreases in benefits if the actual rate of
return is less than zero.
Policies issued in the standard class and in the non-smoker class, will
provide for increases in the Variable Insurance Amount otherwise calculated on
each policy anniversary (see "What Are the Insurance Underwriting
Requirements?", page 7). This will be based upon a formula adjustment for
assumed favorable mortality result as the Policy remains in force (see "Death
Benefits", page 8).
HOW IS THE PREMIUM DETERMINED?
In return for insurance benefits and other policy rights, the owner makes a
single premium payment. The premium amount depends on a Policy's face amount and
the insured's sex and insurance age.
The minimum single premium is $5,000 for ages 0 through 19 and $10,000 for
ages 20 and over. In certain group or sponsored arrangements, the minimum single
premium requirement may be reduced (see "Group or Sponsored Arrangements", page
18).
HOW DOES THE SEPARATE ACCOUNT OPERATE?
The Variable Life Insurance benefits for the policies are provided through
investments made in the Separate Account. The Separate Account is a separate
investment account used only to support Variable Life Insurance policies (see
"The Separate Account", page 12). It is not part of the Insurance Company's
general account.
The Separate Account is organized as a unit investment trust and is governed
by the laws of the State of Arkansas. There currently are 37 investment
divisions within the Separate Account available for new allocations, 17 of which
invest in shares of a designated mutual fund portfolio of the Funds ("series"
types of mutual funds) and 20 of which invest in units of a designated unit
investment trust which is part of the Trusts. An owner of a Policy can allocate
the investment base for a Policy among up to 5 of the 37 investment divisions.
The daily charge for mortality and expense risks is made against the assets of
all divisions in the Separate Account. The charge is equivalent to an effective
annual rate of .50% at the beginning of the year (see "Expenses Charged To All
Divisions of the Separate Account", page 18). In addition, a daily asset charge,
equivalent to an effective annual rate of .34% at the beginning of the year,
currently is made against the assets of the Trusts, which invest in units of a
designated unit investment trust which is part of the Trusts. This charge may be
increased in the future but in no event will it exceed an effective annual rate
of .50% (see "Asset Charge", page 18).
Currently, the Insurance Company makes no charge against the Separate Account
for company Federal income taxes. Under the Insurance Company's current tax
status as a life insurance company, it does not expect to incur Federal income
taxes attributable to the Separate Account for a number of years. However, if
the Insurance Company incurs company Federal income taxes attributable to the
Separate Account in future years, it intends to make a charge for those taxes
(see "Charge for the Insurance Company's Income Taxes", page 21.)
WHAT IS THE POLICY'S NET PREMIUM?
The Policy's "net premium" will equal the single premium payable less the
policy loading consisting of:
- A charge for sales load which will not exceed 4% of the single
premium (see "Sales Load", page 17);
4
<PAGE>
- A charge for administrative expenses (see "Administrative
Charge", page 17);
- A charge for state premium taxes (see "State Premium Tax
Charge", page 18); and
- A risk charge (see "Risk Charge", page 18).
In certain group or sponsored arrangements the charges for sales load and
administrative expenses may be reduced (see "Group or Sponsored Arrangements",
page 18).
The net premium is the Policy's cash value as of the policy date.
HOW MUCH OF A POLICY'S PREMIUM IS ALLOCATED TO THE SEPARATE ACCOUNT?
On the policy date, which is either the date of the application (if the
premium is received within 5 working days of that date) or the date the premium
is received, if later, the Insurance Company allocates to the Separate Account,
the sum of the Policy's net premium and the policy loading. That amount is
allocated to the investment division investing in the Money Reserve Portfolio.
Subject to the Insurance Company's rules, a policyholder may choose to allocate
the policy premium among the investment division investing in the Money Reserve
Portfolio and one of the investment divisions investing in a unit investment
trust. The amount allocated equals the Policy's investment base as of the policy
date. After the free look period, the investment base may be allocated among 5
of the investment divisions based on the owner's instructions.
At the beginning of the second policy year and continuing through the
eleventh, the Insurance Company will reduce a Policy's investment base by 10% of
policy loading. Thus, the amount of the policy loading originally deducted from
the single premium but added to the initial investment base will be subtracted
from a Policy's investment base in equal installments at the beginning of the
second through the eleventh policy years.
WHAT ARE THE DIFFERENT INVESTMENT PORTFOLIOS IN THE MERRILL LYNCH SERIES FUND,
INC.?
Ten of the investment divisions of the Separate Account will invest only in
the shares of designated mutual fund portfolios of the Merrill Lynch Series
Fund, Inc. (the "Series Fund"). The following portfolios of the Series Fund are
currently available.
Money Reserve Portfolio
Intermediate Government Bond Portfolio
Long Term Corporate Bond Portfolio
Capital Stock Portfolio
Growth Stock Portfolio
High Yield Portfolio
Multiple Strategy Portfolio
National Resources Portfolio
Global Strategy Portfolio
Balanced Portfolio
The Series Fund is managed by Merrill Lynch Asset Management, L.P. ("MLAM"),
which is a wholly-owned subsidiary of Merrill Lynch & Co., Inc. MLAM receives a
monthly fee from the Series Fund equivalent to an annual rate of .50% of the
first $250 million of the aggregate average daily net assets of the Fund, .45%
of the next $50 million, .40% of the next $100 million, .35% of the next $400
million and .30% of the excess over $800 million. MLAM has agreed that if in any
year the aggregate ordinary expense (excluding interest, taxes, brokerage fees,
commissions and extraordinary charges) of any portfolio of the Series Fund
exceeds the expense limitations then in effect under any state securities law or
regulation, it will reduce its fee from such portfolio by such excess and, if
required under such laws or regulations, it will reimburse the Series Fund in
the amount of such excess. Pursuant to a Reimbursement Agreement, the Series
Fund will be reimbursed so that the ordinary operating expenses of the
portfolios (which includes the monthly advisory fee) do not exceed .50% of the
average daily net assets.
The Series Fund is briefly described on page 13. More detailed information
about the Series Fund can be found in the accompanying prospectus for the Series
Fund, which should be read together with this prospectus.
WHAT ARE THE DIFFERENT INVESTMENT PORTFOLIOS IN THE MERRILL LYNCH VARIABLE
SERIES FUNDS, INC.?
The Merrill Lynch Variable Series Funds Inc., contains eighteen mutual fund
portfolios. Seven of the eighteen portfolios are currently available through the
Separate Account as listed below:
Basic Value Focus Fund
World Income Focus Fund
Global Utility Focus Fund
International Equity Focus Fund
International Bond Fund
Developing Capital Markets Focus Fund
Equity Growth Fund
The Variable Series Funds is managed by Merrill Lynch Asset Management, L.P.
("MLAM"), which is a wholly-owned subsidiary of Merrill Lynch & Co., Inc. The
Variable Series Funds, as part of its operating expenses, pays an investment
advisory fee to MLAM. (See "The Variable Series Funds," page 13.) Under its
investment advisory agreement, MLAM has agreed to reimburse the Variable Series
Funds if and to the extent that in any fiscal year the operating expenses of any
portfolio exceeds the most restrictive expense limitations then in effect under
any state securities laws or published regulations thereunder. Expenses for this
purpose include MLAM's fee but exclude interest, taxes, brokerage commissions
and extraordinary expenses, such as litigation.
MLAM and Merrill Lynch Life Agency, Inc. have entered into two agreements
which limit the operating expenses paid by each portfolio in a given year to
1.25% of its average daily net assets, which is less than the expense
limitations imposed by state securities laws or published
5
<PAGE>
regulations thereunder. These reimbursement agreements provide that any expenses
in excess of 1.25% of average daily net assets will be reimbursed to the
portfolio by MLAM which, in turn, will be reimbursed by Merrill Lynch Life
Agency, Inc.
The Variable Series Funds is briefly described on pages 13-15. More detailed
information about the Variable Series Funds can be found in the accompanying
prospectus for the Variable Series Funds, which should be read together with
this prospectus.
WHAT ARE THE DIFFERENT UNIT INVESTMENT TRUSTS OF THE MERRILL LYNCH FUND OF
STRIPPED
("ZERO") U.S. TREASURY SECURITIES?
Certain investment divisions of the Separate Account will invest in units of a
designated unit investment trust which is part of The Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities (the "Trusts"). Subject to state
approval, the Trusts currently available have maturity dates in years 1994
through 2011, 2013 and 2014.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a subsidiary of Merrill
Lynch & Co., will serve as sponsor for each unit investment trust. As sponsor,
MLPF&S will sell units of the Trusts to the Separate Account. The price of these
units will include a transaction charge which will not be paid by the Separate
Account upon acquisition but will be paid directly by the Insurance Company to
MLPF&S out of the Insurance Company's general account assets. The amount of the
transaction charge paid will be limited by agreement between the Insurance
Company and MLPF&S and will not be greater than that ordinarily paid by a dealer
for similar securities. The Insurance Company will seek reimbursement for the
amounts paid through a daily asset charge which will be made against the assets
of the Trusts. The amount of this charge currently is equivalent to an effective
annual rate of .34% at the beginning of the year. This amount may be increased
in the future but in no event will it exceed an effective annual rate of .50%.
The charge will be cost-based (taking into account a loss of interest) with no
anticipated element of profit for the Insurance Company.
The value of the Trust units will vary more widely than units of a unit
investment trust containing coupon-bearing U.S. treasury securities with
comparable maturities. Accordingly, the investment base allocated to the Trusts
may show wide fluctuations from day to day, particularly when the period to
maturity is relatively long. The Merrill Lynch Fund of Stripped ("Zero") U.S.
Treasury Securities is briefly described on pages 15-16. More detailed
information can be found in the accompanying prospectus, which should be read
together with this prospectus.
HOW CAN THE OWNER ALLOCATE THE
INVESTMENT BASE FOR A POLICY?
After the end of the free look period, the owner can allocate the investment
base among up to 5 of the investment divisions of the Separate Account.
Thereafter the owner can change the allocation of the investment base that
supports a Policy 5 times each policy year. Allocations to the Trusts depend on
state availability and the availability of units of the Trusts (see "Allocation
of Net Premium and Investment Base", page 10).
IS THE DEATH BENEFIT EXCLUDABLE FROM GROSS INCOME FOR TAX PURPOSES?
The death benefit under a Policy is subject to the same Federal income tax
treatment as proceeds of fixed life insurance. Therefore, the death benefit will
be fully excludable from the gross income of the beneficiary under Section
101(a)(1) of the Internal Revenue Code (see "Tax Considerations--Policy
Proceeds", page 19).
WHAT IS THE TAX TREATMENT OF CASH VALUE INCREASES?
The cash value under a Policy is subject to the same Federal income tax
treatment as a cash value under fixed life insurance. Therefore, the owner will
not be deemed to be in constructive receipt of the cash values, including any
yearly increases, unless and until actual surrender of a Policy. Upon surrender
of a Policy for its cash value, the excess, if any, of the cash value over the
premium paid in will be treated as ordinary income for Federal income tax
purposes (see "Tax Considerations--Policy Proceeds", page 19).
WHAT IS THE LOAN PRIVILEGE?
The owner may borrow up to the loan value of the Policy from the Insurance
Company. The Policy may be the only security required for the loan. The owner
may repay all or part of the loan at any time while the insured is living.
The interest rate on a loan is 5.25% a year. If interest isn't paid when due,
it will be added to the amount of the loan.
EFFECT OF A LOAN. While a loan is outstanding, a part of the cash value equal
to the policy debt is maintained in the Insurance Company's general account
rather than in the Separate Account. The part maintained in the general account
is credited with a 4.5% annual net return and does not add to a Policy's
investment return. Therefore, the death benefit (above the Guaranteed Insurance
Amount) and the cash value are permanently affected by a loan, whether or not
repaid in whole or in part. The amount of any outstanding policy debt is
subtracted from the amount payable on surrender of a Policy and are also
subtracted from any death benefit payable (see "Policy Loan", page 10). Loan
interest accrues daily and, if it is not repaid each year, it is capitalized and
added to the policy debt. Depending upon investment performance of the
investment divisions and the amount borrowed, loans may cause a Policy to lapse.
Lapse of a Policy with loans outstanding may result in adverse tax consequences
(see "Tax Considerations--Policy Proceeds", page 19). If the policy debt exceeds
the cash value, the Insurance Company will terminate the Policy in accordance
with the procedure described on page 10.
6
<PAGE>
WHO ARE THE INSURANCE COMPANY AND MLPF&S?
The Insurance Company is a stock life insurance company organized under the
laws of the State of Washington in 1986 and redomesticated under the laws of the
State of Arkansas in 1991. 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
authorized to offer variable life insurance in most states.
MLPF&S is also a wholly owned subsidiary of Merrill Lynch & Co., Inc. and
provides a broad range of securities brokerage and investment banking services
in the United States. It provides marketing services for us and is the principal
underwriter of our variable life policies issued through the Separate Account.
We retain MLPF&S to provide services relating to the policies under a
Distribution Agreement.
WHO SELLS THE POLICIES?
The Insurance Company retains MLPF&S under a distribution agreement to act as
principal underwriter for the policies issued through the Separate Account. The
Insurance Company has companion sales agreements with various insurance agency
organizations affiliated with MLPF&S, including ML Life Agency Inc. in Texas,
Merrill Lynch Life Agency Ltd. in Mississippi and various Merrill Lynch Life
Agencies elsewhere. MLPF&S is registered with the SEC as a broker-dealer and is
a member of the National Association of Securities Dealers.
Under these agreements, applications for the policies are solicited by
financial consultants of MLPF&S. The financial consultants are authorized under
applicable state regulations to sell variable life insurance as insurance
agents.
COMMISSION. The maximum commission as a percentage of a premium payable to
qualified registered representatives will, in no event, exceed 3.5%. In
addition, the organizations described above will also receive override payments
and may be reimbursed under MLPF&S's expense reimbursement allowance program for
portions of expenses incurred.
WHAT ARE THE INSURANCE UNDERWRITING REQUIREMENTS?
Insurance underwriting is designed to group applicants of the same age into
classifications which can be expected to produce mortality experience consistent
with the actuarial structure for that class. The Insurance Company uses the
following methods of underwriting: (a) simplified and non-medical underwriting
not requiring a physical exam and (b) medical underwriting which requires an
exam.
Simplified underwriting is the only method used if the proposed insured's
issue age is 75 or less and if the single premium is less than $75,000. Under
this underwriting method, Policies will be issued in the standard-simplified
underwriting risk class.
In other situations, non-medical or medical underwriting is used. As a result
of these methods of underwriting, the proposed insured may be classified as
standard-medical or as non-smoker.
Applicants who do not qualify for the non-smoker or standard underwriting
classifications will not have the formula adjustment. All other applicants will
receive a formula adjustment (see page 10). In certain group or sponsored
arrangements, underwriting classifications may be modified (see "Group or
Sponsored Arrangements", page 18).
ASSUMPTION OF PREVIOUSLY ISSUED POLICIES AND SUBSEQUENT MERGER
On November 14, 1990, Monarch Life Insurance Company ("Monarch"), the
Insurance Company and certain other Merrill Lynch insurance companies entered
into an indemnity reinsurance and assumption agreement (the "Assumption
Agreement"). Under the Assumption Agreement, Tandem Insurance Group, Inc.
("Tandem"), one of the other Merrill Lynch insurance companies, acquired, on an
assumption reinsurance basis, certain of the variable life insurance policies
issued by Monarch through its Variable Account A, including the Policies
("reinsured policies") described in this prospectus. On October 1, 1991, Tandem
was merged with and into the Insurance Company (the "merger"), which thereby
succeeded to all of Tandem's liabilities and obligations. Thus, the Insurance
Company has all the liabilities and obligations under the reinsured policies.
All further payments made under the reinsured policies will be made directly to
or by the Insurance Company.
If you are the owner of a reinsured policy, you have the same rights and
values under your Policy as you did before the reinsurance or merger
transaction. However, you will look to the Insurance Company instead of to
Monarch or Tandem to fulfill the terms of your Policy. Pursuant to the
Assumption Agreement, all of the assets of Monarch's Variable Account A relating
to the reinsured policies were transferred to Tandem and allocated to the
Separate Account. By virtue of the merger, the Separate Account became a
separate account of the Insurance Company. The assets of the Separate Account
are only available to satisfy the Insurance Company's obligations under the
variable life insurance policies issued through the Separate Account. Those
assets are not chargeable with liabilities arising out of any other business
that Monarch has conducted, and the assets of the Separate Account cannot be
reached by Monarch or Monarch's creditors.
7
<PAGE>
DEATH BENEFITS
PROCEEDS. The Insurance Company will pay death benefit proceeds of a Policy
to the named beneficiary upon the insured's death. The proceeds may be paid in
cash or under one or more income plans (see "Income Plans", page 34).
Death benefit proceeds equal the Guaranteed Insurance Amount plus the Variable
Insurance Amount, if positive, on the immediately preceding anniversary in the
year of death, plus any insurance on the insured's life provided by rider, less
any policy debt (see "Policy Loan", page 10).
Death benefit proceeds (exclusive of amounts due from riders and before
reduction by any policy debt) will be at least equal to the face amount of
insurance under a single premium variable life insurance policy purchased at the
insured's age at the date of death having a net premium equal to a Policy's net
cash value. For this purpose the face amount purchased will in no event be less
than the face amount required under the rules governing the tax definition of
life insurance. Thus, under certain circumstances, it is possible that an owner
may not forego any increase in death benefit until the next policy anniversary
if investment results should be favorable.
All calculations will be made as of the date of death.
SINGLE PREMIUM TERM INSURANCE RIDER. In order to allow the owner of a Policy
to increase the amount of insurance protection, subject to state availability, a
Policy may be combined with a Single Premium Term Insurance Rider. Insurance
under this Rider may be converted to a Single Premium Variable Life Insurance
policy without evidence of insurability at any time beginning on the first
anniversary of the rider and ending as of the tenth anniversary. The new Single
Premium Variable Life Insurance policy will be for a face amount equal to the
amount converted and will be at premium rates based on the insured's age at the
time of conversion using the risk classification of the rider.
No portion of the premium for a rider is allocated to the Separate Account and
therefore the rider contains no variable feature. The Rider will have guaranteed
cash values which will be received upon cancellation of the Rider. The
guaranteed cash values of the Rider will be added to the cash value of the
Policy in the determination of cash value benefits. The cash value of the Rider
will not increase the loan value of the Policy.
VARIABLE INSURANCE AMOUNT. The Variable Insurance Amount a Policy provides is
zero during the first policy year. After that, the amount may be positive or
negative as calculated on an annual basis.
On each policy anniversary, the Insurance Company will determine the Variable
Insurance Amount for the policy year beginning on that anniversary by taking
into account:
- the Variable Insurance Amount (positive or negative) for the
preceding policy year; and
- the Policy's investment return for the preceding policy year
(see "Policy's Rate of Return and Resultant Investment
Return", page 17); and
- the investment return adjustment (positive or negative) for
the preceding policy year (see "Investment Return Adjustment",
page 9); and
- the formula adjustment for Policies issued in the standard and
non-smoker classes (see "Formula Adjustment", page 9).
The Variable Insurance Amount changes only on a policy anniversary.
The change in the Variable Insurance Amount on a policy anniversary will
depend, subject to the investment return adjustment described on page 9, on the
relationship of the Policy's actual rate of return (see "Actual Rate of Return",
page 17) for the policy year ending on the anniversary, to 4.5%, the Policy's
assumed rate of return. If the actual rate of return exceeds 4.5%, the Variable
Insurance Amount increases. Subject to the investment return adjustment
described on page 9, and the formula adjustment described on page 9, if the
actual rate of return is less than 4.5%, the Variable Insurance Amount
decreases; in the absence of any adjustment the Variable Insurance Amount would
not change from one year to the next if a Policy's actual rate of return equals
4.5%.
If the Variable Insurance Amount is negative at the end of a policy year, the
death benefit will equal the Guaranteed Insurance Amount. In that event, the
death benefit would increase above the Guaranteed Insurance Amount on the next
policy anniversary only if the actual rate of return for such year was
sufficiently greater than 4.5% to result in an investment return large enough to
offset the negative Variable Insurance Amount in the prior policy year.
The change in the Variable Insurance Amount on a policy anniversary equals the
amount of insurance purchased under a Policy or the amount of insurance coverage
canceled under a Policy which results from positive or negative investment
return, respectively. To calculate the change in the Variable Insurance Amount,
the Insurance Company uses a net single premium per $1 of paid-up whole life
insurance based on the insured's age at the anniversary. Thus, for example, if
the investment return for a female age 65 is $100, positive or negative, the
8
<PAGE>
Variable Insurance Amount will increase or decrease by $195 (see table below).
Since the dollar amount of a Policy's investment return depends on the total
investment base supporting a Policy (see "The Amount Invested: The Investment
Base", page 16) which will tend to be larger in later years, the increase or
decrease in the Variable Insurance Amount will tend to be larger in later years.
It should be noted that as shown in the table below, the net single premium
used to calculate the Variable Insurance Amount increases as the insured
advances in age and thus larger dollar amounts of investment return are required
each year to result in the same increases in the Variable Insurance Amount.
NET SINGLE PREMIUM FOR THE VARIABLE INSURANCE AMOUNT. A Policy includes a
table of net single premiums used to convert the investment return for a Policy
into increases or decreases in the Variable Insurance Amount. This purchase
basis does not depend upon the risk classification of a Policy or any changes in
the insured's health after issue of a Policy. The net single premium will be
lower for a Policy issued to a female than for a Policy issued to a male, as
shown below. The net single premium is used for the calculation of the Variable
Insurance Amount and is not for premium payment purposes.
<TABLE>
<S> <C> <C> <C> <C>
TABLE OF ILLUSTRATIVE NET SINGLE
PREMIUMS FOR AVAILABLE INSURANCE AMOUNT
<CAPTION>
NET SINGLE VARIABLE
PREMIUM PER INSURANCE
$1.00 OF AMOUNT PURCHASED
MALE VARIABLE OR CANCELLED BY
ATTAINED INSURANCE $1.00 OF
AGE AMOUNT INVESTMENT RETURN
--------- ----------- -----------------
<S> <C> <C> <C> <C>
5 $ .08550 $ 11.70
15 .11834 8.45
25 .16522 6.05
35 .23528 4.25
45 .33460 2.99
55 .45929 2.18
65 .59811 1.67
75 .72817 1.37
85 .83523 1.20
<CAPTION>
FEMALE
ATTAINED
AGE
---------
<S> <C> <C> <C> <C>
5 $ .07095 $ 14.09
15 .09683 10.33
25 .13510 7.40
35 .18992 5.27
45 .27165 3.68
55 .38186 2.62
65 .51413 1.95
75 .65271 1.53
85 .77524 1.29
</TABLE>
INVESTMENT RETURN ADJUSTMENT. During the first ten policy years the
investment return will be adjusted by the product of (i) a Policy's actual rate
of return for the policy year, and (ii) the amount of the policy loading that
has not been recovered as of the beginning of the policy year. Accordingly, this
adjustment will be reflected in a change in the Variable Insurance Amount. This
investment return adjustment can be positive or negative depending on whether
the actual rate of return is greater than or less than zero. Thus, with respect
to both the investment return and the change in the Variable Insurance Amount,
the dollar amount of change will be increased (positively or negatively) as a
result of the investment return adjustment. Thus, the effect of the addition of
the policy loading to the investment base is to create greater increases in
benefits if the actual rate of return is greater than zero, but to create larger
decreases in benefits if the actual rate of return is less than zero. Regardless
of the actual rate of return, however, the full amount of the policy loading
will be deducted from the investment base over a ten-year period.
FORMULA ADJUSTMENT. For Policies issued in the standard or non-smoker risk
classifications the Variable Insurance Amount otherwise calculated on a policy
anniversary will be increased to reflect assumed favorable mortality results as
the Policy remains in force. It will be calculated as follows:
(1) The total investment base immediately before the anniversary, multiplied
by
(2) the adjustment factor on the anniversary from the table included in a
Policy, divided by
(3) the net single premium based on the insured's age at the anniversary.
The adjustment factors range between 0 and .0122 and depend on the single
premium, issue age, sex, risk classification and policy anniversary.
9
<PAGE>
POLICY RIGHTS AND OBLIGATIONS
PREMIUMS
PREMIUM. Payment of the single premium is required to put a Policy in effect.
The minimum single premium is $5,000 for ages 0 through 19 and $10,000 for ages
20 and above. In certain group or sponsored arrangements, the minimum single
premium requirement may be reduced (see "Group or Sponsored Arrangements", page
18).
In setting its premium rates, the Insurance Company considers actuarial
estimates of death and cash value benefits, expenses, investment experience and
an amount to be contributed to the Insurance Company's surplus. Also, assets are
allocated to the Insurance Company's general account to accumulate as a reserve
to cover the contingency that the insured will die at a time when the Guaranteed
Insurance Amount exceeds the death benefit that would have been payable based
upon the Policy's cumulative investment return in the absence of such guarantee.
ALLOCATION OF NET PREMIUM AND INVESTMENT BASE
After the free look period, the owner can designate how the investment base is
to be allocated among up to 5 of the investment divisions of the Separate
Account. On the policy date the investment base is allocated to the Money
Reserve Portfolio.
The owner can change the allocation of the total investment base among the
investment divisions 5 times each policy year (see "The Amount Invested: The
Investment Base", page 16, for a full description of the investment base) but
not before the end of the free look period. Such change will take effect when
notice is received.
The ability of an owner to allocate additional portions of the investment base
to the Trusts may be limited by the availability of units of the Trusts.
If any part of the investment base of a Policy is allocated to investment
divisions which have specified maturity dates, then as of that maturity date,
unless otherwise specified by the owner, the amounts in that division will be
allocated to the investment division investing in the Money Reserve Portfolio.
The Insurance Company will notify the owner 30 days in advance of the maturity
date. To elect an allocation to other than the investment division investing in
the Money Reserve Portfolio, the owner must notify the Insurance Company in
writing at least 7 days prior to the maturity date.
CASH VALUE BENEFITS
The owner can cancel a Policy at any time while the insured is living and
receive its net cash value. The request must be in writing in a form
satisfactory to the Insurance Company. All rights to death benefits will end on
the date the written request is sent to the Insurance Company. The net cash
value will be determined upon receipt of the written request at the Service
Center.
NET CASH VALUE. The cash value increases or decreases daily to reflect a
Policy's investment return (see "Policy's Rate of Return and Resultant
Investment Return", page 17). The cash value for a Policy at the end of a policy
year is equal to the tabular cash value on that date as shown in the Policy plus
(or minus) the net single premium on that date for the Variable Insurance
Amount. The NET CASH VALUE is the cash value minus any policy debt. The cash
value on a date during a policy year, assuming no policy loans during the year,
can be expressed as:
(1) The cash value at the end of the preceding year; plus
(2) the actual rate of return (positive or negative) for a Policy applied to
the investment base, including any unrecovered policy loading, at the
beginning of the year; minus
(3) the charge for the cost of insurance protection (which will vary
annually) provided since the end of the preceding year which is computed
based upon the amount of insurance provided during the year and the
insured's age and sex on such date.
No minimum amount of cash value is guaranteed.
Except on policy anniversaries after the tenth, the cash value does not equal
the investment base (see "How Investment Base Relates to Cash Value", page 16).
POLICY LOAN
The owner may borrow money from the Insurance Company using a Policy as the
only security for the loan. A loan may be taken any time a Policy is in effect.
With a proper written request to the Insurance Company, an owner may designate
the divisions from which the loan amounts will be transferred and to which
repayments will be made. The owner may repay all or part of the loan at any time
while the insured is living. The amount of the loan may not exceed the LOAN
VALUE. Any existing policy debt will be subtracted from a new loan. The smallest
loan is $1,000, unless the loan is being used to pay premiums on another
Variable Life Insurance policy issued by the Insurance Company. The smallest
repayment is $1,000.
10
<PAGE>
LOAN VALUE. The loan value is:
- 75% of the cash value during the first 3 policy years; or
- 90% of the cash value after the first 3 policy years.
INTEREST. The interest rate on loans is 5.25% a year. Interest accrues each
day. Interest payments are due at the end of each policy year. If interest isn't
paid when due, it will be added to the amount of the loan. The sum of all
outstanding loans plus accrued interest is called the POLICY DEBT. If the policy
debt exceeds the cash value, the Insurance Company will terminate the Policy.
The Insurance Company will not do this, however, until 31 days after the
Insurance Company mails notice of its intent to terminate. If a Policy lapses
with a loan outstanding, adverse tax consequences may result (see "Tax
Considerations--Policy Proceeds", page 19).
EFFECT OF A LOAN. An amount equal to the loan proceeds will be transferred
out of the Separate Account, and a repayment will be transferred in. Loans and
repayments will be allocated among the investment divisions as elected by the
owner or, in the absence of any such election, among the investment divisions in
proportion to the investment base in each division as of the date of the loan or
repayment. A loan, WHETHER OR NOT REPAID, will have a permanent effect on the
death benefits and cash values. If not repaid, the policy debt will reduce the
amount of death benefit proceeds and cash value benefits.
INCREASE IN GUARANTEED INSURANCE AMOUNT
Subject to state availability and the Insurance Company's rules as set forth
below, an owner may elect to increase the scheduled Guaranteed Insurance Amounts
of an in force policy. The Insurance Company will ordinarily require evidence of
insurability. The insured must be in the same underwriting classification at the
time of the increase as at the original issue date. The election may not be made
during the six months (12 months in Kentucky) following the policy date.
