<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1995
REGISTRATION NO. 33-43057
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 5
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF 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)
/X/ on May 1, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/ / this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Check box if it is proposed that the filing will become effective on (date) at
(time) pursuant to Rule 487 / /
PURSUANT TO RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT
HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES UNDER THE SECURITIES ACT OF
1933. THE REGISTRANT FILED THE 24F-2 NOTICE FOR THE YEAR ENDED DECEMBER 31, 1994
ON FEBRUARY 24, 1995.
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<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE
SEPARATE ACCOUNT II
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
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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. 33-43057, 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." The Policy is not currently being offered for sale to new
purchasers. 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 29 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"). The Series Fund uses 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 16). 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 14).
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 20).
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 18.) 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, INC.
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>
<S> <C>
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: MAY 1, 1995
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
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PAGE
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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 Unit Investment Trusts of The Merrill Lynch Fund of Stripped ("Zero") U.S.
Treasury Securities?................................................................................ 5
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?........................................................... 6
Who Sells the Policies?............................................................................. 6
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..................................................................................... 12
Resolving Material Conflicts........................................................................ 13
The Trusts.......................................................................................... 14
Substitution of Investments......................................................................... 14
How Policy Benefits Vary to Reflect the Separate Account's Investment Results........................... 15
The Amount Invested: The Investment Base............................................................ 15
Policy's Rate of Return and Resultant Investment Return............................................. 15
Charges and Expenses.................................................................................... 16
Allocation to the Separate Account.................................................................. 16
Charges Deducted from Premium....................................................................... 16
Expenses Charged to All Divisions of the Separate Account........................................... 16
Charge For the Cost of Insurance.................................................................... 17
Group or Sponsored Arrangements..................................................................... 17
Expenses Charged to the Trusts...................................................................... 17
Guarantee of Certain Charges........................................................................ 17
Other Charges....................................................................................... 17
Administrative Services................................................................................. 18
Distribution Agreement and Other Contractual Arrangements............................................... 18
Tax Considerations...................................................................................... 18
Policy Proceeds..................................................................................... 18
Charge for the Insurance Company's Income Taxes..................................................... 20
Legal Considerations.................................................................................... 20
Management.............................................................................................. 21
Voting Rights........................................................................................... 21
Right to Instruct Voting of Shares of the Series Fund............................................... 21
Disregard of Voting Instructions.................................................................... 22
Reports................................................................................................. 22
State Regulation........................................................................................ 22
Legal Proceedings....................................................................................... 22
Legal Matters........................................................................................... 22
Additional Information.................................................................................. 23
Experts................................................................................................. 23
Appendix A--Illustrations of Death Benefits, Cash Values and Accumulated Premiums....................... 24
Appendix B--Other Policy Provisions..................................................................... 33
Income Plans........................................................................................ 33
Other Important Provisions.......................................................................... 33
Financial Statements of Merrill Lynch Life Variable Life Separate Account II............................ 36
Financial Statements of Merrill Lynch Life Insurance Company............................................ 53
</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 policies, 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. Each portfolio of the Series Fund is 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 policies, a Policy provides a guaranteed minimum
death benefit.
Unlike traditional life insurance policies, 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 16).
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 17). 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 15). 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 15), 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 of return and 4.5%, multiplied by a
Policy's total investment base (see "The Amount Invested: The Investment Base",
page 15.)
3
<PAGE>
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
17).
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 29 investment
divisions within the Separate Account available for new allocations, 10 of which
invest in shares of a designated mutual fund portfolio of the Series Fund (a
"series" type of mutual fund) and 19 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 29 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 16). 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 17).
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 20.)
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 16);
4
<PAGE>
- A charge for administrative expenses (see "Administrative
Charge", page 16);
- A charge for state premium taxes (see "State Premium Tax
Charge", page 16); and
- A risk charge (see "Risk Charge", page 16).
In certain group or sponsored arrangements the charges for sales load and
administrative expenses may be reduced (see "Group or Sponsored Arrangements",
page 17).
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 12-13. 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 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 1995
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.
5
<PAGE>
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 page 14. 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 approvals 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 18).
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 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 18).
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 is 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 18. If the policy debt exceeds
the cash value, the Insurance Company will terminate the Policy in accordance
with the procedure described on page 10.
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. The Policy is not currently being offered for sale to new purchasers.
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 insurance agency 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.
6
<PAGE>
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 17).
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 33).
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 15); 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 15) 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 15) 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>
<CAPTION>
TABLE OF ILLUSTRATIVE NET SINGLE
PREMIUMS FOR AVAILABLE INSURANCE AMOUNT
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
17).
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 15, 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 15). 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 15).
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 18).
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 15) 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 16) except that the administrative charge will be reduced to $25. The
Insurance Company will subtract these charges from the investment base in ten
equal annual 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
15. 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 29 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. Each series of stock
represents the interest in a separate portfolio within the Series Fund. The
other 19 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 19 investment
divisions depends on the availability of units of the Trusts.
Full descriptions of the Series Fund 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 and the Trusts must accompany, and should be read together with,
this Prospectus.
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
12
<PAGE>
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.
MLAM and the Insurance Company have entered into an agreement pursuant to
which MLAM pays to the Insurance Company a fee in an amount equal to a portion
of the annual gross investment advisory fees paid by the Series Fund to MLAM
attributable to contracts issued by the Insurance Company. This agreement
reflects administrative services provided by the Insurance Company and
affiliates.
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. 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 to preserve capital, maintain liquidity and
achieve the highest possible current income consistent with those objectives by
investing in short-term money market securities.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO seeks the highest possible current
income consistent with the protection of capital by investing in debt securities
issued or guaranteed by the United States government or its agencies with a
maximum maturity of 15 years.
LONG-TERM CORPORATE BOND PORTFOLIO primarily seeks as high a level of current
income as is believed to be consistent with prudent investment risk, and
secondarily to preserve shareholders' capital. It invests primarily in corporate
bonds which have been rated within the three highest grades of a major rating
agency.
CAPITAL STOCK PORTFOLIO seeks long-term growth of capital and income, plus
moderate current income. It principally invests in common stocks considered to
be of good or improving quality or considered to be undervalued based on
criteria such as historical price/book value and price/earnings ratios.
GROWTH STOCK PORTFOLIO seeks long-term growth of capital by investing in a
diversified portfolio of securities primarily common stocks of aggressive growth
companies that are considered to have special investment value.
HIGH YIELD PORTFOLIO seeks as high a level of current income as is believed to
be consistent with prudent management, and secondarily capital appreciation by
investing principally in fixed-income securities rated in the lower categories
of the established rating services or in unrated securities of comparable
quality (commonly known as "junk bonds").
MULTIPLE STRATEGY PORTFOLIO seeks a high total investment return consistent
with prudent risk through a fully managed investment policy utilizing equity
securities, investment grade intermediate and long-term debt securities and
money market securities.
NATURAL RESOURCES PORTFOLIO seeks long-term growth of capital and protection
of the purchasing power of shareholders' capital by investing primarily in
equity securities of domestic and foreign companies with substantial natural
resource assets.
GLOBAL STRATEGY PORTFOLIO seeks high total investment return by investing
primarily in a portfolio of equity and fixed income securities, including
convertible securities of U.S. and foreign issuers.
BALANCED PORTFOLIO seeks a level of current income and a degree of stability
of principal not normally available from an investment solely in equity
securities and the opportunity for capital appreciation greater than that
normally available from an investment solely in debt securities by investing in
a balanced portfolio of fixed income and equity securities.
RESOLVING MATERIAL CONFLICTS
Shares of the Series Fund are available for investment by other Merrill Lynch
insurance companies and Monarch.
It is possible that differences might arise between our Separate Account and
one or more of the other separate accounts investing in the Series Fund. 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
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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 Series Fund 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, consistent with applicable legal
requirements.
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. The maturity date 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>
<CAPTION>
THE 19 TRUSTS
TRUST MATURITY DATE
- --------- ---------------------
<S> <C>
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 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 Series
Fund 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
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<PAGE>
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 Series Fund, 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
16).
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 15).
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, 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 Series Fund 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
16). 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
Series Fund, the investment
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<PAGE>
experience also reflects any dividend or capital gains distribution declared by
the Series Fund. 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 17).
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 17).
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 20).
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<PAGE>
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.
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 Series Fund at net asset value.
The net asset value of those shares reflects advisory fees already deducted from
the assets of the Series Fund. Those fees are described in the prospectus for
the Series Fund. 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.
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.
17
<PAGE>
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 $44.2 million for the year ended December 31, 1994.
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, 1992, December 31, 1993, and
December 31, 1994, were $673,788, $915,429, and $808,469, respectively.
REINSURANCE. The Insurance Company has reinsured 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.
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 Series
Fund, intends to comply with these requirements. Although we don't control the
Series Fund, we intend to monitor the investments of the Series Fund 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
18
<PAGE>
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
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
19
<PAGE>
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.
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 17) before purchasing this
Policy.
20
<PAGE>
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,
General Counsel, and Secretary
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. 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.
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.)
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 SERIES FUND
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")
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
21
<PAGE>
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,
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 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, General Counsel and Secretary of the Insurance Company.
22
<PAGE>
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 as of December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994, and
of the Separate Account as of December 31, 1994 and for the periods presented,
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and have been
so included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing. Deloitte & Touche LLP's principal
business address is Two World Financial Center, New York, New York 10281-1433.
Actuarial matters included in this prospectus have been examined by Joseph E.
Crowne, F.S.A., Chief Actuary and Chief Financial Officer of the Insurance
Company, as stated in his opinion filed as an exhibit to the Registration
Statement.
23
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES
AND ACCUMULATED PREMIUMS
The tables on pages 25 through 32 illustrate the way in which a Policy
operates. The tables are based on the following ages, amounts and premiums:
1. The illustration on pages 25 and 26 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 27 and 28 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 29 and 30 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 31 and 32 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
.375%. This charge assumes that investment base is allocated equally among all
investment divisions and is based on the 1994 expenses (including the monthly
advisory fees) for the Series Fund, and the current trust charge. This charge
does not reflect expenses incurred by the Natural Resources Portfolio of the
Series Fund in 1994 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 .09%, of the average daily net assets of this
portfolio. (See "The Series Fund," page 12.)
Taking account of the charges for expense and mortality risks in the Separate
Account and the .375% 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
- -0.87%, 3.11% and 7.09% or -0.87%, 5.10% and 11.07%, respectively.
The hypothetical returns shown in the tables on pages 25 through 32 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 18).
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.
