<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998
REGISTRATION NO. 33-43057
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 8
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------------
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
(EXACT NAME OF TRUST)
MERRILL LYNCH LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
BARRY G. SKOLNICK, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
MERRILL LYNCH LIFE INSURANCE COMPANY
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
------------------------------
COPY TO:
STEPHEN E. ROTH, ESQ.
KIMBERLY J. SMITH, ESQ.
SUTHERLAND, ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2415
------------------
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on May 1, 1998 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/ / this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Title Of Securities Being Registered: Units of Interest in Single Premium
Variable Life Insurance Policies.
Check box if it is proposed that the filing will become effective on (date) at
(time) pursuant to Rule 487 / /
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<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE
SEPARATE ACCOUNT II
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUSES
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<C> <S>
1 Cover Page
2 Cover Page
3 Distribution Agreement and Other Contractual Arrangements
4 Cover Page
5 The Separate Account
6 The Separate Account; Distribution Agreement and Other Contractual Agreements
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 Summary of the Policies; Death Benefits; Policy Rights and Obligations; How Policy
Benefits Vary to Reflect the Separate Account's Investment Results; Voting Rights;
Appendix B
11 Summary of the Policies; The Separate Account
12 Cover Page; Summary of the Policies; The Separate Account
13 Summary of the Policies; The Separate Account; Charges and Expenses; Tax Considerations;
Servicing Agent
14 Summary of the Policies
15 Summary of the Policies; Policy Rights and Obligations
16 Summary of the Policies; Policy Rights and Obligations; The Separate Account
17 Death Benefits; Policy Rights and Obligations
18 The Separate Account
19 Servicing Agent
20 Distribution Agreement and Other Contractual Agreements
21 Summary of the Policies; Policy Rights and Obligations
22 Not Applicable
23 Not Applicable
24 Appendix B
25 Summary of the Policies
26 Not Applicable
27 Summary of the Policies; State Regulation
28 Management
29 Summary of the Policies
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Summary of the Policies
36 Not Applicable
37 Not Applicable
38 Summary of the Policies; Distribution Agreement and Other Contractual Arrangements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUSES
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<C> <S>
39 Summary of the Policies; Distribution Agreement and Other Contractual Arrangements
40 Distribution Agreement and other Contractual Arrangements
41 Summary of the Policies; Servicing Agent
42 Not Applicable
43 Not Applicable
44 Summary of the Policies; Death Benefits; Policy Rights and Obligations; Charges and
Expenses
45 Not Applicable
46 Summary of the Policies; The Separate Account
47 The Separate Account
48 Distribution Agreement and Other Contractual Arrangements
49 Distribution Agreement and Other Contractual Arrangements
50 Not Applicable
51 Cover Page; Summary of the Policies; Death Benefits
52 The Separate Account
53 Tax Considerations
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
</TABLE>
<PAGE>
The prospectus dated January 2, 1991 for the Directed Life Scheduled Premium
Variable Life Insurance Policies issued by Tandem Insurance Group, Inc., as
supplemented by Supplement dated September 9, 1991, Supplement dated October 1,
1991, and Supplement dated June 1, 1996, all of which are contained in the
Registrant's registration statement on Form S-6, File No. 33-43057, filed with
the Commission on October 1, 1991, are incorporated herein by this reference.
The prospectus dated May 1, 1993 for the Prime Plan I, Prime Plan II and
Prime Plan III Single Premium Variable Life Insurance Policies issued by Merrill
Lynch Life Insurance Company, as supplemented by Supplement dated June 1, 1996,
all of which are contained in the Registrant's registration statement on Form
S-6, File No. 33-43057, filed with the Commission on April 30, 1993, is
incorporated herein by this reference.
<PAGE>
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes Single Premium Variable Life Insurance Policies
("Policies") issued by Merrill Lynch Life Insurance Company (the "Insurance
Company" or "we" or "us"), a subsidiary of Merrill Lynch & Co., Inc. Policies
were issued by Monarch Life Insurance Company ("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 30 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 18). 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 12, and "Substitution of
Investments", page 16).
It may not be advantageous to replace existing insurance with a Policy. In
addition, employers and employee organizations should consider whether, in light
of a Supreme Court decision, it is appropriate to purchase a Policy for any
employment-related insurance or benefit program (see "Legal Considerations",
page 23).
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, capitalized interest,
collateral assignment or complete surrender may result in adverse tax
consequences and/or penalties. (See "Tax Considerations", page 20.) 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
1414 Main Street, Third
Smith Incorporated Floor
("MLPF&S") Springfield, Massachusetts
Plainsboro, New Jersey 08536 01104-1007
Phone: (800) 354-5333
</TABLE>
DATE: MAY 1, 1998
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
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PAGE
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<S> <C>
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 Trusts?....................................................... 6
How Can the Owner Allocate the Investment Base for a Policy?....................................................... 6
Is the Death Benefit Excludable from Gross Income for Tax Purposes?................................................ 6
What Is the Tax Treatment of Cash Value Increases?................................................................. 6
What Is the Loan Privilege?........................................................................................ 6
Who Are the Insurance Company and MLPF&S?.......................................................................... 7
Who Sells the Policies?............................................................................................ 7
What Are the Insurance Underwriting Requirements?.................................................................. 7
Assumption of Previously Issued Policies and Subsequent Merger..................................................... 7
Death Benefits......................................................................................................... 8
Policy Rights and Obligations.......................................................................................... 10
Premiums........................................................................................................... 10
Allocation of Net Premium and Investment Base...................................................................... 10
Cash Value Benefits................................................................................................ 10
Policy Loan........................................................................................................ 11
Increase in Guaranteed Insurance Amount............................................................................ 11
Right to Exchange for Fixed Life Insurance......................................................................... 12
Right to Examine a Policy ("Free Look")............................................................................ 12
The Separate Account................................................................................................... 12
The Separate Account............................................................................................... 12
Investments of the Separate Account................................................................................ 13
The Series Fund.................................................................................................... 14
The Variable Series Funds.......................................................................................... 14
Certain Risks of the Series Fund and the Variable Series Fund...................................................... 15
Resolving Material Conflicts....................................................................................... 15
The Trusts......................................................................................................... 15
Substitution of Investments........................................................................................ 16
How Policy Benefits Vary to Reflect the Separate Account's Investment Results.......................................... 16
The Amount Invested: The Investment Base........................................................................... 16
Policy's Rate of Return and Resultant Investment Return............................................................ 17
Charges and Expenses................................................................................................... 17
Allocation to the Separate Account................................................................................. 17
Charges Deducted from Premium...................................................................................... 18
Expenses Charged to All Divisions of the Separate Account.......................................................... 18
Charge for the Cost of Insurance................................................................................... 18
Group or Sponsored Arrangements.................................................................................... 18
Expenses Charged to the Trusts..................................................................................... 19
Guarantee of Certain Charges....................................................................................... 19
Charges to Series Fund Assets...................................................................................... 19
Charges to Variable Series Fund Assets............................................................................. 19
Other Charges...................................................................................................... 19
Administrative Services................................................................................................ 20
Distribution Agreement and Other Contractual Arrangements.............................................................. 20
Tax Considerations..................................................................................................... 20
Policy Proceeds.................................................................................................... 20
Charge for the Insurance Company's Income Taxes.................................................................... 22
Legal Considerations................................................................................................... 23
Management............................................................................................................. 23
Voting Rights.......................................................................................................... 24
Right to Instruct Voting of Shares of the Series Fund and the Variable Series Funds................................ 24
Disregard of Voting Instructions................................................................................... 24
Reports................................................................................................................ 24
State Regulation....................................................................................................... 25
Year 2000.............................................................................................................. 25
Legal Proceedings...................................................................................................... 25
Legal Matters.......................................................................................................... 25
Additional Information................................................................................................. 25
Experts................................................................................................................ 26
Appendix A--Illustrations of Death Benefits, Cash Values and Accumulated Premiums...................................... 27
Appendix B--Other Policy Provisions.................................................................................... 36
Income Plans....................................................................................................... 36
Other Important Provisions......................................................................................... 36
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.
2
<PAGE>
THE PRIMARY PURPOSE OF THE POLICY IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
SUMMARY OF THE POLICY
This section will answer many questions about a Policy.
HOW DOES THIS POLICY DIFFER FROM A TRADITIONAL SINGLE PREMIUM LIFE INSURANCE
POLICY?
Like other single premium life insurance policies, a Policy provides a death
benefit that is payable to the beneficiary upon the insured's death.
Unlike a traditional fixed single premium life insurance policy, the owner of
a Policy can choose where the investment base for a Policy is to be placed. The
choice is among up to any 5 of the investment divisions of the Separate Account.
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 17). The Variable Insurance Amount
is zero during the first policy year. After that, it may be positive or negative
as calculated on each policy anniversary.
3
<PAGE>
The change in the Variable Insurance Amount on a policy anniversary will
depend, subject to the investment return adjustment described below, upon the
relationship of a Policy's ACTUAL RATE OF RETURN (see "Actual Rate of Return",
page 17), for the policy year ending on the anniversary, to 4.5%, the Policy's
assumed rate of return. The actual rate of return under a Policy reflects,
through investment divisions in the Separate Account, increases or decreases in
the net asset value of the shares of the Funds plus any distribution made during
the policy year on such shares, and increases or decreases in the value of the
units of the Trusts. A Policy's investment return for a policy year is the
difference between a Policy's actual rate of return and 4.5%, multiplied by a
Policy's total investment base (see "The Amount Invested: The Investment Base",
page 16.)
If the actual rate of return exceeds 4.5%, the investment return is positive
and the Variable Insurance Amount increases. The increase in the Variable
Insurance Amount is an amount of insurance that is purchased by the dollar
amount of investment return under a Policy.
An increase in the Variable Insurance Amount on a policy anniversary will not
result in an increase in the death benefit if:
- the Variable Insurance Amount on the previous policy
anniversary was negative (and the death benefit equalled the
Guaranteed Insurance Amount); and
- such increase in the Variable Insurance Amount is not
sufficient to make the resulting Variable Insurance Amount
positive.
If the actual rate of return is less than 4.5%, the investment return is
negative and the Variable Insurance Amount decreases. The decrease in the
Variable Insurance Amount is an amount of insurance that is canceled on account
of the negative investment return under a Policy. If the prior Variable
Insurance Amount was negative, such a decrease will make the Variable Insurance
Amount more negative. A decrease in the Variable Insurance Amount will not
result in a decrease in the death benefit below the Guaranteed Insurance Amount
(see "Death Benefits", page 8).
During the first ten policy years the investment return will be adjusted
("INVESTMENT RETURN ADJUSTMENT") by the product of (i) a Policy's actual rate of
return for the policy year, and (ii) the amount of the policy loading that has
not been recovered as of the beginning of the policy year. The investment return
adjustment may be positive or negative depending on whether the actual rate of
return is greater than or less than zero. In calculating the investment return
adjustment, the Policy's assumed rate of return is not subtracted from the
actual rate of return, as it is in calculating the investment return on the
balance of the investment base. This adjustment will be reflected in a change in
the Variable Insurance Amount and will have the effect of creating greater
increases in the benefits of a Policy if the actual rate of return is greater
than zero, but will create larger decreases in benefits if the actual rate of
return is less than zero.
Policies issued in the standard class and in the non-smoker class, will
provide for increases in the Variable Insurance Amount otherwise calculated on
each policy anniversary (see "What Are the Insurance Underwriting
Requirements?", page 7). This will be based upon a formula adjustment for
assumed favorable mortality result as the Policy remains in force (see "Death
Benefits", page 8).
HOW IS THE PREMIUM DETERMINED?
In return for insurance benefits and other policy rights, the owner makes a
single premium payment. The premium amount depends on a Policy's face amount and
the insured's sex and insurance age.
The minimum single premium is $5,000 for ages 0 through 19 and $10,000 for
ages 20 and over. In certain group or sponsored arrangements, the minimum single
premium requirement may be reduced (see "Group or Sponsored Arrangements", page
18).
HOW DOES THE SEPARATE ACCOUNT OPERATE?
The Variable Life Insurance benefits for the policies are provided through
investments made in the Separate Account. The Separate Account is a separate
investment account used only to support Variable Life Insurance policies (see
"The Separate Account", page 12). It is not part of the Insurance Company's
general account.
The Separate Account is organized as a unit investment trust and is governed
by the laws of the State of Arkansas. There currently are 30 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 Class A shares of a designated mutual fund portfolio of the
Variable Series Funds (each, a "series" type of mutual fund) and 15 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
4
<PAGE>
base for a Policy among up to 5 of the 30 investment divisions.
The daily charge for mortality and expense risks is made against the assets of
all divisions in the Separate Account. The charge is equivalent to an effective
annual rate of .50% at the beginning of the year (see "Expenses Charged To All
Divisions of the Separate Account", page 18). In addition, a daily asset charge,
equivalent to an effective annual rate of .34% at the beginning of the year,
currently is made against the assets of the Trusts, which invest in units of a
designated unit investment trust which is part of the Trusts. This charge may be
increased in the future but in no event will it exceed an effective annual rate
of .50% (see "Asset Charge", page 19).
Currently, the Insurance Company makes no charge against the Separate Account
for company Federal income taxes. Under the Insurance Company's current tax
status as a life insurance company, it does not expect to incur Federal income
taxes attributable to the Separate Account for a number of years. However, if
the Insurance Company incurs company Federal income taxes attributable to the
Separate Account in future years, it intends to make a charge for those taxes
(see "Charge for the Insurance Company's Income Taxes", page 22.)
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 18);
- A charge for administrative expenses (see "Administrative
Charge", page 18);
- A charge for state premium taxes (see "State Premium Tax
Charge", page 18); and
- A risk charge (see "Risk Charge", page 18).
In certain group or sponsored arrangements the charges for sales load and
administrative expenses may be reduced (see "Group or Sponsored Arrangements",
page 18).
The net premium is the Policy's cash value as of the policy date.
HOW MUCH OF A POLICY'S PREMIUM IS ALLOCATED TO THE SEPARATE ACCOUNT?
On the policy date, which is either the date of the application (if the
premium is received within 5 working days of that date) or the date the premium
is received, if later, the Insurance Company allocates to the Separate Account,
the sum of the Policy's net premium and the policy loading. That amount is
allocated to the investment division investing in the Money Reserve Portfolio.
Subject to the Insurance Company's rules, a policyholder may choose to allocate
the policy premium among the investment division investing in the Money Reserve
Portfolio and one of the investment divisions investing in a unit investment
trust. The amount allocated equals the Policy's investment base as of the policy
date. After the free look period, the investment base may be allocated among 5
of the investment divisions based on the owner's instructions.