Thereafter, the policy-owner may elect an increase up to five times each policy
year, but in no event earlier than 30 days after a previous election.
An owner may elect an increase by submitting a payment to the Insurance
Company along with an application for change. The minimum payment required is
$1,000; the maximum is the amount of the single premium paid for the original
Policy.
The payment (net of the charges discussed below) will be added to the Policy's
investment base (see "The Amount Invested: The Investment Base", page 16) and,
unless otherwise specified by the owner, allocated among the investment
divisions in proportion to the investment base in each division as of the
effective date. The amount of the charges assessable against the payment will
initially be added to the investment base. These charges will be the same as
those assessed against a single premium (see "Charges Deducted from Premium",
page 17) except that the administrative charge will be reduced to $25. The
Insurance Company will subtract these charges from the investment base in ten
equal installments beginning on the next policy anniversary after the date of
the increase.
The effective date for any increase is the date the Insurance Company receives
the single payment and the application with any evidence of insurability that
the Insurance Company may require. The Insurance Company may contest the
increase if any material statement in the application is false. The Insurance
Company will not do so after the increase has been in effect during the
insured's lifetime for two years from the effective date. If the insured commits
suicide within two years from the effective date of any increase, while sane or
insane, we'll pay only a limited benefit. The limited benefit will be the amount
of single premium paid for such increase.
EFFECT OF AN INCREASE. As of the effective date of the increase, the
Guaranteed Insurance Amount of the Policy will be increased by the applicable
amount. The investment base will be increased by the total payment made to
purchase the increase. The cash value will be increased by the payment less the
charges discussed above. The variable insurance amount will remain the same
until the next policy anniversary. The calculation of the variable insurance
amount as of the policy anniversary will reflect an investment return and an
investment return adjustment based on the increased cash value and investment
base.
RIGHT TO EXCHANGE FOR FIXED LIFE INSURANCE
The owner may exchange the Policy for a policy with benefits that do not vary
with investment results. The exchange must be elected within 18 months from the
date of issue. No evidence of insurability will be required.
There will be a cash adjustment on exchange. The adjustment will be a Policy's
net cash value minus the new policy's tabular cash value. If the result is
positive, the Insurance Company will pay the owner. If the result is negative,
the owner must pay the Insurance Company. Under some circumstances, it may be
less advantageous to exchange a Policy for the fixed life insurance policy
described below than to purchase a fixed life insurance policy in the first
instance.
The Insurance Company will issue the new policy on the insured's life
effective upon receipt of:
- a proper written request;
- the Policy being exchanged; and
- any amount due the Insurance Company on exchange.
11
<PAGE>
OTHER FACTS ABOUT THE NEW POLICY. The new policy's owner and beneficiary will
be the same as those of the Policy on the effective date of the exchange. The
new policy will have the same premium and face amount as the original Policy.
The death benefit under the new policy will be the Guaranteed Insurance Amount
for the original Policy. The cash value will be the tabular cash value for the
original Policy as set forth therein.
RIGHT TO EXAMINE A POLICY ("FREE LOOK")
Generally, a policy may be returned within 10 days after the owner receives
it, or within 45 days after the owner completes Part I of the application for
insurance, whichever is later. It can be mailed or delivered to either the
Insurance Company or the registered representative who sold it. The returned
Policy will be treated as if the Insurance Company never issued it and the
Insurance Company will promptly refund any premium paid. The Insurance Company
reserves the right to require a period of 6 months before it will accept an
application for a new Policy with the same owner and insured as a policy which
has been returned under this provision.
For a further description of how Policy benefits are calculated, see "How
Policy Benefits Vary to Reflect the Separate Account's Investment Results", page
16. That description together with the foregoing description of Policy
provisions is qualified by reference to a specimen of the Policy which has been
filed as an exhibit to the Registration Statement. Settlement options and
general provisions of the Policy are discussed in Appendix B.
THE SEPARATE ACCOUNT
THE SEPARATE ACCOUNT
The Separate Account is a separate investment account of the Insurance Company
to which amounts are allocated to support the Variable Life Insurance benefits
under a Policy. This Separate Account is kept separate from the Insurance
Company's general account. It is used only to support Variable Life Insurance
policies, including single, flexible and annual premium policies.
The Insurance Company owns the assets in the Separate Account. It is required
to maintain assets which are at least equal to the reserves and other
liabilities of the Separate Account. Assets equal to such reserves and other
liabilities may not be charged with liabilities that arise from any other
business the Insurance Company conducts. But the Insurance Company may transfer
to its general account assets which exceed the reserves and other liabilities of
the Separate Account.
The Separate Account was established by Tandem on November 19, 1990, and
acquired by the Insurance Company on October 1, 1991 by virtue of the merger
(see "Assumption of Previously Issued Policies and Subsequent Merger", page 7).
The Separate Account is registered as an investment company with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940. The
Separate Account meets the definition of a "separate account" under the federal
securities laws. Registration with the SEC does not involve supervision of the
management of the Separate Account or the Insurance Company by the SEC. The
Account is also governed by the laws of the State of Arkansas.
Income and realized and unrealized gains or losses from assets in the Separate
Account are credited to or charged against the Separate Account without regard
to other income, gains or losses in the Insurance Company's other investment
accounts.
The Insurance Company allocates to the Separate Account the policy loading
under the Policies. The Insurance Company may accumulate in the Separate Account
the charge for expense and mortality gains and losses and investment results
applicable to those assets that are in excess of net assets for Variable Life
Insurance policies. At some future date the Insurance Company may transfer
assets in excess of the reserves, the unrecovered policy loading and other
liabilities of the Separate Account to its general account. Before making any
such transfer, however, the Insurance Company would consider whether the
transfer could have any adverse effect on the Separate Account.
INVESTMENTS OF THE SEPARATE ACCOUNT
There currently are 37 investment divisions within the Separate Account
available for new allocations. Ten of these divisions invest in a designated
series of stock issued by Merrill Lynch Series Fund, Inc. Seven of these
divisions invest in a designated series of stock issued by Merrill Lynch
Variable Series Funds, Inc. Each series of stock represents the interest in a
separate portfolio within each of the Funds. The other 20 divisions each invest
in units of a designated unit investment trust which is part of The Merrill
Lynch Fund of Stripped ("Zero") U.S. Treasury Securities. Each unit investment
trust contains issues of stripped U.S. treasury securities with the same
maturity date. The availability of these 20 investment divisions depends on the
availability of units of the Trusts.
Full descriptions of the Series Fund, the Variable Series Funds and the
Trusts, their investment policies and restrictions, their charges and expenses
and all other aspects of their operation are contained in the accompanying
prospectuses. The prospectuses for the Series Fund, the Variable Series Funds
and the Trusts must accompany, and should be read together with, this
Prospectus.
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<PAGE>
THE SERIES FUND
The Series Fund receives advice with respect to the investment of each of its
series from MLAM, which provides administrative services and investment advice
and makes all investment decisions for the Series Fund. MLAM is a subsidiary of
Merrill Lynch & Co., Inc. MLAM is a registered investment adviser under the
Investment Advisors Act of 1940.
MLAM receives from the Series Fund a monthly advisory fee equivalent to an
annual rate of .50% of the first $250 million of the aggregate average daily net
assets of the 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. MLAM has agreed that if in any year
the aggregate ordinary expenses (excluding interest, taxes, brokerage fees,
commissions and extraordinary charges) of any portfolio of the Series Fund
exceed the expense limitations then in effect under any state securities law or
regulation, it will reduce its fee from such portfolio by such excess and, if
required under such laws or regulations, it will reimburse the Series Fund in
the amount of such excess.
The Insurance Company will purchase and redeem shares from the Series Fund at
net asset value. Shares will be redeemed to the extent necessary for the
Insurance Company to provide benefits and to make reallocations under the
Policies. Any dividend or capital gain distributions received from a portfolio
of the Series Fund will be reinvested at net asset value in shares of that
portfolio and retained as assets of the appropriate investment division of the
Separate Account.
A brief summary of the investment objectives of each Series Fund portfolio is
contained in the description below. More detailed information may be found in
the current prospectus for the Merrill Lynch Series Fund, Inc. The investments
of each portfolio are subject to risks of changing economic conditions and the
ability of the Series Fund's management to anticipate such changes. There can be
no assurance that these investment objectives will be achieved. In addition, as
mentioned above, a Policy's investment return will also depend upon the owner's
allocation of the investment base.
MONEY RESERVE PORTFOLIO seeks preservation of capital, liquidity and the
highest possible current income consistent with the foregoing objectives by
investing in short term money market securities.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO seeks highest possible current income
consistent with the protection of capital afforded by investing in intermediate
term debt securities issued or guaranteed by the United States government or its
agencies.
LONG TERM CORPORATE BOND PORTFOLIO seeks as high a level of current income as
is consistent with prudent investment risk, by investing primarily in
fixed-income, high quality corporate bonds.
CAPITAL STOCK PORTFOLIO seeks long term growth of capital and income, plus
moderate current income principally by investing in common stocks which are
considered to be of good or improving quality or which are thought to be
undervalued based on criteria such as historical price/book value ratios and
price/earnings ratios.
GROWTH STOCK PORTFOLIO seeks above average long-term growth of principal by
investing primarily in common stocks of aggressive growth companies that are
considered to have special growth potential.
HIGH YIELD PORTFOLIO seeks high current income, consistent with prudent
management, by investing principally in fixed-income securities in the lower
categories of the established rating services.
MULTIPLE STRATEGY PORTFOLIO seeks the highest total investment return
consistent with prudent risk. It does this through a fully managed investment
policy utilizing equity securities, primarily common stocks of
large-capitalization companies, as well as investment grade intermediate and
long term debt securities and money market securities.
NATURAL RESOURCES PORTFOLIO seeks long-term growth of capital and protection
of the purchasing power of shareholders' capital by investing primarily in
equity securities of domestic and foreign companies with substantial natural
resource assets.
GLOBAL STRATEGY PORTFOLIO seeks high total investment return by investing
primarily in a portfolio of equity and fixed income securities of U.S. and
foreign issuers.
BALANCED PORTFOLIO seeks a level of current income and a degree of stability
of principal not normally available from an investment solely in equity
securities and the opportunity for capital appreciation greater than that
normally available from an investment solely in debt securities by investing in
a balanced portfolio of fixed income and equity securities.
THE VARIABLE SERIES FUNDS
The Merrill Lynch Variable Series Funds, Inc. receives advice with respect to
the investment of each of its series from MLAM, which provides administrative
services and investment advice and makes all investment decisions for the
Variable Series Funds. MLAM is a subsidiary of Merrill Lynch & Co., Inc. MLAM is
a registered investment adviser under the Investment Advisors Act of 1940.
The Insurance Company will purchase and redeem shares from the Variable Series
Funds at net asset value. Shares will be redeemed to the extent necessary for
the
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<PAGE>
Insurance company to provide benefits and to make reallocations under the
Policies. Any dividend or capital gain distributions received from a portfolio
of the Variable Series Funds will be reinvested at net asset value in shares of
that portfolio and retained as assets of the appropriate investment division of
the Separate Account.
The Variable Series Funds as part of its operating expenses, pays an
investment advisory fee to MLAM. Those fees are included in the brief summaries
of the investment objectives of each portfolio below. More detailed information
may be found in the current prospectus for the Merrill Lynch Variable Series
Funds, Inc. The investments of each portfolio are subject to risks of changing
economic conditions and the ability of the Variable Series Funds' management to
anticipate such changes. There can be no assurance that these investment
objectives will be achieved. In addition, as mentioned above, a Policy's
investment return will also depend upon the owner's allocation of the investment
base.
Under its investment advisory agreement, MLAM has agreed to reimburse the
Variable Series Funds if and to the extent that in any fiscal year the operating
expenses of any portfolio exceeds the most restrictive expense limitations then
in effect under any state securities laws or published regulations thereunder.
Expenses for this purpose include MLAM's fee but exclude interest, taxes,
brokerage commissions and extraordinary expenses, such as litigation. No fee
payments will be made to MLAM with respect to any portfolio during any fiscal
year which would cause the expenses of such portfolio to exceed the pro rata
expense limitation applicable to such portfolio at the time of such payment.
This reimbursement agreement will remain in effect so long as the advisory
agreement remains in effect and cannot be amended without Variable Series Funds
approval.
MLAM and Merrill Lynch Life Agency, Inc. have entered into two agreements
which limit the operating expenses paid by each portfolio in a given year to
1.25% of its average daily net assets, which is less than the expense
limitations imposed by state securities laws or published regulations
thereunder. These reimbursement agreements provide that any expenses in excess
of 1.25% of average daily net assets will be reimbursed to the portfolio by MLAM
which, in turn, will be reimbursed by Merrill Lynch Life Agency, Inc.
BASIC VALUE FOCUS FUND seeks to attain capital appreciation, and secondarily,
income by investing in securities, primarily equities, that management of the
Fund believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio. MLAM receives
from the Fund an advisory fee at the annual rate of 0.60% of the average daily
net assets of the Fund.
WORLD INCOME FOCUS FUND seeks to achieve high current income by investing in a
global portfolio of fixed-income securities denominated in various currencies,
including multinational currency units. The Fund may invest in United States and
foreign government and corporate fixed-income securities, including high yield,
high risk, lower rated and unrated securities. The Fund will allocate its
investments among different types of fixed-income securities denominated in
various currencies. MLAM receives from the Fund an advisory fee at the annual
rate of 0.60% of the average daily net assets of the Fund.
GLOBAL UTILITY FOCUS FUND seeks to obtain capital appreciation and current
income through investment of at least 65% of its total assets in equity and debt
securities issued by domestic and foreign companies which are, in the opinion of
management of the Fund, primarily engaged in the ownership or operation of
facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water. MLAM receives from the Fund an advisory fee at
the annual rate of 0.60% of the average daily net assets of the Fund.
INTERNATIONAL EQUITY FOCUS FUND seeks to obtain capital appreciation through
investment in securities, principally equities, of issuers in countries other
than the United States. Under normal conditions, at least 65% of the Fund's net
assets will be invested in such equity securities. MLAM receives from the Fund
an advisory fee at the annual rate of 0.75% of the average daily net assets of
the Fund.
INTERNATIONAL BOND FUND seeks to achieve a high total investment return by
investing in a non-U.S. international portfolio of debt instruments denominated
in various currencies and multi-national currency units. MLAM receives from the
Fund an advisory fee at the annual rate of 0.60% of the average daily net assets
of the Fund.
DEVELOPING CAPITAL MARKETS FOCUS FUND seeks to achieve long-term capital
appreciation by investing in securities, principally equities, of issuers in
countries having smaller capital markets. For purposes of its investment
objective, the Fund considers countries having smaller capital markets to be all
countries other than the four countries having the largest equity market
capitalizations. Currently, these four countries are Japan, the United Kingdom,
the United States, and Germany. MLAM receives from the Fund an advisory fee at
the annual rate of 1.00% of the average daily net assets of the Fund.
EQUITY GROWTH FUND seeks to attain long-term growth of capital by investing
primarily in common stocks of relatively small companies that management of the
Fund believes have special investment value and emerging growth companies
regardless of size. Such companies are selected by management on the basis of
their long-term potential for expanding their size and profitability or for
gaining increased market recognition for their securities. Current income is not
a factor in such selection. MLAM receives from the Fund an advisory fee at the
annual rate of 0.75% of the average daily net assets of the Fund. This
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<PAGE>
is a higher fee than that of many other mutual funds, but management of the Fund
believes it is justified by the high degree of care that must be given to the
initial selection and continuous supervision of the types of portfolio
securities in which the Fund invests.
RESOLVING MATERIAL CONFLICTS
Shares of the Series Fund are available for investment by other Merrill Lynch
insurance companies and Monarch. Shares of the Variable Series Funds are
currently sold only to separate accounts of Merrill Lynch Life, ML Life
Insurance Company of New York and Family Life Insurance Company (an insurance
company not affiliated with Merrill Lynch Life or Merrill Lynch & Co., Inc.) to
fund benefits under certain variable life insurance and variable annuity
contracts. The Basic Value Focus Fund, World Income Focus Fund, Global Utility
Focus Fund, International Equity Focus Fund, International Bond Fund and
Developing Capital Markets Focus Fund are only offered to separate accounts of
Merrill Lynch Life and ML Life Insurance Company of New York. The Equity Growth
Fund is also offered to Family Life Insurance Company.
It is possible that differences might arise between our Separate Account and
one or more of the other separate accounts investing 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
policyowners and those of the other insurance companies, or for other reasons.
We will monitor events so we can identify how to respond to such conflicts. If
such a conflict occurs, we may be required to eliminate one or more divisions of
the Separate Account which invest in the Funds or substitute a new portfolio in
which a division invests. In responding to any conflict, we will take the action
which we believe necessary to protect our policyholders.
THE TRUSTS
Merrill Lynch, Pierce, Fenner, & Smith Incorporated ("MLPF&S"), a subsidiary
of Merrill Lynch & Co., Inc., will serve as sponsor for each unit investment
trust of the Trusts. Because each Trust invests in a fixed portfolio, there is
no investment manager. As sponsor, MLPF&S will sell units of the Trusts to the
Separate Account. The price of these units will include a transaction charge
which will not be paid by the Separate Account upon acquisition but will be paid
directly by the Insurance Company to MLPF&S out of the Insurance Company's
general account assets. The amount of the transaction charge paid will be
limited by agreement between the Insurance Company and MLPF&S and will not be
greater than that ordinarily paid by a dealer for similar securities. The
Insurance Company will seek reimbursement for the amounts paid through a daily
asset charge which will be made against the assets of investment divisions
investing in the Trusts. The amount of this charge currently is equivalent to an
effective annual rate of .34% at the beginning of the year. This amount may be
increased in the future but in no event will it exceed an effective annual rate
of .50%. The charge will be cost-based (taking into account a loss interest)
with no anticipated element of profit for the Insurance Company.
Units of Trusts will be disposed of to the extent necessary for the Insurance
Company to provide benefits and make reallocations under the Policies. Such
units will be sold to MLPF&S, which has committed to maintain a secondary
market.
The objective of the Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities is to provide safety of capital and a high yield to maturity through
investment in any of its fixed portfolios consisting primarily of bearer debt;
obligations issued by the United States of America that have been stripped of
their unmatured interest coupons, coupons stripped from debt obligations of the
United States, and receipts and certificates for such stripped debt obligations
and coupons. A brief summary of the fixed portfolios purchased by each unit
investment trust is set forth below. More detailed information may be found in
the current prospectus for The Merrill Lynch Fund of Stripped ("Zero") U.S.
Treasury Securities.
<TABLE>
<S> <C>
THE 20 TRUSTS
TRUST MATURITY DATE
-----------------
1994 August 15, 1994
1995 November 15, 1995
1996 February 15, 1996
1997 February 15, 1997
1998 February 15, 1998
1999 February 15, 1999
2000 February 15, 2000
2001 February 15, 2001
2002 February 15, 2002
2003 August 15, 2003
2004 February 15, 2004
2005 February 15, 2005
2006 February 15, 2006
2007 February 15, 2007
2008 February 15, 2008
2009 February 15, 2009
2010 February 15, 2010
2011 February 15, 2011
2013 February 15, 2013
2014 February 15, 2014
</TABLE>
From time to time we may calculate a targeted rate of return to maturity for
an investment division investing in a Trust. Since the U.S. Treasury securities
have been stripped of their unmatured interest coupons, they are purchased at a
deep discount. If held to maturity, the
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<PAGE>
amount invested will grow to the face value of the securities and, therefore, a
compound rate of growth to maturity could be determined for the Trust units. The
units, however, are held in divisions of the Separate Account, and the charges
described under "Expenses Charged to All Divisions of the Separate Account" and
"Expenses Charged to Divisions Investing in the Trusts" must be reflected in the
determination of a net return. The net rate of return to maturity thus depends
on the compound rate of growth in the units and these underlying charges. It
does not reflect the applicable charges for policy loading and the cost of
insurance. Since the value of the Trust units will vary daily to reflect the
market value of the underlying securities, the compound rate of growth to
maturity and, hence, the net rate of return to maturity will correspondingly
vary daily.
The value of units of the Trust prior to maturity is more volatile than that
of units of a unit investment trust containing unstripped U.S. Treasury
securities of comparable maturities and since that value will affect death
benefits (subject to Guaranteed Insurance Amount) and cash values under the
Policy, those values will fluctuate accordingly.
SUBSTITUTION OF INVESTMENTS
If, in the judgment of the Insurance Company's management, any of the Funds or
unit investment trust portfolios referred to above no longer suits the purposes
of
the Policies due to a change in the portfolio's investment objective or
restrictions or if the shares or units should no longer be available for
investment, the Insurance Company can substitute shares or units of another
portfolio or an entirely separate mutual fund or unit investment trust. But the
Insurance Company would get prior approval from the SEC, the Arkansas Insurance
Department and other regulatory authorities as may be necessary.
The owner may exchange a Policy for a fixed life insurance policy in
accordance with state insurance regulations if The Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities is terminated or if units are no
longer available for investment or if one of the Funds:
- changes its investments adviser; or
- makes a material change in its investment objectives or
restrictions.
The Insurance Company will notify the owner if there is any such change and
will describe the terms of the exchange to a fixed life insurance policy at that
time. The owner will be able to exchange a Policy within not less than 60 days
of receipt of such notice or of the effective date of the change, whichever is
later.
HOW POLICY BENEFITS VARY TO REFLECT THE SEPARATE
ACCOUNT'S INVESTMENT RESULTS
THE AMOUNT INVESTED: THE INVESTMENT BASE
TOTAL INVESTMENT BASE. The total investment base is the amount that a Policy
provides for investment at any time. It is the sum of the amounts invested in
each of the investment divisions in the Separate Account. The owner selects the
divisions in which to place the total investment base. Each division invests
either in a single portfolio of the Funds, e.g., the Money Reserve Portfolio, or
in a single unit investment trust of The Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, e.g., the unit investment trust investing in
securities maturing on February 15, 2002. The total investment base can be
allocated among up to 5 of the Separate Account's investment divisions.
INVESTMENT BASE IN EACH INVESTMENT DIVISION. On the policy date, the
investment base is the net premium plus the policy loading. After the free look
period the owner may allocate the investment base among up to five of the
Separate Account's investment divisions.
At the beginning of each policy year, the portion of the Policy's investment
base in each division equals the amount of a Policy's net cash value (see "Cash
Value Benefits", page 10) allocated to that particular division, plus a
correspondingly proportionate amount of any unrecovered policy loading (see page
17).
On each date during a policy year the portion of the investment base allocated
to any particular division will be adjusted to reflect the investment experience
of that division (see "Policy's Rate of Return and Resultant Investment Return",
page 17).
HOW INVESTMENT BASE RELATES TO CASH VALUE. The investment base will exceed a
Policy's net cash value on the policy date and during the first ten policy years
by the amount of the unrecovered policy loading. During a policy year, there is
an additional difference between the investment base and net cash value for all
the Policies, because the net cash value reflects a daily adjustment for the
cost of insurance protection, while the corresponding adjustment to the
investment base is made once at the end of a policy year. Thus, the investment
base is not a measure of the net cash value to which the owner is entitled
except on policy anniversaries after the tenth.
POLICY LOANS WILL CHANGE CALCULATIONS. A policy loan reduces the total
investment base and the investment base in each investment division. On the
other hand,
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<PAGE>
repayment of a loan will cause an increase. The Insurance Company will take this
into consideration in its calculations (see "Policy Loan", page 10).
POLICY'S RATE OF RETURN AND RESULTANT INVESTMENT RETURN
The determination of the investment return for a Policy, which is the dollar
amount used to buy additional variable insurance (see "Variable Insurance
Amount", page 8), is based upon a Policy's actual rate of return.
ACTUAL RATE OF RETURN. A Policy's actual rate of return is determined on each
policy anniversary. It reflects the investment experience of each designated
investment division during a policy year and the portion of the total investment
base under a Policy in each investment division. The investment experience of an
investment division is determined at the end of each valuation period. 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 for trading
and any day in which there is sufficient trading in portfolio securities of the
Series Fund or the Trusts such that the net value of the assets of an investment
division might be materially affected.
The investment experience of a division reflects increases or decreases in the
net asset value of the underlying shares of the Funds or the value of units of
the unit investment trusts and any charges against the assets in each division
(see "Expenses Charged to All Divisions of the Separate Account", page 18).
Units of the unit investment trust will be valued at the Sponsor's repurchase
price as defined in the prospectus for The Merrill Lynch Fund of Stripped
("Zero") U.S. Treasury Securities. For divisions investing in the Funds, the
investment experience also reflects any dividend or capital gains distribution
declared by the Funds. The Insurance Company follows a consistent method for
periods less than a year.
INVESTMENT RETURN FOR A POLICY. The determination of the investment return
for a Policy starts on the first day of each policy year and ends on the first
day of the next policy year. The investment return for a policy year is the
difference between a Policy's actual rate of return for the policy year and 4.5%
(a Policy's assumed rate of return), multiplied by the cash value on the first
day of the policy year. In addition, during the first 10 policy years, there is
an investment return adjustment (see "Investment Return Adjustment", page 9).
There will be a positive investment return for a policy year if a Policy's
actual rate of return is greater than 4.5%, in which case the Variable Insurance
Amount increases. There will be a negative investment return if the actual rate
of return is less than 4.5%, in which case the Variable Insurance Amount
decreases, subject to the investment return adjustment (see page 9) and the
formula adjustment (see page 9).
CHARGES AND EXPENSES
ALLOCATION TO THE SEPARATE ACCOUNT
To support the operations of a Policy, on the policy date the Insurance
Company allocates to the Separate Account an amount equal to the sum of the net
premium and the policy loading.
CHARGES DEDUCTED FROM PREMIUM
The Policy's net premium equals the single premium less any additional premium
amounts for extra mortality risks ("deductions") and less the charges listed
below. The net premium plus the policy loading (the sum of the charges listed
below) is allocated to the Separate Account on the policy date. Thereafter, the
policy loading is subtracted from the investment base in equal installments at
the beginning of the second through the eleventh policy years.
SALES LOAD. A charge (which may be deemed to be a sales load as defined in
the 1940 Act) not to exceed 4% of the single premium. In certain group or
sponsored arrangements, the charge for sales load may be reduced (see "Group or
Sponsored Arrangements", page 18).
The amount of the sales load cannot be specifically related to sales expenses.
To the extent that sales expenses are not recovered from the charges for sales
load, such expenses may be recovered from sources other than charges deducted
from the premium, which may include amounts derived indirectly from the charge
for mortality and expense risks and from mortality gains.
ADMINISTRATIVE CHARGE. A charge to cover administrative expenses in
connection with issuing a Policy. Such expenses include medical examinations,
attending physician's statements, insurance underwriting costs, and establishing
permanent policy records. The Insurance Company does not expect to make a profit
from this charge.
The maximum charge for a Policy is $5 for each $1,000 of face amount, but not
more than $750 per policy. The charge per $1,000 of face amount is lower at
younger ages. The minimum charge per Policy is $125. In certain group or
sponsored arrangements, the administrative charge may be reduced (see "Group or
Sponsored Arrangements", page 18).
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<PAGE>
STATE PREMIUM TAX CHARGE. 2.25% of the single premium. Premium taxes vary
from state to state. The 2.25% rate is the average rate expected to be paid on
premiums from all states.
RISK CHARGE. 1.5% of the single premium, to cover the contingency that the
insureds die at a time when the Guaranteed Insurance Amount exceeds the death
benefit which would have been payable in the absence of such a guarantee. This
risk charge is allocated to the Insurance Company's general account and set up
as a reserve.
EXPENSES CHARGED TO ALL DIVISIONS OF THE SEPARATE ACCOUNT
CHARGE FOR MORTALITY AND EXPENSE RISKS. The Insurance Company makes a daily
charge to the Separate Account for mortality and expense risks assumed by the
Insurance Company. The amount of this charge is computed at an effective annual
rate of .50% at the beginning of the year.
The mortality risk assumed is that insureds as a group may live for a shorter
period of time than estimated and, therefore, a greater amount of death benefits
than expected will be payable. The expense risk assumed is that expenses
incurred in issuing and administering the Policies will be greater than
estimated. The Insurance Company will realize a gain from this charge to the
extent it is not needed to provide for benefits and expenses under the Policies.
CHARGES FOR INCOME TAXES. Currently no charge is made to the Separate Account
for company Federal income taxes that may be attributable to the Separate
Account. However, the Insurance Company may make such a charge in the future.
Charges for other taxes, if any, attributable to the Separate Account may also
be made (see "Charge for the Insurance Company's Income Taxes", page 21).
CHARGE FOR THE COST OF INSURANCE
The Policies are life insurance policies. Accordingly, a charge for the cost
of life insurance is deducted daily in determining the cash value (see "Net Cash
Value", page 10), while it is deducted from the investment base at the end of
each policy year. The cost of insurance is computed based upon the amount of
insurance provided during the year and the insured's sex and insurance age.
GROUP OR SPONSORED ARRANGEMENTS
The sales load, the administrative charge, and the minimum premium set forth
in this prospectus may be reduced for Policies issued in connection with group
or sponsored arrangements. In addition, under such group or sponsored
arrangements, underwriting classifications set forth in this prospectus may be
modified. A "group arrangement" includes a program under which a trustee,
employer or similar entity purchases Policies covering a group of individuals on
a group basis. A "sponsored arrangement" includes a program under which an
employer permits group solicitation of its employees for the purchase of
Policies on an individual basis, often through a voluntary payroll deduction
arrangement.
