<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1996
REGISTRATION NO. 33-43058
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
POST EFFECTIVE AMENDMENT NO. 6
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, 1996 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, 1995
ON FEBRUARY 28, 1996.
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- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE
SEPARATE ACCOUNT II
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------------------------------------------------
<C> <S>
1 Cover Page
2 Cover Page
3 More About the Separate Account and Its Divisions
4 Facts About the Insurance Company and the Separate Account
5 Facts About the Insurance Company and the Separate Account
6 Facts About the Insurance Company and the Separate Account;
More About the Separate Account and Its Divisions
7 Not Applicable
8 Not Applicable
9 More About the Insurance Company
10 Summary of the Policy; Facts About the Policy; More About the
Policy;
More About the Separate Account and Its Divisions
11 Summary of the Policy; Facts About the Insurance Company and
the Separate Account; More About the Separate Account and Its
Divisions
12 Summary of the Policy; Facts About the Insurance Company and
the Separate Account; More About the Separate Account and Its
Divisions
13 Summary of the Policy; Facts About the Policy; More About the
Policy;
More About the Separate Account and Its Divisions
14 Facts About the Policy; More About the Policy
15 Summary of the Policy; Facts About the Policy
16 Summary of the Policy; Facts About the Policy; More About the
Separate Account and Its Divisions
17 Summary of the Policy; Facts About the Policy; More About the
Policy
18 More About the Separate Account and Its Divisions
19 Facts About the Insurance Company and the Separate Account
20 More About the Separate Account and Its Divisions
21 Facts About the Policy
22 More About the Separate Account and Its Divisions
23 Not Applicable
24 Facts About the Policy; More About the Policy
25 Facts About the Insurance Company and the Separate Account
26 Not Applicable
27 Facts About the Insurance Company and the Separate Account;
More About the Insurance Company
28 More About the Insurance Company
29 Facts About the Insurance Company and the Separate Account
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 More About the Policy
36 Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------------------------------------------------
<C> <S>
37 Not Applicable
38 More About the Policy
39 Facts About the Insurance Company and the Separate Account;
More About the Policy
40 Not Applicable
41 Facts About the Insurance Company and the Separate Account;
More About the Policy
42 Not Applicable
43 Not Applicable
44 Summary of the Policy; Facts About the Policy; More About the
Policy;
More About the Separate Account and Its Divisions
45 Not Applicable
46 Facts About the Policy; More About the Separate Account and Its
Divisions
47 Facts About the Policy; More About the Separate Account and Its
Divisions
48 More About the Separate Account and Its Divisions
49 More About the Separate Account and Its Divisions
50 Not Applicable
51 Cover Page; Facts About the Policy; More About the Policy
52 More About the Separate Account and Its Divisions
53 More About the Policy
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
</TABLE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
Supplement Dated May 1, 1996 to the Prospectus Dated May 1, 1996 for Single
Premium Variable Life Insurance Policies issued by Merrill Lynch Life Insurance
Company
The five mutual fund portfolios of the Merrill Lynch Variable Series Funds,
Inc. (the "Variable Series Funds") that are described in the May 1, 1996
prospectus for the policies (the Basic Value Focus Fund, the Global Utility
Focus Fund, the International Equity Focus Fund, the Developing Capital Markets
Focus Fund, and the Equity Growth Fund) ARE NOT YET AVAILABLE FOR ALLOCATION OF
INVESTMENT BASE AS OF MAY 1, 1996. Policyowners will be notified when these new
investment divisions become available.
i
<PAGE>
PROSPECTUS
---------------------------------------------------------
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This prospectus ("Prospectus") is for a single premium
variable life insurance policy issued by Merrill Lynch
Life Insurance Company (the "Insurance Company" or "We"),
a subsidiary of Merrill Lynch & Co., Inc. The policy
permits you, as the policyowner, to make additional
payments subject to certain restrictions. The policy is
not currently being offered for sale to new purchasers.
Until the end of the "free look" period, your single
premium will be placed in the division investing in the
Money Reserve Portfolio. After the "free look" period,
your investment base may be allocated among up to any
five investment divisions. Each division is part of
Merrill Lynch Life Variable Life Separate Account II (the
"Separate Account"), a separate investment account of the
Insurance Company. The investments available through the
divisions include 10 mutual fund portfolios of the
Merrill Lynch Series Fund, Inc. ("Series Fund"), five
mutual fund portfolios of the Merrill Lynch Variable
Series Funds, Inc., ("Variable Series Funds"), and 17
unit investment trusts in The Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities (collectively
the "Trusts" and individually, a "Trust"). Under our
current rules, you may change the allocation of your
investment base as many times as you wish.
The policy provides life insurance coverage on the
insured. We guarantee that the coverage will remain in
force for life, or for a shorter time depending on the
face amount selected for a given single premium. During
this guarantee period, we may terminate the policy only
if the policy debt exceeds certain policy values. After
the guarantee period, the policy will remain in force as
long as there is not excessive policy debt and as long as
the policy's net cash surrender value is sufficient to
cover the charges due.
While the policy is in force, the death benefit may vary
to reflect the policy's investment results but will never
be less than the current face amount.
You may turn in the policy for its net cash surrender
value while the insured is still living. The net cash
surrender value will vary with the investment results of
the policy. We don't guarantee any minimum.
It may not be advantageous to replace existing insurance
with the policy. Within certain limits, you may return
the policy or exchange it for life insurance with
benefits that do not vary with the investment results of
a separate account.
If you make certain changes to your policy, including
additional payments, it may be treated as a "modified
endowment contract" under Federal tax law. If the policy
is a modified endowment contract, any loan, partial
withdrawal or surrender may result in adverse tax
consequences and/or penalties. See "Tax Considerations",
page 28.
- --------------------------------------------------------------------------------
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.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE
REFERENCE. IT IS NOT VALID UNLESS ACCOMPANIED BY CURRENT
PROSPECTUSES FOR THE MERRILL LYNCH SERIES FUND, INC., THE
MERRILL LYNCH VARIABLE SERIES FUNDS, INC., AND THE
MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY
SECURITIES.
- --------------------------------------------------------------------------------
Issued by: Administered at:
Merrill Lynch Life Service Center
Insurance Company P.O. Box 9025
Plainsboro, New Jersey Springfield,
08536 Massachusetts
01102-9025
Distributed by:
Merrill Lynch Pierce,
Fenner &
Smith Incorporated
("MLPF&S")
Plainsboro, New Jersey
08536
Date: May 1, 1996
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------------------
SUMMARY OF THE POLICY
- --------------------------------------------------------------------------------
Purpose of the Policy................................................ 3
Availability......................................................... 3
The Investment Divisions............................................. 3
How the Death Benefit Varies......................................... 3
How the Investment Base Varies....................................... 3
Net Cash Surrender Value and Cash Surrender Value.................... 3
Your Right to Cancel ("Free Look" Period) or Exchange Your Policy.... 4
How Death Benefit and Cash Surrender Value Increases are Taxed....... 4
Charges to Your Investment Base...................................... 4
Other Charges and Fees............................................... 5
Assumption of Previously Issued Policies and Subsequent Merger....... 5
- --------------------------------------------------------------------------------
IMPORTANT TERMS
- --------------------------------------------------------------------------------
Important Terms...................................................... 7
- --------------------------------------------------------------------------------
FACTS ABOUT THE INSURANCE COMPANY AND THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
The Insurance Company and MLPF&S..................................... 8
The Insurance Company's Separate Account............................. 8
The Series Fund...................................................... 8
The Variable Series Funds............................................ 10
Certain Risks of the Series Fund and Variable Series Funds........... 10
The Trusts........................................................... 11
- --------------------------------------------------------------------------------
FACTS ABOUT THE POLICY
- --------------------------------------------------------------------------------
Who May be Covered By a Policy....................................... 11
Premiums............................................................. 12
Making Additional Payments........................................... 13
Investment Base...................................................... 14
Charges Deducted from Your Investment Base........................... 15
Charges to the Separate Account...................................... 17
Net Cash Surrender Value............................................. 17
Policy Loans......................................................... 18
Death Benefit Proceeds............................................... 19
Payment of Death Benefit Proceeds.................................... 20
Policy Guarantees.................................................... 20
When Your Guarantee Period is Less Than for Life..................... 21
Your Right to Cancel ("Free Look" Period) or Exchange Your Policy.... 21
Reports to Policyowners.............................................. 22
Single Premium Immediate Annuity Rider............................... 22
- --------------------------------------------------------------------------------
MORE ABOUT THE POLICY
- --------------------------------------------------------------------------------
Using Your Policy.................................................... 23
Some Administrative Procedures....................................... 24
Other Policy Provisions.............................................. 25
Income Plans......................................................... 26
Group or Sponsored Arrangements...................................... 27
Legal Considerations for Employers................................... 27
Selling the Policies................................................. 28
Administrative Services.............................................. 28
Tax Considerations................................................... 28
The Insurance Company's Income Taxes................................. 32
Reinsurance.......................................................... 32
- --------------------------------------------------------------------------------
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
- --------------------------------------------------------------------------------
About the Separate Account........................................... 33
Changes Within the Separate Account.................................. 33
Net Rate of Return for an Investment Division........................ 33
The Series Fund and the Variable Series Funds........................ 34
Resolving Material Conflicts......................................... 35
Charges to Series Fund Assets........................................ 35
Charges to Variable Series Funds Assets.............................. 36
The Trusts........................................................... 36
- --------------------------------------------------------------------------------
ILLUSTRATIONS
- --------------------------------------------------------------------------------
Illustrations of Death Benefits, Investment Base, Cash Surrender
Values and Accumulated Premiums...................................... 38
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MORE ABOUT THE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Management........................................................... 45
State Regulation..................................................... 45
Registration Statement............................................... 46
Legal Proceedings.................................................... 46
Legal Matters........................................................ 46
Experts.............................................................. 46
Financial Statements................................................. 46
Financial Statements of Merrill Lynch Life Variable Life Separate
Account II........................................................... 45
Financial Statements of Merrill Lynch Life Insurance Company......... 63
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>
- --------------------------------------------------------------------------------
SUMMARY OF THE POLICY
PURPOSE OF THE ----------------------------------------------------------------
POLICY
A single premium variable life policy offers a choice of
investments and an opportunity for the policy's
investment base, net cash surrender value and death
benefit to grow based on investment results.
We don't promise that your policy values will increase.
Depending on the policy's investment results, the
investment base and net cash surrender value may
increase or decrease on any day and the death benefit
may increase or decrease on any policy processing date.
As the policyowner, you bear the investment risk. We do
guarantee to keep the policy in force during the
guarantee period as long as the policy debt does not
exceed certain policy values (see "Interest", page 18).
- --------------------------------------------------------------------------------
AVAILABILITY
We can issue a policy for an insured up to age 75. The
minimum single premium is $5,000 for an insured under
age 20 and $10,000 for an insured age 20 and over or, if
less, for all ages the single premium required to
purchase a face amount of at least $100,000. (The policy
won't be available to insure residents of certain
municipalities in Kentucky where premium taxes in excess
of a certain level are imposed.) The policies are not
currently being offered for sale to new purchasers.
- --------------------------------------------------------------------------------
THE INVESTMENT
DIVISIONS
Your single premium submitted with your application will
automatically be placed in the division of the Separate
Account investing in the Money Reserve Portfolio. After
the "free look" period, you may choose to invest in up
to 5 of the 32 investment divisions in the Separate
Account available for new allocations (see "Changing
Your Investment Base Allocation", page 14). Ten
divisions invest exclusively in shares of designated
mutual fund portfolios of the Series Fund, while five
divisions invest exclusively in shares of designated
mutual fund portfolios of the Variable Series Funds.
Each mutual fund portfolio has a different investment
objective. The other 17 divisions invest in units of
designated unit investment trusts in the Trusts.
- --------------------------------------------------------------------------------
HOW THE DEATH
BENEFIT VARIES
The death benefit may increase or decrease on each
policy processing date depending on your policy's
investment results. It equals the policy's face amount
or variable insurance amount, whichever is larger.
- --------------------------------------------------------------------------------
HOW THE INVESTMENT
BASE VARIES
Your policy's investment base is the amount available
for investment at any time. On the policy date (usually
the business day next following the receipt of your
single premium at the Service Center), the investment
base is equal to the single premium. Afterwards, it
varies daily based on investment performance. You bear
the risk of poor performance and you receive the
benefits from favorable investment performance. Contract
owners may wish to consider diversifying their
investment in the Contract by allocating investment base
to two or more investment divisions.
- --------------------------------------------------------------------------------
NET CASH SURRENDER
VALUE AND CASH
SURRENDER VALUE
On a policy anniversary your policy's net cash surrender
value equals your investment base minus any deferred
policy loading. The net cash surrender value varies
daily based on investment performance. We don't
guarantee any minimum.
For purposes of certain computations under the policy,
we use the policy's cash surrender value. It is
calculated by adding the amount of any policy debt to
the net cash surrender value.
3
<PAGE>
- --------------------------------------------------------------------------------
YOUR RIGHT TO
CANCEL ("FREE LOOK"
PERIOD) OR EXCHANGE
YOUR POLICY
You may return your policy within ten days after
receiving it or, if required by your state, within the
later of the ten days and 45 days from the date the
application is executed ("free look" period). We will
refund the premium paid without interest.
You may also exchange this policy within 18 months for a
policy with benefits that do not vary with the
investment results of a separate account.
- --------------------------------------------------------------------------------
HOW DEATH BENEFIT
AND CASH SURRENDER
VALUE INCREASES ARE
TAXED
The death benefit should be fully excludable from the
beneficiary's gross income for Federal income tax
purposes, according to Section 101(a)(1) of the Internal
Revenue Code. You won't be taxed on any increase in cash
surrender value while the policy remains in force. For a
discussion of the tax issues associated with the policy,
see "Tax Considerations" on page 28.
- --------------------------------------------------------------------------------
CHARGES TO YOUR
INVESTMENT BASE
We invest the entire amount of your single premium and
any additional payments in the Separate Account. We then
deduct certain charges from your investment base on
policy processing dates (see "Charges Deducted From Your
Investment Base", page 15). The charges deducted are as
follows:
DEFERRED POLICY LOADING equals 7.0% of the single
premium and any additional payments received in the
first year. It consists of a sales load of 4.0%, a first
year administrative expense of .5% and a state and local
premium tax charge of 2.5%. (The sales load and first
year administrative charge may be reduced if cumulative
premiums are sufficiently high to reach certain
breakpoints.) The deferred policy loading for any
additional payment received after the first policy year
equals 6.5%. It consists of a sales load of 4.0% and a
state and local premium tax charge of 2.5%. Although
chargeable to the single premium and any additional
payments, the amount of the deferred policy loading is
initially advanced to the Separate Account as part of
your investment base and then deducted in equal
installments on the ten policy anniversaries following
the date we receive and accept the payment. The amount
deducted from the investment base as of the policy
anniversary will equal .70% of the single premium and
any additional payments received in the first policy
year and .65% for any additional payments received after
the first policy year. We deduct the balance of the
deferred policy loading in determining your net cash
surrender value.
REALLOCATION CHARGES are deducted on policy processing
dates if you change your investment base allocation more
than five times per policy year (see "Reallocation
Charges", page 17).
MORTALITY COSTS are deducted on all policy processing
dates after the policy date (see "Mortality Cost", page
16).
We may reduce certain charges to your investment base in
group or sponsored arrangements (see "Group or Sponsored
Arrangements", page 27).
NET LOAN COST is deducted on your policy anniversary if
there has been any policy debt outstanding. It equals a
maximum .75% of the debt per year for the first ten
policy years and .60% thereafter.
4
<PAGE>
UNDERWRITING AND THE COST OF PROVIDING INSURANCE
Underwriting is the process by which we evaluate the
risk of providing life insurance on the insured. We use
two methods of underwriting:
- simplified underwriting with no physical exam; and
- para-medical or medical underwriting with a
physical exam.
The amount of your single premium and the age of the
insured determine whether we will do underwriting on a
simplified or medical basis. For a discussion of premium
and age limits, see "Who May be Covered By a Policy" on
page 11.
If we use the simplified underwriting method, we incur
extra insurance risk because we have less information
about the insured. We therefore use guaranteed maximum
mortality rates based on the 1980 CET Mortality Table
which was designed to take this type of extra insurance
risk into account.
If we use the para-medical or medical underwriting
method, we gather more information about the insured.
Because we have additional information we therefore have
less insurance risk for insureds we evaluate under this
method. We use guaranteed maximum mortality rates based
on the 1980 CSO Mortality Table for this method.
The maximum guaranteed mortality rates we may charge
using the 1980 CET Table are equivalent to 130% of the
1980 CSO Table for male ages 38 and above and female
ages 41 and above. At younger ages, the rates vary from
130% of the 1980 CSO Table to 212% at ages where the
1980 CSO rates are the lowest.
The mortality rates we use currently for insureds in the
non-smoker simplified underwriting class are equal to or
less than the 1980 CSO Table.
To the extent the 1980 CET Table is considered
substandard we would in effect be charging you a
substandard mortality cost, even if the insured was
healthy, to the extent (a) we ever increased the current
mortality rates above the 1980 CSO Table for those
insureds in the non-smoker simplified underwriting class
or (b) the insured is underwritten under the simplified
method but is not in the non-smoker class (see
"Mortality Cost", page 20).
- --------------------------------------------------------------------------------
OTHER CHARGES AND
FEES
ADVISORY FEES
The portfolios in the Series Fund and the Variable
Series Funds pay monthly advisory fees and other
expenses (see "Charges to Series Fund Assets" and
"Charges to Variable Series Funds Assets", pages 35 and
36).
SEPARATE ACCOUNT CHARGES
There are certain charges deducted daily from the
investment results of the divisions in the Separate
Account. These charges are:
- an asset charge deducted from all divisions to
cover mortality and expense risks and guaranteed
benefits risk which is currently equivalent to a
maximum effective rate of .60% annually at the
beginning of the year; and
- a trust charge deducted from only those divisions
investing in the Trusts which is currently
equivalent to .34% annually at the beginning of the
year and will never exceed .50% annually.
- --------------------------------------------------------------------------------
ASSUMPTION OF
PREVIOUSLY ISSUED
POLICIES AND
SUBSEQUENT MERGER
The policies were originally issued by Monarch Life
Insurance Company ("Monarch"). On November 14, 1990,
Monarch, the Insurance Company and certain other Merrill
Lynch insurance companies entered into an indemnity
5
<PAGE>
reinsurance and assumption agreement (the "Assumption
Agreement"). Under the Assumption Agreement, Tandem
Insurance Group, Inc. ("Tandem") , one of the 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.
As 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.
- --------------------------------------------------------------------------------
THIS SUMMARY IS INTENDED TO PROVIDE ONLY A VERY BRIEF
OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF THE POLICY.
THE POLICY TOGETHER WITH ITS ATTACHED APPLICATION
CONSTITUTES THE ENTIRE AGREEMENT BETWEEN YOU AND US AND
SHOULD BE RETAINED.
FOR THE DEFINITION OF CERTAIN TERMS USED IN THIS
PROSPECTUS, SEE "IMPORTANT TERMS" ON PAGE 7.
6
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT TERMS
----------------------------------------------------------------
ATTAINED AGE........... is the issue age of the insured plus the number of full
years since the policy date.
CASH SURRENDER VALUE... is equal to the net cash surrender value plus any
policy debt.
DEATH BENEFIT.......... is the larger of the face amount and the variable
insurance amount.
DEATH BENEFIT
PROCEEDS............... are equal to the death benefit less any policy debt and
less any overdue charges.
DEFERRED POLICY
LOADING................ is chargeable to the single premium and any additional
payments. However, we advance the amount of the charge
to the Separate Account as part of your investment
base. We then take back these funds in equal
installments on the next ten policy anniversaries
following the date we receive and accept your payment.
FACE AMOUNT............ is the minimum death benefit as long as the policy
remains in force. Additional payments may increase your
face amount.
GUARANTEE PERIOD....... is the time we guarantee that the policy will remain in
force regardless of investment experience unless the
policy debt exceeds certain policy values. It is the
period that a comparable fixed life policy (same face
amount, single premium, guaranteed mortality table and
loading) would remain in force if credited with 4%
interest per year.
INVESTMENT BASE........ is the amount available under your policy for
investment in the Separate Account at any time. Your
investment base is the sum of the amounts invested in
each of the divisions you have selected.
ISSUE AGE.............. is the insured's age as of the insured's birthday
nearest the policy date.
NET CASH SURRENDER
VALUE.................. is the amount you would receive on any day should you
decide to cancel your policy. It is equal to the
investment base less the deferred policy loading and
less a pro-rata portion of the charges not yet
deducted.
NET SINGLE PREMIUM
FACTOR................. is the factor used in the calculation of the variable
insurance amount on policy processing dates. It is
based on the insured's underwriting class, sex and
attained age and is designed to make the policy meet
the guidelines of what constitutes a life insurance
policy under the Internal Revenue Code.
POLICY DATE............ is used to determine policy processing dates, policy
years and policy anniversaries. It is usually the
business day next following the receipt of the single
premium at the Service Center.
POLICY DEBT............ is the outstanding loan on a policy plus accrued
interest.
POLICY PROCESSING
DATES.................. are the policy date and the first day of each policy
quarter thereafter. Policy processing dates after the
policy date are the days when we deduct certain charges
from your investment base and redetermine the death
benefit.
POLICY PROCESSING
PERIOD................. is the period between consecutive policy processing
dates.
TABULAR VALUE.......... is equal to the cash surrender value for a comparable
fixed life policy with the same face amount, single
premium, loading and guarantee period. It is the value
we use to limit your mortality cost deductions as well
as our right to cancel your policy during the guarantee
period. The tabular value is zero after the guarantee
period.
VARIABLE INSURANCE
AMOUNT................. is determined on each policy processing date. It is the
cash surrender value multiplied by the net single
premium factor.
7
<PAGE>
- --------------------------------------------------------------------------------
FACTS ABOUT THE INSURANCE COMPANY AND THE SEPARATE ACCOUNT
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 and variable annuities in most jurisdictions.
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. Administrative services
for the policies are provided at the service center (the
"Service Center"), P.O. Box 9025, Springfield,
Massachusetts 01102-9025.
- --------------------------------------------------------------------------------
THE INSURANCE
COMPANY'S SEPARATE
ACCOUNT
The Separate Account is a separate investment account
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 5.) We use it to
support our variable life policies and for other
purposes permitted by applicable laws and regulations.
Its assets are kept separate from our general account
and any other separate accounts we may have.
We own all the assets in the Separate Account. As
required, the assets in the Separate Account are at
least equal to the reserves and other liabilities of the
Separate Account. Arkansas insurance law provides that
the Separate Account's assets, to the extent of the
reserves and liabilities of the Separate Account, may
not be charged with liabilities from any other business
we conduct. However, if the assets exceed the required
reserves and other liabilities, we may transfer the
excess to our general account.
There are currently 32 investment divisions in the
Separate Account available for new allocations. Ten
invest in shares of a specific portfolio of the Series
Fund, 5 invest in shares of a specific portfolio of the
Variable Series Funds and 17 invest in units of a
specific Trust.
You will find complete information about the Series
Fund, the Variable Series Funds, and the Trusts,
including the risks associated with each portfolio, in
the accompanying Prospectuses. You should read them with
this Prospectus.
THE SERIES FUND
The investment objectives of the various portfolios in
the Series Fund are described below. There is no
guarantee that any portfolio will meet its investment
objective.
MONEY RESERVE PORTFOLIO seeks to preserve capital,
maintain liquidity and achieve the highest possible
current income consistent with those objectives by
investing in short-term money market securities.
8
<PAGE>
INTERMEDIATE GOVERNMENT BOND PORTFOLIO seeks to
obtain the highest level of current income
consistent with the protection of capital afforded
by investing in debt securities issued or guaranteed
by the U.S. Government or its agencies with a
maximum maturity of 15 years.
LONG-TERM CORPORATE BOND PORTFOLIO primarily seeks
to provide as high a level of current income as is
believed to be consistent with prudent investment
risk, and secondarily seeks the preservation of
capital. In seeking to achieve these objectives, the
portfolio invests at least 80% of the value of its
assets in debt securities which have a rating within
the three highest grades of a major rating agency.
