PROSPECTUS
MAY 1, 1994
MERRILL LYNCH LIFE VARIABLE ANNUITY
SEPARATE ACCOUNT
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
FLEXIBLE PREMIUMS--NONPARTICIPATING
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
Home Office: Little Rock, Arkansas 72201
Service Center: P.O. Box 44222, Jacksonville, Florida 32231-4222
4804 Deer Lake Drive East, Jacksonville, Florida 32246
Phone: (800) 535-5549
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
The individual deferred variable annuity contract described in this Prospectus
(the "Contract") is designed to provide comprehensive and flexible ways to
invest and to create a source of income protection for later in life through
the payment of annuity benefits. An annuity is intended to be a long term
investment. Contract owners should consider their need for deferred income
before purchasing the Contract. The Contract is designed to provide annuity
payments in connection with retirement plans that may or may not qualify for
special federal income tax treatment under the Internal Revenue Code.
Both accumulation of the contract values and annuity payments may be on either
a fixed or variable basis, or on a combination fixed and variable basis.
Benefits on a fixed basis are provided by premiums and contract values
allocated to the Fixed Account. (See THE FIXED ACCOUNT on page 19.) Benefits
on a variable basis are provided by premiums and contract values allocated to
the Variable Account. Such variable benefits are not guaranteed as to
fixed-dollar amount and will vary according to investment performance. THIS
PROSPECTUS DESCRIBES ONLY THE VARIABLE ACCOUNT FEATURES OF THE CONTRACT EXCEPT
WHERE SPECIFIC REFERENCE IS MADE TO THE FIXED ACCOUNT.
The Variable Account is a segregated investment account of Merrill Lynch Life
Insurance Company ("Merrill Lynch Life"), which has been named the Merrill
Lynch Life Variable Annuity Separate Account. Premiums and contract values
allocated to the Variable Account will be invested in certain Funds that the
contract owner is eligible to select from the Merrill Lynch Variable Series
Funds, Inc. The contract owner bears the full investment risk with respect to
such investments.
This Prospectus contains information about the Contract and the Variable
Account that a prospective contract owner should know before investing. It
should be read and retained for future reference. Additional information about
the Contract and Variable Account is contained in a Statement of Additional
Information, dated May 1, 1994, which has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information is available on request and without charge by writing
or calling Merrill Lynch Life's Service Center at the address or phone number
set forth above. The table of contents for the Statement of Additional
Information is included on page 29 of this Prospectus.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS
ATTACHED TO A CURRENT PROSPECTUS FOR MERRILL LYNCH VARIABLE SERIES
FUNDS, INC., WHICH SHOULD ALSO BE READ AND KEPT FOR REFERENCE.
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.
<PAGE>
TABLE OF CONTENTS
Page
----
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CAPSULE SUMMARY OF THE CONTRACT . . . . . . . . . . . . . . . . . 5
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . 10
MERRILL LYNCH LIFE INSURANCE COMPANY. . . . . . . . . . . . . . . 12
THE VARIABLE ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . 12
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . 12
THE REINSURANCE AGREEMENT . . . . . . . . . . . . . . . . . . . . 13
INVESTMENTS OF THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . 13
Eligible Funds . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reserve Assets Fund . . . . . . . . . . . . . . . . . . . . . . 14
Prime Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . 14
High Current Income Fund. . . . . . . . . . . . . . . . . . . . 14
Quality Equity Fund . . . . . . . . . . . . . . . . . . . . . . 14
Equity Growth Fund. . . . . . . . . . . . . . . . . . . . . . . 15
Flexible Strategy Fund. . . . . . . . . . . . . . . . . . . . . 15
Natural Resources Focus Fund. . . . . . . . . . . . . . . . . . 15
American Balanced Fund. . . . . . . . . . . . . . . . . . . . . 15
Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Substitution of Investments. . . . . . . . . . . . . . . . . . . 15
CHARGES AND DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . . 16
Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . 16
Contract Administration Charge . . . . . . . . . . . . . . . . . 16
Waiver of Charges. . . . . . . . . . . . . . . . . . . . . . . . 16
Expense Risk Charge. . . . . . . . . . . . . . . . . . . . . . . 16
Mortality Risk Charge. . . . . . . . . . . . . . . . . . . . . . 17
Distribution Expense Charge. . . . . . . . . . . . . . . . . . . 17
Payments of Charges and Deductions . . . . . . . . . . . . . . . 17
Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 17
DESCRIPTION OF THE CONTRACT . . . . . . . . . . . . . . . . . . . 18
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Accumulation Provisions. . . . . . . . . . . . . . . . . . . . . 18
Accumulation Units. . . . . . . . . . . . . . . . . . . . . . . 18
Value of an Accumulation Unit . . . . . . . . . . . . . . . . . 18
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . 19
Valuation Periods . . . . . . . . . . . . . . . . . . . . . . . 19
The Fixed Account. . . . . . . . . . . . . . . . . . . . . . . . 19
Payment on Death . . . . . . . . . . . . . . . . . . . . . . . . 19
Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Account Transfers. . . . . . . . . . . . . . . . . . . . . . . . 20
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Suspension of Payments . . . . . . . . . . . . . . . . . . . . . 21
Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . 21
Variable Annuity. . . . . . . . . . . . . . . . . . . . . . . . 21
Selection of Annuity Date and Annuity Options . . . . . . . . . 21
Change of Annuity Date or Annuity Option. . . . . . . . . . . . 21
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . 22
Minimum Annuity Payments. . . . . . . . . . . . . . . . . . . . 22
2
<PAGE>
TABLE OF CONTENTS
Page
----
First Variable Annuity Payment. . . . . . . . . . . . . . . . . 22
Age Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . 22
Number of Annuity Units . . . . . . . . . . . . . . . . . . . . 22
Value of Each Annuity Unit. . . . . . . . . . . . . . . . . . . 23
Subsequent Variable Annuity Payments. . . . . . . . . . . . . . 23
Assumed Investment Rate . . . . . . . . . . . . . . . . . . . . 23
Proof of Age, Sex and Survival. . . . . . . . . . . . . . . . . 23
Notices and Elections. . . . . . . . . . . . . . . . . . . . . . 23
Amendment of Contract. . . . . . . . . . . . . . . . . . . . . . 23
Ten Day Right to Review. . . . . . . . . . . . . . . . . . . . . 23
FEDERAL INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . 24
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Merrill Lynch Life's Tax Status. . . . . . . . . . . . . . . . . 24
Taxation of Annuities in General . . . . . . . . . . . . . . . . 24
Internal Revenue Service Diversification Standards . . . . . . . 25
Qualified Plans. . . . . . . . . . . . . . . . . . . . . . . . . 26
H.R. 10 Plans . . . . . . . . . . . . . . . . . . . . . . . . . 26
Individual Retirement Annuities and Individual Retirement
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Corporate Pension and Profit Sharing Plans. . . . . . . . . . . 26
Tax-Sheltered Annuities . . . . . . . . . . . . . . . . . . . . 26
Section 457 Deferred Compensation ("Section 457") Plans . . . . 27
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . 27
VARIABLE ACCOUNT VOTING RIGHTS. . . . . . . . . . . . . . . . . . 27
REPORTS TO CONTRACT OWNERS. . . . . . . . . . . . . . . . . . . . 28
DISTRIBUTION OF CONTRACTS . . . . . . . . . . . . . . . . . . . . 28
STATE REGULATION. . . . . . . . . . . . . . . . . . . . . . . . . 28
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 28
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
REGISTRATION STATEMENTS . . . . . . . . . . . . . . . . . . . . . 29
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION. . . . . 29
APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-----------------
No person has been authorized to give any information or to make any
representation other than that contained in this Prospectus in connection with
the offer contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized. This
Prospectus does not constitute an offer of, or solicitation of an offer to
acquire, any variable annuity contracts offered by this Prospectus in any
jurisdiction to anyone to whom it is unlawful to make such an offer or
solicitation in such jurisdiction.
3
<PAGE>
DEFINITIONS
accumulation unit: An index used to compute the value of each contract owner's
interest in the Variable Account prior to the annuity date. (See page 18.)
annuitant: The person on whose continuation of life annuity payments may
depend.
annuity: A series of predetermined periodic payments.
annuity date: The date on which annuity payments are to begin. (See page 21.)
annuity unit: An index used to compute variable annuity payments. (See page
22.)
beneficiary: The person to whom payment is to be made on the death of the
contract owner or annuitant. There may be both a contract owner's beneficiary
and an annuitant's beneficiary if the contract owner is not the annuitant.
Contract: A Contract offered by this Prospectus.
contract owner: The person entitled to exercise all rights under a Contract.
(See page 20.)
contract value: The sum of the value of a contract owner's Fixed Account and a
contract owner's interest in the Variable Account.
Funds: The mutual funds, or separate investment portfolios within a series
mutual fund, designated as eligible investments for the Variable Account. (See
page 13.)
fixed annuity: A series of periodic payments of predetermined amounts that do
not vary with investment experience.
net investment factor: An index used to measure the investment performance of
a subaccount of the Variable Account from one valuation period to the next.
(See page 19.)
nonqualified contract: A Contract issued in connection with a nonqualified
plan.
nonqualified plan: A retirement plan other than a qualified plan.
premiums: The money the contract owner pays Merrill Lynch Life for a Contract.
(See page 18.)
qualified contract: A Contract issued in connection with a qualified plan.
qualified plan: A retirement plan that receives favorable tax treatment under
Section 401, 403, 404, 408, 457 or any similar provision of the Internal
Revenue Code. (See page 26.)
Variable Account: A segregated investment account of Merrill Lynch Life
Insurance Company, named the Merrill Lynch Life Variable Annuity Separate
Account. (See page 12.)
subaccount: A division of the Variable Account consisting of the shares of a
particular Fund held by the Variable Account for all Contracts having a
similar tax status. (See page 13.)
valuation period: The interval from one valuation day of a Fund to the next
valuation day, measured from the time each day the Fund is valued. (See page
19.)
variable annuity: A series of periodic payments that vary in amount according
to investment experience. (See page 21.)
4
<PAGE>
CAPSULE SUMMARY OF THE CONTRACT
The following capsule summary is intended to provide a brief overview of the
Contract. More detailed information about the Contract can be found in the
sections of this Prospectus that follow, all of which should be read in their
entirety.
The Variable Account
Premiums will be allocated to the Merrill Lynch Life Variable Annuity Separate
Account (the "Variable Account") a segregated investment account, or to the
Fixed Account described on page 19, as directed by the contract owner. The
Variable Account is divided into subaccounts corresponding to the Funds in
which premiums may be invested. For the first 14 days following the date of
issue, all premiums allocable to the Variable Account will be allocated to the
Reserve Assets Fund subaccount. Thereafter, the contract owner's interest in
the Variable Account will be reallocated to the subaccounts selected by the
contract owner. In the Commonwealth of Pennsylvania, all premiums will be
invested as of the date of issue in the subaccounts selected by the contract
owner. The contract owner may change the selection later, subject to certain
conditions. The contract value and the amount of the monthly annuity payments
will reflect the investment performance of the Funds selected. (See The
Variable Account on page 12 and Account Transfers on page 20.)
The Funds
The Funds in which premiums currently may be invested are certain separate
investment portfolios of the Merrill Lynch Variable Series Funds, Inc. They
are the Merrill Lynch Reserve Assets Fund, Prime Bond Fund, High Current
Income Fund, Quality Equity Fund, Equity Growth Fund, Flexible Strategy Fund,
Natural Resources Focus Fund and American Balanced Fund. (See Investments of
The Variable Account on page 13.)
Retirement Plans
The Contract may be issued pursuant to nonqualified retirement plans or plans
qualifying for special tax treatment as "H.R. 10" plans, Individual Retirement
Annuities or Individual Retirement Accounts, corporate pension and
profit-sharing plans, Tax-Sheltered Annuities or Section 457 deferred
compensation ("Section 457") plans. For each Fund, there is one subaccount for
nonqualified plans and one subaccount for qualified plans. (See Qualified
Plans on page 26.)
Premiums
The full amount of all premiums will be invested initially. There is no
"front-end load" However, certain charges and deductions will be made from the
contract value. (See Charges and Deductions below.)
The Contract permits premiums to be paid on a flexible basis at any time in
any amount meeting Merrill Lynch Life's minimum requirements. The minimum
initial premium Merrill Lynch Life will accept is $1,500 for nonqualified
Contracts and $10 for qualified Contracts. For subsequent premiums, the
minimum amount for nonqualified Contracts is $300 ($50 in Tennessee) and the
minimum amount for qualified Contracts is the same as for the initial premium.
(See Premiums on page 18.)
Charges and Deductions
A contingent deferred sales charge is deducted in the event of withdrawal of
contract values, subject to certain exceptions. If the contingent deferred
sales charge applies, it will equal the lesser of (a) 5% of the sum of the
premiums paid within 7 years prior to the date of withdrawal, adjusted for any
prior withdrawals, or (b) 5% of the amount withdrawn. This charge is paid to
permit Merrill Lynch Life to recover sales expenses it has incurred. Under no
circumstances will the charges ever exceed 5% of total premiums. (See
Contingent Deferred Sales Charge on page 16.)
On each contract anniversary on or prior to the annuity date, Merrill Lynch
Life will deduct a contract administration charge of $30 from the contract
value. It will also be deducted upon full withdrawal of the contract value if
such withdrawal is not on a contract anniversary. This charge is made to
reimburse Merrill Lynch Life for expenses related to administration of the
Contracts. (See Contract Administration Charge on page 16.)
5
<PAGE>
Merrill Lynch Life will deduct a daily expense risk charge. For nonqualified
Contracts, the charge will be equal to an annual rate of 0.5% of the sum of
the daily net asset values of all nonqualified subaccounts. For qualified
Contracts, the rate will be 0.2% of the sum of the daily net asset values of
all qualified subaccounts. This charge is made to compensate Merrill Lynch
Life for the risk of guaranteeing not to increase the contract administration
charge regardless of actual administrative costs. (See Expense Risk Charge on
page 16.)
Merrill Lynch Life will deduct a daily distribution expense charge equal to an
annual rate of 0.05% of the daily net asset value of the Variable Account.
This charge compensates Merrill Lynch Life in part for expenses incurred
distributing the Contracts. (See Distribution Expense Charge on page 17.)
Merrill Lynch Life will also deduct a daily mortality risk charge equal to an
annual rate of 0.75% of the daily net asset value of the Variable Account.
This charge is made to compensate Merrill Lynch Life for the mortality
guarantees made under the Contract. (See Mortality Risk Charge on page 17.)
Premium taxes payable to any government entity will be deducted at the annuity
date. Currently, premium taxes range from 0% to 5%. In those jurisdictions
that do not allow an insurance company to reduce its current taxable premium
income by the amount of any withdrawal, surrender or death benefit paid,
Merrill Lynch Life will also deduct a charge for these taxes on any
withdrawal, surrender or death benefit effected under the Contract. (See
Premium Taxes on page 17.)
Annuity Payments
Monthly annuity payments will start on the annuity date. The contract owner
may select the annuity date. He or she may also select an annuity payment
option. The contract owner may change his or her selections later. (See Change
of Annuity Date or Annuity Option on page 21.) The amount of each variable
annuity payment will depend on the investment performance of the Funds the
contract owner selects.
If the net contract value at the annuity date is less than $5,000 ($3,500 for
qualified Contracts), Merrill Lynch Life may pay the contract value in a lump
sum in lieu of annuity payments. For tax consequences of a lump sum payment,
see Taxation of Annuities in General on page 24. If any annuity payment would
be less than $50, Merrill Lynch Life may change the frequency of payments to
such intervals as will result in payments of at least $50. (See Minimum
Annuity Payments on page 22.)
Account Transfers
The contract owner may transfer all or part of the contract value between the
Variable Account and the Fixed Account and among subaccounts of the Variable
Account, subject to certain limitations. (See Account Transfers on page 20.)
For Contracts issued prior to April 30, 1986 and reinsured by Merrill Lynch
Life, see the Appendix for special provisions.
Payment on Death
If either the annuitant or the contract owner dies prior to the annuity date,
Merrill Lynch Life will pay the greater of (a) the sum of all premiums paid
(adjusted for any withdrawals) or (b) the then current contract value. No
contingent deferred sales charge will be imposed. (See Payment on Death on
page 19.)
Withdrawals
The contract owner may withdraw all or part of the accumulated contract value
prior to the earlier of the annuity date or the death of the annuitant. The
amount the contract owner withdraws must be at least $500. If the Contract is
to continue in force, the remaining contract value must be at least $500. If
these dollar limitations relating to partial withdrawals would prevent the
contract owner from making a partial withdrawal, he or she may nevertheless
make a full withdrawal of the contract value. A contingent deferred sales
charge and a contract administration charge may be imposed. (See Withdrawals
on page 21.) Withdrawals will decrease the contract value. Withdrawals may be
taxable and subject to a 10% penalty tax under the Internal Revenue Code (see
Taxation of Annuities in General on page 24), and withdrawals under
Tax-Sheltered Annuities are restricted (see Tax-Sheltered Annuities on page
26).
6
<PAGE>
Ten Day Review
When the contract owner receives the Contract, it should be reviewed carefully
to make sure it is what the contract owner intended to purchase. Generally,
within 10 days after the contract owner receives the Contract, it may be
returned for a refund. Some states allow a longer period of time to return the
Contract. The Contract must be delivered to Merrill Lynch Life or to the
Financial Consultant who sold it for a refund to be made. Merrill Lynch Life
will then refund to the contract owner the greater of all premiums paid into
the Contract or the contract value as of the date the Contract is returned.
For contracts issued in the Commonwealth of Pennsylvania, Merrill Lynch Life
will refund the contract owner's premiums allocated to the Fixed Account plus
the value of the contract owner's interest in the Variable Account as of the
date the Contract is returned. The Contract will then be deemed void.
7
<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
Flexible Natural
Reserve Prime High Current Quality Equity Strategy Resources American
Asset Fund Bond Fund Income Fund Equity Fund Growth Fund Fund Focus Fund Balanced Fund
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract Owner Transaction
Expenses:
Contingent Deferred Sales
Charge (as a percentage of
purchase payments or
amount withdrawn, as
applicable)(a). . . . . . 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Annual Contract
Administration Charge(b) . $30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00
Separate Account Annual
Expenses (as a percentage
of net assets):
Expense Risk Charge(c) . . 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Mortality Risk Charge(d) . 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution Expense
Charge(d) . . . . . . . . 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%
---- ---- ---- ---- ---- ---- ---- ----
Total Separate Account
Annual Expenses. . . . . . 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
Merrill Lynch Variable Series Funds, Inc.
--------------------------------------------------------------------------------------------------
Reserve Prime Quality Equity Flexible Natural American
Assets Bond High Current Equity Growth Strategy Resources Balanced
Fund Fund Income Fund Fund Fund Fund Focus Fund Fund
---- ---- ----------- ---- ---- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch Variable Series
Funds, Inc. Annual
Expenses for the year
ended December 31, 1993
(as a percentage of portfolio
company net assets):
Investment Advisory
Fees(e) . . . . . . . . . 0.50% 0.50% 0.55% 0.50% 0.75% 0.65% 0.65% 0.55%
Other Expenses . . . . . . 0.20% 0.13% 0.17% 0.12% 0.21% 0.15% 0.48% 0.15%
---- ---- ---- ---- ---- ---- ---- ----
Total Merrill Lynch Variable
Series Funds, Inc. Annual
Operating Expenses . . . . 0.70% 0.63% 0.72% 0.62% 0.96% 0.80% 1.13% 0.70%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- ----------
(a) A contingent deferred sales charge is imposed upon withdrawal of all or
part of the contract value. The charge is 5%, applied to the lesser of
premiums paid within the past 7 years (adjusted for any prior
withdrawals) or the amount withdrawn. There will be no charge for such
part of the first withdrawal in a contract year as does not exceed 10% of
the premiums paid prior to the date of withdrawal. (See page 16.)
(b) A contract administration charge of $30 per contract year is deducted
from each Contract. It is deducted from the contract value on each
contract anniversary on or prior to the annuity date and at full
withdrawal if made other than on a contract anniversary.
(c) The expense risk charge is stated as an annual percentage of the daily
net asset value of the Variable Account. The rate indicated is for
nonqualified Contracts. For qualified Contracts, the rate is 0.2%. (See
page 16.)
(d) The mortality risk charge and the distribution expense charge are each
stated as an annual percentage of the daily net asset value of the
Variable Account. (See page 17.)
(e) See "Investments of the Variable Account" on page 13.
8
<PAGE>
<TABLE>
<CAPTION>
Natural
Reserve Quality Flexible Resources American
Assets Prime High Current Equity Equity Strategy Focus Balanced
Fund Bond Fund Income Fund Fund Growth Fund Fund Fund Fund
EXAMPLE Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
If the contract owner surrenders
his or her Contract at the end
of the applicable time period,
the contract owner would pay
the following expenses on a
$1,000 investment, assuming
5% annual return on assets:
1-year . . . . . . . . . $ 71 $ 71 $ 72 $ 71 $ 74 $ 72 $ 76 $ 71
3-year . . . . . . . . . 116 114 117 114 124 119 129 116
5-year . . . . . . . . . 163 160 164 159 177 169 185 163
10-year . . . . . . . . . 244 236 246 235 271 254 288 244
If the contract owner annuitizes,
or does not surrender, at
the end of the applicable
time period, the contract
owner would pay the following
expenses on a $1,000
investment, assuming 5%
annual return on assets:
1-year.. . . . . . . . . $ 21 $ 21 $ 22 $ 21 $ 24 $ 22 $ 26 $ 21
3-year . . . . . . . . . 66 64 67 64 74 69 79 66
5-year . . . . . . . . . 113 110 114 109 127 119 135 113
10-year . . . . . . . . . 244 236 246 235 271 254 288 244
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a contract owner in the Merrill Lynch Life Variable
Annuity Separate Account will bear directly or indirectly with respect to each
Fund. The Fee Table and Example include charges and expenses of the Variable
Account as well as the Merrill Lynch Variable Series Funds, Inc. The Example
set forth above assumes the reinvestment of all dividends and distributions
and utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN OF ANY FUND. ACTUAL
EXPENSES AND ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR
THE PURPOSE OF THE EXAMPLE.