The Insurance Company will reduce these charges in accordance with its rules
in effect on the date an application for a Policy is approved. To qualify for
such reductions, a group or sponsored arrangement must satisfy certain criteria
as to, for example, size and number of years in existence. Generally, the sales
contacts and effort, administrative cost, and mortality cost per Policy vary
with the size of the group or sponsored arrangement, its stability as indicated
by its term of existence and certain characteristics of its members, the
purposes for which Policies are purchased, and other factors. The amounts of
reductions and the criteria for qualification will reflect the reduced sales
effort and administrative costs resulting from, and the different mortality
experience expected as a result of, sales to qualifying group and sponsored
arrangements.
Under the Insurance Company's current rules, such reductions will result in a
sales load of not less than 0% and not more than 3% of the single premium. The
administrative charge will be based on minimums and maximums of no less than $50
and $300, and no more than $100 and $700, respectively. In any given group or
sponsored arrangement, depending upon size and type, one or more of the above
reductions may apply.
The Insurance Company may modify from time to time, on a uniform basis, both
the amounts of reductions and the criteria for qualification. In no event,
however, will group or sponsored arrangements established for the sole purpose
of purchasing Policies, or that have been in existence for less than six months,
qualify for such reductions. Reductions in these charges will not be unfairly
discriminatory against any person, including the affected owners and all other
owners of Policies funded by the Separate Account.
EXPENSES CHARGED TO THE TRUSTS
ASSET CHARGE. The Insurance Company makes a daily asset charge against the
assets of each investment division investing in a unit investment trust. This
charge is to reimburse the Insurance Company for the transaction charge paid
directly by the Insurance Company to MLPF&S on the sale of the units to the
Separate Account. The Insurance Company pays these amounts from general account
assets. The amount of the asset charge currently is equivalent to an effective
annual rate of .34% at the beginning of the year. This amount may be increased
in the future but in no event will it exceed an effective annual rate of .50%.
The charge will be cost-based (taking into account a loss of interest) with no
anticipated element of profit for the Insurance Company.
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<PAGE>
GUARANTEE OF CERTAIN CHARGES
The Insurance Company guarantees, and may not increase, the charge for the
cost of insurance, the amount of the charge to the Separate Account for
mortality and expense risks, and the maximum asset charge to divisions investing
in a unit investment trust.
OTHER CHARGES
The Separate Account purchases shares of the Funds at net asset value. The net
asset value of those shares reflects advisory fees already deducted from the
assets of the Funds. Those fees are described in the prospectus for each of the
Funds. Under a Reimbursement Agreement, the Series Fund will be reimbursed so
that the ordinary operating expenses of the portfolio (which include the monthly
advisory fee) do not exceed .50% of the average daily net assets. MLAM and
Merrill Lynch Life Agency, Inc. have entered into a Reimbursement Agreement that
limits the operating expenses paid by each portfolio in the Variable Series
Funds in a given year to 1.25% of its average net assets.
Certain fees, including the bank trustee's and evaluator's fees, will be
charged against the unit investment trusts of The Merrill Lynch Fund of Stripped
("Zero") U.S. Treasury Securities. One interest bearing security will be
deposited in each Trust to provide income with which to pay the expenses of the
Trust. These fees and expenses are described in the prospectus for The Merrill
Lynch Fund of Stripped ("Zero") U.S. Treasury Securities.
ADMINISTRATIVE SERVICES
The Insurance Company and its parent, Merrill Lynch Insurance Group, Inc.
("MLIG") are parties to a service agreement pursuant to which MLIG has agreed to
provide certain data processing, legal, actuarial, management, advertising and
other services to the Insurance Company, including services related to the
Separate Account and the policies. Expenses incurred by MLIG in relation to this
service agreement are reimbursed by the Insurance Company on an allocated cost
basis. Charges billed to the Insurance Company by MLIG pursuant to the agreement
were $55.9 million for the year ended December 31, 1993.
DISTRIBUTION AGREEMENT AND OTHER
CONTRACTUAL ARRANGEMENTS
The Insurance Company retains MLPF&S under a distribution agreement to act as
principal underwriter for the Policies described in this prospectus as well as
other policies issued through the Separate Account. The Insurance Company has
companion sales agreements with various insurance agency organizations
affiliated with MLPF&S, including ML Life Agency Inc. in Texas, Merrill Lynch
Life Agency Ltd. in Mississippi and various Merrill Lynch Life Agencies
elsewhere. MLPF&S also is principal underwriter (distributor) for other
registered investment companies, including other separate accounts of the
Insurance Company and an affiliated insurance company. It is registered with the
SEC as a broker-dealer and is a member of the National Association of Securities
Dealers.
Under the distribution and sales agreements, applications for the policies are
solicited by financial consultants of MLPF&S. The financial consultants are
authorized under applicable state regulations to sell variable life insurance as
insurance agents.
The maximum commissions as a percentage of a premium payable to qualified
registered representatives will, in no event, exceed 3.5%. In addition, the
organizations described above will also receive override payments and may be
reimbursed under MLPF&S's expense reimbursement allowance program for portions
of expenses incurred.
The total amounts paid under the distribution and sales agreements for the
Separate Account for the years ended December 31, 1991, December 31, 1992, and
December 31, 1993, were $1,105,775, $673,788 and $915,429, respectively.
REINSURANCE. The Insurance Company intends to reinsure a portion of the risks
assumed under the Policies.
TAX CONSIDERATIONS
POLICY PROCEEDS
The Policies should receive the same Federal income tax treatment as fixed
life insurance. As such, (a) the death benefit thereunder should be excludable
from the gross income of the beneficiary under Section 101(a)(1) of the Internal
Revenue Code ("Code") and (b) the policyowner should not be deemed to be in
constructive receipt of the cash values, including increments thereof, under a
Policy until lapse or actual surrender thereof. The Insurance Company believes
that a Policy meets the statutory definition of life insurance and hence will
receive the same tax treatment as fixed life insurance.
19
<PAGE>
DIVERSIFICATION. Section 817(h) of the Internal Revenue Code provides that
separate account investments (or the investments of a mutual fund, the shares of
which are owned by separate accounts of insurance companies) underlying the
contract must be "adequately diversified" in accordance with Treasury
regulations in order for the contract to qualify as life insurance. The Treasury
Department has issued regulations prescribing the diversification requirements
in connection with variable contracts. The separate account, through the Funds,
intends to comply with these requirements. Although we don't control the Funds,
we intend to monitor the investments of the Funds to ensure compliance with the
requirements prescribed by the Treasury Department.
In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of regulations or
rulings prescribing the circumstances in which a policyowner's control of the
investments of a separate account may cause the policyowner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If the policyowner is considered the owner of the assets of the
Separate Account, income and gains from the account would be included in the
policyowner's gross income.
The ownership rights under this Policy are similar to, but different in
certain respects from those described by the IRS in rulings in which it
determined that the policyowners were not owners of Separate Account assets. For
example, the owner of this Policy has additional flexibility in allocating
premiums and cash values. These differences could result in the policyowner
being treated as the owner of the assets of the separate account. In addition,
the Insurance Company does not know what standards will be set forth in the
regulations or rulings which the Treasury has stated it expects to be issued. We
therefore reserve the right to modify this Policy as necessary to attempt to
prevent the policyowner from being considered the owner of the assets of the
separate account.
POLICY LOANS AND OTHER TRANSACTIONS. Federal tax law establishes a new class
of life insurance policies referred to as modified endowment contracts. A
modified endowment contract is any contract which satisfies the definition of
life insurance set forth in Section 7702 of the Code but fails to meet the 7-pay
test. This test applies a cumulative limit on the amount of premiums that can be
paid into a contract each year in the first seven contract years in order to
avoid modified endowment contract treatment.
Loans from, as well as collateral assignments of, modified endowment contracts
will be treated as distributions to the policyowner. All pre-death distributions
(including loans and collateral assignments) from these policies will be
included in gross income on an income-first basis to the extent of any income in
the policy immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments and complete surrenders) from modified endowment
contracts to the extent they are included in income, unless such amounts are
distributed on or after the taxpayer attains age 59 1/2, because the taxpayer is
disabled, or as substantially equal periodic payments over the taxpayer's life
(or life expectancy) or over the joint lives (or joint life expectancies) of the
taxpayer and his beneficiary.
These provisions apply to policies entered into on or after June 21, 1988.
However, a policy that is not originally classified as a modified endowment
contract can become so classified if a material change is made in the policy at
any time. A material change includes, but is not limited to, a change in the
benefits that was not reflected in a prior 7-pay computation. Certain changes
made to your Policy may cause it to become subject to these provisions. We
believe that these changes include your contractual right to make certain
additional premium payments. You may choose not to exercise this right in order
to preserve your Policy's current tax treatment. If you do preserve your
Policy's current tax treatment, policy loans will be considered your
indebtedness and no part of a policy loan will constitute income to you. In
addition, pre-death distributions will generally not be included in gross income
to the extent that the amount received does not exceed your investment in the
Policy. However, a lapse of a Policy with an outstanding loan will result in the
treatment of the loan cancellation (including the accrued interest) as a
distribution under the Policy and may be taxable.
Any policy received in exchange for a modified endowment contract is
considered a modified endowment contract.
If there is any borrowing against your Policy, whether a modified endowment
contract or not, the interest paid on loans is not tax deductible.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death
distribution (including loans, collateral assignments and surrenders) from a
policy that is treated as a modified endowment contract, a special "aggregation"
requirement may apply for purposes of determining the amount of the "income on
the contract." Specifically, if the Insurance Company or any of its affiliates
issue to the same policyowner more than one modified endowment contract during
any calendar year, then for purposes of measuring the "income on the contract"
with respect to a distribution from any of those contracts, the "income on the
contract" for all such contracts will be aggregated and attributed to that
distribution.
TAXATION OF SINGLE PREMIUM IMMEDIATE ANNUITY RIDER. If a SPIAR is used to
make the payments on the Policy, a portion of each payment from the annuity will
be includible in income for federal tax purposes when distributed. The amount of
taxable income consists of the excess of the payment amount over the exclusion
20
<PAGE>
amount. The exclusion amount is defined as the payment amount multiplied by the
ratio of the investment in the annuity rider to the total amount expected to be
paid by the Insurance Company under the annuity.
If payments cease because of death before the investment in the annuity rider
has been fully recovered, a deduction is allowed for the unrecovered amount.
Moreover, if the payments continue beyond the time at which the investment in
the annuity rider has been fully recovered, the full amount of each payment will
be includible in income. If the SPIAR is surrendered before all of the scheduled
payments have been made by the Insurance Company, the remaining income in the
annuity rider will be taxed just as in the case of life insurance contracts.
Payments under an immediate annuity rider are not subject to the 10% penalty
tax that is generally applicable to distributions from annuities made before the
recipient attains age 59 1/2.
Other than the tax consequences described above, and assuming that the SPIAR
is not subjected to an assignment, gift or pledge, no income will be recognized
to the owner or beneficiary.
The SPIAR does not exist independently of a policy. Accordingly, there are tax
consequences if a policy with a SPIAR is assigned, transferred by gift or
pledged. An owner of a Policy with a SPIAR is advised to consult a tax advisor
prior to effecting an assignment, gift, or pledge of the policy.
OTHER TRANSACTIONS. Changing the owner or the insured may have tax
consequences. Exchanging a Policy for another involving the same insured(s) will
have no tax consequences if there is no debt and no cash or other property is
received according to Section 1035(a)(1) of the Code. Changing the insured under
a Policy may not be treated as an exchange under Section 1035 but rather as a
taxable exchange.
OTHER TAXES. Federal estate and state and local estate, inheritance and other
taxes depend upon your or the beneficiary's specific situation.
PENSION BUSINESS. In certain HR-10 and corporate pension trust arrangements,
the Policies may be used on an individually written basis (see discussion below
for applicable tax charges).
OWNERSHIP OF A POLICY BY NON-NATURAL PERSONS. The above discussion of the tax
consequences arising from the purchase, ownership and transfer of a Policy has
assumed that the owner of the Policy consists of one or more individuals.
Organizations exempt from taxation under Section 501(a) of the Code may be
subject to additional or different tax consequences with respect to transactions
such as loans. Further, organizations purchasing Policies covering the life of
an individual who is an officer or employee, or is financially interested in,
the taxpayer's trade or business, may be unable to deduct all or a portion of
the interest or payments made with respect to such Policies. Such organizations
should obtain tax advice prior to the acquisition of the policy and also before
entering into any subsequent changes to or transactions under the Policy.
THE INSURANCE COMPANY DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF
THE POLICY OR ANY TRANSACTION REGARDING THE POLICY.
THE ABOVE DISCUSSION IS NOT INTENDED AS TAX ADVICE. FOR TAX ADVICE YOU SHOULD
CONSULT A COMPETENT TAX ADVISER. ALTHOUGH OUR 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.
CHARGE FOR THE INSURANCE COMPANY'S INCOME TAXES
The Insurance Company does not expect to incur any Federal income tax
liability attributable to the Separate Account for a number of years. Based on
these expectations, no charge is being made currently to the Separate Account
for company Federal income taxes which may be attributable to the Separate
Account.
The Insurance Company will review the question of a charge to the Separate
Account for company Federal income taxes periodically. Such a charge may be made
in future years for any Federal income taxes incurred by the Insurance Company.
This might become necessary if there are changes made in the Federal income tax
treatment of variable life insurance at the company level, or if there is a
change in the Insurance Company's tax status. Any such charge would be designed
to cover the Federal income taxes attributable to the investment results of the
Separate Account.
The Insurance Company anticipates that, if a charge becomes necessary, the
amount of such charges, as adjusted from time to time, would be accumulated on a
daily basis and transferred out of each investment division and into its general
account on a monthly basis. Any investment earnings during the month on any tax
charges accumulated in an investment division would be retained by the Insurance
Company.
Such tax charges, if they are imposed, would not be made under Policies issued
in connection with the pension arrangements described above.
Under current laws, the Insurance Company may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, charges for such taxes, if any, attributable to the Separate Account may
be made.
21
<PAGE>
LEGAL CONSIDERATIONS
On July 6, 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 on the basis of sex. In that case the Court applied
its decision only to benefits derived from contributions made on or after August
1, 1983. A recent decision of the United States Court of Appeals for the Second
Circuit, SPIRT V. TIAA-CREF, indicates that in other factual circumstances the
Title VII prohibition of sex distinct benefits may apply at an earlier date. The
Policy offered by this prospectus is based upon actuarial tables which
distinguish between men and women and thus the Policy provides different
benefits to men and women of the same age. Accordingly, employers and employee
organizations should consider, in consultation with legal counsel, the impact of
NORRIS on any employment-related insurance or benefit program (including the
group or sponsored arrangements described on page 18) before purchasing this
Policy.
MANAGEMENT
The Insurance Company's directors and executive officers and their positions
with the Insurance Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION HELD
<S> <C>
Anthony J. Vespa Chairman of the Board, President
and Chief Executive Officer
Joseph E. Crowne Director, Senior Vice President,
Chief Financial Officer, Chief
Actuary, and Treasurer
Barry Skolnick Director, Senior Vice President
and General Counsel
David M. Dunford Director, Senior Vice President
and Chief Investment Officer
John C.R. Hele Director and Senior Vice
President
Allen N. Jones Director
Robert S. Boucher Senior Vice President, Variable
Life Administration
</TABLE>
Each director is elected to serve until the next annual meeting of
shareholders or until his or her successor is elected and shall have qualified.
Each has held various executive positions with insurance company subsidiaries of
the Insurance Company's indirect parent, Merrill Lynch & Co., Inc. The principal
positions of the Insurance Company's directors and executive officers for the
past five years are listed below:
Mr. Vespa joined the Insurance Company in January 1994. Since February 1994,
he has held the position of Senior Vice President of Merrill Lynch, Pierce,
Fenner & Smith Incorporated. Since February 1994, he has held the position of
Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
From February 1991 to February 1994, he held the position of District Director
and First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
From September 1988 to February 1991, he held the position of Senior Resident
Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Mr. Crowne joined the Insurance Company in June 1991. From January 1989 to May
1991, he was a Principal with Coopers & Lybrand.
Mr. Skolnick joined the Insurance Company in November 1990. He joined Merrill
Lynch, Pierce, Fenner & Smith Incorporated in July 1984. Since May 1992, he has
held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and
First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Prior to May 1992, he held the position of Senior Counsel of Merrill Lynch &
Co., Inc.
Mr. Dunford joined the Insurance Company in July 1990. He joined Merrill
Lynch, Pierce, Fenner & Smith Incorporated in September 1989. Prior to September
1989, he held the position of President of Travelers Investment Management Co.
Mr. Hele joined the Insurance Company in December 1990. He joined Merrill
Lynch, Pierce, Fenner & Smith Incorporated in August 1988.
Mr. Jones joined the Insurance Company in June 1992. Since May 1992, he has
held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From June 1992 to February 1994, he held the position of
Chairman of the Board, President, and Chief Executive Officer of the Insurance
Company. From January 1992 to June 1992, he held the position of First Vice
President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. From January
1991 to January 1992, he held the position of District Director of Merrill
Lynch, Pierce, Fenner & Smith Incorporated. Prior to January 1991, he held the
position of Senior Regional Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
Mr. Boucher joined the Insurance Company in May 1992. Prior to May 1992, he
held the position of Vice President of Monarch Financial Services, Inc.
(formerly Monarch Resources, Inc.)
22
<PAGE>
No shares of the Insurance Company are owned by any of its officers or
directors, as it is a wholly owned subsidiary of Merrill Lynch Insurance Group,
Inc. The officers and directors of the Insurance Company, both individually and
as a group, own less than one percent of the outstanding shares of common stock
of Merrill Lynch & Co., Inc.
VOTING RIGHTS
RIGHT TO INSTRUCT VOTING OF SHARES OF THE FUNDS
In accordance with its view of present applicable law, the Insurance Company
will vote the shares of each of the ten portfolios of the Series Fund ("Fund")
and of the seven portfolios of the Variable Series Funds ("Fund") held in the
Separate Account at regular and special meetings of the shareholders of such
Fund based on instructions received from persons having the voting interest in
corresponding investment divisions of the Separate Account. However, if the
Investment Company Act of 1940 or any regulations thereunder should be amended
or if the present interpretation thereof should change, and as a result the
Insurance Company determines that it is permitted to vote the shares of such
Fund in its own right, it may elect to do so.
The person having the voting interest under a Policy is the owner. The number
of shares held in each investment division attributable to each owner is
determined by dividing a Policy's investment base in that division, if any, by
the net asset value of one share in the portfolio of the Fund in which that
investment division invests. Fractional votes will be counted.
The number of shares which a person has the right to vote will be determined
as of a date to be chosen by the Insurance Company, but not more than 90 days
before any meeting of the Fund. Voting instructions will be solicited by written
communication at least 14 days before such meeting.
Fund shares held in each investment division for which no timely instructions
are received will be voted by the Insurance Company in the same proportion as
the voting instructions which are received for all Policies participating in
each investment division.
Each owner having a voting interest will receive periodic reports relating to
such Fund, proxy material and a form for giving voting instructions.
DISREGARD OF VOTING INSTRUCTIONS
The Insurance Company may, when required by State insurance regulatory
authorities, disregard voting instructions if the instructions require that the
shares be voted so as to cause a change in the sub-classification or investment
objectives of the Fund or one or more of its portfolios or to approve or
disapprove an investment advisory contract for a portfolio of such Fund. In
addition, the Insurance Company itself may disregard voting instructions in
favor of changes initiated by an owner in the investment policy or the
investment adviser of a portfolio of such Fund if the Insurance Company
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or the Insurance Company determined that the change would have an
adverse effect on its general account in that the proposed investment policy for
a portfolio may result in overly speculative or unsound investments. In the
event the Insurance Company does disregard voting instructions, a summary of
that action and the reasons for such action will be included in the next
semiannual report to policy owners.
REPORTS
On each quarterly anniversary of a policy a statement will be sent to the owner
setting forth the death benefit, cash value and any policy debt (and interest
charged for the preceding policy quarter) as of the first day of such quarter.
In addition, the report will indicate the allocation of the investment base
among the investment divisions as of the first day of the quarter.
An owner will be sent a semiannual report containing a financial statement for
the Separate Account and a list of the portfolio securities of the Series Fund
and the Variable Series Funds, as required by the Investment Company Act of
1940.
STATE REGULATION
The Insurance Company is subject to regulation and supervision by the Insurance
Department of the State of Arkansas (the "Insurance Department"). A detailed
financial statement in the prescribed form (the "Annual Statement") is filed
with the Insurance Department each year covering the Insurance Company's
operations for the preceding year and its financial condition as of the end of
that year. Regulation by the Insurance Department includes periodic examination
to determine contract liabilities and reserves so that the Insurance Department
may certify that these items are correct. The Insurance Company's books and
accounts are subject to review by the Insurance Department at all times. A full
examination of the Insurance Company's operations is conducted
23
<PAGE>
periodically by the Insurance Department and under the auspices of the National
Association of Insurance Commissioners. The Insurance Company is also subject to
the insurance laws and regulations of all jurisdictions where it is authorized
to do business. The Policy has been approved by the Insurance Department of the
State of Arkansas and in other jurisdictions.
LEGAL PROCEEDINGS
As an insurance company, we are ordinarily involved in various kinds of routine
litigation that in our judgment is
not of material importance in relation to our total assets. None of such
litigation relates to the Separate Account.
LEGAL MATTERS
The legal validity of the Policies described in the prospectus has been passed
on by Barry G. Skolnick,
Senior Vice President and General Counsel of the Insurance Company.
ADDITIONAL INFORMATION
A Registration Statement under the Securities Act of 1933 has been filed with
the SEC relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may be obtained at the SEC's
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
EXPERTS
The financial statements of the Insurance Company and of the Separate Account
as of December 31, 1993 and 1992 and for each of the three years in the period
ended December 31, 1993, included in this Prospectus have been audited by
Deloitte & Touche, independent auditors, as stated in their reports appearing
herein, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing. Deloitte &
Touche's principal
business address is 1633 Broadway, New York, New York 10019-6754.
Actuarial matters included in this prospectus have been examined by Joseph E.
Crowne, F.S.A., Chief Actuary and Chief Financial Officer of the Insurance
Company, as stated in his opinion filed as an exhibit to the Registration
Statement.
24
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES
AND ACCUMULATED PREMIUMS
The tables on pages 26 through 33 illustrate the way in which a Policy
operates. The tables are based on the following ages, amounts and premiums:
1. The illustration on pages 26 and 27 is for a Policy issued to a male age
5 in the standard-simplified underwriting class with a single premium of
$10,000 and a face amount of $85,164.
2. The illustration on pages 28 and 29 is for a Policy issued to a male age
25 in the standard-simplified underwriting class with a single premium
of $10,000 and a face amount of $46,341.
3. The illustration on pages 30 and 31 is for a Policy issued to a male age
40 in the standard-simplified underwriting class with a single premium
of $10,000 and a face amount of $28,602.
4. The illustration on pages 32 and 33 is for a Policy issued to a female
age 55 in the standard-simplified underwriting class with a single
premium of $10,000 and a face amount of $21,750.
The tables show how the death benefit and cash values may vary over an
extended period of time assuming hypothetical rate of return (i.e., investment
income and capital gains and losses, realized or unrealized) equivalent to
constant gross (after tax) annual rates of 0%, 4% and 8% or 0%, 6% and 12%.
The death benefit and cash value for a Policy would be different from those
shown if the actual rates of return averaged 0%, 4% and 8% or 0%, 6% and 12%
over a period of years, but also fluctuated above or below those averages for
individual policy years.
The amounts shown for the death benefit and cash value as of the end of each
policy year take into account the investment return adjustment and the formula
adjustment, the daily charge for mortality and expense risks in the Separate
Account equivalent to an effective annual charge of .50% at the beginning of the
year.
The amounts shown in the tables take into account an additional charge of
.490%. This charge assumes that investment base is allocated equally among all
investment divisions and is based on the 1993 expenses (including the monthly
advisory fees) for the Funds, anticipated 1994 expenses for the International
Bond Fund and the Developing Capital Markets Focus Fund, and the current trust
charge. This charge does not reflect expenses incurred by the Global Strategy
Portfolio and the Natural Resources Portfolio of the Series Fund in 1993 which
were reimbursed to the Series Fund by MLAM. Pursuant to a reimbursement
agreement with MLAM, the Series Fund was reimbursed for the excess which
amounted to .01% and .09%, respectively, of the average daily net assets of
these portfolios. (See "The Series Fund," page 13.)
Taking account of the charges for expense and mortality risks in the Separate
Account and the .490% charge described above, the gross annual rate of
investment return of 0%, 4% and 8% or 0%, 6% and 12% correspond to net annual
rates of -0.99%, 2.99% and 6.97% or -0.99%, 4.98% and 10.95%, respectively.
The hypothetical returns shown in the tables on pages 26 through 33 are
without any tax charges that may be attributable to the Separate Account in the
future. In order to produce after tax returns of 0%, 4% 6%, 8% and 12%, the
portfolio would have to earn a sufficient amount in excess of 0% or 4% or 6% or
8% or 12% to cover any tax charges (see "Tax Considerations--Policy Proceeds",
page 19).
The second column of the tables shows the amount which would accumulate if an
amount equal to the single premium were invested to earn interest (after taxes)
at 4% or 5% compounded annually depending on the hypothetical rates of return of
0%, 4% and 8% or 0%, 6% and 12%, respectively.
The Insurance Company will furnish upon request a personalized illustration
reflecting the proposed insured's age, face amount and premium amount requested.
The illustration will assume that the proposed insured is in one of the two
standard classes (depending on the face amount). In addition, if a purchase is
made, a comparable illustration will be included at the delivery of a Policy
reflecting the insured's risk classification.