At the beginning of the second policy year and continuing through the
eleventh, the Insurance Company will reduce a Policy's investment base by 10% of
policy loading. Thus, the amount of the policy loading originally deducted from
the single premium but added to the initial investment base will be subtracted
from a Policy's investment base in equal installments at the beginning of the
second through the eleventh policy years.
WHAT ARE THE DIFFERENT INVESTMENT PORTFOLIOS IN THE 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
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 Class A shares of designated mutual fund portfolios of the Variable
5
<PAGE>
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
Special Value Focus 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 13 and 14. 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 1999
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 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 10).
IS THE DEATH BENEFIT EXCLUDABLE FROM GROSS INCOME FOR TAX PURPOSES?
The death benefit under a Policy is subject to the same Federal income tax
treatment as proceeds of fixed life insurance. Therefore, the death benefit will
be fully excludable from the gross income of the beneficiary under Section
101(a)(1) of the Internal Revenue Code (see "Tax Considerations--Policy
Proceeds", page 20).
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 20.
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
6
<PAGE>
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 participate in the investment experience of the Separate
Account. 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 11). Loan interest accrues daily
and, IF IT IS NOT PAID EACH YEAR, IT IS CAPITALIZED AND ADDED TO THE OUTSTANDING
LOAN AMOUNT. 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 Loans and Other Transactions", page 21). 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,
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 10). In certain group or sponsored
arrangements, underwriting classifications may be modified (see "Group or
Sponsored Arrangements", page 18).
ASSUMPTION OF PREVIOUSLY ISSUED POLICIES AND SUBSEQUENT MERGER
On November 14, 1990, Monarch, 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
7
<PAGE>
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 36). When
Merrill Lynch Life is first provided reliable notification of the insured's
death by a representative of the owner or the insured, investment base may be
transferred to the division investing in the Money Reserve Portfolio, pending
payment of death benefit proceeds.
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 11).
Death benefit proceeds (exclusive of amounts due from riders and before
reduction by any policy debt) will be at least equal to the face amount of
insurance under a single premium variable life insurance policy purchased at the
insured's age at the date of death having a net premium equal to a Policy's net
cash value. For this purpose the face amount purchased will in no event be less
than the face amount required under the rules governing the tax definition of
life insurance. Thus, under certain circumstances, it is possible that an owner
may not forego any increase in death benefit until the next policy anniversary
if investment results should be favorable.
All calculations will be made as of the date of death.
SINGLE PREMIUM TERM INSURANCE RIDER. In order to allow the owner of a Policy
to increase the amount of insurance protection, subject to state availability, a
Policy may be combined with a Single Premium Term Insurance Rider. Insurance
under this Rider may be converted to a Single Premium Variable Life Insurance
policy without evidence of insurability at any time beginning on the first
anniversary of the rider and ending as of the tenth anniversary. The new Single
Premium Variable Life Insurance policy will be for a face amount equal to the
amount converted and will be at premium rates based on the insured's age at the
time of conversion using the risk classification of the rider.
No portion of the premium for a rider is allocated to the Separate Account and
therefore the rider contains no variable feature. The Rider will have guaranteed
cash values which will be received upon cancellation of the Rider. The
guaranteed cash values of the Rider will be added to the cash value of the
Policy in the determination of cash value benefits. The cash value of the Rider
will not increase the loan value of the Policy.
VARIABLE INSURANCE AMOUNT. The Variable Insurance Amount a Policy provides is
zero during the first policy year. After that, the amount may be positive or
negative as calculated on an annual basis.
On each policy anniversary, the Insurance Company will determine the Variable
Insurance Amount for the policy year beginning on that anniversary by taking
into account:
- the Variable Insurance Amount (positive or negative) for the
preceding policy year; and
- the Policy's investment return for the preceding policy year
(see "Policy's Rate of Return and Resultant Investment Return",
page 17); and
8
<PAGE>
- the investment return adjustment (positive or negative) for the
preceding policy year (see "Investment Return Adjustment",
below); and
- the formula adjustment for Policies issued in the standard and
non-smoker classes (see "Formula Adjustment", page 10).
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 below on the
relationship of the Policy's actual rate of return (see "Actual Rate of Return",
page 17) for the policy year ending on the anniversary, to 4.5%, the Policy's
assumed rate of return. If the actual rate of return exceeds 4.5%, the Variable
Insurance Amount increases. Subject to the investment return adjustment
described below, and the formula adjustment described page 10, 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 on page
9). Since the dollar amount of a Policy's investment return depends on the total
investment base supporting a Policy (see "The Amount Invested: The Investment
Base", page 16) which will tend to be larger in later years, the increase or
decrease in the Variable Insurance Amount will tend to be larger in later years.
It should be noted that as shown in the table below, the net single premium
used to calculate the Variable Insurance Amount increases as the insured
advances in age and thus larger dollar amounts of investment return are required
each year to result in the same increases in the Variable Insurance Amount.
NET SINGLE PREMIUM FOR THE VARIABLE INSURANCE AMOUNT. A Policy includes a
table of net single premiums used to convert the investment return for a Policy
into increases or decreases in the Variable Insurance Amount. This purchase
basis does not depend upon the risk classification of a Policy or any changes in
the insured's health after issue of a Policy. The net single premium will be
lower for a Policy issued to a female than for a Policy issued to a male, as
shown below. The net single premium is used for the calculation of the Variable
Insurance Amount and is not for premium payment purposes.
TABLE OF ILLUSTRATIVE NET SINGLE
PREMIUMS FOR AVAILABLE INSURANCE
AMOUNT
<TABLE>
<CAPTION>
NET SINGLE VARIABLE
PREMIUM PER INSURANCE
$1.00 OF AMOUNT PURCHASED
VARIABLE OR CANCELLED BY
MALE ATTAINED INSURANCE $1.00 OF
AGE AMOUNT INVESTMENT RETURN
- ------------- ------------ -------------------
<S> <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>
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
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<PAGE>
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 division will be
allocated to the investment division investing in the Money Reserve Portfolio.
The Insurance Company will notify the owner 30 days in advance of the maturity
date. To elect an allocation to other than the investment division investing in
the Money Reserve Portfolio, the owner must notify the Insurance Company in
writing at least 7 days prior to the maturity date.
CASH VALUE BENEFITS
The owner can cancel a Policy at any time while the insured is living and
receive its net cash value. The request must be in writing in a form
satisfactory to the Insurance Company. All rights to death benefits will end on
the date the written request is sent to the Insurance Company. The net cash
value will be determined upon receipt of the written request at the Service
Center.
NET CASH VALUE. The cash value increases or decreases daily to reflect a
Policy's investment return (see "Policy's Rate of Return and Resultant
Investment Return", page 17). The cash value for a Policy at the end of a policy
year is equal to the tabular cash value on that date as shown in the Policy plus
(or minus) the net single premium on that date for the Variable Insurance
Amount. The NET CASH VALUE is the cash value minus any policy debt. The cash
value on a date during a
10
<PAGE>
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 17).
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 the Policy's loan value.
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 OUTSTANDING LOAN AMOUNT. The sum of all
outstanding loans plus accrued interest is called the POLICY DEBT. Policy debt
is considered part of total cash value which is used to calculate gain. 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. Interest paid on a
policy loan is generally not tax deductible. If a Policy lapses with a loan
outstanding, adverse tax consequences may result (see "Tax
Considerations--Policy Loans and Other Transactions", page 21).
EFFECT OF A LOAN. An amount equal to the loan proceeds will be transferred
out of the Separate Account, and a repayment will be transferred in. Loans and
repayments will be allocated among the investment divisions as elected by the
owner or, in the absence of any such election, among the investment divisions in
proportion to the investment base in each division as of the date of the loan or
repayment. A loan, WHETHER OR NOT REPAID, will have a permanent effect on the
death benefits and cash values. If not repaid, the policy debt will reduce the
amount of death benefit proceeds and cash value benefits.
INCREASE IN GUARANTEED INSURANCE AMOUNT
Subject to state availability and the Insurance Company's rules as set forth
below, an owner may elect to increase the scheduled Guaranteed Insurance Amounts
of an in force policy. The Insurance Company will ordinarily require evidence of
insurability. The insured must be in the same underwriting classification at the
time of the increase as at the original issue date. The election may not be made
during the six months (12 months in Kentucky) following the policy date.
Thereafter, the policy-owner may elect an increase up to five times each policy
year, but in no event earlier than 30 days after a previous election.
An owner may elect an increase by submitting a payment to the Insurance
Company along with an application for change. The minimum payment required is
$1,000; the maximum is the amount of the single premium paid for the original
Policy.
The payment (net of the charges discussed below) will be added to the Policy's
investment base (see "The Amount Invested: The Investment Base", page 16) and,
unless otherwise specified by the owner, allocated among the investment
divisions in proportion to the investment base in each division as of the
effective date. The amount of the charges assessable against the payment will
initially be added to the investment base. These charges will be the same as
those assessed against a single premium (see "Charges Deducted from Premium",
page 18) 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.
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<PAGE>
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 be charged with liabilities that arise from any other
business the Insurance Company conducts. But the Insurance Company may transfer
to its general account
12
<PAGE>
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 30 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 15 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 15 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 investment objectives and policies of certain of these underlying
portfolios may be similar to the investment objectives and policies of other
portfolios that may be managed by the same investment adviser or manager. The
investment results of the underlying portfolios, however, may be higher or lower
than the results of such other portfolios. There can be no assurance, and no
representation is made, that the investment results of any of the underlying
portfolios will be comparable to the investment results of any other portfolio,
even if the other portfolio has the same investment adviser or manager.
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 and certain investment policies
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.
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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 intermediate-term debt securities issued or guaranteed by the United States
Government or its agencies. The Portfolio will invest in such securities with a
maximum maturity of 15 years.
LONG-TERM CORPORATE BOND PORTFOLIO primarily seeks to provide as high a level
of current income as is believed to be consistent with prudent investment risk.
In addition, the Portfolio seeks the preservation of capital. In seeking to
achieve these objectives, under normal circumstances the Portfolio invests at
least 80% of the value of its total assets in debt securities that have a rating
within the three highest grades of Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Rating Group ("Standard & Poor's").
CAPITAL STOCK PORTFOLIO seeks long-term growth of capital and income, plus
moderate current income. It generally invests in equity securities considered to
be of good or improving quality or considered to be undervalued based on
criteria such as historical price/ book value and price/earnings ratios.
GROWTH STOCK PORTFOLIO seeks long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks, of aggressive
growth companies 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. Secondarily, the Portfolio
seeks capital appreciation when consistent with its primary objective. The
Portfolio seeks to achieve its investment objective by investing principally in
fixed-income securities rated in the lower categories of the established rating
services or in unrated securities of comparable quality (including securities
commonly known as "junk bonds").
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 capital appreciation and, secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value. The
Fund seeks special opportunities in securities that are selling at a discount,
either from book value or historical price-earnings ratios, or seem capable of
recovering from temporarily out of favor considerations. Particular emphasis is
placed on securities that provide an above-average dividend return and sell at a
below-average price/earnings ratio.
GLOBAL UTILITY FOCUS FUND seeks both capital appreciation and current income
through investment of at least 65% of its total assets in equity and debt
securities issued by domestic and foreign companies which are, in the opinion of
MLAM, primarily engaged in the ownership or operation of facilities used to
generate, transmit or distribute electricity, telecommunications, gas or water.
INTERNATIONAL EQUITY FOCUS FUND seeks capital appreciation and, secondarily,
income by investing in a diversified portfolio of equity securities of issuers
located in countries other than the United States. Under normal conditions, at
least 65% of the Fund's net assets will be invested in such equity securities
and at least 65% of the Fund's total assets will be invested in the securities
of issuers from at least three different foreign countries.
DEVELOPING CAPITAL MARKETS FOCUS FUND seeks long-term capital appreciation by
investing in securities, principally equities, of issuers in countries having
smaller capital markets. For purposes of its investment objective, the Fund
considers countries having smaller capital markets to be all countries other
than the four countries having the largest equity market capitalizations.
SPECIAL VALUE FOCUS FUND (FORMERLY THE EQUITY GROWTH FUND) seeks long-term
growth of capital by investing in a diversified portfolio of securities,
primarily common stocks, of relatively small companies that management of the
Variable Series Funds believes have special investment value, and of emerging
growth companies regardless of size. Companies are selected by management on the
basis of their long-term potential for expanding their size and profitability or
for gaining increased market recognition for their securities. Current income is
not a factor in the selection of securities.
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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, and the Developing Capital Markets Focus and
International Equity Focus Funds of the Variable Series Funds, expect to invest,
entails relatively greater risk of loss of income or principal. The Developing
Capital Markets Focus Fund of the Variable Series Funds has 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 risk, these portfolios will
diversify holdings among many issuers. However, there can be no assurance that
diversification will protect these portfolios 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 gold or in asset-based securities indexed to the value of gold
bullion. The Natural Resources Portfolio will not concentrate its investments in
such securities until it has been advised that the Policies' federal tax status
will not be adversely affected as a result.
Investment in these Portfolios entails relatively greater risk of loss of
income or principal. In addition, as described in the accompanying prospectus
for the portfolios, many portfolios should be considered a long-term investment
and a vehicle for diversification, and not as a balanced investment program. It
may not be appropriate to allocate all payments and investment base to a single
investment division.
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 sold to separate accounts of the
Insurance Company, ML Life Insurance Company of New York, and insurance
companies not affiliated with the Insurance Company or Merrill Lynch & Co., Inc.
to fund benefits under variable life insurance and variable annuity contracts,
and may be sold to qualified plans.
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.
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.
15
<PAGE>
THE 15 TRUSTS
<TABLE>
<CAPTION>
TRUST MATURITY DATE
- --------- ----------------------
<S> <C>
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 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
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<PAGE>
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",
below).
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
11).
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 18). Units of the unit investment trust will be
valued at the Sponsor's repurchase price as defined in the prospectus for The
Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities. For divisions
investing in the Series Fund or the Variable Series Funds, the investment
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 10).
CHARGES AND EXPENSES
Merrill Lynch Life deducts the charges described below to cover costs and
expenses, services provided, and risks assumed under the Policies. The amount of
a charge may not necessarily correspond to the costs associated with providing
the services or benefits indicated by the designation of the charge or
associated with the particular Policy. For example, the sales load may not fully
cover all of the sales and distribution expenses actually incurred by Merrill
Lynch Life, and proceeds from other charges, including the mortality and expense
risk charge, may be used in part to cover such 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.
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<PAGE>
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", below).
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 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.
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. If the mortality and expense risk charge is inadequate to cover the
actual expenses of mortality, maintenance, and administration, we will bear the
loss. If the charge exceeds the actual expenses, the excess will be added to our
profit and may be used to finance distribution expenses.
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 22).
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
18
<PAGE>
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.
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.
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 Special Value Focus Fund, respectively.
