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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.
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SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes Single Premium Variable Life Insurance Policies
("Policies") issued by Merrill Lynch Life Insurance Company (the "Insurance
Company" or "we" or "us"), a subsidiary of Merrill Lynch & Co., Inc. Policies
were issued by Monarch Life Insurance Company ("Monarch") through 1988 and
assumed by Tandem Insurance Group, Inc. ("Tandem"), which was merged into the
Insurance Company, as described under "Summary of the Policies: Assumption of
Previously Issued Policies and Subsequent Merger." The Policy is not currently
being offered for sale to new purchasers. A Policy is designed to provide
lifetime insurance coverage on the insured named in the Policy. A Policy also
may be surrendered for its net cash value while the insured is living. The death
benefits and cash values under a Policy will vary based on investments made in
the Merrill Lynch Life Variable Life Separate Account II (the "Separate Account"
or the "Account"). The Insurance Company also has issued Annual Premium and
Flexible Premium Variable Life Insurance Policies through the Separate Account
which are described in other prospectuses.
An owner of a Policy may allocate the investment base for a Policy among up to
5 of 32 investment divisions in the Separate Account. Some of the investment
divisions use their assets to buy shares at net asset value in a designated
mutual fund portfolio. Each of these portfolios is a part of the Merrill Lynch
Series Fund, Inc. ("Series Fund") or the Merrill Lynch Variable Series Funds,
Inc. ("Variable Series Funds"). The Series Fund and the Variable Series Funds
use the investment advisory services of Merrill Lynch Asset Management, L.P.
("MLAM"), which is a wholly owned subsidiary of Merrill Lynch & Co., Inc. The
other investment divisions use their assets to purchase units of designated unit
investment trusts. Each of these unit investment trusts (collectively the
"Trusts", and individually, a "Trust") is part of The Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities. Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill Lynch & Co.,
Inc., serves as sponsor for each unit investment trust.
Regardless of a Policy's investment return, the death benefit can never be
less than the GUARANTEED INSURANCE AMOUNT. This amount is the Policy's face
amount during the first policy year. Afterwards, the GUARANTEED INSURANCE AMOUNT
increases each year by 0.48%.
During the first policy year the death benefit equals the Guaranteed Insurance
Amount. Afterwards, the death benefit may increase or decrease on each policy
anniversary, depending on a Policy's investment return, but it will never
decrease below the Guaranteed Insurance Amount.
A Policy's cash value may increase or decrease on any day, depending on a
Policy's investment return. No minimum amount of cash value is guaranteed. In
early policy years the cash value may be lower than the single premium
accumulated at interest. Therefore, a policy should be purchased only if the
owner intends to keep it in effect for a reasonable period of time.
Certain deductions and charges are assessable against the single premium paid
under a Policy (see "Charges Deducted from Premium", page 17). The amount of the
charges ("POLICY LOADING") initially will be added to the investment base of a
Policy by the Insurance Company. The total amount of the policy loading will
then be subtracted from the Policy's investment base in equal installments at
the beginning of the second through eleventh policy years. During the period of
time that any portion of the policy loading is included in the Policy's
investment base, the benefits under the Policy will be greater if the actual
rate of return is greater than zero, but will create larger decreases in
benefits if the actual rate of return is less than zero (see "Investment Return
Adjustment", page 9).
A Policy may be exchanged for fixed life insurance under certain conditions
(see "Right to Exchange for Fixed Life Insurance", page 11, and "Substitution of
Investments", page 15).
It may not be advantageous to replace existing insurance with a Policy. In
addition, employers and employee organizations should consider whether, in light
of a Supreme Court decision, it is appropriate to purchase a Policy for any
employment-related insurance or benefit program (see "Legal Considerations",
page 21).
If you make certain changes to your contract, including additional payments,
it may be treated as a "modified endowment contract" under Federal tax law. If
the contract is a modified endowment contract, any loan, partial withdrawal or
surrender may result in adverse tax consequences and/or penalties. (See "Tax
Considerations", page 19.) This entire prospectus should be read to completely
understand the Policies being offered.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE MERRILL
LYNCH SERIES FUND, INC., THE MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND THE
MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES WHICH CONTAIN
FULL DESCRIPTIONS OF THOSE INVESTMENTS.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
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<TABLE>
<S> <C>
Issued by: Administered at:
Merrill Lynch Life Insurance Company Service Center
Plainsboro, New Jersey 08536 P.O. Box 9025
Distributed by: Springfield, Massachusetts
Merrill Lynch, Pierce, Fenner & 01102-9025
Smith Incorporated 1414 Main Street, Third Floor
("MLPF&S") Springfield, Massachusetts
Plainsboro, New Jersey 08536 01104-1007
Phone: (800) 354-5333
</TABLE>
DATE: MAY 1, 1996
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PROSPECTUS CONTENTS
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PAGE
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Summary of the Policy.................................................................................................. 3
How Does This Policy Differ from a Traditional Single Premium Life Insurance Policy?............................... 3
What Is the Guaranteed Insurance Amount?........................................................................... 3
How Does a Policy's Death Benefit Vary?............................................................................ 3
How Is The Premium Determined?..................................................................................... 4
How Does the Separate Account Operate?............................................................................. 4
What Is the Policy's Net Premium?.................................................................................. 5
How Much of a Policy's Premium Is Allocated to the Separate Account?............................................... 5
What Are the Different Investment Portfolios in the Series Fund and the Variable Series Funds?..................... 5
What Are the Different Unit Investment Trusts of The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities?........................................................................................................ 5
How Can the Owner Allocate the Investment Base for a Policy?....................................................... 6
Is the Death Benefit Excludable from Gross Income for Tax Purposes?................................................ 6
What Is the Tax Treatment of Cash Value Increases?................................................................. 6
What Is the Loan Privilege?........................................................................................ 6
Who Are the Insurance Company and MLPF&S?.......................................................................... 6
Who Sells the Policies?............................................................................................ 6
What Are the Insurance Underwriting Requirements?.................................................................. 7
Assumption of Previously Issued Policies and Subsequent Merger..................................................... 7
Death Benefits......................................................................................................... 7
Policy Rights and Obligations.......................................................................................... 9
Premiums........................................................................................................... 9
Allocation of Net Premium and Investment Base...................................................................... 9
Cash Value Benefits................................................................................................ 10
Policy Loan........................................................................................................ 10
Increase in Guaranteed Insurance Amount............................................................................ 10
Right to Exchange for Fixed Life Insurance......................................................................... 11
Right to Examine a Policy ("Free Look")............................................................................ 11
The Separate Account................................................................................................... 11
The Separate Account............................................................................................... 11
Investments of the Separate Account................................................................................ 12
The Series Fund.................................................................................................... 12
The Variable Series Funds.......................................................................................... 13
Certain Risks of the Series Fund and the Variable Series Fund...................................................... 13
Resolving Material Conflicts....................................................................................... 14
Charges to Series Fund Assets...................................................................................... 14
Charges to Variable Series Fund Assets............................................................................. 14
The Trusts......................................................................................................... 15
Substitution of Investments........................................................................................ 15
How Policy Benefits Vary to Reflect the Separate Account's Investment Results.......................................... 16
The Amount Invested: The Investment Base........................................................................... 16
Policy's Rate of Return and Resultant Investment Return............................................................ 16
Charges and Expenses................................................................................................... 17
Allocation to the Separate Account................................................................................. 17
Charges Deducted from Premium...................................................................................... 17
Expenses Charged to All Divisions of the Separate Account.......................................................... 17
Charge For the Cost of Insurance................................................................................... 18
Group or Sponsored Arrangements.................................................................................... 18
Expenses Charged to the Trusts..................................................................................... 18
Guarantee of Certain Charges....................................................................................... 18
Other Charges...................................................................................................... 18
Administrative Services................................................................................................ 18
Distribution Agreement and Other Contractual Arrangements.............................................................. 19
Tax Considerations..................................................................................................... 19
Policy Proceeds.................................................................................................... 19
Charge for the Insurance Company's Income Taxes.................................................................... 21
Legal Considerations................................................................................................... 21
Management............................................................................................................. 22
Voting Rights.......................................................................................................... 22
Right to Instruct Voting of Shares of the Series Fund and the Variable Series Funds................................ 22
Disregard of Voting Instructions................................................................................... 23
Reports................................................................................................................ 23
State Regulation....................................................................................................... 23
Legal Proceedings...................................................................................................... 23
Legal Matters.......................................................................................................... 23
Additional Information................................................................................................. 24
Experts................................................................................................................ 24
Appendix A--Illustrations of Death Benefits, Cash Values and Accumulated Premiums...................................... 25
Appendix B--Other Policy Provisions.................................................................................... 34
Income Plans....................................................................................................... 34
Other Important Provisions......................................................................................... 34
Financial Statements of Merrill Lynch Life Variable Life Separate Account II........................................... S-1
Financial Statements of Merrill Lynch Life Insurance Company........................................................... G-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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THE PRIMARY PURPOSE OF THE POLICY IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY
WAY SIMILAR OR COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
SUMMARY OF THE POLICY
This section will answer many questions about a Policy.
HOW DOES THIS POLICY DIFFER FROM A TRADITIONAL SINGLE PREMIUM LIFE INSURANCE
POLICY?
Like other single premium life insurance policies, a Policy provides a death
benefit that is payable to the beneficiary upon the insured's death.
Unlike a traditional fixed single premium life insurance policy, the owner of
a Policy can choose where the investment base for a Policy is to be placed. The
choice is among up to any 5 of the investment divisions of the Separate Account.
Contractowners may wish to consider diversifying their investment in the
contract by allocating investment base to two or more investment divisions. Some
of the divisions invest in shares of a designated mutual fund portfolio in the
Series Fund, while other divisions invest in shares of a designated mutual fund
portfolio of the Merrill Lynch Variable Series Funds. Each portfolio of the
Series Fund and the Variable Series Funds is managed by MLAM. The other
investment divisions invest in units of a designated unit investment trust in
the Trusts. MLPF&S serves as sponsor for each unit investment trust.
Like other life insurance policies, a Policy provides a guaranteed minimum
death benefit.
Unlike traditional life insurance policies, the death benefit may increase
above a Policy's guaranteed minimum. There can be no assurance, however, that
this will occur. A Policy's death benefit may increase or decrease on each
policy anniversary, depending on the investment return for a Policy. Regardless
of investment return, the death benefit can never be less than a Policy's
Guaranteed Insurance Amount.
For any amount of death benefit above the Guaranteed Insurance Amount, the
owner bears the investment risk on any change occurring on a policy anniversary.
During a policy year, the Insurance Company will bear the investment risk on
such amount while the owner forgoes any increase in death benefit until the next
policy anniversary if investment results should be favorable. The Insurance
Company bears the investment risk for the entire amount of the Guaranteed
Insurance Amount, for which the Insurance Company imposes a risk charge (see
"Charges Deducted from Premium--Risk Charge", page 18).
Like other life insurance, the owner can cancel a Policy while the insured is
living and receive its net cash value.
Unlike traditional life insurance, a Policy offers the opportunity for
appreciation of its net cash value based upon investment results. There can be
no assurance that such appreciation will occur. The cash value may increase or
decrease on any day, depending on the investment return for a Policy.
The owner bears the investment risk on the cash value, since no minimum amount
is guaranteed, whereas in a traditional life insurance policy, cash values are
guaranteed as set forth in those policies.
AVAILABILITY. A Policy can be issued to an insured up to age 75. The minimum
single premium is $5,000 for age 0 through 19 and $10,000 for ages 20 and over.
In certain group or sponsored arrangements, the minimum single premium
requirement may be reduced (see "Group or Sponsored Arrangements", page 18). The
Policy is no longer available for new issuance.
WHAT IS THE GUARANTEED INSURANCE AMOUNT?
A Policy's Guaranteed Insurance Amount is its face amount during the first
policy year. Afterwards, the Guaranteed Insurance Amount increases each year by
0.48%.
Subject to state availability, the owner can purchase term insurance riders
which may be added to a Policy to increase the life insurance protection. The
amount of any term insurance will not vary with a Policy's investment return
(see "Single Premium Term Insurance Rider", page 8).
HOW DOES A POLICY'S DEATH BENEFIT VARY?
The death benefit of a Policy is the Guaranteed Insurance Amount plus the
VARIABLE INSURANCE AMOUNT, if positive. The Variable Insurance Amount reflects
the accumulation of each policy year's INVESTMENT RETURN (see "Policy's Rate of
Return and Resultant Investment Return", page 16). The Variable Insurance Amount
is zero during the first policy year. After that, it may be positive or negative
as calculated on each policy anniversary.
The change in the Variable Insurance Amount on a policy anniversary will
depend, subject to the investment return adjustment described below, upon the
relationship of a Policy's ACTUAL RATE OF RETURN (see "Actual Rate of Return",
page 16), for the policy year ending on the anniversary, to 4.5%, the Policy's
assumed rate of return. The actual rate of return under a Policy reflects,
through investment divisions in the Separate Account, increases or decreases in
the net asset value of the shares of the
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Funds plus any distribution made during the policy year on such shares, and
increases or decreases in the value of the units of the Trusts. A Policy's
investment return for a policy year is the difference between a Policy's actual
rate of return and 4.5%, multiplied by a Policy's total investment base (see
"The Amount Invested: The Investment Base", page 16.)
If the actual rate of return exceeds 4.5%, the investment return is positive
and the Variable Insurance Amount increases. The increase in the Variable
Insurance Amount is an amount of insurance that is purchased by the dollar
amount of investment return under a Policy.
An increase in the Variable Insurance Amount on a policy anniversary will not
result in an increase in the death benefit if:
- the Variable Insurance Amount on the previous policy
anniversary was negative (and the death benefit equalled the
Guaranteed Insurance Amount); and
- such increase in the Variable Insurance Amount is not
sufficient to make the resulting Variable Insurance Amount
positive.