25
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 5
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $85,164
<TABLE>
<CAPTION>
CASH VALUE(2)
DEATH BENEFIT(1)(2) ASSUMING HYPOTHETICAL GROSS
ASSUMING HYPOTHETICAL GROSS (AFTER (AFTER
TOTAL PREMIUM TAX) ANNUAL INVESTMENT RETURN OF TAX) ANNUAL INVESTMENT RETURN OF
PAID PLUS ---------------------------------- --------------------------------
END OF POLICY YEAR INTEREST AT 4% 0% 4% 8% 0% 4% 8%
- ------------------------------- --------------- ---------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................. $ 10,400 $ 85,573 $ 85,573 $ 89,095 $ 8,891 $ 9,290 $ 9,689
2............................. 10,816 85,984 85,984 93,030 8,720 9,514 10,340
3............................. 11,249 86,396 86,396 96,973 8,560 9,746 11,029
4............................. 11,699 86,811 86,811 100,928 8,409 9,986 11,761
5............................. 12,167 87,228 87,228 104,900 8,267 10,234 12,536
6............................. 12,653 87,646 87,646 108,908 8,132 10,488 13,357
7............................. 13,159 88,067 88,067 112,945 8,003 10,748 14,225
8............................. 13,686 88,490 88,490 117,015 7,878 11,012 15,142
9............................. 14,233 88,915 88,915 121,125 7,757 11,279 16,108
10............................. 14,802 89,341 89,341 125,279 7,638 11,548 17,125
15............................. 18,009 91,506 91,506 147,565 7,094 12,974 23,186
20 (age 25).................... 21,911 93,724 93,724 172,844 6,630 14,609 31,427
25............................. 26,658 95,994 95,995 201,479 6,250 16,535 42,794
30 (age 35).................... 32,434 98,321 98,321 233,912 5,934 18,778 58,452
60 (age 65).................... 105,196 113,510 113,510 545,486 5,282 36,160 329,635
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% and 4% columns result only
from the increase in the Guaranteed Insurance Amount and are unrelated to
the hypothetical annual investment returns. Similarly, a substantial
portion of the increase in the death benefit in the 8% column results from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 4% AND 8% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
26
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 5
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $85,164
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS (AFTER ASSUMING HYPOTHETICAL GROSS (AFTER
TOTAL PREMIUM TAX) ANNUAL INVESTMENT RETURN OF TAX) ANNUAL INVESTMENT RETURN OF
PAID PLUS ------------------------------------ ----------------------------------
END OF POLICY YEAR INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- --------------------------- --------------- ---------- ---------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 10,500 $ 85,573 $ 86,831 $ 93,623 $ 8,891 $ 9,489 $ 10,088
2......................... 11,025 85,984 88,441 102,470 8,720 9,923 11,197
3......................... 11,576 86,396 89,997 111,736 8,560 10,375 12,413
4......................... 12,155 86,811 91,501 121,454 8,409 10,848 13,748
5......................... 12,763 87,228 92,956 131,660 8,267 11,340 15,214
6......................... 13,401 87,646 94,378 142,408 8,132 11,854 16,823
7......................... 14,071 88,067 95,757 153,728 8,003 12,386 18,589
8......................... 14,775 88,490 97,097 165,661 7,878 12,938 20,525
9......................... 15,513 88,915 98,401 178,256 7,757 13,507 22,646
10......................... 16,289 89,341 99,670 191,565 7,638 14,094 24,969
15......................... 20,789 91,506 106,081 271,836 7,094 17,393 40,540
20 (age 25)................ 26,533 93,724 112,735 381,383 6,630 21,495 65,883
25......................... 33,864 95,995 119,631 530,781 6,250 26,691 107,582
30 (age 35)................ 43,219 98,321 126,774 734,602 5,934 33,244 176,255
60 (age 65)................ 188,792 113,510 175,540 4,968,779 5,282 108,369 2,975,232
<FN>
- ------------------------
(1) The increase in the death benefit in the 0% column results from the
increase in the Guaranteed Insurance Amount and is unrelated to the
hypothetical annual investment return. Similarly, a substantial portion of
the increase in the death benefit in the 6% and 12% columns result from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY 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 POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
27
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $46,341
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS -------------------------------- -------------------------------
END OF POLICY YEAR INTEREST AT 4% 0% 4% 8% 0% 4% 8%
- --------------------------------- --------------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................... $ 10,400 $ 46,563 $ 46,563 $ 48,296 $ 8,910 $ 9,308 $ 9,706
2............................... 10,816 46,787 46,787 50,248 8,751 9,546 10,372
3............................... 11,249 47,012 47,012 52,198 8,598 9,788 11,074
4............................... 11,669 47,237 47,237 54,149 8,451 10,035 11,816
5............................... 12,167 47,464 47,464 56,104 8,309 10,286 12,598
6............................... 12,653 47,692 47,692 58,073 8,173 10,542 13,425
7............................... 13,159 47,921 47,921 60,051 8,042 10,803 14,299
8............................... 13,686 48,151 48,151 62,041 7,915 11,069 15,223
9............................... 14,233 48,382 48,382 64,046 7,793 11,340 16,200
10............................... 14,802 48,614 48,614 66,067 7,674 11,615 17,234
15............................... 18,009 49,792 49,792 76,927 7,133 13,096 23,448
20 (age 25)...................... 21,911 50,999 50,999 89,159 6,623 14,690 31,703
25............................... 26,658 52,234 52,234 103,120 6,153 16,386 42,559
30 (age 35)...................... 32,434 53,500 53,500 118,918 5,718 18,109 56,499
40 (age 65)...................... 48,010 56,124 56,124 157,142 5,002 21,400 95,658
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% and 4% columns result only
from the increases in the Guaranteed Insurance Amount and are unrelated to
the hypothetical annual investment returns. Similarly, a substantial
portion of the increase in the death benefit in the 8% columns results
from the increases in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 4% AND 8% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
28
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $46,341
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS -------------------------------- --------------------------------
END OF POLICY YEAR INTEREST OF 5% 0% 6% 12% 0% 6% 12%
- -------------------------------- --------------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1.............................. $ 10,500 $ 46,563 $ 47,132 $ 50,625 $ 8,921 $ 9,507 $ 10,105
2.............................. 11,025 46,787 47,892 55,094 8,774 9,955 11,230
3.............................. 11,576 47,012 48,622 59,763 8,631 10,419 12,462
4.............................. 12,155 47,237 49,325 64,650 8,494 10,899 13,810
5.............................. 12,763 47,464 50,002 69,772 8,362 11,397 15,287
6.............................. 13,401 47,692 50,662 75,155 8,235 11,914 16,907
7.............................. 14,071 47,921 51,299 80,812 8,113 12,450 18,685
8.............................. 14,775 48,151 51,915 86,765 7,994 13,006 20,637
9.............................. 15,513 48,382 52,512 93,034 7,880 13,583 22,779
10.............................. 16,289 48,614 53,092 99,642 7,769 14,181 25,133
15.............................. 20,789 49,792 56,064 139,402 7,262 17,576 41,032
20 (age 25)..................... 26,533 50,999 59,132 193,323 6,779 21,656 66,555
25.............................. 33,864 52,234 62,402 267,024 6,330 26,505 107,181
30 (age 35)..................... 43,219 53,500 65,787 367,568 5,910 32,096 170,702
40 (age 65)..................... 70,400 56,124 72,927 693,121 5,204 45,288 416,229
<FN>
- ------------------------
(1) The increase in the death benefit in the 0% column results from the
increase in the Guaranteed Insurance Amount and is unrelated to the
hypothetical annual investment return. Similarly, a substantial portion of
the increase in the death benefit in the 6% and 12% columns results from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD YEARS. NO REPRESENTATIONS CAN BE MADE BY
THE INSURANCE COMPANY OR THE FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
29
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 40
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $28,602
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2)
ASSUMING HYPOTHETICAL GROSS CASH VALUE(2)
(AFTER ASSUMING HYPOTHETICAL GROSS
TAX) ANNUAL INVESTMENT RETURN (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM OF RETURN OF
PAID PLUS IN- ------------------------------- -------------------------------
END OF POLICY YEAR TEREST AT 4% 0% 4% 8% 0% 4% 8%
- ------------------------------------ --------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1.................................. $ 10,400 $ 28,739 $ 28,739 $ 29,729 $ 8,913 $ 9,311 $ 9,709
2.................................. 10,816 28,877 28,877 30,853 8,747 9,540 10,366
3.................................. 11,249 29,016 29,016 31,975 8,582 9,769 11,053
4.................................. 11,699 29,155 29,155 33,098 8,420 9,998 11,772
5.................................. 12,167 29,295 29,295 34,223 8,260 10,225 12,525
6.................................. 12,653 29,436 29,436 35,351 8,102 10,452 13,313
7.................................. 13,159 29,577 29,577 36,484 7,947 10,678 14,136
8.................................. 13,686 29,719 29,719 37,623 7,793 10,901 14,997
9.................................. 14,233 29,862 29,862 38,770 7,641 11,123 15,896
10.................................. 14,802 30,005 30,005 39,927 7,492 11,342 16,834
15 (age 55)......................... 18,009 30,732 30,732 46,333 6,808 12,487 22,361
20 (age 60)......................... 21,911 31,477 31,477 53,853 6,186 13,667 29,474
25 (age 65)......................... 26,658 32,239 32,239 62,408 5,601 14,773 38,286
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% and 4% columns result from
the increase in the Guaranteed Insurance Amount and are unrelated to the
hypothetical annual investment returns. Similarly, a substantial portion
of the increase in the death benefit in the 8% column results from the
increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 4% AND 8% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
30
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 40
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $28,602
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS -------------------------------- -------------------------------
END OF POLICY YEAR INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- --------------------------------- --------------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................... $ 10,500 $ 28,739 $ 29,046 $ 31,094 $ 8,925 $ 9,510 $ 10,107
2............................... 11,025 28,877 29,473 33,692 8,769 9,949 11,223
3............................... 11,576 29,016 29,882 36,405 8,615 10,399 12,438
4............................... 12,155 29,155 30,275 39,243 8,463 10,859 13,760
5............................... 12,763 29,295 30,654 42,217 8,312 11,331 15,200
6............................... 13,401 29,436 31,019 45,337 8,163 11,814 16,768
7............................... 14,071 29,577 31,370 48,615 8,016 12,307 18,476
8............................... 14,775 29,719 31,710 52,064 7,871 12,811 20,335
9............................... 15,513 29,862 32,039 55,695 7,727 13,326 22,359
10............................... 16,289 30,005 32,357 59,523 7,584 13,849 24,560
15 (age 55)...................... 20,789 30,732 34,136 82,895 6,930 16,759 39,153
20 (age 60)...................... 26,533 31,477 36,169 115,304 6,331 20,135 61,925
25 (age 65)...................... 33,864 32,239 38,282 159,760 5,760 23,856 96,513
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% column results from the
increase in the Guaranteed Insurance Amount and is unrelated to the
hypothetical annual investment returns. Similarly, a substantial portion
of the increase in the death benefit in the 6% and 12% columns result from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY 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 POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
31
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $21,750
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS ------------------------------- -------------------------------
END OF POLICY YEAR INTEREST AT 4% 0% 4% 8% 0% 4% 8%
- ----------------------------------- --------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1................................. $ 10,400 $ 21,854 $ 21,854 $ 22,584 $ 8,904 $ 9,302 $ 9,700
2................................. 10,816 21,959 21,959 23,417 8,710 9,501 10,324
3................................. 11,249 22,065 22,065 24,250 8,517 9,697 10,973
4................................. 11,699 22,171 22,171 25,085 8,327 9,890 11,648
5................................. 12,167 22,277 22,277 25,922 8,139 10,079 12,349
6................................. 12,653 22,384 22,384 26,762 7,954 10,264 13,078
7................................. 13,159 22,491 22,491 27,606 7,771 10,446 13,835
8................................. 13,686 22,599 22,599 28,458 7,591 10,623 14,620
9................................. 14,233 22,708 22,708 29,312 7,414 10,794 15,434
10 (age 65)........................ 14,802 22,817 22,817 30,175 7,239 10,961 16,277
15................................. 18,009 23,370 23,370 34,965 6,438 11,799 21,136
20 (age 75)........................ 21,911 23,936 23,936 40,600 5,716 12,589 27,141
30 (age 85)........................ 32,434 25,110 25,110 54,364 4,481 13,754 42,610
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% and 4% columns result only
from the increase in the Guaranteed Insurance Amount and are unrelated to
the hypothetical annual investment returns. Similarly, a substantial
portion of the increase in the death benefit in the 8% column results from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 4% AND 8% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE FUNDS OR THE TRUST THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
32
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $21,750
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS -------------------------------- --------------------------------
END OF POLICY YEAR INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- ---------------------------------- --------------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1................................ $ 10,500 $ 21,854 $ 22,079 $ 23,594 $ 8,904 $ 9,501 $ 10,098
2................................ 11,025 21,959 22,396 25,518 8,710 9,908 11,179
3................................ 11,576 22,065 22,701 27,530 8,517 10,323 12,349
4................................ 12,155 22,171 22,995 29,636 8,327 10,743 13,618
5................................ 12,763 22,277 23,278 31,846 8,139 11,170 14,991
6................................ 13,401 22,384 23,551 34,166 7,954 11,603 16,479
7................................ 14,071 22,491 23,814 36,606 7,771 12,042 18,090
8................................ 14,775 22,599 24,069 39,174 7,591 12,488 19,834
9................................ 15,513 22,708 24,316 41,880 7,414 12,934 21,721
10 (age 65)....................... 16,289 22,817 24,555 44,734 7,239 13,387 23,762
15................................ 20,789 23,370 25,893 62,192 6,438 15,837 37,040
20 (age 75)....................... 26,533 23,936 27,423 86,472 5,716 18,540 57,082
30 (age 85)....................... 43,219 25,110 30,677 165,899 4,481 24,247 129,076
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% column results only from the
increase in the Guaranteed Insurance Amount and is unrelated to the
hypothetical annual investment returns. Similarly, a substantial portion
of the increase in the death benefit in the 6% and 12% column results from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACUTAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY 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 POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
33
<PAGE>
APPENDIX B--OTHER POLICY PROVISIONS
INCOME PLANS
The owner may choose one or more income plans during the insured's lifetime.
If, at the time of the insured's death, no plan has been chosen for paying death
benefit proceeds, the beneficiary may choose a plan within one year.
The Insurance Company's approval is needed for any plan where:
- the person named to receive payments is other than the owner
or beneficiary; or
- the person named is not a natural person, such as a
corporation; or
- any income payment would be less than $25.
ANNUITY PLAN. An amount can be used to purchase a single premium immediate
annuity. Annuity purchase rates will be 3.0% less than for new annuitants.
DEPOSIT OPTION. An amount can be left on deposit with the Insurance Company
with interest payable at a rate of not less than 3% per year.
INSTALLMENT OPTION, FIXED PERIOD. An amount can be payable in installments
for up to 30 years, including interest at 3% per year. Any interest in excess of
3% is payable at the end of each installment year.
INSTALLMENT OPTION, FIXED AMOUNT. An amount can be payable in installments
until proceeds applied under the option and interest on unpaid balance of not
less than 3% per year are exhausted.
LIFE INCOME OPTION, PERIOD CERTAIN. An amount can be payable in monthly
installments until later of death of a named person or end of a period which may
be either 10 or 20 years.
JOINT LIFE INCOME. An amount can be payable in monthly installments as long
as at least one of two named persons is living. While both are living,
installments are at the full amount. When only one is alive, installments are at
2/3 of the full amount. Under this option, it is possible that only one payment
will be made if both named persons die before the second monthly installment is
paid or that only two payments will be made if both die before the third
payment, and so forth.
OTHER IMPORTANT PROVISIONS
OWNER. The owner of a Policy is the insured unless another owner has been
named in the application. If someone else is named as owner, that person has the
rights and options described in the Policy.
An owner other than the insured may name a contingent owner. The owner may
want to do this in case he or she dies before the insured. The owner's interest
in a Policy would then pass to the contingent owner. If there's no contingent
owner, the owner's interest would pass to the owner's estate.
If there is more than one owner, the Insurance Company will treat the owners
as joint owners with rights of survivorship unless the ownership designation
provides otherwise. The owners must exercise their rights and options jointly,
except that any one of the owners may reallocate the policy's investment base by
phone if the owner provides the personal identification number as well as the
Policy number. One owner must be designated, in writing, to receive all notices,
correspondence and tax reporting to which the owners are entitled under the
Policy.
BENEFICIARY. The beneficiary is the person to whom The Insurance Company pays
the proceeds upon the insured's death. The Insurance Company pays the proceeds
to the primary beneficiary. If the primary beneficiary has died, the proceeds
are paid to any contingent beneficiary. If there is no surviving beneficiary,
the Insurance Company pays the proceeds to the insured's estate.
Two or more persons may be named as primary beneficiaries or contingent
beneficiaries. In that case the Insurance Company will assume the proceeds are
to be paid in equal shares to the surviving beneficiaries. The owner can specify
other than equal shares. The owner can reserve the right to change
beneficiaries. If the owner doesn't reserve this right, the owner and primary
beneficiary must act together to exercise the rights and options under a Policy.
INCONTESTABILITY. The Insurance Company relies on the statements made in the
application. Legally, they are considered representations, not warranties. The
Insurance Company can contest a Policy if any material statement in the
application is false and a copy of that application is attached to a Policy.
The Insurance Company won't contest a Policy after it has been in effect
during the insured's lifetime for two years from the date of issue.
CHANGE OF INSURED. The owner may change a Policy for a new policy on the life
of a new insured. The change will be subject to evidence of insurability and
will not be available where the new insured is subject to a higher premium
charge for extra mortality risk. The owner of the original Policy will be the
owner of the new policy and the new policy will have a policy date that is the
same as the original. Premium rates for the new policy will be those in effect
on the policy date for the new insured's age and sex at that date and the
underwriting class determined at the date of change. The face amount of new
policies will be the same as the original. Where a negative Variable Insurance
Amount exists, however, the face amount will be reduced and the Variable
Insurance Amount for the new policy at the anniversary date immediately prior to
or coincident with the change date will be set to zero. The cash value of the
new policy will equal the cash value of the original less a charge for
administrative expenses incurred by the Insurance Company in making the change.
No other adjustments or charges are made at the time of change.
34
<PAGE>
CHANGES TO ATTAINED AGE SINGLE PREMIUM VARIABLE LIFE INSURANCE
POLICY. Subject to the Insurance Company's rules and the Insurance Company's
having obtained applicable regulatory approvals, if any, the owner may change
this Policy to an Attained Age Single Premium Variable Life Insurance policy at
the insured's then current age and with a policy date equal to the date of
change. The change will not be subject to evidence of insurability. The face
amount resulting from such a change will be less than the death benefit under
this Policy and will equal the face amount of insurance under a Single Premium
Variable Life Insurance policy, purchased at the insured's age at the date of
change, having a single premium equal to the Policy's net cash value less a 1.5%
risk charge. The risk charge covers the establishment of a new Guaranteed
Insurance Amount and the contingency that the insured die at a time when that
Guaranteed Insurance Amount exceeds the death benefit which would have been
payable in the absence of such a guarantee. No other charges are imposed at the
time of change.
BENEFICIARY INSURANCE PURCHASE. At the death of the insured, the beneficiary
of record of a Policy, if the spouse of the insured, may, subject to the
Insurance Company's rules, use all or part of the proceeds of the Policy to
purchase a Single Premium Variable Life Insurance policy on the life of the
beneficiary. To do so, the proceeds must have been otherwise payable to the
beneficiary in a single sum. A satisfactory written request must be received by
the Insurance Company within 90 days of the death of the insured and while the
beneficiary is still living. Any part of the proceeds not used to buy the new
policy will be paid to the beneficiary in a single sum.
The new policy will have an issue date and policy date as of the date the
written request is received by the Insurance Company. The policy's face amount
will be based on the standard medical premium rates being used by the Insurance
Company as of the policy date for the sex and attained age at the nearest
birthday of the beneficiary. The new policy will not have a formula adjustment.
The face amount acceptable without evidence of insurability will be limited to
the lesser of (i) $1,000,000 and (ii) the single premium applied plus $250,000.
The premium for the new policy will be lower than the premium for a similar
policy that the beneficiary could purchase from the Insurance Company without
the benefit of this provision because no sales load will be charged.
SINGLE PREMIUM IMMEDIATE ANNUITY RIDER ("SPIAR"). Subject to state
availability, for an additional premium, the applicant may purchase this rider
to provide income for a fixed period. The income will be payable for the period
specified in the rider but not less than 5 years nor more than 10 years. If the
insured dies prior to the end of this period, the rider value (the present value
of the remaining payments) will be payable to the beneficiary. If the rider or
the Policy is surrendered prior to the end of the period, the owner may receive
the rider value over a period of 5 years. The owner may also elect at any time
to apply the rider value to a life income. If the owner changes ownership of the
Policy, the Insurance Company will change the owner of the SPIAR to the new
owner of the Policy. The rider will have no effect on the loan value of the
Policy. The amount paid for this rider will be held in the Insurance Company's
general account and will not affect the variable aspects of the Policy.
Pledging, assigning or gifting a Policy with a SPIAR may have tax consequences
to the owner (see "Tax Considerations-- Policy Proceeds", page 19).
ERROR IN AGE OR SEX. If an age or sex as stated in the application is wrong,
it could mean the premium amount is wrong. Therefore, amounts payable under a
Policy will be what the premium actually paid would have bought at the true age
or sex.
ISSUE AGE. The Insurance Company determines the issue age based on the
insured's age on the birthday nearest the Policy's policy date.
SUICIDE. If the insured commits suicide within two years from the date of
issue, The Insurance Company will pay only a limited benefit. The limited
benefit will be the amount of premium paid for a Policy, minus any policy debt.
PAYMENTS AND DEFERMENT. Payments of the death benefit, net cash value or loan
proceeds will be made within 7 days after receipt at the Service Center of all
documents required for such payments.
However, the Insurance Company may defer the determination or payment of such
amounts if the effective date for determining such amounts falls within any
period during which:
- The disposal or valuation of the shares of the Funds or the
units of the Trusts held in the Separate Account is not
reasonably practicable because the New York Stock Exchange is
closed (other than customary weekend and holiday closings) or
conditions are such that, under the SEC's rules and
regulations, trading is restricted or an emergency is deemed
to exist; or
- the SEC by order permits postponement of such actions for the
protection of the Insurance Company policyholders.
Payment of the death benefit also may be delayed if the Policy is being
contested (see "Incontestability", page 34).
In the case of the payment of death benefit proceeds, the Insurance Company
will add interest from the date of death to the date of payment at an annual
rate of at least 3%.
ASSIGNMENT. The owner can assign a Policy as collateral security for a loan
or other obligation. This does not change the ownership. But the owner's rights
and any beneficiary's rights are subject to the terms of the assignment. To make
or release an assignment, the Insurance Company must receive written notice at
the Service Center, The Insurance Company is not responsible for
35
<PAGE>
the validity of any assignment. Pledging, assigning or gifting a Policy with a
SPIAR may have tax consequences to the owner (see "Tax Considerations--Policy
Proceeds", page 19).
DIVIDENDS. The Policies are classified as NON-PARTICIPATING. This means that
they do not provide for dividend payments. Unlike participating fixed life
insurance where a significant portion of dividend payments is attributable to
the insurer's investment earnings, the investment return under the Policies is
reflected in benefits.
------------
The description in this prospectus of Policy provisions is qualified by
reference to a specimen of the Single Premium Variable Life Insurance Policies
which has been filed as an exhibit to the Registration Statement.
36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statements of net assets of Merrill Lynch Life
Variable Life Separate Account II (the "Account") as of December 31, 1993 and
1992 and the related statements of earnings and changes in net assets for the
periods presented. These financial statements are the responsibility of the
management of Merrill Lynch Life Insurance Company. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of mutual fund securities owned at December
31, 1993, by correspondence with the funds' transfer agent. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating 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, 1993 and 1992
and the results of its operations and the changes in its net assets for the
periods presented in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules included
herein are presented for the purpose of additional analysis and are not a
required part of the basic financial statements. These schedules are the
responsibility of the Company's management. Such schedules have been subjected
to the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
/S/Deloitte & Touche
February 16, 1994
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1993
====================================================
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
================ ================ ================
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note B):
Money Reserve Portfolio $ 438,620,196 438,620,196 $ 438,620,196
Intermediate Government Bond Portfolio 225,959,405 20,018,543 240,622,883
Long-Term Corporate Bond Portfolio 103,655,972 8,931,873 112,452,283
Capital Stock Portfolio 151,482,415 6,809,310 175,203,541
Growth Stock Portfolio 88,155,753 3,830,058 94,410,938
Multiple Strategy Portfolio 829,095,746 52,292,504 1,037,483,285
High Yield Portfolio 69,832,521 7,581,705 73,390,906
Natural Resources Portfolio 16,129,714 2,056,848 15,488,063
Global Strategy Portfolio 135,975,097 9,592,777 147,920,617
Balanced Portfolio 64,564,635 4,909,122 71,771,360
---------------- ----------------
2,123,471,454 2,407,364,072
---------------- ----------------
Investment in Unit Investment Trusts (Note B)
Stripped ("Zero") U.S. Treasury Securities,
Series A through J:
1994 Trust 62,986,919 81,409,995 79,709,340
1995 Trust 52,960,936 73,746,561 68,448,608
1996 Trust 33,778,238 48,745,804 44,524,905
1997 Trust 34,057,844 52,573,315 45,577,384
1998 Trust 35,089,417 59,029,626 48,094,979
1999 Trust 7,212,640 12,421,349 9,510,406
2000 Trust 8,593,935 15,320,843 11,042,804
2001 Trust 33,981,499 74,204,915 50,089,802
2002 Trust 2,397,933 4,647,270 2,915,976
2003 Trust 29,384,656 79,780,617 45,038,552
2005 Trust 12,105,242 34,041,819 17,311,286
2006 Trust 2,634,025 7,925,496 3,799,721
2007 Trust 6,828,414 23,661,566 10,529,634
2008 Trust 15,539,545 59,558,078 24,081,713
2009 Trust 6,618,415 26,421,930 9,895,277
2010 Trust 5,998,497 17,860,268 6,173,580
2011 Trust 2,787,358 9,956,141 3,207,669
2013 Trust 807,575 2,844,127 783,101
353,763,088 480,734,737
---------------- ----------------
Total Invested Assets $ 2,477,234,542 2,888,098,809
================
Receivable from Merrill Lynch Series Funds, Inc. 1,852,080
----------------
Total Assets 2,889,950,889
----------------
LIABILITIES
Payable to Merrill Lynch Life Insurance Company 17,166,480
----------------
Total Liabilities 17,166,480
----------------
Net Assets $ 2,872,784,409
================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1992
===================================================
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
================ ================ ================
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note B)
Money Reserve Portfolio $ 532,816,891 532,816,891 $ 532,816,891
Intermediate Government Bond Portfolio 216,476,904 19,399,757 227,947,144
Long-Term Corporate Bond Portfolio 99,175,827 8,717,133 105,215,800
Capital Stock Portfolio 143,618,668 6,846,999 158,987,321
Growth Stock Portfolio 96,913,977 4,421,717 106,032,779
Multiple Strategy Portfolio 795,954,774 50,870,792 951,283,808
High Yield Portfolio 46,526,428 5,500,896 50,058,150
Natural Resources Portfolio 6,477,894 940,404 6,592,232
Global Strategy Portfolio 40,824,909 3,192,857 42,241,493
Balanced Portfolio 41,033,051 3,281,293 44,953,712
---------------- ----------------
2,019,819,323 2,226,129,330
---------------- ----------------
Investment in Unit Investment Trusts (Note B)
Stripped ("Zero") U.S. Treasury Securities,
Series A through I:
1993 Trust 37,496,592 45,151,587 43,849,867
1994 Trust 73,007,266 94,902,123 88,430,747
1995 Trust 59,097,885 83,324,361 72,221,390
1996 Trust 38,557,674 56,538,287 47,827,999
1997 Trust 38,829,628 60,874,945 48,005,982
1998 Trust 40,419,621 69,519,190 50,865,106
1999 Trust 7,845,057 14,074,909 9,523,928
2000 Trust 9,075,236 17,247,118 10,837,744
2001 Trust 38,096,844 84,771,958 49,149,934
2002 Trust 2,165,476 4,340,973 2,300,412
2003 Trust 33,509,411 94,023,008 44,143,802
2005 Trust 12,222,817 36,926,531 15,420,519
2006 Trust 2,925,230 9,278,844 3,607,800
2007 Trust 8,261,131 30,221,293 10,807,437
2008 Trust 19,946,021 80,157,890 25,967,950
2009 Trust 8,077,790 33,633,739 10,049,425
2010 Trust 6,489,168 25,948,098 7,105,368
2011 Trust 2,675,216 11,186,062 2,838,128
---------------- ----------------
438,698,063 542,953,538
---------------- ----------------
Total Invested Assets $ 2,458,517,386 2,769,082,868
================
Receivable from Merrill Lynch Series Funds, Inc. 1,168,229
----------------
Total Assets 2,770,251,097
----------------
LIABILITIES
Payable to Merrill Lynch Life Insurance Company 18,995,996
----------------
Total Liabilities 18,995,996
----------------
Net Assets $ 2,751,255,101
================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991
=============================================================
<TABLE>
<CAPTION>
1993 1992 1991
================ ================ ================
<S> <C> <C> <C>
Reinvested Dividends $ 157,524,630 $ 78,117,694 $ 133,875,282
Net Gain:
Realized 77,222,781 55,204,908 27,512,318
Unrealized 100,298,797 11,977,660 298,587,822
--------------- ---------------- ----------------
Investment Earnings 335,046,208 145,300,262 459,975,422
Mortality and Expense Charges (Note C) (17,816,608) (17,216,984) (16,812,719)
Transaction Charges (Note D) (1,822,452) (1,859,668) (2,066,645)
---------------- ---------------- ----------------
Net Earnings 315,407,148 126,223,610 441,096,058
Capital Shares Transactions:
Transfers of Net Premiums 13,356,961 15,870,188 19,594,863
Transfers of Policy Loading, Net (14,938,127) (21,375,095) (23,616,907)
Transfers Due to Deaths (25,399,159) (23,583,884) (16,282,859)
Transfers Due to Other Terminations (66,518,195) (80,167,617) (156,876,94)
Transfers Due to Policy Loans (62,711,054) (97,684,959) (91,688,506)
Transfers of Cost of Insurance (34,885,568) (33,436,957) (29,220,826)
Transfers of Loan Processing Charges (2,784,789) (2,224,380) (1,559,790)
Transfers of Shares from Assumption
Reinsurance, Net 2,091 (557,174) 2,726,746,278
---------------- ---------------- ----------------
Increase in Net Assets 121,529,308 (116,936,268) 2,868,191,369
Net Assets Beginning Balance 2,751,255,101 2,868,191,369 0
---------------- ---------------- ----------------
Net Assets Ending Balance $ 2,872,784,409 $ 2,751,255,101 $ 2,868,191,369
================ ================ ================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1993
Note - A Merrill Lynch Life Variable Life Separate Account II ("Account"), a
separate account of Merrill Lynch Life Insurance Company ("Merrill Lynch Life")
was established by a board of directors resolution on November 19, 1990 and is
governed by Arkansas State Insurance Law. The Account is a registered unit
investment trust under the Investment Company Act of 1940 and consists of
twenty-eight investment divisions (twenty-nine during the year). Ten of the
divisions invest in the securities of a single mutual fund portfolio of the
Merrill Lynch Series Fund, Inc. ("Series Fund"). The portfolios of the Series
Fund have varying investment objectives relative to growth of capital and
income. The Series Fund receives investment advice from Merrill Lynch Asset
Management, L.P. for a fee at an effective annual rate of .50% of the first
$250 million of net assets of the Series Fund with declining rates to .30% of
such assets over $800 million. Eighteen of the divisions (nineteen during the
year) invest in the securities of a single trust of the Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities, Series A through J. Each trust of
the Series consists of Stripped Treasury Securities with a fixed maturity date
and a Treasury Note deposited to provide income to pay expenses of the trust.
On various dates during 1991 Tandem Insurance Group, Inc. ("Tandem
Insurance") an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill") and an affiliate assumed substantially all variable life policies
issued by Monarch Life Insurance Company ("Monarch Life") and sold through the
Merrill retail network. On October 1, 1991, Tandem Insurance was merged with
and into Merrill Lynch Life. References in these financial statements and
notes to financial statements to Merrill Lynch Life in addition refers to
Tandem Insurance. This merger has been accounted for as a combination of
entities under common control. The Account's financial statements are reported
on a historical basis.
The Account was formed by Merrill Lynch Life, an indirect wholly-owned
subsidiary of Merrill to support Merrill Lynch Life's operations respecting
certain variable life insurance contracts ("Contracts"). The assets of the
Account are the property of Merrill Lynch Life. The portion of the Account's
assets applicable to the Contracts are not chargeable with liabilities arising
out of any other business Merrill Lynch Life may conduct.
The change in net assets maintained in the Account provides the basis for
the periodic determination of the amount of increased or decreased benefits
under the Contracts.