24
<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 $ 89,225 $ 8,903 $ 9,301 $ 9,700
2............................. 10,816 85,983 85,983 93,297 8,742 9,537 10,364
3............................. 11,249 86,396 86,396 97,382 8,593 9,782 11,068
4............................. 11,699 86,811 86,811 101,487 8,452 10,034 11,815
5............................. 12,167 87,228 87,228 105,615 8,319 10,295 12,607
6............................. 12,653 87,647 87,647 109,787 8,193 10,563 13,448
7............................. 13,159 88,067 88,067 113,994 8,073 10,837 14,337
8............................. 13,686 88,490 88,490 118,243 7,957 11,116 15,278
9............................. 14,233 88,915 88,915 122,540 7,843 11,398 16,270
10............................. 14,802 89,341 89,341 126,890 7,732 11,683 17,316
15............................. 18,009 91,506 91,506 150,305 7,220 13,196 23,569
20 (age 25).................... 21,911 93,724 93,724 177,006 6,785 14,940 32,114
25............................. 26,658 95,994 95,994 207,415 6,429 16,999 43,961
30 (age 35).................... 32,434 98,321 98,321 242,045 6,133 19,408 60,365
60 (age 65).................... 105,196 113,513 113,513 581,861 5,256 38,475 351,392
<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 SERIES FUND OR THE TRUSTS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
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>
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 $ 86,962 $ 93,753 $ 8,903 $ 9,501 $ 10,099
2......................... 11,025 85,983 88,703 102,747 8,742 9,946 11,222
3......................... 11,576 86,396 90,391 112,177 8,593 10,412 12,455
4......................... 12,155 86,811 92,028 122,079 8,452 10,899 13,809
5......................... 12,763 87,228 93,618 132,490 8,319 11,407 15,296
6......................... 13,401 87,647 95,176 143,467 8,193 11,936 16,933
7......................... 14,071 88,067 96,693 155,040 8,073 12,486 18,729
8......................... 14,775 88,490 98,171 167,255 7,957 13,057 20,701
9......................... 15,513 88,915 99,615 180,163 7,843 13,646 22,864
10......................... 16,239 89,341 101,026 193,817 7,732 14,255 25,236
15......................... 20,739 91,506 108,176 276,447 7,220 17,686 41,185
20 (age 25)................ 26,533 93,724 115,631 389,804 6,785 21,974 67,273
25......................... 33,864 95,994 123,390 545,213 6,429 27,430 110,420
30 (age 35)................ 43,219 98,321 131,463 758,351 6,133 34,347 181,842
60 (age 65)................ 186,792 113,513 187,487 5,288,904 5,256 115,513 3,166,700
<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 SERIES FUND 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 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 $ 48,363 $ 8,921 $ 9,320 $ 9,718
2............................... 10,816 46,787 46,787 50,384 8,774 9,569 10,396
3............................... 11,249 47,012 47,012 52,407 8,631 9,824 11,113
4............................... 11,669 47,237 47,237 54,435 8,494 10,083 11,870
5............................... 12,167 47,464 47,464 56,469 8,362 10,347 12,669
6............................... 12,653 47,692 47,692 58,521 8,235 10,618 13,516
7............................... 13,159 47,921 47,921 60,586 8,113 10,893 14,412
8............................... 13,686 48,151 48,151 62,666 7,994 11,174 15,360
9............................... 14,223 48,382 48,382 64,764 7,880 11,459 16,363
10............................... 14,802 48,614 48,614 66,883 7,769 11,751 17,426
15............................... 18,009 49,792 49,792 78,305 7,262 13,321 23,836
20 (age 25)...................... 21,911 50,999 50,999 91,238 6,779 15,024 32,398
25............................... 26,658 52,234 52,234 106,073 6,330 16,848 43,723
30 (age 35)...................... 32,434 53,500 53,500 122,953 5,910 18,717 58,352
40 (age 65)...................... 48,010 56,125 56,125 164,136 5,204 22,340 99,841
<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 SERIES FUND 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 OF 5% 0% 6% 12% 0% 6% 12%
- -------------------------------- --------------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1.............................. $ 10,500 $ 46,563 $ 47,199 $ 50,692 $ 8,921 $ 9,519 $ 10,116
2.............................. 11,025 46,787 48,026 55,236 8,774 9,979 11,255
3.............................. 11,576 47,012 48,824 59,989 8,631 10,456 12,503
4.............................. 12,155 47,237 49,595 64,969 8,494 10,951 13,871
5.............................. 12,763 47,464 50,341 70,195 8,362 11,464 15,370
6.............................. 13,401 47,692 51,069 75,694 8,235 11,997 17,017
7.............................. 14,071 47,921 51,776 81,480 8,113 12,551 18,826
8.............................. 14,775 48,151 52,462 87,574 7,994 13,126 20,814
9.............................. 15,513 48,382 53,129 94,000 7,880 13,723 22,999
10.............................. 16,289 48,614 53,779 100,782 7,769 14,342 25,401
15.............................. 23,789 49,792 57,118 141,719 7,262 17,872 41,684
20 (age 25)..................... 26,533 50,999 60,579 197,529 6,779 22,140 67,963
25.............................. 33,864 52,234 64,272 274,209 6,330 27,242 110,014
30 (age 35)..................... 43,219 53,500 68,111 379,370 5,910 33,163 176,121
40 (age 65)..................... 70,400 56,125 76,263 722,716 5,204 47,283 433,933
<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 SERIES FUND 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 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 $ 29,768 $ 8,925 $ 9,323 $ 9,721
2.................................. 10,816 28,877 28,877 30,933 8,769 9,564 10,390
3.................................. 11,249 29,016 29,016 32,098 8,615 9,805 11,092
4.................................. 11,699 29,155 29,155 33,266 8,463 10,046 11,826
5.................................. 12,167 29,295 29,295 34,436 8,312 10,287 12,597
6.................................. 12,653 29,436 29,436 35,613 8,163 10,527 13,403
7.................................. 13,159 29,577 29,577 36,796 8,016 10,766 14,248
8.................................. 13,686 29,719 29,719 37,988 7,871 11,004 15,132
9.................................. 14,233 29,862 29,862 39,190 7,727 11,240 16,056
10.................................. 14,802 30,005 30,005 40,403 7,584 11,474 17,022
15 (age 55)......................... 18,009 30,732 30,732 47,139 6,930 12,702 22,731
20 (age 60)......................... 21,911 31,477 31,477 55,078 6,331 13,978 30,121
25 (age 65)......................... 26,658 32,239 32,239 64,159 5,760 15,188 39,333
<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 SERIES FUND 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) 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 $ 29,086 $ 31,133 $ 8,925 $ 9,522 $ 10,119
2............................... 11,025 28,877 29,551 33,775 8,769 9,973 11,248
3............................... 11,576 29,016 30,000 36,537 8,615 10,436 12,479
4............................... 12,155 29,155 30,433 39,430 8,463 10,911 13,820
5............................... 12,763 29,295 30,852 42,465 8,312 11,397 15,283
6............................... 13,401 29,436 31,257 45,653 8,163 11,896 16,877
7............................... 14,071 29,577 31,649 49,006 8,016 12,406 18,616
8............................... 14,775 29,719 32,029 52,537 7,871 12,929 20,510
9............................... 15,519 29,862 32,398 56,260 7,727 13,462 22,574
10............................... 16,289 30,005 32,757 60,189 7,584 14,007 24,823
15 (age 55)...................... 20,789 30,732 34,752 84,251 6,930 17,041 39,777
20 (age 60)...................... 26,533 31,477 37,020 117,786 6,331 20,585 63,235
25 (age 65)...................... 33,864 32,239 39,389 164,031 5,760 24,518 99,067
<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 SERIES FUND 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
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 $ 22,613 $ 8,915 $ 9,313 $ 9,711
2................................. 10,816 21,959 21,959 23,477 8,732 9,524 10,348
3................................. 11,249 22,065 22,065 24,341 8,550 9,732 11,011
4................................. 11,699 22,171 22,171 25,209 8,370 9,937 11,702
5................................. 12,167 22,277 22,277 26,080 8,191 10,139 12,420
6................................. 12,653 22,384 22,384 26,956 8,014 10,338 13,167
7................................. 13,159 22,491 22,491 27,838 7,840 10,533 13,944
8................................. 13,686 22,599 22,599 28,726 7,667 10,723 14,751
9................................. 14,233 22,708 22,708 29,623 7,496 10,909 15,589
10 (age 65)........................ 14,802 22,817 22,817 30,529 7,328 11,089 16,458
15................................. 18,000 23,370 23,370 35,564 6,553 12,003 21,486
20 (age 75)........................ 21,911 23,936 23,936 41,513 5,849 12,874 27,737
30 (age 85)........................ 32,434 25,110 25,110 56,166 4,625 14,210 44,007
<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 SERIES FUND OR THE TRUST 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 5% 0% 6% 12% 0% 6% 12%
- ---------------------------------- --------------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1................................ $ 10,500 $ 21,854 $ 22,109 $ 23,623 $ 8,915 $ 9,512 $ 10,109
2................................ 11,025 21,959 22,454 25,579 8,732 9,932 11,204
3................................ 11,576 22,065 22,789 27,628 8,550 10,359 12,390
4................................ 12,155 22,171 23,112 29,775 8,370 10,794 13,678
5................................ 12,763 22,277 23,424 32,030 8,191 11,236 15,073
6................................ 13,401 22,384 23,727 34,400 8,014 11,684 16,586
7................................ 14,071 22,491 24,021 36,896 7,840 12,140 18,227
8................................ 14,775 22,599 24,306 39,525 7,667 12,601 20,005
9................................ 15,513 22,708 24,583 42,300 7,496 13,068 21,931
10 (age 65)....................... 16,289 22,817 24,853 45,229 7,328 13,540 24,016
15................................ 20,789 23,370 26,351 63,203 6,553 16,104 37,631
20 (age 75)....................... 26,535 23,936 28,057 88,328 5,849 18,954 58,293
30 (age 85)....................... 43,219 25,110 31,712 171,211 4,625 25,049 133,194
<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 SERIES FUND OR THE TRUSTS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
32
<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.
33
<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 18).
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 Series Fund 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 33).
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
34
<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 18).
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.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statement of net assets of
Merrill Lynch Life Variable Life Separate Account II (the
"Account") as of December 31, 1994 and the related
statements of earnings (losses) and changes in net assets
for each of the three years in the period then ended. These
financial statements are the responsibility of the
management of Merrill Lynch Life Insurance Company. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation
of mutual fund securities owned at December 31, 1994, by
correspondence with the funds' transfer agent. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating 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, 1994 and the results of its operations and
the changes in its net assets for the above periods in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The supplemental schedules included herein are presented for
the purpose of additional analysis and are not a required
part of the basic financial statements. These schedules are
the responsibility of the Company's management. Such
schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects
when considered in relation to the basic financial
statements taken as a whole.