HIGH YIELD PORTFOLIO primarily seeks as high a level
of current income as is believed to be consistent
with prudent management, and secondarily capital
appreciation when consistent with its primary
objective. The Portfolio seeks to achieve its
investment objective by investing principally in
fixed-income securities rated in the lower
categories of the established rating services or in
unrated securities of comparable quality (commonly
known as a "junk bonds").
CAPITAL STOCK PORTFOLIO seeks long-term growth of
capital and income, plus moderate current income. It
principally invests in common stocks considered to
be of good or improving quality or considered to be
undervalued based on criteria such as historical
price/book value and price/earnings ratios.
GROWTH STOCK PORTFOLIO seeks long-term growth of
capital by investing in a diversified portfolio of
securities, primarily common stocks of aggressive
growth companies considered to have special
investment value.
MULTIPLE STRATEGY PORTFOLIO seeks a high total
investment return consistent with prudent risk
through a fully managed investment policy utilizing
equity securities, intermediate and long-term debt
securities and money market securities.
NATURAL RESOURCES PORTFOLIO seeks long-term growth
of capital and protection of the purchasing power of
shareholders' capital by investing primarily in
equity securities of domestic and foreign companies
with substantial natural resource assets.
GLOBAL STRATEGY PORTFOLIO seeks high total
investment return by investing primarily in a
portfolio of equity and fixed-income securities,
including convertible securities, of U.S. and
foreign issuers.
BALANCED PORTFOLIO seeks a level of current income
and a degree of stability of principal not normally
available from an investment solely in equity
securities and the opportunity for capital
appreciation greater than that normally available
from an investment solely in debt securities by
investing in a balanced portfolio of fixed income
and equity securities.
The investment adviser for the Series Fund is Merrill
Lynch Asset Management, L.P. ("MLAM"), which is
indirectly owned and controlled by Merrill Lynch & Co.,
Inc. and is a registered adviser under the Investment
Advisers Act of 1940. The Series Fund, as part of its
operating expenses, pays an investment advisory fee to
MLAM (see "Charges to Series Fund Assets", page 35).
9
<PAGE>
- --------------------------------------------------------------------------------
THE VARIABLE SERIES
FUNDS
The Merrill Lynch Variable Series Funds, Inc. is
registered with the Securities and Exchange Commission
as an open-end management investment company. Five of
its 18 mutual fund portfolios are currently available
through the Separate Account. The investment objectives
of the five available Variable Series Funds portfolios
are described below. There is no guarantee that any
portfolio will meet its investment objective.
BASIC VALUE FOCUS FUND seeks capital appreciation,
and secondarily, income by investing in securities,
primarily equities, that management of the Fund
believes are undervalued and therefore represent
basic investment value. Particular emphasis is
placed on securities which provide an above-average
dividend return and sell at a below-average
price/earnings ratio.
GLOBAL UTILITY FOCUS FUND seeks to obtain capital
appreciation and current income through investment
of at least 65% of its total assets in equity and
debt securities issued by domestic and foreign
companies which are, in the opinion of management of
the Fund, primarily engaged in the ownership or
operation of facilities used to generate, transmit
or distribute electricity, telecommunications, gas
or water.
INTERNATIONAL EQUITY FOCUS FUND seeks to obtain
capital appreciation, and secondarily, income by
investing in a diversified portfolio of equity
securities of issuers located in countries other
than the United States. Under normal conditions, at
least 65% of the Fund's net assets will be invested
in such equity securities.
DEVELOPING CAPITAL MARKETS FOCUS FUND seeks
long-term capital appreciation by investing in
securities, principally equities, of issuers in
countries having smaller capital markets. For
purposes of its investment objective, the Fund
considers countries having smaller capital markets
to be all countries other than the four countries
having the largest equity market capitalizations.
EQUITY GROWTH FUND seeks to attain long-term growth
of capital by investing in a diversified portfolio
of securities, primarily common stocks, of
relatively small companies that management of the
Fund believes have special investment value and
emerging growth companies regardless of size. Such
companies are selected by management on the basis of
their long-term potential for expanding their size
and profitability or for gaining increased market
recognition for their securities. Current income is
not a factor in such selection.
MLAM is the investment adviser for the Variable Series
Funds. The Variable Series Funds, as part of its
operating expenses, pays an investment advisory fee to
MLAM. (See "Charges to Variable Series Funds Assets" on
page 36.)
- --------------------------------------------------------------------------------
CERTAIN RISKS OF
THE SERIES FUND AND
VARIABLE SERIES
FUNDS
Investment in lower-rated debt securities, such as those
in which the High Yield Portfolio of the Series Fund
invests, entails relatively greater risk of loss of
income or principal. In an effort to minimize risk, the
High Yield Portfolio will diversify holdings among many
issuers. However, there can be no assurance that
diversification will protect the High Yield Portfolio
from widespread defaults during periods of sustained
economic downturn.
In seeking to protect the purchasing power of capital,
the Natural Resources Portfolio of the Series Fund
reserves the right, when management anticipates
significant economic, political, or financial
instability, such as high inflationary
10
<PAGE>
pressures or upheaval in foreign currency exchange
markets, to invest a majority of its assets in companies
that explore for, extract, process or deal in gold or in
asset-based securities indexed to the value of gold
bullion. The Natural Resources Portfolio will not
concentrate its investments in such securities until it
has been advised that no adverse tax consequences will
result.
The Developing Capital Markets Focus Fund of the
Variable Series Funds has no established rating criteria
for the debt securities in which it may invest, and will
rely on the investment adviser's judgment in evaluating
the creditworthiness of an issuer of such securities. In
an effort to minimize the risk, the Fund will diversify
its holdings among many issuers. However, there can be
no assurance that diversification will protect the Fund
from widespread defaults during periods of sustained
economic downturn.
Because investment in these Portfolios and the Funds
entails relatively greater risk of loss of income or
principal, it may not be appropriate to allocate all
payments and investment base to an investment division
that invests in one of these Portfolios or the Funds.
- --------------------------------------------------------------------------------
THE TRUSTS
The Merrill Lynch Fund of Stripped ("Zero") U.S.
Treasury Securities was formed to provide safety of
capital and a high yield to maturity. It seeks this
through U.S. Government backed investments which make no
periodic interest payments, and therefore are purchased
at a deep discount. When held to maturity the
investments should receive approximately a fixed yield.
The value of Trust units before maturity varies more
than it would if the Trusts contained interest-bearing
U.S. Treasury securities of comparable maturities.
The fixed investment portfolios of the Trusts consist
mainly of:
- bearer debt obligations issued by the U.S.
Government stripped of their unmatured interest
coupons;
- coupons stripped from U.S. debt obligations; and
- receipts and certificates for such stripped debt
obligations and coupons.
The Trusts currently available have maturity dates in
years 1997 through 2011, 2013 and 2014.
MLPF&S is sponsor for the Trusts. The sponsor will sell
units of the Trusts to the Separate Account and has
agreed to repurchase units when we need to sell them to
pay benefits and make reallocations. We pay the sponsor
a fee for these transactions and are reimbursed through
the trust charge assessed to the divisions investing in
the Trusts (see "Charges to Divisions Investing in the
Trusts", page 17).
- --------------------------------------------------------------------------------
FACTS ABOUT THE POLICY
----------------------------------------------------------------
WHO MAY BE COVERED
BY A POLICY
We can issue a policy for an insured up to age 75. We
use the insured's age as of the insured's birthday
nearest the policy date. (We call this the insured's
issue age.) The insured must also meet our underwriting
requirements. The policy is not currently being offered
for sale to new purchasers.
We use two methods of underwriting:
- simplified underwriting, with no physical exam; and
- para-medical or medical underwriting with a
physical exam.
11
<PAGE>
The single premium and the age of the insured determine
whether we will do underwriting on a simplified or
medical basis. The maximum premium we will underwrite on
a simplified basis is $25,000 for insureds through age
14, $50,000 for insureds age 15 through 29, $75,000 for
insureds age 30 through 39, $100,000 for insureds age 40
through 49 and $150,000 for insureds age 50 through 75.
However, if you select the maximum face amount (see
"Selecting the Face Amount", below), we may take the net
amount at risk (see "Mortality Cost", page 16) into
account in determining the method of underwriting.
We assign insureds to underwriting classes which
determine the mortality rates we will use in calculating
mortality cost deductions and which determine the
guaranteed mortality rates used in calculating net
single premium factors and guarantee periods. In
assigning insureds to underwriting classes, we
distinguish between those insureds underwritten on a
simplified basis and those on a para-medical or medical
basis. Under both the simplified and medical
underwriting methods, policies may be issued on insureds
either in the standard or non-smoker underwriting class.
Policies may also be issued on insureds in a substandard
underwriting class. For a discussion of the effect of
underwriting classification on mortality cost
deductions, see "Mortality Cost" on page 16.
- --------------------------------------------------------------------------------
PREMIUMS
You purchase a face amount of insurance coverage with a
single premium payment. You may make additional payments
subject to certain restrictions (see "Making Additional
Payments", page 13). The minimum single premium is
$5,000 for an insured under age 20 and $10,000 for an
insured age 20 and over or, if less, for all ages the
single premium required to purchase a face amount of at
least $100,000. We may reduce the minimum single premium
requirements for certain group or sponsored arrangements
(see "Group or Sponsored Arrangements", page 27).
SELECTING THE FACE AMOUNT
You may select the face amount for a given premium
within the following limits:
- The minimum face amount is the amount which will
give you a guarantee period for the whole of life.
- The maximum face amount is the amount which will
give you the minimum guarantee period we require
for the insured's age, sex and underwriting class.
As the face amount is increased for a given single
premium, the guarantee period becomes shorter and the
mortality costs in the early policy years are larger to
cover the increased amounts of insurance.
<TABLE>
<CAPTION>
TABLE OF ILLUSTRATIVE FACE
AMOUNTS FOR $10,000 SINGLE PREMIUM
STANDARD-SIMPLIFIED ISSUE
GUARANTEE PERIOD MINIMUM
FOR LIFE GUARANTEE PERIOD
----------------- -------------------
ISSUE
AGE MALE FEMALE MALE FEMALE
----- ------- ------- -------- --------
<S> <C> <C> <C> <C>
35 $33,389 $38,906 $166,773 $209,875
45 $24,424 $28,497 $ 90,736 $126,292
55 $18,386 $21,346 $ 49,162 $ 78,522
65 $14,447 $16,308 $ 27,801 $ 44,723
</TABLE>
12
<PAGE>
GUARANTEE PERIOD
The guarantee period is the time we guarantee that the
policy will remain in force regardless of investment
experience unless the policy debt exceeds certain policy
values. It is for the insured's life or for a shorter
period depending on the face amount selected for a given
single premium. The guarantee period is based on the
guaranteed maximum mortality rates in the policy, the
deferred policy loading and a 4% interest assumption.
This means that for a given premium and face amount,
different insureds will have different guarantee periods
depending on their age, sex and underwriting class. For
example, an older insured will have a shorter guarantee
period than a younger insured of the same sex and in the
same underwriting class.
- --------------------------------------------------------------------------------
MAKING ADDITIONAL
PAYMENTS
After the end of the "free look" period, you may make an
additional payment any time you choose up to four times
a policy year. (In the state of Kentucky no additional
payments can be made until after the first policy year.)
We may require satisfactory evidence of insurability
before we accept your payment if the payment increases
the net amount at risk under the policy (see "Mortality
Cost", page 16) or if the guarantee period at the time
of the payment is one year or less. The minimum
additional payment we will accept is $1,000.
If your additional payment requires evidence of
insurability, we will place that payment in the division
investing in the Money Reserve Portfolio on the business
day next following receipt at the Service Center. Once
the underwriting is completed and we accept your
payment, the amount applicable to the additional payment
in the division investing in the Money Reserve Portfolio
will be allocated either according to your instructions
or, if no instructions have been received,
proportionately to your investment base in your
investment divisions.
If your additional payment doesn't require evidence of
insurability, on the date we receive and accept the
payment we'll:
- increase your investment base by the amount of the
payment; and
- increase the deferred policy loading (see "Deferred
Policy Loading", page 15).
Currently, any additional payment not requiring evidence
of insurability will be accepted the day it is received.
If your additional payment requires evidence of
insurability, it will be reflected in your policy values
as described above, effective the next business day
after the payment was received at the Service Center.
If there is a loan outstanding on your policy, unless
you tell us otherwise, we will treat any payment by you
as a loan repayment, not as an additional payment.
As of the policy processing date on or next following
the date we receive and accept the additional payment,
your variable insurance amount will reflect the
additional payment (see "Variable Insurance Amount",
page 19). As of such date, we'll also increase either
your guarantee period or face amount or both. If your
guarantee period prior to any additional payments is
less than for life, payments will first be used to
extend your guarantee period to the whole of life. Any
excess amounts or subsequent additional payments will be
used to increase your policy's face amount. The amount
of this increase is determined by taking the additional
payment or any excess amount, deducting the applicable
deferred policy loading, bringing the result up at an
annual rate of 4% interest from the date we receive and
accept the additional payment to
13
<PAGE>
the next policy processing date, and then multiplying by
the applicable net single premium factor. If the
additional payment is received and accepted on a policy
processing date, the payment minus the deferred policy
loading is multiplied by the applicable net single
premium factor.
If the insured dies after an additional payment is
received and accepted and before the next policy
processing date, we'll pay the beneficiary the larger
of:
- the amount of the death benefit calculated as of
the prior policy processing date plus the amount of
the additional payment; and
- the cash surrender value as of the date we received
and accepted the additional payment multiplied by
the net single premium factor as of such date (see
"Net Single Premium Factor", page 19).
The amount paid to the beneficiary will be reduced by
the amount of any policy debt and any overdue charges if
the policy is in a grace period.
GUARANTEE OF INSURABILITY RIDER
This rider gives you guaranteed options to make certain
of the additional payments as described above without
evidence of insurability. It is available only to
insureds in a standard or non-smoker underwriting class.
We will limit the amount of the payments under the
rider. While the rider is in effect you will have a
guaranteed option on each of your first five policy
anniversaries. Subject to evidence of insurability and a
maximum age requirement, you may also extend the
guaranteed options to include your next five policy
anniversaries.
To exercise an option we must receive the additional
payment while the insured is alive and within 30 days
before or after your policy anniversary. If you don't
exercise an option you will forfeit any remaining
options and the rider will end.
- --------------------------------------------------------------------------------
INVESTMENT BASE
Your investment base is the amount available for
investment at any time. It's the sum of the amounts
invested in each of the Separate Account divisions. We
adjust your investment base daily to reflect the
divisions' investment performance (see "Net Rate of
Return for an Investment Division", page 33).
Certain charges and policy loans directly decrease your
investment base. Loan repayments and additional payments
increase it. You may elect in writing from which
investment divisions you want loans taken and to which
divisions you want repayments and additional payments
added. If you don't make such an election, we allocate
increases and decreases proportionately to the
investment base in your investment divisions. (For the
special rules on additional payments which require
evidence of insurability, see "Making Additional
Payments", page 13.)
INVESTMENT BASE ALLOCATION DURING THE "FREE LOOK" PERIOD
Under our current rules, we will place your single
premium submitted with your application in the division
investing in the Money Reserve Portfolio. Your
application sets forth this designation. We won't make
an allocation change during the "free look" period.
CHANGING YOUR INVESTMENT BASE ALLOCATION
After the "free look" period, your investment base can
be allocated among up to any five divisions. Currently,
you may change the allocation of your investment base as
often as you choose. However, we may at some point in
the future limit the number of changes permitted but not
to less than five per
14
<PAGE>
policy year. We will notify you if we do so. We will
assess a charge for each allocation change in excess of
five per policy year (see "Reallocation Charges", page
17).
In order to change your investment base allocation, you
must call or write the Service Center. If your "free
look" period has expired, we will make the change as
soon as we receive your request. You can give allocation
requests during the "free look" period and the
allocation will be made immediately following the end of
the "free look" period (see "Some Administrative
Procedures", page 24).
TRUST ALLOCATIONS
We'll notify you 30 days before a Trust you've invested
in matures. You must tell us in writing at least seven
days before the maturity date how to reinvest your funds
in the division investing in that Trust. If we don't
hear from you, we'll move your investment base in that
division to the division investing in the Money Reserve
Portfolio. An allocation on a trust maturity date won't
be considered a change in the allocation of the
investment base for purposes of calculating the charge
for any allocation changes over five in each policy
year.
Units of a specific Trust may no longer be available
when we receive your request for allocation. Should this
occur, we will notify you immediately so that you may
change your request.
ALLOCATION TO THE DIVISION INVESTING IN THE NATURAL
RESOURCES PORTFOLIO
Shares of the Natural Resources Portfolio may not be
available when we receive your request for allocation.
Should this occur, we will notify you immediately so
that you may change your request.
- --------------------------------------------------------------------------------
CHARGES DEDUCTED
FROM YOUR
INVESTMENT BASE
The charges described below are deducted from your
investment base. We also deduct certain asset and trust
charges daily from the investment results of each
division in the Separate Account in determining the net
rate of return. Currently, the asset and trust charges
are equivalent to .60% and .34% annually at the
beginning of the year (see "Charges to the Separate
Account", page 17).
DEFERRED POLICY LOADING
We invest 100% of your single premium and any additional
payments you may make. Chargeable to the single premium
and any additional payments is an amount called the
deferred policy loading. This charge consists of a sales
load, a first year administrative expense (not assessed
against additional payments received after the first
policy year) and a state and local premium tax charge.
The sales load, equal to a maximum of 4.0% of the single
premium and any additional payments, compensates us for
sales expenses. The first year administrative expense,
equal to a maximum of .5% of the single premium and any
additional payments received in the first policy year,
compensates us for the expenses associated with issuing
the policies. We do not expect to make a profit from
this expense. The sales load and first year
administrative expense may be reduced if cumulative
premiums are sufficiently high to reach certain
breakpoints and in certain group or sponsored
arrangements as described on page 27. We anticipate that
the sales load charge may be insufficient to cover our
distribution expenses. Any shortfall will be made up
from our general account which may include amounts
derived from mortality gains and risk charges.
15
<PAGE>
The state and local premium tax charge, equal to 2.5% of
your single premium and any additional payments,
compensates us for state and local premium taxes we must
pay when we accept a premium. Premium taxes vary from
state to state. The 2.5% rate is the average rate we
expect to pay on premiums from all states.
Although chargeable to your single premium and to any
additional payments, we advance the amount of the
deferred policy loading to the Separate Account as part
of your investment base. We then take back the loading
in equal installments on the ten policy anniversaries
following the date we receive and accept your payment.
In determining your policy's net cash surrender value,
we subtract the balance of the deferred policy loading
from your investment base.
During the period that the deferred policy loading is
included in your investment base, a positive net rate of
return will give you greater increases in net cash
surrender value and a negative net rate of return
greater decreases in net cash surrender value than if
the loading had not been included in your investment
base.
MORTALITY COST
We deduct a mortality cost from your investment base on
each processing date after the policy date. This charge
compensates us for the cost of providing life insurance
coverage for the insured. We base it on the underwriting
class we assign to the insured, the insured's sex and
attained age and the policy's net amount at risk (except
in Montana and Massachusetts, see "Legal Considerations
for Employers", page 27).
To determine the mortality cost, we multiply the current
mortality rate by the policy's net amount at risk
(adjusted for interest at an annual rate of 4%). The net
amount at risk is the difference, as of the previous
policy processing date, between the death benefit and
the cash surrender value.
Current mortality rates may be equal to or less than the
guaranteed mortality rates depending on the insured's
underwriting class, sex and attained age. We guarantee
that the current mortality rates will never exceed the
maximum guaranteed rates shown in your policy. For
insureds age 20 and over, current mortality rates
distinguish between insureds in a smoker (standard)
underwriting class and insureds in a non-smoker
underwriting class. We use the 1980 Commissioners
Standard Ordinary Mortality Table (CSO Table) for
policies underwritten on a medical basis and the 1980
Commissioners Extended Term Mortality Table (CET Table)
for policies underwritten on a simplified basis to
determine these maximum rates if the policies are issued
on insureds in a standard or non-smoker underwriting
class. For policies issued on a substandard basis we use
a multiple of the 1980 CSO Table.
Because we do less underwriting under the simplified
underwriting method, the guaranteed maximum mortality
rates are higher for the simplified classes than for the
medical underwriting classes. The current mortality
rates for the simplified classes may be higher than the
guaranteed rates for the medical classes depending on
the age and sex of the insured. However, for the non-
smoker simplified underwriting class, current mortality
rates are equal to or less than the guaranteed rates for
the medical underwriting classes.
During the period between processing dates, your net
cash surrender value takes the mortality cost into
account on a pro-rated basis.
16
<PAGE>
MAXIMUM MORTALITY COST. During the guarantee period we
will limit the deduction for mortality cost if investment
results are unfavorable. We do this by substituting in
our calculation the tabular value for the cash surrender
value in determining the net amount at risk and by
multiplying by the guaranteed maximum mortality rate. We
will deduct this alternate amount from your investment
base when it is less than the mortality cost we would
have otherwise deducted.
REALLOCATION CHARGES
Reallocation charges are deducted on policy processing
dates if you change your investment base allocation more
than five times per policy year. The charge equals $25.00
for each allocation change made during a policy
processing period, which exceeds five for the policy
year. We do not expect to make a profit from these
charges.
NET LOAN COST
The net loan cost is explained below under "Policy
Loans".
- --------------------------------------------------------------------------------
CHARGES TO THE
SEPARATE ACCOUNT
We deduct an asset charge from each division of the
Separate Account to cover our mortality, expense and
guaranteed benefits risks. We make the charge each day.
The total amount of this charge is computed at a maximum
effective annual rate of .60% at the beginning of the
year. We will realize a gain from this charge to the
extent it is not needed to provide for benefits and
expenses under the policies.
The mortality risk assumed is the risk that insureds as a
group will live for a shorter time than our actuarial
tables predict. As a result, we would be paying more in
death benefits than we planned.
The expense risk assumed is the risk that it will cost us
more to issue and administer the policies than we expect.
The guaranteed benefits risks are related to potentially
unfavorable investment results. One risk is that the
policy's net cash surrender value cannot cover the
charges due during the guarantee period. The other risk
is that we may have to limit the deduction for mortality
cost (see "Maximum Mortality Cost", page 17).
CHARGES TO DIVISIONS INVESTING IN THE TRUSTS
We assess a daily trust charge against the assets of each
division investing in the Trusts. This charge reimburses
us for the transaction charge we pay to MLPF&S when units
are sold to the Separate Account.
The trust charge is currently equivalent to .34% annually
at the beginning of the year. It may be increased, but
will not exceed .50% annually at the beginning of the
year. The charge is based on cost (taking into account
our loss of interest) with no expected profit for us.
- --------------------------------------------------------------------------------
NET CASH SURRENDER
VALUE
Your policy's net cash surrender value fluctuates daily
with the investment results of the investment divisions
you select. We don't guarantee any minimum. On a policy
processing date which is also your policy anniversary,
the net cash surrender value equals:
- the policy's investment base on that date;
- minus the balance of the deferred policy loading
(see "Deferred Policy Loading", page 15).
If the date of calculation is not a policy processing
date, we also subtract a pro-rata mortality cost. And, if
there is any existing policy debt, we will also subtract
a pro-rata net loan cost on dates other than the policy
anniversary.
17
<PAGE>
CANCELLING TO RECEIVE NET CASH SURRENDER VALUE
You may cancel your policy at any time while the insured
is living and receive the policy's net cash surrender
value. Your request to cancel must be in writing in a
form satisfactory to us. All rights to death benefits
will end on the date the written request is sent to us.
The net cash surrender value will be determined upon our
receipt of the written request at the Service Center. You
may elect to receive this amount either in a single
payment or under one or more Income Plans (see "Income
Plans", page 26).
- --------------------------------------------------------------------------------
POLICY LOANS
You may use your policy as collateral to borrow funds
from us. The minimum loan we will make is $1,000 unless
you're borrowing to pay the premium on another variable
life insurance policy issued by the Insurance Company. In
that case, you may borrow the exact amount required even
if it's less than $1,000. You may repay all or part of
the loan any time during the insured's lifetime. Each
repayment must be for at least $1,000 or the amount of
the policy debt, if less.