The Fee Table and Example do not include charges to contract owners for
reimbursement of premium taxes paid with respect to the Contract. Refer to
Premium Taxes on page 17 for further information.
In the Example, the $30 contract administration charge was converted to a
percentage charge by dividing the total administration charges collected
during 1993 by the average total contract values (excluding the value of
Contracts in the annuity period) during 1993. Contract values and
administration charges collected include amounts allocated to the Variable
Account only. The percentage charge so determined was added to the Total
Separate Account Annual Expenses (1.30%) and Total Merrill Lynch Variable
Series Funds, Inc. Annual Expenses (0.62% to 1.13%, depending on the Fund)
shown above, and the resulting percentage figure was multiplied by the average
annual assets of the hypothetical account to determine annual expenses.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
SCHEDULE OF ACCUMULATION UNIT VALUES*
For the period January 1, 1984 through December 31, 1993
*The accumulation unit values listed below for the periods January 1, 1984
through August 31, 1991 are for periods when the Contracts were funded through
the Merrill Lynch Variable Annuity Account of Family Life Insurance Company
("FLIC"). See page 12. On September 1, 1991, Merrill Lynch Life assumption
reinsured certain of FLIC's variable annuity contracts (see The Reinsurance
Agreement on page 13). The financial performance of the Contracts shown in the
Schedule of Accumulation Unit Values, below, includes the performance of the
Contracts for periods prior to September 1, 1991 while part of the FLIC
separate account.
<TABLE>
<CAPTION>
NONQUALIFIED
CONTRACTS: 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve Assets Fund
January 1 value. . . . . . . 12.160 13.251 14.068 14.728 15.407 16.252 17.44 18.55 19.38 19.76
December 31 value. . . . . . 13.251 14.068 14.728 15.407 16.252 17.439 18.55 19.38 19.76 20.04
Total units outstanding at
December 31 . . . . . . . . 756,930.2 542,420.0 437,996.5
Prime Bond Fund
January 1 value. . . . . . . 12.379 14.164 17.092 19.205 18.750 19.764 22.10 23.38 26.86 28.45
December 31 value. . . . . . 14.164 17.092 19.205 18.750 19.764 22.103 23.38 26.86 28.45 31.46
Total units outstanding at
December 31 . . . . . . . . 618,656.9 667,898.6 741,333.5
High Current Income Fund
January 1 value. . . . . . . 13.500 14.194 17.795 19.637 20.127 22.632 23.76 21.62 30.51 36.15
December 31 value. . . . . . 14.194 17.795 19.637 20.127 22.632 23.760 21.62 30.51 36.15 42.06
Total units outstanding at
December 31 . . . . . . . . 181,893.1 182,229.2 245,495.0
Quality Equity Fund
January 1 value. . . . . . . 13.090 14.063 17.330 20.594 20.188 22.626 29.21 29.03 37.30 37.81
December 31 value. . . . . . 14.063 17.330 20.594 20.188 22.626 29.210 29.03 37.30 37.81 42.76
Total units outstanding at
December 31 . . . . . . . . 674,488.8 681,947.8 790,434.5
Equity Growth Fund
January 1 value. . . . . . . 13.970 11.735 15.223 17.835 13.681 14.079 16.20 13.99 20.73 20.35
December 31 value. . . . . . 11.735 15.223 17.835 13.681 14.079 16.205 13.99 20.73 20.35 23.66
Total units outstanding at
December 31 . . . . . . . . 269,251.3 310,826.6 336,594.9
Flexible Strategy Fund
April 30 (commencement). . . 10.000
January 1 value. . . . . . . 10.132 10.245 11.252 13.36 13.82 17.06 17.55
December 31 value. . . . . . 10.132 10.245 11.252 13.362 13.82 17.06 17.55 20.07
Total units outstanding at
December 31 . . . . . . . . 1,491,361.1 1,536,734.4 1,689,884.9
American Balanced Fund
May 31 (commencement). . . . 10.000
January 1 value. . . . . . . 10.332 12.05 12.04 14.34 14.96
December 31 value. . . . . . 10.332 12.047 12.04 14.34 14.96 16.76
Total units outstanding at
December 31 . . . . . . . . 226,441.1 309,664.2 344,819.9
Natural Resources Focus Fund
May 31 (commencement). . . . 10.000
January 1 value. . . . . . . 9.508 11.10 10.27 10.28 10.29
December 31 value. . . . . . 9.508 11.097 10.27 10.28 10.29 11.22
Total units outstanding at
December 31 . . . . . . . . 36,077.3 50,350.7 97,956.9
10
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
SCHEDULE OF ACCUMULATION UNIT VALUES*
For the period January 1, 1984 through December 31, 1993
*The accumulation unit values listed below for the periods January 1,
1984 through August 31, 1991 are for periods when the Contracts were funded
through the Merrill Lynch Variable Annuity Account of Family Life Insurance
Company ("FLIC"). See page 12. On September 1, 1991, Merrill Lynch Life
assumption reinsured certain of FLIC's variable annuity contracts (see The
Reinsurance Agreement on page 13). The financial performance of the Contracts
shown in the Schedule of Accumulation Unit Values, below, includes the
performance of the Contracts for periods prior to September 1, 1991 while part
of the FLIC separate account.
<TABLE>
<CAPTION>
QUALIFIED CONTRACTS: 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve Assets Fund
January 1 value. . . . . . . 12.220 13.356 14.222 14.933 15.668 16.577 17.84 19.04 19.94 20.39
December 31 value. . . . . . 13.356 14.222 14.933 15.668 16.577 17.840 19.04 19.94 20.39 20.75
Total units outstanding at
December 31 . . . . . . . . 574,284.7 370,601.0 308,644.8
Prime Bond Fund
January 1 value. . . . . . . 12.552 14.406 17.436 19.649 19.241 20.347 22.82 24.21 27.90 29.64
December 31 value. . . . . . 14.406 17.436 19.649 19.241 20.347 22.823 24.21 27.90 29.64 32.87
Total units outstanding at
December 31 . . . . . . . . 428,447.8 478,220.2 477,582.5
High Current Income Fund
January 1 value. . . . . . . 14.016 14.988 18.457 20.428 21.000 23.687 24.94 22.76 32.22 38.29
December 31 value. . . . . . 14.988 18.457 20.428 21.000 23.687 24.941 22.76 32.22 38.29 44.68
Total units outstanding at
December 31 . . . . . . . . 74,457.7 73,582.5 93,456.4
Quality Equity Fund
January 1 value. . . . . . . 14.153 14.878 18.389 21.918 21.549 24.224 31.37 31.26 40.29 40.96
December 31 value. . . . . . 14.878 18.389 21.918 21.549 24.224 31.366 31.26 40.29 40.96 46.46
Total units outstanding at
December 31 . . . . . . . . 432,953.7 457,836.2 516,176.0
Equity Growth Fund
January 1 value. . . . . . . 15.327 12.636 16.439 19.318 14.862 15.341 17.71 15.33 22.79 22.44
December 31 value. . . . . . 12.636 16.439 19.318 14.862 15.341 17.710 15.33 22.79 22.44 26.17
Total units outstanding at
December 31 . . . . . . . . 139,492.7 156,274.5 195,677.9
Flexible Strategy Fund
April 30 (commencement). . . 10.000
January 1 value. . . . . . . 10.152 10.295 11.341 13.51 14.02 17.35 17.90
December 31 value. . . . . . 10.152 10.295 11.341 13.508 14.02 17.35 17.90 20.53
Total units outstanding at
December 31 . . . . . . . . 1,139,762.3 1,085,349.8 1,225,420.9
American Balanced Fund
May 31 (commencement). . . . 10.000
January 1 value. . . . . . . 10.350 12.10 12.13 14.49 15.17
December 31 value. . . . . . 10.350 12.104 12.13 14.49 15.17 17.04
Total units outstanding at
December 31 . . . . . . . . 79,728.3 155,312.1 200,913.9
Natural Resources Focus Fund
May 31 (commencement). . . . 10.000
January 1 value. . . . . . . 9.524 11.15 10.35 10.39 10.43
December 31 value. . . . . . 9.524 11.149 10.35 10.39 10.43 11.40
Total units outstanding at
December 31 . . . . . . . . 28,823.5 27,220.0 40,239.5
</TABLE>
11
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
Merrill Lynch Life Insurance Company ("Merrill Lynch Life") 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. Merrill
Lynch Life is an indirect wholly owned subsidiary of Merrill Lynch & Co.,
Inc., a corporation whose common stock is traded on the New York Stock
Exchange.
Merrill Lynch Life is authorized to sell life insurance and annuity contracts.
Merrill Lynch Life is admitted to do business in 49 states, Guam, the U.S.
Virgin Islands, and the District of Columbia.
All communications, including inquiries, concerning the Contract should be
addressed to Merrill Lynch Life's Service Center at the address printed on the
first page of this Prospectus.
On October 1, 1991, Tandem Insurance Group, Inc. (adba Tandem Life Insurance
Company) ("Tandem"), an affiliate of Merrill Lynch Life, merged with and into
Merrill Lynch Life. Merrill Lynch Life is the surviving company.
As a result of the merger, all contracts previously afforded by Tandem are now
afforded by Merrill Lynch Life. Thus, contract owners maintain their identical
coverage through Merrill Lynch Life.
In addition, the Tandem Variable Annuity Separate Account (the "Tandem
Account") was combined with the Variable Account. Assets of the Tandem Account
have become assets of the Merrill Lynch Life Account. These assets are
segregated from all of Merrill Lynch Life's other assets. The combination of
accounts maintained all investment options and had no adverse impact
(including federal tax) on any contract owners nor any impact on accumulation
units, annuity units, or unit values.
THE VARIABLE ACCOUNT
The establishment of the Variable Account was approved by Merrill Lynch Life's
Board of Directors on March 15, 1991. The Variable Account is registered with
the Securities and Exchange Commission as a unit investment trust pursuant to
the provisions of the Investment Company Act of 1940. Such registration does
not involve any supervision by the Securities and Exchange Commission of the
investment practices or policies of the Variable Account. The Variable Account
meets the definition of a separate account under the federal securities laws.
While the assets of the Variable Account are Merrill Lynch Life's property, as
a segregated investment account, the Variable Account is not chargeable with
liabilities arising out of any other business Merrill Lynch Life may conduct;
however, obligations of the Variable Account are obligations of Merrill Lynch
Life. Income, gains and losses, whether or not realized, from assets allocated
to the Variable Account are, in accordance with the Contracts, credited to or
charged against the Variable Account without regard to other income, gains or
losses of Merrill Lynch Life. Merrill Lynch Life does not guarantee the
investment performance under the Contracts. Both the variable contract value
prior to the annuity date and the amount of any variable annuity payments will
vary with the performance of the investments selected by the contract owner.
There are two subaccounts for each Fund. One subaccount is for qualified
Contracts and the other is for nonqualified Contracts. No transfers may be
made between a qualified and a nonqualified subaccount.
FINANCIAL STATEMENTS
Financial statements for Merrill Lynch Life Insurance Company and Merrill
Lynch Life Variable Annuity Separate Account can be found in the Statement of
Additional Information. Because the Variable Account succeeded to a majority
of the assets of Merrill Lynch Variable Annuity Account of Family Life
Insurance Company ("FLIC") in connection with Merrill Lynch Life's assumption
reinsurance of certain variable annuity contracts of FLIC commencing on
September 1, 1991, the financial statements of the Variable Account include
the financial operations of the FLIC separate account for periods prior to
September 1, 1991. The Statement of Additional Information is available upon
request and without charge. This information can be obtained by writing to or
calling Merrill Lynch Life's Service Center at the address or telephone number
set forth on the first page of this Prospectus.
12
<PAGE>
THE REINSURANCE AGREEMENT
On March 22, 1991, Merrill Lynch Life and certain affiliated life insurance
companies entered into an assumption reinsurance agreement with Family Life
Insurance Company ("FLIC") relating to various policies including the FLIC
Contracts. The assumption reinsurance of the FLIC Contracts will take place in
several transactions. The first transaction was effected as of September 1,
1991, when Merrill Lynch Life assumption reinsured Contracts in 37 states,
Guam and the Virgin Islands. There have been various assumption reinsurance
transactions subsequent to September 1, 1991.
The FLIC Contracts, which participate in FLIC's Merrill Lynch Variable Annuity
Account, are identical to the Contracts described in this Prospectus, except
that the FLIC Contracts provide for a higher mortality risk charge (.80%
annually under the FLIC Contracts versus .75% annually under the Contracts
described in this Prospectus), but no distribution expense charge. Pursuant to
the agreement, FLIC agreed to transfer and Merrill Lynch Life agreed to assume
on an assumption reinsurance basis all of FLIC's obligations and liabilities
under certain of the Contracts to the maximum extent permitted by law. To
reflect its assumption of the FLIC Contracts, Merrill Lynch Life will issue a
certificate of assumption to the owners of the FLIC Contracts informing them
of Merrill Lynch Life's assumption of FLIC's liabilities under the Contract
and of the change in the components of the charges against separate account
assets.
At such time as a Contract is assumption reinsured, assets held in FLIC's
Merrill Lynch Variable Annuity Account equal to the contract liabilities
attributable to the variable portion of the Contract will be transferred to
the Variable Account. Thereafter, the contract owner will deal directly with
Merrill Lynch Life and future premiums will be forwarded directly to Merrill
Lynch Life. The assumption reinsurance of the FLIC Contracts will not change
the number of accumulation or annuity units credited under the Contracts or
the value of such units, which will continue to be affected only by the
investment performance of the Funds. Contract values will be the same as they
would have been had the assumption reinsurance transaction not occurred, and
there will be no adverse tax consequences to a contract owner as a result of
the assumption reinsurance of his or her Contract.
INVESTMENTS OF THE VARIABLE ACCOUNT
Eligible Funds
Premiums will be allocated among one or more subaccounts for investment at net
asset value in shares of the Funds selected by the contract owner. No fee,
penalty or other charge will be imposed. To reduce Merrill Lynch Life's market
risk for cancellations during the Ten Day Right to Review described on page
23, all premiums allocable to the Variable Account will be allocated to the
Reserve Assets Fund subaccount for the first 14 days following the date of
issue. Thereafter, the contract owner's interest in the Variable Account will
be reallocated to the subaccounts selected by the contract owner. In the
Commonwealth of Pennsylvania, all premiums will be invested as of the date of
issue in the subaccounts selected by the contract owner. Therefore,
Pennsylvania contract owners will bear the market risk during the right to
review period. Merrill Lynch Life may make additions to or deletions from the
list of eligible Funds as permitted by law. (See Substitution of Investments
on page 15.) The contract owner may transfer all or part of his or her
contract value from one subaccount to another, except no transfer may be made
within 30 days of the date of issue. Transfers must be at least 30 days apart.
Each Fund is a separate investment portfolio of Merrill Lynch Variable Series
Funds, Inc., an open-end management investment company registered with the
Securities and Exchange Commission. Shares of the Merrill Lynch Variable
Series Funds, Inc. are currently sold only to Merrill Lynch Life, ML Life
Insurance Company of New York (an indirect wholly owned subsidiary of Merrill
Lynch & Co., Inc.) and Family Life Insurance Company (an insurance company not
affiliated with Merrill Lynch Life or Merrill Lynch & Co., Inc.) (collectively
the "Participating Insurance Companies") separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts.
It is conceivable that material conflicts could arise as a result of both
variable annuity and variable life insurance separate accounts investing in
the Funds. Although no material conflicts are foreseen, the Participating
Insurance Companies will monitor events in order to identify any material
conflicts between variable annuity and variable life insurance contract owners
to determine what action, if any, should be taken. Material conflicts could
result from such
13
<PAGE>
things as (1) changes in state insurance law, (2) changes in federal income
tax law or (3) differences between voting instructions given by variable
annuity and variable life insurance contract owners. If a conflict occurs,
Merrill Lynch Life may be required to eliminate one or more subaccounts of the
Variable Account or substitute a new subaccount. In responding to any
conflict, Merrill Lynch Life will take the action which it believes necessary
to protect its contract owners.
Each Fund receives investment advice from Merrill Lynch Asset Management, L.P.
("MLAM") which is paid fees by the Funds for its services. The fees charged to
each of the Funds are set forth in the summary of investment objectives below.
MLAM is a worldwide mutual fund leader with more than $137 billion in assets
under management. It is registered as an investment adviser under the
Investment Advisers Act of 1940. MLAM is an indirect subsidiary of Merrill
Lynch & Co., Inc. MLAM's principal business address is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536. A summary of investment objectives of each Fund
follows. There is no guarantee that any Fund will meet its investment
objective. Meeting the objectives depends upon how well the Funds' management
anticipates changing economic conditions. More detailed information, including
the risks associated with each Fund (including any risks associated with
investment in the High Current Income Fund) and deductions from and expenses
paid out of the assets of the Funds, may be found in the current prospectus
for the Merrill Lynch Variable Series Funds, Inc. which is in the back of this
booklet. Both prospectuses should be read in full for a complete evaluation of
the Contract.
Reserve Assets Fund
The Fund seeks preservation of capital, liquidity and the highest possible
current income consistent with the foregoing objectives by investing in
short-term money market securities. The Fund invests in short-term United
States government securities; government agency securities; bank certificates
of deposit and bankers' acceptances; short-term corporate debt securities such
as commercial paper and variable amount master demand notes; and repurchase
and reverse repurchase agreements. MLAM receives from the Fund an advisory fee
at the annual rate of 0.50% of the first $500 million of the Fund's average
daily net assets; 0.425% of the next $250 million; 0.375% of the next $250
million; 0.35% of the next $500 million; 0.325% of the next $500 million;
0.30% of the next $500 million; and 0.275% of the average daily net assets in
excess of $2.5 billion.
Prime Bond Fund
The Fund seeks to obtain as high a level of current income as is consistent
with prudent investment management, and capital appreciation to the extent
consistent with the foregoing objective, by investing primarily in long-term
corporate bonds rated A or better by established rating services. MLAM
receives from the Fund an advisory fee at the annual rate of 0.50% of the
first $250 million of the combined average daily net assets of the Fund and
High Current Income Fund; 0.45% of the next $250 million; 0.40% of the next
$250 million; and 0.35% of the combined average daily net assets in excess of
$750 million. The reduction of the advisory fee applicable to the Fund is
determined on a uniform percentage basis as described in the Statement of
Additional Information for the Funds.
High Current Income Fund
The Fund seeks to obtain as high a level of current income as is consistent
with prudent investment management, and capital appreciation to the extent
consistent with the foregoing objective, by investing principally in
fixed-income securities that are rated in the lower rating categories of the
established rating services or in unrated securities of comparable quality
(commonly known as "junk bonds"). MLAM receives from the Fund an advisory fee
at the annual rate of 0.55% of the first $250 million of the combined average
daily net assets of the Fund and Prime Bond Fund; 0.50% of the next $250
million; 0.45% of the next $250 million; and 0.40% of the combined average
daily net assets in excess of $750 million. The reduction of the advisory fee
applicable to the Fund is determined on a uniform percentage basis as
described in the Statement of Additional Information for the Funds.
Quality Equity Fund
The Fund seeks to attain the highest total investment return consistent with
prudent risk through a fully managed investment policy utilizing equity
securities, primarily common stocks of large-capitalization companies, as well
as investment grade debt and convertible securities. Management of the Fund
will shift the emphasis among investment alternatives for capital growth,
capital stability and income as market trends change. MLAM receives from the
Fund
14
<PAGE>
an advisory fee at the annual rate of 0.50% of the first $250 million of
average daily net assets; 0.45% of the next $50 million; 0.425% of the next
$100 million; and 0.40% of the average daily net assets in excess of $400
million.
Equity Growth Fund
The Fund seeks to attain long-term growth of capital by investing primarily in
common stocks of relatively small companies that management of the Fund
believes have special investment value and emerging growth companies
regardless of size. Such companies are selected by management on the basis of
their long-term potential for expanding their size and profitability or for
gaining increased market recognition for their securities. Current income is
not a factor in such selection. MLAM receives from the Fund an advisory fee at
the annual rate of 0.75% of the average daily net assets of the Fund. This is
a higher fee than that of many other mutual funds, but management of the Fund
believes it is justified by the high degree of care that must be given to the
initial selection and continuous supervision of the types of portfolio
securities in which the Fund invests.
Flexible Strategy Fund
The Fund's objective is to seek a high total investment return consistent with
prudent risk. The Fund seeks its objective through a flexible investment
policy using equity securities, intermediate and long-term debt obligations
and money market securities. MLAM receives from the Fund an advisory fee at
the annual rate of 0.65% of the average daily net assets of the Fund.
Natural Resources Focus Fund
The Fund seeks to attain long-term growth of capital and protection of the
purchasing power of capital by investing primarily in equity securities of
domestic and foreign companies with substantial natural resource assets. MLAM
receives from the Fund an advisory fee at the annual rate of 0.65% of the
average daily net assets of the Fund.
Merrill Lynch Life and Merrill Lynch Life Variable Annuity Separate Account
reserve the right to suspend the sale of units of the Natural Resources
subaccount in response to conditions in the securities markets or otherwise.
American Balanced Fund
The Fund 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 is
normally available from an investment solely in debt securities by investing
in a balanced portfolio of fixed income and equity securities. MLAM receives
from the Fund an advisory fee at the annual rate of 0.55% of the average daily
net assets of the Fund.
Reinvestment
Fund distributions to the Variable Account are automatically reinvested in
additional Fund shares at net asset value.