MLAM and Merrill Lynch Life Agency, Inc. have entered into agreements which
limit the operating expenses, exclusive of any distribution fees imposed on
Class B Common Stock, paid by each Fund in a given year to 1.25% of its average
daily net assets. These reimbursement agreements provide that any such expenses
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.
OTHER CHARGES
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.
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<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, 1997.
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, 1997, December 31, 1996, and
December 31, 1995, were $273,924, $634,950, 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.
The Series Fund and the Variable Series Funds are each obligated to comply with
the diversification requirements prescribed by the Treasury Department.
In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of regulations or
rulings prescribing the circumstances in which a policyowner's control of the
investments of a separate account may cause the policyowner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If the policyowner is considered the owner of the assets of the
Separate Account, income and gains from the account would be included in the
policyowner's gross income.
The ownership rights under this Policy are similar to, but different in
certain respects from those described
20
<PAGE>
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, capitalized interest, collateral assignments and complete
surrenders) 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, capitalized interest, 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 generally is not deductible.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death
distribution (including loans, capitalized interest, collateral assignments, and
complete 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 Single Premium
Immediate Annuity Rider ("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
21
<PAGE>
the annuity rider will be taxed just as in the case of life insurance contracts.
Payments under an immediate annuity rider are not subject to the 10% penalty
tax that is generally applicable to distributions from annuities made before the
recipient attains age 59 1/2.
Other than the tax consequences described above, and assuming that the SPIAR
is not subjected to an assignment, gift or pledge, no income will be recognized
to the owner or beneficiary.
The SPIAR does not exist independently of a policy. Accordingly, there are tax
consequences if a policy with a SPIAR is assigned, transferred by gift or
pledged. An owner of a Policy with a SPIAR is advised to consult a tax advisor
prior to effecting an assignment, gift, or pledge of the policy.
OTHER TRANSACTIONS. Changing the owner or the insured may have tax
consequences. Exchanging a Policy for another involving the same insured(s) will
have no tax consequences if there is no debt and no cash or other property is
received according to Section 1035(a)(1) of the Code. In addition, exchanging
this Policy for more than one policy, or exchanging this Policy and one or more
other policies for a single policy, in certain circumstances, may be treated as
an exchange under Section 1035, as long as all such policies involve the same
insured. An exchange for a new policy or policies may result in a loss of
grandfathering status for statutory changes made after the old policy or
policies were issued. Changing the insured under a Policy may not be treated as
an exchange under Section 1035 but rather as a taxable exchange. A tax advisor
should be consulted before effecting any exchange, since even if an exchange is
within Section 1035(a), the exchange may have tax consequences other than
immediate recognition of income.
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 circum stances 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. In recent years, moreover, Congress has adopted new rules
relating to life insurance owned by businesses. Any business should consult a
tax advisor regarding possible tax consequences associated with a Policy prior
to the acquisition of this Policy and also before entering into any subsequent
changes to or transactions under this Policy.
POSSIBLE CHANGES IN TAXATION. Although the likelihood of legislative change
is uncertain, there is always the possibility that the tax treatment of the
Policies could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted, would
adversely modify the federal taxation of the Policies. It is also possible that
any change could be retroactive (that is, effective prior to the date of the
change). A tax advisor should be consulted with respect to legislative
developments and their effect on 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
22
<PAGE>
by the Insurance Company. This might become necessary if there are changes made
in the Federal income tax treatment of variable life insurance at the company
level, or if there is a change in the Insurance Company's tax status. Any such
charge would be designed to cover the Federal income taxes attributable to the
investment results of the Separate Account.
The Insurance Company anticipates that, if a charge becomes necessary, the
amount of such charges, as adjusted from time to time, would be accumulated on a
daily basis and transferred out of each investment division and into its general
account on a monthly basis. Any investment earnings during the month on any tax
charges accumulated in an investment division would be retained by the Insurance
Company.
Such tax charges, if they are imposed, would not be made under Policies issued
in connection with the pension arrangements described above.
Under current laws, the Insurance Company may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, charges for such taxes, if any, attributable to the Separate Account may
be made.
LEGAL CONSIDERATIONS
On July 6, 1983 the Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employee's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. In that case the Court applied
its decision only to benefits derived from contributions made on or after August
1, 1983. A recent decision of the United States Court of Appeals for the Second
Circuit, SPIRT V. TIAA-CREF, indicates that in other factual circumstances the
Title VII prohibition of sex distinct benefits may apply at an earlier date. The
Policy offered by this prospectus is based upon actuarial tables which
distinguish between men and women and thus the Policy provides different
benefits to men and women of the same age. Accordingly, employers and employee
organizations should consider, in consultation with legal counsel, the impact of
NORRIS on any employment-related insurance or benefit program (including the
group or sponsored arrangements described on page 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 J. Boucher Senior Vice President,
Variable Life Administration
</TABLE>
Each director is elected to serve until the next annual meeting of
shareholders or until his or her successor is elected and shall have qualified.
Each has held various executive positions with insurance company subsidiaries of
the Insurance Company's indirect parent, Merrill Lynch & Co., Inc. The principal
positions of the Insurance Company's directors and executive officers for the
past five years are listed below:
Mr. Vespa joined the Insurance Company in January 1994. Since February 1994,
he has held the position of Senior Vice President of MLPF&S. From February 1991
to February 1994, he held the position of District Director and First Vice
President of MLPF&S.
Mr. Crowne joined the Insurance Company in June 1991.
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 and Assistant
General Counsel of MLPF&S.
Mr. Dunford joined the Insurance Company in July 1990.
23
<PAGE>
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.
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.
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.
24
<PAGE>
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.
YEAR 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Separate Account could be adversely
affected if the computer systems used by us or the other service providers do
not properly address this problem prior to January 1, 2000. Merrill Lynch & Co.,
Inc. has established a dedicated group to analyze these issues and to implement
any systems modifications necessary to prepare for the Year 2000. The resources
that are being devoted to this effort are substantial. It is difficult to
predict with precision whether the amount of resources ultimately devoted, or
the outcome of these efforts, will have any negative impact on us. Currently, we
do not anticipate that the transition to the 21st century will have any material
impact on our ability to continue to service the Policies at current levels. In
addition, we have sought assurances from the other service providers that they
are taking all necessary steps to ensure that their computer systems will
accurately reflect the Year 2000, and we will continue to monitor the situation.
At this time, however, no assurance can be given that the other service
providers have anticipated every step necessary to avoid any adverse effect on
the Separate Account attributable to the Year 2000 Problem.
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.
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.
25
<PAGE>
EXPERTS
The financial statements of the Insurance Company as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997, and
of the Separate Account as of December 31, 1997 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.
26
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES
AND ACCUMULATED PREMIUMS
The tables on pages 28 through 35 illustrate the way in which a Policy
operates. The tables are based on the following ages, amounts and premiums:
1. The illustration on pages 28 and 29 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 30 and 31 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 32 and 33 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 34 and 35 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 1997 expenses (including the monthly
advisory fees) for the Series Fund, the Variable Series Funds and the current
trust charge. This charge also reflects expense reimbursements made in 1997 to
certain portfolios by its investment adviser. These reimbursements amounted to
.17% and .09% of the average daily net assets of the Developing Capital Markets
Focus Fund and the Natural Resources Portfolio, respectively. (See "Charges to
Series Fund Assets" and "Charges to Variable Series Funds Assets", page 19.) The
actual charge under a policy for fund expenses and the trust charge will depend
on the actual allocation of the investment base and may be higher or lower
depending on how the investment base is allocated.
Taking 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 28 through 35 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 20).
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.
27
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 5
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $85,164
<TABLE>
<CAPTION>
CASH VALUE(2)
DEATH BENEFIT(1)(2) ASSUMING HYPOTHETICAL GROSS
ASSUMING HYPOTHETICAL GROSS (AFTER (AFTER
TOTAL PREMIUM TAX) ANNUAL INVESTMENT RETURN OF TAX) ANNUAL INVESTMENT RETURN OF
PAID PLUS ------------------------------------- ---------------------------------
END OF POLICY YEAR INTEREST AT 4% 0% 4% 8% 0% 4% 8%
- ------------------------- --------------- ----------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1....................... $ 10,400 $ 85,573 $ 85,573 $ 89,095 $ 8,891 $ 9,290 $ 9,689
2....................... 10,816 85,983 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
</TABLE>
- ------------------------
(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.
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 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
</TABLE>
- ------------------------
(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.
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.
29
<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)
ASSUMING HYPOTHETICAL GROSS CASH VALUE(2)
(AFTER ASSUMING HYPOTHETICAL GROSS
TAX) ANNUAL INVESTMENT RETURN (AFTER
TOTAL PREMIUM OF TAX) ANNUAL INVESTMENT RETURN
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
</TABLE>
- ------------------------
(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.
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 25
$10,000 SINGLE PREMIUM FOR STANDARD-SIMPLIFIED UNDERWRITING RISK
FACE AMOUNT: $46,341
<TABLE>
<CAPTION>
CASH VALUE(2)
DEATH BENEFIT(1)(2) ASSUMING HYPOTHETICAL GROSS
ASSUMING HYPOTHETICAL GROSS (AFTER
(AFTER TAX) ANNUAL INVESTMENT RETURN
TOTAL PREMIUM TAX) ANNUAL INVESTMENT RETURN OF 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
</TABLE>
- ------------------------
(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.
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. 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
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
</TABLE>
- ------------------------
(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.
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.
32
<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>
CASH VALUE(2)
DEATH BENEFIT(1)(2) ASSUMING HYPOTHETICAL GROSS
ASSUMING HYPOTHETICAL GROSS (AFTER
(AFTER TAX) ANNUAL INVESTMENT RETURN
TOTAL PREMIUM TAX) ANNUAL INVESTMENT RETURN OF 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
</TABLE>
- ------------------------
(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.
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.
33
<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 (AFTER
TAX) ANNUAL INVESTMENT RETURN TAX) ANNUAL INVESTMENT RETURN
TOTAL PREMIUM OF 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
</TABLE>
- ------------------------
(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.
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.
34
<PAGE>
PRIME PLAN IV
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE 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 (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 $ 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
</TABLE>
- ------------------------
(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.
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.
35
<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. Other designated periods and payment schedules may be
available on request.
JOINT LIFE INCOME. An amount can be payable in monthly installments as long
as at least one of two named persons is living. Other payment schedules may be
available on request. While both are living, installments are at the full
amount. When only one is alive, installments of at least 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.
36
<PAGE>
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.
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 20).
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.
37
<PAGE>
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 and
Variable Series Funds or the units of the Trusts held in the
Separate Account is not reasonably practicable because the New
York Stock Exchange is closed (other than customary weekend and
holiday closings) or conditions are such that, under the SEC's
rules and regulations, trading is restricted or an emergency is
deemed to exist; or
- the SEC by order permits postponement of such actions for the
protection of the Insurance Company policyholders.
Payment of the death benefit also may be delayed if the Policy is being
contested (see "Incontestability", page 36).
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 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
20).
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.
38
<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, 1997 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, 1997. 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, 1997 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.
January 30, 1998
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS: Cost Shares Market Value
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investments in Merrill Lynch Series Fund, Inc. (Note 1):
Money Reserve Portfolio $ 377,913,603 377,916,603 $ 377,913,603
Intermediate Government Bond Portfolio 179,236,147 15,889,459 176,055,202
Long-Term Corporate Bond Portfolio 93,044,041 7,922,991 92,857,457
Capital Stock Portfolio 199,158,790 9,096,973 243,707,904
Growth Stock Portfolio 189,651,589 7,368,835 241,845,175
Multiple Strategy Portfolio 942,664,229 58,740,642 1,114,309,983
High Yield Portfolio 93,375,040 10,352,256 95,137,237
Natural Resources Portfolio 14,713,084 1,623,518 13,182,963
Global Strategy Portfolio 154,713,399 10,222,141 178,274,142
Balanced Portfolio 71,418,423 5,120,685 80,804,404
--------------------- ---------------------
2,315,888,345 2,614,088,070
--------------------- ---------------------
Investments in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Global Utility Focus Fund 4,506,428 341,003 5,060,481
International Equity Focus Fund 8,425,527 709,854 7,666,420
Global Bond Focus Fund 458,489 49,784 463,985
Basic Value Focus Fund 29,045,816 2,001,337 31,701,177
Developing Capital Markets Focus Fund 6,545,466 604,188 5,570,614
Special Value Focus Fund 8,146,733 279,857 7,766,023
Index 500 Fund 8,576,200 666,181 8,978,840
--------------------- ---------------------
65,704,659 67,207,540
--------------------- ---------------------
Investments in Alliance Variable Products Series Funds, Inc. (Note 1):
Premier Growth Portfolio 4,759,869 225,636 4,736,104
--------------------- ---------------------
4,759,869 4,736,104
--------------------- ---------------------
Investments in MFS Variable Insurance Trust (Note 1):
MFS Emerging Growth Series 2,754,975 164,895 2,661,408
MFS Research Series 2,579,605 167,689 2,647,807
--------------------- ---------------------
5,334,580 5,309,215
--------------------- ---------------------
Investments in AIM Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund 3,560,003 168,771 3,515,502
AIM V.I. Capital Appreciation Fund 1,499,627 63,439 1,379,790
--------------------- ---------------------
5,059,630 4,895,292
--------------------- ---------------------
</TABLE>
(continued)
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Units
-------------------
<S> <C> <C> <C>
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through K (Note 1):
1998 Trust 31,193,636 44,313,672 44,080,139
1999 Trust 16,418,621 21,218,414 19,951,470
2000 Trust 15,373,287 20,568,756 18,311,746
2001 Trust 27,435,063 52,550,694 44,300,762
2002 Trust 6,708,306 10,334,924 8,209,443
2003 Trust 22,961,467 54,912,992 40,032,120
2004 Trust 5,192,632 8,477,320 5,991,092
2005 Trust 13,139,910 28,509,425 19,180,850
2006 Trust 5,076,669 9,426,723 6,081,273
2007 Trust 7,496,892 19,686,156 11,917,211
2008 Trust 11,585,513 37,038,463 20,688,575
2009 Trust 5,539,879 17,093,762 8,983,284
2010 Trust 6,674,369 14,826,647 7,257,940
2011 Trust 1,093,740 3,103,230 1,445,609
2013 Trust 874,433 2,682,897 1,101,490
2014 Trust 12,178,064 38,170,842 14,618,669
--------------------- ---------------------
188,942,481 272,151,673
--------------------- ---------------------
TOTAL ASSETS $ 2,585,689,564 2,968,387,894
===================== ---------------------
LIABILITIES:
Payable to Merrill Lynch Life Insurance Company 26,155,750
---------------------
TOTAL LIABILITIES 26,155,750
---------------------
NET ASSETS $ 2,942,232,144
=====================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 176,227,584 $ 227,773,709 $ 176,010,284
Mortality and Expense Charges (Note 3) (17,016,044) (16,019,207) (15,619,292)
Transaction Charges (Note 4) (947,805) (1,107,972) (1,382,826)
--------------------- --------------------- ---------------------
Net Investment Income 158,263,735 210,646,530 159,008,166
--------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains 67,234,138 49,679,613 43,387,581
Net Unrealized Gains (Losses) 167,676,700 (9,165,154) 186,601,895
--------------------- --------------------- ---------------------
Net Realized and Unrealized Gains 234,910,838 40,514,459 229,989,476
--------------------- --------------------- ---------------------
Increase in Net Assets
Resulting from Operations 393,174,573 251,160,989 388,997,642
--------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 4,950,624 8,662,019 9,110,961
Transfers of Policy Loading, Net (Note 3) (6,035,984) (10,715,483) (14,309,715)
Transfers Due to Deaths (43,538,236) (28,915,284) (28,619,535)
Transfers Due to Other Terminations (101,614,610) (86,971,795) (82,830,969)
Transfers Due to Policy Loans (37,908,300) (46,911,839) (52,662,381)
Transfers of Cost of Insurance (46,195,634) (41,882,708) (37,801,248)
Transfers of Loan Processing Charges (5,517,788) (5,817,667) (5,564,758)
--------------------- --------------------- ---------------------
Decrease in Net Assets
Resulting from Principal Transactions (235,859,928) (212,552,757) (212,677,645)
--------------------- --------------------- ---------------------
Increase in Net Assets 157,314,645 38,608,232 176,319,997
Net Assets Beginning Balance 2,784,917,499 2,746,309,267 2,569,989,270
--------------------- --------------------- ---------------------
Net Assets Ending Balance $ 2,942,232,144 $ 2,784,917,499 $ 2,746,309,267
===================== ===================== =====================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
MERRILL LYNCH LIFE INSURANCE COMPANY
Notes to Financial Statements
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
registered as a unit investment trust under the
Investment Company Act of 1940 and consists of thirty-
eight investment divisions (thirty-nine during the year).