When you take a loan, we transfer an amount equal to the
amount you borrowed out of your investment divisions and
hold it as collateral in our general account. You may
tell us in writing which investment divisions you want
borrowed amounts taken from and which divisions should
receive repayments. If you don't, we'll take the borrowed
amounts proportionately from and make repayments
proportionately to your investment divisions.
EFFECT ON DEATH BENEFIT AND CASH SURRENDER VALUE
Whether or not you repay a policy loan, taking a loan
will have a permanent effect on your cash surrender value
and may have a permanent effect on your death benefit.
This is because the collateral for your loan doesn't
participate in the performance of the investment
divisions while the loan is outstanding. If the amount
credited to the collateral is more than what is earned in
the investment divisions, the cash surrender value will
be higher as a result of the loan, as may be the death
benefit. Conversely, if the amount credited is less, the
cash surrender value will be lower, as may be the death
benefit. In that case, the lower cash surrender value may
cause the policy to lapse sooner than if no loan had been
taken.
LOAN VALUE
The loan value of your policy equals:
- 75% of the policy's cash surrender value during the
first three years; or
- 90% of the policy's cash surrender value after the
first three years.
The cash surrender value is the net cash surrender value
plus any policy debt.
In certain states the loan value may differ from that
above for particular years. Also, certain states won't
permit us to impose a minimum on the amount you can
borrow or repay.
The maximum amount you can borrow at any time is the
difference between the loan value and the policy debt
(the outstanding loan plus accrued interest). When
additional amounts are borrowed they are added to the
policy debt in determining the amount of your new loan.
INTEREST
While a policy loan is outstanding, we'll charge you
interest of 4.75% annually. Interest accrues each day and
payments are due at the end of each policy year. If you
don't pay the interest when due, we add it to your loan.
Interest paid on a policy loan is not tax-deductible.
The amount held in our general account as collateral for
your loan earns interest at a minimum of 4.0% annually
for the first ten policy years and 4.15% thereafter.
18
<PAGE>
NET LOAN COST
On each policy anniversary, we reduce your investment
base by the net loan cost (the difference between the
interest charged and the earnings on the amount held as
collateral in the general account) and add that amount to
the amount held in the general account as collateral for
the loan. For the first ten policy years this equals .75%
of the policy debt on the previous policy anniversary
taking into account any loans and repayments since then.
After the first ten policy years, the net loan cost
equals .60%.
Between policy anniversaries, your policy's net cash
surrender value is reduced by this charge on a pro-rated
basis.
CANCELLATION DUE TO EXCESS DEBT
If your policy debt exceeds the larger of the cash
surrender value and the tabular value, we'll mail a
notice of our intent to cancel the policy, specifying the
minimum repayment amount. If we do not receive that
amount within 61 days after we mail the notice, we will
cancel the policy. Depending upon investment performance
of the divisions and the amounts borrowed, loans may
cause the policy to lapse. If the policy lapses with a
loan outstanding, adverse tax consequences may result
(see "Tax Considerations", page 28).
- --------------------------------------------------------------------------------
DEATH BENEFIT
PROCEEDS
We will pay the death benefit proceeds to the beneficiary
when we receive all information needed to make the
payment, including due proof of the insured's death.
AMOUNT OF DEATH BENEFIT PROCEEDS
The policy's death benefit proceeds equal:
- the death benefit, which is the larger of the
current face amount and the variable insurance
amount; less
- any policy debt; and less
- any overdue charges if the policy is in a grace
period (see "When Your Guarantee Period is Less
Than for Life", page 21).
The values above are those as of the date of death. The
death benefit will never be less than the amount required
to keep the policy qualified as life insurance under
Federal income tax laws.
The amount paid on death will be greater when an
additional payment has been received and accepted during
a policy processing period and the insured dies prior to
the next policy processing date (see "Making Additional
Payments", page 13).
VARIABLE INSURANCE AMOUNT
We determine the variable insurance amount on each policy
processing date by:
- calculating the cash surrender value; and
- multiplying by the net single premium factor
(explained below).
The variable insurance amount changes only on a policy
processing date. It will never be less than required by
Federal income tax law.
NET SINGLE PREMIUM FACTOR
The net single premium factor is based on the insured's
sex, underwriting class and attained age on the policy
processing date. It decreases as the insured's age
increases. As a result, the variable insurance amount
will decrease in relationship
19
<PAGE>
to the policy's cash surrender value. Also, net single
premium factors may be higher for a woman than for a man
of the same age. A table of net single premium factors is
included in the policy.
TABLE OF ILLUSTRATIVE NET SINGLE PREMIUM FACTORS
ON POLICY ANNIVERSARIES
STANDARD-SIMPLIFIED ISSUE STANDARD-MEDICAL ISSUE
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE MALE FEMALE AGE MALE FEMALE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
5 8.61444 10.08769 5 10.26605 12.37298
15 6.45795 7.65253 15 7.41158 8.96292
25 4.89803 5.70908 25 5.50384 6.48170
35 3.59024 4.18342 35 3.97197 4.64894
45 2.62620 3.06419 45 2.87749 3.36465
55 1.97694 2.29528 55 2.14058 2.48940
65 1.55349 1.75357 65 1.65786 1.87562
75 1.28954 1.38615 75 1.35394 1.45952
85 1.14214 1.17173 85 1.18029 1.21265
</TABLE>
- --------------------------------------------------------------------------------
PAYMENT OF DEATH
BENEFIT PROCEEDS
We will usually pay the death benefit proceeds to the
beneficiary within seven days after we receive all the
information we need to process the payment. We may delay
payment if the policy is being contested or under the
circumstances described in "Using Your Policy", page 23
and "Other Policy Provisions", page 25. If we do delay
payment, we will add interest from the date of the
insured's death to the date of payment at an annual rate
of at least 4%. The beneficiary may elect to receive the
proceeds either in a single payment or under one or more
Income Plans (see "Income Plans", page 26).
- --------------------------------------------------------------------------------
POLICY GUARANTEES
Although your policy values depend on the investment
results of the investment divisions you've selected and
the amount of net cash surrender value is not guaranteed,
the policy does provide the following guarantees.
GUARANTEE PERIOD
We guarantee that the policy will stay in force for the
insured's life, or for a shorter guarantee period
depending on the face amount selected for a given
premium. We won't cancel the policy during the guarantee
period unless the policy debt exceeds certain policy
values (see "Interest", page 18). We'll hold a reserve in
our general account to support this guarantee.
MORTALITY COST
Each policy issued on a standard basis guarantees maximum
mortality rates based on the 1980 CSO Table for policies
underwritten on a medical basis and the 1980 CET Table
for policies underwritten on a simplified basis. For
policies issued on a substandard basis we use a multiple
of the 1980 CSO Table. We may use current rates that are
equal to or less than these rates, but never greater. In
addition, we limit the mortality cost if investment
results are unfavorable (see "Maximum Mortality Cost",
page 17). In effect, during the guarantee period you will
not be charged for mortality costs that are greater than
those for a comparable fixed policy based on 4% interest
and the same guaranteed mortality rates.
YOUR POLICY'S TABULAR VALUE
When we issue your policy, its tabular value equals the
cash surrender value. From then on, the tabular value
equals the cash surrender value for a comparable fixed
life policy with the same face amount and guarantee
period, based on 4% interest and the guaranteed mortality
table. After the guarantee period the tabular value is
zero. The tabular value is used to limit the mortality
cost deduction as well as our right to cancel your policy
during the guarantee period.
20
<PAGE>
OTHER AMOUNTS DEDUCTED FROM INVESTMENT BASE
There are currently no charges for administrative
expenses beyond the first year and we won't impose any in
the future. The loan charge will never exceed a maximum
of .75% of the policy debt per year for the first ten
policy years and .60% thereafter.
AMOUNTS DEDUCTED FROM THE SEPARATE ACCOUNT
The amount of these deductions is limited and can't be
increased above the maximums shown in "Charges to the
Separate Account" on page 17.
- --------------------------------------------------------------------------------
WHEN YOUR GUARANTEE
PERIOD IS LESS THAN
FOR LIFE
After the end of the guarantee period, we may cancel your
policy if the net cash surrender value on a policy
processing date won't cover the charges due (see "Charges
Deducted from Your Investment Base", page 15).
We will notify you before cancelling your policy. You'll
have 61 days to pay us three times the charges due on the
policy processing date when your net cash surrender value
became insufficient. (In certain states the amount of the
required payment may differ.) We will cancel your policy
at the end of this grace period if we have not received
your payment. Any excess of the payment above the overdue
charges will be treated as an additional payment.
REINSTATING YOUR POLICY
If we cancel your policy, you may reinstate it while the
insured is still living if:
- you request the reinstatement within three years
after the end of the grace period;
- we receive satisfactory evidence of insurability;
and
- you make a premium payment which is sufficient to
give you a guarantee period of at least five years
from the effective date of the reinstated policy.
We will treat your premium payment as an additional
payment requiring underwriting (see "Making Additional
Payments", page 13).
Your reinstated policy will be effective on the policy
processing date on or next following the date we approve
your reinstatement application.
- --------------------------------------------------------------------------------
YOUR RIGHT TO CANCEL
("FREE LOOK" PERIOD)
OR EXCHANGE YOUR
POLICY
You may cancel your policy during your "free look"
period. In most states it is ten days after you receive
it. In some states, however, it is the later of the ten
days and 45 days from the date the application is
executed. If you decide to cancel, you may mail or
deliver the policy to us or to the registered
representative who sold it to you. We will refund the
premium paid without interest. If you cancel, we may
require that you wait six months before applying to us
again.
SPECIAL CANCELLATION RIGHT FOR CORPORATE PURCHASERS
Corporations that purchase one or more policies at the
same time with an aggregate single premium of $250,000 or
more, where the investment base has at all times been
allocated to the division investing in the Money Reserve
Portfolio and where no additional payments have been made
nor policy loans taken, may cancel the policy(ies) and
receive the greater of the premium paid without interest
and the net cash surrender value.
EXCHANGING YOUR POLICY
You may exchange this policy for a policy with benefits
that do not vary with the investment results of a
separate account. You must request this in writing within
18 months of the issue date of your policy. You also must
return the original policy.
The new policy will have the same owner and beneficiary
as those of your original policy on the date of the
exchange. It will have the same issue age,
21
<PAGE>
issue date, face amount, cash surrender value, benefit
riders and underwriting class as the original policy. Any
policy debt will be carried over to the new policy.
We won't ask for evidence of insurability.
- --------------------------------------------------------------------------------
REPORTS TO
POLICYOWNERS
After the end of each policy quarter you'll receive a
statement of the allocation of your investment base,
death benefit, net cash surrender value, any policy debt
and, if there has been a change, your current face amount
and guarantee period. All figures will be as of the first
day of the current policy quarter. The statement will
show the amounts deducted from or added to the investment
base during the policy quarter. We will project your
policy's value at a net rate of return of 8% and based on
this value tell you when the policy will terminate unless
additional payments are made. It will also include any
other information that may be currently required by the
state insurance department of the jurisdiction in which
this policy is delivered.
Policyowners will receive confirmation of all financial
transactions. Such confirmations will show the price per
unit of each of the policyowner's investment divisions,
the number of units a policyowner has in the investment
division and the value of the investment division
computed by multiplying the quantity of units by the
price per unit. (See "Net Rate of Return for an
Investment Division", page 33). The sum of the values in
each investment division is a policyowner's investment
base.
You will also receive semiannual reports containing a
financial statement for the Separate Account and a list
of portfolio securities of the Series Fund and the
Variable Series Funds as required by the Investment
Company Act of 1940.
- --------------------------------------------------------------------------------
SINGLE PREMIUM
IMMEDIATE ANNUITY
RIDER
If it's allowed in your state, you may add a single
premium immediate annuity rider (SPIAR) to your policy.
This rider would provide you with a fixed income for a
period of ten years. If you are the insured and you die
before the period ends, we'll pay the rider value in a
lump sum to the beneficiary under the policy. For tax
purposes, this payment won't be considered part of the
life insurance death benefit.
If you surrender the rider before the end of the period,
we'll pay you the rider value over five years or apply it
to a lifetime income for you, as you choose.
If you are not the insured and you die before the income
period ends, we'll pay the remaining payments to the new
owner.
If you change the owner of the policy, we will change the
owner of the SPIAR to the new owner of the policy.
If the policy ends because the insured dies (where you
are not the insured), because we terminate the policy, or
because you've cancelled it for its net cash surrender
value, we'll continue the annuity under the same terms
but under a separate written agreement. Or you can choose
one of the options available upon surrender of the rider.
The rider won't have any effect on your policy's loan
value.
The reserves for this rider will be held in our general
account.
Pledging, assigning or gifting a policy with a SPIAR may
have tax consequences to you. You are advised to consult
your tax advisor prior to effecting an assignment, pledge
or gift of such a policy. For a discussion of the tax
issues associated with use of a SPIAR, see "Tax
Considerations", page 28.
22
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT THE POLICY
----------------------------------------------------------------
USING YOUR POLICY
OWNERSHIP
The policyowner is usually the insured, unless another
owner has been named in the application. The policyowner
has all rights and options described in the policy.
If you, the policyowner, are not also the insured, you
may want to name a contingent owner. If you die before
the insured, the contingent owner will own your interest
in the policy and have all your rights. If you don't
name a contingent owner, your estate will own your
interest in the policy at your death.
If there is more than one policyowner, we will treat the
owners as joint tenants with rights of survivorship
unless the ownership designation provides otherwise. The
owners must exercise their rights and options jointly,
except that any one of the owners may reallocate the
Contract's investment base by phone if the owner
provides the personal identification code as well as the
policy number. One policyowner must be designated, in
writing, to receive all notices, correspondence and tax
reporting to which policyowners are entitled under the
policy.
CHANGING THE OWNER
During your lifetime, you have the right to transfer
ownership of the policy. The new owner will have all
rights and options described in the policy. The change
will be effective as of the day the notice is signed,
but will not affect any payment made or action taken by
us before receipt of the notice of the change at the
Service Center.
ASSIGNING THE POLICY AS COLLATERAL
You may assign this policy as collateral security for a
loan or other obligation. This does not change the
ownership. However, your rights and any beneficiary's
rights are subject to the terms of the assignment.
You must give us satisfactory written notice at the
Service Center in order to make or release an
assignment. We are not responsible for the validity of
any assignment.
NAMING BENEFICIARIES
We'll pay the primary beneficiary the proceeds of this
policy on the insured's death. If the primary
beneficiary has died, we pay the contingent beneficiary.
If no contingent beneficiary is living, we pay the
insured's estate.
You may name more than one person as primary or
contingent beneficiaries. We'll pay proceeds in equal
shares to the surviving beneficiary unless the
beneficiary designation provides otherwise.
You have the right to change beneficiaries during the
insured's lifetime unless the primary beneficiary
designation has been made irrevocable. If the
designation is irrevocable, the primary beneficiary must
consent when you exercise certain rights and options
under this policy. If you change the beneficiary the
change will take effect as of the day the notice is
signed, but will not affect any payment made or action
taken by us before receipt of the notice of the change
at the Service Center.
23
<PAGE>
CHANGING THE INSURED
Subject to certain requirements, you may request that we
change the insured under a policy. To do so, we must
receive a written request from you and the proposed new
insured. We will also require evidence of insurability
for the proposed new insured. If the request for change
is approved, the insurance on the new insured will take
effect on the policy processing date on or next
following the date of approval, provided the new insured
is still living.
The policy will be changed as follows on the effective
date:
- The issue age will be the new insured's issue age
(the new insured's age as of the birthday nearest
the policy date).
- The guaranteed maximum mortality rates will be
those in effect on the policy date for the new
insured's issue age, sex and underwriting class.
- A charge for changing the insured will be deducted
from the policy's investment base on the effective
date. The charge will equal $1.50 per $1,000 of
face amount with a minimum of $200 and a maximum of
$1,500.
- The policy's issue date will be the effective date
of the change.
The face amount or guarantee period may also change on
the effective date depending on the new insured's age,
sex and underwriting class. We will also determine a new
variable insurance amount.
MATURITY PROCEEDS
The maturity date is the policy anniversary nearest the
insured's 100th birthday. On the maturity date, we'll
pay you the net cash surrender value provided the
insured is still living.
HOW WE MAKE PAYMENTS
We'll usually pay death benefit proceeds, net cash
surrender value on cancellation and loans within seven
days after the Service Center receives all the
information needed to process the payment.
However, we may delay payment if it isn't practical for
us to value or dispose of Trust units or Fund shares
because:
- the New York Stock Exchange is closed for other
than a regular holiday or weekend; or
- trading is restricted; or
- an emergency exists according to Securities and
Exchange Commission ("SEC") rules.
We may also delay payment if an SEC order allows us to
in order to protect our policyowners.
- --------------------------------------------------------------------------------
SOME ADMINISTRATIVE
PROCEDURES
Described below are certain of our administrative
procedures. We reserve the right to modify them from
time to time or to eliminate them. For administrative
and tax purposes, we may from time to time require
specific forms be completed in order to accomplish
certain transactions, including surrenders.
SIGNATURE GUARANTEES
In order for you to make certain policy transactions and
changes, we require that your signature be guaranteed.
Your signature can only be guaranteed by a national bank
or trust company (not a savings bank or federal savings
and loan association), a member bank of the Federal
Reserve System or a member firm of a national securities
exchange.
24
<PAGE>
Currently, your signature must be guaranteed on:
- WRITTEN requests for cash surrenders, policy loans
and reallocations of investment base;
- the form required for change in owner designation;
and
- phone authorization forms if not submitted with
your application.
YOUR PERSONAL IDENTIFICATION CODE
We will send you a four digit personal identification
code shortly after your policy is placed in force and
before the end of the "free look" period. You need to
give us this number when you call us at the Service
Center to get information about your policy, to make a
policy loan (if an authorization is on file), or to make
other requests. Your personal identification code will
be accompanied by a notice reminding you that your
investment base is in the division investing in the
Money Reserve Portfolio and that you may change this
allocation by calling or writing the Service Center (see
"Changing Your Investment Base Allocation", page 14).
REALLOCATING YOUR INVESTMENT BASE
You can reallocate your investment base either in
writing in a form satisfactory to us or by phone. If you
do it by phone, you must tell us your personal
identification code as well as your policy number. We
will give you a confirmation number over the phone and
then follow up in writing.
REQUESTING A POLICY LOAN
A loan may be requested in writing or, if all required
forms are on file with us, by phone. Once we have the
authorization, you can call the Service Center, give us
your policy number, name and personal identification
code, and then tell us how much you want to borrow and
from which divisions the loan should be transferred. We
will wire the funds to your account at the financial
institution named on your authorization. We will usually
wire the funds within two working days of receipt of the
request.
TELEPHONE REQUESTS
A telephone request for a policy loan or a reallocation
received before 4 p.m. (ET) generally will be processed
the same day. A request received at or after 4 p.m. (ET)
will be processed the following business day. The
Insurance Company reserves the right to change or
discontinue the telephone transfer procedures.
- --------------------------------------------------------------------------------
OTHER POLICY
PROVISIONS
IN CASE OF ERRORS ON THE APPLICATION
If an age or sex given in the application is wrong, it
could mean that the face amount, guarantee period, or
any other policy benefit is wrong. We'll pay what the
premium would have bought for the correct age or sex
assuming the same guarantee period.
INCONTESTIBILITY
We rely on statements made in the applications. Legally,
they are considered representations, not warranties. We
can contest the validity of a policy if any material
misstatements are made in the initial application. We
can also contest any amount of death benefit which
wouldn't be payable except for the fact that an
additional payment was made if any material
misstatements are made in the application required with
the additional payment.
We won't contest the validity of a policy after it has
been in effect during the insured's lifetime for two
years from the date of issue. Nor will we contest any
25
<PAGE>
amount of death benefit attributable to an additional
payment after such death benefit has been in effect
during the insured's lifetime for two years from the
date we received and accepted the payment.
PAYMENT IN CASE OF SUICIDE
If the insured commits suicide within two years from
this policy's issue date, we'll pay only a limited death
benefit. The benefit will be equal to the premium paid.
If the insured commits suicide within two years of any
date we receive and accept an additional payment, any
amount of death benefit which wouldn't be payable except
for the fact that the additional payment was made will
be limited to the amount of the additional payment. The
death benefit we will pay will be reduced by any policy
debt.
POLICY CHANGES -- APPLICABLE TAX LAW
For you to receive the tax treatment accorded to life
insurance under Federal income tax law, your policy must
qualify initially and continue to qualify as life
insurance under the Internal Revenue Code or successor
law. Therefore, to assure this qualification, we have
reserved the right to defer acceptance of or to return
any additional payments that would cause the policy to
fail to qualify as life insurance under applicable tax
law as interpreted by us. Further, we reserve the right
to make changes in the policy or its riders or to make
distributions from the policy to the extent we find it
necessary to continue to qualify your policy as life
insurance. Any such changes will apply uniformly to all
policies that are affected and you will be given advance
written notice of such changes.
DIVIDENDS
Our variable life insurance policies are
non-participating. This means that they don't provide
for dividends. Investment results under these variable
life policies are reflected in benefits.
STATE VARIATIONS
Certain policy features are subject to state variation.
You should read your policy carefully to determine
whether any variations apply in the state in which the
policy was issued.
- --------------------------------------------------------------------------------
INCOME PLANS
We offer several income plans to provide for payment of
the death benefit proceeds to the beneficiary. You may
choose one or more income plans at any time during the
insured's lifetime. If no plan has been chosen when the
insured dies, the beneficiary has one year to apply the
death benefit proceeds either paid or payable to such
beneficiary to one or more of the plans. You may also
choose one or more income plans on cancelling the policy
for its net cash surrender value. Our approval is needed
for any plan where any income payments would be less
than $100. Payments under these plans do not depend on
the investment results of a separate account.
Income plans are:
ANNUITY PLAN
An amount can be used to purchase a single premium
immediate annuity. Annuity purchase rates will be 3%
less than for new annuitants.
INCOME FOR A FIXED PERIOD
Payments are made in equal installments for up to 30
years.
26
<PAGE>
INCOME FOR LIFE
Payments are made in equal monthly installments
until death of a named person or end of a designated
period, whichever is later. The designated period
may be for 10 or 20 years.
INTEREST PAYMENT
Amounts are left on deposit with us to earn interest
of at least 3% per year.
INCOME OF A FIXED AMOUNT
Payments are made in equal installments until
proceeds applied under the option and interest on
unpaid balance at not less than 3% per year are
exhausted.
JOINT LIFE INCOME
Payments are made in monthly installments as long as
at least one of two named persons is living. While
both are living, we make full payments. If one dies,
we make payments at two-thirds of the full amount.
Payments end completely when both named persons die.
Once in effect, some of the plans may not provide any
surrender rights.
- --------------------------------------------------------------------------------
GROUP OR SPONSORED
ARRANGEMENTS
For certain group or sponsored arrangements, we may
reduce the sales load, the first-year administrative
expense, the mortality cost and the minimum premium and
we may modify our underwriting classifications.
Group arrangements include those in which a trustee or
an employer, for example, purchases policies covering a
group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows
us to sell policies to its employees on an individual
basis.
Our costs for sales, administration and mortality
generally vary with the size and stability of the group
and the reasons the policies are purchased, among other
factors. We take all these factors into account when
reducing charges. To qualify for reduced charges, a
group or sponsored arrangement must meet certain
requirements, including our requirements for size and
number of years in existence. Group or sponsored
arrangements that have been set up solely to buy
policies or that have been in existence less than six
months will not qualify for reduced charges.
We'll make any reductions according to our rules in
effect when an application for a policy or additional
payment is approved. Our current rules call for
reductions resulting in a sales load of not more than 3%
of the premium.
We may change these rules from time to time. However,
reductions in charges will not discriminate unfairly
against any person.
- --------------------------------------------------------------------------------
LEGAL
CONSIDERATIONS FOR
EMPLOYERS
In 1983, the Supreme Court held in ARIZONA GOVERNING
COMMITTEE V. NORRIS that optional annuity benefits
provided under an employee's deferred compensation plan
could not, under Title VII of the Civil Rights Act of
1964, vary between men and women. In that case, the
Court applied its decision only to benefits derived from
contributions made on or after August 1, 1983.