Substitution of Investments
Merrill Lynch Life may at its discretion substitute a different mutual fund
for any of the Funds shown on the Schedule page. Substitution may be made with
respect to both existing investments and the investment of future premiums.
However, no such substitution will be made without any necessary approval of
the Securities and Exchange Commission and applicable state insurance
departments. Contract owners will be notified of any substitutions. Merrill
Lynch Life may also add other Funds as eligible investments of the Variable
Account.
15
<PAGE>
CHARGES AND DEDUCTIONS
Contingent Deferred Sales Charge
Merrill Lynch Life does not make any deductions from premiums paid at the time
of purchase. The contingent deferred sales charge, when applicable, permits
Merrill Lynch Life to recover a portion of the expenses relating to the sale
of the Contract, including commissions, preparation of sales literature and
other promotional activity.
The contingent deferred sales charge is imposed at withdrawal of all or part
of the contract value. It will be the lesser of (a) 5% of the sum of the
premiums paid within 7 years prior to the date of withdrawal, adjusted for any
prior withdrawals, or (b) 5% of the amount withdrawn. The cumulative sum of
all contingent deferred sales charges made within 7 years prior to the date of
withdrawal will never be more than 5% of the sum of all premiums paid during
the same period. No charge will be made for such part of the first withdrawal
in a contract year as does not exceed 10% of the sum of premiums paid prior to
the date of withdrawal. Withdrawals will be deemed made first from premiums on
a first-in, first-out basis and then from any gain. Under no circumstances
will the cumulative sum of the contingent deferred sales charges ever exceed
5% of total premiums. No charge will be imposed on any payment made due to
death of the annuitant or contract owner. (See Payment on Death on page 19.)
The contingent deferred sales charge may be reduced when sales of Contracts
are made to a trustee, employer or similar party pursuant to a retirement plan
or similar arrangement for sales of Contracts to a group of individuals if
such program results in a savings of sales expenses. The amount of reduction
will depend on such factors as the size of the group, the total amount of
premiums and other relevant factors that might tend to reduce expenses
incurred in connection with such sales. This reduction will not be unfairly
discriminatory to any contract owner. (See Accumulation Units on page 18 for a
discussion of the effect the deduction of this charge may have on the number
of accumulation units credited to the Contract.)
Merrill Lynch Life's sales expenses relating to all Contracts will initially
be provided for out of Merrill Lynch Life's surplus. Any contingent deferred
sales charge imposed at withdrawal from a Contract is expected to recover only
a portion of the sales expenses relating to that Contract. Other sales
expenses will be recovered through the distribution expense charge described
below. Sales expenses not recovered through the contingent deferred sales
charge and the distribution expense charge will be recovered from profits
derived primarily from the mortality risk charge and expense risk charge
described below.
Contract Administration Charge
Merrill Lynch Life imposes a contract administration charge of $30 per
contract year for administration of the Contracts. It is deducted from the
contract value on each contract anniversary on or prior to the annuity date
and at full withdrawal if made other than on a contract anniversary. Such
administration includes issuing Contracts, maintenance of contract owner
records, accounting, valuation, regulatory compliance and reporting. Even
though Merrill Lynch Life's expenses may increase, the amount of the charge
will not change. (See Accumulation Units on page 18 for a discussion of the
effect the deduction of this charge may have on the number of accumulation
units credited to the Contract.) The charge is designed only to reimburse
Merrill Lynch Life for such expenses on a cumulative basis.
Waiver of Charges
When permitted by the laws of the state in which the Contract is issued, the
contingent deferred sales charge and the contract administration charge will
be waived under a Contract issued by a trustee, employer or similar party
pursuant to a retirement plan or similar arrangement for the benefit of a
group of individuals where the initial premium is in the amount of $500,000 or
more. As a condition to the waiver, the contract owner must agree to a
Contract endorsement prohibiting the allocation of premiums and the transfer
of contract values to the Fixed Account.
Expense Risk Charge
Merrill Lynch Life guarantees that the contract administration charge will not
increase, regardless of its actual expenses. To compensate for assuming this
expense risk, Merrill Lynch Life deducts an expense risk charge from the
Variable Account.
16
<PAGE>
The charge is computed and deducted on a daily basis from each subaccount. For
nonqualified Contracts, on an annual basis it equals 0.5% of the daily net
asset value of the Variable Account. For qualified Contracts, the rate is 0.2%
of the daily net asset value of the Variable Account. If the expense risk
charge is insufficient to cover the actual cost of the expense risk, Merrill
Lynch Life will bear the loss. Conversely, if it is more than sufficient, the
excess will be part of Merrill Lynch Life's profit. The rate of the expense
risk charge will not change.
Mortality Risk Charge
Although variable annuity payments will vary according to the performance of
the investments selected by the contract owner, annuity payments will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. Merrill Lynch Life assumes this
mortality risk by virtue of annuity rates in the Contract that cannot be
changed. Merrill Lynch Life also guarantees a minimum payment on death of the
annuitant or contract owner prior to the annuity date. (See Payment on Death
on page 19.) As compensation for assuming these mortality risks, Merrill Lynch
Life deducts a mortality risk charge from the Variable Account.
It is computed and deducted on a daily basis from each subaccount, but on an
annual basis it equals 0.75% of the daily net asset value of the Variable
Account. If the amount is insufficient to cover the actual cost of the
mortality risk, Merrill Lynch Life bears the loss. Conversely, if the amount
proves more than sufficient, as anticipated, the excess will be part of
Merrill Lynch Life's profit. The amount of the mortality risk charge will not
change.
Distribution Expense Charge
Merrill Lynch Life anticipates that the cost of distributing the Contracts
will exceed the amounts it receives from deferred sales charges. Merrill Lynch
Life deducts a distribution expense charge from the Variable Account to
compensate for some of the distribution costs it incurs in connection with the
Contracts.
The distribution expense charge is computed and deducted on a daily basis from
each subaccount, but on an annual basis it equals 0.05% of the daily net asset
value of the Variable Account.
Payments of Charges and Deductions
The expense risk charge, the mortality risk charge and the distribution
expense charge will be computed and deducted from each subaccount of the
Variable Account for each day the Contract is in force. The contract
administration charge and the contingent deferred sales charge will be
deducted from the Fixed Account and from each subaccount of the Variable
Account in the ratio of each contract owner's interest in each to his or her
contract value.
Premium Taxes
Various jurisdictions impose a premium tax on annuity purchase payments
received by insurance companies. Other jurisdictions impose a premium tax on
the contract value on the annuity date. These taxes will be paid by Merrill
Lynch Life when due. The dollar amount of any premium tax will be deducted
from the contract value at the annuity date. (See Accumulation Units below for
a discussion of the effect the deduction of this charge may have on the number
of accumulation units credited to the Contract.) In those jurisdictions that
do not allow an insurance company to reduce its current taxable premium income
by the amount of any withdrawal, surrender or death benefit paid, Merrill
Lynch Life will also deduct a charge for these taxes on any withdrawal,
surrender or death benefit effected under the Contract. Premium taxes
currently range from 0% to 5%.
Premium tax rates are subject to change by law, administrative interpretations
or court decisions. Premium tax amounts will depend on, among other things,
the contract owner's state of residence, Merrill Lynch Life's status within
that state and the premium tax laws of that state.
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DESCRIPTION OF THE CONTRACT
Premiums
The minimum initial premium for nonqualified Contracts is $1,500. For
qualified Contracts it is $10. The minimum subsequent premium for nonqualified
Contracts is $300 ($50 in Tennessee) and for qualified Contracts it is the
same as for the initial premium. Subsequent premiums may be paid at any time
without prior notice to Merrill Lynch Life. Merrill Lynch Life's consent for
subsequent premiums is required only for Tax-Sheltered Annuities where there
has been a prior withdrawal from the Contract. The Contract will not be in
default even if no subsequent premiums are paid.
Application for a Contract or acceptance of the first premium is subject to
Merrill Lynch Life's underwriting rules for such transactions. Merrill Lynch
Life reserves the right to reject any application. A properly completed
application that is accompanied by the first premium and all information
necessary for the processing of the application will normally be accepted
within 2 business days. If an application is not completed properly and
therefore, cannot be processed, and necessary information is not obtained
within 5 business days, Merrill Lynch Life will offer to return the premium.
Accumulation Provisions
Accumulation Units
Premiums are allocated to the subaccounts in accordance with the contract
owner's selection, except during the first 14 days following the date of issue
of the Contract when premiums directed to the Variable Account will be
allocated to the Reserve Assets Fund subaccount. (See discussion under
Eligible Funds on page 13.) At the end of the 14-day period, contract values
will be reallocated to each subaccount selected. In the Commonwealth of
Pennsylvania, all premiums will be invested as of the date of issue in the
subaccounts selected by the contract owner. Upon allocation, premiums are
converted into accumulation units for that subaccount. The number of
accumulation units is determined by dividing the amount allocated by the value
of an accumulation unit for the valuation period in which the premium is
received at Merrill Lynch Life's Service Center or, in the case of the first
premium, is accepted by Merrill Lynch Life. The number of accumulation units
will not change as a result of investment experience. However, accumulation
units will be canceled in connection with any withdrawal or transfer from a
subaccount, the assessment of all or a portion of the contract administration
charge, contingent deferred sales charge or premium taxes against the
subaccount, or upon the payment of a death benefit or commencement of annuity
payments.
Value of an Accumulation Unit
For each subaccount, the value of an accumulation unit was set at the value of
the corresponding unit of the Merrill Lynch Variable Annuity Account of FLIC
as of the date of the first transfer of assets and liabilities pursuant to the
assumption reinsurance agreement between FLIC and Merrill Lynch Life described
on page 13. The value of an accumulation unit may increase or decrease from
one valuation period to the next. The value for any valuation period is
determined by multiplying the value of an accumulation unit for the last prior
valuation period by the net investment factor for that subaccount for the
current valuation period.
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Net Investment Factor
The net investment factor is an index used to measure the investment
performance of a subaccount from one valuation period to the next. For any
subaccount, the net investment factor for a valuation period is determined by
dividing (a) by (b) and subtracting (c):
Where (a) is:
The net asset value per share of the Fund held in the subaccount, as
of the end of the valuation period;
Plus
The per-share amount of any dividend or capital gain distributions
by the Fund if the "ex-dividend" date occurs in the valuation
period.
Where (b) is:
The net asset value per share of the Fund held in the subaccount as
of the end of the last prior valuation period.
Where (c) is:
The sum of the daily expense risk charge, the daily mortality risk
charge and the daily distribution expense charge. (See Charges and
Deductions on page 16.) For nonqualified Contracts, on an annual
basis the amount of such charges equals 1.3% of the daily net asset
value of the Variable Account. For qualified Contracts, the amount
equals 1.0% of the daily net asset value of the Variable Account.
The net investment factor may be greater or less than one; therefore, the
value of an accumulation unit may increase or decrease. Merrill Lynch Life may
adjust the net investment factor to make provisions for any change in the law
that requires it to pay tax on capital gains in the Variable Account. (See
Federal Income Taxes on page 24.)
Valuation Periods
A valuation period is the interval from one valuation day of a Fund to the
next valuation day, measured from the time each day the Fund is valued.
The Fixed Account
In addition to providing for the allocation of premiums to the subaccounts of
the Variable Account, the Contract also provides for allocation of premiums
and transfer of contract values to the Fixed Account, which accumulate at a
guaranteed interest rate and become part of Merrill Lynch Life's general
account. The interests of contract owners arising from the allocation of
premiums or the transfer of contract values to the Fixed Account are not
registered under the Securities Act of 1933. Merrill Lynch Life's general
account is not registered as an investment company under the Investment
Company Act of 1940. Accordingly, the Fixed Account contract values are not
subject to the provisions that would apply if registration under such acts
were required.
Merrill Lynch Life has been advised that the staff of the Securities and
Exchange Commission has not reviewed the disclosures in this Prospectus that
relate to the Fixed Account. Disclosures regarding the Fixed Account and the
general account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in the Prospectus.
Payment on Death
If either the annuitant or the contract owner dies prior to the annuity date,
Merrill Lynch Life will pay to the beneficiary, upon receipt of due proof of
death, the greater of (a) the sum of all premiums (adjusted for any
withdrawals) or (b) the contract value for the valuation period in which such
proof is received at Merrill Lynch Life's Service Center.
An annuitant's beneficiary may choose a lump sum or payment under any of the
annuity options of the Contract. A contract owner's beneficiary may receive
payment only as follows:
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A surviving spouse of a deceased contract owner may choose a lump sum or
payment under any of the annuity options of the Contract. If the surviving
spouse of the deceased contract owner is both the contract owner's beneficiary
and a contingent owner (if a contingent owner has been named), he or she may
choose to continue the Contract in force after the contract owner's death. A
contract owner's beneficiary who is not the surviving spouse of the deceased
contract owner may choose (a) a lump sum, which must be paid within five years
of the contract owner's death, (b) a life annuity option without guaranteed
payments, or (c) a life annuity option with guaranteed payments or a fixed
period annuity option where the period required for full distribution of the
payments guaranteed does not exceed the life expectancy of the contract
owner's beneficiary. Payment under (b) or (c), above, must start within one
year of the contract owner's death.
If all or part of a lump sum payment to a contract owner's beneficiary or
annuitant's beneficiary is used within 30 days as the premium for a new
Contract issued to the beneficiary, then the new Contract will be deemed a
continuation of the old Contract in computing withdrawal charges under the new
Contract. For tax consequences of lump sum payment, see Taxation of Annuities
in General on page 24.
If either the annuitant or the contract owner dies after the annuity date, any
guaranteed amounts remaining unpaid will continue to be paid pursuant to the
annuity option in force at the date of death, unless the beneficiary chooses
to receive the present value of the remaining guaranteed payments in a lump
sum. (See Annuity Provisions onpage 21.)
Beneficiary
The beneficiary is named in the application. If the contract owner is not the
annuitant, there may be one beneficiary to receive payment on the annuitant's
death and a different beneficiary to receive payment on the contract owner's
death. Unless the beneficiary has been irrevocably designated, the beneficiary
may be changed during the lifetime of the annuitant or contract owner, as the
case may be. The estate or heirs of a beneficiary who dies before payment is
due have no rights under the Contract. If no beneficiary survives when payment
is due, payment will be made to the contract owner or to the contract owner's
estate.
Ownership
The contract owner is the person entitled to exercise all rights under the
Contract. The annuitant is the contract owner unless otherwise designated in
the application or by endorsement. Only a contract owner who is not also the
annuitant may designate a contingent owner; however, a contract owner who is
also the annuitant may name his or her spouse as a contingent owner. A
contingent owner is the person who is to become contract owner at the death of
the prior contract owner if the Contract continues in force after the death of
the prior contract owner. Ownership of the Contract may be transferred to a
new contract owner. Such a transfer of ownership cancels any designation of
contingent owner, but does not affect a designation of beneficiary. If the
Contract is issued pursuant to a qualified plan, it may not be assigned,
pledged or transferred, unless permitted by law. A collateral assignment does
not change contract ownership. The rights of a collateral assignee have
priority over the rights of a beneficiary. Contract owners should consult a
competent tax advisor before making any such designations, transfers or
assignments.
Account Transfers
The contract owner may transfer all or part of the contract value among the
Fixed Account and the subaccounts of the Variable Account, subject to the
following restrictions. No transfer may be made from one subaccount of the
Variable Account to another within 30 days of the date of issue or within 30
days of a prior transfer. A transfer from the Fixed Account to any subaccount
of the Variable Account may not be made within six months of the date of issue
or within six months of the date of any prior transfer to the Fixed Account
except for one transfer from the Fixed Account to one or more subaccounts of
the Variable Account in January of each year. Transfers from the Variable
Account to the Fixed Account must be at least 30 days apart. No transfers may
be made between the Fixed Account and the Variable Account after the annuity
date.
For Contracts issued prior to April 30, 1986 and reinsured by Merrill Lynch
Life, see the Appendix on page 30 for special provisions. Contract owners may
make transfer requests in writing or by telephone, once Merrill Lynch Life
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receives proper telephone transfer authorization. Transfer requests may also
be made through a Merrill Lynch Life Financial Consultant once Merrill Lynch
Life receives proper authorization. Transfer will take effect as of the end of
the valuation period in which the request is received at Merrill Lynch Life's
Service Center.
Withdrawals
The contract owner may withdraw all or part of the contract value, less any
charges. Election to withdraw must be in writing. For full withdrawal, the
election must be accompanied by the Contract. The election must be received by
Merrill Lynch Life prior to the earlier of the annuity date or the death of
the annuitant. Under certain qualified plans, the consent of the contract
owner's spouse may be required.
On receipt of such an election, Merrill Lynch Life will cancel the number of
accumulation units necessary to equal the dollar amount of the withdrawal plus
any applicable contingent deferred sales charge or contract administration
charge. (See Charges and Deductions on page 16.) Unless otherwise requested,
partial withdrawals will be deducted from the Fixed Account and subaccounts of
the Variable Account in which the contract owner has an interest in the ratio
of his or her interest therein to the total contract value. Withdrawals and
related charges will be based on values for the valuation period in which the
election (and the Contract, if required) are received at Merrill Lynch Life's
Service Center. A partial withdrawal must be at least $500, and the remaining
contract value must be at least $500; otherwise, the partial withdrawal will
not be permitted. Payment of withdrawals may be deferred (see Suspension of
Payments below and Federal Income Taxes on page 24), and withdrawals under
Tax-Sheltered Annuities are restricted (see Tax-Sheltered Annuities on page
26). Withdrawals will decrease the contract value. Withdrawals may be taxable
and subject to a 10% penalty tax. (See Taxation of Annuities in General on
page 24.)
Suspension of Payments
Payment of withdrawals will normally be made within 7 days. However, Merrill
Lynch Life reserves the right to defer any withdrawal payment or transfer of
values if (a) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); (b) trading on the Exchange is restricted by
the Securities and Exchange Commission; (c) the Securities and Exchange
Commission declares that an emergency exists such that it is not reasonably
practical to dispose of securities held in the Separate Account or to
determine the value of its assets; or (d) the Securities and Exchange
Commission by order so permits for the protection of security holders.
Annuity Provisions
Variable Annuity
A variable annuity is an annuity with payments that are not predetermined as
to dollar amount. Payments will vary according to the investment results of
the applicable subaccount. Annuity payments will be made to the contract owner
unless he or she specifies otherwise in writing. The contract owner may or may
not be the annuitant. The choice is made by the contract owner in the
application.
Selection of Annuity Date and Annuity Options
The contract owner may select the annuity date and an annuity option in the
application. If the contract owner does not do so, the annuity date will be
the first day of the next month after the annuitant's 75th birthday and the
annuity option will be a life annuity with a 10 year guarantee. The annuity
date must be the first day of a calendar month. It may not be later than the
first day of the next month after the annuitant's 85th birthday. (For
qualified Contracts, the annuity date may not be later than April 1 of the
calendar year after the calendar year in which the annuitant attains age 70.)
Change of Annuity Date or Annuity Option
The contract owner may change the annuity date or the annuity option on
written notice received at Merrill Lynch Life's Service Center at least 30
days prior to the current annuity date.
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Annuity Options
The contract owner may select any one of the following variable annuity
options or any other option satisfactory to the contract owner and Merrill
Lynch Life.
. Payments for a Fixed Period -- Payments will be made for the period
chosen. The period must be at least 5 years. With respect to the Variable
Account only, this option is not available until 3 years after the last
premium payment is made for this Contract, and the contract owner may at
any time choose to receive in a lump sum the present value of the
remaining payments commuted at 4% interest. Such lump sum payment will be
considered a withdrawal that may be subject to the contingent deferred
sales charge. (See Withdrawals on page 21.) The contingent deferred sales
charge does not apply to any other variable annuity option. The mortality
risk charge will continue to be deducted under this option, as other
options, even though under this option Merrill Lynch Life assumes no
mortality risk.
. *Life Annuity -- Payments will be made for the life of the annuitant.
Payments will cease with the last payment due prior to the annuitant's
death.
. *Joint and Survivor Life Annuity -- Payments will be made during the
lifetimes of the annuitant and a designated second person. Payments will
continue as long as either is living.
. Life Annuity with Payments Guaranteed for 10 or 20 Years -- Payments will
be made for the life of the annuitant. A guaranteed payment period of
either 10 or 20 years may be selected. If the annuitant dies during the
guaranteed period, the beneficiary may elect to receive in a lump sum the
present value of the remaining guaranteed payments computed at the
interest rate in effect when annuity payments began.
*These options are life annuities. It is possible under these options for a
payee to receive only one annuity payment if the annuitant (or the annuitant
and a designated second person) dies after the first payment, or to receive
only two annuity payments if the annuitant (or the annuitant and a designated
second person) dies after the second payment, and so on.
Minimum Annuity Payments
Annuity payments will be made monthly. But if any payment would be less than
$50 Merrill Lynch Life may change the frequency so payments are at least $50
each. If the net contract value to be applied at the annuity date is less than
$5,000 ($3,500 for qualified Contracts), Merrill Lynch Life may elect to pay
such amount in a lump sum. For tax consequences of a lump sum payment, see
Taxation of Annuities in General on page 24.
First Variable Annuity Payment
The dollar amount of the first monthly variable annuity payment will be
determined by applying the contract owner's interest in the Variable Account,
less any premium taxes, to the annuity table for the annuity option chosen.
The annuity tables are in the Contract. The tables are based on the 1983 Table
"a" for Individual Annuity Valuation with interest at 4% and the annuitant's
age set back one year.
Age Adjustment
The Contract contains a formula for adjusting the age of the annuitant based
on the annuity date for purposes of determining the dollar amount of the first
monthly annuity payment for each $1,000 applied under an annuity option. If
the annuity date is between the years 1990 and 1999, the annuitant's age is
reduced one year. For each decade thereafter, the annuitant's age is reduced
one additional year. The maximum age adjustment is five years.