If the actual rate of return is less than 4.5%, the investment return is
negative and the Variable Insurance Amount decreases. The decrease in the
Variable Insurance Amount is an amount of insurance that is canceled on account
of the negative investment return under a Policy. If the prior Variable
Insurance Amount was negative, such a decrease will make the Variable Insurance
Amount more negative. A decrease in the Variable Insurance Amount will not
result in a decrease in the death benefit below the Guaranteed Insurance Amount
(see "Death Benefits", page 7).
During the first ten policy years the investment return will be adjusted
("INVESTMENT RETURN ADJUSTMENT") by the product of (i) a Policy's actual rate of
return for the policy year, and (ii) the amount of the policy loading that has
not been recovered as of the beginning of the policy year. The investment return
adjustment may be positive or negative depending on whether the actual rate of
return is greater than or less than zero. In calculating the investment return
adjustment, the Policy's assumed rate of return is not subtracted from the
actual rate of return, as it is in calculating the investment return on the
balance of the investment base. This adjustment will be reflected in a change in
the Variable Insurance Amount and will have the effect of creating greater
increases in the benefits of a Policy if the actual rate of return is greater
than zero, but will create larger decreases in benefits if the actual rate of
return is less than zero.
Policies issued in the standard class and in the non-smoker class, will
provide for increases in the Variable Insurance Amount otherwise calculated on
each policy anniversary (see "What Are the Insurance Underwriting
Requirements?", page 7). This will be based upon a formula adjustment for
assumed favorable mortality result as the Policy remains in force (see "Death
Benefits", page 7).
HOW IS THE PREMIUM DETERMINED?
In return for insurance benefits and other policy rights, the owner makes a
single premium payment. The premium amount depends on a Policy's face amount and
the insured's sex and insurance age.
The minimum single premium is $5,000 for ages 0 through 19 and $10,000 for
ages 20 and over. In certain group or sponsored arrangements, the minimum single
premium requirement may be reduced (see "Group or Sponsored Arrangements", page
18).
HOW DOES THE SEPARATE ACCOUNT OPERATE?
The Variable Life Insurance benefits for the policies are provided through
investments made in the Separate Account. The Separate Account is a separate
investment account used only to support Variable Life Insurance policies (see
"The Separate Account", page 11). It is not part of the Insurance Company's
general account.
The Separate Account is organized as a unit investment trust and is governed
by the laws of the State of Arkansas. There currently are 32 investment
divisions within the Separate Account available for new allocations, 10 of which
invest in shares of a designated mutual fund portfolio of the Series Fund, 5 of
which invest in shares of a designated mutual fund portfolio of the Variable
Series Funds (each, a "series" type of mutual fund) and 17 of which invest in
units of a designated unit investment trust which is part of the Trusts. An
owner of a Policy can allocate the investment base for a Policy among up to 5 of
the 32 investment divisions.
The daily charge for mortality and expense risks is made against the assets of
all divisions in the Separate Account. The charge is equivalent to an effective
annual rate of .50% at the beginning of the year (see "Expenses Charged To All
Divisions of the Separate Account", page 17). In addition, a daily asset charge,
equivalent to an effective annual rate of .34% at the beginning of the year,
currently is made against the assets of the Trusts, which invest in units of a
designated unit investment trust which is part of the Trusts. This charge may be
increased in the future but in no event will it exceed an effective annual rate
of .50% (see "Asset Charge", page 18).
Currently, the Insurance Company makes no charge against the Separate Account
for company Federal income taxes. Under the Insurance Company's current tax
status as a life insurance company, it does not expect to incur Federal income
taxes attributable to the Separate Account for a number of years. However, if
the Insurance
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Company incurs company Federal income taxes attributable to the Separate Account
in future years, it intends to make a charge for those taxes (see "Charge for
the Insurance Company's Income Taxes", page 21.)
WHAT IS THE POLICY'S NET PREMIUM?
The Policy's "net premium" will equal the single premium payable less the
policy loading consisting of:
- A charge for sales load which will not exceed 4% of the single
premium (see "Sales Load", page 17);
- A charge for administrative expenses (see "Administrative
Charge", page 17);
- A charge for state premium taxes (see "State Premium Tax
Charge", page 17); and
- A risk charge (see "Risk Charge", page 17).
In certain group or sponsored arrangements the charges for sales load and
administrative expenses may be reduced (see "Group or Sponsored Arrangements",
page 18).
The net premium is the Policy's cash value as of the policy date.
HOW MUCH OF A POLICY'S PREMIUM IS ALLOCATED TO THE SEPARATE ACCOUNT?
On the policy date, which is either the date of the application (if the
premium is received within 5 working days of that date) or the date the premium
is received, if later, the Insurance Company allocates to the Separate Account,
the sum of the Policy's net premium and the policy loading. That amount is
allocated to the investment division investing in the Money Reserve Portfolio.
Subject to the Insurance Company's rules, a policyholder may choose to allocate
the policy premium among the investment division investing in the Money Reserve
Portfolio and one of the investment divisions investing in a unit investment
trust. The amount allocated equals the Policy's investment base as of the policy
date. After the free look period, the investment base may be allocated among 5
of the investment divisions based on the owner's instructions.
At the beginning of the second policy year and continuing through the
eleventh, the Insurance Company will reduce a Policy's investment base by 10% of
policy loading. Thus, the amount of the policy loading originally deducted from
the single premium but added to the initial investment base will be subtracted
from a Policy's investment base in equal installments at the beginning of the
second through the eleventh policy years.
WHAT ARE THE DIFFERENT INVESTMENT PORTFOLIOS IN THE SERIES FUND AND THE VARIABLE
SERIES FUNDS?
Ten of the investment divisions of the Separate Account will invest only in
the shares of designated mutual fund portfolios of the Series Fund, (the "Series
Fund"). The following portfolios of the Series Fund are currently available:
Money Reserve Portfolio
Intermediate Government Bond Portfolio
Long Term Corporate Bond Portfolio
Capital Stock Portfolio
Growth Stock Portfolio
High Yield Portfolio
Multiple Strategy Portfolio
National Resources Portfolio
Global Strategy Portfolio
Balanced Portfolio
Five of the investment divisions of the Separate Account will invest only in
the shares of designated mutual fund portfolios of the Variable Series Funds.
The following portfolios of the Variable Series Funds are currently available:
Basic Value Focus Fund
Global Utility Focus Fund
International Equity Focus Fund
Developing Capital Markets Focus Fund
Equity Growth Fund
Both the Series Fund and the Variable Series Funds are managed by Merrill
Lynch Asset Management, L.P. ("MLAM"), which is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.
The Series Fund and the Variable Series Funds, and the fees paid by each to
MLAM, are briefly described on pages 14 and 15. More detailed information about
the Series Fund and the Variable Series Funds can be found in the accompanying
prospectuses for the Series Fund and the Variable Series Funds, which should be
read together with this prospectus.
WHAT ARE THE DIFFERENT UNIT INVESTMENT TRUSTS OF THE TRUSTS?
Certain investment divisions of the Separate Account will invest in units of a
designated unit investment trust which is part of the Trusts. Subject to state
approval, the Trusts currently available have maturity dates in years 1997
through 2011, 2013 and 2014.
MLPF&S, the sponsor for each unit investment trust, will sell units of the
Trusts to the Separate Account. The price of these units will include a
transaction charge which will not be paid by the Separate Account upon
acquisition but will be paid directly by the Insurance Company to MLPF&S out of
the Insurance Company's general account assets. The amount of the transaction
charge paid will be limited by agreement between the
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Insurance Company and MLPF&S and will not be greater than that ordinarily paid
by a dealer for similar securities. The Insurance Company will seek
reimbursement for the amounts paid through a daily asset charge which will be
made against the assets of the Trusts. The amount of this charge currently is
equivalent to an effective annual rate of .34% at the beginning of the year.
This amount may be increased in the future but in no event will it exceed an
effective annual rate of .50%. The charge will be cost-based (taking into
account a loss of interest) with no anticipated element of profit for the
Insurance Company.
The value of the Trust units will vary more widely than units of a unit
investment trust containing coupon-bearing U.S. treasury securities with
comparable maturities. Accordingly, the investment base allocated to the Trusts
may show wide fluctuations from day to day, particularly when the period to
maturity is relatively long. The Trusts are briefly described on page 15. More
detailed information can be found in the accompanying prospectus, which should
be read together with this prospectus.
HOW CAN THE OWNER ALLOCATE THE
INVESTMENT BASE FOR A POLICY?
After the end of the free look period, the owner can allocate the investment
base among up to 5 of the investment divisions of the Separate Account.
Thereafter the owner can change the allocation of the investment base that
supports a Policy 5 times each policy year. Allocations to the Trusts depend on
state approvals and the availability of units of the Trusts (see "Allocation of
Net Premium and Investment Base", page 9).
IS THE DEATH BENEFIT EXCLUDABLE FROM GROSS INCOME FOR TAX PURPOSES?
The death benefit under a Policy is subject to the same Federal income tax
treatment as proceeds of fixed life insurance. Therefore, the death benefit will
be fully excludable from the gross income of the beneficiary under Section
101(a)(1) of the Internal Revenue Code (see "Tax Considerations--Policy
Proceeds", page 19).
WHAT IS THE TAX TREATMENT OF CASH VALUE INCREASES?
The cash value under a Policy is subject to the same Federal income tax
treatment as cash value under fixed life insurance. Therefore, the owner will
not be deemed to be in constructive receipt of the cash values, including any
yearly increases, unless and until actual surrender of a Policy. Upon surrender
of a Policy for its cash value, the excess, if any, of the cash value over the
premium paid in will be treated as ordinary income for Federal income tax
purposes (see "Tax Considerations--Policy Proceeds", page 19).
WHAT IS THE LOAN PRIVILEGE?
The owner may borrow up to the loan value of the Policy from the Insurance
Company. The Policy may be the only security required for the loan. The owner
may repay all or part of the loan at any time while the insured is living.
The interest rate on a loan is 5.25% a year. If interest isn't paid when due,
it will be added to the amount of the loan.
EFFECT OF A LOAN. While a loan is outstanding, a part of the cash value equal
to the policy debt is maintained in the Insurance Company's general account
rather than in the Separate Account. The part maintained in the general account
is credited with a 4.5% annual net return and does not add to a Policy's
investment return. Therefore, the death benefit (above the Guaranteed Insurance
Amount) and the cash value are permanently affected by a loan, whether or not
repaid in whole or in part. The amount of any outstanding policy debt is
subtracted from the amount payable on surrender of a Policy and is also
subtracted from any death benefit payable (see "Policy Loan", page 10). Loan
interest accrues daily and, if it is not repaid each year, it is capitalized and
added to the policy debt. Depending upon investment performance of the
investment divisions and the amount borrowed, loans may cause a Policy to lapse.
Lapse of a Policy with loans outstanding may result in adverse tax consequences
(see "Tax Considerations--Policy Proceeds", page 19). If the policy debt exceeds
the cash value, the Insurance Company will terminate the Policy in accordance
with the procedure described on page 10.
WHO ARE THE INSURANCE COMPANY AND MLPF&S?
The Insurance Company is a stock life insurance company organized under the
laws of the State of Washington in 1986 and redomesticated under the laws of the
State of Arkansas in 1991. We are authorized to sell life insurance and
annuities in 49 states, Guam, the U.S. Virgin Islands and the District of
Columbia. We are authorized to offer variable life insurance in most states.
MLPF&S provides a broad range of securities brokerage and investment banking
services in the United States. It provides marketing services for us and is the
principal underwriter of our variable life policies issued through the Separate
Account. We retain MLPF&S to provide services relating to the policies under a
Distribution Agreement.
WHO SELLS THE POLICIES?
The Insurance Company retains MLPF&S under a distribution agreement to act as
principal underwriter for the policies issued through the Separate Account. The
Insurance Company has companion sales agreements with various insurance agency
organizations affiliated with MLPF&S, including ML Life Agency Inc. in Texas,
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Merrill Lynch Life Agency Ltd. in Mississippi and various Merrill Lynch Life
Agencies elsewhere. MLPF&S is registered with the U.S. Securities and Exchange
Commission ("SEC") as a broker-dealer and is a member of the National
Association of Securities Dealers.
Under these agreements, applications for the policies are solicited by
financial consultants of MLPF&S. The financial consultants are authorized under
applicable state regulations to sell variable life insurance as insurance
agents. The Policy is not currently being offered for sale to new purchasers.
COMMISSION. The maximum commission as a percentage of a premium payable to
qualified registered representatives will, in no event, exceed 3.5%. In
addition, the insurance agency organizations described above will also receive
override payments and may be reimbursed under MLPF&S's expense reimbursement
allowance program for portions of expenses incurred.
WHAT ARE THE INSURANCE UNDERWRITING REQUIREMENTS?
Insurance underwriting is designed to group applicants of the same age into
classifications which can be expected to produce mortality experience consistent
with the actuarial structure for that class. The Insurance Company uses the
following methods of underwriting: (a) simplified and non-medical underwriting
not requiring a physical exam and (b) medical underwriting which requires an
exam.
Simplified underwriting is the only method used if the proposed insured's
issue age is 75 or less and if the single premium is less than $75,000. Under
this underwriting method, Policies will be issued in the standard-simplified
underwriting risk class.
In other situations, non-medical or medical underwriting is used. As a result
of these methods of underwriting, the proposed insured may be classified as
standard-medical or as non-smoker.
Applicants who do not qualify for the non-smoker or standard underwriting
classifications will not have the formula adjustment. All other applicants will
receive a formula adjustment (see page 9). In certain group or sponsored
arrangements, underwriting classifications may be modified (see "Group or
Sponsored Arrangements", page 18).
ASSUMPTION OF PREVIOUSLY ISSUED POLICIES AND SUBSEQUENT MERGER
On November 14, 1990, Monarch, the Insurance Company and certain other Merrill
Lynch insurance companies entered into an indemnity reinsurance and assumption
agreement (the "Assumption Agreement"). Under the Assumption Agreement, Tandem,
one of the other Merrill Lynch insurance companies, acquired, on an assumption
reinsurance basis, certain of the variable life insurance policies issued by
Monarch through its Variable Account A, including the Policies ("reinsured
policies") described in this prospectus. On October 1, 1991, Tandem was merged
with and into the Insurance Company (the "merger"), which thereby succeeded to
all of Tandem's liabilities and obligations. Thus, the Insurance Company has all
the liabilities and obligations under the reinsured policies. All further
payments made under the reinsured policies will be made directly to or by the
Insurance Company.