Subsequent decisions of lower Federal courts indicate
that in other factual circumstances the Title VII
prohibition of sex-distinct benefits may apply to
contributions made before that date. In addition,
legislative, regulatory or decisional authority of some
states may prohibit use of sex-distinct mortality tables
under certain circumstances.
27
<PAGE>
The policy offered by this prospectus is based on
mortality tables that distinguish between men and women.
As a result, the policy pays different benefits to men
and women of the same age. Employers and employee
organizations should check with their legal advisers
before purchasing this policy.
The state of Montana prohibits the use of actuarial
tables that distinguish between men and women in
determining premiums and policy benefits for policies
issued on the life of its residents. (Previously,
certain policies issued on the life of a Massachusetts
resident were also issued on a unisex basis.) Therefore,
policies described in this prospectus to insure
residents of Montana (and certain residents of
Massachusetts) will have premiums and benefits which are
based on actuarial tables that do not differentiate on
the basis of sex. Policyowners should consult the
policy.
- --------------------------------------------------------------------------------
SELLING THE
POLICIES
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.
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.
The Insurance Company has companion sales agreements
with MLPF&S and various Merrill Lynch Life Agencies.
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 maximum commission as a percentage of a premium
payable to qualified registered representatives will, in
no event, exceed 3.5%. In addition, the organizations
described above will also receive override payments and
may be reimbursed under MLPF&S's expense reimbursement
allowance program for portions of expenses incurred.
The total amounts paid under the distribution and sales
agreements for the Separate Account for the years ended
December 31, 1993, December 31, 1994 and December 31,
1995 were $915,429, $808,469, and $677,860 respectively.
- --------------------------------------------------------------------------------
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 $43.0 million for the year ended December 31, 1995.
- --------------------------------------------------------------------------------
TAX CONSIDERATIONS
DEFINITION OF LIFE INSURANCE
In order to qualify as a life insurance contract for
Federal tax purposes, this policy must meet the
definition of a life insurance contract which is set
forth in Section 7702 of the Internal Revenue Code. The
Section 7702 definition can be met if a life insurance
policy satisfies either one of two tests that are
contained in that section. The manner in which these
tests should be applied
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<PAGE>
to certain innovative features of the policy offered by
this prospectus is not directly addressed by Section
7702 or the proposed regulations issued thereunder. The
presence of these innovative policy features, and the
absence of final regulations or any other pertinent
interpretations of the tests, thus creates some
uncertainty about the application of the tests to this
policy.
Nevertheless, we believe that the policy offered by this
prospectus qualifies as a life insurance contract for
Federal tax purposes. This means that:
- the death benefit should be fully excludable from the
gross income of the beneficiary under Section 101(a)(1)
of the Internal Revenue Code; and
- the policyowner should not be considered in
constructive receipt of the policy's cash surrender
value, including any increases, until actual
cancellation of the policy.
We have reserved the right to make changes in this
policy if such changes are deemed necessary to assure
its qualification as a life insurance contract for tax
purposes (see "Policy Changes -- Applicable Tax Law",
page 26).
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 and the
Variable Series Funds, intends to comply with these
requirements. Although we don't control the Series Fund
or the Variable Series Funds, we intend to monitor the
investments of the Funds to ensure compliance with the
requirements prescribed by the Treasury Department.
In connection with the issuance of the diversification
regulations, the Treasury Department stated that it
anticipates the issuance of regulations or rulings
prescribing the circumstances in which a policyowner's
control of the investments of a separate account may
cause the policyowner, rather than the insurance
company, to be treated as the owner of the assets in the
account. If the policyowner is considered the owner of
the assets of the Separate Account, income and gains
from the account would be included in the policyowner's
gross income.
The ownership rights under this policy are similar to,
but different in certain respects from, those described
by the IRS in rulings in which it determined that the
policyowners were not owners of separate account assets.
For example, the owner of this policy has additional
flexibility in allocating premiums and cash values.
These differences could result in the policyowner being
treated as the owner of the assets of the Separate
Account. In addition, the Insurance Company does not
know what standards will be set forth in the regulations
or rulings which the Treasury has stated it expects to
be issued. We therefore reserve the right to modify this
policy as necessary to attempt to prevent the
policyowner from being considered the owner of the
assets of the Separate Account.
POLICY LOANS
Under current law policy loans are considered
indebtedness of a policyowner and no part of a loan
constitutes income to an owner. However, any interest
paid on policy loans for single premium policies will
not be tax-deductible.
29
<PAGE>
TAX TREATMENT OF POLICY LOANS AND OTHER DISTRIBUTIONS
Federal Tax Laws establishes a 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 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 test 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.
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. 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.
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 a calendar year, then for purposes of
measuring the "income on the contract" with respect to a
distribution from any of those contracts, the "income on
the contract" for all such contracts will be aggregated
and attributed to that distribution.
30
<PAGE>
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 policies.
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 policyowners 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 this policy for another
involving the same insured will have no tax consequences
if there is no policy debt and no cash or other property
is received, according to Section 1035(a)(1) of the
Internal Revenue Code.
In addition, the policy may be used in various
arrangements, including non-qualified deferred
compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical
benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore,
if you are contemplating the use of a policy in any
arrangement the value of which depends in part on its
tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of
the particular arrangement.
OTHER TAXES
Federal estate and state and local estate, inheritance
and other taxes depend upon your or the beneficiary's
specific situation.
OWNERSHIP OF POLICIES 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 policy loans. Further,
organizations purchasing policies covering the
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life of an individual who is an officer or employee of,
or is financially interested in, the taxpayer's trade or
business, should consult a tax advisor regarding
possible tax consequences associated with a policy prior
to the acquisition of a policy and also before entering
into any subsequent changes to or transactions under the
Policy.
Merrill Lynch Life does not make any guarantee regarding
the tax status of any 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 ADVISOR.
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.
- --------------------------------------------------------------------------------
THE INSURANCE
COMPANY'S INCOME
TAXES
FEDERAL INCOME TAXES
We don't expect to incur any Federal income tax
liability that would be chargeable to the Separate
Account. As a result, no charges for Federal income
taxes are currently deducted from the Separate Account.
Changes in Federal tax treatment of variable life
insurance or in the Insurance Company's tax status may
mean that we will have to pay Federal income taxes
chargeable to the Separate Account in the future. If we
make a charge for taxes, we expect to accumulate it
daily and transfer it from each investment division and
into the general account monthly. We would keep any
investment earnings on any tax charges accumulated in an
investment division.
Tax charges, if they were imposed, won't apply to
policies issued in connection with qualified pension
arrangements.
STATE AND LOCAL INCOME TAXES
Under current laws, we may incur state and local income
taxes (in addition to premium taxes) in several states,
although these taxes are not significant. If the amount
of these taxes changes substantially, we may make
charges to the Separate Account.
- --------------------------------------------------------------------------------
REINSURANCE
We have reinsured some of the risks we assumed under the
policies.
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MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
----------------------------------------------------------------
ABOUT THE SEPARATE
ACCOUNT
The Separate Account is registered with the SEC under
the Investment Company Act of 1940 as an investment
company. This registration does not involve any SEC
supervision of our management or the management of the
Separate Account. The Separate Account is also governed
by the laws of the State of Arkansas, our state of
domicile.
- --------------------------------------------------------------------------------
CHANGES WITHIN THE
SEPARATE ACCOUNT
We may from time to time make additional investment
divisions available to you. These divisions will invest
in investment portfolios we find suitable for the
policies. We also have the right to eliminate investment
divisions from the Separate Account, to combine two or
more investment divisions, or to substitute a new
portfolio for the portfolio in which an investment
division invests. A substitution may become necessary
if, in our judgment, a portfolio no longer suits the
purposes of the policies. This may happen due to a
change in laws or regulations, or a change in a
portfolio's investment objectives or restrictions, or
because the portfolio is no longer available for
investment, or for some other reason. We would get prior
approval from the insurance department of our state of
domicile before making such a substitution. This
approval process is on file with the insurance
department of the jurisdiction in which this policy is
delivered. We would also get prior approval from the SEC
and any other required approvals before making such a
substitution.
We reserve the right to transfer assets of the Separate
Account, which we determine to be associated with the
class of policies to which your policy belongs, to
another separate account.
When permitted by law, we reserve the right to:
- deregister the Separate Account under the
Investment Company Act of 1940;
- operate the Separate Account as a management
company under the Investment Company Act of 1940;
- restrict or eliminate any voting rights of
policyowners, or other persons who have voting
rights as to the Separate Account; and
- combine the Separate Account with other separate
accounts.
RIGHT TO EXCHANGE POLICY
Policyowners may exchange their policies for a policy
with benefits that do not vary with the investment
results of a Separate Account if:
- there is a change in an investment adviser of any
portfolio; or
- there is a material change in the investment
objectives or restrictions of any portfolio in
which the investment divisions invest.
We will notify you if there is any such change. You will
be able to exchange your policy within 60 days after our
notice or the effective date of the change, whichever is
later. No evidence of insurability is required on
exchange.
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NET RATE OF RETURN
FOR
AN INVESTMENT
DIVISION
Each investment division has a distinct unit value (also
referred to as "price" or "separate account index" in
reports furnished to the policyowner by the Insurance
Company). When payments or other amounts are allocated
to an investment division, a number of units are
purchased based on the value of a unit of the investment
division as of the end of the valuation period during
which the allocation is made. When amounts are
transferred out of, or deducted from, an investment
division, units are redeemed in a similar
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<PAGE>
manner. A valuation period is each business day together
with any non-business days before it. A business day is
any day the New York Stock Exchange is open or there's
enough trading in portfolio securities to materially
affect the net asset value of an investment division.
For each investment division, the separate account index
was initially set at $10.00. The separate account index
for each subsequent valuation period fluctuates based
upon the net rate of return for that period. The
Insurance Company determines the net rate of return of
an investment division at the end of each valuation
period. The net rate of return reflects the investment
performance of the division for the valuation period and
is net of the charges to the Separate Account described
above.
For divisions investing in the Series Fund or the
Variable Series Funds, shares are valued at net asset
value and we consider any dividends or capital gains
distributions declared by the Series Fund or the
Variable Series Funds.
For divisions investing in the Trusts, units of each
Trust will be valued at the sponsor's repurchase price,
as explained in the prospectus for the Trusts.
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THE SERIES FUND AND
THE VARIABLE SERIES
FUNDS
BUYING AND REDEEMING SHARES
The Series Fund and the Variable Series Funds sell and
redeem shares at net asset value. We redeem shares to
pay benefits and make reallocations. Any dividend or
capital gain distribution will be reinvested at net
asset value in shares of the same portfolio.
VOTING RIGHTS
We will vote Series Fund and Variable Series Funds
shares according to your instructions. However, if the
Investment Company Act of 1940 or any related
regulations should change, or if interpretations of it
or related regulations should change, and we decide that
we're permitted to vote the shares of the Series Fund or
the Variable Series Funds in our own right, we may
decide to do so.
We determine the number of shares that you have in an
investment division by dividing a policy's investment
base in that division by the net asset value of one
share of the portfolio. Fractional votes will be
counted.
We will determine the number of shares you can instruct
us to vote 90 days or less before the Series Fund or
Variable Series Funds meeting. We will ask you for
voting instructions by mail at least 14 days before the
meeting.
If we don't get your instructions in time, we'll vote
the shares in the same proportion as the instructions
received for all policies (including those received from
other types of policies we issue through the Separate
Account) in that investment division. We'll also vote
shares we hold in the Separate Account which are not
attributable to policyowners in the same proportion.
Under certain circumstances, we may be required by state
regulatory authorities to disregard voting instructions.
This may happen if following the instructions would mean
voting to change the sub-classification or investment
objectives of the portfolios, or to approve or
disapprove an investment advisory contract.
ADMINISTRATION SERVICES ARRANGEMENT
MLAM has entered into an agreement with MLIG, with
respect to
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<PAGE>
administration services for the Series Fund and the
Variable Series Funds in connection with the policies
and other variable life insurance and variable annuity
contracts issued by the Insurance Company. Under this
agreement, MLAM pays compensation to MLIG in an amount
equal to a portion of the annual gross investment
advisory fees paid by the Series Fund and the Variable
Series Funds to MLAM attributable to variable contracts
issued by the Insurance Company.
We may also disregard instructions to vote for changes
initiated by an owner in the investment policy or the
investment adviser if we disapprove of the proposed
changes. We would disapprove a proposed change only if
it was:
- contrary to state law;
- prohibited by state regulatory authorities; or
- decided by us that the change would result in
overly speculative or unsound investments.
If we disregard voting instructions, we'll include a
summary of our actions in the next semiannual report.
- --------------------------------------------------------------------------------
RESOLVING MATERIAL
CONFLICTS
Shares of the Series Fund are available for investment
by other Merrill Lynch insurance companies and Monarch.
Shares of the Variable Series Funds are sold to separate
accounts of other Merrill Lynch insurance companies, and
several insurance companies not affiliated with Merrill
Lynch Life or Merrill Lynch & Co., Inc. to fund benefits
under certain variable life insurance and variable
annuity contracts. Shares of each Fund of the Variable
Series Funds may be made available to the separate
accounts of additional insurance companies in the
future. It is possible that differences might arise
between our Separate Account and one or more separate
accounts of the other insurance companies which invest
in the Series Fund or the Variable Series Funds. In some
cases, it is possible that the differences could be
considered "material conflicts". Such a "material
conflict" could also arise due to changes in the law
(such as state insurance law or federal tax law) which
affect these different variable life insurance 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 the
Variable Series Funds or substitute a new portfolio for
a portfolio in which a division invests. In responding
to any conflict, we will take the action which we
believe necessary to protect our policyowners,
consistent with applicable legal requirements.
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CHARGES TO SERIES
FUND ASSETS
The Series Fund incurs operating expenses and pays a
monthly advisory fee to MLAM. This fee equals an annual
rate of:
- .50% of the first $250 million of the aggregate
average daily net assets of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
Under a reimbursement agreement, the Series Fund will be
reimbursed so that ordinary expenses of the portfolios
(which includes the monthly advisory fee) do not exceed
.50% of the average daily net assets.
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<PAGE>
MLAM has agreed that if any portfolio's aggregate
ordinary expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses) exceed the
expense limitations for investment companies in effect
under any state securities law or regulation, it will
reduce its fee for that portfolio by the amount of the
excess. If required, it will reimburse the Series Fund
for the excess.
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CHARGES TO VARIABLE
SERIES FUNDS ASSETS
The Variable Series Funds incurs operating expenses and
pays a monthly advisory fee to MLAM. This fee equals an
annual rate of .60% of the average daily net assets of
the Basic Value Focus Fund and Global Utility Focus
Fund. This fee equals an annual rate of .75%, 1.00%, and
.75% of the average daily net assets of the
International Equity Focus Fund, the Developing Capital
Markets Focus Fund and the Equity Growth Fund,
respectively.
Under its investment advisory agreement, MLAM has agreed
to reimburse the Variable Series Funds if and to the
extent that in any fiscal year the operating expenses of
any Fund exceeds the most restrictive expense
limitations then in effect under any state securities
laws or published regulations thereunder. Expenses for
this purpose include MLAM's fee but exclude interest,
taxes, brokerage commissions and extraordinary expenses,
such as litigation. No fee payments will be made to MLAM
with respect to any Fund during any fiscal year which
would cause the expenses of such Fund to exceed the pro
rata expense limitation applicable to such Fund at the
time of such payment. This reimbursement agreement will
remain in effect so long as the advisory agreement
remains in effect and cannot be amended without Variable
Series Funds approval.
MLAM and Merrill Lynch Life Agency, Inc. have entered
into two agreements which limit the operating expenses
paid by each Fund in a given year to 1.25% of its
average daily net assets, which is less than the expense
limitations imposed by state securities laws or
published regulations thereunder. These reimbursement
agreements provide that any expenses in excess of 1.25%
of average daily net assets will be reimbursed to the
Fund by MLAM which, in turn, will be reimbursed by
Merrill Lynch Life Agency, Inc.
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THE TRUSTS
The 17 Trusts:
<TABLE>
<CAPTION>
Trust Maturity Date
----- -------------------------
<C> <S>
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
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Trust Maturity Date
----- -------------------------
<C> <S>
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>
TARGETED RATE OF RETURN TO MATURITY
From time to time, we may calculate a targeted rate of
return to maturity for an investment division investing
in a Trust. Because the underlying securities in the
Trusts will grow to their face value on the maturity
date, it is possible to determine a compound rate of
growth to maturity for the Trust units. But because the
units are held in the Separate Account the asset charges
described in "Charges to the Separate Account" on page
17, must be taken into account in determining a net
return. The net rate of return to maturity depends on
the compound rate of growth adjusted for these charges.
It does not, however, represent the actual return on a
premium we might receive under the policy on that date,
since it does not reflect the charges deducted from a
policy's investment base described in "Charges Deducted
from Your Investment Base" on page 15.
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 the net rate
of return to maturity will vary correspondingly.
37
<PAGE>
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ILLUSTRATIONS
ILLUSTRATIONS OF----------------------------------------------------------------
DEATH BENEFITS,
INVESTMENT BASE,
CASH SURRENDER
VALUES
AND ACCUMULATED
PREMIUMS
The tables on pages 40 through 44 demonstrate the way in
which your policy works. The tables are based on the
following ages, face amounts, premiums and guarantee
periods.
1. The illustration on page 40 is for a policy
issued to a male age five in the standard-simplified
underwriting class with a single premium of $5,000, a
face amount of $40,057 and a guarantee period for life.
2. The illustration on page 41 is for a policy
issued to a male age forty in the standard-simplified
underwriting class with a single premium of $10,000, a
face amount of $28,477 and a guarantee period for life.
3. The illustration on page 42 is for a policy
issued to a male age fifty-five in the
standard-simplified underwriting class with a single
premium of $10,000, a face amount of $18,386 and a
guarantee period for life.
4. The illustration on page 43 is for a policy
issued to a female age sixty-five in the
standard-simplified underwriting class with a single
premium of $10,000, a face amount of $16,308 and a
guarantee period for life.
5. The illustration on page 44 is for a policy
issued to a male age forty in the standard-simplified
underwriting class with a single premium of $10,000, a
face amount of $123,712 and a guarantee period of 15
years. This illustration also demonstrates the effects
of additional payments.
The tables show how the death benefit, investment base
and cash surrender value may vary over an extended
period of time assuming hypothetical rates of return
(i.e., investment income and capital gains and losses,
realized or unrealized) equivalent to constant gross
annual rates of 0%, 4%, 8% and 12%.
The death benefit, investment base and cash surrender
value for your policy would be different from those
shown if the actual rates of return averaged 0%, 4%, 8%
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, investment base
and cash surrender value as of the end of each policy
year take into account the daily charge for mortality,
expense and guaranteed benefits risks in the Separate
Account equivalent to an effective annual charge of .60%
at the beginning of the year.
The amounts shown in the tables also assume an
additional charge of .49%. This charge assumes that
investment base is allocated equally among all
investment divisions and is based on the 1995 expenses
(including the monthly advisory fees) for the Series
Fund, the Variable Series Funds and the current trust
charge. This charge does not reflect expenses incurred
by the Developing Capital Markets Portfolio of the
Variable Series Funds in 1995, which were reimbursed to
the Variable Series Funds by MLAM. This reimbursement
amounted to .20% of the average daily net assets of this
portfolio. (See "Charge to Variable Series Funds Assets"
on page 36.) The actual charge under a policy for Series
Fund and Variable Series Funds expenses and the trust
charge will depend on the actual allocation of your
investment base and may be higher or lower depending on
how your investment base is allocated.
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<PAGE>
Taking into account the .60% charge for mortality,
expense and guaranteed benefits risks in the Separate
Account and the .49% charge described above, the gross
annual rates of investment return of 0%, 4%, 8% and 12%
correspond to net annual rates of -1.09%, 2.89%, 6.86%
and 10.84%, respectively. The gross returns are before
any deductions and should not be compared to rates which
are after deduction of charges.
The hypothetical returns shown on the tables are without
any Insurance Company income tax charges that may be
attributable to the Separate Account in the future. In
order to produce after tax returns of 0%, 4%, 8% and
12%, the portfolio would have to earn a sufficient
amount in excess of 0% or 4% or 8% or 12% to cover any
tax charges.
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
5% compounded annually.
We'll furnish upon request a personalized illustration
reflecting the proposed insured's age, face amount and
the premium amounts requested. The illustration will
also use current mortality rates and will assume that
the proposed insured is in a standard underwriting
class. In addition, if a purchase is made, a
personalized illustration will be included at the
delivery of a policy reflecting the insured's actual
underwriting class.
39
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 5
$5,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $40,057 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
DEATH BENEFIT (2)
TOTAL ASSUMING HYPOTHETICAL GROSS (AFTER
PREMIUMS TAX)
PAID PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS --------------------------------------
END OF POLICY YEAR PAYMENTS (1) OF END OF YEAR 0% 4% 8% 12%
--------------------- ------------ ----------------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1................... $5,000 $ 5,250 $40,057 $40,057 $ 41,365 $ 43,017
2................... 0 5,513 40,057 40,057 42,683 46,132
3................... 0 5,788 40,057 40,057 44,014 49,415
4................... 0 6,078 40,057 40,057 45,359 52,878
5................... 0 6,381 40,057 40,057 46,719 56,535
6................... 0 6,700 40,057 40,057 48,096 60,400
7................... 0 7,036 40,057 40,057 49,491 64,489
8................... 0 7,387 40,057 40,057 50,907 68,819
9................... 0 7,757 40,057 40,057 52,345 73,408
10................... 0 8,144 40,057 40,057 53,806 78,274
15................... 0 10,395 40,057 40,057 61,662 107,736
20................... 0 13,266 40,057 40,057 70,663 148,279
30................... 0 21,610 40,057 40,057 92,779 280,744
60................... 0 93,396 40,057 40,057 210,139 1,908,291
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
ASSUMING HYPOTHETICAL GROSS (AFTER ASSUMING HYPOTHETICAL GROSS (AFTER
TAX) TAX)
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
------------------------------------- -------------------------------------
END OF POLICY YEAR 0% 4% 8% 12% 0% 4% 8% 12%
--------------------- ------ ------- -------- ---------- ------ ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1................... $4,853 $ 5,051 $ 5,248 $ 5,445 $4,538 $ 4,736 $ 4,933 $ 5,130
2................... 4,709 5,104 5,512 5,935 4,429 4,824 5,232 5,655
3................... 4,568 5,161 5,795 6,476 4,323 4,916 5,550 6,231
4................... 4,430 5,221 6,097 7,073 4,220 5,011 5,887 6,863
5................... 4,295 5,285 6,420 7,732 4,120 5,110 6,245 7,557
6................... 4,162 5,351 6,763 8,458 4,022 5,211 6,623 8,318
7................... 4,030 5,417 7,127 9,255 3,925 5,312 7,022 9,150
8................... 3,896 5,483 7,511 10,129 3,826 5,413 7,441 10,059
9................... 3,758 5,545 7,912 11,082 3,723 5,510 7,877 11,047
10................... 3,617 5,604 8,332 12,121 3,617 5,604 8,332 12,121
15................... 3,035 6,035 10,943 19,119 3,035 6,035 10,943 19,119
20................... 2,457 6,500 14,427 30,273 2,457 6,500 14,427 30,273
30................... 1,464 7,744 25,842 78,196 1,464 7,744 25,842 78,196
60................... 0 9,148 135,269 1,228,390 0 9,148 135,269 1,228,390
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the policy
year.