/s/Deloitte & Touche LLP
February 8, 1995
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Cost Shares Market Value
ASSETS ================= ================= =================
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note A):
Money Reserve Portfolio $ 459,750,060 459,750,060 $ 459,750,060
Intermediate Government Bond Portfolio 201,596,722 17,840,232 184,111,196
Long-Term Corporate Bond Portfolio 98,332,457 8,424,945 90,315,410
Capital Stock Portfolio 169,367,916 7,484,299 161,960,225
Growth Stock Portfolio 83,108,889 4,075,662 78,252,710
Multiple Strategy Portfolio 906,550,664 56,334,492 913,745,457
High Yield Portfolio 68,952,127 7,382,361 62,971,537
Natural Resources Portfolio 18,449,668 2,412,684 17,926,246
Global Strategy Portfolio 179,184,431 12,184,958 177,169,293
Balanced Portfolio 62,914,844 4,657,606 61,806,432
----------------- -----------------
2,248,207,778 2,208,008,566
----------------- -----------------
Investment in Unit Investment Trusts (Note A):
Stripped ("Zero") U.S. Treasury Securities, Series A through K:
1995 Trust 50,374,849 67,996,099 64,239,994
1996 Trust 36,572,806 48,942,126 45,216,651
1997 Trust 34,803,577 51,584,875 44,149,947
1998 Trust 35,695,694 57,877,395 45,727,193
1999 Trust 16,166,786 23,856,039 17,436,618
2000 Trust 11,406,975 18,691,441 12,687,376
2001 Trust 31,389,225 66,939,281 42,217,935
2002 Trust 3,318,615 5,944,153 3,463,896
2003 Trust 27,271,652 72,603,617 37,542,604
2004 Trust 3,141,556 6,292,073 3,123,951
2005 Trust 12,162,311 32,667,902 15,116,418
2006 Trust 2,598,040 7,457,130 3,234,679
2007 Trust 6,260,445 20,947,854 8,369,296
2008 Trust 13,753,392 50,773,497 18,397,776
2009 Trust 6,184,661 22,868,764 7,678,188
2010 Trust 6,027,050 20,126,652 6,193,776
2011 Trust 2,067,805 6,931,517 1,975,690
2013 Trust 2,164,977 8,978,181 2,171,373
2014 Trust 3,764,189 17,706,389 3,965,346
----------------- -----------------
305,124,605 382,908,707
----------------- -----------------
Dividend Receivable 468,485
-----------------
Total Invested Assets $ 2,553,332,383 2,591,385,758
=================
Receivable from Merrill Lynch Series Fund, Inc. 2,068,725
-----------------
Total Assets 2,593,454,483
-----------------
LIABILITIES
Payable to Merrill Lynch Life Insurance Company 23,465,213
-----------------
Total Liabilities 23,465,213
-----------------
Net Assets $ 2,569,989,270
=================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF EARNINGS (LOSSES) AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
================= ================= ===================
<S> <C> <C> <C>
Reinvested Dividends $ 247,180,360 $ 157,524,630 $ 78,117,694
Net Gains (Losses):
Realized 37,024,153 77,222,781 55,204,908
Unrealized (373,279,380) 100,298,797 11,977,660
----------------- ----------------- -------------------
Investment Earnings (Losses) (89,074,867) 335,046,208 145,300,262
Mortality and Expense Charges (Note C) (15,774,764) (17,816,608) (17,216,984)
Transaction Charges (Note D) (1,442,573) (1,822,452) (1,859,668)
----------------- ----------------- -------------------
Net Earnings (Losses) (106,292,204) 315,407,148 126,223,610
Capital Shares Transactions:
Transfers of Net Premiums 10,401,083 13,356,961 15,870,188
Transfers of Policy Loading, Net (19,215,408) (14,938,127) (21,375,095)
Transfers Due to Deaths (23,345,250) (25,399,159) (23,583,884)
Transfers Due to Other Terminations (71,143,764) (66,518,195) (80,167,617)
Transfers Due to Policy Loans (51,098,887) (62,711,054) (97,684,959)
Transfers of Cost of Insurance (37,539,344) (34,885,568) (33,436,957)
Transfers of Loan Processing Charges (4,561,365) (2,784,789) (2,224,380)
Transfers of Shares from Assumption
Reinsurance, Net 0 2,091 (557,174)
----------------- ----------------- -------------------
Increase (Decrease) in Net Assets (302,795,139) 121,529,308 (116,936,268)
Net Assets Beginning Balance 2,872,784,409 2,751,255,101 2,868,191,369
----------------- ----------------- -------------------
Net Assets Ending Balance $ 2,569,989,270 $ 2,872,784,409 $ 2,751,255,101
================= ================= ===================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
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-nine investment
divisions (thirty 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. Nineteen of the divisions (twenty 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 K. Each trust of the Series
consists of Stripped Treasury Securities with a fixed
maturity date and a Treasury Note deposited to provide
income to pay expenses of the trust.
The Account was formed by Merrill Lynch Life, an indirect
wholly-owned subsidiary of Merrill 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.
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 K
Unit Investment Trust units to the Account and deducts a
daily asset charge against the assets of each trust for the
reimbursement of these transaction charges. The 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 (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 17,480,949 $ 22,232,388 $ 11,078,761 $ 19,785,866
Net Gains (Losses):
Realized 0 (1,019,016) 75,887 2,104,282
Unrealized 0 (32,149,004) (16,813,358) (31,128,817)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 17,480,949 (10,935,632) (5,658,710) (9,238,669)
Mortality and Expense Charges (Note C) (2,517,605) (1,179,517) (575,542) (987,289)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 14,963,344 (12,115,149) (6,234,252) (10,225,958)
Capital Shares Transactions:
Transfers of Net Premiums 1,953,978 543,078 257,542 1,366,713
Transfers of Policy Loading, Net (3,150,489) (1,534,327) (702,572) (1,166,265)
Transfers Due to Deaths (4,254,868) (2,896,949) (1,177,899) (1,806,297)
Transfers Due to Other Terminations (24,965,885) (4,994,737) (1,269,868) (3,337,898)
Transfers Due to Policy Loans (11,424,065) (5,810,455) (2,310,361) (3,224,975)
Transfers of Cost of Insurance (6,952,022) (3,039,049) (1,480,394) (2,399,816)
Transfers of Loan Processing Charges (848,038) (98,365) (305,505) (454,099)
Transfers Among Investment Divisions 39,266,714 (25,456,948) (8,356,792) 9,140,090
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 4,588,669 (55,402,901) (21,580,101) (12,108,505)
Net Assets Beginning Balance 434,684,802 239,490,379 111,887,596 174,556,914
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 439,273,471 $ 184,087,478 $ 90,307,495 $ 162,448,409
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 15,147,606 $ 143,793,750 $ 7,184,948 $ 373,375
Net Gains (Losses):
Realized (10,467,665) 5,827,379 1,121,619 (652,997)
Unrealized (11,111,365) (201,192,744) (9,538,975) 118,228
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (6,431,424) (51,571,615) (1,232,408) (161,394)
Mortality and Expense Charges (Note C) (477,233) (5,700,441) (395,789) (106,249)
Transaction Charges (Note D) 0 0 0 0
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (6,908,657) (57,272,056) (1,628,197) (267,643)
Capital Shares Transactions:
Transfers of Net Premiums 872,357 2,169,556 161,144 138,534
Transfers of Policy Loading, Net (644,809) (6,725,971) (538,772) (127,988)
Transfers Due to Deaths (597,117) (6,374,543) (693,506) (73,158)
Transfers Due to Other Terminations (2,133,792) (19,513,936) (1,450,355) (276,251)
Transfers Due to Policy Loans (802,503) (16,603,103) (1,088,146) (291,716)
Transfers of Cost of Insurance (1,111,968) (12,761,402) (960,536) (248,486)
Transfers of Loan Processing Charges (372,240) (1,836,110) (129,456) 34,664
Transfers Among Investment Divisions (4,430,707) 96,851 (3,702,318) 3,426,457
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets (16,129,436) (118,820,714) (10,030,142) 2,314,413
Net Assets Beginning Balance 93,851,165 1,032,414,822 72,840,003 15,404,978
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 77,721,729 $ 913,594,108 $ 62,809,861 $ 17,719,391
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
Global
Strategy Balanced 1994 1995
Portfolio Portfolio Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 6,517,828 $ 3,584,889 $ 0 $ 0
Net Gains (Losses):
Realized 3,549,064 1,700,964 18,331,185 2,745,342
Unrealized (13,960,659) (8,315,137) (16,722,421) (1,622,527)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (3,893,767) (3,029,284) 1,608,764 1,122,815
Mortality and Expense Charges (Note C) (1,036,113) (401,040) (248,137) (346,689)
Transaction Charges (Note D) 0 0 (159,319) (219,971)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (4,929,880) (3,430,324) 1,201,308 556,155
Capital Shares Transactions:
Transfers of Net Premiums 1,470,745 851,040 8,545 13,441
Transfers of Policy Loading, Net (1,141,149) (494,591) (395,818) (437,011)
Transfers Due to Deaths (1,175,638) (432,307) (876,461) (896,071)
Transfers Due to Other Terminations (2,471,264) (1,235,045) (1,199,852) (1,066,529)
Transfers Due to Policy Loans (2,123,219) (1,172,951) (1,089,958) (1,143,878)
Transfers of Cost of Insurance (2,513,574) (945,522) (234,486) (922,688)
Transfers of Loan Processing Charges (124,430) 18,643 11,363 (109,634)
Transfers Among Investment Divisions 42,556,919 (2,746,108) (76,785,156) 118,676
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 29,548,510 (9,587,165) (79,360,515) (3,887,539)
Net Assets Beginning Balance 147,919,667 71,388,507 79,360,515 68,102,980
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 177,468,177 $ 61,801,342 $ 0 $ 64,215,441
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
1996 1997 1998 1999
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 2,606,820 1,593,071 1,541,769 516,055
Unrealized (2,102,823) (2,173,169) (2,974,063) (1,027,935)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 503,997 (580,098) (1,432,294) (511,880)
Mortality and Expense Charges (Note C) (253,289) (258,597) (269,871) (78,338)
Transaction Charges (Note D) (149,211) (148,229) (155,967) (44,254)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 101,497 (986,924) (1,858,132) (634,472)
Capital Shares Transactions:
Transfers of Net Premiums 39,603 26,127 81,829 21,244
Transfers of Policy Loading, Net (291,829) (293,815) (353,160) (50,621)
Transfers Due to Deaths (238,192) (379,402) (501,383) 0
Transfers Due to Other Terminations (1,802,108) (1,263,246) (911,808) (197,712)
Transfers Due to Policy Loans (446,182) (1,252,416) (22,589) (225,787)
Transfers of Cost of Insurance (523,809) (524,736) (585,758) (231,338)
Transfers of Loan Processing Charges (57,329) (56,303) (67,587) 47,120
Transfers Among Investment Divisions 4,124,539 3,517,160 2,082,751 9,231,769
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 906,190 (1,213,555) (2,135,837) 7,960,203
------------------- ------------------- ------------------- -------------------
Net Assets Beginning Balance 44,286,801 45,345,274 47,849,512 9,461,976
Net Assets Ending Balance $ 45,192,991 $ 44,131,719 $ 45,713,675 $ 17,422,179
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2000 2001 2002 2003
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 501,763 2,166,175 152,585 1,720,038
Unrealized (1,168,467) (5,279,593) (372,763) (5,382,943)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (666,704) (3,113,418) (220,178) (3,662,905)
Mortality and Expense Charges (Note C) (62,149) (251,092) (17,766) (222,798)
Transaction Charges (Note D) (38,332) (149,969) (10,703) (134,454)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (767,185) (3,514,479) (248,647) (4,020,157)
Capital Shares Transactions:
Transfers of Net Premiums 5,958 105,869 23,467 43,741
Transfers of Policy Loading, Net (87,059) (309,468) (17,837) (238,948)
Transfers Due to Deaths (190,028) (225,911) (73,157) (182,764)
Transfers Due to Other Terminations (456,108) (664,955) (55,245) (375,361)
Transfers Due to Policy Loans (21,720) (886,085) 138,904 (554,846)