At any point in time, the Account may or may not be
invested in all available divisions. Ten of the
investment divisions each invest in the securities of a
single mutual fund portfolio of the Merrill Lynch Series
Fund, Inc. Seven of the investment divisions each invest
in the securities of a single mutual fund portfolio of
the Merrill Lynch Variable Series Funds, Inc. One of the
investment divisions invests in the securities of a
single mutual fund portfolio of the Alliance Variable
Products Series Fund, Inc. Two of the investments
divisions each invest in the securities of a single
mutual fund portfolio of the MFS Variable Insurance
Trust. Two of the investment divisions each invest in the
securities of a single mutual fund portfolio of the AIM
Variable Insurance Funds, Inc. Sixteen of the investment
divisions (seventeen during the year) each invest in the
securities of a single trust of the Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities, Series A
through K ("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.
The financial statements included herein have been
prepared in accordance with generally accepted accounting
principles for variable life separate accounts registered
as unit investment trusts. The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
2. 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
shares and units held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Realized gains and losses on the sales of investments are
computed on the first in first out method.
The operations of the Account are included in the Federal
income tax return of Merrill Lynch Life. Under the
provisions of the Contracts, Merrill Lynch Life has the
right to charge the Account for any Federal income tax
attributable to the Account. No charge is currently being
made against the Account for such tax since, under
current tax law, Merrill Lynch Life pays no tax on
investment income and capital gains reflected in variable
life insurance contract reserves. However, Merrill Lynch
Life retains the right to charge for any Federal income
tax incurred 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.
3. Merrill Lynch Life assumes mortality and expense risks
related to Contracts investing in the Account and deducts
daily charges to cover these risks. The daily charges
vary by Contract form and are equal to a rate of .5% to
.9% (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.
4. Merrill Lynch Life pays all transaction charges to
Merrill Lynch, Pierce, Fenner & Smith Inc., a subsidiary
of Merrill and sponsor of the Zero Trusts, on the sale of
Zero 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.
5. Effective following the close of business on August 15,
1997, the Equity Growth Fund was renamed the Special
Value Focus Fund. The Fund's investment objective was not
modified.
<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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 176,227,584 $ 21,213,583 $ 11,594,375 $ 6,088,474
Mortality and Expense Charges (17,016,044) (2,298,940) (992,286) (519,554)
Transaction Charges (947,805) 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 158,263,735 18,914,643 10,602,089 5,568,920
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 67,234,138 0 (536,012) (202,327)
Net Unrealized Gains (Losses) 167,676,700 0 2,841,385 1,667,812
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 234,910,838 0 2,305,373 1,465,485
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 393,174,573 18,914,643 12,907,462 7,034,405
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 4,950,624 922,857 176,978 157,118
Transfers of Policy Loading, Net (6,035,984) (1,053,155) (319,746) (203,834)
Transfers Due to Deaths (43,538,236) (8,941,317) (2,645,616) (2,101,271)
Transfers Due to Other Terminations (101,614,610) (34,270,609) (3,912,704) (3,195,304)
Transfers Due to Policy Loans (37,908,300) (6,763,568) (2,241,546) (445,239)
Transfers of Cost of Insurance (46,195,634) (7,238,423) (3,040,500) (1,617,653)
Transfers of Loan Processing Charges (5,517,788) (1,190,728) (319,093) (199,477)
Transfers Among Investment Divisions 0 (4,943,163) (3,629,315) 2,574,418
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (235,859,928) (63,478,106) (15,931,542) (5,031,242)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 157,314,645 (44,563,463) (3,024,080) 2,003,163
Net Assets Beginning Balance 2,784,917,499 396,935,225 178,808,627 90,834,179
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 2,942,232,144 $ 352,371,762 $ 175,784,547 $ 92,837,342
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 12,675,284 $ 20,622,707 $ 71,122,460 $ 9,066,397
Mortality and Expense Charges (1,387,710) (1,252,620) (6,353,925) (550,327)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 11,287,574 19,370,087 64,768,535 8,516,070
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 2,726,110 14,671,250 12,219,045 255,516
Net Unrealized Gains (Losses) 32,159,657 24,491,367 105,219,211 278,817
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 34,885,767 39,162,617 117,438,256 534,333
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 46,173,341 58,532,704 182,206,791 9,050,403
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 705,796 664,878 888,824 135,115
Transfers of Policy Loading, Net (400,938) (365,380) (2,172,146) (197,142)
Transfers Due to Deaths (2,898,417) (592,259) (16,781,483) (945,220)
Transfers Due to Other Terminations (5,969,862) (6,065,008) (26,195,818) (2,465,877)
Transfers Due to Policy Loans (3,110,133) (3,209,089) (12,908,502) (1,158,020)
Transfers of Cost of Insurance (3,459,733) (3,121,225) (16,311,336) (1,584,770)
Transfers of Loan Processing Charges (371,651) (427,880) (1,652,130) (198,000)
Transfers Among Investment Divisions (3,680,138) 17,777,082 (9,715,041) 3,210,811
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (19,185,076) 4,661,119 (84,847,632) (3,203,103)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 26,988,265 63,193,823 97,359,159 5,847,300
Net Assets Beginning Balance 216,758,690 179,065,830 1,016,805,841 89,269,751
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 243,746,955 $ 242,259,653 $ 1,114,165,000 $ 95,117,051
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
Global
Natural Global Utility
Resources Strategy Balanced Focus
Portfolio Portfolio Portfolio Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 146,805 $ 12,186,241 $ 9,158,614 $ 98,907
Mortality and Expense Charges (106,143) (1,101,352) (473,700) (19,124)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 40,662 11,084,889 8,684,914 79,783
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,250,455 2,988,707 856,330 281,175
Net Unrealized Gains (Losses) (2,950,582) 5,048,808 2,241,158 463,824
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (1,700,127) 8,037,515 3,097,488 744,999
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (1,659,465) 19,122,404 11,782,402 824,782
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 38,729 407,005 431,275 (338)
Transfers of Policy Loading, Net (48,932) (418,516) (171,342) (7,574)
Transfers Due to Deaths (43,017) (1,802,611) (308,819) (114,448)
Transfers Due to Other Terminations (3,004,997) (3,798,969) (2,906,310) (113,070)
Transfers Due to Policy Loans (137,531) (2,502,144) (1,018,448) (27,685)
Transfers of Cost of Insurance (329,596) (2,795,548) (1,278,950) (64,163)
Transfers of Loan Processing Charges (44,801) (343,216) (136,795) (10,019)
Transfers Among Investment Divisions (1,207,293) (3,610,208) (1,499,738) 3,086,114
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (4,777,438) (14,864,207) (6,889,127) 2,748,817
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (6,436,903) 4,258,197 4,893,275 3,573,599
Net Assets Beginning Balance 19,620,231 174,003,060 75,929,355 1,471,385
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 13,183,328 $ 178,261,257 $ 80,822,630 $ 5,044,984
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
International Global Basic Developing
Equity Bond Value Capital
Focus Focus Focus Markets Focus
Fund Fund Fund Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 148,700 $ 9,273 $ 1,612,440 $ 97,685
Mortality and Expense Charges (49,257) (1,098) (152,629) (39,352)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 99,443 8,175 1,459,811 58,333
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 325,480 1,454 727,907 459,449
Net Unrealized Gains (Losses) (841,569) 5,496 1,987,339 (1,005,989)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (516,089) 6,950 2,715,246 (546,540)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (416,646) 15,125 4,175,057 (488,207)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 54,121 0 61,979 34,730
Transfers of Policy Loading, Net (21,996) 10 (48,577) (15,276)
Transfers Due to Deaths (29,555) 0 (113,962) (16,443)
Transfers Due to Other Terminations (287,498) (198) (754,283) (146,567)
Transfers Due to Policy Loans (201,975) (44,372) 35,172 161,435
Transfers of Cost of Insurance (128,576) (5,825) (484,795) (102,461)
Transfers of Loan Processing Charges (24,133) (503) (63,036) (18,068)
Transfers Among Investment Divisions 2,762,679 499,633 14,257,019 1,972,259
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,123,067 448,745 12,889,517 1,869,609
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 1,706,421 463,870 17,064,574 1,381,402
Net Assets Beginning Balance 5,539,637 0 14,609,761 4,293,749
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 7,246,058 $ 463,870 $ 31,674,335 $ 5,675,151
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
Special MFS
Value Index Premier Emerging
Focus 500 Growth Growth
Fund Fund Portfolio Series
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 238,803 $ 0 $ 1,695 $ 0
Mortality and Expense Charges (43,470) (25,511) (12,300) (7,579)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 195,333 (25,511) (10,605) (7,579)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,107,846 240,708 197,369 152,212
Net Unrealized Gains (Losses) (577,332) 402,640 (23,765) (93,567)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 530,514 643,348 173,604 58,645
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 725,847 617,837 162,999 51,066
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 15,267 6,334 8,073 5,044
Transfers of Policy Loading, Net (17,188) (13,603) (2,778) (2,656)
Transfers Due to Deaths (42,910) 0 0 0
Transfers Due to Other Terminations (320,218) (15,312) 24,325 (87,864)
Transfers Due to Policy Loans (133,481) (1,123,409) 11,709 (96,940)
Transfers of Cost of Insurance (127,361) (115,166) (55,503) (31,012)
Transfers of Loan Processing Charges (17,968) (24,182) (7,186) (3,825)
Transfers Among Investment Divisions 3,054,418 9,564,488 4,593,436 2,827,000
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,410,559 8,279,150 4,572,076 2,609,747
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 3,136,406 8,896,987 4,735,075 2,660,813
Net Assets Beginning Balance 4,558,499 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 7,694,905 $ 8,896,987 $ 4,735,075 $ 2,660,813
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
AIM V.I.