(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, INVESTMENT BASE AND
CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL GROSS RATES OF RETURN AVERAGED 0%, 4%, 8% 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 VARIABLE SERIES FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 40
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $28,477 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
DEATH BENEFIT (2)
TOTAL ASSUMING HYPOTHETICAL GROSS (AFTER
PREMIUMS TAX)
PAID PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS -----------------------------------
END OF POLICY YEAR PAYMENTS (1) OF END OF YEAR 0% 4% 8% 12%
--------------------- ------------ ----------------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1................... $10,000 $10,500 $28,477 $28,477 $29,405 $ 30,579
2................... 0 11,025 28,477 28,477 30,341 32,790
3................... 0 11,576 28,477 28,477 31,286 35,121
4................... 0 12,155 28,477 28,477 32,240 37,580
5................... 0 12,763 28,477 28,477 33,206 40,176
6................... 0 13,401 28,477 28,477 34,184 42,922
7................... 0 14,071 28,477 28,477 35,175 45,827
8................... 0 14,775 28,477 28,477 36,181 48,904
9................... 0 15,513 28,477 28,477 37,203 52,164
10................... 0 16,289 28,477 28,477 38,241 55,622
15................... 0 20,789 28,477 28,477 43,824 76,557
20................... 0 26,533 28,477 28,477 50,226 105,389
25................... 0 33,864 28,477 28,477 57,568 145,107
30................... 0 43,219 28,477 28,477 65,989 199,840
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
ASSUMING HYPOTHETICAL GROSS (AFTER ASSUMING HYPOTHETICAL GROSS (AFTER
TAX) TAX)
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
---------------------------------- ----------------------------------
END OF POLICY YEAR 0% 4% 8% 12% 0% 4% 8% 12%
--------------------- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1................... $9,747 $10,143 $10,539 $ 10,934 $9,117 $ 9,513 $ 9,909 $ 10,304
2................... 9,491 10,285 11,106 11,957 8,931 9,725 10,546 11,397
3................... 9,232 10,425 11,703 13,078 8,742 9,935 11,213 12,588
4................... 8,970 10,564 12,332 14,305 8,550 10,144 11,912 13,885
5................... 8,705 10,700 12,994 15,648 8,355 10,350 12,644 15,298
6................... 8,436 10,833 13,690 17,118 8,156 10,553 13,410 16,838
7................... 8,164 10,964 14,422 18,725 7,954 10,754 14,212 18,515
8................... 7,889 11,092 15,191 20,484 7,749 10,952 15,051 20,344
9................... 7,610 11,218 16,002 22,409 7,540 11,148 15,932 22,339
10................... 7,326 11,339 16,852 24,512 7,326 11,339 16,852 24,512
15................... 6,166 12,232 22,168 38,725 6,166 12,232 22,168 38,725
20................... 4,786 12,952 28,828 60,489 4,786 12,952 28,828 60,489
25................... 3,145 13,418 37,057 93,407 3,145 13,418 37,057 93,407
30................... 1,165 13,487 46,963 142,221 1,165 13,487 46,963 142,221
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the policy
year.
(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, INVESTMENT BASE AND CASH SURRENDER
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES
OF RETURN AVERAGED 0%, 4%, 8% 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
VARIABLE SERIES FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 55
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $18,386 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PREMIUM ASSUMING HYPOTHETICAL GROSS
PAID PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS -----------------------------------
POLICY YEAR PAYMENTS (1) OF END OF YEAR 0% 4% 8% 12%
--------------------- ------------ ----------------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1................... $10,000 $10,500 $18,386 $18,386 $18,986 $ 19,744
2................... 0 11,025 18,386 18,386 19,591 21,175
3................... 0 11,576 18,386 18,386 20,203 22,684
4................... 0 12,155 18,386 18,386 20,821 24,275
5................... 0 12,763 18,386 18,386 21,447 25,957
6................... 0 13,401 18,386 18,386 22,081 27,735
7................... 0 14,071 18,386 18,386 22,723 29,617
8................... 0 14,775 18,386 18,386 23,375 31,610
9................... 0 15,513 18,386 18,386 24,037 33,723
10................... 0 16,289 18,386 18,386 24,709 35,962
15................... 0 20,789 18,386 18,386 28,324 49,527
20................... 0 26,533 18,386 18,386 32,470 68,224
30................... 0 43,219 18,386 18,386 42,688 129,560
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
---------------------------------- -----------------------------------
POLICY YEAR 0% 4% 8% 12% 0% 4% 8% 12%
--------------------- ------ ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1................... $9,698 $10,094 $10,488 $ 10,882 $ 9,068 $ 9,464 $ 9,858 $ 10,252
2................... 9,392 10,183 10,998 11,841 8,832 9,623 10,438 11,281
3................... 9,081 10,266 11,529 12,884 8,591 9,776 11,039 12,394
4................... 8,766 10,344 12,082 14,017 8,346 9,924 11,662 13,597
5................... 8,446 10,416 12,660 15,248 8,096 10,066 12,310 14,898
6................... 8,121 10,482 13,261 16,586 7,841 10,202 12,981 16,306
7................... 7,791 10,540 13,887 18,036 7,581 10,330 13,677 17,826
8................... 7,455 10,590 14,536 19,608 7,315 10,450 14,396 19,468
9................... 7,111 10,630 15,209 21,310 7,041 10,560 15,139 21,240
10................... 6,760 10,660 15,906 23,149 6,760 10,660 15,906 23,149
15................... 5,229 11,010 20,157 35,247 5,229 11,010 20,157 35,247
20................... 3,471 11,074 25,180 52,905 3,471 11,074 25,180 52,905
30................... 0 9,971 37,375 113,436 0 9,971 37,375 113,436
</TABLE>
<TABLE>
<S> <C>
<FN>
- ------------------------
(1) All payments are illustrated as if made at the beginning of the policy
year.
(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, INVESTMENT BASE AND
CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL GROSS RATES OF RETURN AVERAGED 0%, 4%, 8% 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 VARIABLE SERIES FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 65
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $16,308 GUARANTEE PERIOD: FOR LIFE
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT (2)
PREMIUM ASSUMING HYPOTHETICAL GROSS
PAID PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ----------------------------------
POLICY YEAR PAYMENTS (1) OF END OF YEAR 0% 4% 8% 12%
--------------------- ------------ ----------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1................... $10,000 $10,500 $16,308 $16,308 $16,841 $17,514
2................... 0 11,025 16,308 16,308 17,378 18,783
3................... 0 11,576 16,308 16,308 17,921 20,122
4................... 0 12,155 16,308 16,308 18,470 21,535
5................... 0 12,763 16,308 16,308 19,025 23,027
6................... 0 13,401 16,308 16,308 19,587 24,605
7................... 0 14,071 16,308 16,308 20,157 26,275
8................... 0 14,775 16,308 16,308 20,736 28,043
9................... 0 15,513 16,308 16,308 21,323 29,917
10................... 0 16,289 16,308 16,308 21,920 31,905
15................... 0 20,789 16,308 16,308 25,127 43,944
20................... 0 26,533 16,308 16,308 28,808 60,543
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE (2) CASH SURRENDER VALUE (2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
--------------------------------- ---------------------------------
POLICY YEAR 0% 4% 8% 12% 0% 4% 8% 12%
--------------------- ------ ------- ------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1................... $9,689 $10,085 $10,479 $10,872 $9,059 $ 9,455 $ 9,849 $10,242
2................... 9,374 10,164 10,978 11,820 8,814 9,604 10,418 11,260
3................... 9,055 10,238 11,498 12,850 8,565 9,748 11,008 12,360
4................... 8,733 10,309 12,042 13,971 8,313 9,889 11,622 13,551
5................... 8,409 10,375 12,611 15,190 8,059 10,025 12,261 14,840
6................... 8,082 10,437 13,206 16,517 7,802 10,157 12,926 16,237
7................... 7,751 10,492 13,825 17,957 7,541 10,282 13,615 17,747
8................... 7,413 10,538 14,468 19,517 7,273 10,398 14,328 19,377
9................... 7,066 10,574 15,131 21,202 6,996 10,504 15,061 21,132
10................... 6,708 10,595 15,813 23,017 6,708 10,595 15,813 23,017
15................... 5,105 10,853 19,900 34,802 5,105 10,853 19,900 34,802
20................... 3,235 10,763 24,586 51,670 3,235 10,763 24,586 51,670
</TABLE>
<TABLE>
<S> <C>
<FN>
- ------------------------
(1) All payments are illustrated as if made at the beginning of the policy
year.
(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, INVESTMENT BASE AND
CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL GROSS RATES OF RETURN AVERAGED 0%, 4%, 8% 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 VARIABLE SERIES FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 40
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $123,712 GUARANTEE PERIOD AT ISSUE: 15 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT
TOTAL ASSUMING HYPOTHETICAL GROSS
PREMIUMS (AFTER TAX) ANNUAL INVESTMENT RETURN
PAID PLUS OF
END OF INTEREST AT --------------------------------------
POLICY YEAR PAYMENTS 5% 0% 4% 8% 12%
--------------------- ------------ ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1................... $10,000 $ 10,500 $123,712 $123,712 $123,712 $123,712
2................... 1,500 12,600 123,712 123,712 123,712 123,712
3................... 1,500 14,805 123,712 123,712 123,712 123,712
4................... 1,500 17,120 123,712 123,712 123,712 123,712
5................... 1,500 19,551 123,712 123,712 123,712 123,712
6................... 1,500 22,104 123,712 123,712 123,712 123,712
7................... 1,500 24,784 123,712 123,712 123,712 123,712
8................... 1,500 27,598 123,712 123,712 123,712 123,712
9................... 1,500 30,553 123,712 123,712 123,712 123,712
10................... 1,500 33,656 123,712 123,712 123,712 123,712
15................... 1,500 51,657 123,712 123,712 123,712 140,799
20................... 1,500 74,632 123,712 123,712 123,712 210,568
25................... 1,500 103,954 123,712 123,712 134,710 304,753
30................... 0 132,675 * 123,712 154,568 419,967
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT BASE CASH VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT RETURN (AFTER TAX) ANNUAL INVESTMENT RETURN
OF OF
END OF ------------------------------------ ------------------------------------
POLICY YEAR 0% 4% 8% 12% 0% 4% 8% 12%
--------------------- ------- ------- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1................... $ 9,372 $ 9,763 $ 10,155 $ 10,547 $ 8,742 $ 9,133 $ 9,525 $ 9,917
2................... 10,159 11,016 11,877 12,770 9,541 10,368 11,229 12,122
3................... 10,952 12,260 13,674 15,194 10,296 11,604 13,018 14,538
4................... 11,659 13,491 15,548 17,837 11,005 12,837 14,894 17,183
5................... 12,307 14,707 17,503 20,724 11,664 14,064 16,860 20,082
6................... 12,894 15,903 19,540 23,881 12,273 15,281 18,919 23,259
7................... 13,423 17,080 21,670 27,341 12,832 16,490 21,080 26,750
8................... 13,890 18,235 23,897 31,139 13,340 17,686 23,348 30,589
9................... 14,298 19,369 26,231 35,318 13,799 18,870 25,732 34,819
10................... 14,637 20,471 28,670 39,918 14,198 20,032 28,232 39,479
15................... 15,591 25,746 43,178 71,659 15,153 25,307 42,739 71,221
20................... 14,158 29,275 61,912 121,296 13,719 28,836 61,474 120,857
25................... 9,303 29,533 87,153 196,612 8,864 29,095 86,714 196,173
30................... * 13,815 110,099 298,976 * 13,717 110,002 298,879
<FN>
- --------------------------
(1) All payments are illustrated as if made at the beginning of the policy
year.
(2) Assumes no policy loan has been made.
* Additional payment will be required to prevent policy termination.
</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, INVESTMENT BASE AND
CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL GROSS RATES OF RETURN AVERAGED 0%, 4%, 8% 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 VARIABLE SERIES FUNDS OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
44
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT THE INSURANCE COMPANY
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, Jr. Director, Senior Vice President,
Chief Financial Officer, Chief
Actuary, and Treasurer
Barry G. Skolnick Director, Senior Vice President,
General Counsel and Secretary
David M. Dunford Director, Senior Vice President,
and Chief Investment Officer
Gail R. Farkas Director and Senior Vice President
Robert J. Boucher Senior Vice President, Variable
Life Administration
</TABLE>
Each director is elected to serve until the next annual
meeting of shareholders or until his or her successor is
elected and shall have qualified. Each has held various
executive positions with insurance company subsidiaries
of 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 MLPF&S. From February 1991 to February
1994, he held the position of District Director and
First Vice President of MLPF&S. Prior to February 1991,
he held the position of Senior Resident Vice President
of MLPF&S.
Mr. Crowne joined the Insurance Company in June 1991.
Prior to June 1991, he was a Principal with Coopers &
Lybrand.
Mr. Skolnick joined the Insurance Company in November
1990. Since May 1992, he has held the position of
Assistant General Counsel of Merrill Lynch & Co., Inc.
and First Vice President of MLPF&S. Prior to May 1992,
he held the position of Senior Counsel of Merrill Lynch
& Co., Inc.
Mr. Dunford joined the Insurance Company in July 1990.
Ms. Farkas joined the Insurance Company in August 1995.
Prior to August 1995, she held the position of Director
of Market Planning of MLPF&S.
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 MLIG. 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.
- --------------------------------------------------------------------------------
STATE REGULATION
We're regulated and supervised 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 our
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. Our books and accounts are subject to review by
the Insurance
45
<PAGE>
Department at all times. A full examination of our
operations is conducted periodically by the Insurance
Department and under the asupices of the National
Association of Insurance Commissioners. We're also
subject to the insurance laws and regulations of all
jurisdictions where we do business. The variable life
insurance policies offered by this Prospectus have been
approved by the Insurance Department of the State of
Arkansas and in other jurisdictions.
- --------------------------------------------------------------------------------
REGISTRATION
STATEMENT
We have filed a Registration Statement under the
Securities Act 1933 with the Securities and Exchange
Commission ("SEC") relating to the offering described in
this Prospectus. This Prospectus does not include all
the information in the Registration Statement. We have
omitted certain portions according to SEC rules. You may
obtain the omitted information from the SEC's main
office in Washington, D.C. by paying the SEC's
prescribed fees.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
LEGAL MATTERS
The legal validity of the policies described in this
Prospectus has been passed on by Barry G. Skolnick,
Senior Vice President General Counsel and Secretary of
the Insurance Company.
- --------------------------------------------------------------------------------
EXPERTS
The financial statements of the Insurance Company as of
December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995, and of the
Separate Account as of December 31, 1995 and for the
periods presented, included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports appearing herein, and have
been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting
and auditing. Deloitte & Touche LLP's principal business
address is Two World Financial Center, New York, New
York 10281-1433.
Actuarial matters included in this Prospectus have been
examined by Joseph E. Crowne, Jr., F.S.A., Chief Actuary
and Chief Financial Officer of the Insurance Company, as
stated in his opinion filed as an exhibit to the
Registration Statement.
- --------------------------------------------------------------------------------
FINANCIAL
STATEMENTS
The financial statements of the Insurance Company,
included herein, should be distinguished from the
financial statements of the Separate Account and should
be considered only as bearing upon the ability of the
Insurance Company to meet its obligations under the
policies.
46
<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, 1995 and the related
statements of operations and changes in net assets for each
of the three years in the period then ended. These financial
statements are the responsibility of the management of
Merrill Lynch Life Insurance Company. Our responsibility is
to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation
of mutual fund and unit investment trust securities owned at
December 31, 1995, by correspondence with their respective
custodians. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating 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, 1995 and the results of its operations and
the changes in its net assets for the above periods in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The supplemental schedules included herein are presented for
the purpose of additional analysis and are not a required
part of the basic financial statements. These schedules are
the responsibility of the Company's management. Such
schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects
when considered in relation to the basic financial
statements taken as a whole.
/s/Deloitte & Touche LLP
February 8, 1996
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note 1):
Money Reserve Portfolio $ 444,229,578 444,229,578 $ 444,229,578
Intermediate Government Bond Portfolio 193,460,268 17,142,566 195,596,683
Long-Term Corporate Bond Portfolio 95,394,780 8,144,840 97,900,977
Capital Stock Portfolio 182,381,038 8,136,153 194,291,326
Growth Stock Portfolio 119,536,819 5,879,017 141,449,143
Multiple Strategy Portfolio 918,570,217 57,226,448 986,583,971
High Yield Portfolio 80,183,008 8,778,073 78,914,873
Natural Resources Portfolio 16,478,626 2,067,726 16,893,323
Global Strategy Portfolio 159,718,607 10,680,410 162,876,247
Balanced Portfolio 70,513,379 5,170,342 76,831,277
----------------- -----------------
2,280,466,320 2,395,567,398
----------------- -----------------
Investment in Unit Investment Trusts (Note 1):
Stripped ("Zero") U.S. Treasury Securities, Series A through K:
1996 Trust 34,778,208 45,337,599 45,101,390
1997 Trust 33,775,772 47,814,370 45,331,370
1998 Trust 36,426,117 56,848,716 51,091,646
1999 Trust 16,983,094 23,303,121 19,838,180
2000 Trust 15,077,029 22,416,023 18,108,336
2001 Trust 31,060,240 63,672,875 48,800,165
2002 Trust 5,712,961 9,657,164 6,976,432
2003 Trust 26,069,922 67,045,806 44,310,573
2004 Trust 4,701,167 8,789,716 5,623,397
2005 Trust 12,636,849 31,309,360 19,022,628
2006 Trust 3,162,337 7,398,890 4,296,387
2007 Trust 6,004,493 18,728,087 10,196,507
2008 Trust 13,037,268 46,895,420 23,494,605
2009 Trust 6,239,776 20,949,065 9,867,429
2010 Trust 6,338,658 17,069,144 7,470,140
2011 Trust 1,140,934 3,552,952 1,467,121
2013 Trust 1,114,317 4,036,453 1,453,325
2014 Trust 10,322,712 33,580,582 11,217,929
----------------- -----------------
264,581,854 373,667,560
----------------- -----------------
Total Assets $ 2,545,048,174 2,769,234,958
================= -----------------
LIABILITIES
Payable to Merrill Lynch Series Fund, Inc. 675,127
Payable to Merrill Lynch Life Insurance Company 22,250,564
-----------------
Total Liabilities 22,925,691
-----------------
Net Assets $ 2,746,309,267
=================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 176,010,284 $ 247,180,360 $ 157,524,630
Mortality and Expense Charges (Note 3) (15,619,292) (15,774,764) (17,816,608)
Transaction Charges (Note 4) (1,382,826) (1,442,573) (1,822,452)
----------------- ----------------- -----------------
Net Investment Income 159,008,166 229,963,023 137,885,570
----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 43,387,581 37,024,153 77,222,781
Net Unrealized Gains (Losses) 186,601,895 (373,279,380) 100,298,797
----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 229,989,476 (336,255,227) 177,521,578
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 388,997,642 (106,292,204) 315,407,148
----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 9,110,961 10,401,083 13,356,961
Transfers of Policy Loading, Net (Note 3) (14,309,715) (19,215,408) (14,938,127)
Transfers Due to Deaths (28,619,535) (23,345,250) (25,399,159)
Transfers Due to Other Terminations (82,830,969) (71,143,764) (66,518,195)
Transfers Due to Policy Loans (52,662,381) (51,098,887) (62,711,054)
Transfers of Cost of Insurance (37,801,248) (37,539,344) (34,885,568)
Transfers of Loan Processing Charges (5,564,758) (4,561,365) (2,784,789)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 2,091
----------------- ----------------- -----------------
Decrease in Net Assets
Resulting from Principal Transactions (212,677,645) (196,502,935) (193,877,840)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 176,319,997 (302,795,139) 121,529,308
Net Assets Beginning Balance 2,569,989,270 2,872,784,409 2,751,255,101
----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,746,309,267 $ 2,569,989,270 $ 2,872,784,409
================= ================= =================
</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 1 - Merrill Lynch Life Variable Life Separate Account
II ("Account"), a separate account of Merrill Lynch
Life Insurance Company ("Merrill Lynch Life") was
established to support the operations with respect to
certain variable life insurance contracts
("Contracts"). The Account is governed by Arkansas
State Insurance Law. Merrill Lynch Life is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill"). The Account is a registered unit
investment trust under the Investment Company Act of
1940 and consists of twenty-eight investment divisions
(twenty-nine during the year). Ten of the divisions
invest in the securities of a single mutual fund
portfolio of the Merrill Lynch Series Fund, Inc.
("Series Fund"). The portfolios of the Series Fund have
varying investment objectives relative to growth of
capital and income. The Series Fund receives investment
advice from Merrill Lynch Asset Management, L.P.
("MLAM"), an indirect subsidiary of Merrill, for a fee
at an effective annual rate of .50% of the first $250
million of net assets of the Series Fund with declining
rates to .30% of such assets over $800 million.
Eighteen of the divisions (nineteen during the year)
invest in the securities of a single trust of the
Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities, Series A through K ("Zero Trusts"). Each
trust of the Zero Trusts consists of Stripped Treasury
Securities with a fixed maturity date and a Treasury
Note deposited to provide income to pay expenses of the
trust.
The assets of the Account are registered in the name of
Merrill Lynch Life. The portion of the Account's assets
applicable to the Contracts are not chargeable with
liabilities arising out of any other business Merrill
Lynch Life may conduct.
The change in net assets accumulated in the Account
provides the basis for the periodic determination of
the amount of increased or decreased benefits under the
Contracts.
The net assets may not be less than the amount required
under Arkansas State Insurance Law to provide for death
benefits (without regard to the minimum death benefit
guarantee) and other Contract benefits.
To facilitate comparisons with the current year,
certain amounts in the prior years have been
reclassified.
Note 2 - The following is a summary of significant accounting
policies of the Account:
Investments in the divisions are included in the
statement of net assets at the net asset value of the
Series Fund and Zero Trusts shares held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically
reinvested.
Realized gains and losses on the sales of investments
are computed on the first in first out method.
The operations of the Account are included in the
Federal income tax return of Merrill Lynch Life. Under
the provisions of the Contracts, Merrill Lynch Life has
the right to charge the Account for any Federal
tax attributable to the Account. No charge is currently
being made against the Account for such tax, since
under current tax law, Merrill Lynch Life pays no tax
on investment income and capital gains reflected in
variable life insurance contract reserves. However,
Merrill Lynch Life retains the right to charge for any
Federal income tax incurred which is attributable to
the Account if the law is changed. Charges for state
and local taxes, if any, attributable to the Account
may also be made.
Note 3 - Merrill Lynch Life assumes mortality and expense
risks related to the operations of the Account and
deducts a daily charge from the assets of the Account
to cover these risks. The daily charges 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 for the insureds will be deducted on the dates
specified by the Contract. This cost will vary
dependent upon the insured's underwriting class, sex
(except where unisex rates are required by state law),
attained age of each insured and the Contract's net
amount at risk.
Note 4 - Merrill Lynch Life pays all transaction charges to
Merrill Lynch, Pierce, Fenner & Smith Inc., a
subsidiary of Merrill and sponsor of the unit
investment trusts, on the sale of Series A through K
Unit Investment Trust units to the Account. Merrill
Lynch Life deducts a daily asset charge against the
assets of each trust for the reimbursement of these
transaction charges. The asset charge is equivalent to
an effective annual rate of .34% (annually at the
beginning of the year) of net assets for Contract
owners.