Transfers of Cost of Insurance (174,810) (513,726) (54,089) (440,510)
Transfers of Loan Processing Charges (22,049) (17,905) (6,801) (36,935)
Transfers Among Investment Divisions 3,411,401 (1,609,263) 855,396 (1,468,172)
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 1,698,400 (7,635,923) 561,991 (7,273,952)
Net Assets Beginning Balance 10,988,103 49,842,166 2,901,406 44,813,910
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 12,686,503 $ 42,206,243 $ 3,463,397 $ 37,539,958
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2004 2005 2006 2007
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (4,266) 779,904 188,563 546,264
Unrealized (17,605) (2,251,937) (529,058) (1,592,369)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (21,871) (1,472,033) (340,495) (1,046,105)
Mortality and Expense Charges (Note C) (6,328) (82,723) (18,872) (51,878)
Transaction Charges (Note D) (3,792) (51,883) (11,059) (30,272)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (31,991) (1,606,639) (370,426) (1,128,255)
Capital Shares Transactions:
Transfers of Net Premiums 133 10,218 12,632 390
Transfers of Policy Loading, Net 3,413 (93,434) (34,677) (62,092)
Transfers Due to Deaths 0 (191,171) 0 0
Transfers Due to Other Terminations (46,454) (28,632) 459 (222,712)
Transfers Due to Policy Loans (25,793) (64,283) (158,577) (117,156)
Transfers of Cost of Insurance (32,097) (181,280) (41,992) (108,096)
Transfers of Loan Processing Charges (4,280) (20,774) (8,081) (13,521)
Transfers Among Investment Divisions 3,259,970 41,963 54,352 (456,913)
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 3,122,901 (2,134,032) (546,310) (2,108,355)
Net Assets Beginning Balance 0 17,226,236 3,780,331 10,475,911
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 3,122,901 $ 15,092,204 $ 3,234,021 $ 8,367,556
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================================================
2008 2009 2010 2011
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 1,428,719 794,192 (608,414) 167,451
Unrealized (3,897,784) (1,783,335) (8,357) (512,426)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) (2,469,065) (989,143) (616,771) (344,975)
Mortality and Expense Charges (Note C) (116,499) (47,163) (34,197) (13,735)
Transaction Charges (Note D) (68,364) (28,372) (19,078) (8,220)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) (2,653,928) (1,064,678) (670,046) (366,930)
Capital Shares Transactions:
Transfers of Net Premiums 39,379 51,966 69,760 86
Transfers of Policy Loading, Net (183,199) (52,927) (13,802) (35,384)
Transfers Due to Deaths (77,631) (22,465) 0 (8,332)
Transfers Due to Other Terminations (317,191) (700,372) (129,666) (54,698)
Transfers Due to Policy Loans (179,952) (141,670) (99,420) (23,522)
Transfers of Cost of Insurance (258,534) (117,050) (78,631) (25,602)
Transfers of Loan Processing Charges (35,908) (18,290) (10,853) (2,081)
Transfers Among Investment Divisions (1,891,494) (101,158) 981,746 (699,655)
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets (5,558,458) (2,166,644) 49,088 (1,216,118)
Net Assets Beginning Balance 23,945,275 9,850,595 6,144,179 3,191,301
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 18,386,817 $ 7,683,951 $ 6,193,267 $ 1,975,183
=================== =================== =================== ===================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===========================================================
2013 2014
Trust Trust Total
=================== =================== ===================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 247,180,360
Net Gains (Losses):
Realized (249,550) (133,030) 37,024,153
Unrealized 30,870 201,156 (373,279,380)
------------------- ------------------- -------------------
Investment Earnings (Losses) (218,680) 68,126 (89,074,867)
Mortality and Expense Charges (Note C) (11,206) (6,619) (15,774,764)
Transaction Charges (Note D) (6,936) (4,188) (1,442,573)
------------------- ------------------- -------------------
Net Earnings (Losses) (236,822) 57,319 (106,292,204)
Capital Shares Transactions:
Transfers of Net Premiums 53,725 8,283 10,401,083
Transfers of Policy Loading, Net (28,951) (11,856) (19,215,408)
Transfers Due to Deaths 0 0 (23,345,250)
Transfers Due to Other Terminations (710) (1,833) (71,143,764)
Transfers Due to Policy Loans 58,884 8,653 (51,098,887)
Transfers of Cost of Insurance (47,138) (30,205) (37,539,344)
Transfers of Loan Processing Charges (10,611) (5,970) (4,561,365)
Transfers Among Investment Divisions 1,603,377 3,934,553 0
------------------- ------------------- -------------------
Increase (Decrease) in Net Assets 1,391,754 3,958,944 (302,795,139)
Net Assets Beginning Balance 779,105 0 2,872,784,409
------------------- ------------------- -------------------
Net Assets Ending Balance $ 2,170,859 $ 3,958,944 $ 2,569,989,270
=================== =================== ===================
</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
===============================================================================
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 Gains (Losses):
Realized 0 2,368,600 2,037,165 9,255,863
Unrealized 0 3,193,238 2,756,338 8,352,474
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 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 (Losses) 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>
<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
===============================================================================
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 Gains (Losses):
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 (Losses) 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 (Losses) 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 Gains (Losses):
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 (Losses) 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 (Losses) 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>
<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
===============================================================================
1995 1996 1997 1998
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
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 (Losses) 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 (Losses) 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 Gains (Losses):
Realized 625,244 863,965 2,818,246 88,089
Unrealized 618,895 686,361 5,055,214 383,108
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 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 (Losses) 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>
<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
===============================================================================
2003 2005 2006 2007
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
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 (Losses) 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 (Losses) 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 2011
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 3,557,489 1,137,602 2,093,934 512,543
Unrealized 2,520,239 1,305,227 (441,116) 257,400
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 6,077,728 2,442,829 1,652,818 769,943
Mortality and Expense Charges (Note C) (170,845) (69,964) (45,688) (19,623)
Transaction Charges (Note D) (90,609) (35,465) (22,783) (10,835)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 5,816,274 2,337,400 1,584,347 739,485
Capital Shares Transactions:
Transfers of Net Premiums 53,137 51,618 70,774 352
Transfers of Policy Loading, Net (125,814) (41,754) (38,843) (14,956)
Transfers Due to Deaths (909,544) (27,469) (101,454) 0
Transfers Due to Other Terminations (256,678) (163,074) (1,851) 82,576
Transfers Due to Policy Loans (990,614) (330,661) (21,361) 19,147
Transfers of Cost of Insurance (322,908) (121,041) (81,977) (38,852)
Transfers of Loan Processing Charges (32,008) (8,178) (5,672) (4,862)
Transfers of Shares from Assumption
Reinsurance, Net 17,332 0 0 0
Transfers Among Investment Divisions (5,118,459) (1,847,994) (2,330,052) (415,002)
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets (1,869,282) (151,153) (926,089) 367,888
Net Assets Beginning Balance 25,814,557 10,001,748 7,070,268 2,823,413
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 23,945,275 $ 9,850,595 $ 6,144,179 $ 3,191,301
=================== =================== =================== ===================
</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
=======================================
2013
Trust Total
=================== ===================
<S> <C> <C>
Reinvested Dividends $ 0 $ 157,524,630
Net Gains (Losses):
Realized 49,806 77,222,781
Unrealized (24,473) 100,298,797
------------------- -------------------
Investment Earnings (Losses) 25,333 335,046,208
Mortality and Expense Charges (Note C) (1,606) (17,816,608)
Transaction Charges (Note D) (889) (1,822,452)
------------------- -------------------
Net Earnings (Losses) 22,838 315,407,148
Capital Shares Transactions:
Transfers of Net Premiums 0 13,356,961
Transfers of Policy Loading, Net (1,667) (14,938,127)
Transfers Due to Deaths 0 (25,399,159)
Transfers Due to Other Terminations (20,534) (66,518,195)
Transfers Due to Policy Loans (56,631) (62,711,054)
Transfers of Cost of Insurance (3,338) (34,885,568)
Transfers of Loan Processing Charges (114) (2,784,789)
Transfers of Shares from Assumption
Reinsurance, Net 0 2,091
Transfers Among Investment Divisions 838,551 0
------------------- -------------------
Increase (Decrease) in Net Assets 779,105 121,529,308
Net Assets Beginning Balance 0 2,751,255,101
------------------- -------------------
Net Assets Ending Balance $ 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 Gains (Losses):
Realized 0 1,689,998 1,273,535 3,168,830
Unrealized 0 (2,226,297) (1,195,461) (3,597,985)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 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 (Losses) 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>
<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
===============================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 461,367 $ 20,425,244 $ 5,175,954 $ 106,972
Net Gains (Losses):
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 (Losses) 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 (Losses) 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 Gains (Losses):
Realized 521,975 550,190 5,335,630 928,963
Unrealized (228,462) 1,012,077 (4,534,655) 1,514,319
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 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 (Losses) 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>
<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
===============================================================================
1994 1995 1996 1997
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
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 (Losses) 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 (Losses) 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 Gains (Losses):
Realized 1,978,460 432,160 364,216 3,025,840
Unrealized 2,037,056 294,364 477,824 1,364,039
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 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 (Losses) 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>
<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
===============================================================================
2002 2003 2005 2006
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 26,071 1,696,939 916,369 409,732
Unrealized 134,936 2,086,310 377,163 (76,345)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 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 (Losses) 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 2010