An age adjustment results in a reduction in the monthly annuity payments that
would otherwise be made. It may be advantageous, therefore, for the contract
owner to designate an annuity date that immediately precedes the date on which
an age adjustment would occur under the Contract. For example, annuity payment
rates for an annuitant with an annuity date in the year 2000 will be the same
as those for the year 1999, even though the annuitant is one year older,
because the new decade results in the annuitant's age being reduced by an
additional year.
Number of Annuity Units
The number of Annuity Units for each applicable subaccount is the amount of
the first monthly annuity payment attributable to that subaccount divided by
the value of an annuity unit for that subaccount as of the annuity date. The
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amount of the first payment attributable to a subaccount is based on the ratio
of each contract owner's interest in that subaccount at the annuity date to
his or her interest in all subaccounts. The number will not change as a result
of investment experience.
Value of Each Annuity Unit
For each subaccount the value of an annuity unit was set at the value of the
corresponding unit of the Merrill Lynch Variable Annuity Account of FLIC as of
the date of the first transfer of assets and liabilities pursuant to the
assumption reinsurance agreement between FLIC and Merrill Lynch Life described
on page 13. The value may increase or decrease from one valuation period to
the next. For any valuation period, the value of an annuity unit for a
particular subaccount is the value of an annuity unit for that subaccount for
the last prior valuation period multiplied by the net investment factor for
that subaccount for the current valuation period. The result is then
multiplied by a factor to neutralize the assumed investment rate of 4% built
into the annuity tables.
Subsequent Variable Annuity Payments
Subsequent variable annuity payments will vary in amount according to the
investment performance of the applicable subaccounts within the Variable
Account. The amount of subsequent annuity payments, which may change from
month to month, is equal to the number of annuity units for each subaccount
chosen multiplied by the value of an annuity unit for such subaccount for the
valuation period in which payment is due. Merrill Lynch Life guarantees that
the amount of each subsequent annuity payment will not be affected by
variations in expenses or mortality experience.
Assumed Investment Rate
A 4% assumed investment rate is built into the annuity tables in the Contract.
A higher assumption would mean a higher first annuity payment but more slowly
rising and more rapidly falling subsequent payments. A lower assumption would
have the opposite effect. If the actual net investment rate is 4% annually,
annuity payments will be level.
Proof of Age, Sex and Survival
Merrill Lynch Life may require proof of age, sex or survival of any person
upon whose continuation of life annuity payments depend.
Notices and Elections
All notices and elections under the Contract must be in writing, signed by the
proper party and must be received at Merrill Lynch Life's Service Center to be
effective, except that account transfers may be made by telephone once Merrill
Lynch Life receives proper telephone transfer authorization. Merrill Lynch
Life is not responsible for their validity. If acceptable to Merrill Lynch
Life, notices or elections relating to beneficiaries and ownership will take
effect as of the date signed unless Merrill Lynch Life has already acted in
reliance on the prior status.
Amendment of Contract
At any time Merrill Lynch Life may amend the Contract as required to make it
conform with any law, regulation or ruling issued by any government agency to
which the Contract is subject.
Ten Day Right to Review
When the owner receives the Contract, it should be reviewed carefully to make
sure it is what the contract owner intended to purchase. Generally, within 10
days after the contract owner receives the Contract, it may be returned for a
refund. Some states allow a longer period of time to return the Contract. The
Contract must be delivered to Merrill Lynch Life's Service Center or to the
Financial Consultant who sold it for a refund to be made. Merrill Lynch Life
will then refund to the contract owner the greater of all premiums paid into
the Contract or the contract value as of the date the Contract is returned.
For Contracts issued in the Commonwealth of Pennsylvania, Merrill Lynch Life
will refund the contract owner's premiums allocated to the Fixed Account plus
the value of the contract owner's interest in the Variable Account as of the
date the Contract is returned. The Contract will then be deemed void.
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FEDERAL INCOME TAXES
Introduction
The Contracts are designed for use in connection with retirement plans that
may or may not be qualified plans under the provisions of the Internal Revenue
Code. The ultimate effect of federal income taxes on contract value, on
annuity payments and on the economic benefit to the contract owner, annuitant
or beneficiary depends on the type of retirement plan for which the Contract
is purchased, on whether the investments of the Variable Account meet Internal
Revenue Service diversification standards (discussed below) and on the tax and
employment status of the individual concerned. The following discussion is
general in nature and is not intended as tax advice. Each person concerned
should consult a competent tax advisor. This discussion is based on Merrill
Lynch Life's understanding of current federal income tax laws as currently
interpreted. No representation is made regarding the likelihood of
continuation of current federal income tax laws or of the current
interpretations by the Internal Revenue Service. MERRILL LYNCH LIFE DOES NOT
MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY CONTRACT OR ANY TRANSACTION
INVOLVING THE CONTRACTS.
Merrill Lynch Life's Tax Status
Merrill Lynch Life is taxed as a life insurance company under the Internal
Revenue Code. The Variable Account is not a separate entity, and for tax
purposes its operations are a part of Merrill Lynch Life's. Therefore, Merrill
Lynch Life will be liable for any taxes attributable to the Variable Account.
(See The Variable Account on page 12.)
Under existing federal income tax law, although investment income of the
Variable Account is includible in Merrill Lynch Life's gross income, no income
tax on such income is payable by Merrill Lynch Life. Merrill Lynch Life
reserves the right, however, to deduct from the Variable Account any such
taxes imposed in the future.
Taxation of Annuities in General
Section 72 of the Internal Revenue Code governs taxation of annuities in
general. With respect to contracts held by natural persons, no taxes are
imposed on increases in the value of a contract until distribution occurs,
either in the form of a withdrawal or as annuity payments under the annuity
option elected. Additionally, certain transfers of a Contract for less than
adequate consideration, such as a gift, will trigger tax on the excess of the
net contract value over the contract owner's investment in the Contract.
Nonqualified contracts held by other than a natural person are not treated as
annuities, and income is treated as ordinary income. This is not applicable to
trusts or other entities acting as an agent for a natural person.
In order to be treated as an annuity contract for federal income tax purposes,
Section 72(s) of the Code requires any nonqualified contract to provide that
(a) if any contract owner dies on or after the annuity commencement date but
prior to the time the entire interest in the Contract has been distributed,
the remaining portion of such interest will be distributed at least as rapidly
as under the method of distribution being used as of the date of that contract
owner's death; and (b) if any contract owner dies prior to the annuity
commencement date, the entire interest in the Contract will be distributed
within five years after the date of the contract owner's death. These
requirements will be considered satisfied as to any portion of the contract
owner's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such "designated
beneficiary" or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of that
owner's death. The contract owner's "designated beneficiary" (referred to
herein as the "Owner's Beneficiary") is the person designated by such contract
owner as a beneficiary and to whom ownership of the Contract passes by reason
of death and must be a natural person. However, if the contract owner's
"designated beneficiary" is the surviving spouse of the contract owner, the
Contract may be continued with the surviving spouse as the new owner.
The nonqualified contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. Merrill Lynch Life
intends to review such provisions and modify them if necessary to assure that
they comply with the requirements of Code Section 72(s) when clarified by
regulation or otherwise. Other rules may apply to qualified contracts.
The taxable portion of annuity payments is generally determined by a formula
that establishes the ratio that the cost basis of the contract bears to the
expected return under the contract. After such time as the sum of the
nontaxable
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portion of annuity payments received equals the sum of premium payments
(adjusted for any withdrawals or outstanding loans), all subsequent annuity
payments are fully taxable as ordinary income. All nonqualified annuity
contracts entered into after October 21, 1988 that are issued by Merrill Lynch
Life (or its affiliates) to the same owner during any calendar year are
treated as one annuity contract for purposes of determining the amount
includable in gross income under Section 72(e) of the Internal Revenue Code.
In addition, the Treasury Department has specific authority to issue
regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. Congress has also indicated that
the Treasury Department may have authority to treat the combination purchase
of an immediate annuity contract and a separate deferred annuity contract as a
single annuity contract under its general authority to prescribe rules as may
be necessary to enforce the income tax laws.
With respect to nonqualified plans, partial withdrawals of contract value are
treated as taxable income to the extent that the contract value just before
the withdrawal exceeds the investment in the contract. The assignment or
pledge (or agreement to assign or pledge) of any portion of the value of the
Contract shall be treated as a withdrawal subject to this rule. Full
withdrawals are treated as taxable income to the extent that the net contract
value withdrawn exceeds the investment in the contract.
A penalty tax is imposed equal to 10% of the taxable income portion of a
withdrawal. The penalty tax applies to both nonqualified and qualified
contracts, with different exceptions for each. The exceptions applicable to
both nonqualified and qualified contracts include (a) distributions made at or
after the contract owner's age 59 1/2, (b) distributions made on or after the
contract owner's death, (c) distributions attributable to the contract owner's
disability, and (d) substantially equal periodic payments for the contract
owner's life or life expectancy (or joint life or joint life expectancy of the
contract owner and a second person). There is an additional exception for
distributions under an immediate annuity contract applicable to nonqualified
contracts and Section 457 plans. Finally, there is an exception unique to
qualified contracts (not applicable to Individual Retirement Annuities and
Accounts) for distributions made to an employee after separation from service
after age 55. (For the tax treatment of any premiums paid prior to August 14,
1982, consult a tax advisor.)
For both withdrawals and annuity payments under some types of qualified plans,
there may be no cost basis in the contract within the meaning of Section 72 of
the Internal Revenue Code, and the total amount received may be taxable.
Contract owners, annuitants and beneficiaries should seek competent financial
advice about the tax consequences of distributions under the retirement plan
in connection with which the Contracts are purchased.
Internal Revenue Service Diversification Standards
On March 2, 1989, the Internal Revenue Service published final regulations
prescribing diversification standards to be met by nonqualified variable
annuity contracts as a condition to being taxed as annuities under Section 72
of the Internal Revenue Code. The standards provide that investments of a
subaccount of the Variable Account are adequately diversified if no more than
(a) 55% of the value of its assets is represented by any one investment, (b)
70% is represented by any two investments, (c) 80% is represented by any three
investments, and (d) 90% is represented by any four investments.
It is Merrill Lynch Life's opinion that each subaccount of the Variable
Account will meet the diversification standards imposed by the Internal
Revenue Service, and that, therefore, nonqualified contracts will be taxed as
annuities under Section 72 of the Internal Revenue Code.
The Treasury Department has announced that the diversification regulations do
not provide guidance concerning the extent to which contract owners may direct
their investments to particular subaccounts of a separate account. Such
guidance will be included in regulations or Revenue Rulings under Section
817(d) of the Internal Revenue Code relating to the definition of a variable
contract. It is unknown what standards will be adopted in such regulations.
Merrill Lynch Life, however, believes that according to current law the
Contract will be treated as an annuity for federal income tax purposes and
that the Company, not the contract owner, will be treated as the owner of the
contract investments.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it determined that the owners were not owners of separate
account assets. For example, the owner of the Contract has additional
flexibility in allocating premium payments and account values.
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These differences could result in the owner being treated as the owner of the
assets of the Variable Account. Merrill Lynch Life reserves the right to
modify the Contract as necessary to prevent the contract owner from being
considered the owner of the assets of the Variable Account for federal tax
purposes. Any such changes will apply uniformly to affected contract owners
and will be made with such notice to affected contract owners as is feasible
under the circumstances.
Qualified Plans
The Contracts are designed for use with several types of qualified plans. The
tax rules applicable to participants in such qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Therefore,
no attempt is made to provide more than general information about the use of
the Contracts with the various types of qualified plans. Contract owners,
annuitants and beneficiaries are cautioned that the rights of any person to
any benefits under such qualified plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract. Following are brief descriptions of the various types of
qualified plans in connection with which Merrill Lynch Life will issue a
Contract. When issued in connection with qualified plans, a Contract will be
amended as necessary to conform to the requirements of such plans.
H.R. 10 Plans
The Self-Employed Individuals' Tax Retirement Act of 1962, as amended,
commonly referred to as "H.R. 10," permits self-employed individuals to
establish qualified plans, sometimes referred to as "Keogh Plans," for
themselves and their employees. These plans are limited by law as to maximum
permissible contributions, distribution dates, nonforfeitability of interest
and tax rates applicable to distributions. In order to establish such a plan,
a plan document, usually in prototype form preapproved by the Internal Revenue
Service, is adopted and implemented by or for the self-employed person.
Purchasers of Contracts for use with H.R. 10 Plans should seek competent
advice as to the suitability of the proposed plan documents and of the
Contract to their specific needs.
Individual Retirement Annuities and Individual Retirement Accounts
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to an individual retirement program known as an Individual
Retirement Annuity or Individual Retirement Account (each hereafter referred
to as "IRA"). IRAs are subject to limits on the amount that may be
contributed, the contributions that may be deducted from taxable income, the
persons who may be eligible and on the time when distributions may commence.
Also, distributions from certain other types of qualified plans may be "rolled
over" on a tax-deferred basis into an IRA. Sales of the Contract for use with
IRAs may be subject to special disclosure requirements of the Internal Revenue
Service. Purchasers of the Contract for use with IRAs will be provided with
supplemental information required by the Internal Revenue Service or other
appropriate agency. Such purchasers will have the right to revoke the Contract
within 7 days of the earlier of the establishment of the IRA or the purchase
of the Contract. Purchasers should seek competent advice as to the suitability
of the Contract for use with IRAs.
Corporate Pension and Profit Sharing Plans
Sections 401(a) and 403(a) of the Internal Revenue Code permit corporate
employers to establish various types of retirement plans for employees. Such
retirement plans may permit the purchase of the Contracts in order to provide
benefits under the plans. Corporate employers intending to use the Contracts
in connection with such plans should seek competent advice. These plans are
limited by law as to maximum permissible contributions, distribution dates,
nonforfeitability of interest and tax rates applicable to distributions.
Tax-Sheltered Annuities
Section 403(b) of the Internal Revenue Code permits public school employees
and employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Code to purchase annuity
contracts and, subject to certain limitations, exclude the amount of premiums
from gross income for tax purposes. These annuity contracts are commonly
referred to as "Tax-Sheltered Annuities." Premiums excluded from gross income
will be subject to FICA taxes. Purchasers using the Contracts as a
Tax-Sheltered Annuity should seek competent advice as to eligibility,
limitations on permissible amounts or premiums, and restrictions and tax
consequences on distribution. The restrictions on distributions include a
PROHIBITION AGAINST DISTRIBUTIONS FROM THE CONTRACT ATTRIBUTABLE TO
CONTRIBUTIONS MADE PURSUANT TO A SALARY REDUCTION AGREEMENT, unless made:
26
<PAGE>
(a) After the contract owner attains age 59 1/2;
(b) Upon separation from service;
(c) Upon death or disability, or
(d) For an amount not greater than the total of such contributions in the case
of hardship.
The above restrictions apply to distributions of employee contributions made
after December 31, 1988, earnings on those contributions, and earnings on
amounts attributable to employee contributions that are held as of December
31, 1988. They do not apply to distributions of any employer or other
after-tax contributions, employee contributions made on or before December 31,
1988, and earnings credited to employee contributions before December 31,
1988.
Section 457 Deferred Compensation ("Section 457") Plans
Under Section 457 of the Internal Revenue Code, employees and independent
contractors who perform services for tax-exempt employers may participate in a
Section 457 plan of their employer allowing them to defer part of their salary
or other compensation. The amount deferred and any income on such amount will
not be taxable until paid or otherwise made available to the employee.
The maximum amount that can be deferred under a Section 457 plan in any tax
year is ordinarily one-third of the employee's includible compensation, up to
$7,500. Includible compensation means earnings for services rendered to the
employer which is includible in the employee's gross income, but excluding any
contributions under the Section 457 plan or a Tax-Sheltered Annuity. During
the last three years before an individual attains normal retirement age
additional "catch-up" deferrals are permitted.
The deferred amounts will be used by the employer to purchase the Contracts.
The Contracts will be owned by the employer and will be subject to the claims
of the employer's creditors. The employee has no rights or vested interest in
the Contract and is only entitled to payment in accordance with the Section
457 plan provisions. Present federal income tax law does not allow tax-free
transfers or rollovers for amounts accumulated in a Section 457 plan except
for transfers to other Section 457 plans in certain limited cases.
Withholding
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. As of January 1, 1993, Merrill Lynch Life is generally required
to withhold on distributions under qualified contracts.
VARIABLE ACCOUNT VOTING RIGHTS
In accordance with its view of present applicable law, Merrill Lynch Life will
vote the shares of the Funds held in the Variable Account at any special
meetings of the shareholders of the Funds according to instructions received
from persons having a voting interest in the Variable Account. Merrill Lynch
Life will vote shares attributable to Contracts for which it has not received
instructions in the same proportion as it votes shares for which it has
received instructions. Shares not attributable to Contracts will also be voted
in the same proportion as shares in the respective subaccounts for which
instructions are received. If, however, the Investment Company Act of 1940
should be amended, or if the present interpretation thereof should change, and
as a result Merrill Lynch Life determines that it is permitted to vote the
shares of the Funds in its own right, Merrill Lynch Life may elect to do so.
The person having the voting interest under a Contract is the contract owner.
Prior to the annuity date, the number of shares of each Fund for which voting
instructions may be given by a contract owner is determined by dividing the
contract owner's interest in the applicable subaccount by the net asset value
per share of that Fund. After the annuity date, the number of shares of each
Fund for which voting instruction may be given is determined by dividing the
reserve for such Contract allocated to the applicable subaccount by the net
asset value per share of that Fund. The votes attributable to such a Contract
will decrease as the reserves underlying the Contract decrease.
The number of Fund shares for which voting instructions may be given will be
determined as of a date to be chosen by Merrill Lynch Life, not more than 90
days prior to the meeting of the Fund.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to the Funds in which he or she has an interest,
including proxy material and a form with which to give voting instructions.
27
<PAGE>
REPORTS TO CONTRACT OWNERS
Merrill Lynch Life will mail to each contract owner at his or her last address
on record at least annually prior to the annuity date a report containing such
information as may be required by any applicable law or regulation and a
statement showing the current number of accumulation units attributable to the
Contract, the value per accumulation unit, the value of his or her interest in
the Variable Account and the total contract value.
DISTRIBUTION OF CONTRACTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is the principal
underwriter of the Contract. It was organized in 1958 under the laws of the
state of Delaware and is registered as a broker-dealer under the Securities
Exchange Act of 1934. It is a member of the National Association of Securities
Dealers, Inc. ("NASD"). MLPF&S' principal business address is World Financial
Center, 250 Vesey Street, New York, New York 10281.
Contracts are sold by registered representatives (Financial Consultants) of
MLPF&S who are also licensed through various Merrill Lynch Life Agencies
("MLLA") as insurance agents for Merrill Lynch Life. Merrill Lynch Life has
entered into a distribution agreement with MLPF&S and a companion sales
agreement with MLLA through which agreements the Contracts are sold and the
Financial Consultants are compensated by MLLA and/or MLPF&S. The maximum
compensation paid to the Financial Consultant is 2.3% of each premium. In
addition, on the annuity date, the Financial Consultant will receive
additional compensation of no more than 1.4% of the contract value. Additional
annual compensation of no more than 0.10% of the contract value may also be
paid to the Financial Consultant.
The maximum commission Merrill Lynch Life will pay to MLLA to be used to pay
commissions to Financial Consultants is 5% of each premium.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Act of 1934 and are members of the NASD.
Registered representatives of these other broker-dealers may be compensated on
a different basis than MLPF&S registered representatives.
STATE REGULATION
Merrill Lynch Life is subject to the laws of the State of Arkansas and to the
regulations of the Arkansas Insurance Department. It is also subject to the
insurance laws and regulations of all jurisdictions in which it is licensed to
do business.
An annual statement in the prescribed form is filed with the insurance
departments of jurisdictions where Merrill Lynch Life does business disclosing
the Company's operations for the preceding year and its financial condition as
of the end of that year. Insurance department regulation includes periodic
examination to verify Contract liabilities and reserves and to determine
solvency and compliance with all insurance laws and regulations. Merrill Lynch
Life's books and accounts are subject to insurance department review at all
times. A full examination of Merrill Lynch Life's operations is conducted
periodically by the Arkansas Insurance Department and under the auspices of
the National Association of Insurance Commissioners.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or to
which the assets of the Variable Account are subject. Merrill Lynch Life and
MLPF&S are engaged in various kinds of routine litigation that, in the
Company's judgment, is not of material importance in relation to Merrill Lynch
Life's total assets. No such litigation relates to the Variable Account.
EXPERTS
The financial statements of Merrill Lynch Life and of the Variable Account
as of December 31, 1993 and 1992 and for each of the three years in the
period ended December 31, 1993 included in the Statement of Additional
Information have been audited by Deloitte & Touche, independent auditors, as
stated in their reports appearing therein, and have
28
<PAGE>
been so included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing. Deloitte &
Touche's principal business address is 1633 Broadway, New York, New
York 10019-6754.
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940 that relate to the Contract and its investment options. This Prospectus
does not contain all of the information in the registration statements as
permitted by Securities and Exchange Commission regulations. The omitted
information can be obtained from the Securities and Exchange Commission's
principal office in Washington, D.C., upon payment of a prescribed fee.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contract, and the
validity of the form of the Contract have been passed upon by Barry G.
Skolnick, Merrill Lynch Life's Senior Vice President and General Counsel.
Jones & Blouch of Washington, D.C. has provided advice on certain matters
relating to federal securities laws.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
Principal Underwriter
Financial Statements
Administrative Services Arrangements
Financial Statements of Merrill Lynch Life Variable Annuity
Separate Account
Financial Statements of Merrill Lynch Life Insurance Company
29
<PAGE>
APPENDIX
APPLICABLE ONLY TO CONTRACTS ISSUED PRIOR TO APRIL 30, 1986
If the contract owner's Contract was issued prior to April 30, 1986 and
assumption reinsured by Merrill Lynch Life ("old Contract"), the contract
owner may transfer all of the contract value at net asset value to a new
Contract described in this Prospectus. No contingent deferred sales charge
will be imposed on such transfer, and the new Contract will be deemed a
continuation of the old Contract in computing withdrawal charges under the new
Contract.