MFS AIM V.I. Capital
Research Value Appreciation 1997
Series Fund Fund Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 127,008 $ 18,133 $ 0
Mortality and Expense Charges (6,766) (8,585) (4,590) (31,836)
Transaction Charges 0 0 0 (17,304)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (6,766) 118,423 13,543 (49,140)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 15,185 28,775 100,992 11,566,369
Net Unrealized Gains (Losses) 68,203 (44,501) (119,837) (11,354,855)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 83,388 (15,726) (18,845) 211,514
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 76,622 102,697 (5,302) 162,374
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 3,236 2,373 0
Transfers of Policy Loading, Net (2,260) (1,362) (3) (31,889)
Transfers Due to Deaths 0 0 0 (84,833)
Transfers Due to Other Terminations (5,555) (17,171) (6,787) (486,121)
Transfers Due to Policy Loans (29,399) 8,271 (2,210) (24,648)
Transfers of Cost of Insurance (27,509) (38,956) (19,577) 107,440
Transfers of Loan Processing Charges (3,089) (4,503) (1,928) 25,831
Transfers Among Investment Divisions 2,638,439 3,455,602 1,405,981 (42,396,388)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,570,627 3,405,117 1,377,849 (42,890,608)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 2,647,249 3,507,814 1,372,547 (42,728,234)
Net Assets Beginning Balance 0 0 0 42,728,234
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 2,647,249 $ 3,507,814 $ 1,372,547 $ 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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
1998 1999 2000 2001
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (277,826) (120,276) (103,802) (255,658)
Transaction Charges (160,720) (69,356) (64,372) (151,310)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (438,546) (189,632) (168,174) (406,968)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 4,091,112 754,488 1,092,862 2,349,203
Net Unrealized Gains (Losses) (1,474,929) 461,970 144,981 860,524
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 2,616,183 1,216,458 1,237,843 3,209,727
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,177,637 1,026,826 1,069,669 2,802,759
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums
Transfers of Policy Loading, Net 47,972 15,159 2,288 10,495
Transfers Due to Deaths (105,793) (33,971) (26,959) (105,748)
Transfers Due to Other Terminations (2,334,896) (467,250) (818,931) (725,610)
Transfers Due to Policy Loans (1,309,737) (692,897) (445,376) (1,129,431)
Transfers of Cost of Insurance (827,862) (225,135) (98,758) (553,455)
Transfers of Loan Processing Charges (762,689) (315,001) (324,228) (685,356)
Transfers Among Investment Divisions (71,863) (15,196) (32,725) (89,625)
(1,240,567) 362,885 1,203,708 (214,148)
Increase (Decrease) in Net Assets --------------------- --------------------- --------------------- ---------------------
Resulting from Principal Transactions
(6,605,435) (1,371,406) (540,981) (3,492,878)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Net Assets Beginning Balance (4,427,798) (344,580) 528,688 (690,119)
48,488,889 20,284,921 17,774,068 44,973,167
Net Assets Ending Balance --------------------- --------------------- --------------------- ---------------------
$ 44,061,091 $ 19,940,341 $ 18,302,756 $ 44,283,048
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
2002 2003 2004 2005
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (48,919) (223,768) (36,558) (100,390)
Transaction Charges (27,036) (134,983) (21,874) (62,211)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (75,955) (358,751) (58,432) (162,601)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 230,324 2,426,429 585,298 790,502
Net Unrealized Gains (Losses) 407,649 1,288,892 44,569 1,221,187
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 637,973 3,715,321 629,867 2,011,689
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 562,018 3,356,570 571,435 1,849,088
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 35,200 24,539 133 11,398
Transfers of Policy Loading, Net (16,795) (65,200) (12,848) (21,873)
Transfers Due to Deaths (37,976) (573,873) (327,703) (77,144)
Transfers Due to Other Terminations (81,477) (1,033,889) (568,721) (156,388)
Transfers Due to Policy Loans (82,988) (576,893) (2,318) 63,930
Transfers of Cost of Insurance (117,529) (567,371) (91,824) (299,398)
Transfers of Loan Processing Charges (6,964) (61,272) (3,617) (31,554)
Transfers Among Investment Divisions 1,394,701 (814,619) (620,543) 68,219
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,086,172 (3,668,578) (1,627,441) (442,810)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 1,648,190 (312,008) (1,056,006) 1,406,278
Net Assets Beginning Balance 6,558,366 40,331,997 7,044,201 17,768,630
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 8,206,556 $ 40,019,989 $ 5,988,195 $ 19,174,908
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
2006 2007 2008 2009
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (37,153) (62,635) (116,169) (48,754)
Transaction Charges (20,251) (36,950) (67,581) (29,532)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (57,404) (99,585) (183,750) (78,286)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 416,172 480,658 1,537,236 568,213
Net Unrealized Gains (Losses) 265,927 913,567 1,170,201 679,339
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 682,099 1,394,225 2,707,437 1,247,552
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 624,695 1,294,640 2,523,687 1,169,266
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 3,808 261 19,743 21,574
Transfers of Policy Loading, Net (12,988) (19,117) (46,781) (20,551)
Transfers Due to Deaths (28,273) (100,211) (158,434) (356,038)
Transfers Due to Other Terminations (127,220) (173,162) (635,296) (237,890)
Transfers Due to Policy Loans (75,259) (154,216) (208,286) (232,394)
Transfers of Cost of Insurance (90,209) (178,874) (313,300) (144,364)
Transfers of Loan Processing Charges (12,754) (18,776) (40,832) (22,514)
Transfers Among Investment Divisions (725,102) 1,685,825 (677,734) (74,001)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,067,997) 1,041,730 (2,060,920) (1,066,178)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (443,302) 2,336,370 462,767 103,088
Net Assets Beginning Balance 6,522,498 9,576,653 20,220,981 8,873,570
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 6,079,196 $ 11,913,023 $ 20,683,748 $ 8,976,658
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
2010 2011 2013 2014
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ $ 0 $ 0
Mortality and Expense Charges (44,793) (7,219) (6,535) (86,935)
Transaction Charges (24,828) (4,584) (3,627) (51,286)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (69,621) (11,803) (10,162) (138,221)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 896,111 63,186 66,735 1,451,614
Net Unrealized Gains (Losses) 160,358 148,573 128,789 1,391,383
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 1,056,469 211,759 195,524 2,842,997
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 986,848 199,956 185,362 2,704,776
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 5,440 303 3,136 29,781
Transfers of Policy Loading, Net (21,141) (6,932) (4,003) 999
Transfers Due to Deaths 0 0 (69,716) 0
Transfers Due to Other Terminations (113,472) 2,446 (14,158) (896,165)
Transfers Due to Policy Loans (44,250) 4,179 14,890 52,267
Transfers of Cost of Insurance (93,136) (21,676) (19,094) (300,387)
Transfers of Loan Processing Charges (11,581) (2,513) (4,833) (54,789)
Transfers Among Investment Divisions (722,894) (111,110) (28,014) (2,484,701)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,001,034) (135,303) (121,792) (3,652,995)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (14,186) 64,653 63,570 (948,219)
Net Assets Beginning Balance 7,265,300 1,373,388 1,037,387 15,591,429
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 7,251,114 $ 1,438,041 $ 1,100,957 $ 14,643,210
===================== ===================== ===================== =====================
</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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 227,773,709 $ 22,322,107 $ 12,670,410 $ 6,417,235
Mortality and Expense Charges (16,019,207) (2,453,633) (1,055,126) (538,893)
Transaction Charges (1,107,972) 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 210,646,530 19,868,474 11,615,284 5,878,342
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 49,679,613 0 (282,198) 291,252
Net Unrealized Gains (Losses) (9,165,154) 0 (8,158,746) (4,360,593)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 40,514,459 0 (8,440,944) (4,069,341)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 251,160,989 19,868,474 3,174,340 1,809,001
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 8,662,019 1,481,992 378,176 246,968
Transfers of Policy Loading, Net (10,715,483) (1,816,782) (704,263) (345,000)
Transfers Due to Deaths (28,915,284) (5,418,709) (3,037,336) (1,828,049)
Transfers Due to Other Terminations (86,971,795) (24,260,396) (6,262,424) (2,351,947)
Transfers Due to Policy Loans (46,911,839) (7,719,581) (2,963,456) (1,609,516)
Transfers of Cost of Insurance (41,882,708) (7,076,267) (3,061,015) (1,520,025)
Transfers of Loan Processing Charges (5,817,667) (1,327,021) (370,649) (217,121)
Transfers Among Investment Divisions 0 1,134,357 (3,921,116) (1,240,634)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (212,552,757) (45,002,407) (19,942,083) (8,865,324)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 38,608,232 (25,133,933) (16,767,743) (7,056,323)
Net Assets Beginning Balance 2,746,309,267 422,069,158 195,576,370 97,890,502
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 2,784,917,499 $ 396,935,225 $ 178,808,627 $ 90,834,179
===================== ===================== ===================== =====================
</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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 32,496,085 $ 4,935,599 $ 130,584,365 $ 8,186,678
Mortality and Expense Charges (1,196,938) (953,017) (5,785,971) (492,507)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 31,299,147 3,982,582 124,798,394 7,694,171
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (1,638,056) 18,072,991 3,085,165 (1,174,521)
Net Unrealized Gains (Losses) 479,168 5,789,893 (1,587,213) 2,751,515
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (1,158,888) 23,862,884 1,497,952 1,576,994
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 30,140,259 27,845,466 126,296,346 9,271,165
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,162,809 1,024,322 1,836,044 232,365
Transfers of Policy Loading, Net (649,933) (544,315) (4,119,006) (338,902)
Transfers Due to Deaths (2,306,402) (1,427,441) (9,487,908) (824,673)
Transfers Due to Other Terminations (6,002,699) (2,899,989) (26,318,850) (2,525,427)
Transfers Due to Policy Loans (2,303,689) (2,484,081) (15,505,699) (1,674,888)
Transfers of Cost of Insurance (3,114,712) (2,264,525) (14,653,831) (1,337,882)
Transfers of Loan Processing Charges (401,232) (360,790) (1,815,452) (191,479)
Transfers Among Investment Divisions 5,851,973 18,928,591 (25,956,178) 8,014,226
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (7,763,885) 9,971,772 (96,020,880) 1,353,340
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 22,376,374 37,817,238 30,275,466 10,624,505
Net Assets Beginning Balance 194,382,316 141,248,592 986,530,375 78,645,246
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 216,758,690 $ 179,065,830 $ 1,016,805,841 $ 89,269,751
===================== ===================== ===================== =====================
</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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
Global
Natural Global Utility
Resources Strategy Balanced Focus
Portfolio Portfolio Portfolio Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 349,977 $ 5,243,591 $ 4,512,649 $ 27,362
Mortality and Expense Charges (109,678) (1,018,242) (461,273) (4,033)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 240,299 4,225,349 4,051,376 23,329
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,112,437 1,223,465 1,690,930 (9,982)
Net Unrealized Gains (Losses) 1,005,764 15,354,296 826,925 90,229
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 2,118,201 16,577,761 2,517,855 80,247
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,358,500 20,803,110 6,569,231 103,576
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 100,840 890,743 739,496 0
Transfers of Policy Loading, Net (69,951) (665,833) (291,465) (1,730)
Transfers Due to Deaths (89,926) (1,051,257) (789,145) 0
Transfers Due to Other Terminations (394,485) (3,961,999) (3,408,435) 336,141
Transfers Due to Policy Loans (579,770) (5,976,890) (1,550,370) 7,336
Transfers of Cost of Insurance (294,576) (2,477,101) (1,190,562) (15,936)
Transfers of Loan Processing Charges (45,102) (349,383) (139,236) (1,937)
Transfers Among Investment Divisions 1,765,169 3,912,189 (608,603) 1,043,935
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 392,199 (9,679,531) (7,238,320) 1,367,809
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 2,750,699 11,123,579 (669,089) 1,471,385
Net Assets Beginning Balance 16,869,532 162,879,481 76,598,444 0
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 19,620,231 $ 174,003,060 $ 75,929,355 $ 1,471,385
===================== ===================== ===================== =====================
</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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
International Basic Developing Special
Equity Value Capital Value
Focus Focus Markets Focus Focus
Fund Fund Fund Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 22,839 $ 0 $ 4,812
Mortality and Expense Charges (14,059) (26,853) (11,108) (13,034)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (14,059) (4,014) (11,108) (8,222)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (36,377) 51,188 (43,537) (195,124)
Net Unrealized Gains (Losses) 82,463 668,021 31,136 196,622
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 46,086 719,209 (12,401) 1,498
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 32,027 715,195 (23,509) (6,724)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 21,521 7,401 7,988 4,782
Transfers of Policy Loading, Net (5,225) (18,572) (4,909) (8,485)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (14,040) 392,765 (18,825) 474,741
Transfers Due to Policy Loans 78,180 (59,051) (77,030) (27,495)
Transfers of Cost of Insurance (62,103) (146,698) (52,602) (55,406)
Transfers of Loan Processing Charges (9,708) (32,955) (8,042) (11,798)
Transfers Among Investment Divisions 5,498,985 13,751,676 4,470,678 4,188,884
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 5,507,610 13,894,566 4,317,258 4,565,223
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 5,539,637 14,609,761 4,293,749 4,558,499
Net Assets Beginning Balance 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 5,539,637 $ 14,609,761 $ 4,293,749 $ 4,558,499
===================== ===================== ===================== =====================
</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, 1996
<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 (31,274) (261,516) (291,090) (116,726)
Transaction Charges (17,524) (150,446) (167,995) (67,376)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (48,798) (411,962) (459,085) (184,102)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 10,552,702 2,408,744 2,559,946 561,971
Net Unrealized Gains (Losses) (10,323,182) (200,742) (304,097) 215,793
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 229,520 2,208,002 2,255,849 777,764
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 180,722 1,796,040 1,796,764 593,662
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 13,986 50,403 26,415
Transfers of Policy Loading, Net (30,227) (174,296) (189,911) (54,279)
Transfers Due to Deaths 0 (524,140) (323,562) (203,070)
Transfers Due to Other Terminations (317,078) (1,139,055) (1,210,950) (436,842)
Transfers Due to Policy Loans (115,846) (497,717) (589,683) (19,674)
Transfers of Cost of Insurance 110,045 (625,122) (723,770) (294,695)
Transfers of Loan Processing Charges 29,001 (67,131) (77,088) (18,380)
Transfers Among Investment Divisions (44,947,474) (1,378,679) (1,326,633) 855,990
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (45,271,579) (4,392,154) (4,391,194) (144,535)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (45,090,857) (2,596,114) (2,594,430) 449,127
Net Assets Beginning Balance 45,090,857 45,324,348 51,083,319 19,835,794
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 0 $ 42,728,234 $ 48,488,889 $ 20,284,921
===================== ===================== ===================== =====================
</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, 1996
<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 (98,899) (265,067) (42,031) (230,244)
Transaction Charges (60,911) (157,233) (23,164) (139,027)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (159,810) (422,300) (65,195) (369,271)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 771,962 2,724,905 259,068 2,554,241
Net Unrealized Gains (Losses) (237,828) (1,734,751) (169,982) (2,458,890)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 534,134 990,154 89,086 95,351
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 374,324 567,854 23,891 (273,920)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 6,765 82,016 36,197 58,731
Transfers of Policy Loading, Net (51,372) (164,225) (19,531) (122,758)
Transfers Due to Deaths (41,755) (519,499) 0 (533,222)
Transfers Due to Other Terminations (429,247) (2,340,306) 236 (1,398,336)
Transfers Due to Policy Loans (156,597) (707,189) (93,463) (451,708)
Transfers of Cost of Insurance (291,702) (660,411) (92,723) (543,051)
Transfers of Loan Processing Charges (34,099) (92,350) (5,866) (65,519)
Transfers Among Investment Divisions 292,540 489 (266,017) (643,586)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (705,467) (4,401,475) (441,167) (3,699,449)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (331,143) (3,833,621) (417,276) (3,973,369)
Net Assets Beginning Balance 18,105,211 48,806,788 6,975,642 44,305,366
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 17,774,068 $ 44,973,167 $ 6,558,366 $ 40,331,997
===================== ===================== ===================== =====================
</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, 1996
<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 (37,601) (98,982) (36,944) (54,310)
Transaction Charges (22,310) (61,371) (20,546) (32,053)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (59,911) (160,353) (57,490) (86,363)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 214,440 1,414,745 466,065 493,764