If you are the owner of a reinsured policy, you have the same rights and
values under your Policy as you did before the reinsurance or merger
transaction. However, you will look to the Insurance Company instead of to
Monarch or Tandem to fulfill the terms of your Policy. Pursuant to the
Assumption Agreement, all of the assets of Monarch's Variable Account A relating
to the reinsured policies were transferred to Tandem and allocated to the
Separate Account. By virtue of the merger, the Separate Account became a
separate account of the Insurance Company. The assets of the Separate Account
are only available to satisfy the Insurance Company's obligations under the
variable life insurance policies issued through the Separate Account. Those
assets are not chargeable with liabilities arising out of any other business
that Monarch has conducted, and the assets of the Separate Account cannot be
reached by Monarch or Monarch's creditors.
DEATH BENEFITS
PROCEEDS. The Insurance Company will pay death benefit proceeds of a Policy
to the named beneficiary upon the insured's death. The proceeds may be paid in
cash or under one or more income plans (see "Income Plans", page 34).
Death benefit proceeds equal the Guaranteed Insurance Amount plus the Variable
Insurance Amount, if positive, on the immediately preceding anniversary in the
year of death, plus any insurance on the insured's life provided by rider, less
any policy debt (see "Policy Loan", page 10).
Death benefit proceeds (exclusive of amounts due from riders and before
reduction by any policy debt) will be at least equal to the face amount of
insurance under a single premium variable life insurance policy purchased at the
insured's age at the date of death having a net premium equal to a Policy's net
cash value. For this purpose the face amount purchased will in no event be less
than the face amount required under the rules governing the tax definition of
life insurance. Thus, under certain
7
<PAGE>
circumstances, it is possible that an owner may not forego any increase in death
benefit until the next policy anniversary if investment results should be
favorable.
All calculations will be made as of the date of death.
SINGLE PREMIUM TERM INSURANCE RIDER. In order to allow the owner of a Policy
to increase the amount of insurance protection, subject to state availability, a
Policy may be combined with a Single Premium Term Insurance Rider. Insurance
under this Rider may be converted to a Single Premium Variable Life Insurance
policy without evidence of insurability at any time beginning on the first
anniversary of the rider and ending as of the tenth anniversary. The new Single
Premium Variable Life Insurance policy will be for a face amount equal to the
amount converted and will be at premium rates based on the insured's age at the
time of conversion using the risk classification of the rider.
No portion of the premium for a rider is allocated to the Separate Account and
therefore the rider contains no variable feature. The Rider will have guaranteed
cash values which will be received upon cancellation of the Rider. The
guaranteed cash values of the Rider will be added to the cash value of the
Policy in the determination of cash value benefits. The cash value of the Rider
will not increase the loan value of the Policy.
VARIABLE INSURANCE AMOUNT. The Variable Insurance Amount a Policy provides is
zero during the first policy year. After that, the amount may be positive or
negative as calculated on an annual basis.
On each policy anniversary, the Insurance Company will determine the Variable
Insurance Amount for the policy year beginning on that anniversary by taking
into account:
- the Variable Insurance Amount (positive or negative) for the
preceding policy year; and
- the Policy's investment return for the preceding policy year
(see "Policy's Rate of Return and Resultant Investment
Return", page 16); and
- the investment return adjustment (positive or negative) for
the preceding policy year (see "Investment Return Adjustment",
page 9); and
- the formula adjustment for Policies issued in the standard and
non-smoker classes (see "Formula Adjustment", page 9).
The Variable Insurance Amount changes only on a policy anniversary.
The change in the Variable Insurance Amount on a policy anniversary will
depend, subject to the investment return adjustment described on page 9, on the
relationship of the Policy's actual rate of return (see "Actual Rate of Return",
page 16) for the policy year ending on the anniversary, to 4.5%, the Policy's
assumed rate of return. If the actual rate of return exceeds 4.5%, the Variable
Insurance Amount increases. Subject to the investment return adjustment
described on page 9, and the formula adjustment described on page 9, if the
actual rate of return is less than 4.5%, the Variable Insurance Amount
decreases; in the absence of any adjustment the Variable Insurance Amount would
not change from one year to the next if a Policy's actual rate of return equals
4.5%.
If the Variable Insurance Amount is negative at the end of a policy year, the
death benefit will equal the Guaranteed Insurance Amount. In that event, the
death benefit would increase above the Guaranteed Insurance Amount on the next
policy anniversary only if the actual rate of return for such year was
sufficiently greater than 4.5% to result in an investment return large enough to
offset the negative Variable Insurance Amount in the prior policy year.
The change in the Variable Insurance Amount on a policy anniversary equals the
amount of insurance purchased under a Policy or the amount of insurance coverage
canceled under a Policy which results from positive or negative investment
return, respectively. To calculate the change in the Variable Insurance Amount,
the Insurance Company uses a net single premium per $1 of paid-up whole life
insurance based on the insured's age at the anniversary. Thus, for example, if
the investment return for a female age 65 is $100, positive or negative, the
Variable Insurance Amount will increase or decrease by $195 (see table below).
Since the dollar amount of a Policy's investment return depends on the total
investment base supporting a Policy (see "The Amount Invested: The Investment
Base", page 16) which will tend to be larger in later years, the increase or
decrease in the Variable Insurance Amount will tend to be larger in later years.
It should be noted that as shown in the table below, the net single premium
used to calculate the Variable Insurance Amount increases as the insured
advances in age and thus larger dollar amounts of investment return are required
each year to result in the same increases in the Variable Insurance Amount.
NET SINGLE PREMIUM FOR THE VARIABLE INSURANCE AMOUNT. A Policy includes a
table of net single premiums used to convert the investment return for a Policy
into increases or decreases in the Variable Insurance Amount. This purchase
basis does not depend upon the risk classification of a Policy or any changes in
the insured's health after issue of a Policy. The net single premium will be
lower for a Policy issued to a female than for a Policy issued to a male, as
shown below. The net single premium is used for the calculation of the Variable
Insurance Amount and is not for premium payment purposes.
8
<PAGE>
<TABLE>
<CAPTION>
TABLE OF ILLUSTRATIVE NET SINGLE
PREMIUMS FOR AVAILABLE INSURANCE AMOUNT
NET SINGLE VARIABLE
PREMIUM PER INSURANCE
$1.00 OF AMOUNT PURCHASED
MALE VARIABLE OR CANCELLED BY
ATTAINED INSURANCE $1.00 OF
AGE AMOUNT INVESTMENT RETURN
--------- ----------- -----------------
<S> <C> <C> <C> <C>
5 $ .08550 $ 11.70
15 .11834 8.45
25 .16522 6.05
35 .23528 4.25
45 .33460 2.99
55 .45929 2.18
65 .59811 1.67
75 .72817 1.37
85 .83523 1.20
<CAPTION>
FEMALE
ATTAINED
AGE
---------
<S> <C> <C> <C> <C>
5 $ .07095 $ 14.09
15 .09683 10.33
25 .13510 7.40
35 .18992 5.27
45 .27165 3.68
55 .38186 2.62
65 .51413 1.95
75 .65271 1.53
85 .77524 1.29
</TABLE>
INVESTMENT RETURN ADJUSTMENT. During the first ten policy years the
investment return will be adjusted by the product of (i) a Policy's actual rate
of return for the policy year, and (ii) the amount of the policy loading that
has not been recovered as of the beginning of the policy year. Accordingly, this
adjustment will be reflected in a change in the Variable Insurance Amount. This
investment return adjustment can be positive or negative depending on whether
the actual rate of return is greater than or less than zero. Thus, with respect
to both the investment return and the change in the Variable Insurance Amount,
the dollar amount of change will be increased (positively or negatively) as a
result of the investment return adjustment. Thus, the effect of the addition of
the policy loading to the investment base is to create greater increases in
benefits if the actual rate of return is greater than zero, but to create larger
decreases in benefits if the actual rate of return is less than zero. Regardless
of the actual rate of return, however, the full amount of the policy loading
will be deducted from the investment base over a ten-year period.
FORMULA ADJUSTMENT. For Policies issued in the standard or non-smoker risk
classifications the Variable Insurance Amount otherwise calculated on a policy
anniversary will be increased to reflect assumed favorable mortality results as
the Policy remains in force. It will be calculated as follows:
(1) The total investment base immediately before the anniversary, multiplied
by
(2) the adjustment factor on the anniversary from the table included in a
Policy, divided by
(3) the net single premium based on the insured's age at the anniversary.
The adjustment factors range between 0 and .0122 and depend on the single
premium, issue age, sex, risk classification and policy anniversary.
POLICY RIGHTS AND OBLIGATIONS
PREMIUMS
PREMIUM. Payment of the single premium is required to put a Policy in effect.
The minimum single premium is $5,000 for ages 0 through 19 and $10,000 for ages
20 and above. In certain group or sponsored arrangements, the minimum single
premium requirement may be reduced (see "Group or Sponsored Arrangements", page
18).
In setting its premium rates, the Insurance Company considers actuarial
estimates of death and cash value benefits, expenses, investment experience and
an amount to be contributed to the Insurance Company's surplus. Also, assets are
allocated to the Insurance Company's general account to accumulate as a reserve
to cover the contingency that the insured will die at a time when the Guaranteed
Insurance Amount exceeds the death benefit that would have been payable based
upon the Policy's cumulative investment return in the absence of such guarantee.
ALLOCATION OF NET PREMIUM AND INVESTMENT BASE
After the free look period, the owner can designate how the investment base is
to be allocated among up to 5 of the investment divisions of the Separate
Account. On the policy date the investment base is allocated to the Money
Reserve Portfolio.
The owner can change the allocation of the total investment base among the
investment divisions 5 times each policy year (see "The Amount Invested: The
Investment Base", page 16, for a full description of the investment base) but
not before the end of the free look period. Such change will take effect when
notice is received.
The ability of an owner to allocate additional portions of the investment base
to the Trusts may be limited by the availability of units of the Trusts.
If any part of the investment base of a Policy is allocated to investment
divisions which have specified maturity dates, then as of that maturity date,
unless otherwise specified by the owner, the amounts in that
9
<PAGE>
division will be allocated to the investment division investing in the Money
Reserve Portfolio. The Insurance Company will notify the owner 30 days in
advance of the maturity date. To elect an allocation to other than the
investment division investing in the Money Reserve Portfolio, the owner must
notify the Insurance Company in writing at least 7 days prior to the maturity
date.
CASH VALUE BENEFITS
The owner can cancel a Policy at any time while the insured is living and
receive its net cash value. The request must be in writing in a form
satisfactory to the Insurance Company. All rights to death benefits will end on
the date the written request is sent to the Insurance Company. The net cash
value will be determined upon receipt of the written request at the Service
Center.
NET CASH VALUE. The cash value increases or decreases daily to reflect a
Policy's investment return (see "Policy's Rate of Return and Resultant
Investment Return", page 16). The cash value for a Policy at the end of a policy
year is equal to the tabular cash value on that date as shown in the Policy plus
(or minus) the net single premium on that date for the Variable Insurance
Amount. The NET CASH VALUE is the cash value minus any policy debt. The cash
value on a date during a policy year, assuming no policy loans during the year,
can be expressed as:
(1) The cash value at the end of the preceding year; plus
(2) the actual rate of return (positive or negative) for a Policy applied to
the investment base, including any unrecovered policy loading, at the
beginning of the year; minus
(3) the charge for the cost of insurance protection (which will vary
annually) provided since the end of the preceding year which is computed
based upon the amount of insurance provided during the year and the
insured's age and sex on such date.
No minimum amount of cash value is guaranteed.
Except on policy anniversaries after the tenth, the cash value does not equal
the investment base (see "How Investment Base Relates to Cash Value", page 16).
POLICY LOAN
The owner may borrow money from the Insurance Company using a Policy as the
only security for the loan. A loan may be taken any time a Policy is in effect.
With a proper written request to the Insurance Company, an owner may designate
the divisions from which the loan amounts will be transferred and to which
repayments will be made. The owner may repay all or part of the loan at any time
while the insured is living. The amount of the loan may not exceed the LOAN
VALUE. Any existing policy debt will be subtracted from a new loan. The smallest
loan is $1,000, unless the loan is being used to pay premiums on another
Variable Life Insurance policy issued by the Insurance Company. The smallest
repayment is $1,000.
LOAN VALUE. The loan value is:
- 75% of the cash value during the first 3 policy years; or
- 90% of the cash value after the first 3 policy years.
INTEREST. The interest rate on loans is 5.25% a year. Interest accrues each
day. Interest payments are due at the end of each policy year. If interest isn't
paid when due, it will be added to the amount of the loan. The sum of all
outstanding loans plus accrued interest is called the POLICY DEBT. If the policy
debt exceeds the cash value, the Insurance Company will terminate the Policy.
The Insurance Company will not do this, however, until 31 days after the
Insurance Company mails notice of its intent to terminate. If a Policy lapses
with a loan outstanding, adverse tax consequences may result (see "Tax
Considerations--Policy Proceeds", page 19).
EFFECT OF A LOAN. An amount equal to the loan proceeds will be transferred
out of the Separate Account, and a repayment will be transferred in. Loans and
repayments will be allocated among the investment divisions as elected by the
owner or, in the absence of any such election, among the investment divisions in
proportion to the investment base in each division as of the date of the loan or
repayment. A loan, WHETHER OR NOT REPAID, will have a permanent effect on the
death benefits and cash values. If not repaid, the policy debt will reduce the
amount of death benefit proceeds and cash value benefits.
INCREASE IN GUARANTEED INSURANCE AMOUNT
Subject to state availability and the Insurance Company's rules as set forth
below, an owner may elect to increase the scheduled Guaranteed Insurance Amounts
of an in force policy. The Insurance Company will ordinarily require evidence of
insurability. The insured must be in the same underwriting classification at the
time of the increase as at the original issue date. The election may not be made
during the six months (12 months in Kentucky) following the policy date.