Contracts issued prior to April 30, 1986, contain variable contract charges
identical in aggregate amount to the charges contained in the new Contracts,
except that the contingent deferred sales charge applies with respect to the
old Contracts to withdrawals of any amount during the first contract year. The
new Contracts provide that the contingent deferred sales charge does not apply
to a withdrawal up to 10% of the sum of premiums paid during the first
contract year. After the first contract year, both the old and new Contracts
permit withdrawals, without charge, of up to 10% of the sum of premiums paid
prior to the date of withdrawal.
In all other respects, both old and new Contracts are substantially similar,
except as follows:
1. The old Contracts do not provide for a Fixed Account (see The Fixed Account
on page 19).
2. The old Contracts do not provide for an annuity option of payments for a
fixed period (see Annuity Options on page 22).
3. The old Contracts contain different annuity tables for use in determining
the amount of the first variable annuity payment under the annuity options
offered. The annuity tables in the old Contracts are more favorable to
contract owners than the new Contracts' annuity tables and do not provide for
an age adjustment based on the year in which annuity payments commence. The
annuity tables for both new and old Contracts provide minimum guarantees.
4. Old Contracts, unlike new Contracts, permit a contract owner to transfer
all or part of his or her contract value to or from certain other fixed
annuity contracts issued or reinsured by Merrill Lynch Life to the contract
owner. Transfers must be at least $300, and for a partial transfer the
remaining contract value must be at least $100. All transfers must be at least
6 months apart and must be made prior to the death of the annuitant and at
least 30 days prior to the annuity date. The primary purpose of this transfer
provision is to provide the contract owner with a means for transfer in and
out of Merrill Lynch Life's companion fixed annuity, a feature unnecessary
with respect to the new Contracts, because of the existence of the Fixed
Account.
Any contract owner contemplating an exchange of Contracts should carefully
consider the potential adverse effect on the level of future annuity payments
that may result from an exchange to a new Contract.
30
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1994
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
FLEXIBLE PREMIUMS--NONPARTICIPATING
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
Home Office: Little Rock, Arkansas 72201
Service Center: P.O. Box 44222, Jacksonville, FL 32231-4222
4804 Deer Lake Drive East, Jacksonville, Florida 32246
Phone: (800) 535-5549
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Premiums for the Contract described in the Prospectus will be allocated to the
Merrill Lynch Life Variable Annuity Separate Account ("Variable Account"), a
segregated investment account of Merrill Lynch Life Insurance Company
("Merrill Lynch Life"), unless allocation to the Fixed Account is selected.
Premiums and contract values allocated to the Variable Account will be
invested in certain Funds selected by the contract owner of the Merrill Lynch
Variable Series Funds, Inc., except that, for the first 14 days following the
date of issue, such premiums will be allocated to the Reserve Assets Fund
Subaccounts. In the Commonwealth of Pennsylvania, all premiums will be
invested as of the date of issue in the subaccounts selected by the contract
owner. The contract owner bears the full investment risk with respect to such
investments.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Variable Account, dated May 1,
1994. The Prospectus may be obtained without charge by writing to or calling
Merrill Lynch Life's Service Center at the address or phone number set forth
above.
<PAGE>
TABLE OF CONTENTS
Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Administrative Services Arrangements. . . . . . . . . . . . . . . . . . 2
Financial Statements of Merrill Lynch Life Variable Annuity
Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Statements of Merrill Lynch Life Insurance Company. . . . . . 27
PRINCIPAL UNDERWRITER
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of
Merrill Lynch Life performs all sales and distribution functions regarding the
Contracts and may be deemed the principal underwriter of Merrill Lynch Life
Variable Annuity Separate Account (the "Variable Account") under the
Investment Company Act of 1940. The offering of the Contracts relates to
Merrill Lynch Life's assumption reinsurance of the Contracts previously issued
by Family Life Insurance Company ("FLIC") and offers may also be made from
time to time to the general public. The offering of the interests under the
Contracts is continuous. For the years ended December 31, 1993 and 1992,
MLPF&S received in connection with the sale of the Contracts $1,109,944 and
$1,060,345, respectively.
FINANCIAL STATEMENTS
The financial statements of Merrill Lynch Life included in this Statement of
Additional Information should be distinguished from the financial statements
of the Variable Account and should be considered only as bearing upon the
ability of Merrill Lynch Life to meet any obligations it may have under the
Contract. Because the Variable Account succeeded to a majority of the assets
of Merrill Lynch Variable Annuity Account of FLIC in connection with Merrill
Lynch Life's assumption reinsurance of certain variable annuity contracts of
FLIC commencing on September 1, 1991, the financial statements of the Variable
Account include the financial operations of the FLIC separate account for
periods prior to September 1, 1991.
ADMINISTRATIVE SERVICES ARRANGEMENTS
Merrill Lynch Life has entered into a Service Agreement with its parent,
Merrill Lynch Insurance Group, Inc. ("MLIG") pursuant to which Merrill Lynch
Life can arrange for MLIG to provide directly or through affiliates certain
services. Pursuant to this agreement, Merrill Lynch Life has arranged for MLIG
to provide administrative services for the Variable Account and the Contracts,
and MLIG, in turn, has arranged for a subsidiary, Merrill Lynch Insurance
Group Services, Inc. ("MLIG Services"), to provide these services.
Compensation for these services, which will be paid by Merrill Lynch Life,
will be based on the charges and expenses incurred by MLIG Services, and will
reflect MLIG Services' actual costs. For the years ended December 31, 1993,
1992 and 1991, Merrill Lynch Life paid administrative services fees of $55.8
million, $63.3 million and $78.3 million, respectively.
2
<PAGE>
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statements of net assets of
Merrill Lynch Life Variable Annuity Separate Account (the
"Account") as of December 31, 1993 and 1992 and the related
statements of earnings and changes in net assets for the
periods presented. These financial statements are the
responsibility of the management of Merrill Lynch Life
Insurance Company. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included
confirmation of mutual fund securities owned at December 31,
1993, by correspondence with the funds' transfer agent. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Account
at December 31, 1993 and 1992 and the results of its
operations and the changes in its net assets for the periods
presented in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The supplemental schedules included herein are presented for
the purpose of additional analysis and are not a required
part of the basic financial statements. These schedules are
the responsibility of the Company's management. Such
schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects
when considered in relation to the basic financial
statements taken as a whole.
/S/Deloitte & Touche
January 27, 1994
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1993
===============================================================
<TABLE>
<CAPTION>
Market
ASSETS: Cost Shares Value
================ ============ ================
<S> <C> <C> <C>
Investments in Merrill Lynch Variable Series Funds, Inc.
(Note 1):
Reserve Assets Fund $ 15,187,969 15,187,969 $ 15,187,969
Prime Bond Fund 36,881,018 3,087,693 39,028,433
High Current Income Fund 13,461,565 1,202,724 14,504,846
Quality Equity Fund 49,651,963 1,994,890 57,891,702
Equity Growth Fund 11,056,750 624,481 13,089,122
Flexible Strategy Fund 50,888,196 3,649,128 59,079,383
American Balanced Fund 8,372,052 653,837 9,206,019
Natural Resources Focus Fund 1,588,355 144,000 1,558,078
---------------- ----------------
TOTAL ASSETS $ 187,087,868 209,545,552
================ ----------------
LIABILITIES:
Due to Merrill Lynch Life Insurance Company 54,567
----------------
TOTAL LIABILITIES 54,567
----------------
NET ASSETS $ 209,490,985
================
NET ASSETS:
Net Assets Allocable to Contracts in the Accumulation Period $ 208,733,356
Net Assets Allocable to Contracts in the Annuity Period 757,629
----------------
NET ASSETS $ 209,490,985
================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1992
======================================================================
<TABLE>
CAPTION>
Market
ASSETS: Cost Shares Value
================ ============ ================
<S> <C> <C> <C>
Investments in Merrill Lynch Variable Series Funds, Inc.
(Note 1):
Reserve Assets Fund $ 18,274,771 18,274,771 $ 18,274,771
Prime Bond Fund 31,930,906 2,755,495 33,176,166
High Current Income Fund 8,701,168 845,019 9,405,057
Quality Equity Fund 42,395,079 1,747,936 44,537,415
Equity Growth Fund 9,253,141 552,366 9,832,116
Flexible Strategy Fund 44,686,423 3,278,971 46,397,448
American Balanced Fund 6,598,845 543,865 6,988,662
American Balanced Fund - Seed Money 2,961,364 247,066 3,174,793
Natural Resources Focus Fund 829,686 81,506 802,014
Natural Resources Focus Fund - Seed Money 2,380,247 221,810 2,182,613
---------------- ----------------
TOTAL ASSETS $ 168,011,630 174,771,055
================ ----------------
LIABILITIES:
TOTAL LIABILITIES 0
----------------
NET ASSETS $ 174,771,055
================
NET ASSETS:
Net Assets Allocable to Contracts in the Accumulation Period $ 169,016,302
Net Assets Allocable to Contracts in the Annuity Period 397,347
Investment of Merrill Lynch Life Insurance Company 5,357,406
----------------
NET ASSETS $ 174,771,055
================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
====================================================================
<TABLE>
<CAPTION>
1993 1992 1991
================ ================ ================
<S> <C> <C> <C>
Reinvested Dividends $ 5,318,214 $ 10,584,016 $ 11,845,208
Net Gain (Loss):
Realized 4,859,345 970,938 367,543
Unrealized 15,714,056 (3,625,012) 24,211,270
---------------- ---------------- ----------------
Investment Earnings 25,891,615 7,929,942 36,424,021
Mortality and Expense Charges (Note 4) (2,301,495) (1,929,490) (2,110,141)
---------------- ---------------- ----------------
Net Earnings 23,590,120 6,000,452 34,313,880
Contract Owner Purchase Payments 2,973,525 20,724,258 24,218,534
Contract Owner Withdrawals (20,407,507) (23,225,753) (25,158,686)
Contract Owner Transfers 3,475,922 0 0
Benefit Payments on Annuitized Contracts (74,188) (39,394) (32,307)
Deferred Sales Charges (Note 4) (149,144) (165,504) (353,374)
Contract Administration Charges (Note 4) (61,495) (142,551) (184,543)
---------------- ---------------- ----------------
Increase in Net Assets 9,347,233 3,151,508 32,803,504
Net Assets Beginning Balance 174,771,055 169,678,540 181,182,032
Net Assets Transferred under Assumption
Reinsurance Agreement (Note 2) 31,281,996 2,161,081 (44,306,996)
Assets transferred to General Account (5,909,299) (220,074) 0
---------------- ---------------- ----------------
Net Assets Ending Balance $ 209,490,985 $ 174,771,055 $ 169,678,540
================ ================ ================
Comprised of:
Contracts in the Accumulation Period $ 208,733,356 $ 169,016,302 $ 163,948,356
Contracts in Annuity Period 757,629 397,347 344,621
Investment of Merrill Lynch Life Insurance Company (Note 5) 0 5,357,406 5,385,563
---------------- ---------------- ----------------
Net Assets $ 209,490,985 $ 174,771,055 $ 169,678,540
================ ================ ================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
===============================================================================
1. Merrill Lynch Life Variable Annuity Separate Account
("Account"), a separate account of Merrill Lynch Life
Insurance Company ("Merrill Lynch Life") was established by
a Board of Directors resolution on March 15, 1991 to support
Merrill Lynch Life's operations respecting certain variable
annuity 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"). On October 1, 1991, Tandem Insurance
Group, Inc. ("Tandem Insurance") an indirect wholly-owned
subsidiary of Merrill, was merged with and into Merrill
Lynch Life. References herein to Merrill Lynch Life apply
also to Tandem Insurance. This merger has been accounted for
as a combination of entities under common control. The
Account's financial statements are reported on a combined
historical basis of the Account and Tandem Insurance's
separate account.
The Account is a registered unit investment trust under the
Investment Company Act of 1940 and consists of eight
investment divisions. The investment divisions each invest
in the securities of a single mutual fund portfolio of the
Merrill Lynch Variable Series Funds, Inc. ("Series Funds").
The portfolios of the Series Funds have varying investment
objectives relative to growth of capital and income. The
Series Funds receives investment advice from Merrill Lynch
Asset Management, L.P. for a fee at an effective annual rate
ranging from 0.275% to 0.75% of net assets of the Series
Funds.
The assets of the Account are the property of Merrill Lynch
Life. The portion of the Account's assets applicable to the
Contracts are not chargeable with liabilities arising out of
any other business Merrill Lynch Life may conduct. There
are two sub-accounts for each investment division. One sub-
account is for Federal tax qualified Contracts and the other
is for non-qualified Contracts. No transfers may be made
between a qualified and a non-qualified sub-account.
The change in net assets maintained in the Account provides
the basis for the periodic determination of the amount of
increased or decreased benefits under the Contracts.
The net assets may not be less than the amount required
under Arkansas State Insurance Law to provide for death
benefits (without regard to the minimum death benefit
guarantee) and other Contract benefits.
2. As a result of an Assumption Reinsurance Agreement
between Family Life Insurance Company ("Family Life") and
Merrill Lynch Life, assets along with related contractual
liabilities of approximately $31,282,000, $2,161,000 and
$163,661,000 were transferred to the Account from Family
Life's Merrill Lynch Variable Annuity Account ("Family Life
Account") on various dates in 1993, 1992 and on September 1,
1991 respectively. On September 1, 1991 approximately
$44,307,000 of assets and Contract owners' liabilities were
not assumption reinsured by Merrill Lynch Life and remained
in the Family Life Account. This transaction has been
accounted for under the continuing entity basis of
accounting and, therefore, the results of operations of the
Family Life Account prior to September 1, 1991 are presented
as part of the financial statements of the Account. It is
Merrill Lynch Life's intention to assumption reinsure all
assets and Contract owner's liabilities that currently
remain in the Family Life Account wherever permitted by law.
<PAGE>
3. The significant accounting policies of the Account are
as follows:
Investments in the divisions are included in the statement
of net assets at the net asset values of the Series Fund
shares held.
Dividend income is recognized on the ex-dividend date. All
dividends are automatically reinvested.
Realized gains and losses on the sales of investments are
computed on the first in first out method.
The operations of the Account are included in the Federal
income tax return of Merrill Lynch Life. Under the
provisions of the Contracts, Merrill Lynch Life has the
right to charge the Account for any Federal 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 annuity 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.
4. A deferred sales charge is deducted in the event of
withdrawal of Contract value, subject to certain exceptions.
The deferred sales charge equals the lesser of (a) 5% of the
sum of purchase payments made within seven years prior to
the date of withdrawal, adjusted for any prior withdrawals,
or (b) 5% of the amount withdrawn. The charge is deducted
from the Contract value.
Merrill Lynch Life deducts a Contract Administration Charge
of $30 for each Contract on each Contract's anniversary on
or prior to the annuity date and upon full withdrawal if
made other than on a Contract anniversary. The Contract
Administration Charge is borne by Contract owners by
canceling accumulation units with a value equal to the
charge.
Merrill Lynch Life deducts a daily Expense Risk Charge. For
non-qualified Contracts, the charge is equal to an annual
rate of 0.5% of the sum of the daily net assets values of
all non-qualified sub-accounts. For qualified Contracts,
the rate is 0.2% of the sum of the daily net asset values of
all qualified sub-accounts. This charge is made to
compensate Merrill Lynch Life for the risk of guaranteeing
not to increase the Contract Administration Charge
regardless of actual administrative costs.
Merrill Lynch Life deducts a daily Distribution Expense
Charge equal to an annual rate of 0.05% of the daily net
asset value of the Account. This charge compensates Merrill
Lynch Life in part for expenses it incurs in distributing
the Contracts.
Merrill Lynch Life deducts a daily Mortality Risk Charge
equal to an annual rate of 0.75% of the daily net asset
value of the Account. This charge is made to compensate
Merrill Lynch Life for the mortality guarantees it makes
under the Contract.
Premium taxes payable to any government entity are deducted
at the annuitization date.
5. The net assets attributable to Merrill Lynch Life in the
Account arise from Merrill Lynch Life's investment in
certain investment divisions to facilitate the establishment
of those investment divisions and also includes that
retained portion, determined ratably, of the Account's
investment results applicable to those assets in the Account
in excess of the net assets for the Contracts. Such
investment results are not subject to charges for mortality
and expense risks. Excess amounts retained in the Account
may be transferred by Merrill Lynch Life to the general
account.
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
==================================================================
<TABLE>
<CAPTION>
Total
Total Non- Total
Separate qualified Qualified Total
Account Contracts Contracts Investment
================ ================ ================ =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 5,318,214 $ 3,197,042 $ 2,035,289 $ 85,883
Realized and Unrealized Gains - Net 20,573,401 11,883,804 8,223,587 466,010
---------------- ---------------- ---------------- -----------------
Investment Earnings 25,891,615 15,080,846 10,258,876 551,893
Mortality and Expense Charges (2,301,495) (1,514,457) (787,038) 0
---------------- ---------------- ---------------- -----------------
Net Earnings 23,590,120 13,566,389 9,471,838 551,893
Contract Owner Purchase Payments 2,973,525 350,750 2,622,775 0
Contract Owner Withdrawals (20,407,507) (11,061,764) (9,345,743) 0
Contract Owner Transfers 3,475,922 880,866 2,595,056 0
Benefit Payments on Annuitized Contracts (74,188) (48,373) (25,815) 0
Deferred Sales Charges (149,144) (71,052) (78,092) 0
Contract Administration Charges (61,495) (29,880) (31,615) 0
---------------- ---------------- ---------------- -----------------
Increase in Net Assets 9,347,233 3,586,936 5,208,404 551,893
Net Assets Beginning Balance 174,771,055 100,537,657 68,875,992 5,357,406
Net Assets Transferred under
Assumption Reinsurance Agreement 31,281,996 20,852,918 10,429,078 0
Assets Transferred to General Account (5,909,299) 0 0 (5,909,299)
---------------- ---------------- ---------------- -----------------
Net Assets Ending Balance $ 209,490,985 $ 124,977,511 $ 84,513,474 $ 0
================ ================ ================ =================
Comprised of:
Contracts in the Accumulation Period $ 208,733,356 $ 124,391,712 $ 84,341,644 $ 0
Contracts in Annuity Period 757,629 585,799 171,830 0
Investment of Merrill Lynch Life
Insurance Company 0 0 0 0
---------------- ---------------- ---------------- -----------------
Net Assets $ 209,490,985 $ 124,977,511 $ 84,513,474 $ 0
================ ================ ================ =================
</TABLE>
NOTE: A Qualified contract is a contract issued in connection with a retirement
plan that receives favorable tax treatment under section 401, 408, or
457 or any similar provision of the Internal Revenue Code. A
Nonqualified contract is a contract other than a Qualified contract.
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1992
================================================================
<TABLE>
<CAPTION>
Total
Total Non- Total
Separate qualified Qualified Total
Account Contracts Contracts Investment
================ ================ ================ =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 10,584,016 $ 6,129,257 $ 4,213,996 $ 240,763
Realized and Unrealized Losses - Net (2,654,074) (1,486,789) (1,118,439) (48,846)
---------------- ---------------- ---------------- -----------------
Investment Earnings 7,929,942 4,642,468 3,095,557 191,917
Mortality and Expense Charges (1,929,490) (1,269,234) (660,256) 0
---------------- ---------------- ---------------- -----------------
Net Earnings 6,000,452 3,373,234 2,435,301 191,917
Contract Owner Purchase Payments 20,724,258 10,614,209 10,110,049 0
Contract Owner Withdrawals (23,225,753) (10,415,704) (12,810,049) 0
Benefit Payments on Annuitized Contracts (39,394) (28,953) (10,441) 0
Deferred Sales Charges (165,504) (79,870) (85,634) 0
Contract Administration Charges (142,551) (73,486) (69,065) 0
---------------- ---------------- ---------------- -----------------
Increase in Net Assets 3,151,508 3,389,430 (429,839) 191,917
Net Assets Beginning Balance 169,678,540 96,636,660 67,656,317 5,385,563
Net Assets Transferred under
Assumption Reinsurance Agreement 2,161,081 511,567 1,649,514 0
Net assets transferred to General Account (220,074) 0 0 (220,074)
---------------- ---------------- ---------------- -----------------
Net Assets Ending Balance $ 174,771,055 $ 100,537,657 $ 68,875,992 $ 5,357,406
================ ================ ================ =================
Comprised of:
Contracts in the Accumulation Period $ 169,016,302 $ 100,262,233 $ 68,754,069 $ 0
Contracts in Annuity Period 397,347 275,424 121,923 0
Investment of Merrill Lynch Life
Insurance Company 5,357,406 0 0 5,357,406
---------------- ---------------- ---------------- -----------------
Total Net Assets $ 174,771,055 $ 100,537,657 $ 68,875,992 $ 5,357,406
================ ================ ================ =================
</TABLE>
NOTE: A Qualified contract is a contract issued in connection with a retirement
plan that receives favorable tax treatment under section 401, 408, or
457 or any similar provision of the Internal Revenue Code. A
Nonqualified contract is a contract other than a Qualified contract.