The net assets may not be less than the amount required under Arkansas
State Insurance Law to provide for death benefits (without regard to the
minimum death benefit guarantee) and other Contract benefits.
Note - B The significant accounting policies of the Account are as follows:
* Investments are made in the divisions and are valued at the net asset
values of the respective Portfolios.
* Transactions are recorded on the trade date.
* Income from dividends is recognized on the ex-dividend date. All
dividends are automatically reinvested.<PAGE>
* Realized gains and losses on the sales of investments are computed on
the first in first out method.
* The operations of the Account are included in the Federal income tax
return of Merrill Lynch Life. Under the provisions of the Contracts,
Merrill Lynch Life has the right to charge the Account for any Federal
income tax attributable to the Account. No charge is currently being
made against the Account for income tax, since under current tax law,
Merrill Lynch Life pays no tax on investment income and capital gains
reflected in variable life insurance policy reserves. However, Merrill
Lynch Life retains the right to charge for any Federal income tax
incurred which is attributable to the Account if the law is changed.
Charges for state and local taxes, if any, attributable to the Account
may also be made.
Note - C Merrill Lynch Life assumes mortality and expense risks related to the
operations of the Account and will deduct a daily charge from the assets of the
Account to cover these risks. The daily charges vary by Contract form and are
equal to a rate of .50% to .90% (on an annual basis) of the net assets for
Contract owners.
Merrill Lynch Life makes certain deductions from each premium. For certain
Contracts, the deductions are made before the premium is allocated to the
Account. For other Contracts, the deductions are taken in equal installments
on the first through the tenth Contract anniversaries. The deductions are for
(1) premiums for optional benefits (2) additional premiums for extra mortality
risks, (3) sales load, (4) administrative expenses, (5) state premium taxes and
(6) a risk charge for the guaranteed minimum death benefit.
In addition, the cost of providing life insurance coverage will be deducted
only on processing dates. This cost will vary dependant upon the insured's
underwriting class, sex (except where unisex rates are required by state law),
attained age of each insured and the Contract's net amount at risk.
Note - D Merrill Lynch Life pays all Transaction Charges to Merrill Lynch,
Pierce, Fenner & Smith Inc., sponsor of the unit investment trusts, on the sale
of Series A through J Unit Investment Trust units to the Account and deducts a
daily asset charge against the assets of each trust for the reimbursement of
these transaction charges. The assets charge is equivalent to an effective
annual rate of .34% (annually at the beginning of the year) of net assets for
Contract owners.
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
========================================================================
<TABLE>
<CAPTION>
Divisions Investing In
==========================================================
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 14,579,642 $ 19,756,552 $ 8,906,432 $ 8,483,704
Net Gain (Loss):
Realized 0 2,368,600 2,037,165 9,255,863
Unrealized 0 3,193,238 2,756,338 8,352,474
----------------- ----------------- ----------------- -----------------
Investment Earnings 14,579,642 25,318,390 13,699,935 26,092,041
Mortality and Expense Charges (Note C) (3,235,134) (1,481,978) (729,699) (1,049,934)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings 11,344,508 23,836,412 12,970,236 25,042,107
Capital Shares Transactions:
Transfers of Net Premiums 3,244,129 664,464 410,338 1,613,438
Transfers of Policy Loading, Net (3,804,574) (1,150,420) (535,370) (746,736)
Transfers Due to Deaths (5,579,687) (1,567,950) (1,132,049) (1,441,652)
Transfers Due to Other Terminations (25,788,859) (3,398,749) (1,564,718) (2,886,981)
Transfers Due to Policy Loans (17,840,370) (5,444,951) (2,352,782) (2,723,453)
Transfers of Cost of Insurance (6,469,103) (3,032,428) (1,480,593) (2,071,101)
Transfers of Loan Processing Charges (582,722) (215,248) (120,170) (148,107)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 0 (9,251)
Transfers Among Investment Divisions (46,276,980) 3,170,917 990,311 (674,380)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (91,753,658) 12,862,047 7,185,203 15,953,884
Net Assets Beginning Balance 526,438,460 226,628,332 104,702,393 158,603,030
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 434,684,802 $ 239,490,379 $ 111,887,596 $ 174,556,914
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 5,665,091 $ 87,413,712 $ 6,392,554 $ 294,435
Net Gain (Loss): ----------------- ----------------- ----------------- -----------------
Realized 5,031,894 12,104,149 3,761,965 994,165
Unrealized (2,863,617) 53,058,504 26,663 (755,989)
Investment Earnings 7,833,368 152,576,365 10,181,182 532,611
Mortality and Expense Charges (Note C) (662,670) (5,971,729) (400,671) (73,112)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings 7,170,698 146,604,636 9,780,511 459,499
Capital Shares Transactions:
Transfers of Net Premiums 1,156,863 3,314,727 170,174 107,007
Transfers of Policy Loading, Net (527,407) (4,743,076) (305,484) (62,087)
Transfers Due to Deaths (424,081) (9,386,175) (269,656) (19,504)
Transfers Due to Other Terminations (2,765,551) (19,554,318) (481,749) (143,466)
Transfers Due to Policy Loans (425,398) (20,329,642) (848,315) (333,844)
Transfers of Cost of Insurance (1,212,545) (11,614,386) (773,730) (133,409)
Transfers of Loan Processing Charges (119,166) (936,321) (83,586) (9,751)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 0 (5,990)
Transfers Among Investment Divisions (14,943,118) 3,152,807 16,183,411 8,982,492
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (12,089,705) 86,508,252 23,371,576 8,840,947
Net Assets Beginning Balance 105,940,870 945,906,570 49,468,427 6,564,031
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 93,851,165 $ 1,032,414,822 $ 72,840,003 $ 15,404,978
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
========================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
Global
Strategy Balanced 1993 1994
Portfolio Portfolio Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 2,776,280 $ 3,256,228 $ 0 $ 0
Net Gain (Loss):
Realized 2,181,371 718,355 7,600,757 2,947,880
Unrealized 10,528,938 3,286,065 (6,353,275) 1,298,940
----------------- ----------------- ----------------- -----------------
Investment Earnings 15,486,589 7,260,648 1,247,482 4,246,820
Mortality and Expense Charges (Note C) (504,473) (383,357) (221,901) (508,606)
Transaction Charges (Note D) 0 0 (118,827) (286,599)
----------------- ----------------- ----------------- -----------------
Net Earnings 14,982,116 6,877,291 906,754 3,451,615
Capital Shares Transactions:
Transfers of Net Premiums 883,491 946,132 21,992 23,935
Transfers of Policy Loading, Net (268,321) (247,293) (277,995) (370,852)
Transfers Due to Deaths (182,566) (192,062) (459,218) (644,926)
Transfers Due to Other Terminations (762,976) (530,808) (1,517,138) (1,493,290)
Transfers Due to Policy Loans (617,005) (1,179,288) (1,344,280) (1,442,272)
Transfers of Cost of Insurance (965,449) (728,980) (491,114) (1,148,711)
Transfers of Loan Processing Charges (76,146) (56,909) (21,391) (50,783)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 0 0
Transfers Among Investment Divisions 92,899,773 21,494,125 (40,428,502) (6,937,701)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 105,892,917 26,382,208 (43,610,892) (8,612,985)
Net Assets Beginning Balance 42,026,750 45,006,299 43,610,892 87,973,500
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 147,919,667 $ 71,388,507 $ 0 $ 79,360,515
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997 1998
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 2,531,808 2,210,012 2,210,676 2,994,693
Unrealized 2,364,168 1,476,343 2,343,186 2,560,078
----------------- ----------------- ----------------- -----------------
Investment Earnings 4,895,976 3,686,355 4,553,862 5,554,771
Mortality and Expense Charges (Note C) (419,735) (285,506) (296,476) (316,125)
Transaction Charges (Note D) (239,987) (159,486) (159,716) (172,825)
----------------- ----------------- ----------------- -----------------
Net Earnings 4,236,254 3,241,363 4,097,670 5,065,821
Capital Shares Transactions:
Transfers of Net Premiums 30,144 115,040 53,460 69,848
Transfers of Policy Loading, Net (335,217) (227,076) (230,677) (240,503)
Transfers Due to Deaths (470,755) (257,684) (356,746) (852,485)
Transfers Due to Other Terminations (1,583,904) (777,122) (892,523) (696,428)
Transfers Due to Policy Loans (526,706) (1,254,579) (700,428) (1,135,551)
Transfers of Cost of Insurance (918,171) (526,125) (516,461) (582,580)
Transfers of Loan Processing Charges (62,879) (37,166) (39,762) (44,413)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 0 0
Transfers Among Investment Divisions (4,037,538) (3,570,145) (3,812,833) (4,276,293)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (3,668,772) (3,293,494) (2,398,300) (2,692,584)
Net Assets Beginning Balance 71,771,752 47,580,295 47,743,574 50,542,096
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 68,102,980 $ 44,286,801 $ 45,345,274 $ 47,849,512
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
=======================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
1999 2000 2001 2002
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 625,244 863,965 2,818,246 88,089
Unrealized 618,895 686,361 5,055,214 383,108
383,108
----------------- ----------------- ----------------- -----------------
Investment Earnings 1,244,139 1,550,326 7,873,460 471,197
Mortality and Expense Charges (Note C) (64,753) (69,214) (325,829) (18,118)
Transaction Charges (Note D) (33,994) (38,396) (174,748) (9,812)
----------------- ----------------- ----------------- -----------------
Net Earnings 1,145,392 1,442,716 7,372,883 443,267
Capital Shares Transactions:
Transfers of Net Premiums 38,088 23,917 157,512 24,031
Transfers of Policy Loading, Net (46,671) (45,190) (233,056) (11,613)
Transfers Due to Deaths (58,665) (135,087) (578,022) 0
Transfers Due to Other Terminations (110,441) (43,082) (278,181) (6,472)
Transfers Due to Policy Loans (83,801) (1,006,945) (622,795) (33,626)
Transfers of Cost of Insurance (99,900) (119,952) (567,843) (37,523)
Transfers of Loan Processing Charges (5,080) (6,601) (59,429) (2,780)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 0 0
Transfers Among Investment Divisions (791,329) 95,520 (4,245,238) 237,399
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (12,407) 205,296 945,831 612,683
Net Assets Beginning Balance 9,474,383 10,782,807 48,896,335 2,288,723
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 9,461,976 $ 10,988,103 $ 49,842,166 $ 2,901,406
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
2003 2005 2006 2007
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 3,582,928 1,234,406 348,296 1,360,880
Unrealized 5,019,505 2,008,342 483,127 1,154,914
----------------- ----------------- ----------------- -----------------
Investment Earnings 8,602,433 3,242,748 831,423 2,515,794
Mortality and Expense Charges (Note C) (287,455) (103,227) (27,829) (71,351)
Transaction Charges (Note D) (158,308) (57,414) (13,328) (38,431)
----------------- ----------------- ----------------- -----------------
Net Earnings 8,156,670 3,082,107 790,266 2,406,012
Capital Shares Transactions:
Transfers of Net Premiums 75,547 22,035 12,663 2,105
Transfers of Policy Loading, Net (177,031) (64,933) (22,622) (40,889)
Transfers Due to Deaths (134,868) (59,006) 0 (157,848)
Transfers Due to Other Terminations (505,225) (118,556) (78,723) (179,374)
Transfers Due to Policy Loans (539,543) (79,214) (105,193) (360,953)
Transfers of Cost of Insurance (478,519) (178,631) (43,120) (127,078)
Transfers of Loan Processing Charges (34,708) (10,141) (4,227) (6,469)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 0 0
Transfers Among Investment Divisions (5,463,264) (708,013) (357,722) (1,810,743)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 899,059 1,885,648 191,322 (275,237)
Net Assets Beginning Balance 43,914,851 15,340,588 3,589,009 10,751,148
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 44,813,910 $ 17,226,236 $ 3,780,331 $ 10,475,911
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
=======================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================
2008 2009 2010
Trust Trust Trust
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 3,557,489 1,137,602 2,093,934
Unrealized 2,520,239 1,305,227 (441,116)
----------------- ----------------- -----------------
Investment Earnings 6,077,728 2,442,829 1,652,818
Mortality and Expense Charges (Note C) (170,845) (69,964) (45,688)
Transaction Charges (Note D) (90,609) (35,465) (22,783)
----------------- ----------------- -----------------
Net Earnings 5,816,274 2,337,400 1,584,347
Capital Shares Transactions:
Transfers of Net Premiums 53,137 51,618 70,774
Transfers of Policy Loading, Net (125,814) (41,754) (38,843)
Transfers Due to Deaths (909,544) (27,469) (101,454)
Transfers Due to Other Terminations (256,678) (163,074) (1,851)
Transfers Due to Policy Loans (990,614) (330,661) (21,361)
Transfers of Cost of Insurance (322,908) (121,041) (81,977)
Transfers of Loan Processing Charges (32,008) (8,178) (5,672)
Transfers of Shares from Assumption
Reinsurance, Net 17,332 0 0
Transfers Among Investment Divisions (5,118,459) (1,847,994) (2,330,052)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (1,869,282) (151,153) (926,089)
Net Assets Beginning Balance 25,814,557 10,001,748 7,070,268
----------------- ----------------- -----------------
Net Assets Ending Balance $ 23,945,275 $ 9,850,595 $ 6,144,179
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
2011 2013
Trust Trust Total
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 157,524,630
Net Gain (Loss):
Realized 512,543 49,806 77,222,781
Unrealized 257,400 (24,473) 100,298,797
----------------- ----------------- -----------------
Investment Earnings 769,943 25,333 335,046,208
Mortality and Expense Charges (Note C) (19,623) (1,606) (17,816,608)
Transaction Charges (Note D) (10,835) (889) (1,822,452)
----------------- ----------------- -----------------
Net Earnings 739,485 22,838 315,407,148
Capital Shares Transactions:
Transfers of Net Premiums 352 0 13,356,961
Transfers of Policy Loading, Net (14,956) (1,667) (14,938,127)
Transfers Due to Deaths 0 0 (25,399,159)
Transfers Due to Other Terminations 82,576 (20,534) (66,518,195)
Transfers Due to Policy Loans 19,147 (56,631) (62,711,054)
Transfers of Cost of Insurance (38,852) (3,338) (34,885,568)
Transfers of Loan Processing Charges (4,862) (114) (2,784,789)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 2,091
Transfers Among Investment Divisions (415,002) 838,551 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 367,888 779,105 121,529,308
Net Assets Beginning Balance 2,823,413 0 2,751,255,101
----------------- ----------------- -----------------
Net Assets Ending Balance $ 3,191,301 $ 779,105 $ 2,872,784,409
================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1992
=========================================================================
<TABLE>
<CAPTION>
Divisions Investing In
==================================================================
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 22,006,017 $ 15,890,139 $ 8,024,792 $ 4,338,858
Net Gain (Loss):
Realized 0 1,689,998 1,273,535 3,168,830
Unrealized 0 (2,226,297) (1,195,461) (3,597,985)
----------------- ----------------- ----------------- -----------------
Investment Earnings 22,006,017 15,353,840 8,102,866 3,909,703
Mortality and Expense Charges (Note C) (3,929,324) (1,363,780) (657,773) (914,528)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings 18,076,693 13,990,060 7,445,093 2,995,175
Capital Shares Transactions:
Transfers of Net Premiums 5,467,801 836,687 376,705 1,549,160
Transfers of Policy Loading, Net (6,930,695) (1,562,142) (714,760) (926,057)
Transfers Due to Deaths (7,815,127) (2,006,749) (1,415,186) (1,055,715)
Transfers Due to Other Terminations (32,425,439) (5,051,648) (2,062,193) (3,690,645)
Transfers Due to Policy Loans (31,693,789) (6,033,996) (3,086,307) (4,189,413)
Transfers of Cost of Insurance (7,228,700) (2,838,314) (1,332,568) (1,897,482)
Transfers of Loan Processing Charges (602,385) (155,901) (80,489) (107,816)
Transfers of Shares from Assumption
Reinsurance, Net (107,209) (45,866) (21,171) (31,990)
Transfers Among Investment Divisions (70,853,737) 12,147,255 2,603,164 30,369,948
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (134,112,587) 9,279,386 1,712,288 23,015,165
Net Assets Beginning Balance 660,551,047 217,348,946 102,990,105 135,587,865
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 526,438,460 $ 226,628,332 $ 104,702,393 $ 158,603,030
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 15,890,139 $ 8,024,792 $ 4,338,858 $ 461,367
Net Gain (Loss):
Realized 6,100,529 9,219,951 4,160,760 (290,834)
Unrealized (3,507,907) 9,785,832 (915,428) 315,376
----------------- ----------------- ----------------- -----------------
Investment Earnings 3,053,989 39,431,027 8,421,286 131,514
Mortality and Expense Charges (Note C) (568,453) (5,652,221) (292,987) (44,158)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings 2,485,536 33,778,806 8,128,299 87,356
Capital Shares Transactions:
Transfers of Net Premiums 1,187,051 3,842,605 96,505 93,559
Transfers of Policy Loading, Net (624,624) (6,187,450) (352,368) (49,921)
Transfers Due to Deaths (498,231) (6,130,130) (171,610) (32,925)
Transfers Due to Other Terminations (1,946,570) (18,535,334) (913,904) (129,655)
Transfers Due to Policy Loans (4,517,451) (24,006,432) (1,638,098) (365,526)
Transfers of Cost of Insurance (1,159,032) (10,959,496) (608,235) (85,457)
Transfers of Loan Processing Charges (85,558) (756,898) (60,550) (5,148)
Transfers of Shares from Assumption
Reinsurance, Net (21,335) (191,410) (10,072) (1,326)
Transfers Among Investment Divisions 25,655,951 29,925,062 7,320,604 712,036
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 20,475,737 779,323 11,790,571 222,993
Net Assets Beginning Balance 85,465,133 945,127,247 37,677,856 6,341,038
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 105,940,870 $ 945,906,570 $ 49,468,427 $ 6,564,031
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1992
========================================================================
<TABLE>
<CAPTION>
Divisions Investing In
====================================================================
Global
Strategy Balanced 1992 1993
Portfolio Portfolio Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 617,279 $ 1,071,072 $ 0 $ 0
Net Gain (Loss):
Realized 521,975 550,190 5,335,630 928,963
Unrealized (228,462) 1,012,077 (4,534,655) 1,514,319
----------------- ----------------- ----------------- -----------------
Investment Earnings 910,792 2,633,339 800,975 2,443,282
Mortality and Expense Charges (Note C) (209,795) (235,318) (27,039) (269,634)
Transaction Charges (Note D) 0 0 (8,060) (149,809)
----------------- ----------------- ----------------- -----------------
Net Earnings 700,997 2,398,021 765,876 2,023,839
Capital Shares Transactions:
Transfers of Net Premiums 479,919 802,264 2,607 135,013
Transfers of Policy Loading, Net (204,029) (243,889) (172,438) (285,539)
Transfers Due to Deaths (47,596) (409,842) (163,829) (99,880)
Transfers Due to Other Terminations (655,634) (1,783,976) (1,166,098) (845,239)
Transfers Due to Policy Loans (684,504) (1,240,184) (759,943) (1,584,357)
Transfers of Cost of Insurance (508,996) (552,102) (5,679) (564,168)
Transfers of Loan Processing Charges (25,160) (24,185) (10,565) (26,407)
Transfers of Shares from Assumption
Reinsurance, Net (8,500) (9,045) 0 (8,823)
Transfers Among Investment Divisions 20,769,227 15,587,010 (56,216,376) (573,047)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 19,815,724 14,524,072 (57,726,445) (1,828,608)
Net Assets Beginning Balance 22,211,026 30,482,227 57,726,445 45,439,500
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 42,026,750 $ 45,006,299 $ 0 $ 43,610,892
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996 1997
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 2,610,315 2,271,387 1,257,415 1,947,415
Unrealized 2,824,333 3,032,629 2,122,761 1,601,238
----------------- ----------------- ----------------- -----------------
Investment Earnings 5,434,648 5,304,016 3,380,176 3,548,653
Mortality and Expense Charges (Note C) (542,689) (422,591) (287,864) (301,352)
Transaction Charges (Note D) (311,741) (243,949) (162,967) (163,582)
----------------- ----------------- ----------------- -----------------
Net Earnings 4,580,218 4,637,476 2,929,345 3,083,719
Capital Shares Transactions:
Transfers of Net Premiums 36,436 36,083 144,662 66,161
Transfers of Policy Loading, Net (538,242) (437,466) (298,255) (331,375)
Transfers Due to Deaths (1,188,327) (493,318) (207,470) (668,603)
Transfers Due to Other Terminations (2,318,390) (969,030) (935,793) (1,386,805)
Transfers Due to Policy Loans (2,612,556) (3,641,307) (1,549,436) (1,693,110)
Transfers of Cost of Insurance (1,126,608) (879,003) (499,474) (523,572)
Transfers of Loan Processing Charges (36,820) (38,786) (25,756) (38,097)
Transfers of Shares from Assumption
Reinsurance, Net (17,793) (14,532) (9,624) (9,659)
Transfers Among Investment Divisions (5,548,921) 1,676,118 (1,887,019) 636,185
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (8,771,003) (123,765) (2,338,820) (865,156)
Net Assets Beginning Balance 96,744,503 71,895,517 49,919,115 48,608,730
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 87,973,500 $ 71,771,752 $ 47,580,295 $ 47,743,574
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1992
=========================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
1998 1999 2000 2001
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 1,978,460 432,160 364,216 3,025,840
Unrealized 2,037,056 294,364 477,824 1,364,039
----------------- ----------------- ----------------- -----------------
Investment Earnings 4,015,516 726,524 842,040 4,389,879
Mortality and Expense Charges (Note C) (314,764) (59,160) (53,013) (314,326)
Transaction Charges (Note D) (173,236) (30,899) (31,129) (171,279)
----------------- ----------------- ----------------- -----------------
Net Earnings 3,527,516 636,465 757,898 3,904,274
Capital Shares Transactions:
Transfers of Net Premiums 56,447 43,518 32,138 203,026
Transfers of Policy Loading, Net (337,509) (65,263) (52,380) (311,440)
Transfers Due to Deaths (161,616) (93,762) 0 (302,479)
Transfers Due to Other Terminations (1,484,947) (593,025) (55,143) (1,065,449)
Transfers Due to Policy Loans (1,444,388) (273,479) (79,069) (1,187,536)
Transfers of Cost of Insurance (561,265) (98,893) (121,427) (533,551)
Transfers of Loan Processing Charges (30,546) (2,415) (2,249) (39,568)
Transfers of Shares from Assumption
Reinsurance, Net (10,235) (1,916) (2,181) (9,890)
Transfers Among Investment Divisions (1,432,887) 728,991 2,378,824 (4,544,704)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (1,879,430) 280,221 2,856,411 (3,887,317)
Net Assets Beginning Balance 52,421,526 9,194,162 7,926,396 52,783,652
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 50,542,096 $ 9,474,383 $ 10,782,807 $ 48,896,335
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
2002 2003 2005 2006
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 26,071 1,696,939 916,369 409,732
Unrealized 134,936 2,086,310 377,163 (76,345)
----------------- ----------------- ----------------- -----------------
Investment Earnings 161,007 3,783,249 1,293,532 333,387
Mortality and Expense Charges (Note C) (6,635) (260,338) (87,309) (23,692)
Transaction Charges (Note D) (3,841) (145,216) (48,886) (12,819)
----------------- ----------------- ----------------- -----------------
Net Earnings 150,531 3,377,695 1,157,337 296,876
Capital Shares Transactions:
Transfers of Net Premiums 14,905 71,711 21,711 10,019
Transfers of Policy Loading, Net (7,161) (237,175) (99,944) (25,382)
Transfers Due to Deaths 0 (156,811) (93,821) (37,825)
Transfers Due to Other Terminations 0 (360,248) (476,523) (93,906)
Transfers Due to Policy Loans (15,563) (1,616,928) (738,270) (594,690)
Transfers of Cost of Insurance (26,869) (448,917) (166,413) (46,811)
Transfers of Loan Processing Charges (1,900) (24,874) (2,428) (2,428)
Transfers of Shares from Assumption
Reinsurance, Net (463) (8,882) (3,103) (726)
Transfers Among Investment Divisions 2,175,243 (1,712,942) 1,378,399 (11,118)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 2,288,723 (1,117,371) 976,945 (505,991)
Net Assets Beginning Balance 0 45,032,222 14,363,643 4,095,000
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,288,723 $ 43,914,851 $ 15,340,588 $ 3,589,009
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1992
==========================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=====================================================
2007 2008 2009
Trust Trust Trust
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 705,402 2,107,671 983,782
Unrealized 192,789 (81,117) (35,465)
----------------- ----------------- -----------------
Investment Earnings 898,191 2,026,554 948,317
Mortality and Expense Charges (Note C) (69,051) (165,156) (74,239)
Transaction Charges (Note D) (37,814) (89,573) (37,842)
----------------- ----------------- -----------------
Net Earnings 791,326 1,771,825 836,236
Capital Shares Transactions:
Transfers of Net Premiums 5,203 83,901 99,978
Transfers of Policy Loading, Net (65,817) (168,104) (78,759)
Transfers Due to Deaths (59,083) (140,781) (23,234)
Transfers Due to Other Terminations (201,485) (651,093) (240,905)
Transfers Due to Policy Loans (489,246) (790,756) (793,779)
Transfers of Cost of Insurance (125,522) (291,092) (134,265)
Transfers of Loan Processing Charges (6,334) (23,545) (231)
Transfers of Shares from Assumption
Reinsurance, Net (2,175) (5,225) (2,022)
Transfers Among Investment Divisions (1,342,447) (6,613,529) (2,020,575)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (1,495,580) (6,828,399) (2,357,556)
Net Assets Beginning Balance 12,246,728 32,642,956 12,359,304
----------------- ----------------- -----------------
Net Assets Ending Balance $ 10,751,148 $ 25,814,557 $ 10,001,748
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
2010 2011
Trust Trust Total
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 78,117,694
Net Gain (Loss):
Realized 1,514,943 297,264 55,204,908
Unrealized (904,726) 108,462 11,977,660
----------------- ----------------- -----------------
Investment Earnings 610,217 405,726 145,300,262
Mortality and Expense Charges (Note C) (52,895) (16,900) (17,216,984)
Transaction Charges (Note D) (28,100) (8,926) (1,859,668)
----------------- ----------------- -----------------
Net Earnings 529,222 379,900 126,223,610
Capital Shares Transactions:
Transfers of Net Premiums 69,763 4,650 15,870,188
Transfers of Policy Loading, Net (46,551) (20,360) (21,375,095)
Transfers Due to Deaths (109,934) 0 (23,583,884)
Transfers Due to Other Terminations (47,970) (80,570) (80,167,617)
Transfers Due to Policy Loans (272,172) (92,674) (97,684,959)
Transfers of Cost of Insurance (82,858) (30,188) (33,436,957)
Transfers of Loan Processing Charges (4,311) (3,030) (2,224,380)
Transfers of Shares from Assumption
Reinsurance, Net (1,430) (571) (557,174)
Transfers Among Investment Divisions (3,250,604) 1,943,889 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (3,216,845) 2,101,046 (116,936,268)
Net Assets Beginning Balance 10,287,113 722,367 2,868,191,369
----------------- ----------------- -----------------
Net Assets Ending Balance $ 7,070,268 $ 2,823,413 $ 2,751,255,101
================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1991
========================================================================
<TABLE>
<CAPTION>
Divisions Investing In
====================================================================
Intermediate Long-term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 42,494,243 $ 15,386,857 $ 8,179,650 $ 8,408,677
Net Gain (Loss):
Realized 0 188,847 267,826 1,583,293
Unrealized 0 13,696,538 7,235,434 18,966,638
----------------- ----------------- ----------------- -----------------
Investment Earnings 42,494,243 29,272,242 15,682,910 28,958,608
Mortality and Expense Charges (Note C) (4,565,285) (1,191,403) (601,344) (705,268)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings 37,928,958 28,080,839 15,081,566 28,253,340
Capital Shares Transactions:
Transfers of Net Premiums 9,977,575 862,153 363,578 1,183,556
Transfers of Policy Loading, Net (7,528,208) (1,710,127) (822,327) (789,341)
Transfers Due to Deaths (6,087,555) (2,398,586) (625,538) (714,735)
Transfers Due to Other Terminations (65,822,275) (9,463,351) (7,025,439) (3,497,651)
Transfers Due to Policy Loans (25,610,053) (5,664,253) (3,646,753) (3,812,241)
Transfers of Cost of Insurance (8,295,550) (2,161,182) (1,119,526) (1,209,561)
Transfers of Loan Processing Charges (438,288) (114,187) (50,662) (66,229)
Transfers of Shares from Assumption
Reinsurance, Net 751,546,719 194,199,831 95,098,320 95,033,713
Transfers Among Investment Divisions (25,120,276) 15,717,809 5,736,886 21,207,014
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 660,551,047 217,348,946 102,990,105 135,587,865
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 660,551,047 $ 217,348,946 $ 102,990,105 $ 135,587,865
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 813,465 $ 51,053,482 $ 4,402,876 $ 256,267
Net Gain (Loss):
Realized 8,126,665 4,685,648 1,744,896 106,710
Unrealized 12,626,710 145,543,202 4,447,150 (201,038)
----------------- ----------------- ----------------- -----------------
Investment Earnings 21,566,840 201,282,332 10,594,922 161,939
Mortality and Expense Charges (Note C) (368,368) (5,181,740) (213,252) (41,989)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings 21,198,472 196,100,592 10,381,670 119,950
Capital Shares Transactions:
Transfers of Net Premiums 644,068 3,434,521 60,027 74,369
Transfers of Policy Loading, Net (437,584) (6,927,708) (331,430) (56,776)
Transfers Due to Deaths (184,659) (3,648,907) (241,601) (11,316)
Transfers Due to Other Terminations (2,387,823) (36,493,347) (1,750,095) (273,439)
Transfers Due to Policy Loans (848,497) (30,274,645) (1,198,475) (189,115)
Transfers of Cost of Insurance (576,751) (8,663,613) (363,547) (77,119)
Transfers of Loan Processing Charges (31,773) (545,539) (34,323) (5,233)
Transfers of Shares from Assumption
Reinsurance, Net 36,035,780 831,507,604 30,462,867 8,112,975
Transfers Among Investment Divisions 32,053,900 638,289 692,763 (1,353,258)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 85,465,133 945,127,247 37,677,856 6,341,038
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 85,465,133 $ 945,127,247 $ 37,677,856 $ 6,341,038
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1991
============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
Global
Strategy Balanced 1991 1992
Portfolio Portfolio Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 1,261,845 $ 1,617,920 $ 0 $ 0
Net Gain (Loss):
Realized 176,901 241,945 1,225,015 521,959
Unrealized 1,645,045 2,908,584 0 4,534,655
----------------- ----------------- ----------------- -----------------
Investment Earnings 3,083,791 4,768,449 1,225,015 5,056,614
Mortality and Expense Charges (Note C) (121,955) (160,519) (113,269) (359,206)