Thereafter, the policy-owner may elect an increase up to five times each policy
year, but in no event earlier than 30 days after a previous election.
An owner may elect an increase by submitting a payment to the Insurance
Company along with an application for change. The minimum payment required is
$1,000; the maximum is the amount of the single premium paid for the original
Policy.
The payment (net of the charges discussed below) will be added to the Policy's
investment base (see "The Amount Invested: The Investment Base", page 16) and,
unless otherwise specified by the owner, allocated
10
<PAGE>
among the investment divisions in proportion to the investment base in each
division as of the effective date. The amount of the charges assessable against
the payment will initially be added to the investment base. These charges will
be the same as those assessed against a single premium (see "Charges Deducted
from Premium", page 17) except that the administrative charge will be reduced to
$25. The Insurance Company will subtract these charges from the investment base
in ten equal annual installments beginning on the next policy anniversary after
the date of the increase.
The effective date for any increase is the date the Insurance Company receives
the single payment and the application with any evidence of insurability that
the Insurance Company may require. The Insurance Company may contest the
increase if any material statement in the application is false. The Insurance
Company will not do so after the increase has been in effect during the
insured's lifetime for two years from the effective date. If the insured commits
suicide within two years from the effective date of any increase, while sane or
insane, we'll pay only a limited benefit. The limited benefit will be the amount
of single premium paid for such increase.
EFFECT OF AN INCREASE. As of the effective date of the increase, the
Guaranteed Insurance Amount of the Policy will be increased by the applicable
amount. The investment base will be increased by the total payment made to
purchase the increase. The cash value will be increased by the payment less the
charges discussed above. The variable insurance amount will remain the same
until the next policy anniversary. The calculation of the variable insurance
amount as of the policy anniversary will reflect an investment return and an
investment return adjustment based on the increased cash value and investment
base.
RIGHT TO EXCHANGE FOR FIXED LIFE INSURANCE
The owner may exchange the Policy for a policy with benefits that do not vary
with investment results. The exchange must be elected within 18 months from the
date of issue. No evidence of insurability will be required.
There will be a cash adjustment on exchange. The adjustment will be a Policy's
net cash value minus the new policy's tabular cash value. If the result is
positive, the Insurance Company will pay the owner. If the result is negative,
the owner must pay the Insurance Company. Under some circumstances, it may be
less advantageous to exchange a Policy for the fixed life insurance policy
described below than to purchase a fixed life insurance policy in the first
instance.
The Insurance Company will issue the new policy on the insured's life
effective upon receipt of:
- a proper written request;
- the Policy being exchanged; and
- any amount due the Insurance Company on exchange.
OTHER FACTS ABOUT THE NEW POLICY. The new policy's owner and beneficiary will
be the same as those of the Policy on the effective date of the exchange. The
new policy will have the same premium and face amount as the original Policy.
The death benefit under the new policy will be the Guaranteed Insurance Amount
for the original Policy. The cash value will be the tabular cash value for the
original Policy as set forth therein.
RIGHT TO EXAMINE A POLICY ("FREE LOOK")
Generally, a policy may be returned within 10 days after the owner receives
it, or within 45 days after the owner completes Part I of the application for
insurance, whichever is later. It can be mailed or delivered to either the
Insurance Company or the registered representative who sold it. The returned
Policy will be treated as if the Insurance Company never issued it and the
Insurance Company will promptly refund any premium paid. The Insurance Company
reserves the right to require a period of 6 months before it will accept an
application for a new Policy with the same owner and insured as a policy which
has been returned under this provision.
For a further description of how Policy benefits are calculated, see "How
Policy Benefits Vary to Reflect the Separate Account's Investment Results", page
16. That description together with the foregoing description of Policy
provisions is qualified by reference to a specimen of the Policy which has been
filed as an exhibit to the Registration Statement. Settlement options and
general provisions of the Policy are discussed in Appendix B.
THE SEPARATE ACCOUNT
THE SEPARATE ACCOUNT
The Separate Account is a separate investment account of the Insurance Company
to which amounts are allocated to support the Variable Life Insurance benefits
under a Policy. This Separate Account is kept separate from the Insurance
Company's general account. It is used only to support Variable Life Insurance
policies, including single, flexible and annual premium policies.
The Insurance Company owns the assets in the Separate Account. It is required
to maintain assets which are at least equal to the reserves and other
liabilities of the Separate Account. Arkansas insurance law provides that the
Separate Account's assets, to the extent of the reserves and liabilities of the
Separate Account, may not
11
<PAGE>
be charged with liabilities that arise from any other business the Insurance
Company conducts. But the Insurance Company may transfer to its general account
assets which exceed the reserves and other liabilities of the Separate Account.
The Separate Account was established by Tandem on November 19, 1990, and
acquired by the Insurance Company on October 1, 1991 by virtue of the merger
(see "Assumption of Previously Issued Policies and Subsequent Merger", page 7).
The Separate Account is registered as an investment company with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940. The
Separate Account meets the definition of a "separate account" under the federal
securities laws. Registration with the SEC does not involve supervision of the
management of the Separate Account or the Insurance Company by the SEC. The
Account is also governed by the laws of the State of Arkansas.
Income and realized and unrealized gains or losses from assets in the Separate
Account are credited to or charged against the Separate Account without regard
to other income, gains or losses in the Insurance Company's other investment
accounts.
The Insurance Company allocates to the Separate Account the policy loading
under the Policies. The Insurance Company may accumulate in the Separate Account
the charge for expense and mortality gains and losses and investment results
applicable to those assets that are in excess of net assets for Variable Life
Insurance policies. At some future date the Insurance Company may transfer
assets in excess of the reserves, the unrecovered policy loading and other
liabilities of the Separate Account to its general account. Before making any
such transfer, however, the Insurance Company would consider whether the
transfer could have any adverse effect on the Separate Account.
INVESTMENTS OF THE SEPARATE ACCOUNT
There currently are 32 investment divisions within the Separate Account
available for new allocations. Ten of these divisions invest in a designated
series of stock issued by the Series Fund, and five of these divisions invest in
a designated series of stock issued by the Variable Series Funds. Each series of
stock represents the interest in a separate portfolio within the Series Fund or
the Variable Series Funds. The other 17 divisions each invest in units of a
designated unit investment trust which is part of the Trusts. Each unit
investment trust contains issues of stripped U.S. treasury securities with the
same maturity date. The availability of these 17 investment divisions depends on
the availability of units of the Trusts.
Full descriptions of the Series Fund, the Variable Series Funds and the
Trusts, their investment policies and restrictions, their charges and expenses
and all other aspects of their operation are contained in the accompanying
prospectuses. The prospectuses for the Series Fund, the Variable Series Funds
and the Trusts must accompany, and should be read together with, this
Prospectus.
The Series Fund and Variable Series Funds receive advice with respect to the
investment of each series from MLAM, which provides administrative services and
investment advice and makes all investment decisions for the Series Fund and
Variable Series Funds. MLAM is a subsidiary of Merrill Lynch & Co., Inc. MLAM is
a registered investment adviser under the Investment Advisors Act of 1940.
MLAM has entered into an agreement with Merrill Lynch Insurance Group, Inc.
("MLIG"), the Insurance Company's parent, with respect to 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.
The Insurance Company will purchase and redeem shares from the Series Fund and
Variable Series Funds at net asset value. Shares will be redeemed to the extent
necessary for the Insurance Company to provide benefits and to make
reallocations under the Policies. Any dividend or capital gain distributions
received from a portfolio will be reinvested at net asset value in shares of
that portfolio and retained as assets of the appropriate investment division of
the Separate Account.
A brief summary of the investment objectives of each portfolio is contained in
the description below. More detailed information may be found in the current
prospectuses for the Series Fund and Variable Series Funds. There can be no
assurance that these investment objectives will be achieved. In addition, as
mentioned above, a Policy's investment return will also depend upon the owner's
allocation of the investment base.
THE SERIES FUND
MONEY RESERVE PORTFOLIO seeks to preserve capital, maintain liquidity and
achieve the highest possible current income consistent with those objectives by
investing in short-term money market securities.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO seeks 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 United States 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
12
<PAGE>
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.
CAPITAL STOCK PORTFOLIO seeks long-term growth of capital and income, plus
moderate current income. It principally invests in common stocks considered to
be of good or improving quality or considered to be undervalued based on
criteria such as historical price/book value and price/earnings ratios.
GROWTH STOCK PORTFOLIO seeks long-term growth of capital by investing in a
diversified portfolio of securities primarily common stocks of aggressive growth
companies that are considered to have special investment value.
HIGH YIELD PORTFOLIO 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 "junk bonds").
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 VARIABLE SERIES FUNDS
BASIC VALUE FOCUS FUND seeks to attain capital appreciation, and secondarily,
income by investing in securities, primarily equities, that management of the
Fund believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio.
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 to achieve long-term capital
appreciation by investing in securities, principally equities, of issuers in
countries having smaller capital markets. For purposes of its investment
objective, the Fund considers countries having smaller capital markets to be all
countries other than the four countries having the largest equity market
capitalizations.
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.
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 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
13
<PAGE>
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
established no 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 Fund 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 Fund.
RESOLVING MATERIAL CONFLICTS
Shares of the Series Fund and the Variable Series Funds are available for
investment by other Merrill Lynch insurance companies and Monarch.
Shares of the Variable Series Funds are currently sold only to separate
accounts of the Insurance Company, ML Life Insurance Company of New York, and
several insurance companies not affiliated with the Insurance Company or Merrill
Lynch & Co., Inc. to fund benefits under certain variable life insurance and
variable annuity contracts. Shares of each Fund of 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 of the other separate accounts investing 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 and variable annuity separate
accounts. It could also arise by reason of differences in voting instructions
from our policyowners and those of the other insurance companies, or for other
reasons. We will monitor events so we can identify how to respond to such
conflicts. If such a conflict occurs, we may be required to eliminate one or
more divisions of the Separate Account which invest in the Series Fund or the
Variable Series Funds or substitute a new portfolio in which a division invests.
In responding to any conflict, we will take the action which we believe
necessary to protect our policyholders, consistent with applicable legal
requirements.
CHARGES TO SERIES FUND ASSETS
The Series Fund incurs operating expenses and pays a monthly advisory fee to
MLAM. This fee equals an annual rate of:
- .50% of the first $250 million of the aggregate average daily net assets
of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
One or more of the insurance companies investing in the Series Fund has agreed
to reimburse the Series Fund so that the ordinary expenses of each portfolio
(which include the monthly advisory fee) do not exceed .50% of the portfolio's
average daily net assets. These companies have also agreed to reimburse MLAM for
any amounts it pays under the investment advisory agreement, as described below.
These reimbursement obligations will remain in effect so long as the advisory
agreement remains in effect and cannot be amended or terminated without Series
Fund approval.
Under its investment advisory agreement, 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. This reimbursement agreement
will remain in effect so long as the advisory agreement remains in effect and
cannot be amended without Series Fund approval.
CHARGES TO VARIABLE SERIES FUNDS ASSETS
The Variable Series Funds incurs operating expenses and pays a monthly
advisory fee to MLAM. This fee equals an annual rate of .60% of the average
daily net assets of the Basic Value Focus Fund 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
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<PAGE>
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.
THE TRUSTS
MLPF&S will serve as sponsor for each unit investment trust of the Trusts.
Because each Trust invests in a fixed portfolio, there is no investment manager.
As sponsor, MLPF&S will sell units of the Trusts to the Separate Account. The
price of these units will include a transaction charge which will not be paid by
the Separate Account upon acquisition but will be paid directly by the Insurance
Company to MLPF&S out of the Insurance Company's general account assets. The
amount of the transaction charge paid will be limited by agreement between the
Insurance Company and MLPF&S and will not be greater than that ordinarily paid
by a dealer for similar securities. The Insurance Company will seek
reimbursement for the amounts paid through a daily asset charge which will be
made against the assets of investment divisions investing in the Trusts. The
amount of this charge currently is equivalent to an effective annual rate of
.34% at the beginning of the year. This amount may be increased in the future
but in no event will it exceed an effective annual rate of .50%. The charge will
be cost-based (taking into account a loss interest) with no anticipated element
of profit for the Insurance Company.
Units of Trusts will be disposed of to the extent necessary for the Insurance
Company to provide benefits and make reallocations under the Policies. Such
units will be sold to MLPF&S, which has committed to maintain a secondary
market.
The objective of the Trusts is to provide safety of capital and a high yield
to maturity through investment in any of its fixed portfolios consisting
primarily of bearer debt; obligations issued by the United States of America
that have been stripped of their unmatured interest coupons, coupons stripped
from debt obligations of the United States, and receipts and certificates for
such stripped debt obligations and coupons. The maturity date of the fixed
portfolios purchased by each unit investment trust is set forth below. More
detailed information may be found in the current prospectus for the Trusts.
<TABLE>
<CAPTION>
THE 17 TRUSTS
TRUST MATURITY DATE
- --------- ---------------------
<S> <C>
1997 February 15, 1997
1998 February 15, 1998
1999 February 15, 1999
2000 February 15, 2000
2001 February 15, 2001
2002 February 15, 2002
2003 August 15, 2003
2004 February 15, 2004
2005 February 15, 2005
2006 February 15, 2006
2007 February 15, 2007
2008 February 15, 2008
2009 February 15, 2009
2010 February 15, 2010
2011 February 15, 2011
2013 February 15, 2013
2014 February 15, 2014
</TABLE>
From time to time we may calculate a targeted rate of return to maturity for
an investment division investing in a Trust. Since the U.S. Treasury securities
have been stripped of their unmatured interest coupons, they are purchased at a
deep discount. If held to maturity, the amount invested will grow to the face
value of the securities and, therefore, a compound rate of growth to maturity
could be determined for the Trust units. The units, however, are held in
divisions of the Separate Account, and the charges described under "Expenses
Charged to All Divisions of the Separate Account" and "Expenses Charged to
Divisions Investing in the Trusts" must be reflected in the determination of a
net return. The net rate of return to maturity thus depends on the compound rate
of growth in the units and these underlying charges. It does not reflect the
applicable charges for policy loading and the cost of insurance. Since the value
of the Trust units will vary daily to reflect the market value of the underlying
securities, the compound rate of growth to maturity and, hence, the net rate of
return to maturity will correspondingly vary daily.