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1991
=======================================================================
<TABLE>
<CAPTION>
Total
Total Non- Total
Separate qualified Qualified Total
Account Contracts Contracts Investment
================ ================ ================ =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 11,845,208 $ 6,929,028 $ 4,703,017 $ 213,163
Realized and Unrealized Gains - Net 24,578,813 14,604,233 9,599,163 375,417
---------------- ---------------- ---------------- -----------------
Investments Earnings 36,424,021 21,533,261 14,302,180 588,580
Mortality and Expense Charges (2,110,141) (1,385,947) (724,194) 0
---------------- ---------------- ---------------- -----------------
Net Earnings 34,313,880 20,147,314 13,577,986 588,580
Contract Owner Purchase Payments 24,218,534 15,764,063 8,454,471 0
Contract Owner Withdrawals (25,158,686) (14,149,885) (11,008,801) 0
Benefit Payments on Annuitized Contracts (32,307) (21,826) (10,481) 0
Deferred Sales Charges (353,374) (201,562) (151,812) 0
Contract Administration Charges (184,543) (86,243) (98,300) 0
---------------- ---------------- ---------------- -----------------
Increase in Net Assets 32,803,504 21,451,861 10,763,063 588,580
Net Assets Beginning Balance 181,182,032 103,028,797 73,356,252 4,796,983
Net Assets Transferred under
Assumption Reinsurance Agreement (44,306,996) (27,843,998) (16,462,998) 0
---------------- ---------------- ---------------- -----------------
Net Assets Ending Balance $ 169,678,540 $ 96,636,660 $ 67,656,317 $ 5,385,563
================ ================ ================ =================
Comprised of:
Contracts in the Accumulation Period $ 163,948,356 $ 96,421,811 $ 67,526,545 $ 0
Contracts in Annuity Period 344,621 214,849 129,772 0
Investment of Merrill Lynch Life
Insurance Company 5,385,563 0 0 5,385,563
---------------- ---------------- ---------------- -----------------
Total Net Assets $ 169,678,540 $ 96,636,660 $ 67,656,317 $ 5,385,563
================ ================ ================ =================
</TABLE>
NOTE: A Qualified contract is a contract issued in connection with a retirement
plan that receives favorable tax treatment under section 401, 408, or
457 or any similar provision of the Internal Revenue Code. A
Nonqualified contract is a contract other than a Qualified contract.
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1993
=====================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
------------------------------------------
Total High
Non- Reserve Prime Current Quality
qualified Assets Bond Income Equity
Contracts Fund Fund Fund Fund
============== ============== ============== ============== ==============
<S> <C> <C> <C> <C> <C>
Reinvested Dividends $ 3,197,042 $ 278,305 $ 1,434,933 $ 739,681 $ 180,483
Realized and Unrealized Gains - Net 11,883,804 0 1,056,535 682,427 4,122,162
-------------- -------------- -------------- -------------- --------------
Investments Earnings 15,080,846 278,305 2,491,468 1,422,108 4,302,645
Mortality and Expense Charges (1,514,457) (132,417) (296,716) (116,592) (390,953)
-------------- -------------- -------------- -------------- ---------------
Net Earnings 13,566,389 145,888 2,194,752 1,305,516 3,911,692
Contract Owner Purchase Payments 350,750 218,225 56,517 115,251 212,486
Contract Owner Withdrawals (11,061,764) (1,274,447) (1,789,460) (550,201) (2,596,200)
Contract Owner Transfers 880,866 (2,753,305) (289,029) 509,764 1,394,475
Benefit Payments on Annuitized Contracts (48,373) (6,706) (2,799) (7,390) (17,168)
Deferred Sales Charges (71,052) (10,179) (15,687) (2,057) (10,566)
Contract Administration Charges (29,880) (3,690) (5,620) (1,955) (9,154)
-------------- -------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 3,586,936 (3,684,214) 148,674 1,368,928 2,885,565
Net Assets Beginning Balance 100,537,657 10,718,219 19,001,713 6,587,584 25,784,447
Net Assets Transferred under Assumption
Reinsurance Agreement 20,852,918 1,745,508 4,170,006 2,369,083 5,129,904
-------------- -------------- -------------- -------------- --------------
Net Assets Ending Balance $ 124,977,511 $ 8,779,513 $ 23,320,393 $ 10,325,595 $ 33,799,916
============== ============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 124,391,712 $ 8,720,111 $ 23,293,712 $ 10,247,690 $ 33,532,570
Contracts in the Annuity Period 585,799 59,402 26,681 77,905 267,346
-------------- -------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 124,977,511 $ 8,779,513 $ 23,320,393 $ 10,325,595 $ 33,799,916
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Reinvested Dividends $ 1,612 $ 384,732 $ 171,658 $ 5,638
Realized and Unrealized Gains - Net 1,204,981 4,288,695 491,943 37,061
-------------- -------------- -------------- --------------
Investments Earnings 1,206,593 4,673,427 663,601 42,699
Mortality and Expense Charges (91,641) (403,593) (69,913) (12,632)
-------------- -------------- -------------- --------------
Net Earnings 1,114,952 4,269,834 593,688 30,067
Contract Owner Purchase Payments 73,390 (327,257) 15,433 (13,295)
Contract Owner Withdrawals (1,113,788) (2,925,239) (737,383) (75,046)
Contract Owner Transfers 53,197 1,165,555 391,811 408,398
Benefit Payments on Annuitized Contracts (6,687) (7,623) 0 0
Deferred Sales Charges (6,483) (20,697) (4,114) (1,269)
Contract Administration Charges (2,132) (6,375) (1,065) 111
-------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 112,449 2,148,198 258,370 348,966
Net Assets Beginning Balance 6,325,321 26,969,688 4,632,576 518,109
Net Assets Transferred under Assumption
Reinsurance Agreement 1,527,215 4,790,704 888,805 231,693
-------------- -------------- -------------- --------------
Net Assets Ending Balance $ 7,964,985 $ 33,908,590 $ 5,779,751 $ 1,098,768
============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 7,903,823 $ 33,815,287 $ 5,779,751 $ 1,098,768
Contracts in the Annuity Period 61,162 93,303 0 0
-------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 7,964,985 $ 33,908,590 $ 5,779,751 $ 1,098,768
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1993
=========================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
------------------------------------------
High
Reserve Prime Current Quality
Assets Bond Income Equity
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1993 435,033 740,485 243,643 784,183
Accumulation Units Equivalent to Annuity Unit Allocable to
Contracts in Annuity Period at December 31, 1992 2,963 848 1,852 6,252
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1993 437,996 741,333 245,495 790,435
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1993 $ 20.04 $ 31.46 $ 42.06 $ 42.76
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1993 334,010 1,685,235 344,820 97,957
Accumulation Units Equivalent to Annuity Units Allocable to
Contracts in Annuity Period at December 31, 1993 2,585 4,650 0 0
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1993 336,595 1,689,885 344,820 97,957
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1993 $ 23.66 $ 20.07 $ 16.76 $ 11.22
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNTS
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1992
======================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
------------------------------------------
Total High
Non- Reserve Prime Current Quality
qualified Assets Bond Income Equity
Contracts Fund Fund Fund Fund
============== ============== ============== ============== ==============
<S> <C> <C> <C> <C> <C>
Reinvested Dividends $ 6,129,257 $ 418,425 $ 1,206,850 $ 606,564 $ 1,491,705
Realized and Unrealized Gains (Losses) - Net (1,486,789) 0 55,624 517,609 (862,629)
-------------- -------------- -------------- -------------- --------------
Investments Earnings (Losses) 4,642,468 418,425 1,262,474 1,124,173 629,076
Mortality and Expense Charges (1,269,234) (164,943) (230,383) (80,613) (321,796)
-------------- -------------- -------------- -------------- --------------
Net Earnings (Losses) 3,373,234 253,482 1,032,091 1,043,560 307,280
Contract Owner Purchase Payments 10,614,209 275,282 2,295,219 1,027,476 2,423,985
Contract Owner Withdrawals (10,415,704) (2,355,469) (1,227,912) (1,019,392) (3,127,504)
Contract Owner Transfers 0 (2,100,136) 194,881 1,677 841,515
Benefit Payments on Annuitized Contracts (28,953) (6,332) (2,248) (3,801) (7,574)
Deferred Sales Charges (79,870) (30,541) (9,446) (6,670) (15,732)
Contract Administration Charges (73,486) (8,971) (12,255) (4,826) (18,976)
-------------- -------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 3,389,430 (3,972,685) 2,270,330 1,038,024 402,994
Net Assets Beginning Balance 96,636,660 14,669,306 16,617,125 5,549,560 25,158,433
Net Assets Transferred under Assumption
Reinsurance Agreement 511,567 21,598 114,258 0 223,020
-------------- -------------- -------------- -------------- --------------
Net Assets Ending Balance $ 100,537,657 $ 10,718,219 $ 19,001,713 $ 6,587,584 $ 25,784,447
============== ============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 100,262,233 $ 10,653,293 $ 18,984,035 $ 6,552,079 $ 25,711,875
Contracts in the Annuity Period 275,424 64,926 17,678 35,505 72,572
-------------- -------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 100,537,657 $ 10,718,219 $ 19,001,713 $ 6,587,584 $ 25,784,447
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Reinvested Dividends $ 23,222 $ 2,178,846 $ 186,436 $ 17,209
Realized and Unrealized Gains (Losses) - Net (163,813) (1,097,938) 72,295 (7,937)
-------------- -------------- -------------- --------------
Investments Earnings (Losses) (140,591) 1,080,908 258,731 9,272
Mortality and Expense Charges (76,530) (333,223) (54,964) (6,782)
-------------- -------------- -------------- --------------
Net Earnings (Losses) (217,121) 747,685 203,767 2,490
Contract Owner Purchase Payments 1,413,093 1,997,882 1,046,505 134,767
Contract Owner Withdrawals (1,131,242) (1,400,247) (143,955) (9,983)
Contract Owner Transfers 692,472 28,737 330,461 10,393
Benefit Payments on Annuitized Contracts (4,749) (4,249) 0 0
Deferred Sales Charges (3,712) (13,069) (700) 0
Contract Administration Charges (5,001) (20,764) (2,356) (337)
-------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 743,740 1,335,975 1,433,722 137,330
Net Assets Beginning Balance 5,581,581 25,442,615 3,247,165 370,875
Net Assets Transferred under Assumption
Reinsurance Agreement 0 191,098 (48,311) 9,904
-------------- -------------- -------------- --------------
Net Assets Ending Balance $ 6,325,321 $ 26,969,688 $ 4,632,576 $ 518,109
============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 6,287,120 $ 26,923,146 $ 4,632,576 $ 518,109
Contracts in the Annuity Period 38,201 46,542 0 0
-------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 6,325,321 $ 26,969,688 $ 4,632,576 $ 518,109
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1992
=========================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
------------------------------------------
Reserve Prime Current Quality
Assets Bond Income Equity
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1992 539,134 667,278 181,247 680,029
Accumulation Units Equivalent to Annuity Units Allocable to
Contracts in Annuity Period at December 31, 1993 3,286 621 982 1,919
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1992 542,420 667,899 182,229 681,948
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1992 $ 19.76 $ 28.45 $ 36.15 $ 37.81
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<C> <C> <C> <C>
<S>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1992 308,949 1,534,082 309,664 50,351
Accumulation Units Equivalent to Annuity Units Allocable to
Contracts in Annuity Period at December 31, 1993 1,878 2,652 0 0
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1992 310,827 1,536,734 309,664 50,351
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1992 $ 20.35 $ 17.55 $ 14.96 $ 10.29
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNTS
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1991
========================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
-----------------------------------------
Total High
Non- Reserve Prime Current Quality
qualified Assets Bond Income Equity
Contracts Fund Fund Fund Fund
============== ============== ============== ============== ==============
<S> <C> <C> <C> <C> <C>
Reinvested Dividends $ 6,929,028 $ 1,172,888 $ 1,531,725 $ 754,617 $ 1,692,715
Realized and Unrealized Gains - Net 14,604,233 0 1,305,927 1,377,765 5,034,486
-------------- -------------- -------------- -------------- --------------
Investments Earnings 21,533,261 1,172,888 2,837,652 2,132,382 6,727,201
Mortality and Expense Charges (1,385,947) (264,857) (250,933) (76,869) (333,784)
-------------- -------------- -------------- -------------- --------------
Net Earnings 20,147,314 908,031 2,586,719 2,055,513 6,393,417
Contract Owner Purchase Payments 15,764,063 12,012,502 559,930 118,869 2,061,264
Contract Owner Withdrawals (14,149,885) (4,601,424) (2,092,619) (1,174,083) (2,399,728)
Contract Owner Transfers 0 (9,102,961) 3,017,552 (11,812) 3,608,328
Benefit Payments on Annuitized Contracts (21,826) (6,960) (2,298) (3,359) 0
Deferred Sales Charges (201,562) (77,110) (15,469) (10,592) (45,477)
Contract Administration Charges (86,243) (14,098) (14,724) (4,579) (21,121)
-------------- -------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 21,451,861 (882,020) 4,039,091 969,957 9,596,683
Net Assets Beginning Balance 103,028,797 20,934,437 18,779,473 5,734,464 23,041,864
Net Assets Transferred under Assumption
Reinsurance Agreement (27,843,998) (5,383,111) (6,201,439) (1,154,861) (7,480,114)
-------------- -------------- -------------- -------------- --------------
Net Assets Ending Balance $ 96,636,660 $ 14,669,306 $ 16,617,125 $ 5,549,560 $ 25,158,433
============== ============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 96,421,811 $ 14,599,791 $ 16,598,306 $ 5,516,529 $ 25,158,433
Contracts in Annuity Period 214,849 69,515 18,819 33,031 0
-------------- -------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 96,636,660 $ 14,669,306 $ 16,617,125 $ 5,549,560 $ 25,158,433
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Reinvested Dividends $ 6,090 $ 1,625,261 $ 131,707 $ 14,025
Realized and Unrealized Gains - Net 2,175,960 4,337,540 363,235 9,320
-------------- -------------- -------------- --------------
Investments Earnings 2,182,050 5,962,801 494,942 23,345
Mortality and Expense Charges (71,210) (347,157) (34,233) (6,904)
-------------- -------------- -------------- --------------
Net Earnings 2,110,840 5,615,644 460,709 16,441
Contract Owner Purchase Payments 189,402 451,607 361,580 8,909
Contract Owner Withdrawals (396,948) (3,179,584) (242,905) (62,594)
Contract Owner Transfers 784,380 1,015,293 799,305 (110,085)
Benefit Payments on Annuitized Contracts (4,874) (4,335) 0 0
Deferred Sales Charges (7,937) (42,188) (2,278) (511)
Contract Administration Charges (4,491) (25,044) (1,766) (420)
-------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 2,670,372 3,831,393 1,374,645 (148,260)
Net Assets Beginning Balance 4,373,962 27,404,560 2,083,264 676,773
Net Assets Transferred under Assumption
Reinsurance Agreement (1,462,753) (5,793,338) (210,744) (157,638)
-------------- -------------- -------------- --------------
Net Assets Ending Balance $ 5,581,581 $ 25,442,615 $ 3,247,165 $ 370,875
============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 5,537,249 $ 25,393,463 $ 3,247,165 $ 370,875
Contracts in Annuity Period 44,332 49,152 0 0
-------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 5,581,581 $ 25,442,615 $ 3,247,165 $ 370,875
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1991
=======================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
-----------------------------------------
High
Reserve Prime Current Quality
Assets Bond Income Equity
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1991 753,343 617,956 180,810 674,489
Accumulation Units Equivalent to Annuity Units Allocable
to Contracts in Annuity Period at December 31, 1991 3,587 701 1,083 0
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1991 756,930 618,657 181,893 674,489
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1991 $ 19.38 $ 26.86 $ 30.51 $ 37.30
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1991 267,112 1,488,480 226,441 36,077
Accumulation Units Equivalent to Annuity Units Allocable
to Contracts in Annuity Period at December 31, 1991 2,139 2,881 0 0
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1991 269,251 1,491,361 226,441 36,077
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1991 $ 20.73 $ 17.06 $ 14.34 $ 10.28
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNTS
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1993
=========================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
------------------------------------------
High
Total Reserve Prime Current Quality
Qualified Assets Bond Income Equity
Contracts Fund Fund Fund Fund
============== ============== ============== ============== ==============
<S> <C> <C> <C> <C> <C>
Reinvested Dividends $ 2,035,289 $ 201,716 $ 1,001,541 $ 321,997 $ 129,067
Realized and Unrealized Gains - Net 8,223,587 0 737,280 294,584 2,956,197
-------------- -------------- -------------- -------------- --------------
Investments Earnings 10,258,876 201,716 1,738,821 616,581 3,085,264
Mortality and Expense Charges (787,038) (65,783) (157,506) (40,008) (217,433)
-------------- -------------- -------------- -------------- --------------
Net Earnings 9,471,838 135,933 1,581,315 576,573 2,867,831
Contract Owner Purchase Payments 2,622,775 227,132 418,721 117,100 828,804
Contract Owner Withdrawals (9,345,743) (1,719,956) (2,053,055) (744,481) (2,009,192)
Contract Owner Transfers 2,595,056 (886,906) (330,571) 754,912 300,190
Benefit Payments on Annuitized Contracts (25,815) (3,027) (13,362) 0 (4,858)
Deferred Sales Charges (78,092) (13,031) (20,391) (3,882) (23,891)
Contract Administration Charges (31,615) (4,507) (5,768) (1,632) (9,092)
-------------- -------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 5,208,404 (2,264,362) (423,111) 698,590 1,949,792
Net Assets Beginning Balance 68,875,992 7,556,553 14,174,446 2,817,473 18,752,969
Net Assets Transferred under Assumption
Reinsurance Agreement 10,429,078 1,112,444 1,946,672 659,357 3,374,263
-------------- -------------- -------------- -------------- --------------
Net Assets Ending Balance $ 84,513,474 $ 6,404,635 $ 15,698,007 $ 4,175,420 $ 24,077,024
============== ============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 84,341,644 $ 6,380,258 $ 15,650,173 $ 4,175,420 $ 24,026,800
Contracts in the Annuity Period 171,830 24,377 47,834 0 50,224
-------------- -------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 84,513,474 $ 6,404,635 $ 15,698,007 $ 4,175,420 $ 24,077,024
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Reinvested Dividends $ 920 $ 290,580 $ 88,043 $ 1,425
Realized and Unrealized Gains - Net 781,042 3,169,326 255,104 30,054
-------------- -------------- -------------- --------------
Investments Earnings 781,962 3,459,906 343,147 31,479
Mortality and Expense Charges (44,348) (229,109) (28,739) (4,112)
-------------- -------------- -------------- --------------
Net Earnings 737,614 3,230,797 314,408 27,367
Contract Owner Purchase Payments 259,540 685,971 71,018 14,489
Contract Owner Withdrawals (505,621) (2,195,792) (84,872) (32,774)
Contract Owner Transfers 690,033 1,323,877 647,265 96,256
Benefit Payments on Annuitized Contracts 0 (4,568) 0 0
Deferred Sales Charges (3,752) (11,321) (703) (1,121)
Contract Administration Charges (2,173) (7,293) (947) (203)
-------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 1,175,641 3,021,671 946,169 104,014
Net Assets Beginning Balance 3,506,800 19,427,761 2,356,085 283,905
Net Assets Transferred under Assumption
Reinsurance Agreement 438,344 2,705,380 121,636 70,982
-------------- -------------- -------------- --------------
Net Assets Ending Balance $ 5,120,785 $ 25,154,812 $ 3,423,890 $ 458,901
============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 5,120,785 $ 25,105,417 $ 3,423,890 $ 458,901
Contracts in the Annuity Period 0 49,395 0 0
-------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 5,120,785 $ 25,154,812 $ 3,423,890 $ 458,901
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNTS
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1993
========================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
-----------------------------------------
High
Reserve Prime Current Quality
Assets Bond Income Equity
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1993 307,470 476,127 93,456 517,095
Accumulation Units Equivalent to Annuity Units Allocable
to Contracts in Annuity Period at December 31, 1993 1,175 1,455 0 1,081
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1993 308,645 477,582 93,456 518,176
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1993 $ 20.75 $ 32.87 $ 44.68 $ 46.46
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1993 195,678 1,223,015 200,914 40,239
Accumulation Units Equivalent to Annuity Units Allocable
to Contracts in Annuity Period at December 31, 1993 0 2,406 0 0
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1993 195,678 1,225,421 200,914 40,239
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1993 $ 26.17 $ 20.53 $ 17.04 $ 11.40
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1992
========================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
-----------------------------------------
High
Total Reserve Prime Current Quality
Qualified Assets Bond Income Equity
Contracts Fund Fund Fund Fund
============== ============== ============== ============== ==============
<S> <C> <C> <C> <C> <C>
Reinvested Dividends $ 4,213,996 $ 296,423 $ 887,334 $ 256,700 $ 1,058,208
Realized and Unrealized Gains (Losses) - Net (1,118,439) 0 74,807 214,944 (561,106)
-------------- -------------- -------------- -------------- --------------
Investments Earnings (Losses) 3,095,557 296,423 962,141 471,644 497,102
Mortality and Expense Charges (660,256) (89,786) (131,718) (26,300) (172,060)
-------------- -------------- -------------- -------------- --------------
Net Earnings (Losses) 2,435,301 206,637 830,423 445,344 325,042
Contract Owner Purchase Payments 10,110,049 476,203 2,632,187 286,340 3,046,642
Contract Owner Withdrawals (12,810,049) (2,833,733) (1,991,631) (292,617) (3,342,720)
Contract Owner Transfers 0 (2,125,643) 545,681 (27,073) 698,308
Benefit Payments on Annuitized Contracts (10,441) (2,268) 0 0 (4,208)
Deferred Sales Charges (85,634) (23,724) (8,265) (477) (24,450)
Contract Administration Charges (69,065) (8,721) (10,674) (2,448) (21,022)
-------------- -------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets (429,839) (4,311,249) 1,997,721 409,069 677,592
Net Assets Beginning Balance 67,656,317 11,451,236 11,953,694 2,399,027 17,443,706
Net Assets Transferred under Assumption
Reinsurance Agreement 1,649,514 416,566 223,031 9,377 631,671
-------------- -------------- -------------- -------------- --------------
Net Assets Ending Balance $ 68,875,992 $ 7,556,553 $ 14,174,446 $ 2,817,473 $ 18,752,969
============== ============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 68,754,069 $ 7,530,312 $ 14,174,446 $ 2,817,473 $ 18,704,359
Contracts in the Annuity Period 121,923 26,241 0 0 48,610
-------------- -------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 68,875,992 $ 7,556,553 $ 14,174,446 $ 2,817,473 $ 18,752,969