Net Unrealized Gains (Losses) (168,339) (1,566,025) (395,373) (685,261)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 46,101 (151,280) 70,692 (191,497)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (13,810) (311,633) 13,202 (277,860)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums
Transfers of Policy Loading, Net 133 89,826 11,938 874
Transfers Due to Deaths (16,566) (47,479) (25,595) (30,603)
Transfers Due to Other Terminations 0 (36,362) 0 (113,435)
Transfers Due to Policy Loans (5,588) (396,304) (88,963) (54,645)
Transfers of Cost of Insurance 34,337 (648,326) (19,454) (288,956)
Transfers of Loan Processing Charges (94,514) (272,209) (101,781) (136,458)
Transfers Among Investment Divisions (6,924) (29,781) (16,885) (15,294)
1,524,634 401,129 2,454,361 298,176
Increase (Decrease) in Net Assets --------------------- --------------------- --------------------- ---------------------
Resulting from Principal Transactions
1,435,512 (939,506) 2,213,621 (340,341)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Net Assets Beginning Balance 1,421,702 (1,251,139) 2,226,823 (618,201)
5,622,499 19,019,769 4,295,675 10,194,854
Net Assets Ending Balance --------------------- --------------------- --------------------- ---------------------
$ 7,044,201 $ 17,768,630 $ 6,522,498 $ 9,576,653
===================== ===================== ===================== =====================
</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, 1996
<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 (120,996) (50,808) (44,183) (7,788)
Transaction Charges (70,378) (30,418) (24,730) (4,763)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (191,374) (81,226) (68,913) (12,551)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,807,273 557,333 448,525 73,132
Net Unrealized Gains (Losses) (2,524,477) (863,586) (708,269) (122,891)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (717,204) (306,253) (259,744) (49,759)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (908,578) (387,479) (328,657) (62,310)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 38,452 42,330 62,527 900
Transfers of Policy Loading, Net (81,762) (37,828) (19,742) (3,497)
Transfers Due to Deaths (86,281) (241,181) (1,017) (18,966)
Transfers Due to Other Terminations (629,178) (145,607) (536,506) 14
Transfers Due to Policy Loans (415,931) (97,994) (43,879) (11,739)
Transfers of Cost of Insurance (312,779) (114,443) (99,938) (20,237)
Transfers of Loan Processing Charges (46,530) (20,311) (16,765) (2,730)
Transfers Among Investment Divisions (816,542) 4,281 778,312 25,152
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (2,350,551) (610,753) 122,992 (31,103)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (3,259,129) (998,232) (205,665) (93,413)
Net Assets Beginning Balance 23,480,110 9,871,802 7,470,965 1,466,801
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 20,220,981 $ 8,873,570 $ 7,265,300 $ 1,373,388
===================== ===================== ===================== =====================
</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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------
2013 2014
Trust Trust
--------------------- ---------------------
<S> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0
Mortality and Expense Charges (6,358) (90,025)
Transaction Charges (3,604) (54,123)
--------------------- ---------------------
Net Investment Income (Loss) (9,962) (144,148)
--------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 148,597 (485,433)
Net Unrealized Gains (Losses) (240,740) 154,006
--------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (92,143) (331,427)
--------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (102,105) (475,575)
--------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 3,136 1,943
Transfers of Policy Loading, Net (6,215) (55,226)
Transfers Due to Deaths 0 (11,948)
Transfers Due to Other Terminations (27,768) (599,803)
Transfers Due to Policy Loans 2,800 (344,820)
Transfers of Cost of Insurance (18,123) (267,556)
Transfers of Loan Processing Charges (5,223) (43,887)
Transfers Among Investment Divisions (262,241) 6,171,976
--------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (313,634) 4,850,679
--------------------- ---------------------
Increase (Decrease) in Net Assets (415,739) 4,375,104
Net Assets Beginning Balance 1,453,126 11,216,325
--------------------- ---------------------
Net Assets Ending Balance $ 1,037,387 $ 15,591,429
===================== =====================
</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
-----------------------------------------------------------------
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>
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, 1997 and 1996, and the related statements of
earnings, comprehensive income, stockholder's equity, and cash
flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
February 23, 1998
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
- ------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1997 - $2,927,562; 1996 - $3,232,643) $ 3,008,608 $ 3,301,588
Equity securities, at estimated fair value
(cost: 1997 - $72,599; 1996 - $32,988) 73,612 35,977
Trading account securities, at estimated fair value 15,625 -
Mortgage loans - 70,503
Real estate held-for-sale 31,805 28,851
Policy loans on insurance contracts 1,118,139 1,092,071
-------------- --------------
Total Investments 4,247,789 4,528,990
-------------- --------------
CASH AND CASH EQUIVALENTS 86,388 94,991
ACCRUED INVESTMENT INCOME 78,224 86,186
DEFERRED POLICY ACQUISITION COSTS 365,105 366,461
REINSURANCE RECEIVABLES 1,617 2,642
AFFILIATED RECEIVABLES - NET 166 -
RECEIVABLES FROM SECURITIES SOLD 75,820 -
OTHER ASSETS 49,353 42,861
SEPARATE ACCOUNTS ASSETS 9,149,119 7,615,362
-------------- --------------
TOTAL ASSETS $ 14,053,581 $ 12,737,493
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 4,188,110 $ 4,480,048
Claims and claims settlement expenses 50,574 39,666
-------------- --------------
Total policy liabilities and accruals 4,238,684 4,519,714
OTHER POLICYHOLDER FUNDS 27,160 19,420
LIABILITY FOR GUARANTY FUND ASSESSMENTS 15,374 18,773
FEDERAL INCOME TAXES - DEFERRED 1,183 6,714
FEDERAL INCOME TAXES - CURRENT 24,438 20,968
AFFILIATED PAYABLES - NET - 6,164
PAYABLES FOR SECURITIES PURCHASED 95,135 13,483
OTHER LIABILITIES 54,434 37,243
SEPARATE ACCOUNTS LIABILITIES 9,149,119 7,605,194
-------------- --------------
Total Liabilities 13,605,527 12,247,673
-------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 347,324 402,937
Retained earnings 80,735 79,387
Accumulated other comprehensive income 17,995 5,496
-------------- --------------
Total Stockholder's Equity 448,054 489,820
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 14,053,581 $ 12,737,493
============== ==============
</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, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 308,702 $ 336,661 $ 376,166
Net realized investment gains 13,289 8,862 4,525
Policy charge revenue 178,933 158,829 141,722
-------------- -------------- --------------
Total Revenues 500,924 504,352 522,413
-------------- -------------- --------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 209,542 235,255 261,760
Market value adjustment expense 4,079 6,071 5,805
Policy benefits (net of reinsurance recoveries: 1997 - $10,439;
1996 - $8,317; 1995 - $6,482) 27,029 21,052 19,374
Reinsurance premium ceded 17,879 15,582 13,896
Amortization of deferred policy acquisition costs 72,111 62,036 58,669
Insurance expenses and taxes 49,105 47,077 44,124
------------- -------------- --------------
Total Benefits and Expenses 379,745 387,073 403,628
------------- -------------- --------------
Earnings Before Federal Income Tax Provision 121,179 117,279 118,785
------------- -------------- --------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 52,705 22,814 38,335
Deferred (12,261) 15,078 3,968
-------------- -------------- --------------
Total Federal Income Tax Provision 40,444 37,892 42,303
-------------- -------------- --------------
NET EARNINGS $ 80,735 $ 79,387 $ 76,482
============== ============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
NET EARNINGS $ 80,735 $ 79,387 $ 76,482
-------------- -------------- --------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period 22,347 (79,749) 310,981
Reclassification adjustment for gains included in net earnings (12,390) (8,622) (4,351)
-------------- -------------- --------------
Net unrealized gains (losses) on investment securities 9,957 (88,371) 306,630
Adjustments for:
Policyholder liabilities 10,094 58,415 (123,856)
Deferred policy acquisition costs (822) 12,411 (89,261)
Income tax (expense) benefit related to items of
other comprehensive income (6,730) 6,141 (32,729)
-------------- -------------- --------------
Other comprehensive income, net of tax 12,499 (11,404) 60,784
-------------- -------------- --------------
COMPREHENSIVE INCOME $ 93,234 $ 67,983 $ 137,266
============== ============== ==============
</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, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common paid-in Retained Comprehensive stockholder's
stock capital earnings Income equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 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
Other comprehensive income, net of tax 60,784 60,784
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1995 2,000 501,455 76,482 16,900 596,837
Dividend to Parent (98,518) (76,482) (175,000)
Net earnings 79,387 79,387
Other comprehensive income, net of tax (11,404) (11,404)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 2,000 402,937 79,387 5,496 489,820
Dividend to Parent (55,613) (79,387) (135,000)
Net earnings 80,735 80,735
Other comprehensive income, net of tax 12,499 12,499
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,000 $ 347,324 $ 80,735 $ 17,995 $ 448,054
============= ============= ============= ============= =============
</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, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 80,735 $ 79,387 $ 76,482
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 72,111 62,036 58,669
Capitalization of policy acquisition costs (71,577) (43,668) (54,014)
Amortization, (accretion) and depreciation of investments (4,672) (4,836) (6,763)
Net realized investment gains (13,289) (8,862) (4,525)
Interest credited to policyholders' account balances 209,542 235,255 261,760
Provision (benefit) for deferred Federal income tax (12,261) 15,078 3,968
Changes in operating assets and liabilities:
Accrued investment income 7,962 5,756 3,191
Claims and claims settlement expenses 10,908 9,854 3,635
Federal income taxes - current 3,470 13,935 4,759
Other policyholder funds 7,740 5,813 (7,614)
Liability for guaranty fund assessments (3,399) (2,371) (3,630)
Affiliated payables (6,330) 3,735 5,542
Policy loans on insurance contracts (26,068) (52,804) (54,054)
Trading account securities (14,928) - -
Other, net 11,721 (2,393) (12,280)
-------------- -------------- --------------
Net cash and cash equivalents provided
by operating activities 251,665 315,915 275,126
-------------- -------------- ---------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 846,041 847,091 620,853
Maturities of available-for-sale securities 595,745 536,449 570,923
Purchases of available-for-sale securities (1,156,222) (956,840) (816,564)
Mortgage loans principal payments received 68,864 22,789 30,767
Purchases of mortgage loans (5,375) - (3,608)
Sales of real estate held-for-sale 6,060 5,407 9,710
Improvements to real estate held-for-sale - - (683)
Recapture of investment in Separate Accounts 11,026 8,829 6,559
Investment in Separate Accounts (21) (10,063) (377)
-------------- -------------- ---------------
Net cash and cash equivalents provided
by investing activities 366,118 453,662 417,580
-------------- -------------- ---------------
</TABLE>
See notes to financial statements. (Continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Concluded) (Dollars In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ (135,000) $ (175,000) $ (100,000)
Policyholders' account balances:
Deposits 1,101,934 542,062 567,430
Withdrawals (including transfers to/from Separate Accounts) (1,593,320) (1,090,572) (1,250,299)
-------------- -------------- --------------
Net cash and cash equivalents used
by financing activities (626,386) (723,510) (782,869)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (8,603) 46,067 (90,163)
CASH AND CASH EQUIVALENTS
Beginning of year 94,991 48,924 139,087
-------------- ------------- -------------
End of year $ 86,388 $ 94,991 $ 48,924
============== ============= =============
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal Federal iincome taxes $ 49,235 $ 8,880 $ 33,576
Interest 842 988 1,310
</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 variable life
insurance, variable annuities, market value adjusted annuities,
and immediate annuities. The Company is currently licensed to
sell insurance in forty-nine states, the District of Columbia,
the U.S. Virgin Islands and Guam. The Company markets its
products solely through the retail network of Merrill Lynch,
Pierce, Fenner & Smith, Incorporated ("MLPF&S"), a wholly-owned
broker-dealer subsidiary of Merrill Lynch & Co.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles and
prevailing industry practices, both of which require
management to make estimates that affect the reported amounts
and disclosure of contingencies in the financial statements.
Actual results could differ from those estimates.
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% - 5.70%
Interest-sensitive deferred annuities 3.55% - 8.77%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company, subject
to minimum guarantees, after initial guaranteed rates expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are unreported
as of the valuation date.
Reinsurance: In the normal course of business, the Company seeks
to limit its exposure to loss on any single insured life and to
recover a portion of benefits paid by ceding reinsurance to
other insurance enterprises or reinsurers under indemnity
reinsurance agreements, primarily excess coverage and
coinsurance agreements. The maximum amount of mortality risk
retained by the Company is approximately $500 on a single life.
Indemnity reinsurance agreements do not relieve the Company from
its obligations to policyholders. Failure of reinsurers to honor
their obligations could result in losses to the Company. The
Company regularly evaluates the financial condition of its
reinsurers so as to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under
reinsurance agreements in the form of letters of credit and
funds withheld totaling $635 that can be drawn upon for
delinquent reinsurance recoverables.
As of December 31, 1997, the Company had life insurance inforce
that was ceded to other life insurance companies of $2,879,306.
The Company entered into an indemnity reinsurance agreement with
an unaffiliated insurer whereby the Company coinsures, on a
modified coinsurance basis, 50% of the unaffiliated insurer's
variable annuity premiums sold through the Merrill Lynch & Co.
distribution system. At December 31, 1997, the Company's quota
share of variable annuity premiums related to this agreement was
$35 million.
Deferred Policy Acquisition Costs: Policy acquisition costs for
life and annuity contracts are deferred and amortized based on
the estimated future gross profits for each group of contracts.
These future gross profit estimates are subject to periodic
evaluation by the Company, with necessary revisions applied
against amortization to date. It is reasonably possible that
estimates of future gross profits could be reduced in the
future, resulting in a material reduction in the carrying amount
of deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, that are primarily
related to and vary with the production of new business. Certain
costs and expenses reported in the statements of earnings are
net of amounts deferred. Policy acquisition costs can also arise
from the acquisition or reinsurance of existing in-force
policies from other insurers. These costs include ceding
commissions and professional fees related to the reinsurance
assumed. The deferred costs are amortized in proportion to the
estimated future gross profits over the anticipated life of the
acquired insurance contracts utilizing an interest methodology.
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 are capitalized and amortized
using an identical methodology as that used for the initial
acquisition costs. The following is a reconciliation of the
acquisition costs related to the reinsurance agreement for the
years ended December 31:
1997 1996 1995
------------ ------------ ------------
Beginning balance $ 112,249 $ 124,833 $ 133,388
Capitalized amounts 5,077 5,077 13,708
Interest accrued 9,653 10,669 11,620
Amortization (24,727) (28,330) (33,883)
------------ ------------ ------------
Ending balance $ 102,252 $ 112,249 $ 124,833
============ ============ ============
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.
1998 11,030
1999 9,927
2000 8,935
2001 8,041
2002 7,237
Investments: The Company's investments in debt and equity securities
are classified as either available-for-sale or trading and are
reported at estimated fair value. Unrealized gains and losses on
available-for-sale securities are included in stockholder's equity,
net of tax. Unrealized gains and losses on trading account
securities are included in net realized investment gains. If a
decline in value of a security is determined by management to be
other-than-temporary, the carrying value is adjusted to the estimated
fair value at the date of this determination and recorded as net realized
investment gains (losses).
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted to
the maturity date, and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of specific identification.
Certain fixed maturity securities are considered non-investment
grade. The Company defines non-investment grade fixed maturity
securities as unsecured debt obligations that do not have a
rating equivalent to Standard and Poor's (or similar rating
agency) BBB- or higher.
During the first quarter 1997, the Company terminated its
interest rate swap contracts that were carried at estimated fair
value and recorded as a component of fixed maturity securities.
Interest income and realized and unrealized gains and losses
were recorded on the same basis as fixed maturity securities
available-for-sale.
As of December 31, 1997, the Company had no mortgage loans
outstanding. Mortgage loans were stated at unpaid principal
balances, net of valuation allowances. Such valuation allowances
were based on the decline in value expected to be realized on
mortgage loans that may not be collectible in full. In
establishing valuation allowances, management considered, among
other things, the estimated fair value of the underlying collateral.