The value of units of the Trust prior to maturity is more volatile than that
of units of a unit investment trust containing unstripped U.S. Treasury
securities of comparable maturities and since that value will affect death
benefits (subject to Guaranteed Insurance Amount) and cash values under the
Policy, those values will fluctuate accordingly.
SUBSTITUTION OF INVESTMENTS
If, in the judgment of the Insurance Company's management, any of the Series
Fund, the Variable Series Funds or unit investment trust portfolios referred to
above no longer suits the purposes of the Policies due to a change in the
portfolio's investment objective or restrictions or if the shares or units
should no longer be available for investment, the Insurance Company can
substitute shares or units of another portfolio or an entirely separate mutual
fund or unit investment trust. But
15
<PAGE>
the Insurance Company would get prior approval from the SEC, the Arkansas
Insurance Department and other regulatory authorities as may be necessary.
The owner may exchange a Policy for a fixed life insurance policy in
accordance with state insurance regulations if the Trusts is terminated or if
units are no longer available for investment or if one of the Funds:
- changes its investments adviser; or
- makes a material change in its investment objectives or
restrictions.
The Insurance Company will notify the owner if there is any such change and
will describe the terms of the exchange to a fixed life insurance policy at that
time. The owner will be able to exchange a Policy within not less than 60 days
of receipt of such notice or of the effective date of the change, whichever is
later.
HOW POLICY BENEFITS VARY TO REFLECT THE SEPARATE
ACCOUNT'S INVESTMENT RESULTS
THE AMOUNT INVESTED: THE INVESTMENT BASE
TOTAL INVESTMENT BASE. The total investment base is the amount that a Policy
provides for investment at any time. It is the sum of the amounts invested in
each of the investment divisions in the Separate Account. The owner selects the
divisions in which to place the total investment base. Each division invests
either in a single portfolio of the Series Fund or the Variable Series Funds,
e.g., the Money Reserve Portfolio, or in a single unit investment trust of the
Trusts, e.g., the unit investment trust investing in securities maturing on
February 15, 2002. The total investment base can be allocated among up to 5 of
the Separate Account's investment divisions.
INVESTMENT BASE IN EACH INVESTMENT DIVISION. On the policy date, the
investment base is the net premium plus the policy loading. After the free look
period the owner may allocate the investment base among up to five of the
Separate Account's investment divisions.
At the beginning of each policy year, the portion of the Policy's investment
base in each division equals the amount of a Policy's net cash value (see "Cash
Value Benefits", page 10) allocated to that particular division, plus a
correspondingly proportionate amount of any unrecovered policy loading (see page
16).
On each date during a policy year the portion of the investment base allocated
to any particular division will be adjusted to reflect the investment experience
of that division (see "Policy's Rate of Return and Resultant Investment Return",
page 16).
HOW INVESTMENT BASE RELATES TO CASH VALUE. The investment base will exceed a
Policy's net cash value on the policy date and during the first ten policy years
by the amount of the unrecovered policy loading. During a policy year, there is
an additional difference between the investment base and net cash value for all
the Policies, because the net cash value reflects a daily adjustment for the
cost of insurance protection, while the corresponding adjustment to the
investment base is made once at the end of a policy year. Thus, the investment
base is not a measure of the net cash value to which the owner is entitled
except on policy anniversaries after the tenth.
POLICY LOANS WILL CHANGE CALCULATIONS. A policy loan reduces the total
investment base and the investment base in each investment division. On the
other hand, repayment of a loan will cause an increase. The Insurance Company
will take this into consideration in its calculations (see "Policy Loan", page
10).
POLICY'S RATE OF RETURN AND RESULTANT INVESTMENT RETURN
The determination of the investment return for a Policy, which is the dollar
amount used to buy additional variable insurance (see "Variable Insurance
Amount", page 8), is based upon a Policy's actual rate of return.
ACTUAL RATE OF RETURN. A Policy's actual rate of return is determined on each
policy anniversary. It reflects the investment experience of each designated
investment division during a policy year and the portion of the total investment
base under a Policy in each investment division. The investment experience of an
investment division is determined at the end of each valuation period. A
VALUATION PERIOD is each business day together with any non-business days before
it. A BUSINESS DAY is any day the New York Stock Exchange is open for trading
and any day in which there is sufficient trading in portfolio securities of the
Series Fund, the Variable Series Funds or the Trusts such that the net value of
the assets of an investment division might be materially affected.
The investment experience of a division reflects increases or decreases in the
net asset value of the underlying shares of the Series Fund, the Variable Series
Funds or the value of units of the unit investment trusts and any charges
against the assets in each division (see "Expenses Charged to All Divisions of
the Separate Account", page 17). Units of the unit investment trust will be
valued at the Sponsor's repurchase price as defined in the prospectus for The
Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities. For divisions
investing in the Series Fund or the Variable Series Funds, the investment
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<PAGE>
experience also reflects any dividend or capital gains distribution declared by
the Series Fund or the Variable Series Funds. The Insurance Company follows a
consistent method for periods less than a year.
INVESTMENT RETURN FOR A POLICY. The determination of the investment return
for a Policy starts on the first day of each policy year and ends on the first
day of the next policy year. The investment return for a policy year is the
difference between a Policy's actual rate of return for the policy year and 4.5%
(a Policy's assumed rate of return), multiplied by the cash value on the first
day of the policy year. In addition, during the first 10 policy years, there is
an investment return adjustment (see "Investment Return Adjustment", page 9).
There will be a positive investment return for a policy year if a Policy's
actual rate of return is greater than 4.5%, in which case the Variable Insurance
Amount increases. There will be a negative investment return if the actual rate
of return is less than 4.5%, in which case the Variable Insurance Amount
decreases, subject to the investment return adjustment (see page 9) and the
formula adjustment (see page 9).
CHARGES AND EXPENSES
ALLOCATION TO THE SEPARATE ACCOUNT
To support the operations of a Policy, on the policy date the Insurance
Company allocates to the Separate Account an amount equal to the sum of the net
premium and the policy loading.
CHARGES DEDUCTED FROM PREMIUM
The Policy's net premium equals the single premium less any additional premium
amounts for extra mortality risks ("deductions") and less the charges listed
below. The net premium plus the policy loading (the sum of the charges listed
below) is allocated to the Separate Account on the policy date. Thereafter, the
policy loading is subtracted from the investment base in equal installments at
the beginning of the second through the eleventh policy years.
SALES LOAD. A charge (which may be deemed to be a sales load as defined in
the 1940 Act) not to exceed 4% of the single premium. In certain group or
sponsored arrangements, the charge for sales load may be reduced (see "Group or
Sponsored Arrangements", page 18).
The amount of the sales load cannot be specifically related to sales expenses.
To the extent that sales expenses are not recovered from the charges for sales
load, such expenses may be recovered from sources other than charges deducted
from the premium, which may include amounts derived indirectly from the charge
for mortality and expense risks and from mortality gains.
ADMINISTRATIVE CHARGE. A charge to cover administrative expenses in
connection with issuing a Policy. Such expenses include medical examinations,
attending physician's statements, insurance underwriting costs, and establishing
permanent policy records. The Insurance Company does not expect to make a profit
from this charge.
The maximum charge for a Policy is $5 for each $1,000 of face amount, but not
more than $750 per policy. The charge per $1,000 of face amount is lower at
younger ages. The minimum charge per Policy is $125. In certain group or
sponsored arrangements, the administrative charge may be reduced (see "Group or
Sponsored Arrangements", below).
STATE PREMIUM TAX CHARGE. 2.25% of the single premium. Premium taxes vary
from state to state. The 2.25% rate is the average rate expected to be paid on
premiums from all states.
RISK CHARGE. 1.5% of the single premium, to cover the contingency that the
insureds die at a time when the Guaranteed Insurance Amount exceeds the death
benefit which would have been payable in the absence of such a guarantee. This
risk charge is allocated to the Insurance Company's general account and set up
as a reserve.
EXPENSES CHARGED TO ALL DIVISIONS OF THE SEPARATE ACCOUNT
CHARGE FOR MORTALITY AND EXPENSE RISKS. The Insurance Company makes a daily
charge to the Separate Account for mortality and expense risks assumed by the
Insurance Company. The amount of this charge is computed at an effective annual
rate of .50% at the beginning of the year.
The mortality risk assumed is that insureds as a group may live for a shorter
period of time than estimated and, therefore, a greater amount of death benefits
than expected will be payable. The expense risk assumed is that expenses
incurred in issuing and administering the Policies will be greater than
estimated. The Insurance Company will realize a gain from this charge to the
extent it is not needed to provide for benefits and expenses under the Policies.
CHARGES FOR INCOME TAXES. Currently no charge is made to the Separate Account
for company Federal income taxes that may be attributable to the Separate
Account. However, the Insurance Company may make such a charge in the future.
Charges for other taxes, if any, attributable to the Separate Account may also
be made (see "Charge for the Insurance Company's Income Taxes", page 21).
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<PAGE>
CHARGE FOR THE COST OF INSURANCE
The Policies are life insurance policies. Accordingly, a charge for the cost
of life insurance is deducted daily in determining the cash value (see "Net Cash
Value", page 10), while it is deducted from the investment base at the end of
each policy year. The cost of insurance is computed based upon the amount of
insurance provided during the year and the insured's sex and insurance age.
GROUP OR SPONSORED ARRANGEMENTS
The sales load, the administrative charge, and the minimum premium set forth
in this prospectus may be reduced for Policies issued in connection with group
or sponsored arrangements. In addition, under such group or sponsored
arrangements, underwriting classifications set forth in this prospectus may be
modified. A "group arrangement" includes a program under which a trustee,
employer or similar entity purchases Policies covering a group of individuals on
a group basis. A "sponsored arrangement" includes a program under which an
employer permits group solicitation of its employees for the purchase of
Policies on an individual basis, often through a voluntary payroll deduction
arrangement.
The Insurance Company will reduce these charges in accordance with its rules
in effect on the date an application for a Policy is approved. To qualify for
such reductions, a group or sponsored arrangement must satisfy certain criteria
as to, for example, size and number of years in existence. Generally, the sales
contacts and effort, administrative cost, and mortality cost per Policy vary
with the size of the group or sponsored arrangement, its stability as indicated
by its term of existence and certain characteristics of its members, the
purposes for which Policies are purchased, and other factors. The amounts of
reductions and the criteria for qualification will reflect the reduced sales
effort and administrative costs resulting from, and the different mortality
experience expected as a result of, sales to qualifying group and sponsored
arrangements.
Under the Insurance Company's current rules, such reductions will result in a
sales load of not less than 0% and not more than 3% of the single premium. The
administrative charge will be based on minimums and maximums of no less than $50
and $300, and no more than $100 and $700, respectively. In any given group or
sponsored arrangement, depending upon size and type, one or more of the above
reductions may apply.
The Insurance Company may modify from time to time, on a uniform basis, both
the amounts of reductions and the criteria for qualification. In no event,
however, will group or sponsored arrangements established for the sole purpose
of purchasing Policies, or that have been in existence for less than six months,
qualify for such reductions. Reductions in these charges will not be unfairly
discriminatory against any person, including the affected owners and all other
owners of Policies funded by the Separate Account.
EXPENSES CHARGED TO THE TRUSTS
ASSET CHARGE. The Insurance Company makes a daily asset charge against the
assets of each investment division investing in a unit investment trust. This
charge is to reimburse the Insurance Company for the transaction charge paid
directly by the Insurance Company to MLPF&S on the sale of the units to the
Separate Account. The Insurance Company pays these amounts from general account
assets. The amount of the asset charge currently is equivalent to an effective
annual rate of .34% at the beginning of the year. This amount may be increased
in the future but in no event will it exceed an effective annual rate of .50%.
The charge will be cost-based (taking into account a loss of interest) with no
anticipated element of profit for the Insurance Company.
GUARANTEE OF CERTAIN CHARGES
The Insurance Company guarantees, and may not increase, the charge for the
cost of insurance, the amount of the charge to the Separate Account for
mortality and expense risks, and the maximum asset charge to divisions investing
in a unit investment trust.
OTHER CHARGES
The Separate Account purchases shares of the Series Fund and the Variable
Series Funds at net asset value. The net asset value of those shares reflects
advisory fees already deducted from the assets of the Series Fund and the
Variable Series Funds. Those fees are described in the prospectus for the Series
Fund and the Variable Series Funds.
Certain fees, including the bank trustee's and evaluator's fees, will be
charged against the unit investment trusts of the Trusts. One interest bearing
security will be deposited in each Trust to provide income with which to pay the
expenses of the Trust. These fees and expenses are described in the prospectus
for the Trusts.
18
<PAGE>
ADMINISTRATIVE SERVICES
The Insurance Company and MLIG are parties to a service agreement pursuant to
which MLIG has agreed to provide certain data processing, legal, actuarial,
management, advertising and other services to 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.
DISTRIBUTION AGREEMENT AND OTHER
CONTRACTUAL ARRANGEMENTS
The Insurance Company retains MLPF&S under a distribution agreement to act as
principal underwriter for the Policies described in this prospectus as well as
other policies issued through the Separate Account. The Insurance Company has
companion sales agreements with various insurance agency organizations
affiliated with MLPF&S, including ML Life Agency Inc. in Texas, Merrill Lynch
Life Agency Ltd. in Mississippi and various Merrill Lynch Life Agencies
elsewhere. MLPF&S also is principal underwriter (distributor) for other
registered investment companies, including other separate accounts of the
Insurance Company and an affiliated insurance company. It is registered with the
SEC as a broker-dealer and is a member of the National Association of Securities
Dealers.
Under the distribution and sales agreements, applications for the policies are
solicited by financial consultants of MLPF&S. The financial consultants are
authorized under applicable state regulations to sell variable life insurance as
insurance agents.
The maximum commissions as a percentage of a premium payable to qualified
registered representatives will, in no event, exceed 3.5%. In addition, the
organizations described above will also receive override payments and may be
reimbursed under MLPF&S's expense reimbursement allowance program for portions
of expenses incurred.