Transaction Charges(Note D) 0 0 (64,292) (202,210)
----------------- ----------------- ----------------- -----------------
Net Earnings 2,961,836 4,607,930 1,047,454 4,495,198
Capital Shares Transactions:
Transfers of Net Premiums 319,716 695,016 5,106 42,984
Transfers of Policy Loading, Net (148,835) (226,125) (250,217) (497,575)
Transfers Due to Deaths (115,941) (52,595) (267,588) (152,778)
Transfers Due to Other Terminations (999,077) (2,010,069) (2,808,344) (2,989,438)
Transfers Due to Policy Loans (605,337) (1,042,695) (708,861) (2,138,660)
Transfers of Cost of Insurance (224,429) (285,377) (216,033) (666,304)
Transfers of Loan Processing Charges (11,963) (15,490) (7,207) (20,006)
Transfers of Shares from Assumption 0 0 0 0
Reinsurance, Net 15,844,427 23,629,619 32,384,805 62,276,724
Transfers Among Investment Divisions 5,190,629 5,182,013 (29,179,115) (2,623,700)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 22,211,026 30,482,227 0 57,726,445
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 22,211,026 $ 30,482,227 $ 0 $ 57,726,445
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 281,081 (531,800) (392,415) (266,487)
Unrealized 4,838,957 (309,583) (229,286) (151,327)
----------------- ----------------- ----------------- -----------------
Investment Earnings 5,120,038 13,204,197 10,702,058 7,425,040
Mortality and Expense Charges (Note C) (252,309) (531,800) (392,415) (266,487)
Transaction Charges(Note D) (142,530) (309,583) (229,286) (151,327)
----------------- ----------------- ----------------- -----------------
Net Earnings 4,725,199 12,362,814 10,080,357 7,007,226
Capital Shares Transactions:
Transfers of Net Premiums 137,008 54,808 35,841 231,538
Transfers of Policy Loading, Net (366,292) (602,188) (473,264) (339,276)
Transfers Due to Deaths (58,198) (560,714) (68,903) (101,746)
Transfers Due to Other Terminations (2,211,211) (3,415,258) (2,355,488) (1,709,676)
Transfers Due to Policy Loans (1,723,749) (1,819,893) (1,516,801) (1,621,600)
Transfers of Cost of Insurance (473,730) (995,239) (690,150) (416,590)
Transfers of Loan Processing Charges (13,067) (33,994) (22,889) (7,931)
Transfers of Shares from Assumption
Reinsurance, Net 42,272,777 92,245,651 67,275,247 43,188,437
Transfers Among Investment Divisions 3,150,763 (491,484) (368,433) 3,688,733
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 45,439,500 96,744,503 71,895,517 49,919,115
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 45,439,500 $ 96,744,503 $ 71,895,517 $ 49,919,115
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1991
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
1997 1998 1999 2000
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 308,682 370,460 74,930 160,868
Unrealized 7,575,116 8,408,428 1,384,507 1,284,684
----------------- ----------------- ----------------- -----------------
Investment Earnings 7,883,798 8,778,888 1,459,437 1,445,552
Mortality and Expense Charges (Note C) (277,321) (292,460) (48,449) (40,804)
Transaction Charges (Note D) (150,454) (161,727) (24,883) (23,673)
----------------- ----------------- ----------------- -----------------
Net Earnings 7,456,023 8,324,701 1,386,105 1,381,075
Capital Shares Transactions:
Transfers of Net Premiums 72,467 91,068 426,046 33,826
Transfers of Policy Loading, Net (323,775) (350,446) (16,662) (48,372)
Transfers Due to Deaths (41,440) (219,704) 0 0
Transfers Due to Other Terminations (1,577,483) (1,707,643) (110,274) (229,143)
Transfers Due to Policy Loans (1,372,804) (1,280,234) (176,565) (235,446)
Transfers of Cost of Insurance (403,071) (480,837) (74,545) (67,719)
Transfers of Loan Processing Charges (19,720) (24,903) (2,724) (134)
Transfers of Shares from Assumption
Reinsurance, Net 44,951,299 47,316,489 6,572,362 7,363,139
Transfers Among Investment Divisions (132,766) 753,035 1,190,419 (270,830)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 48,608,730 52,421,526 9,194,162 7,926,396
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 48,608,730 $ 52,421,526 $ 9,194,162 $ 7,926,396
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
2001 2003 2005 2006
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gain (Loss):
Realized 651,478 778,530 363,186 156,154
Unrealized 9,689,050 8,548,081 2,820,540 758,915
----------------- ----------------- ----------------- -----------------
Investment Earnings 10,340,528 9,326,611 3,183,726 915,069
Mortality and Expense Charges (Note C) (297,700) (258,243) (83,928) (24,553)
Transaction Charges (Note D) (163,728) (146,550) (47,406) (13,845)
----------------- ----------------- ----------------- -----------------
Net Earnings 9,879,100 8,921,818 3,052,392 876,671
Capital Shares Transactions:
Transfers of Net Premiums 227,270 88,531 96,471 9,617
Transfers of Policy Loading, Net (385,411) (318,571) (104,635) (27,367)
Transfers Due to Deaths (71,823) (261,174) (15,487) (32,940)
Transfers Due to Other Terminations (1,898,611) (1,546,345) (850,740) (109,393)
Transfers Due to Policy Loans (1,285,979) (1,536,398) (641,929) (134,292)
Transfers of Cost of Insurance (447,747) (388,972) (142,520) (36,448)
Transfers of Loan Processing Charges (25,002) (15,604) (6,585) (2,784)
Transfers of Shares from Assumption
Reinsurance, Net 48,827,981 45,630,160 14,950,612 4,742,517
Transfers Among Investment Divisions (2,036,126) (5,541,223) (1,973,936) (1,190,581)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 52,783,652 45,032,222 14,363,643 4,095,000
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 52,783,652 $ 45,032,222 $ 14,363,643 $ 4,095,000
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1991
============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
2007 2008 2009
Trust Trust Trust
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0
$ 0 $ 0
Net Gain (Loss):
Realized 583,050 1,188,093 1,305,106
Unrealized 2,353,517 6,103,046 2,007,100
----------------- ----------------- -----------------
Investment Earnings 2,936,567 7,291,139 3,312,206
Mortality and Expense Charges (Note C) (80,581) (193,511) (84,925)
Transaction Charges (Note D) (44,848) (106,911) (47,420)
----------------- ----------------- -----------------
Net Earnings 2,811,138 6,990,717 3,179,861
Capital Shares Transactions:
Transfers of Net Premiums 31,104 170,389 134,126
Transfers of Policy Loading, Net (105,867) (261,416) (101,321)
Transfers Due to Deaths (101,308) (59,671) (6,200)
Transfers Due to Other Terminations (828,616) (2,072,045) (555,241)
Transfers Due to Policy Loans (300,167) (1,419,093) (400,688)
Transfers of Cost of Insurance (131,216) (379,531) (137,009)
Transfers of Loan Processing Charges (6,546) (24,096) (8,249)
Transfers of Shares from Assumption
Reinsurance, Net 17,386,413 35,668,829 20,622,165
Transfers Among Investment Divisions (6,508,207) (5,971,127) (10,368,140)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 12,246,728 32,642,956 12,359,304
Net Assets Beginning Balance 0 0 0
----------------- ----------------- -----------------
Net Assets Ending Balance $ 12,246,728 $ 32,642,956 $ 12,359,304
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
2010 2011
Trust Trust Total
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends 0 0 133,875,282
Net Gain (Loss):
Realized 848,220 79,068 27,512,318
Unrealized 1,520,925 54,450 298,587,822
----------------- ----------------- -----------------
Investment Earnings 2,369,145 133,518 459,975,422
Mortality and Expense Charges (Note C) (61,532) (2,103) (16,812,719)
Transaction Charges (Note D) (34,796) (1,176) (2,066,645)
----------------- ----------------- -----------------
Net Earnings 2,272,817 130,239 441,096,058
Capital Shares Transactions:
Transfers of Net Premiums 92,084 0 19,594,863
Transfers of Policy Loading, Net (62,188) (3,603) (23,616,907)
Transfers Due to Deaths (181,752) 0 (16,282,859)
Transfers Due to Other Terminations (160,728) (18,699) (156,876,942)
Transfers Due to Policy Loans (475,259) (8,024) (91,688,506)
Transfers of Cost of Insurance (93,192) (3,318) (29,220,826)
Transfers of Loan Processing Charges (4,662) 0 (1,559,790)
Transfers of Shares from Assumption
Reinsurance, Net 11,530,632 68,184 2,726,746,278
Transfers Among Investment Divisions (2,630,639) 557,588 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 10,287,113 722,367 2,868,191,369
Net Assets Beginning Balance 0 0 0
----------------- ----------------- -----------------
Net Assets Ending Balance $ 10,287,113 $ 722,367 $ 2,868,191,369
================= ================= =================
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill Lynch
Life Insurance Company (the "Company"), a wholly-owned subsidiary
of Merrill Lynch Insurance Group, Inc., as of December 31, 1993
and 1992, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1993 and 1992, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the
Company changed its method of accounting for certain investments
in debt and equity securities to conform with Statement of
Financial Accounting Standards No. 115.
/s/Deloitte & Touche
February 28, 1994
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
ASSETS 1993 1992
- ------ ---- ----
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1993 - $5,369,236; 1992 - $334,638) $ 5,597,359 $ 335,916
Fixed maturity securities held for trading, at estimated fair value
(amortized cost: 1993 - $140,635) 144,035 0
Fixed maturity securities to be held to maturity, at amortized cost
(estimated fair value: 1992 - $6,713,831) 0 6,449,981
Equity securities available for sale, at estimated fair value
(cost: 1993 - $24,424; 1992 - $31,598) 24,970 33,186
Equity securities held for trading, at estimated fair value
(cost 1993 - $19,694) 20,585 0
Mortgage loans on real estate 191,214 264,966
Real estate available for sale
(accumulated depreciation: 1993 - $850; 1992 - $321) 29,761 12,847
Policy loans on insurance contracts 924,579 834,461
------------- -------------
Total Investments 6,932,503 7,931,357
CASH AND CASH EQUIVALENTS 122,218 172,124
ACCRUED INVESTMENT INCOME 120,337 138,797
DEFERRED POLICY ACQUISITION COSTS 318,903 373,214
FEDERAL INCOME TAXES - DEFERRED 16,878 19,982
REINSURANCE RECEIVABLES 1,190 856
RECEIVABLES FROM AFFILIATES - NET 789 0
OTHER ASSETS 21,481 19,864
SEPARATE ACCOUNTS ASSETS 4,715,278 3,127,767
------------- -------------
TOTAL ASSETS $ 12,249,577 $ 11,783,961
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1993 1992
- ------------------------------------ ---- ----
LIABILITIES:
<S> <C> <C>
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 6,691,811 $ 7,804,447
Claims and claims settlement expenses 20,295 7,565
------------- -------------
Total policy liabilities and accruals 6,712,106 7,812,012
OTHER POLICYHOLDER FUNDS 28,768 14,637
LIABILITY FOR GUARANTY FUND ASSESSMENTS 28,083 27,104
OTHER LIABILITIES 68,165 16,790
FEDERAL INCOME TAXES - CURRENT 10,122 30,010
PAYABLE TO AFFILIATES - NET 0 2,638
SEPARATE ACCOUNTS LIABILITIES 4,715,278 3,118,296
------------- -------------
Total Liabilities 11,562,522 11,021,487
------------- -------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 637,590 654,717
Retained earnings 47,860 102,873
Net unrealized investment gain (loss) (395) 2,884
------------- -------------
Total Stockholder's Equity 687,055 762,474
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 12,249,577 $ 11,783,961
============= =============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 586,461 $ 712,739 $ 787,603
Net realized investment gains (losses) 63,052 (29,639) (21,957)
Policy charge revenue 95,684 81,653 82,745
----------- ----------- -----------
Total Revenues 745,197 764,753 848,391
----------- ----------- -----------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account
balances 454,671 546,979 638,984
Market value adjustment expense 30,816 6,229 1,198
Policy benefits (reinsurance recoveries: 1993 - $6,004;
1992 - $5,555; 1991 - $6,328) 17,030 12,066 9,537
Reinsurance premium ceded 12,665 12,457 12,765
Amortization of deferred policy acquisition costs 109,456 88,795 93,391
Insurance expenses and taxes 47,784 72,560 78,448
----------- ----------- -----------
Total Benefits and Expenses 672,422 739,086 834,323
----------- ----------- -----------
Earnings Before Federal Income
Tax Provision 72,775 25,667 14,068
----------- ----------- -----------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 20,112 28,549 42,919
Deferred 4,803 (19,913) (40,459)
----------- ----------- -----------
Total Federal Income Tax Provision 24,915 8,636 2,460
----------- ----------- -----------
NET EARNINGS $ 47,860 $ 17,031 $ 11,608
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
-------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1991 $ 2,000 $ 572,321 $ 74,234 $ (103) $ 648,452
Capital contribution 82,396 82,396
Net earnings 11,608 11,608
Net unrealized investment loss (1,142) (1,142)
BALANCE, DECEMBER 31, 1991 2,000 654,717 85,842 (1,245) 741,314
Net earnings 17,031 17,031
Net unrealized investment gain 4,129 4,129
-------- ----------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1992 2,000 654,717 102,873 2,884 762,474
Dividend to Parent (17,127) (102,873) (120,000)
Net earnings 47,860 47,860
Net unrealized investment loss (1) (3,279) (3,279)
-------- ----------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1993 $ 2,000 $ 637,590 $ 47,860 $ ( 395) $ 687,055
======== =========== ========== =========== =============
</TABLE>
(1) Asset gains less adjustment of policyholders' account balances
and deferred policy acquisition costs (See Note 1).
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 47,860 $ 17,031 $ 11,608
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 109,456 88,795 93,391
Capitalization of policy acquisition costs (91,189) (39,146) (149,440)
Depreciation and amortization 1,142 (16,033) (25,417)
Net realized investment (gains) losses (63,052) 29,639 21,957
Interest credited to policyholders' account balances 454,671 546,979 638,984
Provision for deferred Federal
income tax 4,803 (19,913) (40,459)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 18,460 6,018 (9,271)
Policy liabilities and accruals 12,730 7,775 101,521
Federal income taxes - current (19,888) 14,955 44,782
Other policyholder funds 14,131 12,826 (25,035)
Liability for guaranty fund assessments 979 16,439 10,665
Payable to Family Life Insurance Company 0 0 (28,224)
Policy loans (90,118) (126,925) (88,362)
Investment trading securities (145,972) 0 0
Other, net 49,425 (26,296) (30,343)
------------ ------------- -------------
Net cash and cash equivalents provided
by operating activities 303,438 512,144 526,357
------------ ------------- -------------
</TABLE>
(Continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Concluded) (Dollars In Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Fixed maturity securities sold 571,337 1,281,705 4,005,959
Fixed maturity securities matured 2,776,992 2,206,447 746,273
Fixed maturity securities purchased (1,866,857) (2,806,416) (5,142,471)
Equity securities available for sale purchased (8,983) (17,843) (67,348)
Equity securities available for sale sold 6,451 44,188 20,768
Mortgage loans on real estate principal payments received 35,561 8,548 5,977
Mortgage loans on real estate acquired (674) (853) (740)
Real estate available for sale purchased 0 (340) (22,706)
Real estate available for sale sold 7,408 178 25,000
Interest rate swaps sold 0 2,302 0
Recapture of investment in Separate Accounts 29,389 0 0
Investment in Separate Accounts (20,000) (3,841) 0
------------ ------------- -------------
Net cash and cash equivalents provided (used)
by investing activities 1,530,624 714,075 (429,288)
------------ ------------- -------------
FINANCING ACTIVITIES:
Paid-in capital from parent 0 0 82,396
Dividend paid to parent (120,000) 0 0
Affiliated notes payable (3,427) (83,200) 18,794
Policyholders' account balances:
Deposits 814,314 217,410 436,564
Withdrawals (net of transfers to Separate Accounts) (2,574,854) (1,338,034) (772,811)
Net cash and cash equivalents used ------------ ------------- -------------
by financing activities (1,883,967) (1,203,824) (235,057)
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (49,906) 22,395 (137,988)
CASH AND CASH EQUIVALENTS
Beginning of year 172,124 149,729 287,717
------------ ------------- -------------
End of year $ 122,218 $ 172,124 $ 149,729
============ ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: Merrill Lynch Life Insurance Company (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells life insurance and annuity products which
comprise one business segment. The primary products that the
Company currently markets are immediate annuities, market value
adjusted annuities, variable life insurance and variable
annuities. The Company is currently licensed to sell insurance
in forty-nine states, the District of Columbia, the U.S. Virgin
Islands and Guam. The Company markets its products solely
through the Merrill Lynch & Co. retail network.
On June 12, 1991, the Company's former parent, Family Life
Insurance Company ("Family Life"), was sold to a non-affiliated
entity. Immediately prior to this sale, Family Life, through a
dividend, transferred its 100% ownership interest in the
Company to its parent MLIG. (See Note 8).
On October 1, 1991, Tandem Insurance Group, Inc. ("Tandem"), a
wholly-owned subsidiary of MLIG, was merged with and into the
Company. This merger has been accounted for as a combination
of entities under common control. The assets, liabilities,
stockholder's equity, earnings and cash flows as presented in
these financial statements are reported on a combined
historical basis for all periods presented.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles for
stock life insurance companies.
Revenue Recognition: Revenues for the Company's interest
sensitive life, interest sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholder account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest crediting rates for the
Company's fixed rate products are as follows:
Interest sensitive life products 4.0% - 8.8%
Interest sensitive deferred annuities 2.4% - 9.0%
Immediate annuities 4.0% - 10.0%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are
unreported as of the valuation date.
<PAGE>
Reinsurance: Effective during 1992, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 113
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts" ("SFAS No. 113"), which requires that
reinsurance receivables and prepaid reinsurance premium ceded
be reported as assets. SFAS No. 113 eliminates the practice by
insurance enterprises of reporting assets and liabilities
relating to reinsured contracts net of the effects of
reinsurance. The impact of adopting SFAS No. 113 was not
material.
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. On life insurance contracts which the Company is
currently marketing, the maximum amount of mortality risk
retained by the Company is $500,000 on a single life.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the
Company. The Company regularly evaluates the financial
condition of its reinsurers so as to minimize its exposure to
significant losses from reinsurer insolvencies. The Company
holds collateral under reinsurance agreements in the form of
letters of credit and funds withheld totaling $1,024,000 that
can be drawn upon for delinquent reinsurance recoverables.
As of December 31, 1993, the Company had life insurance in-
force which was ceded to other life insurance companies of
$2,005,191,000.
Deferred Policy Acquisition Costs: Policy acquisition costs
for life and annuity contracts are deferred and amortized based
on the estimated future gross profits for each group of
contracts. These future gross profit estimates are subject to
periodic evaluation by the Company, with necessary revisions
applied against amortization to date.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, which are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed.
Included in deferred policy acquisition costs are those costs
related to the acquisition by assumption reinsurance of
insurance contracts from unaffiliated insurers. The deferred
costs will be amortized in proportion to the future gross
profits over the anticipated life of the acquired insurance
contracts utilizing an interest methodology.
In December 1990, the Company entered into an assumption
reinsurance agreement with a non-affiliated insurer (See Note
6). The acquisition costs relating to this agreement are being
amortized over a twenty-year period using an effective interest
rate of 9.01%. This reinsurance agreement provides for payment
of contingent ceding commissions based upon the persistency and
mortality experience of the insurance contracts assumed. Any
payments made for the contingent ceding commissions will be
capitalized and amortized using an identical methodology as
that used for the initial acquisition costs. The following is
a reconciliation of the acquisition costs for the reinsurance
transaction for the three years ended December 31,:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning balance $ 150,450 $ 160,235 $ 24,294
Capitalized amounts 6,987 6,060 156,641
Interest accrued 13,136 15,401 14,071
Amortization (30,926) (31,246) (34,771)
---------- ---------- ----------
Ending balance $ 139,647 $ 150,450 $ 160,235
========== ========== ==========
</TABLE>
The following table presents the expected amortization of these
deferred acquisition costs over the next five years. The
amortization may be adjusted based on periodic evaluation of
the expected gross profits on the reinsured policies.
1994 $18,732,000
1995 17,840,000
1996 16,056,000
1997 12,488,000
1998 8,925,000
Investments: Effective December 31, 1993, the Company has
adopted SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). In compliance
with SFAS No. 115, the Company classified its investments in
fixed maturity securities and equity securities in two
categories, each separately identified:
Available for sale securities include both fixed maturity
and equity securities. These securities may be sold for the
Company's general liquidity needs, asset/liability
management strategy, credit dispositions and investment
opportunities. These securities are carried at estimated
fair value with unrealized gains and losses included in
stockholder's equity (net of tax). If a decline in value of
a security is determined by management to be other than
temporary, the carrying value is adjusted to the estimated
fair value at the date of this determination and recorded
in the net realized investment gains (losses) caption of
the statement of earnings.
Trading securities represent securities that are managed
with an investment objective to maximize total return
subject to the Company's quality guidelines. Investments in
this portfolio will consist primarily of marketable fixed
maturity and equity investments. These securities are
carried at estimated fair value with unrealized gains and
losses included in the statement of earnings. The debt and
equity securities classified as trading securities as of
December 31, 1993 were acquired in 1993 and immediately
classified as trading securities in compliance with SFAS
No. 60 "Accounting and Reporting by Insurance Enterprises",
prior to the adoption of SFAS No. 115.
SFAS No. 115 allows fixed maturity securities to be carried at
amortized cost if the Company has both the ability and positive
intent to hold these securities to maturity. The Company has
determined that it can not guarantee that it will not have the
need or opportunity to sell any particular security in its
investment holdings. As such, the Company did not utilize this
classification as of December 31, 1993.
In compliance with a recent Securities and Exchange Commissions
("SEC") staff announcement, the Company has recorded certain
adjustments to deferred policy acquisition costs and
policyholders' account balances in conjunction with its
adoption of SFAS No. 115. The SEC requires that companies
adjust those assets and liabilities that would have been
adjusted had the unrealized investment gains or losses from
securities classified as available for sale actually been
realized with corresponding credits or charges reported
directly to shareholder's equity. Accordingly, deferred policy
acquisition costs have
<PAGE>
been decreased by $36,044,000 and
policyholders' account balances have been increased by
$193,233,000 as of December 31, 1993.
As of December 31, 1992, the Company classified its investments
in fixed maturity securities as either "to be held to maturity"
or "available for sale." Fixed maturity securities to be held
to maturity are stated in the balance sheets at amortized cost.
Fixed maturity securities available for sale are stated at
estimated fair value. The net unrealized gain and loss on these
securities are reflected as a component of stockholder's
equity.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accrued to
the maturity date and interest income is accrued daily.
Realized gains and losses on the sale or maturity of the
investments are determined on the basis of identified cost.
Fixed maturity securities may contain securities which are
considered high yield. The Company defines high yield fixed
maturity securities as unsecured corporate debt obligations
which do not have a rating equivalent to Standard and Poor's
(or similar rating agency) BBB or higher, and are not
guaranteed by an agency of the federal government. Probable
losses are recognized in the period that a decline in value is
determined to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal
balances net of valuation allowances. Such valuation allowances
are based on the decline in value expected by management to be
realized on in-substance foreclosures of mortgage loans and on
mortgage loans which management believes may not be collectible
in full. In establishing valuation allowances management
considers, among other things, the estimated fair value of the
underlying collateral.
The Company has previously made mortgage loans collateralized
by real estate and direct investments in real estate. The
return on and the ultimate recovery of these loans and
investments are generally dependent on the successful
operation, sale or refinancing of the real estate. In many
parts of the country, current real estate markets are
characterized by above-normal vacancy rates, a lack of ready
sources of credit for real estate financing, reduced or
declining real estate values, and similar factors.
The Company employs a system to monitor the effects of current
and expected real estate market conditions and other factors
when assessing the collectability of mortgage loans and the
recoverability of the Company's real estate investments. When,
in management's judgment, these assets are impaired,
appropriate losses are recorded. Such estimates necessarily
include assumptions, which may include anticipated improvements
in selected market conditions for real estate, which may or may
not occur. The more significant assumptions management
considers involve estimates of the following: lease, absorption
and sales rate; real estate values and rates of return;
operating expenses; required capital improvements; inflation;
and sufficiency of any collateral independent of the real
estate.
Resulting from the Company's management and valuation of its
mortgage loans on real estate, management believes that the
carrying value approximates the fair value of these
investments.
During 1993 the Financial Accounting Standards Board issued
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"). SFAS No. 114 requires that for impaired
loans, the impairment shall be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral.
Impairments of mortgage loans on real estate are established as
valuation allowances and recorded to net realized investment
gains (losses). SFAS No. 114 must be adopted for fiscal years
beginning after December 15, 1994. The Company has decided
not to early adopt this statement. The Company estimates
that the impact on both financial position and earnings
from adopting SFAS No. 114 would be immaterial.
Real estate available for sale, including real estate acquired
in satisfaction of debt subsequent to its acquisition date, is
stated at depreciated cost less valuation allowances and
estimated selling costs.
<PAGE>
Depreciation is computed using the
straight-line method over the estimated useful lives of the
properties, which generally is 40 years.
Policy loans on insurance contracts are stated at unpaid
principal balances. The Company estimates the fair market value
of policy loans as equal to the book value of the loans.
Policy loans are fully collateralized by the account value of
the associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited to the
account value held as collateral is fixed.
Fair Value of Financial Instruments: Beginning in 1992, the
Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments", which requires companies to report the
fair value of financial instruments, for certain assets and
liabilities both on and off - balance sheet.
Federal Income Taxes: The results of the operations of the
Company are included in the consolidated Federal income tax
return of Merrill Lynch & Co.. The Company has entered into a
tax-sharing agreement with Merrill Lynch & Co. whereby the
Company will calculate its current tax provision based on its
operations. Under the agreement, the Company periodically
remits to Merrill Lynch & Co. its current federal tax
liability.
Effective the first quarter 1992, the Company adopted SFAS No.
109, "Accounting for Income Taxes" ("SFAS No. 109") which
requires an asset and liability method in recording income
taxes on all transactions that have been recognized in the
financial statements. SFAS No. 109 provides that deferred
taxes be adjusted to reflect tax rates at which future tax
liabilities or assets are expected to be settled or realized.
Previously, the Company accounted for income taxes in
accordance with SFAS No. 96, "Accounting for Income Taxes."
The effect of adopting SFAS No. 109 was not material.
Separate Accounts: The Separate Accounts are established in
conformity with Arkansas insurance law, the Company's
domiciliary state, and under such law, if and to the extent
provided under the applicable insurance contracts, assets held
in the Separate Accounts equal to the reserves and other
contract liabilities with respect to the Separate Accounts may
not be chargeable with liabilities that arise from any other
business of the Company. Separate Accounts assets may be
subject to General Account claims only to the extent the value
of such assets exceeds the Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing
net deposits and accumulated net investment earnings less fees,
held for the benefit of policyholders, are shown as separate
captions in the balance sheets. Assets held in the Separate
Accounts are carried at quoted market values.
The carrying value for Separate Accounts assets and liabilities
approximates the estimated fair value of the underlying assets.
Postretirement Benefits Other Than Pensions: During the fourth
quarter 1992, the Company adopted SFAS No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions"
("SFAS No. 106"). SFAS No. 106 requires the accrual of
postretirement benefits (such as health care benefits) during
the years an employee provides service. Prior to 1992, the
cost of these benefits were expensed on a modified pay-as-you-go
basis when such cost was allocated from MLIG as a component of
the Company's operating expenses. The effect of adopting SFAS
No. 106 was not material.
Statements of Cash Flows: For the purpose of reporting cash
flows, cash and cash equivalents include cash on hand and on
deposit and short-term investments with original maturities of
three months or less.