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Reinvested Dividends $ 13,804 $ 1,615,301 $ 73,866 $ 12,360
Realized and Unrealized Gains (Losses) - Net (61,977) (825,304) 57,463 (17,266)
-------------- -------------- -------------- --------------
Investments Earnings (Losses) (48,173) 789,997 131,329 (4,906)
Mortality and Expense Charges (32,389) (186,602) (18,499) (2,902)
-------------- -------------- -------------- --------------
Net Earnings (Losses) (80,562) 603,395 112,830 (7,808)
Contract Owner Purchase Payments 742,138 2,005,651 771,171 149,717
Contract Owner Withdrawals (726,217) (3,375,082) (180,110) (67,939)
Contract Owner Transfers 320,394 253,698 423,473 (88,838)
Benefit Payments on Annuitized Contracts 0 (3,965) 0 0
Deferred Sales Charges (4,422) (23,518) (445) (333)
Contract Administration Charges (4,662) (19,744) (1,424) (370)
-------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 246,669 (559,565) 1,125,495 (15,571)
Net Assets Beginning Balance 3,179,039 19,774,876 1,155,263 299,476
Net Assets Transferred under Assumption
Reinsurance Agreement 81,092 212,450 75,327 0
-------------- -------------- -------------- --------------
Net Assets Ending Balance $ 3,506,800 $ 19,427,761 $ 2,356,085 $ 283,905
============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 3,506,800 $ 19,380,689 $ 2,356,085 $ 283,905
Contracts in the Annuity Period 0 47,072 0 0
-------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 3,506,800 $ 19,427,761 $ 2,356,085 $ 283,905
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNTS
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1992
=======================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
-----------------------------------------
High
Reserve Prime Current Quality
Assets Bond Income Equity
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1992 369,314 478,220 73,583 456,649
Accumulation Units Equivalent to Annuity Units Allocable
to Contracts in Annuity Period at December 31, 1992 1,287 0 0 1,187
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1992 370,601 478,220 73,583 457,836
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1992 $ 20.39 $ 29.64 $ 38.29 $ 40.96
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulation Units Allocable to Contracts in
Accumulation Period at December 31, 1992 156,275 1,082,720 155,312 27,220
Accumulation Units Equivalent to Annuity Units Allocable
to Contracts in Annuity Period at December 31, 1992 0 2,630 0 0
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1992 156,275 1,085,350 155,312 27,220
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1992 $ 22.44 $ 17.90 $ 15.17 $ 10.43
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNTS
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1991
=======================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
-----------------------------------------
High
Total Reserve Prime Current Quality
Qualified Assets Bond Income Equity
Contracts Fund Fund Fund Fund
============== ============== ============== ============== ==============
<S> <C> <C> <C> <C> <C>
Reinvested Dividends $ 4,703,017 $ 795,825 $ 1,152,296 $ 312,495 $ 1,175,705
Realized and Unrealized Gains (Losses) - Net 9,599,163 0 949,602 562,925 3,471,553
-------------- -------------- -------------- -------------- --------------
Investments Earnings 14,302,180 795,825 2,101,898 875,420 4,647,258
Mortality and Expense Charges (724,194) (139,318) (145,188) (24,689) (173,058)
-------------- -------------- -------------- -------------- --------------
Net Earnings 13,577,986 656,507 1,956,710 850,731 4,474,200
Contract Owner Purchase Payments 8,454,471 2,470,153 1,129,633 207,550 2,397,081
Contract Owner Withdrawals (11,008,801) (2,456,617) (2,398,180) (442,063) (2,284,381)
Contract Owner Transfers 0 (1,211,953) (105,819) (58,918) 1,094,245
Benefit Payments on Annuitized Contracts (10,481) (2,485) 0 0 (4,051)
Deferred Sales Charges (151,812) (38,045) (32,188) (5,981) (28,870)
Contract Administration Charges (98,300) (17,612) (15,161) (3,307) (26,391)
-------------- -------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 10,763,063 (600,052) 534,995 548,012 5,621,833
Net Assets Beginning Balance 73,356,252 14,766,045 15,903,630 2,367,821 16,449,988
Net Assets Transferred under Assumption
Reinsurance Agreement (16,462,998) (2,714,757) (4,484,931) (516,806) (4,628,115)
-------------- -------------- -------------- -------------- --------------
Net Assets Ending Balance $ 67,656,317 $ 11,451,236 $ 11,953,694 $ 2,399,027 17,443,706
============== ============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 67,526,545 $ 11,423,547 $ 11,953,694 $ 2,399,027 $ 17,391,848
Contracts in the Annuity Period 129,772 27,689 0 0 51,858
-------------- -------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 67,656,317 $ 11,451,236 $ 11,953,694 $ 2,399,027 $ 17,443,706
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Reinvested Dividends $ 3,173 $ 1,192,037 $ 62,973 $ 8,513
Realized and Unrealized Gains (Losses) - Net 1,167,765 3,303,943 146,787 (3,412)
-------------- -------------- -------------- --------------
Investments Earnings 1,170,938 4,495,980 209,760 5,101
Mortality and Expense Charges (29,908) (197,350) (11,094) (3,589)
-------------- -------------- -------------- --------------
Net Earnings 1,141,030 4,298,630 198,666 1,512
Contract Owner Purchase Payments 617,024 1,468,692 98,443 65,895
Contract Owner Withdrawals (839,620) (2,176,835) (257,336) (153,769)
Contract Owner Transfers 343,075 (193,478) 110,183 22,665
Benefit Payments on Annuitized Contracts 0 (3,945) 0 0
Deferred Sales Charges (5,558) (35,486) (4,536) (1,148)
Contract Administration Charges (5,801) (28,131) (1,150) (747)
-------------- -------------- -------------- --------------
Increase (Decrease) in Net Assets 1,250,150 3,329,447 144,270 (65,592)
Net Assets Beginning Balance 2,475,864 19,823,458 1,116,197 453,249
Net Assets Transferred under Assumption
Reinsurance Agreement (546,975) (3,378,029) (105,204) (88,181)
-------------- -------------- -------------- --------------
Net Assets Ending Balance $ 3,179,039 $ 19,774,876 $ 1,155,263 $ 299,476
============== ============== ============== ==============
Comprised of:
Contracts in the Accumulation Period $ 3,179,039 19,724,651 1,155,263 299,476
Contracts in the Annuity Period 0 50,225 0 0
-------------- -------------- -------------- --------------
Total Contract Owners' Balance $ 3,179,039 $ 19,774,876 $ 1,155,263 $ 299,476
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1991
======================================================================
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Funds, Inc.
-----------------------------------------
High
Reserve Prime Current Quality
Assets Bond Income Equity
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulationd Units Allocable to Units in
Accumulation Period at December 31, 1991 572,896 428,448 74,458 431,667
Accumulation Units Equivalent to Annuity Units Allocable
to Contracts in Annuity Period at December 1,389 0 0 1,287
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1991 574,285 428,448 74,458 432,954
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1991 $ 19.94 $ 27.90 $ 32.22 $ 40.29
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Natural
Equity Flexible American Resources
Growth Strategy Balanced Focus
Fund Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Accumulationd Units Allocable to Units in
Accumulation Period at December 31, 1991 139,493 1,136,867 79,728 28,824
Accumulation Units Equivalent to Annuity Units Allocable
to Contracts in Annuity Period at December 0 2,895 0 0
-------------- -------------- -------------- --------------
Total Units Outstanding at December 31, 1991 139,493 1,139,762 79,728 28,824
============== ============== ============== ==============
Accumulation Unit Value at December 31, 1991 $ 22.79 $ 17.35 $ 14.49 $ 10.39
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNTS
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1993
========================================================================
<TABLE>
<CAPTION>
Natural
American Resources
Total Balanced Focus
Investment Fund Fund
============== ============== ==============
<S> <C> <C> <C>
Reinvested Dividends $ 85,883 $ 74,461 $ 11,422
Realized Gains - Net 466,010 419,946 46,064
-------------- -------------- --------------
Investments Earnings 551,893 494,407 57,486
Assets Transferred to General Account (5,909,299) (3,669,200) (2,240,099)
Net Assets January 1, 1993 5,357,406 3,174,793 2,182,613
-------------- -------------- --------------
Net Assets December 31, 1993 $ 0 $ 0 $ 0
============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1992
======================================================================
<TABLE>
<CAPTION>
Natural
Flexible American Resources
Total Strategy Balanced Focus
Investment Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Reinvested Dividends $ 240,763 $ 10,519 $ 155,237 $ 75,007
Unrealized Gains (Losses) - Net (48,846) (19,855) 16,673 (45,664)
-------------- -------------- -------------- --------------
Investments Earnings (Losses) 191,917 (9,336) 171,910 29,343
Assets Transferred to General Account (220,074) (220,074) 0 0
Net Assets January 1, 1992 5,385,563 229,410 3,002,883 2,153,270
-------------- -------------- -------------- --------------
Net Assets December 31, 1992 $ 5,357,406 $ 0 $ 3,174,793 $ 2,182,613
============== ============== ============== ==============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1991
=======================================================================
<TABLE>
<CAPTION>
Natural
Flexible American Resources
Total Strategy Balanced Focus
Investment Fund Fund Fund
============== ============== ============== ==============
<S> <C> <C> <C> <C>
Reinvested Dividends $ 213,163 $ 11,204 $ 149,566 $ 52,393
Unrealized Gains (Losses) - Net 375,417 34,651 364,358 (23,592)
-------------- -------------- -------------- --------------
Investments Earnings 588,580 45,855 513,924 28,801
Net Assets January 1, 1991 4,796,983 183,555 2,488,959 2,124,469
-------------- -------------- -------------- --------------
Net Assets December 31, 1991 $ 5,385,563 $ 229,410 $ 3,002,883 $ 2,153,270
============== ============== ============== ==============
</TABLE>
<PAGE>
[/DOCUMENT]
</DOCUMENT
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill Lynch
Life Insurance Company (the "Company"), a wholly-owned subsidiary
of Merrill Lynch Insurance Group, Inc., as of December 31, 1993
and 1992, and the related statements of earnings, stockholder's
equity, and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1993 and 1992, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the
Company changed its method of accounting for certain investments
in debt and equity securities to conform with Statement of
Financial Accounting Standards No. 115.
/s/Deloitte & Touche
February 28, 1994
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
ASSETS 1993 1992
- ------ ---- ----
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1993 - $5,369,236; 1992 - $334,638) $ 5,597,359 $ 335,916
Fixed maturity securities held for trading, at estimated fair value
(amortized cost: 1993 - $140,635) 144,035 0
Fixed maturity securities to be held to maturity, at amortized cost
(estimated fair value: 1992 - $6,713,831) 0 6,449,981
Equity securities available for sale, at estimated fair value
(cost: 1993 - $24,424; 1992 - $31,598) 24,970 33,186
Equity securities held for trading, at estimated fair value
(cost 1993 - $19,694) 20,585 0
Mortgage loans on real estate 191,214 264,966
Real estate available for sale
(accumulated depreciation: 1993 - $850; 1992 - $321) 29,761 12,847
Policy loans on insurance contracts 924,579 834,461
------------- -------------
Total Investments 6,932,503 7,931,357
CASH AND CASH EQUIVALENTS 122,218 172,124
ACCRUED INVESTMENT INCOME 120,337 138,797
DEFERRED POLICY ACQUISITION COSTS 318,903 373,214
FEDERAL INCOME TAXES - DEFERRED 16,878 19,982
REINSURANCE RECEIVABLES 1,190 856
RECEIVABLES FROM AFFILIATES - NET 789 0
OTHER ASSETS 21,481 19,864
SEPARATE ACCOUNTS ASSETS 4,715,278 3,127,767
------------- -------------
TOTAL ASSETS $ 12,249,577 $ 11,783,961
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1993 1992
- ------------------------------------ ---- ----
LIABILITIES:
<S> <C> <C>
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 6,691,811 $ 7,804,447
Claims and claims settlement expenses 20,295 7,565
------------- -------------
Total policy liabilities and accruals 6,712,106 7,812,012
OTHER POLICYHOLDER FUNDS 28,768 14,637
LIABILITY FOR GUARANTY FUND ASSESSMENTS 28,083 27,104
OTHER LIABILITIES 68,165 16,790
FEDERAL INCOME TAXES - CURRENT 10,122 30,010
PAYABLE TO AFFILIATES - NET 0 2,638
SEPARATE ACCOUNTS LIABILITIES 4,715,278 3,118,296
------------- -------------
Total Liabilities 11,562,522 11,021,487
------------- -------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 637,590 654,717
Retained earnings 47,860 102,873
Net unrealized investment gain (loss) (395) 2,884
------------- -------------
Total Stockholder's Equity 687,055 762,474
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 12,249,577 $ 11,783,961
============= =============
</TABLE>
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 586,461 $ 712,739 $ 787,603
Net realized investment gains (losses) 63,052 (29,639) (21,957)
Policy charge revenue 95,684 81,653 82,745
----------- ----------- -----------
Total Revenues 745,197 764,753 848,391
----------- ----------- -----------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account
balances 454,671 546,979 638,984
Market value adjustment expense 30,816 6,229 1,198
Policy benefits (reinsurance recoveries: 1993 - $6,004;
1992 - $5,555; 1991 - $6,328) 17,030 12,066 9,537
Reinsurance premium ceded 12,665 12,457 12,765
Amortization of deferred policy acquisition costs 109,456 88,795 93,391
Insurance expenses and taxes 47,784 72,560 78,448
----------- ----------- -----------
Total Benefits and Expenses 672,422 739,086 834,323
----------- ----------- -----------
Earnings Before Federal Income
Tax Provision 72,775 25,667 14,068
----------- ----------- -----------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 20,112 28,549 42,919
Deferred 4,803 (19,913) (40,459)
----------- ----------- -----------
Total Federal Income Tax Provision 24,915 8,636 2,460
----------- ----------- -----------
NET EARNINGS $ 47,860 $ 17,031 $ 11,608
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
-------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1991 $ 2,000 $ 572,321 $ 74,234 $ (103) $ 648,452
Capital contribution 82,396 82,396
Net earnings 11,608 11,608
Net unrealized investment loss (1,142) (1,142)
BALANCE, DECEMBER 31, 1991 2,000 654,717 85,842 (1,245) 741,314
Net earnings 17,031 17,031
Net unrealized investment gain 4,129 4,129
-------- ----------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1992 2,000 654,717 102,873 2,884 762,474
Dividend to Parent (17,127) (102,873) (120,000)
Net earnings 47,860 47,860
Net unrealized investment loss (1) (3,279) (3,279)
-------- ----------- ---------- ----------- -------------
BALANCE, DECEMBER 31, 1993 $ 2,000 $ 637,590 $ 47,860 $ ( 395) $ 687,055
======== =========== ========== =========== =============
</TABLE>
(1) Asset gains less adjustment of policyholders' account balances
and deferred policy acquisition costs (See Note 1).
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 47,860 $ 17,031 $ 11,608
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 109,456 88,795 93,391
Capitalization of policy acquisition costs (91,189) (39,146) (149,440)
Depreciation and amortization 1,142 (16,033) (25,417)
Net realized investment (gains) losses (63,052) 29,639 21,957
Interest credited to policyholders' account balances 454,671 546,979 638,984
Provision for deferred Federal
income tax 4,803 (19,913) (40,459)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 18,460 6,018 (9,271)
Policy liabilities and accruals 12,730 7,775 101,521
Federal income taxes - current (19,888) 14,955 44,782
Other policyholder funds 14,131 12,826 (25,035)
Liability for guaranty fund assessments 979 16,439 10,665
Payable to Family Life Insurance Company 0 0 (28,224)
Policy loans (90,118) (126,925) (88,362)
Investment trading securities (145,972) 0 0
Other, net 49,425 (26,296) (30,343)
------------ ------------- -------------
Net cash and cash equivalents provided
by operating activities 303,438 512,144 526,357
------------ ------------- -------------
</TABLE>
(Continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
- ------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Concluded) (Dollars In Thousands)
==============================================================================
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Fixed maturity securities sold 571,337 1,281,705 4,005,959
Fixed maturity securities matured 2,776,992 2,206,447 746,273
Fixed maturity securities purchased (1,866,857) (2,806,416) (5,142,471)
Equity securities available for sale purchased (8,983) (17,843) (67,348)
Equity securities available for sale sold 6,451 44,188 20,768
Mortgage loans on real estate principal payments received 35,561 8,548 5,977
Mortgage loans on real estate acquired (674) (853) (740)
Real estate available for sale purchased 0 (340) (22,706)
Real estate available for sale sold 7,408 178 25,000
Interest rate swaps sold 0 2,302 0
Recapture of investment in Separate Accounts 29,389 0 0
Investment in Separate Accounts (20,000) (3,841) 0
------------ ------------- -------------
Net cash and cash equivalents provided (used)
by investing activities 1,530,624 714,075 (429,288)
------------ ------------- -------------
FINANCING ACTIVITIES:
Paid-in capital from parent 0 0 82,396
Dividend paid to parent (120,000) 0 0
Affiliated notes payable (3,427) (83,200) 18,794
Policyholders' account balances:
Deposits 814,314 217,410 436,564
Withdrawals (net of transfers to Separate Accounts) (2,574,854) (1,338,034) (772,811)
Net cash and cash equivalents used ------------ ------------- -------------
by financing activities (1,883,967) (1,203,824) (235,057)
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (49,906) 22,395 (137,988)
CASH AND CASH EQUIVALENTS
Beginning of year 172,124 149,729 287,717
------------ ------------- -------------
End of year $ 122,218 $ 172,124 $ 149,729
============ ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: Merrill Lynch Life Insurance Company (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells life insurance and annuity products which
comprise one business segment. The primary products that the
Company currently markets are immediate annuities, market value
adjusted annuities, variable life insurance and variable
annuities. The Company is currently licensed to sell insurance
in forty-nine states, the District of Columbia, the U.S. Virgin
Islands and Guam. The Company markets its products solely
through the Merrill Lynch & Co. retail network.
On June 12, 1991, the Company's former parent, Family Life
Insurance Company ("Family Life"), was sold to a non-affiliated
entity. Immediately prior to this sale, Family Life, through a
dividend, transferred its 100% ownership interest in the
Company to its parent MLIG. (See Note 8).
On October 1, 1991, Tandem Insurance Group, Inc. ("Tandem"), a
wholly-owned subsidiary of MLIG, was merged with and into the
Company. This merger has been accounted for as a combination
of entities under common control. The assets, liabilities,
stockholder's equity, earnings and cash flows as presented in
these financial statements are reported on a combined
historical basis for all periods presented.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles for
stock life insurance companies.
Revenue Recognition: Revenues for the Company's interest
sensitive life, interest sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholder account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest crediting rates for the
Company's fixed rate products are as follows:
Interest sensitive life products 4.0% - 8.8%
Interest sensitive deferred annuities 2.4% - 9.0%
Immediate annuities 4.0% - 10.0%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are
unreported as of the valuation date.
<PAGE>
Reinsurance: Effective during 1992, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 113
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts" ("SFAS No. 113"), which requires that
reinsurance receivables and prepaid reinsurance premium ceded
be reported as assets. SFAS No. 113 eliminates the practice by
insurance enterprises of reporting assets and liabilities
relating to reinsured contracts net of the effects of
reinsurance. The impact of adopting SFAS No. 113 was not
material.
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. On life insurance contracts which the Company is
currently marketing, the maximum amount of mortality risk
retained by the Company is $500,000 on a single life.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the
Company. The Company regularly evaluates the financial
condition of its reinsurers so as to minimize its exposure to
significant losses from reinsurer insolvencies. The Company
holds collateral under reinsurance agreements in the form of
letters of credit and funds withheld totaling $1,024,000 that
can be drawn upon for delinquent reinsurance recoverables.
As of December 31, 1993, the Company had life insurance in-
force which was ceded to other life insurance companies of
$2,005,191,000.
Deferred Policy Acquisition Costs: Policy acquisition costs
for life and annuity contracts are deferred and amortized based
on the estimated future gross profits for each group of
contracts. These future gross profit estimates are subject to
periodic evaluation by the Company, with necessary revisions
applied against amortization to date.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, which are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed.
Included in deferred policy acquisition costs are those costs
related to the acquisition by assumption reinsurance of
insurance contracts from unaffiliated insurers. The deferred
costs will be amortized in proportion to the future gross
profits over the anticipated life of the acquired insurance
contracts utilizing an interest methodology.
In December 1990, the Company entered into an assumption
reinsurance agreement with a non-affiliated insurer (See Note
6). The acquisition costs relating to this agreement are being
amortized over a twenty-year period using an effective interest
rate of 9.01%. This reinsurance agreement provides for payment
of contingent ceding commissions based upon the persistency and
mortality experience of the insurance contracts assumed. Any
payments made for the contingent ceding commissions will be
capitalized and amortized using an identical methodology as
that used for the initial acquisition costs. The following is
a reconciliation of the acquisition costs for the reinsurance
transaction for the three years ended December 31,:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning balance $ 150,450 $ 160,235 $ 24,294
Capitalized amounts 6,987 6,060 156,641
Interest accrued 13,136 15,401 14,071
Amortization (30,926) (31,246) (34,771)
---------- ---------- ----------
Ending balance $ 139,647 $ 150,450 $ 160,235
========== ========== ==========
</TABLE>
The following table presents the expected amortization of these
deferred acquisition costs over the next five years. The
amortization may be adjusted based on periodic evaluation of
the expected gross profits on the reinsured policies.