The total amounts paid under the distribution and sales agreements for the
Separate Account for the years ended December 31, 1993, December 31, 1994, and
December 31, 1995, were $915,429, $808,469, and $677,860, respectively.
REINSURANCE. The Insurance Company has reinsured a portion of the risks
assumed under the Policies.
TAX CONSIDERATIONS
POLICY PROCEEDS
The Policies should receive the same Federal income tax treatment as fixed
life insurance. As such, (a) the death benefit thereunder should be excludable
from the gross income of the beneficiary under Section 101(a)(1) of the Internal
Revenue Code ("Code") and (b) the policyowner should not be deemed to be in
constructive receipt of the cash values, including increments thereof, under a
Policy until lapse or actual surrender thereof. The Insurance Company believes
that a Policy meets the statutory definition of life insurance and hence will
receive the same tax treatment as fixed life insurance.
DIVERSIFICATION. Section 817(h) of the Internal Revenue Code provides that
separate account investments (or the investments of a mutual fund, the shares of
which are owned by separate accounts of insurance companies) underlying the
contract must be "adequately diversified" in accordance with Treasury
regulations in order for the contract to qualify as life insurance. The Treasury
Department has issued regulations prescribing the diversification requirements
in connection with variable contracts. The separate account, through the Series
Fund 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 Series Fund and the Variable Series
Funds to ensure compliance with the requirements prescribed by the Treasury
Department.
In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of regulations or
rulings prescribing the circumstances in which a policyowner's control of the
investments of a separate account may cause the policyowner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If the policyowner is considered the owner of the
19
<PAGE>
assets of the Separate Account, income and gains from the account would be
included in the policyowner's gross income.
The ownership rights under this Policy are similar to, but different in
certain respects from those described by the IRS in rulings in which it
determined that the policyowners were not owners of Separate Account assets. For
example, the owner of this Policy has additional flexibility in allocating
premiums and cash values. These differences could result in the policyowner
being treated as the owner of the assets of the separate account. In addition,
the Insurance Company does not know what standards will be set forth in the
regulations or rulings which the Treasury has stated it expects to be issued. We
therefore reserve the right to modify this Policy as necessary to attempt to
prevent the policyowner from being considered the owner of the assets of the
separate account.
POLICY LOANS AND OTHER TRANSACTIONS. Federal tax law establishes a class of
life insurance policies referred to as modified endowment contracts. A modified
endowment contract is any contract which satisfies the definition of life
insurance set forth in Section 7702 of the Code but fails to meet the 7-pay
test. This test applies a cumulative limit on the amount of premiums that can be
paid into a contract each year in the first seven contract years in order to
avoid modified endowment contract treatment.
Loans from, as well as collateral assignments of, modified endowment contracts
will be treated as distributions to the policyowner. All pre-death distributions
(including loans and collateral assignments) from these policies will be
included in gross income on an income-first basis to the extent of any income in
the policy immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, collateral assignments and complete surrenders) from modified endowment
contracts to the extent they are included in income, unless such amounts are
distributed on or after the taxpayer attains age 59 1/2, because the taxpayer is
disabled, or as substantially equal periodic payments over the taxpayer's life
(or life expectancy) or over the joint lives (or joint life expectancies) of the
taxpayer and his beneficiary.
These provisions apply to policies entered into on or after June 21, 1988.
However, a policy that is not originally classified as a modified endowment
contract can become so classified if a material change is made in the policy at
any time. A material change includes, but is not limited to, a change in the
benefits that was not reflected in a prior 7-pay computation. Certain changes
made to your Policy may cause it to become subject to these provisions. We
believe that these changes include your contractual right to make certain
additional premium payments. You may choose not to exercise this right in order
to preserve your Policy's current tax treatment. If you do preserve your
Policy's current tax treatment, policy loans will be considered your
indebtedness and no part of a policy loan will constitute income to you. In
addition, pre-death distributions will generally not be included in gross income
to the extent that the amount received does not exceed your investment in the
Policy. However, a lapse of a Policy with an outstanding loan will result in the
treatment of the loan cancellation (including the accrued interest) as a
distribution under the Policy and may be taxable.
Any policy received in exchange for a modified endowment contract is
considered a modified endowment contract.
If there is any borrowing against your Policy, whether a modified endowment
contract or not, the interest paid on loans is not tax deductible.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death
distribution (including loans, collateral assignments and surrenders) from a
policy that is treated as a modified endowment contract, a special "aggregation"
requirement may apply for purposes of determining the amount of the "income on
the contract." Specifically, if the Insurance Company or any of its affiliates
issue to the same policyowner more than one modified endowment contract during
any calendar year, then for purposes of measuring the "income on the contract"
with respect to a distribution from any of those contracts, the "income on the
contract" for all such contracts will be aggregated and attributed to that
distribution.
TAXATION OF SINGLE PREMIUM IMMEDIATE ANNUITY RIDER. If a SPIAR is used to
make the payments on the Policy, a portion of each payment from the annuity will
be includible in income for federal tax purposes when distributed. The amount of
taxable income consists of the excess of the payment amount over the exclusion
amount. The exclusion amount is defined as the payment amount multiplied by the
ratio of the investment in the annuity rider to the total amount expected to be
paid by the Insurance Company under the annuity.
If payments cease because of death before the investment in the annuity rider
has been fully recovered, a deduction is allowed for the unrecovered amount.
Moreover, if the payments continue beyond the time at which the investment in
the annuity rider has been fully recovered, the full amount of each payment will
be includible in income. If the SPIAR is surrendered before all of the scheduled
payments have been made by the Insurance Company, the remaining income in the
annuity rider will be taxed just as in the case of life insurance contracts.
Payments under an immediate annuity rider are not subject to the 10% penalty
tax that is generally applicable to distributions from annuities made before the
recipient attains age 59 1/2.
20
<PAGE>
Other than the tax consequences described above, and assuming that the SPIAR
is not subjected to an assignment, gift or pledge, no income will be recognized
to the owner or beneficiary.
The SPIAR does not exist independently of a policy. Accordingly, there are tax
consequences if a policy with a SPIAR is assigned, transferred by gift or
pledged. An owner of a Policy with a SPIAR is advised to consult a tax advisor
prior to effecting an assignment, gift, or pledge of the policy.
OTHER TRANSACTIONS. Changing the owner or the insured may have tax
consequences. Exchanging a Policy for another involving the same insured(s) will
have no tax consequences if there is no debt and no cash or other property is
received according to Section 1035(a)(1) of the Code. Changing the insured under
a Policy may not be treated as an exchange under Section 1035 but rather as a
taxable exchange. 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.
PENSION BUSINESS. In certain HR-10 and corporate pension trust arrangements,
the Policies may be used on an individually written basis (see discussion below
for applicable tax charges).
OWNERSHIP OF A POLICY BY NON-NATURAL PERSONS. The above discussion of the tax
consequences arising from the purchase, ownership and transfer of a Policy has
assumed that the owner of the Policy consists of one or more individuals.
Organizations exempt from taxation under Section 501(a) of the Code may be
subject to additional or different tax consequences with respect to transactions
such as loans. Further, organizations purchasing Policies covering the life of
an individual who is an officer or employee, or is financially interested in,
the taxpayer's trade or business, should consult a tax advisor regarding
possible tax consequences associated with a policy prior to the acquisition of
the policy and also before entering into any subsequent changes to or
transactions under the Policy.
THE INSURANCE COMPANY DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF
THE POLICY OR ANY TRANSACTION REGARDING THE POLICY.
THE ABOVE DISCUSSION IS NOT INTENDED AS TAX ADVICE. FOR TAX ADVICE YOU SHOULD
CONSULT A COMPETENT TAX ADVISER. ALTHOUGH OUR TAX DISCUSSION IS BASED ON OUR
UNDERSTANDING OF FEDERAL INCOME TAX LAWS AS THEY ARE CURRENTLY INTERPRETED, WE
CAN'T GUARANTEE THAT THOSE LAWS OR INTERPRETATIONS WILL REMAIN UNCHANGED.
CHARGE FOR THE INSURANCE COMPANY'S INCOME TAXES
The Insurance Company does not expect to incur any Federal income tax
liability attributable to the Separate Account for a number of years. Based on
these expectations, no charge is being made currently to the Separate Account
for company Federal income taxes which may be attributable to the Separate
Account.
The Insurance Company will review the question of a charge to the Separate
Account for company Federal income taxes periodically. Such a charge may be made
in future years for any Federal income taxes incurred by the Insurance Company.
This might become necessary if there are changes made in the Federal income tax
treatment of variable life insurance at the company level, or if there is a
change in the Insurance Company's tax status. Any such charge would be designed
to cover the Federal income taxes attributable to the investment results of the
Separate Account.
The Insurance Company anticipates that, if a charge becomes necessary, the
amount of such charges, as adjusted from time to time, would be accumulated on a
daily basis and transferred out of each investment division and into its general
account on a monthly basis. Any investment earnings during the month on any tax
charges accumulated in an investment division would be retained by the Insurance
Company.
Such tax charges, if they are imposed, would not be made under Policies issued
in connection with the pension arrangements described above.
Under current laws, the Insurance Company may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, charges for such taxes, if any, attributable to the Separate Account may
be made.
LEGAL CONSIDERATIONS
On July 6, 1983 the Supreme Court held in ARIZONA GOVERNING COMMITTEE V. NORRIS
that optional annuity benefits provided under an employee's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. In that case the Court applied
its decision only to benefits derived from contributions made on or after August
1,
21
<PAGE>
1983. A recent decision of the United States Court of Appeals for the Second
Circuit, SPIRT V. TIAA-CREF, indicates that in other factual circumstances the
Title VII prohibition of sex distinct benefits may apply at an earlier date. The
Policy offered by this prospectus is based upon actuarial tables which
distinguish between men and women and thus the Policy provides different
benefits to men and women of the same age. Accordingly, employers and employee
organizations should consider, in consultation with legal counsel, the impact of
NORRIS on any employment-related insurance or benefit program (including the
group or sponsored arrangements described on page 18) before purchasing this
Policy.
MANAGEMENT
The Insurance Company's directors and executive officers and their positions
with the Insurance Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION HELD
<S> <C>
Anthony J. Vespa Chairman of the Board, President and Chief Executive
Officer
Joseph E. Crowne, 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 S. Boucher Senior Vice President, Variable Life Administration
</TABLE>
Each director is elected to serve until the next annual meeting of
shareholders or until his or her successor is elected and shall have qualified.
Each has held various executive positions with insurance company subsidiaries of
the Insurance Company's indirect parent, Merrill Lynch & Co., Inc. The principal
positions of the Insurance Company's directors and executive officers for the
past five years are listed below:
Mr. Vespa joined the Insurance Company in January 1994. Since February 1994,
he has held the position of Senior Vice President of 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 May 1991, he
was a Principal with Coopers & Lybrand.
Mr. Skolnick joined the Insurance Company in November 1990. He joined MLPF&S
in July 1984. Since May 1992, he has held the position of Assistant General
Counsel of Merrill Lynch & Co., Inc. and First Vice President of 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 Merrill Lynch Life in August 1995. Prior to August 1995, she
held the position of First Vice President and Director 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.
VOTING RIGHTS
RIGHT TO INSTRUCT VOTING OF SHARES OF THE SERIES FUND AND THE VARIABLE SERIES
FUNDS
In accordance with its view of present applicable law, the Insurance Company
will vote the shares of each of the ten portfolios of the Series Fund and of
each of the five available portfolios of the Variable Series Funds ("Funds")
held in the Separate Account at regular and special meetings of the shareholders
of such Fund based on instructions received from persons having the voting
interest in corresponding investment divisions of the Separate Account. However,
if the Investment Company Act of 1940 or any regulations thereunder should be
amended or if the present interpretation thereof should change, and as a result
the Insurance Company determines that it is permitted to vote the shares of such
Funds in its own right, it may elect to do so.
The person having the voting interest under a Policy is the owner. The number
of shares held in each investment division attributable to each owner is
determined by dividing a Policy's investment base in that division, if any, by
the net asset value of one share in the portfolio of the Fund in which that
investment division invests. Fractional votes will be counted.
22
<PAGE>
The number of shares which a person has the right to vote will be determined
as of a date to be chosen by the Insurance Company, but not more than 90 days
before any meeting of the Funds. Voting instructions will be solicited by
written communication at least 14 days before such meeting.
Fund shares held in each investment division for which no timely instructions
are received will be voted by the Insurance Company in the same proportion as
the voting instructions which are received for all Policies participating in
each investment division.
Each owner having a voting interest will receive periodic reports relating to
such Funds, proxy material and a form for giving voting instructions.
DISREGARD OF VOTING INSTRUCTIONS
The Insurance Company may, when required by State insurance regulatory
authorities, disregard voting instructions if the instructions require that the
shares be voted so as to cause a change in the sub-classification or investment
objectives of the Funds or one or more of its portfolios or to approve or
disapprove an investment advisory contract for a portfolio of such Funds. In
addition, the Insurance Company itself may disregard voting instructions in
favor of changes initiated by an owner in the investment policy or the
investment adviser of a portfolio of such Funds if the Insurance Company
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or the Insurance Company determined that the change would have an
adverse effect on its general account in that the proposed investment policy for
a portfolio may result in overly speculative or unsound investments. In the
event the Insurance Company does disregard voting instructions, a summary of
that action and the reasons for such action will be included in the next
semiannual report to policy owners.
REPORTS
On each quarterly anniversary of a policy a statement will be sent to the owner
setting forth the death benefit, cash value and any policy debt (and interest
charged for the preceding policy quarter) as of the first day of such quarter.
In addition, the report will indicate the allocation of the investment base
among the investment divisions as of the first day of the quarter.
An owner will be sent a semiannual report containing a financial statement for
the Separate Account and a list of the portfolio securities of the Series Fund
and the Variable Series Funds, as required by the Investment Company Act of
1940.