The Company recognized income from mortgage loans 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 recognized a realized
gain at the date of the satisfaction of the loan at contractual
terms for loans where there was a difference between the cash
payment interest rate and the accrual interest rate. For all
loans the Company stopped accruing income when an interest
payment default either occurred or was probable. Impairments of
mortgage loans were established as valuation allowances and
recorded to net realized investment gains or losses.
Real estate held-for-sale, is stated at estimated fair value
less estimated selling costs.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Investments in limited partnerships are carried at cost.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current Federal tax liability.
The Company uses the asset and liability method in providing
income taxes on all transactions that have been recognized in
the financial statements. The asset and liability method
requires that deferred taxes be adjusted to reflect the tax
rates at which future taxable amounts will be settled or
realized. The effects of tax rate changes on future deferred
tax liabilities and deferred tax assets, as well as other
changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums
and in substantially all states are exempt from state income
taxes.
Separate Accounts: Separate Accounts are established in
conformity with Arkansas State Insurance law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to general claims of the
Company only to the extent the value of such assets exceeds
Separate Accounts liabilities.
Assets and liabilities of Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
Statements of Comprehensive Income: During 1997, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 defines comprehensive income as all non-
owner changes in equity during a period. Comprehensive
income is reported in the Statements of Comprehensive Income
included in the financial statements for the years ended
December 31, 1997, 1996 and 1995.
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
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial
instruments as of December 31 were:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets:
Fixed maturity securities:
Securities (1) $ 3,008,608 $ 3,301,858
Interest rate swaps (2) - (270)
-------------- -------------
Total fixed maturity securities 3,008,608 3,301,588
-------------- -------------
Equity securities (1) 73,612 35,977
Trading account securities (1) 15,625 -
Mortgage loans (3) - 70,503
Policy loans on insurance contracts (4) 1,118,139 1,092,071
Cash and cash equivalents (5) 86,388 94,991
Separate Accounts assets (6) 9,149,119 7,615,362
-------------- --------------
Total financial instruments recorded as assets $ 13,451,491 $ 12,210,492
============== ==============
</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 model, including provision for credit risk, based
upon the assumption that such securities will be held to
maturity. Such estimated fair values do not necessarily
represent the values for which these securities could have
been sold at the dates of the balance sheets. At December
31, 1997 and 1996, securities without a readily
ascertainable market value, having an amortized cost of
$389,728 and $338,515, had an estimated fair value of
$396,253 and $348,066, respectively.
(2) Estimated fair values for the Company's interest rate swaps
are based on a discounted cash flow model.
(3) The estimated fair value of mortgage loans approximates
the carrying value.
(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 Separate Accounts are carried at quoted
market values.
<PAGE>
NOTE 3. INVESTMENTS
The amortized cost and estimated fair value of investments in
fixed maturity securities and equity securities (excluding
trading account securities) as of December 31 were:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 2,412,171 $ 73,318 $ 6,963 $ 2,478,526
Mortgage-backed securities 339,015 12,320 224 351,111
U.S. Government and agencies 119,107 2,767 111 121,763
Foreign governments 36,585 198 1,125 35,658
Municipals 20,684 866 - 21,550
------------- ------------- ------------- -------------
Total fixed maturity securities $ 2,927,562 $ 89,469 $ 8,423 $ 3,008,608
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 67,845 $ 1,187 $ 185 $ 68,847
Common stocks 4,754 11 - 4,765
------------- ------------- ------------- -------------
Total equity securities $ 72,599 $ 1,198 $ 185 $ 73,612
============= ============= ============= =============
1996
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Fixed maturity securities:
Corporate debt securities $ 2,652,225 $ 67,590 $ 11,765 $ 2,708,050
Mortgage-backed securities 503,997 12,447 1,948 514,496
U.S. Government and agencies 54,386 2,303 158 56,531
Foreign governments 18,111 182 140 18,153
Municipals 3,924 434 - 4,358
------------- ------------- ------------- -------------
Total fixed maturity securities $ 3,232,643 $ 82,956 $ 14,011 $ 3,301,588
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 30,554 $ 2,983 $ 85 $ 33,452
Common stocks 2,434 91 - 2,525
------------- ------------- ------------- -------------
Total equity securities $ 32,988 $ 3,074 $ 85 $ 35,977
============= ============= ============= =============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
------------- --------------
Fixed maturity securities:
Due in one year or less $ 224,663 $ 225,887
Due after one year through five years 1,343,383 1,380,248
Due after five years through ten years 740,784 764,272
Due after ten years 279,717 287,090
------------- --------------
2,588,547 2,657,497
Mortgage-backed securities 339,015 351,111
------------- --------------
Total fixed maturity securities $ 2,927,562 $ 3,008,608
============= ==============
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
------------- -------------
AAA $ 623,503 $ 642,188
AA 169,805 172,454
A 926,398 950,610
BBB 1,046,614 1,080,036
Non-investment grade 161,242 163,320
------------- -------------
Total fixed maturity securities $ 2,927,562 $ 3,008,608
============= =============
<PAGE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with investments classified as available-for-sale. The Company
adjusts those assets and liabilities as if the unrealized investment gains
or losses from securities classified as available-for-sale had actually
been realized, with corresponding credits or charges reported directly to
stockholder's equity. The following reconciles the net unrealized
investment gain on investment securities classified as available- for-
sale as of December 31:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets:
Fixed maturity securities $ 81,046 $ 68,945
Equity securities 1,013 2,989
Deferred policy acquisition costs (5,452) (4,630)
Separate Accounts assets - 168
-------------- --------------
76,607 67,472
-------------- --------------
Liabilities:
Policyholders' account balances 48,923 59,017
Federal income taxes - deferred 9,689 2,959
-------------- --------------
58,612 61,976
-------------- --------------
Stockholder's equity:
Net unrealized investment gain on investment securities $ 17,995 $ 5,496
============== ==============
</TABLE>
During the third quarter 1997, the Company provided $15,000
initial funding for a trading portfolio, composed of
convertible debt and equity securities. The net unrealized
holdings gains on trading account securities earned as of
December 31, 1997, and included in net realized investment gains
are $520.
During the first quarter 1997, the Company terminated its
interest rate swap contracts which it held for the purpose of
minimizing exposure to fluctuations in interest rates related
to specific investment securities held. The notional
amount of such swaps outstanding at December 31 1996 was
approximately $9,000. The swaps were transacted with
investment grade counterparties. As of December 31, 1996, the
Company's interest rate swap contracts were in a $270
unrealized loss position. During 1997, 1996
and 1995, there were no realized investment gains or losses
recorded.
<PAGE>
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1997 1996 1995
----------- ----------- -----------
Proceeds $ 846,041 $ 847,091 $ 620,853
Gross realized investment gains 16,783 19,078 14,196
Gross realized investment losses 7,193 10,749 10,813
The Company had investment securities with a carrying value
of $26,508 and $27,726 that were deposited with insurance
regulatory authorities at December 31, 1997 and 1996,
respectively.
During 1997, the Company realized a $1,005 gain on the sale of
its remaining investment in the Separate Accounts. At December
31, 1996, the Company had invested $10,168 in Separate Accounts,
including $168 of unrealized gains. The investments in 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.
At December 31, 1997, the Company held no mortgage loans on real
estate. The carrying value and established valuation allowances
of impaired mortgage loans on real estate as of December 31,
1996 were $44,239 and $17,652, respectively.
Additional information on impaired loans for the years ended
December 31 follows:
1997 1996 1995
----------- ----------- -----------
Average investment in impaired loans $ 30,945 $ 79,668 $ 124,089
Interest income recognized (cash-basis) 2,830 4,848 5,482
For the years ended December 31, 1997, 1996 and 1995, $7,891,
$28,555 and $1,300, respectively, of real estate held-for-sale
was acquired in satisfaction of debt.
<PAGE>
Net investment income arose from the following sources for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Fixed maturity securities $ 236,325 $ 266,916 $ 305,648
Equity securities 3,020 1,876 1,329
Mortgage loans 4,627 9,764 12,250
Real estate held-for-sale 1,939 563 153
Policy loans on insurance contracts 57,998 56,512 53,576
Cash and cash equivalents 9,570 6,710 8,463
Other 709 899 1,753
------------ ------------ ------------
Gross investment income 314,188 343,240 383,172
Less investment expenses (5,486) (6,579) (7,006)
------------ ------------ ------------
Net investment income $ 308,702 $ 336,661 $ 376,166
============ ============ ============
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Fixed maturity securities $ 6,149 $ 4,690 $ 1,908
Equity securities 3,441 3,639 1,475
Trading account securities 697 - -
Investment in Separate Accounts 1,005 106 (369)
Mortgage loans 6,252 599 334
Real estate held-for-sale (4,252) (171) 1,177
Cash and cash equivalents (3) (1) -
------------ ------------ ------------
Net realized investment gains $ 13,289 $ 8,862 $ 4,525
============ ============ ============
</TABLE>
<PAGE>
The following is a reconciliation of the change in valuation
allowances that have been recorded to reflect other-than-
temporary declines in estimated fair value of mortgage loans
for the years ended December 31:
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
----------- ------------ ----------- -----------
Mortgage loans:
1997 $ 17,652 $ - $ 17,652 $ -
1996 35,881 - 18,229 17,652
1995 40,070 - 4,189 35,881
The Company held no investments at December 31, 1997 which have
been non-income producing for the preceding twelve months.
The Company has committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1997, $4,744 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 earnings before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 42,413 $ 41,048 $ 41,575
Increase (decrease) in income taxes resulting
from:
Dividend received deduction (1,969) (3,135) (532)
Release of policyholders' surplus - - 1,991
Tax deductible interest - - (718)
Other - (21) (13)
---------- ---------- ----------
Federal income tax provision $ 40,444 $ 37,892 $ 42,303
========== ========== ==========
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1997 was 35%.
The Company provides for deferred income taxes resulting from
temporary differences that arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred policy acquisition costs $ (2,422) $ (5,770) $ (2,179)
Policyholders' account balances (16,099) 15,004 66
Liability for guaranty fund assessments 1,190 760 249
Investment adjustments 5,070 5,122 5,563
Other - (38) 269
-------------- -------------- --------------
Deferred Federal income tax
provision (benefit) $ (12,261) $ 15,078 $ 3,968
============== ============== ==============
</TABLE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 95,182 $ 79,083
Investment adjustments 601 5,671
Liability for guaranty fund assessments 5,381 6,571
-------------- --------------
Total deferred tax assets 101,164 91,325
-------------- --------------
Deferred tax liabilities:
Deferred policy acquisition costs 88,670 91,092
Net unrealized investment gain on investment securities 9,689 2,959
Other 3,988 3,988
-------------- --------------
Total deferred tax liabilities 102,347 98,039
-------------- --------------
Net deferred tax liability $ 1,183 $ 6,714
================ ==============
</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 accounting, data processing,
legal, actuarial, management, advertising and other services to
the Company. Expenses incurred by MLIG in relation to this
service agreement are reimbursed by the Company on an allocated
cost basis. Charges billed to the Company by MLIG pursuant to
the agreement were $43,028, $43,515 and $41,729 for the years
ended December 31, 1997, 1996 and 1995, 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 $842, $988 and $1,310 for 1997,
1996 and 1995, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were
$1,913, $2,279 and $2,635 for 1997, 1996 and 1995,
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 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 its allocable share of such compensation in the
amount of $19,057, $16,514 and $13,293 during 1997, 1996 and
1995, 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 $72,729, $42,639 and $43,984 for
1997, 1996 and 1995, 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.
During the first quarter 1997, the Company terminated its
interest rate swap contracts which it entered into with Merrill
Lynch Capital Services, Inc. ("MLCS") with a guarantee from
Merrill Lynch & Co. At December 31, 1996, the notional amount
of such interest rate swap contracts outstanding was $9,000.
Net interest received from these interest rate swap contracts
was $4, ($117), and $256 for 1997, 1996 and 1995, respectively.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
During 1997, the Company sold its investment in 2141 E.
Camelback, Corp. to Merrill Lynch Mortgage Capital, Inc. The
investment was sold at its carrying value of $5,375.
NOTE 6. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1997, 1996, and 1995 the Company paid dividends of
$135,000, $175,000, and $100,000, respectively, to MLIG. Of
these stockholder's dividends, $110,030, $175,000 and $73,757,
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, 1997 and 1996, approximately $24,304 and
$24,970, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1997 and 1996, was $245,042 and $251,697,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
income taxes, and valuing securities on a different basis. The
Company's statutory net income for 1997, 1996 and 1995 was
$81,963, $93,532 and $121,451, 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, 1997 and 1996, based on the
RBC formula, the Company's total adjusted capital level was
394% and 403%, 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,
1997 and 1996, the Company has established an estimated
liability for future guaranty fund assessments of $15,374 and
$18,773, respectively. The Company regularly monitors public
information regarding insurer insolvencies and adjusts its
estimated liability as appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Merrill Lynch Life Insurance Company's By-Laws provide, in Article VI, as
follows:
SECTION 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer or employee of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer or employee of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the Court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other Court shall deem proper.
SECTION 3. RIGHT TO INDEMNIFICATION. To the extent that a director,
officer or employee of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2 of this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 4. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any indemnification
under Sections 1 and 2 of this Article (unless ordered by a Court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, or employee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 and 2 of this Article. Such determination shall be made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
Any persons serving as an officer, director or trustee of a corporation,
trust, or other enterprise, including the Registrant, at the request of Merrill
Lynch & Co., Inc. are entitled to indemnification from Merrill Lynch & Co.,
Inc., to the fullest extent authorized or permitted by law, for liabilities with
respect to actions taken or omitted by such persons in any capacity in which
such persons serve Merrill Lynch & Co., Inc. or such other
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<PAGE>
corporation, trust, or other enterprise. Any action initiated by any such person
for which indemnification is provided shall be approved by the Board of
Directors of Merrill Lynch & Co., Inc. prior to such initiation.
DIRECTORS' AND OFFICERS' INSURANCE
Merrill Lynch & Co., Inc. has purchased from Corporate Officers' and
Directors' Assurance Company directors' and officers' liability insurance
policies which cover, in addition to the indemnification described above,
liabilities for which indemnification is not provided under the By-Laws. Merrill
Lynch Life Insurance Company will pay an allocable portion of the insurance
premium paid by Merrill Lynch & Co., Inc. with respect to such insurance policy.
ARKANSAS BUSINESS CORPORATION LAW
In addition, Section 4-26-814 of the Arkansas Business Corporation Law
generally provides that a corporation has the power to indemnify a director or
officer of the corporation, or a person serving at the request of the
corporation as a director or officer of another corporation or other enterprise
against any judgments, amounts paid in settlement, and reasonably incurred
expenses in a civil or criminal action or proceeding if the director or officer
acted in good faith in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation (or, in the case of a criminal
action or proceeding, if he or she in addition had no reasonable cause to
believe that his or her conduct was unlawful).