Trust Trust Trust Trust
=================== =================== =================== ===================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 705,402 2,107,671 983,782 1,514,943
Unrealized 192,789 (81,117) (35,465) (904,726)
------------------- ------------------- ------------------- -------------------
Investment Earnings (Losses) 898,191 2,026,554 948,317 610,217
Mortality and Expense Charges (Note C) (69,051) (165,156) (74,239) (52,895)
Transaction Charges (Note D) (37,814) (89,573) (37,842) (28,100)
------------------- ------------------- ------------------- -------------------
Net Earnings (Losses) 791,326 1,771,825 836,236 529,222
Capital Shares Transactions:
Transfers of Net Premiums 5,203 83,901 99,978 69,763
Transfers of Policy Loading, Net (65,817) (168,104) (78,759) (46,551)
Transfers Due to Deaths (59,083) (140,781) (23,234) (109,934)
Transfers Due to Other Terminations (201,485) (651,093) (240,905) (47,970)
Transfers Due to Policy Loans (489,246) (790,756) (793,779) (272,172)
Transfers of Cost of Insurance (125,522) (291,092) (134,265) (82,858)
Transfers of Loan Processing Charges (6,334) (23,545) (231) (4,311)
Transfers of Shares from Assumption
Reinsurance, Net (2,175) (5,225) (2,022) (1,430)
Transfers Among Investment Divisions (1,342,447) (6,613,529) (2,020,575) (3,250,604)
------------------- ------------------- ------------------- -------------------
Increase (Decrease) in Net Assets (1,495,580) (6,828,399) (2,357,556) (3,216,845)
Net Assets Beginning Balance 12,246,728 32,642,956 12,359,304 10,287,113
------------------- ------------------- ------------------- -------------------
Net Assets Ending Balance $ 10,751,148 $ 25,814,557 $ 10,001,748 $ 7,070,268
=================== =================== =================== ===================
</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
=======================================
2011
Trust Total
=================== ===================
<S> <C> <C>
Reinvested Dividends $ 0 $ 78,117,694
Net Gains (Losses):
Realized 297,264 55,204,908
Unrealized 108,462 11,977,660
------------------- -------------------
Investment Earnings (Losses) 405,726 145,300,262
Mortality and Expense Charges (Note C) (16,900) (17,216,984)
Transaction Charges (Note D) (8,926) (1,859,668)
------------------- -------------------
Net Earnings (Losses) 379,900 126,223,610
Capital Shares Transactions:
Transfers of Net Premiums 4,650 15,870,188
Transfers of Policy Loading, Net (20,360) (21,375,095)
Transfers Due to Deaths 0 (23,583,884)
Transfers Due to Other Terminations (80,570) (80,167,617)
Transfers Due to Policy Loans (92,674) (97,684,959)
Transfers of Cost of Insurance (30,188) (33,436,957)
Transfers of Loan Processing Charges (3,030) (2,224,380)
Transfers of Shares from Assumption
Reinsurance, Net (571) (557,174)
Transfers Among Investment Divisions 1,943,889 0
------------------- -------------------
Increase (Decrease) in Net Assets 2,101,046 (116,936,268)
Net Assets Beginning Balance 722,367 2,868,191,369
------------------- -------------------
Net Assets Ending Balance $ 2,823,413 $ 2,751,255,101
=================== ===================
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill Lynch
Life Insurance Company (the "Company"), a wholly-owned subsidiary
of Merrill Lynch Insurance Group, Inc., as of December 31, 1994
and 1993, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1994 and 1993, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the
Company changed its method of accounting for certain investments
in debt and equity securities to conform with Statement of
Accounting Standards No. 115.
/s/ Deloitte & Touche LLP
February 27, 1995
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
===============================================================================
<TABLE>
<CAPTION>
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1994 - $4,014,272; 1993 - $5,369,236) $ 3,867,833 $ 5,597,359
Fixed maturity securities held for trading, at estimated fair value
(amortized cost: 1993 - $140,635) 0 144,035
Equity securities available for sale, at estimated fair value
(cost: 1994 - $15,946; 1993 - $24,424) 16,777 24,970
Equity securities held for trading, at estimated fair value
(cost: 1993 - $19,694) 0 20,585
Mortgage loans on real estate 149,249 191,214
Real estate available for sale
(accumulated depreciation: 1994 - $515; 1993 - $850) 12,955 29,761
Policy loans on insurance contracts 985,213 924,579
------------ ------------
Total Investments 5,032,027 6,932,503
CASH AND CASH EQUIVALENTS 139,087 122,218
ACCRUED INVESTMENT INCOME 95,133 120,337
DEFERRED POLICY ACQUISITION COSTS 466,334 318,903
FEDERAL INCOME TAXES - DEFERRED 38,919 16,878
REINSURANCE RECEIVABLES 1,832 1,190
RECEIVABLES FROM AFFILIATES - NET 3,113 789
OTHER ASSETS 28,656 21,481
SEPARATE ACCOUNTS ASSETS 5,798,973 4,715,278
------------ ------------
TOTAL ASSETS $11,604,074 $12,249,577
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
==============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993
------------ ------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 5,148,971 $ 6,691,811
Claims and claims settlement expenses 26,177 20,295
------------ ------------
Total policy liabilities and accruals 5,175,148 6,712,106
OTHER POLICYHOLDER FUNDS 21,221 28,768
LIABILITY FOR GUARANTY FUND ASSESSMENTS 24,774 28,083
OTHER LIABILITIES 36,775 68,165
FEDERAL INCOME TAXES - CURRENT 2,274 10,122
SEPARATE ACCOUNTS LIABILITIES 5,784,311 4,715,278
------------ ------------
Total Liabilities 11,044,503 11,562,522
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 535,450 637,590
Retained earnings 66,005 47,860
Net unrealized investment loss (43,884) (395)
------------ ------------
Total Stockholder's Equity 559,571 687,055
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $11,604,074 $12,249,577
============ ============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 433,536 $ 586,461 $ 712,739
Net realized investment gains (losses) (14,543) 63,052 (29,639)
Policy charge revenue 126,284 95,684 81,653
------------ ------------ ------------
Total Revenues 545,277 745,197 764,753
------------ ------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 313,585 454,671 546,979
Market value adjustment expense 6,307 30,816 6,229
Policy benefits (net of reinsurance recoveries: 1994 - $6,338;
1993 - $6,004; 1992 - $5,555) 16,858 17,030 12,066
Reinsurance premium ceded 13,909 12,665 12,457
Amortization of deferred policy acquisition costs 69,662 109,456 88,795
Insurance expenses and taxes 35,073 47,784 72,560
------------ ------------ ------------
Total Benefits and Expenses 455,394 672,422 739,086
------------ ------------ ------------
Earnings Before Federal Income Tax Provision 89,883 72,775 25,667
------------ ------------ ------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 22,503 20,112 28,549
Deferred 1,375 4,803 (19,913)
------------ ------------ ------------
Total Federal Income Tax Provision 23,878 24,915 8,636
------------ ------------ ------------
NET EARNINGS $ 66,005 $ 47,860 $ 17,031
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
------------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 $ 2,000 $ 654,717 $ 85,842 $ (1,245) $ 741,314
Net earnings 17,031 17,031
Net unrealized investment gain 4,129 4,129
------------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1992 2,000 654,717 102,873 2,884 762,474
Dividend to Parent (17,127) (102,873) (120,000)
Net earnings 47,860 47,860
Net unrealized investment loss (3,279) (3,279)
------------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1993 2,000 637,590 47,860 ( 395) 687,055
Dividend to Parent (102,140) (47,860) (150,000)
Net earnings 66,005 66,005
Net unrealized investment loss (43,489) (43,489)
------------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1994 $ 2,000 $ 535,450 $ 66,005 $ (43,884) $ 559,571
============= =========== =========== ============ =============
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 66,005 $ 47,860 $ 17,031
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 69,662 109,456 88,795
Capitalization of policy acquisition costs (108,829) (91,189) (39,146)
Depreciation and amortization (4,516) 1,142 (16,033)
Net realized investment (gains) losses 14,543 (63,052) 29,639
Interest credited to policyholders' account balances 313,585 454,671 546,979
Provision for deferred Federal income tax 1,375 4,803 (19,913)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 25,204 18,460 6,018
Receivables from affiliates - net (2,324) (3,427) (20,027)
Policy liabilities and accruals 5,882 12,730 7,775
Federal income taxes - current (7,848) (19,888) 14,955
Other policyholder funds (7,547) 14,131 12,826
Liability for guaranty fund assessments (3,309) 979 16,439
Policy loans (60,634) (90,118) (126,925)
Investment trading securities 11,352 (145,972) 0
Other, net (39,206) 49,424 (6,269)
-------------- -------------- --------------
Net cash and cash equivalents provided
by operating activities 273,395 300,010 512,144
-------------- -------------- --------------
</TABLE>
(Continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Concluded) (Dollars In Thousands)
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Fixed maturity securities sold 845,227 571,337 1,281,705
Fixed maturity securities matured 1,323,705 2,776,992 2,206,447
Fixed maturity securities purchased (676,976) (1,866,857) (2,806,416)
Equity securities available for sale purchased (1,998) (8,983) (17,843)
Equity securities available for sale sold 18,868 6,451 44,188
Mortgage loans on real estate principal payments received 32,341 35,561 8,548
Mortgage loans on real estate acquired 0 (674) (853)
Real estate available for sale - improvements acquired (1,060) 0 (340)
Real estate available for sale sold 25,346 7,408 178
Interest rate swaps sold 0 0 2,302
Recapture of investment in Separate Accounts 0 29,389 0
Investment in Separate Accounts (15,212) (20,000) (3,841)
-------------- -------------- --------------
Net cash and cash equivalents provided
by investing activities 1,550,241 1,530,624 714,075
-------------- -------------- --------------
FINANCING ACTIVITIES:
Dividend paid to parent (150,000) (120,000) 0
Affiliated notes payable 0 0 (83,200)
Policyholders' account balances:
Deposits 966,861 814,314 217,410
Withdrawals (net of transfers to/from Separate Accounts) (2,623,628) (2,574,854) (1,338,034)
-------------- -------------- --------------
Net cash and cash equivalents used
by financing activities (1,806,767) (1,880,540) (1,203,824)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 16,869 (49,906) 22,395
CASH AND CASH EQUIVALENTS
Beginning of year 122,218 172,124 149,729
-------------- -------------- --------------
End of year $ 139,087 $ 122,218 $ 172,124
============== ============== ==============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 30,351 $ 40,000 $ 13,594
Intercompany interest $ 679 $ 737 $ 5,409
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: Merrill Lynch Life Insurance Company (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells non-participating life insurance and annuity
products which comprise one business segment. The primary
products that the Company currently markets are immediate
annuities, market value adjusted annuities, variable life
insurance and variable annuities. The Company is currently
licensed to sell insurance in forty-nine states, the District
of Columbia, the U.S. Virgin Islands and Guam. The Company
markets its products solely through the retail network of
Merrill Lynch Pierce, Fenner & Smith, Inc. ("MLPF&S"), a wholly
owned subsidiary of Merrill Lynch & Co..