STATE REGULATION
The Insurance Company is subject to regulation and supervision by the Insurance
Department of the State of Arkansas (the "Insurance Department"). A detailed
financial statement in the prescribed form (the "Annual Statement") is filed
with the Insurance Department each year covering the Insurance Company's
operations for the preceding year and its financial condition as of the end of
that year. Regulation by the Insurance Department includes periodic examination
to determine contract liabilities and reserves so that the Insurance Department
may certify that these items are correct. The Insurance Company's books and
accounts are subject to review by the Insurance Department at all times. A full
examination of the Insurance Company's operations is conducted periodically by
the Insurance Department and under the auspices of the National Association of
Insurance Commissioners. The Insurance Company is also subject to the insurance
laws and regulations of all jurisdictions where it is authorized to do business.
The Policy has been approved by the Insurance Department of the State of
Arkansas and in other jurisdictions.
LEGAL PROCEEDINGS
As an insurance company, we are ordinarily involved in various kinds of routine
litigation that in our judgment is not of material importance in relation to
our total assets. None of such litigation relates to the Separate Account.
LEGAL MATTERS
The legal validity of the Policies described in the prospectus has been passed
on by Barry G. Skolnick, Senior Vice President, General Counsel and Secretary
of the Insurance Company.
23
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement under the Securities Act of 1933 has been filed with
the SEC relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may be obtained at the SEC's
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
EXPERTS
The financial statements of the Insurance Company as of December 31, 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.
24
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES
AND ACCUMULATED PREMIUMS
The tables on pages 26 through 33 illustrate the way in which a Policy
operates. The tables are based on the following ages, amounts and premiums:
1. The illustration on pages 26 and 27 is for a Policy issued to a male age
5 in the standard-simplified underwriting class with a single premium of
$10,000 and a face amount of $85,164.
2. The illustration on pages 28 and 29 is for a Policy issued to a male age
25 in the standard-simplified underwriting class with a single premium
of $10,000 and a face amount of $46,341.
3. The illustration on pages 30 and 31 is for a Policy issued to a male age
40 in the standard-simplified underwriting class with a single premium
of $10,000 and a face amount of $28,602.
4. The illustration on pages 32 and 33 is for a Policy issued to a female
age 55 in the standard-simplified underwriting class with a single
premium of $10,000 and a face amount of $21,750.
The tables show how the death benefit and cash values may vary over an
extended period of time assuming hypothetical rate of return (i.e., investment
income and capital gains and losses, realized or unrealized) equivalent to
constant gross (after tax) annual rates of 0%, 4% and 8% or 0%, 6% and 12%.
The death benefit and cash value for a Policy would be different from those
shown if the actual rates of return averaged 0%, 4% and 8% or 0%, 6% and 12%
over a period of years, but also fluctuated above or below those averages for
individual policy years.
The amounts shown for the death benefit and cash value as of the end of each
policy year take into account the investment return adjustment and the formula
adjustment, the daily charge for mortality and expense risks in the Separate
Account equivalent to an effective annual charge of .50% at the beginning of the
year.
The amounts shown in the tables take into account an additional charge of
.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 Focus Fund of the Variable Series Funds in 1995 which were
reimbursed to the Variable Series Funds by MLAM. Pursuant to a reimbursement
agreement with MLAM, the Variable Series Funds were reimbursed for the excess
which amounted to .11%, of the average daily net assets of this portfolio. (See
"The Variable Series Funds," page 13.)
Taking account of the charges for expense and mortality risks in the Separate
Account and the .49% charge described above the gross annual rate of investment
return of 0%, 4% and 8% or 0%, 6% and 12% correspond to net annual rates of
- -.99%, 2.99% and 6.97% or -.99%, 4.98% and 10.95%, respectively.
The hypothetical returns shown in the tables on pages 25 through 32 are
without any tax charges that may be attributable to the Separate Account in the
future. In order to produce after tax returns of 0%, 4% 6%, 8% and 12%, the
portfolio would have to earn a sufficient amount in excess of 0% or 4% or 6% or
8% or 12% to cover any tax charges (see "Tax Considerations--Policy Proceeds",
page 19).
The second column of the tables shows the amount which would accumulate if an
amount equal to the single premium were invested to earn interest (after taxes)
at 4% or 5% compounded annually depending on the hypothetical rates of return of
0%, 4% and 8% or 0%, 6% and 12%, respectively.
The Insurance Company will furnish upon request a personalized illustration
reflecting the proposed insured's age, face amount and premium amount requested.
The illustration will assume that the proposed insured is in one of the two
standard classes (depending on the face amount). In addition, if a purchase is
made, a comparable illustration will be included at the delivery of a Policy
reflecting the insured's risk classification.
25
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 5
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $85,164
<TABLE>
<CAPTION>
CASH VALUE(2)
DEATH BENEFIT(1)(2) ASSUMING HYPOTHETICAL GROSS
ASSUMING HYPOTHETICAL GROSS (AFTER (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM TAX) ANNUAL INVESTMENT RETURN OF RETURN OF
PAID PLUS ---------------------------------- --------------------------------
END OF POLICY YEAR INTEREST AT 4% 0% 4% 8% 0% 4% 8%
- ------------------------------- --------------- ---------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................. $ 10,400 $ 85,573 $ 85,573 $ 89,095 $ 8,891 $ 9,290 $ 9,689
2............................. 10,816 85,983 85,983 93,030 8,720 9,514 10,340
3............................. 11,249 86,396 86,396 96,973 8,560 9,746 11,029
4............................. 11,699 86,811 86,811 100,928 8,409 9,986 11,761
5............................. 12,167 87,228 87,228 104,901 8,267 10,234 12,536
6............................. 12,653 87,647 87,647 108,909 8,132 10,488 13,357
7............................. 13,159 88,067 88,067 112,945 8,003 10,748 14,225
8............................. 13,686 88,490 88,490 117,016 7,878 11,012 15,142
9............................. 14,233 88,915 88,915 121,125 7,757 11,279 16,108
10............................. 14,802 89,341 89,341 125,279 7,638 11,548 17,125
15............................. 18,009 91,506 91,506 147,565 7,094 12,974 23,186
20............................. 21,911 93,724 93,724 172,844 6,630 14,609 31,427
25............................. 26,658 95,994 95,994 201,478 6,250 16,535 42,794
30............................. 32,434 98,321 98,321 233,913 5,934 18,778 58,452
60............................. 105,196 113,513 113,513 545,489 5,282 36,160 329,635
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% and 4% columns result only
from the increase in the Guaranteed Insurance Amount and are unrelated to
the hypothetical annual investment returns. Similarly, a substantial
portion of the increase in the death benefit in the 8% column results from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 4% AND 8% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE 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.
26
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 5
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $85,164
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS (AFTER ASSUMING HYPOTHETICAL GROSS (AFTER
TOTAL PREMIUM TAX) ANNUAL INVESTMENT RETURN OF TAX) ANNUAL INVESTMENT RETURN OF
PAID PLUS ------------------------------------ ----------------------------------
END OF POLICY YEAR INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- --------------------------- --------------- ---------- ---------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 10,500 $ 85,573 $ 86,832 $ 93,623 $ 8,891 $ 9,489 $ 10,088
2......................... 11,025 85,983 88,441 102,469 8,720 9,923 11,197
3......................... 11,576 86,396 89,997 111,736 8,560 10,375 12,413
4......................... 12,155 86,811 91,501 121,454 8,409 10,848 13,748
5......................... 12,763 87,228 92,956 131,660 8,267 11,340 15,214
6......................... 13,401 87,647 94,378 142,409 8,132 11,854 16,823
7......................... 14,071 88,067 95,757 153,727 8,003 12,386 18,589
8......................... 14,775 88,490 97,097 165,661 7,878 12,938 20,525
9......................... 15,513 88,915 98,401 178,257 7,757 13,507 22,646
10......................... 16,289 89,341 99,670 191,564 7,638 14,094 24,969
15......................... 20,789 91,506 106,081 271,835 7,094 17,393 40,540
20......................... 26,533 93,724 112,736 381,384 6,630 21,495 65,883
25......................... 33,864 95,994 119,631 530,780 6,250 26,691 107,582
30......................... 43,219 98,321 126,774 734,603 5,934 33,244 176,255
60......................... 186,792 113,513 175,543 4,968,782 5,282 108,369 2,975,232
<FN>
- ------------------------
(1) The increase in the death benefit in the 0% column results from the
increase in the Guaranteed Insurance Amount and is unrelated to the
hypothetical annual investment return. Similarly, a substantial portion of
the increase in the death benefit in the 6% and 12% columns result from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE 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.
27
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $46,341
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS -------------------------------- ---------------------------------
END OF POLICY YEAR INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- ------------------------------- --------------- --------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................. $ 10,500 $ 46,563 $ 47,131 $ 50,625 $ 8,910 $ 9,507 $ 10,105
2............................. 11,025 46,787 47,892 55,094 8,751 9,955 11,230
3............................. 11,576 47,012 48,623 59,764 8,598 10,419 12,462
4............................. 12,155 47,237 49,325 64,650 8,451 10,899 13,810
5............................. 12,763 47,464 50,003 69,772 8,309 11,397 15,287
6............................. 13,401 47,692 50,662 75,155 8,173 11,914 16,907
7............................. 14,071 47,921 51,299 80,813 8,042 12,450 18,685
8............................. 14,775 48,151 51,916 86,765 7,915 13,006 20,637
9............................. 15,513 48,382 52,513 93,034 7,793 13,583 22,779
10............................. 16,289 48,614 53,092 99,642 7,674 14,181 25,133
15............................. 20,789 49,792 56,064 139,402 7,133 17,576 41,032
20............................. 26,533 50,999 59,132 193,323 6,623 21,656 66,555
25............................. 33,864 52,234 62,402 267,023 6,153 26,505 107,181
30............................. 43,219 53,500 65,787 367,568 5,718 32,096 170,702
40............................. 70,400 56,125 72,927 693,122 5,002 45,288 416,229
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% and 4% columns result only
from the increases in the Guaranteed Insurance Amount and are unrelated to
the hypothetical annual investment returns. Similarly, a substantial
portion of the increase in the death benefit in the 8% columns results
from the increases in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 4% AND 8% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE SERIES FUND OR THE 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.
28
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $46,341
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS -------------------------------- --------------------------------
END OF POLICY YEAR INTEREST AT 4% 0% 4% 8% 0% 4% 8%
- -------------------------------- --------------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1.............................. $ 10,400 $ 46,563 $ 46,563 $ 48,296 $ 8,910 $ 9,308 $ 9,706
2.............................. 10,816 46,787 46,787 50,248 8,751 9,546 10,372
3.............................. 11,249 47,012 47,012 52,198 8,598 9,788 11,074
4.............................. 11,699 47,237 47,237 54,149 8,451 10,035 11,816
5.............................. 12,167 47,464 47,464 56,105 8,309 10,286 12,598
6.............................. 12,653 47,692 47,692 58,073 8,173 10,542 13,425
7.............................. 13,159 47,921 47,921 60,052 8,042 10,803 14,299
8.............................. 13,686 48,151 48,151 62,042 7,915 11,069 15,223
9.............................. 14,233 48,382 48,382 64,046 7,793 11,340 16,200
10.............................. 14,802 48,614 48,614 66,067 7,674 11,615 17,234
15.............................. 18,009 49,792 49,792 76,927 7,133 13,096 23,448
20.............................. 21,911 50,999 50,999 89,160 6,623 14,690 31,703
25.............................. 26,658 52,234 52,234 103,120 6,153 16,386 42,559
30.............................. 32,434 53,500 53,500 118,918 5,718 18,109 56,499
40.............................. 48,010 56,125 56,125 157,143 5,002 21,400 95,658
<FN>
- ------------------------
(1) The increase in the death benefit in the 0% column results from the
increase in the Guaranteed Insurance Amount and is unrelated to the
hypothetical annual investment return. Similarly, a substantial portion of
the increase in the death benefit in the 6% and 12% columns results from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD YEARS. NO REPRESENTATIONS CAN BE MADE BY
THE INSURANCE COMPANY OR THE SERIES FUND OR THE 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.
29
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 40
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $28,602
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS ------------------------------- -------------------------------
END OF POLICY YEAR INTEREST AT 4% 0% 4% 8% 0% 4% 8%
- ------------------------------------ --------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1.................................. $ 10,400 $ 28,739 $ 28,739 $ 29,729 $ 8,913 $ 9,311 $ 9,709
2.................................. 10,816 28,877 28,877 30,853 8,747 9,540 10,366
3.................................. 11,249 29,016 29,016 31,976 8,582 9,769 11,053
4.................................. 11,699 29,155 29,155 33,098 8,420 9,998 11,772
5.................................. 12,167 29,295 29,295 34,223 8,260 10,225 12,525
6.................................. 12,653 29,436 29,436 35,351 8,102 10,452 13,313
7.................................. 13,159 29,577 29,577 36,484 7,946 10,678 14,136
8.................................. 13,686 29,719 29,719 37,623 7,793 10,901 14,997
9.................................. 14,233 29,862 29,862 38,771 7,641 11,123 15,896
10.................................. 14,802 30,005 30,005 39,927 7,492 11,342 16,834
15.................................. 18,009 30,732 30,732 46,333 6,808 12,487 22,361
20.................................. 21,911 31,477 31,477 53,854 6,186 13,667 29,474
25.................................. 26,658 32,239 32,239 62,408 5,601 14,773 38,286
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% and 4% columns result from
the increase in the Guaranteed Insurance Amount and are unrelated to the
hypothetical annual investment returns. Similarly, a substantial portion
of the increase in the death benefit in the 8% column results from the
increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 4% AND 8% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE 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.