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 176,010,284 $ 24,822,150 $ 13,472,963 $ 6,786,063
Mortality and Expense Charges (15,619,292) (2,520,260) (1,070,921) (539,029)
Transaction Charges (1,382,826) 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 159,008,166 22,301,890 12,402,042 6,247,034
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 43,387,581 0 (855,010) 146,795
Net Unrealized Gains (Losses) 186,601,895 0 19,621,941 10,523,245
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 229,989,476 0 18,766,931 10,670,040
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 388,997,642 22,301,890 31,168,973 16,917,074
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 9,110,961 1,709,166 407,854 232,781
Transfers of Policy Loading, Net (14,309,715) (2,847,538) (973,723) (548,353)
Transfers Due to Deaths (28,619,535) (6,450,303) (3,766,278) (1,805,628)
Transfers Due to Other Terminations (82,830,969) (25,664,477) (4,877,616) (2,299,581)
Transfers Due to Policy Loans (52,662,381) (10,281,466) (2,983,639) (2,839,173)
Transfers of Cost of Insurance (37,801,248) (6,710,312) (2,788,345) (1,371,116)
Transfers of Loan Processing Charges (5,564,758) (1,323,256) (358,670) (210,199)
Transfers Among Investment Divisions 0 12,061,983 (4,339,664) (492,798)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (212,677,645) (39,506,203) (19,680,081) (9,334,067)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 176,319,997 (17,204,313) 11,488,892 7,583,007
Net Assets Beginning Balance 2,569,989,270 439,273,471 184,087,478 90,307,495
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,746,309,267 $ 422,069,158 $ 195,576,370 $ 97,890,502
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 14,052,632 $ 5,782,691 $ 89,162,861 $ 7,701,496
Mortality and Expense Charges (1,020,643) (616,002) (5,576,347) (437,421)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 13,031,989 5,166,689 83,586,514 7,264,075
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (494,405) (1,254,980) 3,282,266 (930,995)
Net Unrealized Gains (Losses) 19,317,979 26,768,504 60,818,961 4,712,455
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 18,823,574 25,513,524 64,101,227 3,781,460
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 31,855,563 30,680,213 147,687,741 11,045,535
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,329,466 860,299 1,957,795 183,217
Transfers of Policy Loading, Net (807,726) (544,399) (5,061,657) (396,347)
Transfers Due to Deaths (748,695) (395,812) (8,914,824) (688,476)
Transfers Due to Other Terminations (4,629,991) (3,363,433) (24,446,720) (1,383,491)
Transfers Due to Policy Loans (3,350,832) (2,154,820) (17,508,815) (1,945,270)
Transfers of Cost of Insurance (2,581,125) (1,540,036) (13,021,247) (1,104,051)
Transfers of Loan Processing Charges (341,003) (284,780) (1,735,095) (172,281)
Transfers Among Investment Divisions 11,208,250 40,269,631 (6,020,911) 10,296,549
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 78,344 32,846,650 (74,751,474) 4,789,850
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 31,933,907 63,526,863 72,936,267 15,835,385
Net Assets Beginning Balance 162,448,409 77,721,729 913,594,108 62,809,861
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 194,382,316 $ 141,248,592 $ 986,530,375 $ 78,645,246
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Natural Global
Resources Strategy Balanced 1995
Portfolio Portfolio Portfolio Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 397,120 $ 8,694,293 $ 5,138,015 $ 0
Mortality and Expense Charges (118,050) (972,191) (421,210) (294,965)
Transaction Charges 0 0 0 (185,751)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 279,070 7,722,102 4,716,805 (480,716)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,033,498 2,141,801 805,689 17,529,850
Net Unrealized Gains (Losses) 938,120 5,172,778 7,426,310 (13,865,146)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 1,971,618 7,314,579 8,231,999 3,664,704
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 2,250,688 15,036,681 12,948,804 3,183,988
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 122,502 1,013,662 739,047 16,054
Transfers of Policy Loading, Net (105,777) (894,258) (396,129) (307,336)
Transfers Due to Deaths (21,772) (820,668) (285,619) (711,542)
Transfers Due to Other Terminations 59,974 (5,229,044) (2,944,348) (1,918,138)
Transfers Due to Policy Loans (323,604) (3,945,754) (661,408) (791,739)
Transfers of Cost of Insurance (288,104) (2,125,829) (1,038,823) (573,563)
Transfers of Loan Processing Charges (39,035) (298,471) (145,972) (48,583)
Transfers Among Investment Divisions (2,504,731) (17,325,015) 6,581,550 (63,064,582)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (3,100,547) (29,625,377) 1,848,298 (67,399,429)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (849,859) (14,588,696) 14,797,102 (64,215,441)
Net Assets Beginning Balance 17,719,391 177,468,177 61,801,342 64,215,441
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 16,869,532 $ 162,879,481 $ 76,598,444 $ 0
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1996 1997 1998 1999
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (262,167) (269,377) (290,687) (110,537)
Transaction Charges (154,485) (153,978) (167,663) (64,260)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (416,652) (423,355) (458,350) (174,797)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,665,788 2,408,526 1,661,614 1,319,537
Net Unrealized Gains (Losses) 1,679,337 2,209,227 4,634,030 1,585,255
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 3,345,125 4,617,753 6,295,644 2,904,792
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 2,928,473 4,194,398 5,837,294 2,729,995
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 26,729 24,322 37,544 30,415
Transfers of Policy Loading, Net (220,428) (229,415) (259,530) (85,456)
Transfers Due to Deaths (35,266) (115,072) (894,917) (1,971,355)
Transfers Due to Other Terminations (777,348) (970,980) (1,022,540) (57,518)
Transfers Due to Policy Loans (507,835) (1,415,740) (866,564) (188,153)
Transfers of Cost of Insurance (547,879) (573,469) (683,950) (282,772)
Transfers of Loan Processing Charges (55,695) (64,775) (82,022) (15,891)
Transfers Among Investment Divisions (912,885) 343,360 3,304,329 2,254,350
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (3,030,607) (3,001,769) (467,650) (316,380)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (102,134) 1,192,629 5,369,644 2,413,615
Net Assets Beginning Balance 45,192,991 44,131,719 45,713,675 17,422,179
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 45,090,857 $ 45,324,348 $ 51,083,319 $ 19,835,794
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2000 2001 2002 2003
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (93,208) (267,633) (35,381) (234,492)
Transaction Charges (56,945) (159,429) (19,497) (141,487)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (150,153) (427,062) (54,878) (375,979)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,079,644 2,169,345 84,556 2,188,877
Net Unrealized Gains (Losses) 1,750,905 6,911,215 1,118,190 7,969,698
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 2,830,549 9,080,560 1,202,746 10,158,575
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 2,680,396 8,653,498 1,147,868 9,782,596
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 16,173 110,390 36,390 64,586
Transfers of Policy Loading, Net (65,537) (243,092) (21,756) (162,797)
Transfers Due to Deaths (49,910) (309,777) 0 (239,034)
Transfers Due to Other Terminations (436,010) (630,758) (88,487) (853,586)
Transfers Due to Policy Loans (250,269) (535,794) (9,540) (505,406)
Transfers of Cost of Insurance (242,805) (605,251) (83,329) (507,876)
Transfers of Loan Processing Charges (29,760) (102,886) (8,902) (68,515)
Transfers Among Investment Divisions 3,796,430 264,215 2,540,001 (744,560)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,738,312 (2,052,953) 2,364,377 (3,017,188)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 5,418,708 6,600,545 3,512,245 6,765,408
Net Assets Beginning Balance 12,686,503 42,206,243 3,463,397 37,539,958
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 18,105,211 $ 48,806,788 $ 6,975,642 $ 44,305,366
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2004 2005 2006 2007
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (23,510) (92,226) (21,182) (54,451)
Transaction Charges (13,886) (57,786) (12,255) (31,888)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (37,396) (150,012) (33,437) (86,339)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 76,995 1,179,925 547,672 804,931
Net Unrealized Gains (Losses) 939,835 3,431,671 497,412 2,083,163
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 1,016,830 4,611,596 1,045,084 2,888,094
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 979,434 4,461,584 1,011,647 2,801,755
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 133 15,117 12,634 887
Transfers of Policy Loading, Net (12,038) (76,421) (18,624) (24,411)
Transfers Due to Deaths 0 (25,998) 0 (17,239)
Transfers Due to Other Terminations (4,674) (330,900) (39,923) (59,076)
Transfers Due to Policy Loans 66,684 (666,457) (209,895) (65,074)
Transfers of Cost of Insurance (59,623) (220,243) (52,758) (113,608)
Transfers of Loan Processing Charges (5,739) (24,379) (11,413) (14,451)
Transfers Among Investment Divisions 1,535,421 795,262 369,986 (681,485)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,520,164 (534,019) 50,007 (974,457)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 2,499,598 3,927,565 1,061,654 1,827,298
Net Assets Beginning Balance 3,122,901 15,092,204 3,234,021 8,367,556
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 5,622,499 $ 19,019,769 $ 4,295,675 $ 10,194,854
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2008 2009 2010 2011
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (120,324) (51,094) (41,651) (9,176)
Transaction Charges (70,339) (30,692) (23,311) (5,475)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (190,663) (81,786) (64,962) (14,651)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 884,636 941,985 1,484,526 203,644
Net Unrealized Gains (Losses) 5,812,953 2,134,127 964,757 418,302
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 6,697,589 3,076,112 2,449,283 621,946
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 6,506,926 2,994,326 2,384,321 607,295
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums
Transfers of Policy Loading, Net 39,511 44,508 59,489 0
Transfers Due to Deaths (104,127) (27,948) (25,276) (17,288)
Transfers Due to Other Terminations (123,223) 0 (30,038) (93,725)
Transfers Due to Policy Loans (521,395) (73,640) (56,753) 654
Transfers of Cost of Insurance (242,497) (121,680) (169,730) 3,551
Transfers of Loan Processing Charges (267,820) (121,706) (84,072) (13,654)
Transfers Among Investment Divisions (43,536) (23,519) (13,730) (1,605)
(150,546) (482,490) (786,513) (993,610)
Increase (Decrease) in Net Assets ----------------- ----------------- ----------------- -----------------
Resulting from Principal Transactions
(1,413,633) (806,475) (1,106,623) (1,115,677)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Net Assets Beginning Balance 5,093,293 2,187,851 1,277,698 (508,382)
18,386,817 7,683,951 6,193,267 1,975,183
Net Assets Ending Balance ----------------- ----------------- ----------------- -----------------
$ 23,480,110 $ 9,871,802 $ 7,470,965 $ 1,466,801
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------
2013 2014
Trust Trust
----------------- -----------------
<S> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0
Mortality and Expense Charges (11,340) (43,817)
Transaction Charges (6,937) (26,762)
----------------- -----------------
Net Investment Income (Loss) (18,277) (70,579)
----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 557,038 2,723,833
Net Unrealized Gains (Losses) 332,611 694,060
----------------- -----------------
Net Realized and Unrealized Gains 889,649 3,417,893
----------------- -----------------
Increase in Net Assets
Resulting from Operations 871,372 3,347,314
----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 3,999 16,291
Transfers of Policy Loading, Net (39,511) 207,183
Transfers Due to Deaths 0 (104,364)
Transfers Due to Other Terminations 855 (212,025)
Transfers Due to Policy Loans (132,678) (58,784)
Transfers of Cost of Insurance (17,748) (180,134)
Transfers of Loan Processing Charges (4,108) (36,487)
Transfers Among Investment Divisions (1,399,914) 4,278,387
----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,589,105) 3,910,067
----------------- -----------------
Increase (Decrease) in Net Assets (717,733) 7,257,381
Net Assets Beginning Balance 2,170,859 3,958,944
----------------- -----------------
Net Assets Ending Balance $ 1,453,126 $ 11,216,325
================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 247,180,360 $ 17,480,949 $ 22,232,388 $ 11,078,761
Mortality and Expense Charges (15,774,764) (2,517,605) (1,179,517) (575,542)
Transaction Charges (1,442,573) 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 229,963,023 14,963,344 21,052,871 10,503,219
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 37,024,153 0 (1,019,016) 75,887
Net Unrealized Gains (Losses) (373,279,380) 0 (32,149,004) (16,813,358)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (336,255,227) 0 (33,168,020) (16,737,471)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (106,292,204) 14,963,344 (12,115,149) (6,234,252)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 10,401,083 1,953,978 543,078 257,542
Transfers of Policy Loading, Net (19,215,408) (3,150,489) (1,534,327) (702,572)
Transfers Due to Deaths (23,345,250) (4,254,868) (2,896,949) (1,177,899)
Transfers Due to Other Terminations (71,143,764) (24,965,885) (4,994,737) (1,269,868)
Transfers Due to Policy Loans (51,098,887) (11,424,065) (5,810,455) (2,310,361)
Transfers of Cost of Insurance (37,539,344) (6,952,022) (3,039,049) (1,480,394)
Transfers of Loan Processing Charges (4,561,365) (848,038) (98,365) (305,505)
Transfers Among Investment Divisions 0 39,266,714 (25,456,948) (8,356,792)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (196,502,935) (10,374,675) (43,287,752) (15,345,849)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (302,795,139) 4,588,669 (55,402,901) (21,580,101)
Net Assets Beginning Balance 2,872,784,409 434,684,802 239,490,379 111,887,596
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,569,989,270 $ 439,273,471 $ 184,087,478 $ 90,307,495
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 19,785,866 $ 15,147,606 $ 143,793,750 $ 7,184,948
Mortality and Expense Charges (987,289) (477,233) (5,700,441) (395,789)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 18,798,577 14,670,373 138,093,309 6,789,159
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 2,104,282 (10,467,665) 5,827,379 1,121,619
Net Unrealized Gains (Losses) (31,128,817) (11,111,365) (201,192,744) (9,538,975)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (29,024,535) (21,579,030) (195,365,365) (8,417,356)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (10,225,958) (6,908,657) (57,272,056) (1,628,197)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,366,713 872,357 2,169,556 161,144
Transfers of Policy Loading, Net (1,166,265) (644,809) (6,725,971) (538,772)
Transfers Due to Deaths (1,806,297) (597,117) (6,374,543) (693,506)
Transfers Due to Other Terminations (3,337,898) (2,133,792) (19,513,936) (1,450,355)
Transfers Due to Policy Loans (3,224,975) (802,503) (16,603,103) (1,088,146)
Transfers of Cost of Insurance (2,399,816) (1,111,968) (12,761,402) (960,536)
Transfers of Loan Processing Charges (454,099) (372,240) (1,836,110) (129,456)
Transfers Among Investment Divisions 9,140,090 (4,430,707) 96,851 (3,702,318)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,882,547) (9,220,779) (61,548,658) (8,401,945)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (12,108,505) (16,129,436) (118,820,714) (10,030,142)
Net Assets Beginning Balance 174,556,914 93,851,165 1,032,414,822 72,840,003
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 162,448,409 $ 77,721,729 $ 913,594,108 $ 62,809,861
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Natural Global
Resources Strategy Balanced 1994
Portfolio Portfolio Portfolio Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 373,375 $ 6,517,828 $ 3,584,889 $ 0
Mortality and Expense Charges (106,249) (1,036,113) (401,040) (248,137)
Transaction Charges 0 0 0 (159,319)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 267,126 5,481,715 3,183,849 (407,456)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (652,997) 3,549,064 1,700,964 18,331,185
Net Unrealized Gains (Losses) 118,228 (13,960,659) (8,315,137) (16,722,421)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (534,769) (10,411,595) (6,614,173) 1,608,764
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (267,643) (4,929,880) (3,430,324) 1,201,308
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 138,534 1,470,745 851,040 8,545
Transfers of Policy Loading, Net (127,988) (1,141,149) (494,591) (395,818)
Transfers Due to Deaths (73,158) (1,175,638) (432,307) (876,461)
Transfers Due to Other Terminations (276,251) (2,471,264) (1,235,045) (1,199,852)
Transfers Due to Policy Loans (291,716) (2,123,219) (1,172,951) (1,089,958)
Transfers of Cost of Insurance (248,486) (2,513,574) (945,522) (234,486)
Transfers of Loan Processing Charges 34,664 (124,430) 18,643 11,363
Transfers Among Investment Divisions 3,426,457 42,556,919 (2,746,108) (76,785,156)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,582,056 34,478,390 (6,156,841) (80,561,823)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 2,314,413 29,548,510 (9,587,165) (79,360,515)
Net Assets Beginning Balance 15,404,978 147,919,667 71,388,507 79,360,515
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 17,719,391 $ 177,468,177 $ 61,801,342 $ 0
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1995 1996 1997 1998
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (346,689) (253,289) (258,597) (269,871)
Transaction Charges (219,971) (149,211) (148,229) (155,967)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (566,660) (402,500) (406,826) (425,838)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 2,745,342 2,606,820 1,593,071 1,541,769
Net Unrealized Gains (Losses) (1,622,527) (2,102,823) (2,173,169) (2,974,063)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 1,122,815 503,997 (580,098) (1,432,294)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 556,155 101,497 (986,924) (1,858,132)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 13,441 39,603 26,127 81,829
Transfers of Policy Loading, Net (437,011) (291,829) (293,815) (353,160)
Transfers Due to Deaths (896,071) (238,192) (379,402) (501,383)
Transfers Due to Other Terminations (1,066,529) (1,802,108) (1,263,246) (911,808)
Transfers Due to Policy Loans (1,143,878) (446,182) (1,252,416) (22,589)
Transfers of Cost of Insurance (922,688) (523,809) (524,736) (585,758)
Transfers of Loan Processing Charges (109,634) (57,329) (56,303) (67,587)
Transfers Among Investment Divisions 118,676 4,124,539 3,517,160 2,082,751
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (4,443,694) 804,693 (226,631) (277,705)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (3,887,539) 906,190 (1,213,555) (2,135,837)
Net Assets Beginning Balance 68,102,980 44,286,801 45,345,274 47,849,512
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 64,215,441 $ 45,192,991 $ 44,131,719 $ 45,713,675
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1999 2000 2001 2002
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (78,338) (62,149) (251,092) (17,766)
Transaction Charges (44,254) (38,332) (149,969) (10,703)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (122,592) (100,481) (401,061) (28,469)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 516,055 501,763 2,166,175 152,585
Net Unrealized Gains (Losses) (1,027,935) (1,168,467) (5,279,593) (372,763)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (511,880) (666,704) (3,113,418) (220,178)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (634,472) (767,185) (3,514,479) (248,647)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 21,244 5,958 105,869 23,467
Transfers of Policy Loading, Net (50,621) (87,059) (309,468) (17,837)
Transfers Due to Deaths 0 (190,028) (225,911) (73,157)
Transfers Due to Other Terminations (197,712) (456,108) (664,955) (55,245)
Transfers Due to Policy Loans (225,787) (21,720) (886,085) 138,904
Transfers of Cost of Insurance (231,338) (174,810) (513,726) (54,089)
Transfers of Loan Processing Charges 47,120 (22,049) (17,905) (6,801)
Transfers Among Investment Divisions 9,231,769 3,411,401 (1,609,263) 855,396
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 8,594,675 2,465,585 (4,121,444) 810,638
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 7,960,203 1,698,400 (7,635,923) 561,991
Net Assets Beginning Balance 9,461,976 10,988,103 49,842,166 2,901,406
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 17,422,179 $ 12,686,503 $ 42,206,243 $ 3,463,397
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2003 2004 2005 2006
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (222,798) (6,328) (82,723) (18,872)
Transaction Charges (134,454) (3,792) (51,883) (11,059)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (357,252) (10,120) (134,606) (29,931)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,720,038 (4,266) 779,904 188,563
Net Unrealized Gains (Losses) (5,382,943) (17,605) (2,251,937) (529,058)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (3,662,905) (21,871) (1,472,033) (340,495)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (4,020,157) (31,991) (1,606,639) (370,426)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 43,741 133 10,218 12,632
Transfers of Policy Loading, Net (238,948) 3,413 (93,434) (34,677)
Transfers Due to Deaths (182,764) 0 (191,171) 0
Transfers Due to Other Terminations (375,361) (46,454) (28,632) 459
Transfers Due to Policy Loans (554,846) (25,793) (64,283) (158,577)
Transfers of Cost of Insurance (440,510) (32,097) (181,280) (41,992)
Transfers of Loan Processing Charges (36,935) (4,280) (20,774) (8,081)
Transfers Among Investment Divisions (1,468,172) 3,259,970 41,963 54,352
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (3,253,795) 3,154,892 (527,393) (175,884)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (7,273,952) 3,122,901 (2,134,032) (546,310)
Net Assets Beginning Balance 44,813,910 0 17,226,236 3,780,331
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 37,539,958 $ 3,122,901 $ 15,092,204 $ 3,234,021
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2007 2008 2009 2010
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (51,878) (116,499) (47,163) (34,197)
Transaction Charges (30,272) (68,364) (28,372) (19,078)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (82,150) (184,863) (75,535) (53,275)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 546,264 1,428,719 794,192 (608,414)
Net Unrealized Gains (Losses) (1,592,369) (3,897,784) (1,783,335) (8,357)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (1,046,105) (2,469,065) (989,143) (616,771)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (1,128,255) (2,653,928) (1,064,678) (670,046)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 390 39,379 51,966 69,760
Transfers of Policy Loading, Net (62,092) (183,199) (52,927) (13,802)
Transfers Due to Deaths 0 (77,631) (22,465) 0
Transfers Due to Other Terminations (222,712) (317,191) (700,372) (129,666)
Transfers Due to Policy Loans (117,156) (179,952) (141,670) (99,420)
Transfers of Cost of Insurance (108,096) (258,534) (117,050) (78,631)
Transfers of Loan Processing Charges (13,521) (35,908) (18,290) (10,853)
Transfers Among Investment Divisions (456,913) (1,891,494) (101,158) 981,746
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (980,100) (2,904,530) (1,101,966) 719,134
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (2,108,355) (5,558,458) (2,166,644) 49,088
Net Assets Beginning Balance 10,475,911 23,945,275 9,850,595 6,144,179
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 8,367,556 $ 18,386,817 $ 7,683,951 $ 6,193,267
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
2011 2013 2014
Trust Trust Trust
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0
Mortality and Expense Charges (13,735) (11,206) (6,619)
Transaction Charges (8,220) (6,936) (4,188)
----------------- ----------------- -----------------
Net Investment Income (Loss) (21,955) (18,142) (10,807)
----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 167,451 (249,550) (133,030)
Net Unrealized Gains (Losses) (512,426) 30,870 201,156
----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (344,975) (218,680) 68,126
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (366,930) (236,822) 57,319
----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 86 53,725 8,283
Transfers of Policy Loading, Net (35,384) (28,951) (11,856)
Transfers Due to Deaths (8,332) 0 0
Transfers Due to Other Terminations (54,698) (710) (1,833)
Transfers Due to Policy Loans (23,522) 58,884 8,653
Transfers of Cost of Insurance (25,602) (47,138) (30,205)
Transfers of Loan Processing Charges (2,081) (10,611) (5,970)
Transfers Among Investment Divisions (699,655) 1,603,377 3,934,553
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (849,188) 1,628,576 3,901,625
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (1,216,118) 1,391,754 3,958,944
Net Assets Beginning Balance 3,191,301 779,105 0
----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,975,183 $ 2,170,859 $ 3,958,944
================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 157,524,630 $ 14,579,642 $ 19,756,552 $ 8,906,432
Mortality and Expense Charges (17,816,608) (3,235,134) (1,481,978) (729,699)
Transaction Charges (1,822,452) 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 137,885,570 11,344,508 18,274,574 8,176,733
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 77,222,781 0 2,368,600 2,037,165
Net Unrealized Gains (Losses) 100,298,797 0 3,193,238 2,756,338
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 177,521,578 0 5,561,838 4,793,503
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 315,407,148 11,344,508 23,836,412 12,970,236
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 13,356,961 3,244,129 664,464 410,338
Transfers of Policy Loading, Net (14,938,127) (3,804,574) (1,150,420) (535,370)
Transfers Due to Deaths (25,399,159) (5,579,687) (1,567,950) (1,132,049)
Transfers Due to Other Terminations (66,518,195) (25,788,859) (3,398,749) (1,564,718)
Transfers Due to Policy Loans (62,711,054) (17,840,370) (5,444,951) (2,352,782)
Transfers of Cost of Insurance (34,885,568) (6,469,103) (3,032,428) (1,480,593)
Transfers of Loan Processing Charges (2,784,789) (582,722) (215,248) (120,170)
Transfers of Shares from Assumption
Reinsurance, Net 2,091 0 0 0
Transfers Among Investment Divisions 0 (46,276,980) 3,170,917 990,311
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (193,877,840) (103,098,166) (10,974,365) (5,785,033)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 121,529,308 (91,753,658) 12,862,047 7,185,203
Net Assets Beginning Balance 2,751,255,101 526,438,460 226,628,332 104,702,393
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,872,784,409 $ 434,684,802 $ 239,490,379 $ 111,887,596
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 8,483,704 $ 5,665,091 $ 87,413,712 $ 6,392,554
Mortality and Expense Charges (1,049,934) (662,670) (5,971,729) (400,671)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 7,433,770 5,002,421 81,441,983 5,991,883
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 9,255,863 5,031,894 12,104,149 3,761,965
Net Unrealized Gains (Losses) 8,352,474 (2,863,617) 53,058,504 26,663
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 17,608,337 2,168,277 65,162,653 3,788,628
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 25,042,107 7,170,698 146,604,636 9,780,511
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,613,438 1,156,863 3,314,727 170,174
Transfers of Policy Loading, Net (746,736) (527,407) (4,743,076) (305,484)
Transfers Due to Deaths (1,441,652) (424,081) (9,386,175) (269,656)
Transfers Due to Other Terminations (2,886,981) (2,765,551) (19,554,318) (481,749)
Transfers Due to Policy Loans (2,723,453) (425,398) (20,329,642) (848,315)
Transfers of Cost of Insurance (2,071,101) (1,212,545) (11,614,386) (773,730)
Transfers of Loan Processing Charges (148,107) (119,166) (936,321) (83,586)
Transfers of Shares from Assumption
Reinsurance, Net (9,251) 0 0 0
Transfers Among Investment Divisions (674,380) (14,943,118) 3,152,807 16,183,411