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles for
stock life insurance companies.
Revenue Recognition: Revenues for the Company's interest
sensitive life, interest sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholder account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest crediting rates for the
Company's fixed rate products are as follows:
Interest sensitive life products 4.00% - 8.30%
Interest sensitive deferred annuities 2.78% - 8.58%
Immediate annuities 4.00% - 10.00%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are
unreported as of the valuation date.
Reinsurance: In the normal course of business, the Company
seeks to limit its exposure to loss on any single insured life
and to recover a portion of benefits paid by ceding reinsurance
to other insurance enterprises or reinsurers under indemnity
reinsurance agreements, primarily excess coverage and
coinsurance agreements. The maximum amount of mortality risk
retained by the Company is approximately $500 on a single life.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the
Company. The Company regularly evaluates the financial
condition of its reinsurers so as to minimize its exposure to
significant losses from reinsurer insolvencies. The Company
holds collateral under reinsurance agreements in the form of
letters of credit and funds withheld totaling $912 that can be
drawn upon for delinquent reinsurance recoverables.
<PAGE>
As of December 31, 1994, the Company had life insurance in-
force which was ceded to other life insurance companies of
$2,027,303.
Deferred Policy Acquisition Costs: Policy acquisition costs
for life and annuity contracts are deferred and amortized based
on the estimated future gross profits for each group of
contracts. These future gross profit estimates are subject to
periodic evaluation by the Company, with necessary revisions
applied against amortization to date.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, which are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed.
Included in deferred policy acquisition costs are those costs
related to the acquisition by assumption reinsurance of
insurance contracts from unaffiliated insurers. The deferred
costs are amortized in proportion to the future gross profits
over the anticipated life of the acquired insurance contracts
utilizing an interest methodology.
In December 1990, the Company entered into an assumption
reinsurance agreement with an unaffiliated insurer. The
acquisition costs relating to this agreement are being
amortized over a twenty-year period using an effective interest
rate of 9.01%. This reinsurance agreement provides for payment
of contingent ceding commissions based upon the persistency and
mortality experience of the insurance contracts assumed. Any
payments made for the contingent ceding commissions will be
capitalized and amortized using an identical methodology as
that used for the initial acquisition costs. The following is
a reconciliation of the acquisition costs for the reinsurance
transaction for the three years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Beginning balance $ 139,647 $ 150,450 $ 160,235
Capitalized amounts 12,517 6,987 6,060
Interest accrued 12,582 13,136 15,401
Amortization (31,358) (30,926) (31,246)
----------- ----------- -----------
Ending balance $ 133,388 $ 139,647 $ 150,450
=========== =========== ===========
</TABLE>
The following table presents the expected amortization of these
deferred acquisition costs over the next five years. The
amortization may be adjusted based on periodic evaluation of
the expected gross profits on the reinsured policies.
1995 $17,840
1996 16,056
1997 12,488
1998 8,925
1999 8,399
Investments: Effective December 31, 1993, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). In compliance with SFAS No. 115,
the Company, at December 31, 1993, classified its investments
in fixed maturity securities and equity securities in two
categories, each separately identified:
Available for sale securities include both fixed maturity
and equity securities. These securities may be sold for the
Company's general liquidity needs, asset/liability
management strategy, credit dispositions and investment
opportunities. These securities are carried at estimated
fair value with unrealized gains and losses included in
stockholder's equity. If a decline in value of a security
is determined by
<PAGE>
management to be other than temporary, the
carrying value is adjusted to the estimated fair value at
the date of this determination and recorded in the net
realized investment gains (losses) caption of the statement
of earnings.
Trading securities represented securities that were managed
with an investment objective to maximize total return
subject to the Company's quality guidelines. Investments in
this portfolio consisted primarily of marketable fixed
maturity and equity investments. These securities were
carried at estimated fair value with unrealized gains and
losses included in the statement of earnings. The debt and
equity securities classified as trading securities as of
December 31, 1993 were acquired in 1993 and immediately
classified as trading securities in compliance with SFAS
No. 60 "Accounting and Reporting by Insurance Enterprises",
prior to the adoption of SFAS No. 115.
SFAS No. 115 permits fixed maturity securities to be carried at
amortized cost if the Company has both the ability and positive
intent to hold these securities to maturity. The Company has
determined that it can not guarantee that it will not have the
need or opportunity to sell any particular security in its
investment holdings. As such, the Company has not utilized this
classification since the adoption of SFAS No. 115.
During 1994, the Company ceased utilizing the trading
securities classification. All securities that were classified
as trading securities on November 1, 1994 were transferred to
the available for sale classification at their respective
estimated fair values on that date. The difference between the
market value at November 1, 1994 and par value will be
amortized into income based on the Company's premium
amortization and discount accrual policies.
In compliance with a Securities and Exchange Commissions
("SEC") staff announcement, the Company has recorded certain
adjustments to deferred policy acquisition costs and
policyholders' account balances in connection with its adoption
of SFAS No. 115. The SEC requires that companies adjust those
assets and liabilities that would have been adjusted had the
unrealized investment gains or losses from securities
classified as available for sale actually been realized with
corresponding credits or charges reported directly to
stockholder's equity. The following reconciles the net
unrealized investment gain (loss) as of December 31,:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale $(146,439) $ 228,123
Equity securities available for sale 831 546
Deferred policy acquisition costs 72,220 (36,044)
Federal income taxes - deferred 23,629 213
Separate Account Assets (549) 0
----------- -----------
(50,308) 192,838
----------- -----------
Liabilities:
Policyholders' account balances (6,424) 193,233
----------- -----------
Stockholder's equity:
Net unrealized investment loss $ (43,884) $ (395)
=========== ===========
</TABLE>
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accrued to
the maturity date and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of identified cost.
Fixed maturity securities may contain securities which are
considered high yield. The Company defines high yield fixed
maturity securities as unsecured corporate debt obligations
which do not have a rating equivalent to
<PAGE>
Standard and Poor's
(or similar rating agency) BBB or higher, and are not
guaranteed by an agency of the federal government. Probable
losses are recognized in the period that a decline in value is
determined to be other than temporary.
During 1994, the Company adopted SFAS No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of
Financial Instruments" ("SFAS No. 119"). SFAS No. 119 requires
increased disclosures regarding derivative financial
instruments. SFAS No. 119 defines derivative financial
instruments as futures, forward, swap and option contracts or
other financial instruments with similar characteristics. As of
December 31, 1994, the Company holds only interest rate swap
contracts.
The Company has outstanding certain interest rate swap
contracts which are carried at estimated fair value and
recorded as a component of fixed maturity securities available
for sale. Interest income, realized gains and losses and
unrealized gains and losses are recorded on the same basis as
fixed maturity securities available for sale.
Mortgage loans on real estate are stated at unpaid principal
balances net of valuation allowances. Such valuation allowances
are based on the decline in value expected by management to be
realized on in-substance foreclosures of mortgage loans and on
mortgage loans which management believes may not be collectible
in full. In establishing valuation allowances management
considers, among other things, the estimated fair value of the
underlying collateral.
The Company recognizes income from mortgage loans on real
estate based on the cash payment interest rate of the loan,
which may be different from the accrual interest rate of the
loan for certain outstanding mortgage loans. The Company will
recognize a realized gain at the date of the satisfaction of
the loan at contractual terms for loans where there is a
difference between the cash payment interest rate and the
accrual interest rate. For all loans the Company stops accruing
income when an interest payment default either occurs or is
probable.
The Company has previously made commercial mortgage loans
collateralized by real estate and direct investments in
commercial real estate. The return on and the ultimate
recovery of these loans and investments are generally dependent
on the successful operation, sale or refinancing of the real
estate. In many parts of the country, current real estate
markets are characterized by vacancy rates in excess of
historical averages, a lack of ready sources of credit for real
estate financing, reduced or declining real estate values, and
similar factors.
The Company employs a system to monitor the effects of current
and expected real estate market conditions and other factors
when assessing the collectability of mortgage loans and the
recoverability of the Company's real estate investments. When,
in management's judgment, these assets are impaired,
appropriate losses are recorded. Such estimates necessarily
include assumptions, which may include anticipated improvements
in selected market conditions for real estate, which may or may
not occur. The more significant assumptions management
considers involve estimates of the following: lease, absorption
and sales rate; real estate values and rates of return;
operating expenses; required capital improvements; inflation;
and sufficiency of any collateral independent of the real
estate. Management believes that the carrying value
approximates the fair value of these investments.
During 1993 the Financial Accounting Standards Board issued
SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" ("SFAS No. 114") which was amended during 1994 by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures". SFAS No. 114, as amended,
requires that for impaired loans, the impairment shall be
measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or the
fair value of the collateral. Impairments of mortgage loans on
real estate are established as valuation allowances and
recorded to net realized investment gains or losses. SFAS No.
114, as amended, must be adopted for fiscal years beginning
after December 15, 1994. The Company has decided not to early
adopt this statement. The Company estimates that the impact on
both financial position and earnings from adopting SFAS No.
114, as amended, would be immaterial.
<PAGE>
Real estate available for sale, including real estate acquired
in satisfaction of debt subsequent to its acquisition date, is
stated at depreciated cost less valuation allowances and
estimated selling costs. Depreciation is computed using the
straight-line method over the estimated useful lives of the
properties, which generally is 40 years.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Federal Income Taxes: The results of operations of the Company
are included in the consolidated Federal income tax return of
Merrill Lynch & Co.. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current federal tax liability.
The Company accounts for Federal Income Taxes in compliance
with SFAS No. 109, "Accounting for Income Taxes" ("SFAS No.