The carrying amounts approximate the estimated fair value of
cash and cash equivalents.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. INVESTMENTS
The amortized cost (original cost for equity securities) less
valuation allowances and estimated fair value of investments in
fixed maturity securities and equity securities as of December
31 are:
<TABLE>
<CAPTION>
1993
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 3,181,667 $ 159,233 $ 18,440 $ 3,322,460
Mortgage-backed securities 2,015,328 79,645 3,998 2,090,975
U.S. Treasury securitiesand obligations of
U.S. government corporations and
agencies 159,329 10,887 126 170,090
Obligations of states and political
subdivisions 12,912 922 0 13,834
------------ ------------ ------------ ------------
Total fixed maturity securities available
for sale $ 5,369,236 $ 250,687 $ 22,564 $ 5,597,359
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 4,481 $ 577 $ 657 $ 4,401
Non-redeemable preferred stocks 19,943 757 131 20,569
------------ ------------ ------------ ------------
Total equity securities available for sale $ 24,424 $ 1,334 $ 788 $ 24,970
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities to be held to
maturity:
Corporate securities $ 3,052,333 $ 134,016 $ 7,721 $ 3,178,628
Mortgage-backed securities 3,292,132 141,387 5,215 3,428,304
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 97,976 1,798 1,396 98,378
Obligations of states and political
subdivisions 7,540 981 0 8,521
------------ ------------ ------------ ------------
Total fixed maturity securities to be
held to maturity $6,449,981 $ 278,182 $ 14,332 $ 6,713,831
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 134,675 $ 6,648 $ 938 $ 140,385
Mortgage-backed securities 117,248 3,316 8,337 112,227
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 74,109 916 560 74,465
Obligations of states and political
subdivisions 8,606 233 0 8,839
------------ ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 334,638 $ 11,113 $ 9,835 $ 335,916
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 12,980 $ 762 $ 0 $ 13,742
Non-redeemable preferred stocks 18,618 826 0 19,444
------------ ------------ ------------ ------------
Total equity securities available for sale $ 31,598 $ 1,588 $ 0 $ 33,186
============ ============ ============ ============
</TABLE>
For publicly traded securities, the estimated fair value is
determined using quoted market prices. For securities without
a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provision for credit risk, based upon the
assumption that such securities will be held to maturity. Such
estimated fair values do not necessarily represent the values
for which these securities could have been sold at the dates of
the balance sheets. At December 31, 1993 and 1992,
respectively, securities without a readily ascertainable market
value, having an amortized cost less valuation allowances of
approximately $773,965,000 and $992,340,000, had an estimated
fair value of approximately $819,866,000 and $1,064,915,000,
respectively.
The amortized cost less valuation allowances and estimated fair
value of fixed maturity securities available for sale at
December 31, 1993 by contractual maturity are shown below:
<TABLE>
<CAPTION>
Amortized
Cost less Estimated
Valuation Fair
Allowances Value
------------ ------------
(In Thousands)
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 293,809 $ 299,884
Due after one year through five years 1,162,162 1,207,307
Due after five years through ten years 1,499,057 1,585,524
Due after ten years 398,880 413,669
------------ ------------
3,353,908 3,506,384
Mortgage-backed securities 2,015,328 2,090,975
------------ ------------
Total fixed maturity securities
available for sale $ 5,369,236 $ 5,597,359
============ ============
</TABLE>
<PAGE>
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The Company's investment in mortgage loans on real estate
consists principally of loans collateralized by commercial real
estate. The largest concentrations of commercial real estate
mortgage loans are for properties located in California
($53,795,000 or 24%), Illinois ($28,294,000 or 13%) and
Pennsylvania ($27,558,000 or 12%).
For the years ended December 31, 1993 and 1992, $29,555,000 and
$3,126,000, respectively, of real estate was acquired in
satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 511,655 $ 652,136 $ 715,102
Equity securities 4,143 4,813 2,852
Mortgage loans on real estate 20,342 25,954 32,827
Real estate available for sale 32 1,004 310
Policy loans on insurance contracts 46,129 40,843 34,366
Other 11,135 5,924 13,015
------------ ------------ ------------
Gross investment income 593,436 730,674 798,472
Less expenses (6,975) (17,935) (10,869)
------------ ------------ ------------
Net investment income $ 586,461 $ 712,739 $ 787,603
============ ============ ============
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances, determined by specific identification for
the years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 67,473 $ 15,907 $ (12,689)
Fixed maturity securities held for trading 5,562 0 0
Equity securities available for sale 22 (3,051) (804)
Equity securities held for trading 2,587 0 0
Mortgage loans on real estate (9,310) (42,997) (12,913)
Real estate available for sale (4,733) (1,800) 3,224
Other 1,451 2,302 1,225
------------ ------------ ------------
Net realized investment gains (losses) $ 63,052 $ (29,639) $ (21,957)
============ ============ ============
</TABLE>
<PAGE>
Valuation allowances have been established to reflect other than
temporary declines in estimated fair value of the following
classification of investments as of December 31,:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Fixed maturity securities to be held to maturity $ 0 $ 19,711
Fixed maturity securities available for sale 850 0
Equity securities available for sale 0 210
Mortgage loans on real estate 45,924 55,610
Real estate available for sale 20,797 5,600
------------ ------------
$ 67,571 $ 81,131
============ ============
</TABLE>
Proceeds, gains and losses from the sale or maturity of fixed
maturity securities available for sale and held to maturity for
the years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Proceeds $ 3,348,329 $ 3,488,152 $ 4,752,232
Realized investment gains 71,599 51,925 88,230
Realized investment losses 4,126 25,732 91,745
</TABLE>
Approximately $4,291,000 of unrealized holding gains from
investment trading securities were recorded in net realized
investment gains during 1993.
The Company held investments at December 31, 1993 of
$22,672,000 which have been non-income producing for the
preceding twelve months.
The Company had investment securities of $28,702,000 and
$19,030,000 held on deposit with insurance regulatory
authorities at December 31, 1993 and 1992, respectively.
At December 31, 1992, the Company retained $9,741,000 in the
Separate Accounts, including unrealized gains of $1,504,000.
The investments in the Separate Accounts were for the purpose
of providing original funding of certain mutual funds available
as investment options to variable life and annuity
policyholders. No funds were retained in the Separate Accounts
at December 31, 1993.
The Company has restructured the terms of certain of its
investments in fixed maturity securities and mortgage loans on
real estate during 1993 and 1992. The following table provides
the amortized cost less valuation allowances immediately prior
to restructuring, gross interest income that would have been
earned had the loans been current per their original terms
("Expected Income"), gross interest income recorded during the
year ("Actual Income") and equity interests which were received
in the restructuring:
<PAGE>
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Fixed maturity securities:
Amortized cost less valuation allowances $ 3,743 $ 13,148
Expected income 916 2,781
Actual income 103 1,011
Equity interest received 1,833 2,003
Mortgage loans on real estate:
Amortized cost less valuation allowance $ 79,624 $ 0
Expected income 6,859 0
Actual income 5,076 0
</TABLE>
NOTE 3. FEDERAL INCOME TAXES
The Company's operating results (excluding Tandem prior to
September 30, 1991) are consolidated with those of MLIG. MLIG
and the Company are included in Merrill Lynch & Co.'s
consolidated Federal income tax returns. It is the policy of
Merrill Lynch & Co. to allocate the tax associated with such
operating results to its respective subsidiaries on a separate
company basis. The Company has the intent to pay accumulated
Federal income tax to MLIG upon request. For the nine months
ended September 30, 1991, Tandem filed a separate Federal
income tax return.
The following is a reconciliation of the provision for income
taxes based on income before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the three years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 25,471 $ 8,726 $ 4,783
Increase (decrease) in income taxes resulting from:
Federal tax rate increase (631)
Recognition of prior year capital loss tax
benefits (2,219)
Other 75 (90) (104)
------------ ------------ ------------
Federal income tax provision $ 24,915 $ 8,636 $ 2,460
============ ============ ============
</TABLE>
The Federal statutory rate for 1993, 1992 and 1991 was 35%, 34%
and 34%, respectively.
The Company provides for deferred income taxes resulting from
temporary differences which arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each were as follows:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs $ (9,030) $ (17,633) $ (32,834)
Policyholders' account balances 6,433 21,301 (6,282)
Estimated liability for guaranty fund assessments (1,066) (2,735) (3,626)
Investment adjustments 7,941 (21,875) 2,437
Other 525 1,029 (154)
------------ ------------ ------------
Deferred Federal income tax
provision (benefit) $ 4,803 $ (19,913) $ (40,459)
============ ============ ============
</TABLE>
Deferred tax assets and liabilities as of December 31, are
determined as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 99,475 $ 105,908
Investment adjustments 19,596 27,537
Estimated liability for guaranty fund assessments 7,427 6,361
------------ ------------
Total deferred tax asset 126,498 139,806
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs 92,625 101,655
Net unrealized investment gain (loss) (213) 1,486
Other 17,208 16,683
------------ ------------
Total deferred tax liability 109,620 119,824
------------ ------------
Net deferred tax asset $ 16,878 $ 19,982
============ ============
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
Federal income taxes paid (recovered) totaled $40,000,000,
$13,594,000 and $(1,560,000) in 1993, 1992 and 1991,
respectively.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain data processing, legal,
actuarial, management, advertising and other services to the
Company. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by the Company on an allocated cost
basis. Charges billed to the Company by MLIG pursuant to the
agreement were $55,843,000, $63,300,000 and $78,306,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management to the Company. The
Company pays a fee to MLAM for these services, through the MLIG
service agreement.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
Merrill Lynch, Pierce, Fenner and Smith, Inc. ("MLPF&S") who
are the
<PAGE>
Company's licensed insurance agents, solicit
applications for contracts to be issued by the Company. MLLA
is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were approximately $67,102,000,
$25,158,000 and $27,974,000 for 1993, 1992 and 1991,
respectively. Substantially all of these commissions were
capitalized as deferred policy acquisition costs and are being
amortized in accordance with the policy discussed in Note 1.
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company
("Monarch Life"), the Company borrowed funds from Merrill Lynch
& Co. to partially finance the transaction. As of December 31,
1991, the outstanding balance of these loans was approximately
$83,200,000. These loans were repaid during 1992. Interest
was calculated on these loans at LIBOR plus 150 basis points.
Intercompany interest paid on these loans during 1992 and 1991
was approximately $4,025,000 and $6,300,000, respectively.
The Company and Merrill Lynch Trust Company ("ML Trust") were
parties to an agreement whereby the Company retained ML Trust
to hold certain invested assets upon the terms and conditions
of the agreement. ML Trust was paid a fee based on its current
fee schedule. This agreement was terminated during 1993.
The Company has entered into certain other marketing and
administrative service agreements with affiliates in connection
with the variable life and annuity policies it sells.
During 1993, 1992 and 1991, the Company allowed the recapture
of certain policies previously indemnity reinsured by the
Company from Family Life. Simultaneously with the recapture,
the Company's affiliate, ML Life Insurance Company of New York
("ML Life"), assumption reinsured these policies. These
transactions resulted in the transfer of approximately
$11,900,000 $2,000,000 $19,200,000 of policy reserves during
1993, 1992 and 1991, respectively.
The fair value of the Company's payables to affiliates is
estimated at carrying value. These borrowings are payable on
demand and bear a variable interest rate based on LIBOR.
Total intercompany interest paid was $737,000, $5,409,000 and
$8,567,000 for 1993, 1992 and 1991, respectively.
NOTE 5. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
On December 20, 1993, the Company paid a $44,988,000 ordinary
dividend and a $75,012,000 extraordinary dividend to MLIG. The
Company received approval from the Arkansas Insurance
Commissioner prior to the declaration and payment of the
extraordinary dividend.
At December 31, 1993 and 1992, approximately $37,221,000 and
$44,988,000, respectively, of retained earnings was available
for distribution to the Company's stockholder. Statutory
capital and surplus at December 31, 1993 and 1992, was
$374,209,000 and $451,888,000, respectively.
During 1991, MLIG contributed capital to the Company of
$82,396,000. The contribution was made to support the
underwriting of additional insurance premiums and deposits. No
contributions were received during 1993 and 1992.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial statements
by charging policy acquisition costs to expense as incurred,
establishing future policy benefit reserves using different
actuarial assumptions, not providing for deferred taxes and
valuing securities on a different basis. The Company's
statutory net income for the years ended December 31, 1993,
1992 and 1991 was $45,604,000, $60,140,000 and $65,771,000,
respectively.
<PAGE>
The National Association of Insurance Commissioners ("NAIC")
has developed and implemented effective December 31,
1993, the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which
a life insurance company should have based upon that company's
risk profile. The NAIC has established four different levels of
regulatory action with respect to the RBC adequacy monitoring
system. Each of these levels may be triggered if an insurer's
total adjusted capital is less than a corresponding level of
RBC. These levels are as follows:
For companies with capital levels which are below 100% of
the basic RBC level (company action level) calculated for
that company, the company must submit to the domiciliary
insurance commissioner, and implement, an approved plan to
increase adjusted capital to at least 100% of the basic
RBC.
For companies with capital levels which are below 75% of
the basic RBC level calculated for that company, the
company must submit to an examination by the domiciliary
insurance department and as a result of the findings of the
examination, corrective orders may be issued.
For companies with capital levels which are below 50% of
the basic RBC level (authorized control level) calculated
for that company, the domiciliary insurance commissioner
will have the authority to place the company into
conservatorship or liquidation.
For companies with capital levels which are below 35% of
the basic RBC level calculated for that company, the
domiciliary insurance commissioner will be required to
place the company into conservatorship or liquidation.
As of December 31, 1993, based on the RBC formula, the
Company's total adjusted capital level was 279% of the basic
RBC level.
NOTE 6. REINSURANCE AGREEMENTS
On December 28, 1990, the Company entered into an indemnity
reinsurance agreement with Family Life, in which the Company
100% coinsured substantially all of Family Life's general
account interest-sensitive life and annuity business, and
modified coinsured all of the separate account variable annuity
business. As of December 31, 1993, substantially all of this
business has been assumption reinsured by the Company and an
affiliate.
On December 31, 1990, the Company and an affiliate entered into
a 100% reinsurance agreement with respect to all variable life
policies issued by Monarch Life and sold through the Merrill
Lynch & Co. retail network. As a result of the indemnity
provisions of the agreement, the Company became obligated to
reimburse Monarch Life for its net amount at risk with regard
to the reinsured policies. At the date of acquisition, assets
of approximately $553,000,000 supporting general account
reserves, on a statutory accounting basis, were transferred
from Monarch Life to the Company. This agreement provides for
contingent ceding commission payments to Monarch Life dependent
upon the lapse rate during the five years ending in 1995 and
mortality experience during the ten years ending in 2000. To
date, the Company has paid approximately $225,900,000 to
Monarch Life under the terms of the agreement. As of December
31, 1993, the Company has accrued $7,673,000 for such payments.
On various dates during 1992 and 1991, the Company and an
affiliate assumption reinsured substantially all such policies,
wherever permitted by appropriate regulatory authorities. Upon
assumption, the policy liabilities and the underlying assets of
approximately $2,625,000,000 were transferred to the Merrill
Lynch Life Variable Life Separate Account II. As a result of
the assumptions, the Company became directly obligated to the
policyholders, rather than to Monarch Life. Certain contract
owners of the reinsured policies elected to remain with Monarch
Life as permitted under certain
<PAGE>
state insurance laws. Assets
and liabilities of those policies not assumption reinsured by
the Company or its affiliate have remained with Monarch Life.
The Company and its affiliate have indemnified Monarch Life
against its net amount at risk on such policies. As of
December 31, 1993, approximately 10 life insurance policies
with $1,499,000 life insurance in force remain under the
indemnity provisions of the reinsurance agreement.
During 1992, the Company, and its affiliates, entered into an
agreement with Monarch Life for the purchase, transfer or
assignment of certain services and assets owned, licensed or
leased by Monarch Life. Additionally, the Company along with
its affiliates were allowed to actively solicit the employment
of individuals employed by Monarch Life, who are required to
service the Company's and its affiliates' variable life
insurance policies and Monarch Life's variable life insurance
policies. In consideration of this, the Company and its
affiliate, ML Life, transferred title to Monarch Life certain
telecommunications equipment owned by Merrill Lynch Insurance
Group Services, Inc., an affiliate of the Company, with a net
book value of $1,753,000. The Company agreed to service
Monarch Life's variable life insurance policies for a period of
five years at an annual rate of $100 per policy. Monarch Life
has an option to terminate the service agreement upon proper
notification.
NOTE 7. INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap contracts for the
purpose of minimizing exposure to fluctuations in interest
rates of specific assets held. The notional amount of such
swaps outstanding at December 31, 1993 and 1992 was
approximately $155,082,000 and $197,024,000 respectively. The
average unexpired term at December 31, 1993 and 1992 was 3.2
and 3.5 years, respectively.
The current amount at risk, on a present value basis, of
terminating or replacing at current market rates all
outstanding matched swaps in a loss position at December 31,
1993 and 1992 was $0 and $0, respectively. During 1992 and
1991, a net investment gain of approximately $2,302,000 and
$4,750,000, respectively, was recorded in connection with
interest rate swap activity. The Company did not realize net
investment gains (losses) from interest rate swap activity
during 1993.
During 1993, 1992 and 1991, the Company did not enter into
unmatched interest rate swap arrangements and did not act as an
intermediary or broker in interest rate swaps.
Estimated fair values for the Company's interest rate swaps are
based on broker quotes. At December 31, 1993 and 1992, the
estimated fair value for these contracts was $4,317,000 and
$10,551,000, respectively.
NOTE 8. SALE OF FAMILY LIFE INSURANCE COMPANY
On June 12, 1991, MLIG sold Family Life to a non-affiliated
entity. Prior to closing, MLIG transferred to affiliates of
Family Life, to the extent permitted by law, all assets and
liabilities of Family Life that were not related to Family
Life's mortgage protection life insurance business. Certain
life insurance and annuity products sold through the retail
network of Merrill Lynch & Co. and underwritten by Family Life
have been or will be assumption reinsured by the Company or its
affiliate in those jurisdictions in which the Company or its
affiliate has the authority to do so. (See Note 6)
NOTE 9. COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). During 1991, and to a lesser extent 1992, there were
certain highly
<PAGE>
publicized life insurance insolvencies. The
Company has utilized public information to estimate what future
assessments it will incur as a result of these insolvencies.
At December 31, 1993 and 1992, the Company had accrued an
estimated liability for future guaranty fund assessments of
$28,083,000 and $27,104,000, respectively. The Company
regularly monitors public information regarding insurer
insolvencies and will adjust its estimated liability where
appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
<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
Merrill Lynch Life Insurance Company's By-Laws provide, in Article VI, as
follows:
SECTION 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer or employee of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer or employee of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the Court in which such action or suit was 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 or 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 attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 4. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any indemnification
under Sections 1 and 2 of this Article (unless ordered by a Court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, or employee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 and 2 of this Article. Such determination shall be made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
Any persons serving as an officer, director or trustee of a corporation,
trust, or other enterprise, including the Registrant, at the request of Merrill
Lynch & Co., Inc. are entitled to indemnification from Merrill Lynch & Co.,
Inc., 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 & Co., Inc. 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 & Co., Inc. prior to such initiation.
II-1
<PAGE>
DIRECTORS' AND OFFICERS' INSURANCE
Merrill Lynch & Co., Inc. 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. Merrill
Lynch Life Insurance Company will pay an allocable portion of the insurance
premium paid by Merrill Lynch & Co., Inc. with respect to such insurance policy.
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.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 76 pages.
Undertaking to file reports.
Rule 484 Undertaking.
The signatures.
Written Consents of the following persons:
1. Barry G. Skolnick, Esq.
2. Joseph E. Crowne, F.S.A.
3. Deloitte & Touche, Certified Public Accountants
The following exhibits:
1A. (8) (e) Form of Participation Agreement Between Merrill Lynch
Variable Series Funds, Inc., Merrill Lynch Life
Insurance Company, ML Life Insurance Company of New
York and Family Life Insurance Company
(9) (c) Service Agreement among Merrill Lynch Life Insurance
Company, Family Life Insurance Company and Merrill
Lynch Insurance Group, Inc.
(11) Memorandum describing Merrill Lynch Life Insurance
Company's Issuance, Transfer and Redemption Procedures.
3. Opinion and Consent of Barry G. Skolnick, Esq. as to
the legality of the securities being registered.
6. Opinion and Consent of Joseph E. Crowne, F.S.A. as to
actuarial matters pertaining to the securities being
registered.
8. (a) Written Consent of Barry G. Skolnick, Esq. See Exhibit
3.
(b) Written Consent of Joseph E. Crowne, F.S.A. See Exhibit
6.
(c) Written Consent of Deloitte & Touche, Certified Public
Accountants.
II-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Merrill Lynch Life Variable Life Separate Account II, has
caused this Post-Effective Amendment No. 4 to the Registration Statement to be
signed on its behalf in the City of Plainsboro and the State of New Jersey, on
the 13th day of May, 1994.
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
(Registrant)
By: MERRILL LYNCH LIFE INSURANCE COMPANY
(Depositor)
<TABLE>
<S> <C>
Attest: /s/ TERRY L. RAPP By: /s/ BARRY G. SKOLNICK
--------------------------------------- ---------------------------------------------
Terry L. Rapp Barry G. Skolnick
Assistant Secretary Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 13, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
* Chairman of the Board, President and Chief Executive
- ------------------------------------------- Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief Financial
- ------------------------------------------- Officer, Chief Actuary and Treasurer
Joseph E. Crowne
* Director, Senior Vice President, and Chief Investment
- ------------------------------------------- Officer
David M. Dunford
* Director and Senior Vice President
- -------------------------------------------
John C.R. Hele
* Director
- -------------------------------------------
Allen N. Jones
*By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior Vice President
--------------------------------------- and General Counsel and as Attorney-In-Fact
Barry G. Skolnick
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <C> <S> <C>
1 A. (1) Resolutions of the Board of Directors of Merrill Lynch
Life Insurance Company establishing the Separate
Account. Incorporated by reference to the Registration
Statement filed by the Registrant on Form S-6 (File No.
33-43057).
(2) Not applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Merrill Lynch Life
Insurance Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated. Incorporated by reference to
the Pre-Effective Amendment No. 1 to the
Registration Statement filed by Merrill Lynch
Variable Life Separate Account on Form S-6 (File
No. 33-55472).
(b) Amended Sales Agreement between Merrill Lynch Life
Insurance Company and Merrill Lynch Life Agency, Inc.
Incorporated by reference to the Pre-Effective
Amendment No. 1 to the Registration Statement filed
by Merrill Lynch Variable Life Separate Account on
Form S-6 (File No. 33-55472).
(c) Schedules of Sales Commissions. See Exhibit A
(3)(b).
(4) Not applicable.
(5) Variable Life Insurance Policies:
(1) Annual Premium Version. Incorporated by reference
to the Registration Statement Filed by Variable Account
A of Monarch Life Insurance Company on Form S-6
(File No. 2-68886).
(2) Single Premium Version. Incorporated by reference
to the Post-Effective Amendment No. 2 to the
Registration Statement Filed by Variable Account A
of Monarch Life Insurance Company on Form S-6 (File
No. 2-68886).
(3) Annual Premium Level Death Benefit Version.
Incorporated by reference to the Post-Effective
Amendment No. 4 to the Registration Statement Filed
by Variable Account A of Monarch Life Insurance
Company on Form S-6 (File No. 2-68886).
(4) Single Premium Variable Life Insurance Policy.
Incorporated by reference to the Post-Effective
Amendment No. 8 to the Registration Statement Filed
by Variable Account A of Monarch Life Insurance
Company on Form S-6 (File No. 2-68886).
</TABLE>
<TABLE>
<C> <C> <C> <S> <C> <C>
(5) (a) Policy Rider. Incorporated by reference to
the Post-Effective Amendment No. 1 to the
Registration Statement Filed by Variable
Account A of Monarch Life Insurance Company
on Form S-6 (File No. 2-68886).
(b) Form of Change of Insured Privilege.
Incorporated by reference to the
Post-Effective Amendment No. 1 to the
Registration Statement Filed by Variable
Account A of Monarch Life Insurance Company
on Form S-6 (File No. 2-68886).
(c) Policy Amendment Rider Loan Interest.
Incorporated by reference to the
Post-Effective Amendment No. 4 to the
Registration Statement Filed by Variable
Account A of Monarch Life Insurance Company
on Form S-6 (File No. 2-68886).
(d) Policy Amendment Rider Increase in Investment
Base. Incorporated by reference to the
Post-Effective Amendment No. 6 to the
Registration Statement Filed by Variable
Account A of Monarch Life Insurance Company
on Form S-6 (File No. 2-68886).
(e) Single Premium Term Rider. Incorporated by
reference to the Post-Effective Amendment No.
9 to the Registration Statement Filed by
Variable Account A of Monarch Life Insurance
Company on Form S-6 (File No. 2-68886).
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <C> <C> <S> <C> <C>
(f) Policy Amendment Rider Adjustable Loan
Interest Rate. Incorporated by reference to
the Post-Effective Amendment No. 9 to the
Registration Statement Filed by Variable
Account A of Monarch Life Insurance Company
on Form S-6 (File No. 2-68886).
(g) Policy Amendment Rider Additional Investment
Division. Incorporated by reference to the
Post-Effective Amendment No. 10 to the
Registration Statement Filed by Variable
Account A of Monarch Life Insurance Company
on Form S-6 (File No. 2-68886).
(h) Policy Amendment Rider Investment Divisions
of the Unit Investment Trusts. Incorporated
by reference to the Post-Effective Amendment
No. 10 to the Registration Statement Filed by
Variable Account A of Monarch Life Insurance
Company on Form S-6 (File No. 2-68886).
(i) Increase in Guaranteed Insurance Amount
Rider. Incorporated by reference to the
Post-Effective Amendment No. 11 to the
Registration Statement Filed by Variable
Account A of Monarch Life Insurance Company
on Form S-6 (File No. 2-68886).
(j) Beneficiary Insurance Purchase Rider.
Incorporated by reference to the
Post-Effective Amendment No. 11 to the
Registration Statement Filed by Variable
Account A of Monarch Life Insurance Company
on Form S-6 (File No. 2-68886).
(k) Policy Amendment Rider Right to Examine This
Policy. Incorporated by reference to the
Post-Effective Amendment No. 12 to the
Registration Statement Filed by Variable
Account A of Monarch Life Insurance Company
on Form S-6 (File No. 2-68886).
Certificate of Assumption. Incorporated by
(5) (c) reference to Pre-Effective Amendment No. 1 to
Tandem Insurance Group, Inc. Registration
Statement on Form S-6 (File No. 33-38095).
(d) Company Name Change Endorsement. Incorporated by
reference to Post-Effective Amendment No. 3 to
Tandem Insurance Group, Inc. Registration
Statement on Form S-6 (File No. 33-38095).
Articles of Amendment, Restatement, and
(6) (a) Redomestication of the Articles of Incorporation
of Merrill Lynch Life Insurance Company.
Incorporated by reference to the Registration
Statement filed by the Registrant on Form S-6
(File No. 33-43057).
(b) Amended and Restated By-laws of Merrill Lynch Life
Insurance Company. Incorporated by reference to
the Registration Statement filed by the Registrant
on Form S-6 (File No. 33-43057).
(7) Not applicable.
Agreement between Merrill Lynch Life Insurance
(8) (a) Company and Merrill Lynch Series Fund, Inc.
Incorporated by reference to the Pre-Effective
Amendment No. 1 to the Registration Statement
filed by Merrill Lynch Variable Life Separate
Account on Form S-6 (File No. 33-55472).
Agreement between Merrill Lynch Life Insurance
(b) Company and Merrill Lynch Funds Distributor, Inc.
Incorporated by reference to the Pre-Effective
Amendment No. 1 to the Registration Statement
filed by Merrill Lynch Variable Life Separate
Account on Form S-6 (File No. 33-55472).
Agreement between Merrill Lynch Life Insurance
(c) Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Incorporated by reference to the
Pre-Effective Amendment No. 1 to the Registration
Statement filed by Merrill Lynch Variable Life
Separate Account on Form S-6 (File No. 33-55472).
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <C> <C> <S> <C> <C>
Participation Agreement among Merrill Lynch Life
(d) Insurance Company, ML Life Insurance Company of
New York, and Monarch Life Insurance Company.
Incorporated by reference to Post Effective
Amendment No. 3 to the Registration Statement
filed by Merrill Lynch Variable Life Separate
Account on Form S-6 (File No. 33-55472).
(e) Form of Participation Agreement Between Merrill
Lynch Variable Series Funds, Inc., Merrill Lynch
Life Insurance Company, ML Life Insurance Company
of New York, and Family Life Insurance Company.
Amended form of terminated Service Agreement
(9) (a) between Merrill Lynch Life Insurance Company and
Monarch Life Insurance Company. Incorporated by
reference to Post-Effective Amendment No. 1 to the
Tandem Insurance Group, Inc's Registration
Statement on Form S-6 (File No. 33-38095).
Plan of merger between Tandem Insurance Group,
(b) Inc. and Merrill Lynch Life Insurance Company.
Incorporated by reference to Post-Effective
Amendment No. 3 to Tandem Insurance Group, Inc.
Registration Statement on Form S-6 (File No.
33-38095).
(c) Service Agreement among Merrill Lynch Life
Insurance Company, Family Life Insurance Company
and Merrill Lynch Insurance Group, Inc.
(10) Application Form for Variable Life Insurance Policy.
Incorporated by reference to the Registration Statement
filed by Variable Account A of Monarch Life Insurance
Company on Form S-6 (File No. 2-68886).