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (9,088,223) (19,260,403) (60,096,384) 13,591,065
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 15,953,884 (12,089,705) 86,508,252 23,371,576
Net Assets Beginning Balance 158,603,030 105,940,870 945,906,570 49,468,427
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 174,556,914 $ 93,851,165 $ 1,032,414,822 $ 72,840,003
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Natural Global
Resources Strategy Balanced 1993
Portfolio Portfolio Portfolio Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 294,435 $ 2,776,280 $ 3,256,228 $ 0
Mortality and Expense Charges (73,112) (504,473) (383,357) (221,901)
Transaction Charges 0 0 0 (118,827)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 221,323 2,271,807 2,872,871 (340,728)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 994,165 2,181,371 718,355 7,600,757
Net Unrealized Gains (Losses) (755,989) 10,528,938 3,286,065 (6,353,275)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 238,176 12,710,309 4,004,420 1,247,482
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 459,499 14,982,116 6,877,291 906,754
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 107,007 883,491 946,132 21,992
Transfers of Policy Loading, Net (62,087) (268,321) (247,293) (277,995)
Transfers Due to Deaths (19,504) (182,566) (192,062) (459,218)
Transfers Due to Other Terminations (143,466) (762,976) (530,808) (1,517,138)
Transfers Due to Policy Loans (333,844) (617,005) (1,179,288) (1,344,280)
Transfers of Cost of Insurance (133,409) (965,449) (728,980) (491,114)
Transfers of Loan Processing Charges (9,751) (76,146) (56,909) (21,391)
Transfers of Shares from Assumption
Reinsurance, Net (5,990) 0 0 0
Transfers Among Investment Divisions 8,982,492 92,899,773 21,494,125 (40,428,502)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 8,381,448 90,910,801 19,504,917 (44,517,646)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 8,840,947 105,892,917 26,382,208 (43,610,892)
Net Assets Beginning Balance 6,564,031 42,026,750 45,006,299 43,610,892
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 15,404,978 $ 147,919,667 $ 71,388,507 $ 0
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1994 1995 1996 1997
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (508,606) (419,735) (285,506) (296,476)
Transaction Charges (286,599) (239,987) (159,486) (159,716)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (795,205) (659,722) (444,992) (456,192)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 2,947,880 2,531,808 2,210,012 2,210,676
Net Unrealized Gains (Losses) 1,298,940 2,364,168 1,476,343 2,343,186
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 4,246,820 4,895,976 3,686,355 4,553,862
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 3,451,615 4,236,254 3,241,363 4,097,670
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 23,935 30,144 115,040 53,460
Transfers of Policy Loading, Net (370,852) (335,217) (227,076) (230,677)
Transfers Due to Deaths (644,926) (470,755) (257,684) (356,746)
Transfers Due to Other Terminations (1,493,290) (1,583,904) (777,122) (892,523)
Transfers Due to Policy Loans (1,442,272) (526,706) (1,254,579) (700,428)
Transfers of Cost of Insurance (1,148,711) (918,171) (526,125) (516,461)
Transfers of Loan Processing Charges (50,783) (62,879) (37,166) (39,762)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 0 0
Transfers Among Investment Divisions (6,937,701) (4,037,538) (3,570,145) (3,812,833)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (12,064,600) (7,905,026) (6,534,857) (6,495,970)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (8,612,985) (3,668,772) (3,293,494) (2,398,300)
Net Assets Beginning Balance 87,973,500 71,771,752 47,580,295 47,743,574
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 79,360,515 $ 68,102,980 $ 44,286,801 $ 45,345,274
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1998 1999 2000 2001
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (316,125) (64,753) (69,214) (325,829)
Transaction Charges (172,825) (33,994) (38,396) (174,748)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (488,950) (98,747) (107,610) (500,577)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 2,994,693 625,244 863,965 2,818,246
Net Unrealized Gains (Losses) 2,560,078 618,895 686,361 5,055,214
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 5,554,771 1,244,139 1,550,326 7,873,460
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 5,065,821 1,145,392 1,442,716 7,372,883
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 69,848 38,088 23,917 157,512
Transfers of Policy Loading, Net (240,503) (46,671) (45,190) (233,056)
Transfers Due to Deaths (852,485) (58,665) (135,087) (578,022)
Transfers Due to Other Terminations (696,428) (110,441) (43,082) (278,181)
Transfers Due to Policy Loans (1,135,551) (83,801) (1,006,945) (622,795)
Transfers of Cost of Insurance (582,580) (99,900) (119,952) (567,843)
Transfers of Loan Processing Charges (44,413) (5,080) (6,601) (59,429)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 0 0
Transfers Among Investment Divisions (4,276,293) (791,329) 95,520 (4,245,238)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (7,758,405) (1,157,799) (1,237,420) (6,427,052)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (2,692,584) (12,407) 205,296 945,831
Net Assets Beginning Balance 50,542,096 9,474,383 10,782,807 48,896,335
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 47,849,512 $ 9,461,976 $ 10,988,103 $ 49,842,166
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2002 2003 2005 2006
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (18,118) (287,455) (103,227) (27,829)
Transaction Charges (9,812) (158,308) (57,414) (13,328)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (27,930) (445,763) (160,641) (41,157)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 88,089 3,582,928 1,234,406 348,296
Net Unrealized Gains (Losses) 383,108 5,019,505 2,008,342 483,127
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 471,197 8,602,433 3,242,748 831,423
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 443,267 8,156,670 3,082,107 790,266
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 24,031 75,547 22,035 12,663
Transfers of Policy Loading, Net (11,613) (177,031) (64,933) (22,622)
Transfers Due to Deaths 0 (134,868) (59,006) 0
Transfers Due to Other Terminations (6,472) (505,225) (118,556) (78,723)
Transfers Due to Policy Loans (33,626) (539,543) (79,214) (105,193)
Transfers of Cost of Insurance (37,523) (478,519) (178,631) (43,120)
Transfers of Loan Processing Charges (2,780) (34,708) (10,141) (4,227)
Transfers of Shares from Assumption
Reinsurance, Net 0 0 0 0
Transfers Among Investment Divisions 237,399 (5,463,264) (708,013) (357,722)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 169,416 (7,257,611) (1,196,459) (598,944)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 612,683 899,059 1,885,648 191,322
Net Assets Beginning Balance 2,288,723 43,914,851 15,340,588 3,589,009
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,901,406 $ 44,813,910 $ 17,226,236 $ 3,780,331
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2007 2008 2009 2010
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (71,351) (170,845) (69,964) (45,688)
Transaction Charges (38,431) (90,609) (35,465) (22,783)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (109,782) (261,454) (105,429) (68,471)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 1,360,880 3,557,489 1,137,602 2,093,934
Net Unrealized Gains (Losses) 1,154,914 2,520,239 1,305,227 (441,116)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 2,515,794 6,077,728 2,442,829 1,652,818
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 2,406,012 5,816,274 2,337,400 1,584,347
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,105 53,137 51,618 70,774
Transfers of Policy Loading, Net (40,889) (125,814) (41,754) (38,843)
Transfers Due to Deaths (157,848) (909,544) (27,469) (101,454)
Transfers Due to Other Terminations (179,374) (256,678) (163,074) (1,851)
Transfers Due to Policy Loans (360,953) (990,614) (330,661) (21,361)
Transfers of Cost of Insurance (127,078) (322,908) (121,041) (81,977)
Transfers of Loan Processing Charges (6,469) (32,008) (8,178) (5,672)
Transfers of Shares from Assumption
Reinsurance, Net 0 17,332 0 0
Transfers Among Investment Divisions (1,810,743) (5,118,459) (1,847,994) (2,330,052)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (2,681,249) (7,685,556) (2,488,553) (2,510,436)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (275,237) (1,869,282) (151,153) (926,089)
Net Assets Beginning Balance 10,751,148 25,814,557 10,001,748 7,070,268
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 10,475,911 $ 23,945,275 $ 9,850,595 $ 6,144,179
================= ================= ================= =================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------
2011 2013
Trust Trust
----------------- -----------------
<S> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0
Mortality and Expense Charges (19,623) (1,606)
Transaction Charges (10,835) (889)
----------------- -----------------
Net Investment Income (Loss) (30,458) (2,495)
----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 512,543 49,806
Net Unrealized Gains (Losses) 257,400 (24,473)
----------------- -----------------
Net Realized and Unrealized Gains 769,943 25,333
----------------- -----------------
Increase in Net Assets
Resulting from Operations 739,485 22,838
----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 352 0
Transfers of Policy Loading, Net (14,956) (1,667)
Transfers Due to Deaths 0 0
Transfers Due to Other Terminations 82,576 (20,534)
Transfers Due to Policy Loans 19,147 (56,631)
Transfers of Cost of Insurance (38,852) (3,338)
Transfers of Loan Processing Charges (4,862) (114)
Transfers of Shares from Assumption
Reinsurance, Net 0 0
Transfers Among Investment Divisions (415,002) 838,551
----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (371,597) 756,267
----------------- -----------------
Increase (Decrease) in Net Assets 367,888 779,105
Net Assets Beginning Balance 2,823,413 0
----------------- -----------------
Net Assets Ending Balance $ 3,191,301 $ 779,105
================= =================
</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, 1995
and 1994, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
February 26, 1996
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1995 - $3,648,983; 1994 - $4,014,272) $ 3,807,870 $ 3,867,833
Equity securities available for sale, at estimated fair value
(cost: 1995 - $19,683; 1994 - $15,946) 21,433 16,777
Mortgage loans on real estate 121,248 149,249
Real estate held for sale
(accumulated depreciation: 1995 - $81; 1994 - $515) 5,874 12,955
Policy loans on insurance contracts 1,039,267 985,213
------------ ------------
Total Investments 4,995,692 5,032,027
CASH AND CASH EQUIVALENTS 48,924 139,087
ACCRUED INVESTMENT INCOME 91,942 95,133
DEFERRED POLICY ACQUISITION COSTS 372,418 466,334
FEDERAL INCOME TAXES - DEFERRED 2,222 38,919
REINSURANCE RECEIVABLES 1,552 1,832
RECEIVABLES FROM AFFILIATES - NET 0 3,113
OTHER ASSETS 54,900 28,656
SEPARATE ACCOUNTS ASSETS 6,834,353 5,798,973
------------ -------------
TOTAL ASSETS $12,402,003 $11,604,074
============ =============
</TABLE>
See notes to financial statements.
<PAGE>
==============================================================================
<TABLE>
(caption>
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1994
-------------- ------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 4,851,718 $ 5,148,971
Claims and claims settlement expenses 29,812 26,177
------------- ------------
Total policy liabilities and accruals 4,881,530 5,175,148
OTHER POLICYHOLDER FUNDS 13,607 21,221
LIABILITY FOR GUARANTY FUND ASSESSMENTS 21,144 24,774
OTHER LIABILITIES 53,566 36,775
FEDERAL INCOME TAXES - CURRENT 7,033 2,274
AFFILIATED PAYABLES - NET 2,429 0
SEPARATE ACCOUNTS LIABILITIES 6,825,857 5,784,311
------------- ------------
Total Liabilities 11,805,166 11,044,503
------------- ------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 501,455 535,450
Retained earnings 76,482 66,005
Net unrealized investment gain (loss) 16,900 (43,884)
------------- ------------
Total Stockholder's Equity 596,837 559,571
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $12,402,003 $11,604,074
============= ============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
===================================================================
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 376,166 $ 433,536 $ 586,461
Net realized investment gains (losses) 4,525 (14,543) 63,052
Policy charge revenue 141,722 126,284 95,684
----------- ----------- -----------
Total Revenues 522,413 545,277 745,197
----------- ----------- -----------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 261,760 313,585 454,671
Market value adjustment expense 5,805 6,307 30,816
Policy benefits (net of reinsurance recoveries: 1995 - $6,482;
1994 - $6,338; 1993 - $6,004) 19,374 16,858 17,030
Reinsurance premium ceded 13,896 13,909 12,665
Amortization of deferred policy acquisition costs 58,669 69,662 109,456
Insurance expenses and taxes 44,124 35,073 47,784
----------- ----------- -----------
Total Benefits and Expenses 403,628 455,394 672,422
----------- ----------- -----------
Earnings Before Federal Income Tax Provision 118,785 89,883 72,775
----------- ----------- -----------
FEDERAL INCOME TAX PROVISION:
Current 38,335 22,503 20,112
Deferred 3,968 1,375 4,803
----------- ----------- -----------
Total Federal Income Tax Provision 42,303 23,878 24,915
----------- ----------- -----------
NET EARNINGS $ 76,482 $ 66,005 $ 47,860
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
===========================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
---------- ------------ ------------ -------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 $ 2,000 $ 654,717 $ 102,873 $ 2,884 $ 762,474
Dividend to Parent (17,127) (102,873) (120,000)
Net earnings 47,860 47,860
Net unrealized investment loss (3,279) (3,279)
---------- ------------ ------------ --------------- ----------------
BALANCE, DECEMBER 31, 1993 2,000 637,590 47,860 (395) 687,055
Dividend to Parent (102,140) (47,860) (150,000)
Net earnings 66,005 66,005
Net unrealized investment loss (43,489) (43,489)
---------- ------------ ------------ --------------- ----------------
BALANCE, DECEMBER 31, 1994 2,000 535,450 66,005 (43,884) 559,571
Dividend to Parent (33,995) (66,005) (100,000)
Net earnings 76,482 76,482
Net unrealized investment gain 60,784 60,784
---------- ------------ ------------ -------------- -----------------
BALANCE, DECEMBER 31, 1995 $ 2,000 $ 501,455 $ 76,482 $ 16,900 $ 596,837
========== ============ ============ ============== =================
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1994
(Dollars in Thousands)
=========================================================================
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 76,482 $ 66,005 $ 47,860
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 58,669 69,662 109,456
Capitalization of policy acquisition costs (54,014) (108,829) (91,189)
Depreciation, (accretion) and amortization of investments (6,763) (4,516) 1,142
Net realized investment (gains) losses (4,525) 14,543 (63,052)
Interest credited to policyholders' account balances 261,760 313,585 454,671
Provision for deferred Federal income tax 3,968 1,375 4,803
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 3,191 25,204 18,460
Receivables from affiliates - net 5,542 (2,324) (3,427)
Claims and claims settlement expenses 3,635 5,882 12,730
Federal income taxes - current 4,759 (7,848) (19,888)
Other policyholder funds (7,614) (7,547) 14,131
Liability for guaranty fund assessments (3,630) (3,309) 979
Policy loans (54,054) (60,634) (90,118)
Investment trading securities 0 11,352 (145,972)
Other, net (9,296) (39,206) 49,424
Net cash and cash equivalents provided ------------- ------------ -------------
by operating activities 278,110 273,395 300,010
------------- ------------ -------------
</TABLE>
(Continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Concluded) (Dollars In Thousands)
========================================================================
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Fixed maturity securities sold 618,101 845,227 571,337
Fixed maturity securities matured 570,923 1,323,705 2,776,992
Fixed maturity securities purchased (814,535) (676,976) (1,866,857)
Equity securities available for sale sold 15,723 18,868 6,451
Equity securities available for sale purchased (17,984) (1,998) (8,983)
Mortgage loans on real estate principal payments received 30,767 32,341 35,561
Mortgage loans on real estate acquired (3,608) 0 (674)
Real estate held for sale sold 9,710 25,346 7,408
Real estate held for sale - improvements acquired (683) (1,060) 0
Recapture of investment in Separate Accounts 6,559 0 29,389
Investment in Separate Accounts (377) (15,212) (20,000)
------------- ------------ -------------
Net cash and cash equivalents provided
by investing activities 414,596 1,550,241 1,530,624
------------- ------------ -------------
FINANCING ACTIVITIES:
Dividends paid to parent (100,000) (150,000) (120,000)
Policyholders' account balances:
Deposits 567,430 966,861 814,314
Withdrawals (net of transfers to/from Separate Accounts) (1,250,299) (2,623,628) (2,574,854)
------------- ------------ -------------
Net cash and cash equivalents used
by financing activities (782,869) (1,806,767) (1,880,540)
------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (90,163) 16,869 (49,906)
CASH AND CASH EQUIVALENTS
Beginning of year 139,087 122,218 172,124
------------- ------------ -------------
End of year $ 48,924 $ 139,087 $ 122,218
============= ============ =============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 33,576 $ 30,351 $ 40,000
Intercompany interest 1,310 679 737
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: Merrill Lynch Life Insurance Company (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells non-participating life insurance and annuity
products which comprise one business segment. The primary
products that the Company currently markets are immediate
annuities, market value adjusted annuities, variable life
insurance and variable annuities. The Company is currently
licensed to sell insurance in forty-nine states, the District
of Columbia, the U.S. Virgin Islands and Guam. The Company
markets its products solely through the retail network of
Merrill Lynch Pierce, Fenner & Smith, Incorporated ("MLPF&S"),
a wholly-owned subsidiary of Merrill Lynch & Co.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles for
stock life insurance companies. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition: Revenues for the Company's interest
sensitive life, interest sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest crediting rates for the
Company's fixed rate products are as follows:
Interest sensitive life products 4.00% - 6.90%
Interest sensitive deferred annuities 3.08% - 8.77%
Immediate annuities 4.00% -10.00%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are
unreported as of the valuation date.
Reinsurance: In the normal course of business, the Company
seeks to limit its exposure to loss on any single insured life
and to recover a portion of benefits paid by ceding reinsurance
to other insurance enterprises or reinsurers under indemnity
reinsurance agreements, primarily excess coverage and
coinsurance agreements. The maximum amount of mortality risk
retained by the Company is approximately $500 on a single life.
<PAGE>
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the
Company. The Company regularly evaluates the financial
condition of its reinsurers so as to minimize its exposure to
significant losses from reinsurer insolvencies. The Company
holds collateral under reinsurance agreements in the form of
letters of credit and funds withheld totaling $567 that can be
drawn upon for delinquent reinsurance recoverables.
As of December 31, 1995, the Company had life insurance in-
force which was ceded to other life insurance companies of
$2,302,776.
Deferred Policy Acquisition Costs: Policy acquisition costs
for life and annuity contracts are deferred and amortized based
on the estimated future gross profits for each group of
contracts. These future gross profit estimates are subject to
periodic evaluation by the Company, with necessary revisions
applied against amortization to date. It is reasonably
possible that estimates of future gross profits could be
reduced in the future, resulting in a material reduction in the
carrying amount of deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, which are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed.
Included in deferred policy acquisition costs are those costs
related to the acquisition by assumption reinsurance of
insurance contracts from unaffiliated insurers. The deferred
costs are amortized in proportion to the estimated future gross
profits over the anticipated life of the acquired insurance
contracts utilizing an interest methodology.
The Company has entered into an assumption reinsurance
agreement with an unaffiliated insurer. The acquisition costs
relating to this agreement are being amortized over a twenty-
year period using an effective interest rate of 9.01%. This
reinsurance agreement provides for payment of contingent ceding
commissions based upon the persistency and mortality experience
of the insurance contracts assumed. Any payments made for the
contingent ceding commissions will be capitalized and amortized
using an identical methodology as that used for the initial
acquisition costs. The following is a reconciliation of the
acquisition costs related to the reinsurance agreement for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance $ 133,388 $ 139,647 $ 150,450
Capitalized amounts 13,708 12,517 6,987
Interest accrued 11,620 12,582 13,136
Amortization (33,883) (31,358) (30,926)
---------- ---------- ----------
Ending balance $ 124,833 $ 133,388 $ 139,647
========== ========== ==========
</TABLE>
The following table presents the expected amortization, net of
interest accrued, of these deferred acquisition costs over the
next five years. The amortization may be adjusted based on
periodic evaluation of the expected gross profits on the
reinsured policies.
1996 $14,917
1997 11,418
1998 7,639
1999 6,676
2000 6,028
Investments: In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"),
<PAGE>
the Company classifies its investments in fixed maturity
securities and equity securities as available for sale
securities. These securities may be sold for the Company's
general liquidity needs, asset/liability management strategy,
credit dispositions and investment opportunities. These
securities are carried at estimated fair value with unrealized
gains and losses included in stockholder's equity. If a decline
in value of a security is determined by management to be other
than temporary, the carrying value is adjusted to the estimated
fair value at the date of this determination and recorded in
the net realized investment gains (losses) caption of the
statement of earnings.
During 1993 and 1994, the Company utilized the trading
securities classification available under SFAS No. 115. Trading
securities represented securities that were managed with an
investment objective to maximize total return subject to the
Company's quality guidelines. These securities were carried at
estimated fair value with unrealized gains and losses included
in the statement of earnings. All securities that were
classified as trading securities on November 1, 1994 were
transferred to the available for sale classification at their
respective estimated fair values on that date. The difference
between the market value at November 1, 1994 and par value will
be amortized into income based on the Company's premium
amortization and discount accrual policies.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted to
the maturity date and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of identified cost.
Fixed maturity securities may contain securities which are
considered high yield. The Company defines high yield fixed
maturity securities as unsecured corporate debt obligations
which do not have a rating equivalent to Standard and Poor's
(or similar rating agency) BBB or higher, and are not
guaranteed by an agency of the federal government. Probable
losses are recognized in the period that a decline in value is
determined to be other than temporary.
During 1994, the Company adopted SFAS No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of
Financial Instruments" ("SFAS No. 119"). SFAS No. 119 requires
increased disclosures regarding derivative financial
instruments. SFAS No. 119 defines derivative financial
instruments as futures, forward, swap and option contracts or
other financial instruments with similar characteristics. As of
December 31, 1995 and 1994, the Company holds only interest
rate swap contracts.
The Company has outstanding certain interest rate swap
contracts which are carried at estimated fair value and
recorded as a component of fixed maturity securities available
for sale. Interest income, realized gains and losses and
unrealized gains and losses are recorded on the same basis as
fixed maturity securities available for sale.
Mortgage loans on real estate are stated at unpaid principal
balances net of valuation allowances. Such valuation allowances
are based on the decline in value expected to be realized on
those mortgage loans which may not be collectible in full. In
establishing valuation allowances management considers, among
other things, the estimated fair value of the underlying
collateral.
The Company recognizes income from mortgage loans on real
estate based on the cash payment interest rate of the loan,
which may be different from the accrual interest rate of the
loan for certain outstanding mortgage loans. The Company will
recognize a realized gain at the date of the satisfaction of
the loan at contractual terms for loans where there is a
difference between the cash payment interest rate and the
accrual interest rate. For all loans the Company stops accruing
income when an interest payment default either occurs or is
probable.
During 1995 the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114") and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" which was an amendment to
SFAS No. 114. SFAS No. 114, as amended, requires that for
impaired loans, the impairment shall be measured based on the
present value of expected future cash flows discounted at the
loan's effective interest rate or the fair value of the
collateral. Impairments of mortgage loans on real estate are
established as valuation allowances and recorded to net
realized investment gains or losses. There was no impact on
either financial position or earnings as a result of adopting
SFAS No. 114, as amended.
<PAGE>
The Company has previously made commercial mortgage loans
collateralized by real estate and direct investments in
commercial real estate. The return on and the ultimate
recovery of these loans and investments are generally dependent
on the successful operation, sale or refinancing of the real
estate. The Company employs a system to monitor the effects of
current and expected real estate market conditions and other
factors when assessing the collectability of mortgage loans and
the recoverability of the Company's real estate investments.
When, in management's judgment, these assets are impaired,
appropriate losses are recorded. Such estimates necessarily
include assumptions, which may include anticipated improvements
in selected market conditions for real estate, which may or may
not occur. The more significant assumptions management
considers involve estimates of the following: lease absorption
and sales rate; real estate values and rates of return;
operating expenses; required capital improvements; inflation;
and sufficiency of any collateral independent of the real
estate. Management believes that the carrying value
approximates the fair value of these investments.
Real estate available for sale, including real estate acquired
in satisfaction of debt subsequent to its acquisition date, is
stated at depreciated cost less valuation allowances and
estimated selling costs. Depreciation is computed using the
straight-line method over the estimated useful lives of the
properties, which generally is 40 years.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Federal Income Taxes: The results of operations of the Company
are included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current Federal tax liability.