109") which requires an asset and liability method in recording
income taxes on all transactions that have been recognized in
the financial statements. SFAS No. 109 provides that deferred
taxes be adjusted to reflect tax rates at which future tax
liabilities or assets are expected to be settled or realized.
Separate Accounts: The Separate Accounts are established in
conformity with Arkansas insurance law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to General Account
claims only to the extent the value of such assets exceeds the
Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing
net deposits and accumulated net investment earnings less fees,
held for the benefit of policyholders, are shown as separate
captions in the balance sheets.
Postretirement Benefits Other Than Pensions: The Company
accounts for postretirement benefits in compliance with SFAS
No. 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106"). SFAS No. 106 requires
the accrual of postretirement benefits (such as health care
benefits) during the years an employee provides service.
Statements of Cash Flows: For the purpose of reporting cash
flows, cash and cash equivalents include cash on hand and on
deposit and short-term investments with original maturities of
three months or less.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments which approximates
the estimated fair value of these financial instruments as of
December 31 are:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale:
Securities (1) $ 3,866,886 $ 5,593,042
Interest rate swaps (2) 947 4,317
------------ ------------
Total fixed maturity securities available for sale 3,867,833 5,597,359
------------ ------------
Fixed maturity securities held for trading (1) 0 144,035
Equity securities available for sale (1) 16,777 24,970
Equity securities held for trading (1) 0 20,585
Mortgage loans on real estate (3) 149,249 191,214
Policy loans on insurance contracts (4) 985,213 924,579
Cash and cash equivalents (5) 139,087 122,218
Receivables from affiliates - net (6) 3,113 789
Separate accounts assets (7) 5,798,973 4,715,278
------------ ------------
Total financial instruments recorded as assets $10,960,245 $11,741,027
============ ============
</TABLE>
(1) For publicly traded securities, the estimated fair value
is determined using quoted market prices. For securities
without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted
cash flow approach, including provision for credit risk,
based upon the assumption that such securities will be
held to maturity. Such estimated fair values do not
necessarily represent the values for which these
securities could have been sold at the dates of the
balance sheets. At December 31, 1994 and 1993, securities
without a readily ascertainable market value, having an
amortized cost of approximately $564,665 and $773,965, had
an estimated fair value of approximately $564,682 and
$819,866, respectively.
(2) Estimated fair values for the Company's interest rate
swaps are based on a discounted cashflow approach.
(3) The estimated fair value of mortgage loans on real estate
approximates the carrying value. See Note 1 for a
discussion of the Company's valuation process.
(4) The Company estimates the fair market value of policy
loans as equal to the book value of the loans. Policy
loans are fully collateralized by the account value of the
associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited
to the account value held as collateral is fixed.
(5) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(6) The fair value of the Company's receivables from
affiliates is estimated at carrying value. These
borrowings are payable on demand and accrue a variable
interest rate based on LIBOR.
(7) Assets held in the Separate Accounts are carried at quoted
market values.
<PAGE>
NOTE 3. INVESTMENTS
The amortized cost (cost for equity securities) and estimated
fair value of investments in fixed maturity securities and
equity securities as of December 31 are:
<TABLE>
<CAPTION>
1994
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 2,795,543 $ 20,378 $ 133,534 $ 2,682,387
Mortgage-backed securities 1,070,430 5,772 35,624 1,040,578
U.S. Government and agencies 139,513 1,059 4,392 136,180
Municipals 4,588 115 0 4,703
Foreign governments 4,198 0 213 3,985
------------ ----------- ----------- ------------
Total fixed maturity securities
available for sale $ 4,014,272 $ 27,324 $ 173,763 $ 3,867,833
============ =========== =========== ============
Equity securities available for sale:
Common stocks $ 8,489 $ 641 $ 632 $ 8,498
Non-redeemable preferred stocks 7,457 1,092 270 8,279
------------ ----------- ----------- ------------
Total equity securities available for sale $ 15,946 $ 1,733 $ 902 $ 16,777
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
1993
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 3,181,667 $ 159,233 $ 18,440 $ 3,322,460
Mortgage-backed securities 2,015,328 79,645 3,998 2,090,975
U.S. Government and agencies 159,329 10,887 126 170,090
Municipals 12,912 922 0 13,834
------------ ----------- ----------- ------------
Total fixed maturity securities
available for sale $ 5,369,236 $ 250,687 $ 22,564 $ 5,597,399
============ =========== =========== ============
Equity securities available for sale:
Common stocks $ 4,481 $ 577 $ 657 $ 4,401
Non-redeemable preferred stocks 19,943 757 131 20,569
------------ ----------- ----------- ------------
Total equity securities available for sale $ 24,424 $ 1,334 $ 788 $ 24,970
============ =========== =========== ============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1994 by
contractual maturity are shown below:
<PAGE>
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 101,138 $ 102,400
Due after one year through five years 1,323,119 1,282,668
Due after five years through ten years 1,249,759 1,183,803
Due after ten years 269,826 258,384
------------ ------------
2,943,842 2,827,255
Mortgage-backed securities 1,070,430 1,040,578
Total fixed maturity securities ------------ ------------
available for sale $ 4,014,272 $ 3,867,833
============ ============
</TABLE>
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1994 by rating
agency equivalent are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
AAA $ 995,888 $ 964,385
AA 630,459 614,948
A 857,103 821,906
BBB 1,245,045 1,190,554
Non-investment grade 285,777 276,040
------------ ------------
$ 4,014,227 $ 3,867,833
============ ============
</TABLE>
The Company has entered into interest rate swap contracts for
the purpose of minimizing exposure to fluctuations in interest
rates of specific assets held. The notional amount of such
swaps outstanding at December 31, 1994 and 1993 was
approximately $30,000 and $149,250, respectively. The Company
has outstanding at December 31, 1994 three interest rate swap
contracts for which the Company pays the six month LIBOR
interest rate and receives a weighted average 9.8%. The
outstanding interest rate swap contracts at December 31, 1994
will expire at various times during 1996. The average unexpired
term at December 31, 1994 and 1993 was 1.2 years and 3.2 years,
respectively. All three interest rate swap contracts were with
investment grade counterparties at December 31, 1994.
There are no outstanding matched swaps in a loss position at
December 31, 1994 and 1993. During 1994, 1993 and 1992, a net
investment gain of approximately $470, $0 and $2,302,
respectively, was recorded in connection with interest rate
swap activity.
During 1994, 1993 and 1992, the Company did not enter into
either matched or unmatched interest rate swap arrangements and
did not act as an intermediary or broker in interest rate
swaps.
Proceeds, gains and losses from the sale or maturity of fixed
maturity securities available for sale and held to maturity for
the years ended December 31,:
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds $ 2,168,932 $ 3,348,329 $ 3,488,152
Realized investment gains 8,398 71,599 51,925
Realized investment losses 9,823 4,126 36,018
</TABLE>
During 1994, the Company ceased utilizing the trading
securities classification. At the date of this action, the
securities classified as trading were transferred to the
available for sale portfolio at their estimated fair value. The
estimated fair value of fixed maturity securities and equity
securities transferred at the date of transfer was $134,984 and
$6,989, respectively. At the date of transfer, amortized cost
exceeded estimated fair value by $2,995. During 1994 and 1993,
approximately $(7,285) and $4,291, respectively, of unrealized
holding gains (losses) from investment trading securities were
recorded in net realized investment gains/(losses).
The Company had investment securities of $26,651 and $28,702
held on deposit with insurance regulatory authorities at
December 31, 1994 and 1993, respectively.
At December 31, 1994, the Company retained $14,662 in the
Separate Accounts, including unrealized losses of $549. The
investments in the Separate Accounts are for the purpose of
providing original funding of certain mutual funds available as
investment options to variable life and annuity policyholders.
No funds were retained in the Separate Accounts at December 31,
1993.
The Company's investment in mortgage loans on real estate are
principally collateralized by commercial real estate. At
December 31, 1994, the largest concentrations of commercial
real estate mortgage loans, as measured by the outstanding
principal balance, are for properties located in California
($53,282 or 28%), Illinois ($28,294 or 15%) and Rhode Island
($19,769 or 10%).
The carrying value and established valuation allowances of
impaired mortgage loans on real estate as of December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Carrying value $71,973 $63,952
Valuation allowance 40,070 45,924
</TABLE>
For the years ended December 31, 1994 and 1993, $4,652 and
$29,555, respectively, of real estate was acquired in
satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities $ 368,023 $ 511,655 $ 652,136
Equity securities 2,408 4,143 4,813
Mortgage loans on real estate 15,014 20,342 25,954
Real estate available for sale 406 32 1,004
Policy loans on insurance contracts 50,232 46,129 40,843
Other 5,489 11,135 5,924
---------- ---------- ----------
Gross investment income 441,572 593,436 730,674
Less expenses (8,036) (6,975) (17,935)
---------- ---------- ----------
Net investment income $ 433,536 $ 586,461 $ 712,739
========== ========== ==========
</TABLE>
<PAGE>
Net realized investment gains (losses), including changes in
valuation allowances, for the years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ (1,425) $ 67,473 $ 15,907
Fixed maturity securities held for trading (11,889) 5,562 0
Equity securities available for sale 1,490 22 (3,051)
Equity securities held for trading (580) 2,587 0
Mortgage loans on real estate (4,967) (9,310) (42,997)
Real estate available for sale 2,828 (4,733) (1,800)
Other 0 1,451 2,302
---------- ---------- ----------
Net realized investment gains (losses) $ (14,543) $ 63,052 $ (29,639)
========== ========== ==========
</TABLE>
The following is a reconciliation of the change in valuation
allowances which have been deducted in arriving at investment
carrying values, as presented in the balance sheet, and changes
thereto of the following classifications of investments for the
years ended December 31,:
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage loans on real estate:
1994 $ 45,924 $ 4,966 $ 10,820 $ 40,070
1993 55,610 9,310 18,996 45,924
1992 14,413 42,997 1,800 55,610
Real estate available for sale:
1994 7,628 0 1,862 5,766
1993 4,300 3,328 0 7,628
1992 4,500 1,800 2,000 4,300
</TABLE>
The Company held investments at December 31, 1994 of $20,391
which have been non-income producing for the preceding twelve
months.
The Company has restructured the terms of certain of its
investments in fixed maturity securities and mortgage loans on
real estate during 1994 and 1993. The following table provides
the amortized cost less valuation allowances immediately prior
to restructuring, gross interest income that would have been
earned had the loans been current per their original terms
("Expected Income"), gross interest income recorded during the
year ("Actual Income") and equity interests which were received
in the restructuring:
<PAGE>
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Fixed maturity securities:
Amortized cost $ 1,134 $ 3,743
Expected income 189 916
Actual income 112 103
Equity interest received 28 1,833
Mortgage loans on real estate:
Amortized cost less valuation allowance 49,595 79,624
Expected income 4,673 6,859
Actual income 3,725 5,076
</TABLE>
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1994 no funds had been advanced towards the
Company's $10,000 commitment to the limited partnership.