(11) Memorandum describing Merrill Lynch Life Insurance
Company's Issuance, Transfer and Redemption Procedures.
2. See 1 above.
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the
legality of the securities being registered.
4. Not applicable.
5. Not applicable.
6. Opinion and Consent of Joseph E. Crowne, F.S.A, as to
actuarial matters pertaining to the securities being
registered.
7. (a) Power of Attorney of Joseph E. Crowne (Incorporated by
Reference to Post-Effective Amendment No. 2 to the
Registration Statement filed by Merrill Lynch Variable
Life Separate Account on Form S-6 (File No. 33-55472).
(b) Power of Attorney of David E. Dunford (Incorporated by
Reference to Post-Effective Amendment No. 2 to the
Registration Statement filed by Merrill Lynch Variable
Life Separate Account on Form S-6 (File No. 33-55472).
(c) Power of Attorney of John C.R. Hele (Incorporated by
Reference to Post-Effective Amendment No. 2 to the
Registration Statement filed by Merrill Lynch Variable
Life Separate Account on Form S-6 (File No. 33-55472).
(d) Power of Attorney of Allen N. Jones (Incorporated by
Reference to Post-Effective Amendment No. 2 to the
Registration Statement filed by Merrill Lynch Variable
Life Separate Account on Form S-6 (File No. 33-55472).
(e) Power of Attorney of Barry G. Skolnick (Incorporated by
Reference to Post-Effective Amendment No. 2 to the
Registration Statement filed by Merrill Lynch Variable
Life Separate Account on Form S-6 (File No. 33-55472).
(f) Power of Attorney of Anthony J. Vespa (Incorporated by
Reference to Post-Effective Amendment No. 2 to the
Registration Statement filed by Merrill Lynch Variable
Life Separate Account on Form S-6 (File No. 33-55472).
8. (a) Written Consent of Barry G. Skolnick, Esq. See Exhibit
3.
(b) Written Consent of Joseph E. Crowne, F.S.A. See Exhibit
6.
(c) Written Consent of Deloitte & Touche, Certified Public
Accountants.
</TABLE>
II-6
<PAGE> 1
PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Merrill Lynch Variable
Series Funds, Inc. (the "Fund"), Merrill Lynch Life Insurance Company, an
insurance company organized under the laws of the State of Arkansas, ML Life
Insurance Company of New York, an insurance company organized under the laws of
the State of New York, Family Life Insurance Company, an insurance company
organized under the laws of the State of Washington, -----------------,
- ------------------, (collectively, the "Participating Insurance Companies")
and separate accounts of the Participating Insurance Companies that currently
invest or in the future will invest in the Fund (such separate accounts being
referred to herein as the "Separate Accounts").
WHEREAS, the Fund is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "1940 Act")
as an open-end diversified investment management company; and
WHEREAS, the Fund is organized as a series fund, currently
with fourteen portfolios; and
WHEREAS, the Fund was organized as a funding vehicle for
variable annuity contracts; and
WHEREAS, the Participating Insurance Companies are desirous of
having the Fund serve as one of the funding vehicles for their respective
variable annuity contracts and/or variable life insurance contracts issued
through the Separate Accounts.
NOW, THEREFORE, and in consideration of the mutual covenants
herein contained, it is hereby agreed by and among the Participating Insurance
Companies as follows:
1. Each Participating Insurance Company shall designate
an individual to monitor for the occurrence of any event which may give rise to
the existence of any material irreconcilable conflict between the interests of
the participants of all Separate Accounts investing in the Fund, and to advise
each other Participating Insurance Company and the Board of Directors of the
Fund (the "Board"), if any such event shall occur. Such an event may include
(but will not necessarily be limited to): (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or public ruling, private letter
ruling, no action or interpretive letter, or any similar action by insurance,
tax or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any portfolio are being managed; or (e) a decision by a Participating Insurance
Company to disregard the voting instructions of its contract owners.
<PAGE> 2
2. (a) If a Participating Insurance Company shall have
advised the other Participating Insurance Companies of the occurrence of an
event which may give rise to a material irreconcilable conflict as provided in
paragraph 1 above, the Participating Insurance Companies shall consult with
each other in a good faith effort (i) to determine whether such event gives
rise to such a conflict and, (ii) if it does, to attempt to resolve such
conflict within a reasonable period of time without resort to the provisions of
paragraph 2(b) of this Agreement.
(b) If the Participating Insurance Companies are
unable to resolve a conflict through consultation as provided in paragraph
2(a), and if any Participating Insurance Company determines that such conflict
is a material irreconcilable conflict:
(i) if the event giving rise to the conflict
involves the inability, for state insurance regulatory or any other reason, of
one or more of the Participating Insurance Companies to invest in the Fund or
one of its portfolios unless the investment adviser or principal underwriter of
the Fund or such portfolio is changed, then such Participating Insurance
Company or Companies shall withdraw their investments from the Fund or such
portfolio within a reasonable period of time; provided, however, that if such
Participating Insurance Company or Companies own a majority of the then
outstanding shares of the Fund or such portfolio, the Participating Insurance
Companies will advise the Board that the agreement with the investment adviser
or principal underwriter, as the case may be, for the Fund or such portfolio is
to be terminated and that the Participating Insurance Companies intend to vote
their shares in the Fund to effect such termination (and if the Board does not
then terminate such agreement, the Participating Insurance Companies shall
recommend to their respective contract owners that the shares in the Fund be
voted to effect such termination); and
(ii) if the event giving rise to the conflict
involves a need to change the investment policy of the Fund or one of its
portfolios so that one or more of the participating insurance companies may
continue to invest in the Fund or such portfolio, the participating insurance
companies agree to advise the Board of Directors of the Fund of the changes in
the investment policies of the Fund or such portfolio that must be effected so
as to permit all of the participating insurance companies to continue to invest
in the Fund or such portfolio (and if required to effect such change, the
participating insurance companies will recommend to their respective contract
owners that the shares in the Fund be voted to effect such change).
(c) The Participating Insurance Company which,
pursuant to paragraph 1 of this Agreement, initially advises of an event which
may give rise to a conflict shall also advise the Board as to whether such
event in fact gave rise to a conflict and, if so, the action taken by the
Participating Insurance Companies pursuant to paragraph 2 of this Agreement to
resolve such conflict.
<PAGE> 3
3. If, as provided in paragraph 2(b) of this Agreement, it is
determined by the Participating Insurance Companies that a material
irreconcilable conflict exists and that one or more of the Participating
Insurance Companies must withdraw their assets from the Fund or one of its
portfolios (or if a Participating Insurance Company determines that it should
withdraw its assets from the Fund so as to avoid a material irreconcilable
conflict), such Company or Companies shall take whatever steps are necessary to
effect such withdrawal within a reasonable period of time, up to and including:
(a) withdrawing the assets allocable to some or all of the Separate Accounts
from the Fund or any portfolio and reinvesting such assets in a different
investment medium (including another portfolio of the Fund) or submitting the
question of whether such withdrawal should be implemented to a vote of all
affected participants and, as appropriate, withdrawing the assets of any
particular group (i.e., contract owners of one or more Participating Insurance
Companies) that votes in favor of such withdrawal, or offering to the affected
participants the option of making such a change; and (b) establishing a new
registered management investment company or management separate account. No
charge or penalty will be imposed on contract owners directly or indirectly as
a result of such a withdrawal. In no event will the Fund or the investment
adviser of the Fund be required to establish a new funding medium for any
variable insurance contract. No Participating Insurance Company will be
required to establish a new funding medium for any variable insurance contract.
No Participating Insurance Company will be required to establish a new funding
medium for any variable insurance contract if an offer to do so has been
declined by vote of a majority of participants materially adversely affected by
the material irreconcilable conflict.
4. The Participating Insurance Companies acknowledge to
the Fund that prospectus disclosure regarding potential risks of mixed and
shared funding permitted by this Agreement may be appropriate.
5. The Fund will file with its books and records all
reports received by the Board concerning potential or existing conflicts, and
the means by which it is proposed that any conflicts be resolved, will note the
receipt of such reports in the minutes of meetings of the Board and will make
such reports available to the Securities and Exchange Commission (the
"Commission") upon request.
6. Each of the Participating Insurance Companies agrees
that any action taken by it under this Agreement, including any action in
identifying and resolving any material conflicts of interest, will be carried
out with a view only to the interest of its contract owners participating in
the Fund.
7. Each Participating Insurance Company shall provide
pass-through voting privileges to all of its contract owners so long as the
Commission continues to interpret the 1940 Act to require such pass-through
voting privileges for variable insurance
<PAGE> 4
contract owners. Each Participating Insurance Company shall be responsible
for assuring that its Separate Accounts calculate voting privileges in a manner
consistent with the other Participating Insurance Companies. It is a condition
of this Agreement that each Participating Insurance Company will vote shares,
for which it has not received voting instructions as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions.
8. This Agreement shall terminate automatically in the
event of its assignment, unless made with the written consent of each party.
9. This Agreement shall be subject to the provisions of
the 1940 Act and the rules and regulations thereunder, including any exemptive
relief therefrom and the orders of the Commission setting forth such relief.
Executed this day of , 1994.
MERRILL LYNCH LIFE INSURANCE COMPANY
By
-------------------------------
Name:
Title:
ML LIFE INSURANCE COMPANY OF NEW YORK
By
--------------------------------
Name:
Title:
FAMILY LIFE INSURANCE COMPANY
By
--------------------------------
Name:
Title:
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
By
-------------------------------
Name:
Title:
By
--------------------------------
Name:
Title:
<PAGE> 1
SERVICE AGREEMENT
BETWEEN
MERRILL LYNCH INSURANCE GROUP, INC.,
FAMILY LIFE INSURANCE COMPANY
AND
MERRILL LYNCH LIFE INSURANCE COMPANY
This Service Agreement is entered into as of the 29th day of November,
1990 between Family Life Insurance Company, a Washington Corporation ("FLIC"),
Merrill Lynch Life Insurance Company, a Washington corporation ("MLLIC") and
Merrill Lynch Insurance Group, Inc., a Delaware corporation, for itself and for
its affiliates other than FLIC and MLLIC ("MLIG").
W I T N E S S E T H:
WHEREAS, FLIC is a wholly-owned subsidiary of MLIG, and MLLIC is a
wholly-owned subsidiary of FLIC, and
WHEREAS, each party to this Agreement desires to utilize certain services
to be provided by the other parties in carrying out certain of their respective
corporate functions, and
WHEREAS, each party is willing to furnish, or cause its affiliates to
furnish, such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties do hereby mutually agree as follows, effective
as to FLIC and MLLIC respectively, only so long as it is an affiliate of MLIG:
<PAGE> 2
1. Each party will provide or contract or arrange with any of its
affiliates for the providing of, as available, services as listed in Exhibit I
hereto, if and to the extent requested by the other. Exhibit I may be modified
from time to time by agreement between the parties.
2. For services provided, the service recipient agrees to pay the
service provider:
(a) the amounts as may be specified in one or more Schedules, pertaining
to particular categories of services, as may be executed by the parties and
attached to and incorporated into this Agreement; or
(b) if not so specified, to pay those charges (direct and indirect) and
expenses incurred by the service provider which, as reasonably determined by
the service provider and demonstrated to the reasonable satisfaction of service
recipient, reflect actual cost of such services to the service provider,
provided that
(1) charges and expenses for personnel shall be based on a
reasonable allocation of the time spent on service recipient
matters relative to time spent on other matters;
(2) charges and expenses for property or other services shall be
based on a reasonable allocation of the proportion of and
period of time such property or services is utilized for
service recipient matters relative to that utilized for other
matters, and;
<PAGE> 3
(3) no charges or expenses shall exceed those charged by the
service provider in the relevant market for comparable
personnel, property or services as the case may be.
After the end of each month, the service provider will send the service
recipient a bill covering service charges and expenses which have been
incurred, or the amount of which has been ascertained, during such month, and
the service recipient will pay for such charges and expenses upon receipt of
the bill.
3. The book, accounts and records of MLIG, its affiliates providing
services hereunder, FLIC and MLLIC as to all transactions hereunder shall be
maintained so as to clearly and accurately disclose the nature and details of
the transactions, including such accounting information as is necessary to
support the reasonableness of the charges, expenses or fees hereunder. The
service recipient shall have the right, at its own expense, and at any
reasonable time, to make an audit of the services rendered and the amounts
charged therefor.
<PAGE> 4
4. The term of this Agreement shall commence as of the date hereinabove
indicated and continue until December 31, 1990, and thereafter shall be deemed
to be renewed automatically, upon the same terms and conditions, for successive
periods of one year each, until any party, at least 60 days prior to the
expiration of the original term or of any extended term, shall give written
notice to the other parties of its intention not to renew the Agreement,
provided that, notwithstanding the foregoing, electronic data processing
services will be made available to the service recipient for up to six months
following any such termination, if the service recipient shall so request.
5. It is understood that (a) MLIG, any of its affiliates or
subsidiaries, will invest for their own account and may act as investment
advisor for others and that MLIG or such others or persons or organizations
affiliated with MLIG could have investment interests adverse to the interests
of FLIC or MLLIC in the same or related investments; (b) MLIG is not obligated
to make available to FLIC or MLLIC any particular investment opportunity which
comes to MLIG or its subsidiaries or affiliates, regardless or whether such
opportunity is consistent with the investment policies of FLIC or MLLIC; and
(c) FLIC and MLLIC shall retain full control over their respective investment
activities, and MLIG or any of its affiliates or subsidiaries shall have no
power or authority by virtue of this Agreement, whether as agent or otherwise,
to obligate or commit FLIC or MLLIC for the acquisition or disposition of any
investment.
<PAGE> 5
6. All differences between MLIG, FLIC and MLLIC on which agreement
cannot be reached will be decided by arbitration. The arbitrators will
interpret this Agreement in accordance with the usual business practices,
rather than strict technicalities or rule of law. Three arbitrators will
decide any differences. They must be officers of life insurance companies
other than the parties to this agreement, their parents, subsidiaries and
affiliates. One of the arbitrators is to be appointed by service provider and
one by the service recipient, and these two will select a third. If the two
are unable to agree on a third, the choice will be left to the President of the
American Council of Life Insurance or its successor organization. The
arbitrators' decision will be by majority vote and no appeal will be taken from
it. The costs of the arbitration will be borne by the losing party unless the
arbitrators decide otherwise.
7. No assignment of this Agreement shall be made by any party without
the consent of the other parties.
8. Subject to the foregoing Clause 7, this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties
hereto.
9. This Agreement shall supersede that Management Services Agreement
between FLIC and MLLIC dated April 28, 1986.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
MERRILL LYNCH INSURANCE GROUP, INC.
By: /s/ Thomas H. Patrick
---------------------------------------
FAMILY LIFE INSURANCE COMPANY
By: /s/ James W. Grace
---------------------------------------
MERRILL LYNCH LIFE INSURANCE COMPANY
By: /s/ James W. Grace
---------------------------------------
<PAGE> 7
EXHIBIT I
To Service Agreement
Between MLIG, FLIC and MLLIC
Personnel, Property and Services (except as provided under separate agreements
or Schedules):
1. Accounting and auditing.
2. Actuarial.
3. Administration.
4. Advertising, marketing and public relations.
5. Claims (pursuant to the service recipient's guidelines and
subject to final approval by the service recipient).
6. Corporate Secretary.
7. Development of software programs.
8. Electronic date processing.
9. Financial and cash advice or management.
10. Investment advisory or management.
11. Legal.
12. Office and general supplies.
13. Payroll services.
14. Personnel.
15. Premium billing and collection.
16. Printing.
17. Product design and development.
18. Regulatory filings and reports.
19. Storage.
20. Underwriting (pursuant to the service recipient's guidelines and
subject to final approval by the service recipient).
<PAGE> 8
AMENDMENT
to
SERVICE AGREEMENT
between
MERRILL LYNCH INSURANCE GROUP, INC.
and
MERRILL LYNCH LIFE INSURANCE COMPANY
The above referenced Agreement is amended as follows:
1. MLLIC shall have ultimate control of and responsibility for any functions
delegated to the service provider under this Agreement.
2. MLLIC shall have the right to terminate this Agreement in the event the
service provider does not perform services delegated to it to the
satisfaction of MLLIC.
3. Section (a) of Clause 2 of the Agreement shall be deleted. In Section (b)
of Clause 2:
(i) the following words shall be deleted "(b) if not so
specified, to pay."
(ii) the word "reflect," shall be deleted and the word
"represent," shall be added in its place.
<PAGE> 9
4. Item 10 of Exhibit 1 is amended to read as follows:
Investment advisory or management (pursuant to the service recipient's
guidelines and subject to final approval by the service recipient).
IN WITNESS WHEREOF, the parties hereto have dully executed this Agreement as of
the 25 day of February, 1993.
MERRILL LYNCH LIFE INSURANCE COMPANY
By: /s/ Sandra K. Kelly
-----------------------------------
MERRILL LYNCH INSURANCE GROUP, INC.
By: /s/ Robert M. Bordeman
-----------------------------------
<PAGE>
Exhibit 11
Description of Merrill Lynch Life Insurance Company's
Issuance, Transfer and Redemption Procedures
for Policies Pursuant to
Rule 6e-2(b) (12) (ii)
This document sets forth the administrative procedures that will be
followed by Merrill Lynch Life Insurance Company ("Merrill Lynch") in connection
with the issuance of its Single Premium Variable Life Insurance Policy
("Policy") issued through the Merrill Lynch Life Variable Life Separate Account
II ("Account"), the transfer of assets held under the Policies, and the
redemption by owners of their interests in said Policies.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES
A. PREMIUM RATE STRUCTURE AND UNDERWRITING STANDARDS
Premiums for Merrill Lynch's Policy will not be the same for all owners.
Insurance is based on the principle of pooling and distribution of mortality
risks, which assumes that each owner pays a premium commensurate with the
insured's mortality risk as actuarially determined, reflecting factors such as
age, sex, health and occupation. A uniform premium for all insureds would
discriminate unfairly in favor of those insureds representing greater risks.
Although there will be no uniform premium for all insureds, there will be a
single price for all insureds of the same age and sex in a given risk
classification.
The Policy will be offered and sold pursuant to an established premium rate
structure and underwriting standards in accordance with state insurance laws.
The prospectus specifies
<PAGE>
premiums for illustrative ages. In addition, the premium to be paid by an owner
will be specified in the Policy.
B. APPLICATION AND PREMIUM PROCESSING
When a completed application is received, Merrill Lynch will follow certain
insurance underwriting (I.E. evaluation of risks) procedures designed to
determine whether the proposed insured is insurable. This process may require
that further information be provided by the proposed insured before a
determination can be made.
The date on which a Policy is issued is referred to as the issue date. The
issue date represents the commencement of the suicide and contestable periods
for purposes of the Policies. The net single premium plus the policy loading
will be credited to Merrill Lynch's Account and the benefits will begin to vary
with investment experience on the later of the issue date and the date the
single premium is received. Merrill Lynch may, however, provide temporary life
insurance coverage, the death benefit of which shall not exceed $100,000 prior
to the policy's issue date, provided the premium has been paid.
The policy date is the date used to determine the policy years and
anniversaries. As provided for under state insurance law, the policyholder, to
preserve insurance age, may determine
2
<PAGE>
the policy date. In no case may the policy date be more than six months prior
to the issue date.
C. REPAYMENT OF LOAN
A loan under Merrill Lynch's Policies may be repaid while the insured is
living and the Policy is in force by paying an amount equal to the monies
borrowed plus 5 1/4% interest compounded annually. Upon repayment of a policy
loan, transfers will be made from the general account to the Account in an
amount equal to the repaid loan. An owner may designate the investment
divisions to which the repayment will be made.
II. TRANSFERS AMONG INVESTMENT DIVISIONS
The Account currently has 37 investment divisions, 10 of which invest in
shares of a corresponding fund of the Merrill Lynch Series Fund, Inc. (the
"Series Fund"), 7 of which invest in shares of a corresponding fund of the
Merrill Lynch Variable Series Funds, Inc. (the "Variable Series Funds") and 20
of which invest in a corresponding series of The Merrill Lynch Fund of Stripped
("Zero") U.S. Treasury Securities (the "Trust"). The Series Fund and the
Variable Series Funds are each registered under the 1940 Act as an open end
investment company. The Trust is registered under the 1940 Act as a unit
investment trust. The owner may transfer among the investment divisions up to
five times a year. Allocations can be made into as many as five divisions at
any time.
3
<PAGE>
III. "Redemption Procedures":
SURRENDER AND RELATED TRANSACTIONS
A. SURRENDER FOR CASH VALUES
An owner of a policy may surrender the Policy for its net cash value at
any time while the insured is living. The surrender is effective on the date
the policyholder transmits the request to Merrill Lynch. Merrill Lynch will pay
a net cash value on surrender based on the next computed value after a request
is received at the Service Center. The net cash value will be paid within seven
days after receipt, at Merrill Lynch's Variable Life Service Center, of the
Policy and a signed request for surrender. Computations with respect to the
investment experience of the Account will be made at the close of trading on the
New York Stock Exchange on any day the New York Stock Exchange is open for
trading and any day in which there is sufficient trading in portfolio securities
of the Funds or the Trust such that the net value of the assets of an investment
division might be materially affected.
The net cash value of a Policy equals the cash value less any outstanding
policy loan, including any accrued interest. The cash value at the end of a
policy year is equal to the reserve for that Policy. The cash value between
policy anniversaries may increase or decrease daily depending on the investment
experience of the divisions in which the investment base for the Policy is
vested. No minimum amount of cash value is guaranteed.
4
<PAGE>
The initial cash value will be the net premium, which is the single premium
less the charges set forth in the prospectus.
The cash value on a date during a policy year, assuming no policy loans,
will be calculated by taking the cash value at the end of the preceding year,
adding the actual return for the Policy applied to the investment base, and then
subtracting the charge for the cost of insurance protection provided since the
end of the preceding year. The investment base will include any unrecovered
policy loading. During the first 10 policy years the investment base (the
amount that a Policy provides for investment) will exceed the Policy's cash
value (the amount available to the owner) by the amount of any unrecovered
loading. On Policy anniversaries after the tenth, the investment base will
equal the cash value.
Merrill Lynch will make the payment of the net cash value out of its
general account and, at the same time, transfer assets from the Account to its
general account in an amount equal to the investment base applicable to the
Policy held in the Account.
In lieu of receiving the net cash value in a single sum, upon surrender of
a Policy, the owner may elect to apply the net cash value under one of the
income plans described in the Policy. The income plans are subject to the
restrictions and limitations set forth in the Policy.
5
<PAGE>
B. DEATH CLAIMS
Merrill Lynch will pay a death benefit to the beneficiary within seven days
after receipt at its Variable Life Service Center of the Policy, due proof of
death of the insured, and all other requirements necessary to make payment.
On each Policy anniversary, Merrill Lynch will determine the Variable
Insurance Amount to take into account the investment experience of the
designated investment divisions during the previous policy year. The death
benefit during a policy year will equal the sum of the Guaranteed Insurance
Amount, plus the Variable Insurance Amount (established at the beginning of the
Policy year), if positive. The death benefit will never be less than the
Guaranteed Insurance Amount. The amount of the death benefit determined at the
beginning of the policy year will remain the same for the remainder of the year.
The proceeds payable to the beneficiary will be adjusted to reflect any
insurance benefits added by rider and any outstanding policy loans, including
any accrued interest. The proceeds payable on death also reflect interest
from the date of death to the date of payment.
Merrill Lynch will make payment of the death benefit out of its general
account, and will transfer the investment base out of the Account.
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In lieu of payment of the death benefit in a single sum, an income plan may
be elected as described above with respect to cash values.
C. POLICY LOAN
The owner may borrow up to 75% of a Policy's cash value during policy years
1 through 3 and 90% thereafter. The cash value for this purpose will be the
cash value computed on the date a proper request for a loan is received by
Merrill Lynch. Payment of the loan from Merrill Lynch's general account will be
made to the policyholder within seven days of receipt. Interest accrues daily
at an effective annual rate of 5 1/4% compounded on each policy anniversary.
The smallest loan is generally $1,000. The owner may repay all or a portion of
any loan and accrued interest while the insured is living and the Policy is in
force. With a proper written request to Merrill Lynch, an owner may designate
the divisions from which the loan amounts will be transferred and to which
repayments will be made.
When a loan is taken out, a portion of the cash value equal to the loan is
transferred from the Account to Merrill Lynch's general account, and repayment
of a loan will result in a transfer back to the Account. Unless designated
otherwise by the owner, loans and any repayments will be allocated among the
investment divisions of the Account based upon the investment base in each
investment division as of the date the loans or the
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repayments are made. The amount maintained in the general account will not be
credited with the return earned by the Account during the period the loan is
outstanding. Instead, interest will be credited daily at an effective annual
rate of 4 1/2% compounded daily. Therefore, a Policy's death benefit above the
guaranteed minimum and a Policy's cash value are permanently affected by any
loan whether or not repaid in whole or in part.
The amount of any outstanding loan plus loan interest is subtracted from
the death benefit or the cash value on payment.
Whenever the then outstanding loan plus loan interest exceeds the cash
value, the Policy terminates 31 days after notice has been mailed by Merrill
Lynch to the owner and any assignee of record at their last known addresses,
unless a repayment of the amount in excess of the cash value is made within that
period.
IV. INCREASE IN GUARANTEED INSURANCE AMOUNT
Subject to state availability and Merrill Lynch's rules, a policyowner
may make a payment to increase the Guaranteed Insurance Amount of an
in force policy. Evidence of insurability will ordinarily be required.
The payment (net of certain charges) will be allocated to the division
investing in the Money Reserve Portfolio on the
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business day next following receipt. Once the underwriting is completed and
Merrill Lynch accepts the payment, the amount applicable to the payment in the
division investing in the Money Reserve Portfolio will be allocated as of the
date the underwriting is completed either according to the owner's instructions
or, if no instructions have been received, proportionately to the investment
base in each division.
Once underwriting is completed and Merrill Lynch accepts the payment, the
acceptance will be effective as of the next business day following receipt of
the payment and the application with any evidence of insurability that Merrill
Lynch may require.
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[LOGO]
May 13, 1994
Board of Directors
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
To The Board of Directors:
In my capacity as General Counsel of Merrill Lynch Life Insurance Company (the
"Company"), I have supervised the establishment of the Merrill Lynch Life
Variable Life Separate Account II (the "Account"), by the Board of Directors of
the Company as a separate account for assets applicable to certain variable life
insurance policies (the "Policies") issued by the Company pursuant to the
provisions of Section 23-81-402 of the Insurance Laws of the State of Arkansas.
Moreover, I have supervised the preparation of Post-Effective Amendment No. 4 to
the Registration Statement on Form S-6 (as so amended, the "Registration
Statement") (File No. 33-43057) filed by the Company and the Account with the
Securities and Exchange Commission under the Securities Act of 1933, for the
registration of the Policies to be issued with respect to the Account.
I have made such examination of the law and examined such corporate records and
such other documents as in my judgement are necessary and appropriate to enable
me to render the following opinion that:
1. The Company has been duly organized under the laws of the State of Arkansas
and is a validly existing corporation.
2. The Account is duly created and validly existing as a separate account
pursuant to the aforesaid provisions of Arkansas Law.
3. The assets in the Account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with liabilities
arising out of any other business the Company may conduct.
4. The Policies have been duly authorized by the Company and constitute legal,
validly issued and binding obligations of the Company in accordance with their
terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the caption "Legal Matters" in the
Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Barry G. Skolnick
---------------------
Barry G. Skolnick
Senior Vice President and General Counsel
<PAGE>
[LOGO]
May 13, 1994
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. 4 to the Registration Statement on Form S-6 (as so amended, the
"Registration Statement") (File No. 33-43057) which covers premiums received
under the single premium variable life insurance policies ("Policies" or
"Policy") issued by Merrill Lynch Life Insurance Company (the "Company").
The Prospectus included in the Registration Statement describes Policies which
are issued by the Company. The Policy forms were reviewed under my direction,
and I am familiar with the Registration Statement and Exhibits thereto. In my
opinion:
1. Using the interest rate and mortality tables guaranteed in the Policy,
current mortality rates cannot be established at levels such that the "sales
load," as defined in paragraph (c)(4) of Rule 6(e)-2 under the Investment
Company Act of 1940, would exceed 9 percent of any payment.
2. The illustrations of death benefits, investment base, cash surrender
values and accumulated premiums included in the Registration Statement for the
Policy and based on the assumptions stated in the illustrations, are consistent
with the provision of the Policy. The rate structure of the Policies 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 Policy for the ages and sexes shown, than to prospective purchasers of a
Policy for other ages and sex.
3. The table of illustrative net single premium factors included in the
"Death Benefit" section is consistent with the provisions of the Policies.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of my name relating to actuarial matters under the
heading "Experts" in the Prospectus.
Very truly yours,
/s/ Joseph E. Crowne
--------------------
Joseph E. Crowne, FSA
Senior Vice President and
Chief Financial Officer
<PAGE>
Exhibit 8(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 4 to Registration
Statement No. 33-43057 of Merrill Lynch Life Variable Life Separate Account II
on Form S-6 of our reports on (i) Merrill Lynch Life Insurance Company dated
February 28, 1994, and (ii) Merrill Lynch Life Variable Life Separate Account II
dated February 16, 1994, appearing in the Prospectus, which is a part of such
Registration Statement and to the reference to us under the heading "Experts" in
such Prospectus.
New York, New York
May 13, 1994