The Company accounts for Federal Income Taxes in compliance
with SFAS No. 109, "Accounting for Income Taxes" ("SFAS No.
109") which requires an asset and liability method in recording
income taxes on all transactions that have been recognized in
the financial statements. SFAS No. 109 provides that deferred
taxes be adjusted to reflect tax rates at which future tax
liabilities or assets are expected to be settled or realized.
Separate Accounts: The Separate Accounts are established in
conformity with Arkansas insurance law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to General Account
claims only to the extent the value of such assets exceeds the
Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing
net deposits and accumulated net investment earnings less fees,
held primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
Statements of Cash Flows: For the purpose of reporting cash
flows, cash and cash equivalents include cash on hand and on
deposit and short-term investments with original maturities of
three months or less.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments which approximates
the estimated fair value of these financial instruments as of
December 31 were:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale:
Securities (1) $ 3,807,310 $ 3,866,886
Interest rate swaps (2) 560 947
------------ ------------
Total fixed maturity securities available for sale 3,807,870 3,867,833
------------ ------------
Equity securities available for sale (1) 21,433 16,777
Mortgage loans on real estate (3) 121,248 149,249
Policy loans on insurance contracts (4) 1,039,267 985,213
Cash and cash equivalents (5) 48,924 139,087
Separate Accounts assets (6) 6,834,353 5,798,973
------------ ------------
Total financial instruments recorded as assets $11,873,095 $10,957,132
============ ============
</TABLE>
(1) For publicly traded securities, the estimated fair value
is determined using quoted market prices. For securities
without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted
cash flow approach, including provision for credit risk,
based upon the assumption that such securities will be
held to maturity. Such estimated fair values do not
necessarily represent the values for which these
securities could have been sold at the dates of the
balance sheets. At December 31, 1995 and 1994, securities
without a readily ascertainable market value, having an
amortized cost of $425,469 and $564,665, had an estimated
fair value of $448,785 and $564,682, respectively.
(2) Estimated fair values for the Company's interest rate
swaps are based on a discounted cash flow approach.
(3) The estimated fair value of mortgage loans on real estate
approximates the carrying value. See Note 1 for a
discussion of the Company's valuation process.
(4) The Company estimates the fair value of policy loans as
equal to the book value of the loans. Policy loans are
fully collateralized by the account value of the
associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited
to the account value held as collateral is fixed.
(5) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(6) Assets held in the Separate Accounts are carried at quoted
market values.
<PAGE>
NOTE 3. INVESTMENTS
The amortized cost (cost for equity securities) and estimated
fair value of investments in fixed maturity securities and
equity securities as of December 31 were:
<TABLE>
<CAPTION>
1995
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 2,917,628 $ 138,159 $ 7,526 $ 3,048,261
Mortgage-backed securities 625,866 22,098 717 647,247
U.S. Government and agencies 99,213 6,286 0 105,499
Municipals 4,277 532 0 4,809
Foreign governments 1,999 55 0 2,054
------------ ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 3,648,983 $ 167,130 $ 8,243 $ 3,807,870
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 2,746 $ 498 $ 63 $ 3,181
Non-redeemable preferred stocks 16,937 1,428 113 18,252
------------ ------------ ------------ ------------
Total equity securities available for sale $ 19,683 $ 1,926 $ 176 $ 21,433
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 2,968,683 $ 20,386 $ 139,915 $ 2,849,154
Mortgage-backed securities 897,290 5,764 29,243 873,811
U.S. Government and agencies 139,513 1,059 4,392 136,180
Municipals 4,588 115 0 4,703
Foreign governments 4,198 0 213 3,985
------------ ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 4,014,272 $ 27,324 $ 173,763 $ 3,867,833
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 8,489 $ 641 $ 632 $ 8,498
Non-redeemable preferred stocks 7,457 1,092 270 8,279
------------ ------------ ------------ ------------
Total equity securities available for sale $ 15,946 $ 1,733 $ 902 $ 16,777
============ ============ ============ ============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1995 by
contractual maturity were:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 288,438 $ 290,754
Due after one year through five years 1,678,038 1,741,211
Due after five years through ten years 904,067 964,956
Due after ten years 152,574 163,702
------------ ------------
3,023,117 3,160,623
Mortgage-backed securities 625,866 647,247
Total fixed maturity securities ------------ ------------
available for sale $ 3,648,983 $ 3,807,870
============ ============
</TABLE>
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1995 by rating
agency equivalent were:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
AAA $ 848,951 $ 881,712
AA 243,349 253,214
A 1,059,367 1,105,910
BBB 1,292,081 1,356,964
Non-investment grade 205,235 210,070
Total fixed maturity securities ------------ ------------
available for sale $ 3,648,983 $ 3,807,870
============ ============
</TABLE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with adjustments required by SFAS No. 115. The
Company adjusts those assets and liabilities that would have
been adjusted had the unrealized investment gains or losses
from securities classified as available for sale actually been
realized with corresponding credits or charges reported
directly to stockholder's equity. The following reconciles the
net unrealized investment gain (loss) as of December 31:
<PAGE>
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale $ 158,887 $ (146,439)
Equity securities available for sale 1,750 831
Deferred policy acquisition costs (17,041) 72,220
Federal income taxes - deferred (9,100) 23,629
Separate Account assets (164) (549)
---------- -----------
134,332 (50,308)
---------- -----------
Liabilities:
Policyholders' account balances 117,432 (6,424)
---------- -----------
Stockholder's equity:
Net unrealized investment gain (loss) $ 16,900 $ (43,884)
========== ===========
</TABLE>
The Company has entered into interest rate swap contracts for
the purpose of minimizing exposure to fluctuations in interest
rates of specific assets held. The notional amount of such
swaps outstanding at December 31, 1995 and 1994 was $30,000.
The Company has outstanding at December 31, 1995, three
interest rate swap contracts for which the Company pays the six
month LIBOR interest rate and receives a weighted average 9.8%.
The outstanding interest rate swap contracts at December 31,
1995 will expire at various times during 1996. The average
unexpired term at December 31, 1995 and 1994 was .25 years and
1.2 years, respectively. All three interest rate swap contracts
were with investment grade counterparties at December 31, 1995.
There are no outstanding interest rate swaps in a loss position
at December 31, 1995 and 1994. During 1995, 1994 and 1993, a
net investment gain of $0, $470 and $0, respectively, was
recorded in connection with interest rate swap activity.
During 1995, 1994 and 1993, the Company did not enter into
either matched or unmatched interest rate swap arrangements and
did not act as an intermediary or broker in interest rate
swaps.
Proceeds and gross realized investment gains and losses from
the sale of fixed maturity securities available for sale and
held to maturity for the years ended December 31 were:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Proceeds $ 618,101 $ 845,227 $ 571,337
Gross realized investment gains 11,694 8,398 71,599
Gross realized investment losses 9,786 9,823 4,126
</TABLE>
During 1994, the Company ceased utilizing the trading
securities classification. At the date of this action, the
securities classified as trading were transferred to the
available for sale portfolio at their estimated fair value. The
estimated fair value of fixed maturity securities and equity
securities transferred at the date of transfer was $134,984 and
$6,989, respectively. At the date of transfer, amortized cost
exceeded estimated fair value by $2,995. During 1994 and 1993,
$(7,285) and $4,291, respectively, of unrealized holding gains
(losses) from investment trading securities were recorded in
net realized investment gains (losses).
The Company had investment securities of $28,166 and $26,651
held on deposit with insurance regulatory authorities at
December 31, 1995 and 1994, respectively.
At December 31, 1995 and 1994, the Company retained $8,496 and
$14,662 in the Separate Accounts, including unrealized losses
of $164 and $549, respectively. The investments in the
<PAGE>
Separate Accounts are for the purpose of providing original
funding of certain mutual fund portfolios available as
investment options to variable life and annuity policyholders.
The Company's investment in mortgage loans on real estate are
principally collateralized by commercial real estate. The
largest concentrations of commercial real estate mortgage loans
at December 31, 1995, as measured by the outstanding principal
balance, are for properties located in California ($36,476 or
23%), Illinois ($28,299 or 18%) and Rhode Island ($19,404 or
12%).
The carrying value and established valuation allowances of
impaired mortgage loans on real estate as of December 31, 1995
and 1994 are:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Carrying value $ 88,068 $ 71,973
Valuation allowance 35,881 40,070
</TABLE>
Additional information on impaired loans for the years ended
December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Average investment in impaired loans $123,949 $112,043 $109,876
Interest income recognized (cash-basis) 5,482 6,542 7,387
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, $1,300,
$4,652 and 29,555, respectively, of real estate was acquired in
satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities $ 305,648 $ 368,023 $ 511,655
Equity securities 1,329 2,408 4,143
Mortgage loans on real estate 12,250 15,014 20,342
Real estate held for sale 153 406 32
Policy loans on insurance contracts 53,576 50,232 46,129
Cash equivalents 8,463 5,936 3,480
Other 1,753 (447) 7,655
__________ __________ __________
Gross investment income 383,172 441,572 593,436
Less investment expenses (7,006) (8,036) (6,975)
__________ __________ __________
Net investment income $ 376,166 $ 433,536 $ 586,461
========== ========== ==========
</TABLE>
<PAGE>
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 1,908 $ (1,425) $ 67,473
Fixed maturity securities held for trading 0 (11,889) 5,562
Equity securities available for sale 1,475 1,490 22
Equity securities held for trading 0 (580) 2,587
Investment in Separate Account (369) 0 1,422
Mortgage loans on real estate 334 (4,967) (9,310)
Real estate held for sale 1,177 2,828 (4,733)
Other 0 0 29
-------- ---------- ---------
Net realized investment gains (losses) $ 4,525 $ (14,543) $ 63,052
======== ========== =========
</TABLE>
The following is a reconciliation of the change in valuation
allowances which have been deducted in arriving at investment
carrying values, as presented in the balance sheet, and changes
thereto of the following classifications of investments for the
years ended December 31:
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
---------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Mortgage loans on real estate:
1995 $ 40,070 $ 0 $ 4,189 $ 35,881
1994 45,924 4,966 10,820 40,070
1993 55,610 9,310 18,996 45,924
Real estate held for sale:
1995 5,766 0 3,566 2,200
1994 7,628 0 1,862 5,766
1993 4,300 3,328 0 7,628
</TABLE>
The Company held investments at December 31, 1995 of $8,609
which have been non-income producing for the preceding twelve
months.
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1995, $920 has been advanced towards the Company's
$10,000 commitment to the limited partnership.
NOTE 4. FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income
taxes based on income before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the years ended December 31:
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 41,575 $ 31,459 $ 25,471
Increase (decrease) in income taxes resulting from:
Release of policyholders' surplus 1,991 0 0
Tax deductible interest (718) 0 0
Federal tax rate increase 0 0 (631)
Dividend received deduction (532) (7,363) (28)
Other (13) (218) 103
--------- --------- ---------
Federal income tax provision $ 42,303 $ 23,878 $ 24,915
========= ========= =========
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1995 was 35%.
The Company provides for deferred income taxes resulting from
temporary differences which arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs $ (2,179) $ 6,416 $ (9,030)
Policyholders' account balances 66 5,322 6,433
Estimated liability for guaranty fund assessments 249 (153) (1,066)
Investment adjustments 5,563 3,276 7,941
Other 269 (13,486) 525
Deferred Federal income tax --------- ---------- ---------
provision $ 3,968 $ 1,375 $ 4,803
========= ========== =========
</TABLE>
Deferred tax assets and liabilities as of December 31, are
determined as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 94,087 $ 94,153
Net unrealized investment losses 0 23,629
Investment adjustments 10,793 16,356
Estimated liability for guaranty fund assessments 7,331 7,580
---------- ----------
Total deferred tax assets 112,211 141,718
---------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs 96,862 99,041
Net unrealized investment gains 9,100 0
Other 4,027 3,758
---------- ----------
Total deferred tax liabilities 109,989 102,799
---------- ----------
Net deferred tax asset $ 2,222 $ 38,919
========== ==========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
<PAGE>
NOTE 5. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain data processing, legal,
actuarial, management, advertising and other services to the
Company. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by the Company on an allocated cost
basis. Charges billed to the Company by MLIG pursuant to the
agreement were $43,039, $44,176 and $55,843 for the years ended
December 31, 1995, 1994 and 1993, respectively. The Company is
allocated interest expense on its accounts payable to MLIG
which approximates the daily Federal funds rate. Total
intercompany interest paid was $1,310, $679 and $737 for 1995,
1994 and 1993, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were
$2,635, $2,732 and $2,800 for 1995, 1994 and 1993,
respectively.
MLAM and MLIG have entered into an agreement with respect to
administrative services for the Merrill Lynch Series Fund, Inc.
("Series Fund") and Merrill Lynch Variable Series Funds, Inc.
("Variable Series Funds"). The Company invests in the various
mutual fund portfolios of the Series Fund and the Variable
Series Funds in connection with the variable life and variable
annuities the Company has in-force. Under this agreement, MLAM
pays compensation to MLIG in an amount equal to a portion of
the annual gross investment advisory fees paid by the Series
Fund and the Variable Series Funds to MLAM. The Company
received from MLIG it's allocable share of such compensation in
the amount of $13,293 and $12,600 during 1995 and 1994,
respectively.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S, who are the Company's licensed insurance agents,
solicit applications for contracts to be issued by the Company.
MLLA is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were $43,984, $84,231 and $67,102 for
1995, 1994 and 1993, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition
costs and are being amortized in accordance with the policy
discussed in Note 1.
The Company has entered into certain interest rate swap
contracts with Merrill Lynch Capital Services, Inc. ("MLCS")
with a guarantee from Merrill Lynch & Co. As of December 31,
1995 and 1994, the notional amount of such interest rate swap
contracts outstanding was $10,000. During 1994, the Company and
MLCS terminated certain interest rate swap contracts resulting
in the Company paying a net consideration of $2,043. Net
interest received from these interest rate swap contracts was
$256, $782, and $6,876 for 1995, 1994 and 1993, respectively
(See Note 3).
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1995, 1994, and 1993 the Company paid dividends of
$100,000, $150,000, and $120,000, respectively, to MLIG. Of
these stockholder's dividends, $73,757, $112,779, and $75,012,
respectively, were extraordinary dividends as defined by
Arkansas Insurance Law and were paid pursuant to approval
granted by the Arkansas Insurance Commissioner.
At December 31, 1995 and 1994, approximately $30,195 and
$26,243, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1995 and 1994, was $303,950 and $264,432,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
income taxes and valuing securities on a different basis. The
<PAGE>
Company's statutory net income for 1995, 1994 and 1993 was
$121,451, $42,382 and $45,604, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which
a life insurance company should have based upon that company's
risk profile. As of December 31, 1995 and 1994, based on the
RBC formula, the Company's total adjusted capital level was
395% and 270%, respectively, of the minimum amount of capital
required to avoid regulatory action.
NOTE 7. COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). During 1991, and to a lesser extent 1992, there were
certain highly publicized life insurance insolvencies. The
Company has utilized public information to estimate what future
assessments it will incur as a result of these insolvencies.
At December 31, 1995 and 1994, the Company has established an
estimated liability for future guaranty fund assessments of
$21,144 and $24,774, respectively. The Company regularly
monitors public information regarding insurer insolvencies and
will adjust its estimated liability when appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
<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
II-1
<PAGE>
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.
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. The
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 judgements, 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.
REPRESENTATIONS PURSUANT TO RULE 6E-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company
Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(B) under the
Investment Company Act of 1940 with respect to the policies described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk and guaranteed benefits
risk charge is within the range of industry practice for comparable
flexible or scheduled contracts.
(3) Registrant has concluded that there is a reasonable likelihood that
the distribution financing arrangement of the Separate Account will
benefit the Separate Account and policyowners and will keep and make
available to the Commission on request a memorandum setting forth the basis
for this representation.
(4) The Separate Account will invest only in management investment
companies which have undertaken to have a board of directors, a
majority of whom are not interested persons of the company, formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2)
above is based on an analysis of the mortality and expense risk and guaranteed
benefits risk charge contained in other variable life insurance policies.
Registrant undertakes to keep and make available to the Commission on request
the documents used to support the representation in paragraph (2) above.
II-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 84 pages.
The undertaking to file reports.
Rule 484 Undertaking.
Representations Pursuant to Rule 6e-3(T).
The signatures.
Written Consents of the following persons:
1. Barry G. Skolnick, Esq.
2. Joseph E. Crowne, Jr., F.S.A.
3. Deloitte & Touche LLP, Independent Auditors
The following exhibits:
3. Opinion and Consent of Barry G. Skolnick, Esq.
6. Opinion and Consent of Joseph E. Crowne, Jr., F.S.A.
<TABLE>
<C> <S> <C>
7. (c) Power of Attorney of Gail R. Farkas
8. (a) Written Consent of Barry G. Skolnick, Esq. See Exhibit 3.
(b) Written Consent of Joseph E. Crowne, Jr., F.S.A. See Exhibit 6.
(c) Written Consent of Deloitte & Touche LLP, Independent Auditors.
</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. 6 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. 6 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 19th day of April, 1996.
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
(Registrant)
By: MERRILL LYNCH LIFE INSURANCE COMPANY
(Depositor)
Attest: /S/ TERRY L. RAPP By: /S/ BARRY G. SKOLNICK
----------------------------- --------------------------------
Terry L. Rapp Barry G. Skolnick
Assistant Secretary Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 6 to the Registration Statement has been signed below by the
following persons in the capacities indicated on April 19th, 1996.
<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, Jr.
* Director, Senior Vice President and Chief
- -------------------------------- Investment Officer
David M. Dunford
* Director and Senior Vice President
- --------------------------------
Gail R. Farkas
/s/ BARRY G. SKOLNICK * In his own capacity as Director, Senior Vice
- -------------------------------- President, General Counsel, Secretary and as
Barry G. Skolnick Attorney-In-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C> <C> <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.
33-43058).
(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) Schedule of Sales Commissions. See Exhibit A (3)(b). Incorporated by
reference to Post-Effective Amendment No. 4 filed by the Registrant on Form
S-6 (File No. 43058).
(4) Not applicable.
(5) (a) Modified Single Premium Variable Life Insurance Policy.
Incorporated by reference to the Registration Statement filed on
Form S-6 for Variable Account A of Monarch Life Insurance Company
(File No. 33-457).
(5) (b1) Guarantee of Insurability Rider. Incorporated by reference to the
Registration Statement filed on Form S-6 for Variable Account A of
Monarch Life Insurance Company (File No. 33-457).
(5) (b2) Death Benefit Proceeds Rider. Incorporated by reference to the
Registration Statement filed on Form S-6 for Variable Account A of
Monarch Life Insurance Company (File No. 33-457).
(5) (b3) Single Premium Immediate Annuity Rider. Incorporated by reference
to the Registration Statement filed on Form S-6 for Variable
Account A of Monarch Life Insurance Company (File No. 33-457).
(5) (b4) Change of Insured Rider. Incorporated by reference to the
Registration Statement filed on Form S-6 for Variable Account A of
Monarch Life Insurance Company (File No. 33-457).
(5) (b5) Partial Withdrawal Rider. Incorporated by reference to the
Registration Statement filed on Form S-6 for Variable Account A of
Monarch Life Insurance Company (File No. 33-457).
(5) (b6) Special Allocation Rider. Incorporated by reference to the
Registration Statement filed on Form S-6 for Variable Account A of
Monarch Life Insurance Company (File No. 33-457).
(5) (b7) Backdating Endorsement. Incorporated by reference to the
Registration Statement filed on Form S-6 for Variable Account A of
Monarch Life Insurance Company (File No. 33-457).
(5) (b8) Additional Payment Endorsement. Incorporated by reference to the
Registration Statement filed on Form S-6 for Variable Account A of
Monarch Life Insurance Company (File No. 33-457).
(5) (c) Certificate of Assumption. Incorporated by reference to
Pre-Effective Amendment No. 1 to Tandem Insurance Group, Inc.
Registration Statement on Form S-6 (File No. 33-37941).
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(5) (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. 33-37941).
(6) (a) Articles of Amendment, Restatement, and 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. 33-43058).
(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. 33-43058).
(7) Not applicable.
(8) (a) Agreement between Merrill Lynch Life Insurance 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).
(b) Agreement between Merrill Lynch Life Insurance 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).
(c) 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).
(d) Participation Agreement among Merrill Lynch Life Insurance
Company, ML Life Insurance Company of New York, and Monarch Life
Insurance Company. Incorporated by Reference to Post-Effective
Amendment No. 3 to the Registration Statement filed by Merrill
Lynch Variable Life Separate Account on Form S-6 (File No.
33-55472).
(e) Form of Participation Agreement among Merrill Lynch Life Insurance
Company, ML Life Insurance Company of New York and Family 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).
(9) (a) Amended form of terminated Service Agreement between Merrill Lynch
Life Insurance Company and Monarch Life Insurance Company.
Incorporated by reference to Post-Effective Amendment No. 1 to
Tandem Insurance Group, Inc. Registration Statement on Form S-6
(File No. 33-37941).
(b) Board Resolution for Merger and Combination of Accounts.
Incorporated by reference to Post-Effective Amendment No. 3 to
Tandem Insurance Group, Inc. Registration Statement on Form S-6
(File No. 33-37941).
(c) Plan and Agreement of Merger between Tandem Insurance Group, Inc.
and Merrill Lynch Life Insurance Company. Incorporated by
reference to the Registration Statement filed by the Registrant on
Form S-6 (File 33-43058).
(d) Service Agreement among Merrill Lynch Life 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. 43058).
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II-6
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(10) Application form for Modified Single Premium Variable Life Insurance Policy.
Incorporated by reference to the Registration Statement filed on Form S-6 for
Variable Account A of Monarch Life Insurance Company (File No. 33-457).
(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.
43058).
2. See 1.A.(5).
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, Jr., F.S.A. as to actuarial matters pertaining
to the securities being registered.
7. (a) Power of Attorney of Joseph E. Crowne, Jr. (Incorporated by Reference to
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 Gail R. Farkas.
(d) 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).
(e) 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).
(f) 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).
(g) 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, Jr., F.S.A. See Exhibit 6.
(c) Written Consent of Deloitte & Touche LLP, Independent Auditors.
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II-7
<PAGE>
EXHIBIT 3
April 17, 1996
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. 6 to
the Registration Statement on Form S-6 (as so amended, the "Registration
Statement") (File No. 33-43058) 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. Skolnick
Barry G. Skolnick
Senior Vice President and General
Counsel
<PAGE>
EXHIBIT 6
April 17, 1996
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. 6 to the Registration Statement on Form S-6 (as so amended, the
"Registration Statement") (File No. 33-43058) 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, Jr.
Joseph E. Crowne, Jr., FSA
Senior Vice President &
Chief Financial Officer
<PAGE>
EXHIBIT 7(c)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Gail R. Farkas, a member of the
Board of Directors of Merrill Lynch Life Insurance Company (the "Company"),
whose signature appears below, constitutes and appoints Barry G. Skolnick and
Michael P. Cogswell, respectively, and each of them, her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for her and in her name, place and stead, in any and all capacities, to sign any
and all Registration Statements and Amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, under
the Investment Company Act of 1940, where applicable, and the Securities Act of
1933, respectively, with the Securities and Exchange Commission, for the purpose
of registering any and all variable life and variable annuity separate accounts
(collectively "Separate Accounts"), of the Company that may be established in
connection with the issuance of any and all variable life and variable annuity
contracts funded by such Separate Accounts, granting unto said attorney-in-fact
and agent, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done.
Date: February 14, 1996 /s/ Gail R. Farkas
--------------------------------
State of New Jersey )
County of Middlesex )
On the 14th day of February, 1996, before me came Gail R. Farkas,
Director of Merrill Lynch Life Insurance Company, to me known to be said person
and she signed the above Power of Attorney on behalf of Merrill Lynch Life
Insurance Company.
/s/ Colleen Mohan
--------------------------------
[SEAL] Notary Public
<PAGE>
EXHIBIT 8(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 6 to Registration
Statement No. 33-43058 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 26, 1996 and (ii) Merrill Lynch Life Variable Life Separate Account II
dated February 9, 1996, appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
New York, New York
April 22, 1996