NOTE 4. FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income
taxes based on income before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 31,459 $ 25,471 $ 8,726
Increase (decrease) in income taxes resulting from:
Federal tax rate increase (631)
Dividend received deduction (7,363) (28) (33)
Other (218) 103 (57)
---------- ---------- ---------
Federal income tax provision $ 23,878 $ 24,915 $ 8,636
========== ========== =========
</TABLE>
The Federal statutory rate for 1994, 1993 and 1992 was 35%, 35%
and 34%, respectively.
The Company provides for deferred income taxes resulting from
temporary differences which arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 6,416 $ (9,030) $(17,633)
Policyholders' account balances 5,322 6,433 21,301
Estimated liability for guaranty fund assessments (153) (1,066) (2,735)
Investment adjustments 3,276 7,941 (21,875)
Other (13,486) 525 1,029
Deferred Federal income tax ---------- ---------- ---------
provision (benefit) $ 1,375 $ 4,803 $(19,913)
========== ========== =========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31, are
determined as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 94,153 $ 99,475
Net unrealized investment losses 23,629 213
Investment adjustments 16,320 19,596
Estimated liability for guaranty fund assessments 7,580 7,427
---------- ----------
Total deferred tax asset 141,682 126,711
---------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs 99,041 92,625
Other 3,722 17,208
---------- ----------
Total deferred tax liability 102,763 109,833
---------- ----------
Net deferred tax asset $ 38,919 $ 16,878
========== ==========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
NOTE 5. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain data processing, legal,
actuarial, management, advertising and other services to the
Company. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by the Company on an allocated cost
basis. Charges billed to the Company by MLIG pursuant to the
agreement were $44,176, $55,843 and $63,300 for the years ended
December 31, 1994, 1993 and 1992, respectively. The Company is
allocated interest expense on its accounts payable to MLIG
which approximates the daily Federal funds rate. Total
intercompany interest paid was $679, $737 and $5,409 for 1994,
1993 and 1992, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management to the Company. The
Company pays a fee to MLAM for these services through the MLIG
service agreement. Charges attributable to this agreement and
allocated to the Company by MLIG were $2,732, $2,800 and $3,700
for the years ended December 31, 1994, 1993 and 1992,
respectively.
During 1994, the Company and MLAM entered into an agreement
pursuant to which MLAM paid to the Company a fee in an amount
equal to a portion of the annual gross investment advisory fees
received by MLAM from Merrill Lynch Series Fund, Inc. ("Series
Fund") and Merrill Lynch Variable Series Funds, Inc. ("Variable
Series Funds"). The Company invests in the various mutual fund
portfolios of the Series Fund and the Variable Series Funds in
connection with the variable life insurance and variable
annuities the Company has in-force. The Company received $12,600
of revenue as a result of this agreement during 1994.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S who are the Company's licensed insurance agents, solicit
applications for contracts to be issued by the Company. MLLA
is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were $84,231, $67,102 and $25,158 for
1994, 1993 and 1992, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition
costs and are being amortized in accordance with the policy
discussed in Note 1.
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company
("Monarch Life"), the Company borrowed funds from Merrill Lynch
& Co. to partially finance the
<PAGE>
transaction. These loans were
repaid during 1992. Interest was calculated on these loans at
LIBOR plus 150 basis points. Intercompany interest paid on
these loans during 1992 was approximately $4,025.
The Company has entered into certain interest rate swap
contracts with Merrill Lynch Capital Services, Inc. ("MLCS")
with a guarantee from Merrill Lynch & Co.. As of December 31,
1994 and 1993, the notional amount of interest rate swap
contracts outstanding were $10,000 and $109,250, respectively.
During 1994 the Company and MLCS terminated certain interest
rate swap contracts resulting in the Company paying a net
consideration of $2,043. Net interest received from these
interest rate swap contracts was $2,096, $6,876, and $9,849 for
the years ended December 31, 1994, 1993 and 1992, respectively.
(See Note 3)
During 1993 and 1992, the Company allowed the recapture of
certain policies previously indemnity reinsured by the Company
from Family Life Insurance Company. Simultaneously with the
recapture, the Company's affiliate, ML Life Insurance Company
of New York ("ML Life"), assumption reinsured these policies.
These transactions resulted in the transfer of approximately
$11,900 and $2,000 of policy reserves during 1993 and 1992,
respectively. During 1994 certain adjustments to the 1993
assumption reinsurance transactions resulted in a transfer of
$9,299 of policy reserves from ML Life to the Company.
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1994 and 1993, the Company paid dividends of $150,000
and $120,000, respectively, to MLIG. Of these stockholder's
dividends, $112,779 and $75,012, respectively, were
extraordinary dividends as defined by Arkansas Insurance Law
and were paid pursuant to approval granted by the Arkansas
Insurance Commissioner.
At December 31, 1994 and 1993, approximately $26,243 and
$37,221, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1994 and 1993, was $264,432 and $374,209,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
taxes and valuing securities on a different basis. The
Company's statutory net income for the years ended December 31,
1994, 1993 and 1992 was $42,382, $45,604 and $60,140,
respectively.
The National Association of Insurance Commissioners ("NAIC")
has developed and implemented effective December 31, 1993, the
Risk Based Capital ("RBC") adequacy monitoring system. The RBC
calculates the amount of adjusted capital which a life
insurance company should have based upon that company's risk
profile. The NAIC has established four different levels of
regulatory action with respect to the RBC adequacy monitoring
system. Each of these levels may be triggered if an insurer's
total adjusted capital is less than a corresponding level of
RBC. These levels are as follows:
For companies with capital levels which are below 100% of
the basic RBC level (company action level) calculated for
that company, the company must submit to the domiciliary
insurance commissioner, and implement, an approved plan to
increase adjusted capital to at least 100% of the basic
RBC.
For companies with capital levels which are below 75% of
the basic RBC level calculated for that company, the
company must submit to an examination by the domiciliary
insurance department and as a result of the findings of the
examination, corrective orders may be issued.
For companies with capital levels which are below 50% of
the basic RBC level (authorized control level) calculated
for that company, the domiciliary insurance commissioner
will have the authority to place the company into
conservatorship or liquidation.
<PAGE>
For companies with capital levels which are below 35% of
the basic RBC level calculated for that company, the
domiciliary insurance commissioner will be required to
place the company into conservatorship or liquidation.
As of December 31, 1994 and 1993, based on the RBC formula, the
Company's total adjusted capital level was 270% and 279%,
respectively, of the basic RBC level.
NOTE 7. COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). During 1991, and to a lesser extent 1992, there were
certain highly publicized life insurance insolvencies. The
Company has utilized public information to estimate what future
assessments it will incur as a result of these insolvencies.
At December 31, 1994 and 1993, the Company has established an
estimated liability for future guaranty fund assessments of
$24,774 and $28,083 respectively. The Company regularly
monitors public information regarding insurer insolvencies and
will adjust its estimated liability when appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
<PAGE>
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 74 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 LLP, Independent Auditors
The following exhibits:
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 LLP, Independent
Auditors.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Merrill Lynch Life Variable Life Separate Account II, hereby certifies that this
Post-Effective Amendment No. 5 meets all of the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, and has
duly caused this Post-Effective Amendment No. 5 to the Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized and its
seal to be hereunto affixed and attested, all in the City of Plainsboro and the
State of New Jersey, on the 25th day of April, 1995.
MERRILL LYNCH 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
Post-Effective Amendment No. 5 to the Registration Statement has been signed
below by the following persons in the capacities indicated on April 25, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
* Chairman of the Board, President and Chief Executive
- ------------------------------------------- Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief Financial
- ------------------------------------------- Officer, Chief Actuary and 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Merrill Lynch Life Variable Life Separate Account II, hereby certifies that this
Post-Effective Amendment No. 5 meets all of the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, and has
duly caused this Post-Effective Amendment No. 5 to the Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized and its
seal to be hereunto affixed and attested, all in the City of Plainsboro and the
State of New Jersey, on the 25th day of April, 1995.
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
(Registrant)
By: MERRILL LYNCH LIFE INSURANCE COMPANY
(Depositor)
<TABLE>
<S> <C>
Attest: By:
Terry L. Rapp Barry G. Skolnick
Assistant Secretary Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 5 to the Registration Statement has been signed
below by the following persons in the capacities indicated on April 25, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
* Chairman of the Board, President and Chief
Anthony J. Vespa Executive Officer
* Director, Senior Vice President, Chief Financial
Joseph E. Crowne Officer, and Treasurer
* Director, Senior Vice President & Chief Investment
David M. Dunford Officer
* Director and Senior Vice President
John C.R. Hele
* Director
Allen N. Jones
*In his own capacity as Director, Senior Vice
Barry G. Skolnick President and General Counsel and as Attorney-In-Fact
</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).
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).
Service Agreement among Merrill Lynch Life
(c) Insurance Company, Family Life Insurance Company
and Merrill Lynch Insurance Group, Inc.
Incorporated by reference to Post-Effective
Amendment No. 4 filed by the Registrant on Form
S-6 (File No. 43057).
(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.
Incorporated by reference to Post-Effective Amendment
No. 4 filed by the Registrant on Form S-6 (File No.
43057).
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 LLP, Independent
Auditors.
</TABLE>
II-6
<PAGE>
April 25, 1995
Board of Directors
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
To The Board of Directors:
In my capacity as General Counsel of Merrill Lynch Life Insurance Company (the
"Company"), I have supervised the establishment of the Merrill Lynch 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. 5
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 judgment are necessary and appropriate to
enable me to render the following opinion that:
1. The Company has been duly organized under the laws of the State of
Arkansas and is a validly existing corporation.
2. The Contracts, when issued in accordance with the prospectus contained
in the aforesaid registration statement and upon compliance with
applicable local law, will be legal and binding obligations of the
Company in accordance with their terms.
3. The Account is duly created and validly existing as a separate account
pursuant to the aforesaid provisions of Arkansas law.
4. The assets held in the Account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business the Company may conduct.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Barry G. Skonick
Barry G. Skolnick
Senior Vice President and General
Counsel
<PAGE>
April 25, 1995
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. 5 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 &
Chief Financial Officer
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 5 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 27, 1995, and (ii) Merrill Lynch Life Variable Life Separate Account II
dated February 8, 1995, appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Deloitte & Touche LLP
New York, New York
April 25, 1995