30
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 40
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $28,602
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS -------------------------------- -------------------------------
END OF POLICY YEAR INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- --------------------------------- --------------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................... $ 10,500 $ 28,739 $ 29,046 $ 31,094 $ 8,913 $ 9,510 $ 10,107
2............................... 11,025 28,877 29,473 33,692 8,747 9,949 11,223
3............................... 11,576 29,016 29,882 36,405 8,582 10,399 12,437
4............................... 12,155 29,155 30,275 39,243 8,420 10,859 13,760
5............................... 12,763 29,295 30,654 42,217 8,260 11,331 15,200
6............................... 13,401 29,436 31,019 45,338 8,102 11,814 16,768
7............................... 14,071 29,577 31,370 48,615 7,946 12,307 18,476
8............................... 14,775 29,719 31,710 52,064 7,793 12,811 20,335
9............................... 15,513 29,862 32,039 55,696 7,641 13,325 22,359
10............................... 16,289 30,005 32,357 59,523 7,492 13,849 24,560
15............................... 20,789 30,732 34,136 82,895 6,808 16,759 39,153
20............................... 26,533 31,477 36,169 115,304 6,186 20,135 61,925
25............................... 33,864 32,239 38,282 159,759 5,601 23,856 96,512
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% column results from the
increase in the Guaranteed Insurance Amount and is unrelated to the
hypothetical annual investment returns. Similarly, a substantial portion
of the increase in the death benefit in the 6% and 12% columns result from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE SERIES FUND OR THE 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.
31
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $21,750
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS ------------------------------- -------------------------------
END OF POLICY YEAR INTEREST AT 4% 0% 4% 8% 0% 4% 8%
- ----------------------------------- --------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1................................. $ 10,400 $ 21,854 $ 21,854 $ 22,584 $ 8,904 $ 9,302 $ 9,700
2................................. 10,816 21,959 21,959 23,417 8,710 9,501 10,324
3................................. 11,249 22,065 22,065 24,251 8,517 9,697 10,973
4................................. 11,699 22,171 22,171 25,085 8,327 9,890 11,648
5................................. 12,167 22,277 22,277 25,922 8,139 10,079 12,349
6................................. 12,653 22,384 22,384 26,762 7,954 10,264 13,078
7................................. 13,159 22,491 22,491 27,606 7,771 10,446 13,835
8................................. 13,686 22,599 22,599 28,455 7,591 10,623 14,620
9................................. 14,233 22,708 22,708 29,312 7,414 10,794 15,434
10................................. 14,802 22,817 22,817 30,175 7,239 10,961 16,277
15................................. 18,009 23,370 23,370 34,965 6,438 11,799 21,136
20................................. 21,911 23,936 23,936 40,600 5,716 12,589 27,141
30................................. 32,434 25,110 25,110 54,364 4,481 13,754 42,610
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% and 4% columns result only
from the increase in the Guaranteed Insurance Amount and are unrelated to
the hypothetical annual investment returns. Similarly, a substantial
portion of the increase in the death benefit in the 8% column results from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 4% AND 8% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
32
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $21,750
<TABLE>
<CAPTION>
DEATH BENEFIT(1)(2) CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
(AFTER TAX) ANNUAL INVESTMENT (AFTER TAX) ANNUAL INVESTMENT
TOTAL PREMIUM RETURN OF RETURN OF
PAID PLUS -------------------------------- --------------------------------
END OF POLICY YEAR INTEREST AT 5% 0% 6% 12% 0% 6% 12%
- ---------------------------------- --------------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1................................ $ 10,500 $ 21,854 $ 22,079 $ 23,593 $ 8,904 $ 9,501 $ 10,098
2................................ 11,025 21,959 22,396 25,518 8,710 9,908 11,179
3................................ 11,576 22,065 22,701 27,530 8,517 10,323 12,349
4................................ 12,155 22,171 22,995 29,637 8,327 10,743 13,618
5................................ 12,763 22,277 23,277 31,846 8,139 11,170 14,991
6................................ 13,401 22,384 23,551 34,166 7,954 11,603 16,479
7................................ 14,071 22,491 23,814 36,606 7,771 12,042 18,090
8................................ 14,775 22,599 24,069 39,174 7,591 12,486 19,834
9................................ 15,513 22,708 24,316 41,880 7,414 12,934 21,721
10................................ 16,289 22,817 24,555 44,735 7,239 13,387 23,762
15................................ 20,789 23,370 25,893 62,192 6,438 15,837 37,040
20................................ 26,533 23,936 27,423 86,472 5,716 18,540 57,082
30................................ 43,219 25,110 30,677 165,899 4,481 24,247 129,076
<FN>
- ------------------------
(1) The increases in the death benefit in the 0% column results only from the
increase in the Guaranteed Insurance Amount and is unrelated to the
hypothetical annual investment returns. Similarly, a substantial portion
of the increase in the death benefit in the 6% and 12% column results from
the increase in the Guaranteed Insurance Amount.
(2) Assumes no policy loan has been made.
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACUTAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE INSURANCE COMPANY OR THE 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.
33
<PAGE>
APPENDIX B--OTHER POLICY PROVISIONS
INCOME PLANS
The owner may choose one or more income plans during the insured's lifetime.
If, at the time of the insured's death, no plan has been chosen for paying death
benefit proceeds, the beneficiary may choose a plan within one year.
The Insurance Company's approval is needed for any plan where:
- the person named to receive payments is other than the owner
or beneficiary; or
- the person named is not a natural person, such as a
corporation; or
- any income payment would be less than $25.
ANNUITY PLAN. An amount can be used to purchase a single premium immediate
annuity. Annuity purchase rates will be 3.0% less than for new annuitants.
DEPOSIT OPTION. An amount can be left on deposit with the Insurance Company
with interest payable at a rate of not less than 3% per year.
INSTALLMENT OPTION, FIXED PERIOD. An amount can be payable in installments
for up to 30 years, including interest at 3% per year. Any interest in excess of
3% is payable at the end of each installment year.
INSTALLMENT OPTION, FIXED AMOUNT. An amount can be payable in installments
until proceeds applied under the option and interest on unpaid balance of not
less than 3% per year are exhausted.
LIFE INCOME OPTION, PERIOD CERTAIN. An amount can be payable in monthly
installments until later of death of a named person or end of a period which may
be either 10 or 20 years.
JOINT LIFE INCOME. An amount can be payable in monthly installments as long
as at least one of two named persons is living. While both are living,
installments are at the full amount. When only one is alive, installments are at
2/3 of the full amount. Under this option, it is possible that only one payment
will be made if both named persons die before the second monthly installment is
paid or that only two payments will be made if both die before the third
payment, and so forth.
OTHER IMPORTANT PROVISIONS
OWNER. The owner of a Policy is the insured unless another owner has been
named in the application. If someone else is named as owner, that person has the
rights and options described in the Policy.
An owner other than the insured may name a contingent owner. The owner may
want to do this in case he or she dies before the insured. The owner's interest
in a Policy would then pass to the contingent owner. If there's no contingent
owner, the owner's interest would pass to the owner's estate.
If there is more than one owner, the Insurance Company will treat the owners
as joint owners with rights of survivorship unless the ownership designation
provides otherwise. The owners must exercise their rights and options jointly,
except that any one of the owners may reallocate the policy's investment base by
phone if the owner provides the personal identification number as well as the
Policy number. One owner must be designated, in writing, to receive all notices,
correspondence and tax reporting to which the owners are entitled under the
Policy.
BENEFICIARY. The beneficiary is the person to whom The Insurance Company pays
the proceeds upon the insured's death. The Insurance Company pays the proceeds
to the primary beneficiary. If the primary beneficiary has died, the proceeds
are paid to any contingent beneficiary. If there is no surviving beneficiary,
the Insurance Company pays the proceeds to the insured's estate.
Two or more persons may be named as primary beneficiaries or contingent
beneficiaries. In that case the Insurance Company will assume the proceeds are
to be paid in equal shares to the surviving beneficiaries. The owner can specify
other than equal shares. The owner can reserve the right to change
beneficiaries. If the owner doesn't reserve this right, the owner and primary
beneficiary must act together to exercise the rights and options under a Policy.
INCONTESTABILITY. The Insurance Company relies on the statements made in the
application. Legally, they are considered representations, not warranties. The
Insurance Company can contest a Policy if any material statement in the
application is false and a copy of that application is attached to a Policy.
The Insurance Company won't contest a Policy after it has been in effect
during the insured's lifetime for two years from the date of issue.
CHANGE OF INSURED. The owner may change a Policy for a new policy on the life
of a new insured. The change will be subject to evidence of insurability and
will not be available where the new insured is subject to a higher premium
charge for extra mortality risk. The owner of the original Policy will be the
owner of the new policy and the new policy will have a policy date that is the
same as the original. Premium rates for the new policy will be those in effect
on the policy date for the new insured's age and sex at that date and the
underwriting class determined at the date of change. The face amount of new
policies will be the same as the original. Where a negative Variable Insurance
Amount exists, however, the face amount will be reduced and the Variable
Insurance Amount for the new policy at the anniversary date immediately prior to
or coincident with the change date will be set to zero. The cash value of the
new policy will equal the cash value of the original less a charge for
administrative expenses incurred by the Insurance Company in making the change.
No other adjustments or charges are made at the time of change.
34
<PAGE>
CHANGES TO ATTAINED AGE SINGLE PREMIUM VARIABLE LIFE INSURANCE
POLICY. Subject to the Insurance Company's rules and the Insurance Company's
having obtained applicable regulatory approvals, if any, the owner may change
this Policy to an Attained Age Single Premium Variable Life Insurance policy at
the insured's then current age and with a policy date equal to the date of
change. The change will not be subject to evidence of insurability. The face
amount resulting from such a change will be less than the death benefit under
this Policy and will equal the face amount of insurance under a Single Premium
Variable Life Insurance policy, purchased at the insured's age at the date of
change, having a single premium equal to the Policy's net cash value less a 1.5%
risk charge. The risk charge covers the establishment of a new Guaranteed
Insurance Amount and the contingency that the insured die at a time when that
Guaranteed Insurance Amount exceeds the death benefit which would have been
payable in the absence of such a guarantee. No other charges are imposed at the
time of change.
BENEFICIARY INSURANCE PURCHASE. At the death of the insured, the beneficiary
of record of a Policy, if the spouse of the insured, may, subject to the
Insurance Company's rules, use all or part of the proceeds of the Policy to
purchase a Single Premium Variable Life Insurance policy on the life of the
beneficiary. To do so, the proceeds must have been otherwise payable to the
beneficiary in a single sum. A satisfactory written request must be received by
the Insurance Company within 90 days of the death of the insured and while the
beneficiary is still living. Any part of the proceeds not used to buy the new
policy will be paid to the beneficiary in a single sum.
The new policy will have an issue date and policy date as of the date the
written request is received by the Insurance Company. The policy's face amount
will be based on the standard medical premium rates being used by the Insurance
Company as of the policy date for the sex and attained age at the nearest
birthday of the beneficiary. The new policy will not have a formula adjustment.
The face amount acceptable without evidence of insurability will be limited to
the lesser of (i) $1,000,000 and (ii) the single premium applied plus $250,000.
The premium for the new policy will be lower than the premium for a similar
policy that the beneficiary could purchase from the Insurance Company without
the benefit of this provision because no sales load will be charged.
SINGLE PREMIUM IMMEDIATE ANNUITY RIDER ("SPIAR"). Subject to state
availability, for an additional premium, the applicant may purchase this rider
to provide income for a fixed period. The income will be payable for the period
specified in the rider but not less than 5 years nor more than 10 years. If the
insured dies prior to the end of this period, the rider value (the present value
of the remaining payments) will be payable to the beneficiary. If the rider or
the Policy is surrendered prior to the end of the period, the owner may receive
the rider value over a period of 5 years. The owner may also elect at any time
to apply the rider value to a life income. If the owner changes ownership of the
Policy, the Insurance Company will change the owner of the SPIAR to the new
owner of the Policy. The rider will have no effect on the loan value of the
Policy. The amount paid for this rider will be held in the Insurance Company's
general account and will not affect the variable aspects of the Policy.
Pledging, assigning or gifting a Policy with a SPIAR may have tax consequences
to the owner (see "Tax Considerations-- Policy Proceeds", page 19).
ERROR IN AGE OR SEX. If an age or sex as stated in the application is wrong,
it could mean the premium amount is wrong. Therefore, amounts payable under a
Policy will be what the premium actually paid would have bought at the true age
or sex.
ISSUE AGE. The Insurance Company determines the issue age based on the
insured's age on the birthday nearest the Policy's policy date.
SUICIDE. If the insured commits suicide within two years from the date of
issue, The Insurance Company will pay only a limited benefit. The limited
benefit will be the amount of premium paid for a Policy, minus any policy debt.
PAYMENTS AND DEFERMENT. Payments of the death benefit, net cash value or loan
proceeds will be made within 7 days after receipt at the Service Center of all
documents required for such payments.
However, the Insurance Company may defer the determination or payment of such
amounts if the effective date for determining such amounts falls within any
period during which:
- The disposal or valuation of the shares of the Series Fund or
the units of the Trusts held in the Separate Account is not
reasonably practicable because the New York Stock Exchange is
closed (other than customary weekend and holiday closings) or
conditions are such that, under the SEC's rules and
regulations, trading is restricted or an emergency is deemed
to exist; or
- the SEC by order permits postponement of such actions for the
protection of the Insurance Company policyholders.
Payment of the death benefit also may be delayed if the Policy is being
contested (see "Incontestability", page 34).
In the case of the payment of death benefit proceeds, the Insurance Company
will add interest from the date of death to the date of payment at an annual
rate of at least 3%.
ASSIGNMENT. The owner can assign a Policy as collateral security for a loan
or other obligation. This does not change the ownership. But the owner's rights
and any beneficiary's rights are subject to the terms of the assignment. To make
or release an assignment, the Insurance Company must receive written notice at
the Service Center, The Insurance Company is not responsible for
35
<PAGE>
the validity of any assignment. Pledging, assigning or gifting a Policy with a
SPIAR may have tax consequences to the owner (see "Tax Considerations--Policy
Proceeds", page 19).
DIVIDENDS. The Policies are classified as NON-PARTICIPATING. This means that
they do not provide for dividend payments. Unlike participating fixed life
insurance where a significant portion of dividend payments is attributable to
the insurer's investment earnings, the investment return under the Policies is
reflected in benefits.
------------
The description in this prospectus of Policy provisions is qualified by
reference to a specimen of the Single Premium Variable Life Insurance Policies
which has been filed as an exhibit to the Registration Statement.
36
<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.
* * * * * *