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATION PURSUANT TO SECTION 26(E)
Merrill Lynch Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by Merrill Lynch Life Insurance Company.
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<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 79 pages.
Undertaking to file reports.
Rule 484 Undertaking.
Representation Pursuant to Section 26(e).
The signatures.
Written Consents of the following persons:
1. Barry G. Skolnick, Esq.
2. Joseph E. Crowne, Jr., F.S.A.
3. Deloitte & Touche LLP, Independent Auditors
The following exhibits:
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<S> <C>
6. Opinion and Consent of Joseph E. Crowne, Jr., F.S.A. as to actuarial matters
pertaining to the securities being registered.
8.(a) Written Consent of Barry G. Skolnick, Esq.
8.(b) Written Consent of Joseph E. Crowne, Jr., F.S.A. See Exhibit 6.
8.(c) Written Consent of Deloitte & Touche LLP, Independent Auditors.
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Merrill Lynch Life Variable Life Separate Account II, hereby certifies that this
Post-Effective Amendment No. 8 meets all of the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, and has
duly caused this Post-Effective Amendment No. 8 to the Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized and its
seal to be hereunto affixed and attested, all in the City of Plainsboro and the
State of New Jersey, on the 22nd day of April, 1998.
MERRILL LYNCH LIFE VARIABLE LIFE SEPARATE ACCOUNT II
(REGISTRANT)
BY: MERRILL LYNCH LIFE INSURANCE COMPANY
(DEPOSITOR)
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<S> <C>
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
- ------------------------------------------ ------------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 8 to the Registration Statement has been signed
below by the following persons in the capacities indicated on April 22, 1998.
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<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
*
- ------------------------------------------- Chairman of the Board, President and Chief Executive
Anthony J. Vespa Officer
*
- ------------------------------------------- Director, Senior Vice President, Chief Financial
Joseph E. Crowne, Jr. Officer, Chief Actuary and Treasurer
*
- ------------------------------------------- Director, Senior Vice President and Chief Investment
David M. Dunford Officer
*
- ------------------------------------------- Director and Senior Vice President
Gail R. Farkas
*By: /s/ BARRY G. SKOLNICK
------------------------------------------ In his own capacity as Director, Senior Vice President
Barry G. Skolnick and General Counsel and as Attorney-In-Fact
</TABLE>
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EXHIBIT INDEX
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Resolutions of the Board of Directors of Merrill Lynch Life Insurance Company establishing the
Separate Account. Incorporated by Reference to Post-Effective Amendment No. 7 to the Registration
1 A. (1) Statement filed by the Registrant on Form S-6 (File No. 33-43057).
(2) Not applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated. Incorporated by reference to Post-Effective Amendment
No. 8 to the Registration Statement filed by Merrill Lynch Variable Life Separate Account
on Form S-6 (File No. 33-55472).
(b) Amended Sales Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Life
Agency, Inc. Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement filed by Merrill Lynch Variable Life Separate Account on Form S-6
(File No. 33-55472).
(c) Schedules of Sales Commissions. See Exhibit A(3)(b).
(4) Not applicable.
(5) (a) Variable Life Insurance Policies:
(1) Annual Premium Version. Incorporated by Reference to Post-Effective Amendment
No. 7 to the Registration Statement filed by the Registrant on Form S-6 (File
No. 33-43057).
(2) Single Premium Version. Incorporated by Reference to Post-Effective Amendment
No. 7 to the Registration Statement filed by the Registrant on Form S-6 (File
No. 33-43057).
(3) Annual Premium Level Death Benefit Version. Incorporated by Reference to Post-
Effective Amendment No. 7 to the Registration Statement filed by the Registrant
on Form S-6 (File No. 33-43057).
(4) Single Premium Variable Life Insurance Policy. Incorporated by Reference to
Post-Effective Amendment No. 7 to the Registration Statement filed by the
Registrant on Form S-6 (File No. 33-43057).
(b) (1) Policy Rider. Incorporated by Reference to Post-Effective Amendment No. 7 to the
Registration Statement filed by the Registrant on Form S-6 (File No. 33-43057).
(2) Form of Change of Insured Privilege. Incorporated by Reference to Post-Effective
Amendment No. 7 to the Registration Statement filed by the Registrant on Form
S-6 (File No. 33-43057).
(3) Policy Amendment Rider Loan Interest. Incorporated by Reference to
Post-Effective Amendment No. 7 to the Registration Statement filed by the
Registrant on Form S-6 (File No. 33-43057).
(4) Policy Amendment Rider Increase in Investment Base. Incorporated by Reference to
Post-Effective Amendment No. 7 to the Registration Statement filed by the
Registrant on Form S-6 (File No. 33-43057).
(5) Single Premium Term Rider. Incorporated by Reference to Post-Effective Amendment
No. 7 to the Registration Statement filed by the Registrant on Form S-6 (File
No. 33-43057).
(6) Policy Amendment Rider Adjustable Loan Interest Rate. Incorporated by Reference
to Post-Effective Amendment No. 7 to the Registration Statement filed by the
Registrant on Form S-6 (File No. 33-43057).
(7) Policy Amendment Rider Additional Investment Division. Incorporated by Reference
to Post-Effective Amendment No. 7 to the Registration Statement filed by the
Registrant on Form S-6 (File No. 33-43057).
(8) Policy Amendment Rider Investment Divisions of the Unit Investment Trusts.
Incorporated by Reference to Post-Effective Amendment No. 7 to the Registration
Statement filed by the Registrant on Form S-6 (File No. 33-43057).
(9) Increase in Guaranteed Insurance Amount Rider. Incorporated by Reference to
Post-Effective Amendment No. 7 to the Registration Statement filed by the
Registrant on Form S-6 (File No. 33-43057).
(10) Beneficiary Insurance Purchase Rider. Incorporated by Reference to
Post-Effective Amendment No. 7 to the Registration Statement filed by the
Registrant on Form S-6 (File No. 33-43057).
(11) Policy Amendment Rider Right to Examine This Policy. Incorporated by Reference
to Post-Effective Amendment No. 7 to the Registration Statement filed by the
Registrant on Form S-6 (File No. 33-43057).
</TABLE>
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<S> <C> <C> <C> <C>
(c) Certificate of Assumption. Incorporated by Reference to Post-Effective Amendment No. 7 to
the Registration Statement filed by the Registrant on Form S-6 (File No. 33-43057).
(d) Company Name Change Endorsement. Incorporated by Reference to Post-Effective Amendment No.
7 to the Registration Statement filed by the Registrant on Form S-6 (File No. 33-43057).
(6) (a) Articles of Amendment, Restatement, and Redomestication of the Articles of Incorporation of
Merrill Lynch Life Insurance Company. Incorporated by reference to Post-Effective Amendment
No. 8 to the Registration Statement filed by Merrill Lynch Variable Life Separate Account
on Form S-6 (File No. 33-55472).
(b) Amended and Restated By-laws of Merrill Lynch Life Insurance Company. Incorporated by
reference to Post-Effective Amendment No. 8 to the Registration Statement filed by Merrill
Lynch Variable Life Separate Account on Form S-6 (File No. 33-55472).
(7) Not applicable.
(8) (a) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Series Fund, Inc.
Incorporated by reference to Post-Effective Amendment No. 8 to the Registration Statement
filed by Merrill Lynch Variable Life Separate Account on Form S-6 (File No. 33-55472).
(b) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch Funds Distributor,
Inc. Incorporated by reference to Post-Effective Amendment No. 8 to the Registration
Statement filed by Merrill Lynch Variable Life Separate Account on Form S-6 (File No.
33-55472).
(c) Agreement between Merrill Lynch Life Insurance Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated. Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement filed by Merrill Lynch Variable Life Separate Account on Form S-6
(File No. 33-55472).
(d) Participation Agreement among Merrill Lynch Life Insurance Company, ML Life Insurance
Company of New York, and Monarch Life Insurance Company. Incorporated by reference to
Post-Effective Amendment No. 8 to the Registration Statement filed by Merrill Lynch
Variable Life Separate Account on Form S-6 (File No. 33-55472).
(e) Form of Participation Agreement among Merrill Lynch Life Insurance Company, ML Life
Insurance Company of New York and Family Life Insurance Company. Incorporated by reference
to Post-Effective Amendment No. 4 to the Registration Statement filed by the Registrant on
Form S-6 (File No. 33-43057).
(9) (a) Amended form of terminated Service Agreement between Merrill Lynch Life Insurance Company
and Monarch Life Insurance Company. Incorporated by reference to Post-Effective Amendment
No. 4 to the Registration Statement filed by the Registrant on Form S-6 (File No.
33-43057).
(b) Plan of merger between Tandem Insurance Group, Inc. and Merrill Lynch Life Insurance
Company. Incorporated by reference to Post-Effective Amendment No. 4 to the Registration
Statement filed by the Registrant on Form S-6 (File No. 33-43057).
(c) Service Agreement among Merrill Lynch Life Insurance Company, Family Life Insurance Company
and Merrill Lynch Insurance Group, Inc. Incorporated by reference to Post-Effective
Amendment No. 4 to the Registration Statement filed by the Registrant on Form S-6 (File No.
33-43057).
(10) Application Form for Variable Life Insurance Policy. Incorporated by Reference to Post-
Effective Amendment No. 7 to the Registration Statement filed by the Registrant on Form S-6
(File No. 33-43057).
(11) (a) Memorandum describing Merrill Lynch Life Insurance Company's Issuance, Transfer and
Redemption Procedures. Incorporated by reference to Post-Effective Amendment No. 4 filed by
the Registrant on Form S-6 (File No. 33-43057).
(b) Supplement to Memorandum describing Merrill Lynch Life Insurance Company's Issuance,
Transfer and Redemption Procedures. Incorporated by reference to Post-Effective Amendment
No. 8 to the Registration Statement filed by the Registrant on Form S-6 (File No.
33-55472).
2. See 1 above.
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the legality of the securities being
registered. Incorporated by reference to Post-Effective Amendment No. 6 to the Registration
Statement filed by the Registrant on Form S-6 (File No. 33-43057).
4. Not applicable.
5. Not applicable.
</TABLE>
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6. Opinion and Consent of Joseph E. Crowne, Jr., F.S.A., as to actuarial matters pertaining to the
securities being registered.
7. (a) Power of Attorney of Joseph E. Crowne, Jr. Incorporated by Reference to Post-Effective
Amendment No. 2 to the Registration Statement filed by Merrill Lynch Variable Life
Separate Account on Form S-6 (File No. 33-55472).
(b) Power of Attorney of David E. Dunford. Incorporated by Reference to Post-Effective
Amendment No. 2 to the Registration Statement filed by Merrill Lynch Variable Life
Separate Account on Form S-6 (File No. 33-55472).
(c) Power of Attorney of Gail R. Farkas. Incorporated by reference to Post-Effective
Amendment No. 6 to the Registration Statement filed by Merrill Lynch Variable Life
Separate Account on Form S-6 (File No. 33-55472).
(d) Power of Attorney of John C.R. Hele. Incorporated by Reference to Post-Effective
Amendment No. 2 to the Registration Statement filed by Merrill Lynch Variable Life
Separate Account on Form S-6 (File No. 33-55472).
(e) Power of Attorney of Allen N. Jones. Incorporated by Reference to Post-Effective
Amendment No. 2 to the Registration Statement filed by Merrill Lynch Variable Life
Separate Account on Form S-6 (File No. 33-55472).
(f) Power of Attorney of Barry G. Skolnick. Incorporated by Reference to Post-Effective
Amendment No. 2 to the Registration Statement filed by Merrill Lynch Variable Life
Separate Account on Form S-6 (File No. 33-55472).
(g) Power of Attorney of Anthony J. Vespa. Incorporated by Reference to Post-Effective
Amendment No. 2 to the Registration Statement filed by Merrill Lynch Variable Life
Separate Account on Form S-6 (File No. 33-55472).
8. (a) Written Consent of Barry G. Skolnick, Esq.
(b) Written Consent of Joseph E. Crowne, Jr., F.S.A. See Exhibit 6.
(c) Written Consent of Deloitte & Touche LLP, Independent Auditors.
</TABLE>
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EXHIBIT 6
[Merrill Lynch Life Insurance Company]
April 22, 1998
Board of Directors
Merrill Lynch Life Insurance Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
To The Board of Directors:
This opinion is furnished in connection with the filing of
Post-Effective Amendment No. 8 to the Registration Statement on Form S-6 (as
so amended, the "Registration Statement") (File No. 33-43057) which covers
premiums received under the single premium variable life insurance policies
("Policies" or "Policy") issued by Merrill Lynch Life Insurance Company (the
"Company").
The Prospectus included in the Registration Statement describes Policies
which are issued by the Company. The Policy forms were reviewed under my
direction, and I am familiar with the Registration Statement and Exhibits
thereto. In my opinion:
1. The illustrations of death benefits, investment base, cash
surrender values and accumulated premiums included in the
Registration Statement for the Policy and based on the assumptions
stated in the illustrations, are consistent with the provision of
the Policy. The rate structure of the Policies has not been
designed so as to make the relationship between premiums and
benefits, as shown in the illustrations, appear more favorable to a
prospective purchaser of a Policy for the ages and sexes shown,
than to prospective purchasers of a Policy for other ages and sex.
2. The table of illustrative net single premium factors included in
the "Death Benefit" section is consistent with the provisions of
the Policies.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of my name relating to actuarial
matters under the heading "Experts" in the Prospectus.
Very truly yours,
/s/ JOSEPH E. CROWNE, JR.
Joseph E. Crowne, Jr., FSA
Senior Vice President &
Chief Financial Officer
<PAGE>
Exhibit 8(a)
[MERRILL LYNCH LIFE INSURANCE COMPANY]
CONSENT
I hereby consent to the reference to my name under the heading "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 8 to the
Registration Statement on Form S-6 for certain variable life insurance
contracts issued through Merrill Lynch Life Variable Life Separate Account II
of Merrill Lynch Life Insurance Company (File No. 33-43057).
/s/ Barry G. Skolnick
-----------------------------------------
Barry G. Skolnick, Esq.
Senior Vice President and General Counsel
April 22, 1998
<PAGE>
Exhibit 8(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 8 to the
Registration Statement No. 33-43057 of Merrill Lynch Life Variable Life
Separate Account II on Form S-6 of our reports on (i) Merrill Lynch Life
Insurance Company dated February 23, 1998, and (ii) Merrill Lynch Life Variable
Life Separate Account II dated January 30, 1998, appearing in the Prospectus,
which is a part of such Registration Statement, and to the reference to us
under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 22, 1998