1994 $18,732,000
1995 17,840,000
1996 16,056,000
1997 12,488,000
1998 8,925,000
Investments: Effective December 31, 1993, the Company has
adopted SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). In compliance
with SFAS No. 115, the Company classified its investments in
fixed maturity securities and equity securities in two
categories, each separately identified:
Available for sale securities include both fixed maturity
and equity securities. These securities may be sold for the
Company's general liquidity needs, asset/liability
management strategy, credit dispositions and investment
opportunities. These securities are carried at estimated
fair value with unrealized gains and losses included in
stockholder's equity (net of tax). If a decline in value of
a security is determined by management to be other than
temporary, the carrying value is adjusted to the estimated
fair value at the date of this determination and recorded
in the net realized investment gains (losses) caption of
the statement of earnings.
Trading securities represent securities that are managed
with an investment objective to maximize total return
subject to the Company's quality guidelines. Investments in
this portfolio will consist primarily of marketable fixed
maturity and equity investments. These securities are
carried at estimated fair value with unrealized gains and
losses included in the statement of earnings. The debt and
equity securities classified as trading securities as of
December 31, 1993 were acquired in 1993 and immediately
classified as trading securities in compliance with SFAS
No. 60 "Accounting and Reporting by Insurance Enterprises",
prior to the adoption of SFAS No. 115.
SFAS No. 115 allows fixed maturity securities to be carried at
amortized cost if the Company has both the ability and positive
intent to hold these securities to maturity. The Company has
determined that it can not guarantee that it will not have the
need or opportunity to sell any particular security in its
investment holdings. As such, the Company did not utilize this
classification as of December 31, 1993.
In compliance with a recent Securities and Exchange Commissions
("SEC") staff announcement, the Company has recorded certain
adjustments to deferred policy acquisition costs and
policyholders' account balances in conjunction with its
adoption of SFAS No. 115. The SEC requires that companies
adjust those assets and liabilities that would have been
adjusted had the unrealized investment gains or losses from
securities classified as available for sale actually been
realized with corresponding credits or charges reported
directly to shareholder's equity. Accordingly, deferred policy
acquisition costs have
<PAGE>
been decreased by $36,044,000 and
policyholders' account balances have been increased by
$193,233,000 as of December 31, 1993.
As of December 31, 1992, the Company classified its investments
in fixed maturity securities as either "to be held to maturity"
or "available for sale." Fixed maturity securities to be held
to maturity are stated in the balance sheets at amortized cost.
Fixed maturity securities available for sale are stated at
estimated fair value. The net unrealized gain and loss on these
securities are reflected as a component of stockholder's
equity.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accrued to
the maturity date and interest income is accrued daily.
Realized gains and losses on the sale or maturity of the
investments are determined on the basis of identified cost.
Fixed maturity securities may contain securities which are
considered high yield. The Company defines high yield fixed
maturity securities as unsecured corporate debt obligations
which do not have a rating equivalent to Standard and Poor's
(or similar rating agency) BBB or higher, and are not
guaranteed by an agency of the federal government. Probable
losses are recognized in the period that a decline in value is
determined to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal
balances net of valuation allowances. Such valuation allowances
are based on the decline in value expected by management to be
realized on in-substance foreclosures of mortgage loans and on
mortgage loans which management believes may not be collectible
in full. In establishing valuation allowances management
considers, among other things, the estimated fair value of the
underlying collateral.
The Company has previously made mortgage loans collateralized
by real estate and direct investments in real estate. The
return on and the ultimate recovery of these loans and
investments are generally dependent on the successful
operation, sale or refinancing of the real estate. In many
parts of the country, current real estate markets are
characterized by above-normal vacancy rates, a lack of ready
sources of credit for real estate financing, reduced or
declining real estate values, and similar factors.
The Company employs a system to monitor the effects of current
and expected real estate market conditions and other factors
when assessing the collectability of mortgage loans and the
recoverability of the Company's real estate investments. When,
in management's judgment, these assets are impaired,
appropriate losses are recorded. Such estimates necessarily
include assumptions, which may include anticipated improvements
in selected market conditions for real estate, which may or may
not occur. The more significant assumptions management
considers involve estimates of the following: lease, absorption
and sales rate; real estate values and rates of return;
operating expenses; required capital improvements; inflation;
and sufficiency of any collateral independent of the real
estate.
Resulting from the Company's management and valuation of its
mortgage loans on real estate, management believes that the
carrying value approximates the fair value of these
investments.
During 1993 the Financial Accounting Standards Board issued
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"). SFAS No. 114 requires that for impaired
loans, the impairment shall be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral.
Impairments of mortgage loans on real estate are established as
valuation allowances and recorded to net realized investment
gains (losses). SFAS No. 114 must be adopted for fiscal years
beginning after December 15, 1994. The Company has decided
not to early adopt this statement. The Company estimates
that the impact on both financial position and earnings
from adopting SFAS No. 114 would be immaterial.
Real estate available for sale, including real estate acquired
in satisfaction of debt subsequent to its acquisition date, is
stated at depreciated cost less valuation allowances and
estimated selling costs.
<PAGE>
Depreciation is computed using the
straight-line method over the estimated useful lives of the
properties, which generally is 40 years.
Policy loans on insurance contracts are stated at unpaid
principal balances. The Company estimates the fair market value
of policy loans as equal to the book value of the loans.
Policy loans are fully collateralized by the account value of
the associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited to the
account value held as collateral is fixed.
Fair Value of Financial Instruments: Beginning in 1992, the
Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments", which requires companies to report the
fair value of financial instruments, for certain assets and
liabilities both on and off - balance sheet.
Federal Income Taxes: The results of the operations of the
Company are included in the consolidated Federal income tax
return of Merrill Lynch & Co.. The Company has entered into a
tax-sharing agreement with Merrill Lynch & Co. whereby the
Company will calculate its current tax provision based on its
operations. Under the agreement, the Company periodically
remits to Merrill Lynch & Co. its current federal tax
liability.
Effective the first quarter 1992, the Company adopted SFAS No.
109, "Accounting for Income Taxes" ("SFAS No. 109") which
requires an asset and liability method in recording income
taxes on all transactions that have been recognized in the
financial statements. SFAS No. 109 provides that deferred
taxes be adjusted to reflect tax rates at which future tax
liabilities or assets are expected to be settled or realized.
Previously, the Company accounted for income taxes in
accordance with SFAS No. 96, "Accounting for Income Taxes."
The effect of adopting SFAS No. 109 was not material.
Separate Accounts: The Separate Accounts are established in
conformity with Arkansas insurance law, the Company's
domiciliary state, and under such law, if and to the extent
provided under the applicable insurance contracts, assets held
in the Separate Accounts equal to the reserves and other
contract liabilities with respect to the Separate Accounts may
not be chargeable with liabilities that arise from any other
business of the Company. Separate Accounts assets may be
subject to General Account claims only to the extent the value
of such assets exceeds the Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing
net deposits and accumulated net investment earnings less fees,
held for the benefit of policyholders, are shown as separate
captions in the balance sheets. Assets held in the Separate
Accounts are carried at quoted market values.
The carrying value for Separate Accounts assets and liabilities
approximates the estimated fair value of the underlying assets.
Postretirement Benefits Other Than Pensions: During the fourth
quarter 1992, the Company adopted SFAS No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions"
("SFAS No. 106"). SFAS No. 106 requires the accrual of
postretirement benefits (such as health care benefits) during
the years an employee provides service. Prior to 1992, the
cost of these benefits were expensed on a modified pay-as-you-go
basis when such cost was allocated from MLIG as a component of
the Company's operating expenses. The effect of adopting SFAS
No. 106 was not material.
Statements of Cash Flows: For the purpose of reporting cash
flows, cash and cash equivalents include cash on hand and on
deposit and short-term investments with original maturities of
three months or less.
The carrying amounts approximate the estimated fair value of
cash and cash equivalents.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. INVESTMENTS
The amortized cost (original cost for equity securities) less
valuation allowances and estimated fair value of investments in
fixed maturity securities and equity securities as of December
31 are:
<TABLE>
<CAPTION>
1993
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 3,181,667 $ 159,233 $ 18,440 $ 3,322,460
Mortgage-backed securities 2,015,328 79,645 3,998 2,090,975
U.S. Treasury securitiesand obligations of
U.S. government corporations and
agencies 159,329 10,887 126 170,090
Obligations of states and political
subdivisions 12,912 922 0 13,834
------------ ------------ ------------ ------------
Total fixed maturity securities available
for sale $ 5,369,236 $ 250,687 $ 22,564 $ 5,597,359
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 4,481 $ 577 $ 657 $ 4,401
Non-redeemable preferred stocks 19,943 757 131 20,569
------------ ------------ ------------ ------------
Total equity securities available for sale $ 24,424 $ 1,334 $ 788 $ 24,970
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities to be held to
maturity:
Corporate securities $ 3,052,333 $ 134,016 $ 7,721 $ 3,178,628
Mortgage-backed securities 3,292,132 141,387 5,215 3,428,304
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 97,976 1,798 1,396 98,378
Obligations of states and political
subdivisions 7,540 981 0 8,521
------------ ------------ ------------ ------------
Total fixed maturity securities to be
held to maturity $6,449,981 $ 278,182 $ 14,332 $ 6,713,831
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1992
----
Amortized
Cost less Gross Gross Estimated
Valuation Unrealized Unrealized Fair
Allowances Gains Losses Value
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 134,675 $ 6,648 $ 938 $ 140,385
Mortgage-backed securities 117,248 3,316 8,337 112,227
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies 74,109 916 560 74,465
Obligations of states and political
subdivisions 8,606 233 0 8,839
------------ ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 334,638 $ 11,113 $ 9,835 $ 335,916
============ ============ ============ ============
Equity securities available for sale:
Common stocks $ 12,980 $ 762 $ 0 $ 13,742
Non-redeemable preferred stocks 18,618 826 0 19,444
------------ ------------ ------------ ------------
Total equity securities available for sale $ 31,598 $ 1,588 $ 0 $ 33,186
============ ============ ============ ============
</TABLE>
For publicly traded securities, the estimated fair value is
determined using quoted market prices. For securities without
a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provision for credit risk, based upon the
assumption that such securities will be held to maturity. Such
estimated fair values do not necessarily represent the values
for which these securities could have been sold at the dates of
the balance sheets. At December 31, 1993 and 1992,
respectively, securities without a readily ascertainable market
value, having an amortized cost less valuation allowances of
approximately $773,965,000 and $992,340,000, had an estimated
fair value of approximately $819,866,000 and $1,064,915,000,
respectively.
The amortized cost less valuation allowances and estimated fair
value of fixed maturity securities available for sale at
December 31, 1993 by contractual maturity are shown below:
<TABLE>
<CAPTION>
Amortized
Cost less Estimated
Valuation Fair
Allowances Value
------------ ------------
(In Thousands)
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 293,809 $ 299,884
Due after one year through five years 1,162,162 1,207,307
Due after five years through ten years 1,499,057 1,585,524
Due after ten years 398,880 413,669
------------ ------------
3,353,908 3,506,384
Mortgage-backed securities 2,015,328 2,090,975
------------ ------------
Total fixed maturity securities
available for sale $ 5,369,236 $ 5,597,359
============ ============
</TABLE>
<PAGE>
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The Company's investment in mortgage loans on real estate
consists principally of loans collateralized by commercial real
estate. The largest concentrations of commercial real estate
mortgage loans are for properties located in California
($53,795,000 or 24%), Illinois ($28,294,000 or 13%) and
Pennsylvania ($27,558,000 or 12%).
For the years ended December 31, 1993 and 1992, $29,555,000 and
$3,126,000, respectively, of real estate was acquired in
satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 511,655 $ 652,136 $ 715,102
Equity securities 4,143 4,813 2,852
Mortgage loans on real estate 20,342 25,954 32,827
Real estate available for sale 32 1,004 310
Policy loans on insurance contracts 46,129 40,843 34,366
Other 11,135 5,924 13,015
------------ ------------ ------------
Gross investment income 593,436 730,674 798,472
Less expenses (6,975) (17,935) (10,869)
------------ ------------ ------------
Net investment income $ 586,461 $ 712,739 $ 787,603
============ ============ ============
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances, determined by specific identification for
the years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities available for sale $ 67,473 $ 15,907 $ (12,689)
Fixed maturity securities held for trading 5,562 0 0
Equity securities available for sale 22 (3,051) (804)
Equity securities held for trading 2,587 0 0
Mortgage loans on real estate (9,310) (42,997) (12,913)
Real estate available for sale (4,733) (1,800) 3,224
Other 1,451 2,302 1,225
------------ ------------ ------------
Net realized investment gains (losses) $ 63,052 $ (29,639) $ (21,957)
============ ============ ============
</TABLE>
<PAGE>
Valuation allowances have been established to reflect other than
temporary declines in estimated fair value of the following
classification of investments as of December 31,:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Fixed maturity securities to be held to maturity $ 0 $ 19,711
Fixed maturity securities available for sale 850 0
Equity securities available for sale 0 210
Mortgage loans on real estate 45,924 55,610
Real estate available for sale 20,797 5,600
------------ ------------
$ 67,571 $ 81,131
============ ============
</TABLE>
Proceeds, gains and losses from the sale or maturity of fixed
maturity securities available for sale and held to maturity for
the years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Proceeds $ 3,348,329 $ 3,488,152 $ 4,752,232
Realized investment gains 71,599 51,925 88,230
Realized investment losses 4,126 25,732 91,745
</TABLE>
Approximately $4,291,000 of unrealized holding gains from
investment trading securities were recorded in net realized
investment gains during 1993.
The Company held investments at December 31, 1993 of
$22,672,000 which have been non-income producing for the
preceding twelve months.
The Company had investment securities of $28,702,000 and
$19,030,000 held on deposit with insurance regulatory
authorities at December 31, 1993 and 1992, respectively.
At December 31, 1992, the Company retained $9,741,000 in the
Separate Accounts, including unrealized gains of $1,504,000.
The investments in the Separate Accounts were for the purpose
of providing original funding of certain mutual funds available
as investment options to variable life and annuity
policyholders. No funds were retained in the Separate Accounts
at December 31, 1993.
The Company has restructured the terms of certain of its
investments in fixed maturity securities and mortgage loans on
real estate during 1993 and 1992. The following table provides
the amortized cost less valuation allowances immediately prior
to restructuring, gross interest income that would have been
earned had the loans been current per their original terms
("Expected Income"), gross interest income recorded during the
year ("Actual Income") and equity interests which were received
in the restructuring:
<PAGE>
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Fixed maturity securities:
Amortized cost less valuation allowances $ 3,743 $ 13,148
Expected income 916 2,781
Actual income 103 1,011
Equity interest received 1,833 2,003
Mortgage loans on real estate:
Amortized cost less valuation allowance $ 79,624 $ 0
Expected income 6,859 0
Actual income 5,076 0
</TABLE>
NOTE 3. FEDERAL INCOME TAXES
The Company's operating results (excluding Tandem prior to
September 30, 1991) are consolidated with those of MLIG. MLIG
and the Company are included in Merrill Lynch & Co.'s
consolidated Federal income tax returns. It is the policy of
Merrill Lynch & Co. to allocate the tax associated with such
operating results to its respective subsidiaries on a separate
company basis. The Company has the intent to pay accumulated
Federal income tax to MLIG upon request. For the nine months
ended September 30, 1991, Tandem filed a separate Federal
income tax return.
The following is a reconciliation of the provision for income
taxes based on income before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the three years ended December 31,:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 25,471 $ 8,726 $ 4,783
Increase (decrease) in income taxes resulting from:
Federal tax rate increase (631)
Recognition of prior year capital loss tax
benefits (2,219)
Other 75 (90) (104)
------------ ------------ ------------
Federal income tax provision $ 24,915 $ 8,636 $ 2,460
============ ============ ============
</TABLE>
The Federal statutory rate for 1993, 1992 and 1991 was 35%, 34%
and 34%, respectively.
The Company provides for deferred income taxes resulting from
temporary differences which arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each were as follows:
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs $ (9,030) $ (17,633) $ (32,834)
Policyholders' account balances 6,433 21,301 (6,282)
Estimated liability for guaranty fund assessments (1,066) (2,735) (3,626)
Investment adjustments 7,941 (21,875) 2,437
Other 525 1,029 (154)
------------ ------------ ------------
Deferred Federal income tax
provision (benefit) $ 4,803 $ (19,913) $ (40,459)
============ ============ ============
</TABLE>
Deferred tax assets and liabilities as of December 31, are
determined as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 99,475 $ 105,908
Investment adjustments 19,596 27,537
Estimated liability for guaranty fund assessments 7,427 6,361
------------ ------------
Total deferred tax asset 126,498 139,806
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs 92,625 101,655
Net unrealized investment gain (loss) (213) 1,486
Other 17,208 16,683
------------ ------------
Total deferred tax liability 109,620 119,824
------------ ------------
Net deferred tax asset $ 16,878 $ 19,982
============ ============
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
Federal income taxes paid (recovered) totaled $40,000,000,
$13,594,000 and $(1,560,000) in 1993, 1992 and 1991,
respectively.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain data processing, legal,
actuarial, management, advertising and other services to the
Company. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by the Company on an allocated cost
basis. Charges billed to the Company by MLIG pursuant to the
agreement were $55,843,000, $63,300,000 and $78,306,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management to the Company. The
Company pays a fee to MLAM for these services, through the MLIG
service agreement.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
Merrill Lynch, Pierce, Fenner and Smith, Inc. ("MLPF&S") who
are the
<PAGE>
Company's licensed insurance agents, solicit
applications for contracts to be issued by the Company. MLLA
is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were approximately $67,102,000,
$25,158,000 and $27,974,000 for 1993, 1992 and 1991,
respectively. Substantially all of these commissions were
capitalized as deferred policy acquisition costs and are being
amortized in accordance with the policy discussed in Note 1.
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company
("Monarch Life"), the Company borrowed funds from Merrill Lynch
& Co. to partially finance the transaction. As of December 31,
1991, the outstanding balance of these loans was approximately
$83,200,000. These loans were repaid during 1992. Interest
was calculated on these loans at LIBOR plus 150 basis points.
Intercompany interest paid on these loans during 1992 and 1991
was approximately $4,025,000 and $6,300,000, respectively.
The Company and Merrill Lynch Trust Company ("ML Trust") were
parties to an agreement whereby the Company retained ML Trust
to hold certain invested assets upon the terms and conditions
of the agreement. ML Trust was paid a fee based on its current
fee schedule. This agreement was terminated during 1993.
The Company has entered into certain other marketing and
administrative service agreements with affiliates in connection
with the variable life and annuity policies it sells.
During 1993, 1992 and 1991, the Company allowed the recapture
of certain policies previously indemnity reinsured by the
Company from Family Life. Simultaneously with the recapture,
the Company's affiliate, ML Life Insurance Company of New York
("ML Life"), assumption reinsured these policies. These
transactions resulted in the transfer of approximately
$11,900,000 $2,000,000 $19,200,000 of policy reserves during
1993, 1992 and 1991, respectively.
The fair value of the Company's payables to affiliates is
estimated at carrying value. These borrowings are payable on
demand and bear a variable interest rate based on LIBOR.
Total intercompany interest paid was $737,000, $5,409,000 and
$8,567,000 for 1993, 1992 and 1991, respectively.
NOTE 5. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
On December 20, 1993, the Company paid a $44,988,000 ordinary
dividend and a $75,012,000 extraordinary dividend to MLIG. The
Company received approval from the Arkansas Insurance
Commissioner prior to the declaration and payment of the
extraordinary dividend.
At December 31, 1993 and 1992, approximately $37,221,000 and
$44,988,000, respectively, of retained earnings was available
for distribution to the Company's stockholder. Statutory
capital and surplus at December 31, 1993 and 1992, was
$374,209,000 and $451,888,000, respectively.
During 1991, MLIG contributed capital to the Company of
$82,396,000. The contribution was made to support the
underwriting of additional insurance premiums and deposits. No
contributions were received during 1993 and 1992.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial statements
by charging policy acquisition costs to expense as incurred,
establishing future policy benefit reserves using different
actuarial assumptions, not providing for deferred taxes and
valuing securities on a different basis. The Company's
statutory net income for the years ended December 31, 1993,
1992 and 1991 was $45,604,000, $60,140,000 and $65,771,000,
respectively.
<PAGE>
The National Association of Insurance Commissioners ("NAIC")
has developed and implemented effective December 31,
1993, the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which
a life insurance company should have based upon that company's
risk profile. The NAIC has established four different levels of
regulatory action with respect to the RBC adequacy monitoring
system. Each of these levels may be triggered if an insurer's
total adjusted capital is less than a corresponding level of
RBC. These levels are as follows:
For companies with capital levels which are below 100% of
the basic RBC level (company action level) calculated for
that company, the company must submit to the domiciliary
insurance commissioner, and implement, an approved plan to
increase adjusted capital to at least 100% of the basic
RBC.
For companies with capital levels which are below 75% of
the basic RBC level calculated for that company, the
company must submit to an examination by the domiciliary
insurance department and as a result of the findings of the
examination, corrective orders may be issued.
For companies with capital levels which are below 50% of
the basic RBC level (authorized control level) calculated
for that company, the domiciliary insurance commissioner
will have the authority to place the company into
conservatorship or liquidation.
For companies with capital levels which are below 35% of
the basic RBC level calculated for that company, the
domiciliary insurance commissioner will be required to
place the company into conservatorship or liquidation.
As of December 31, 1993, based on the RBC formula, the
Company's total adjusted capital level was 279% of the basic
RBC level.
NOTE 6. REINSURANCE AGREEMENTS
On December 28, 1990, the Company entered into an indemnity
reinsurance agreement with Family Life, in which the Company
100% coinsured substantially all of Family Life's general
account interest-sensitive life and annuity business, and
modified coinsured all of the separate account variable annuity
business. As of December 31, 1993, substantially all of this
business has been assumption reinsured by the Company and an
affiliate.
On December 31, 1990, the Company and an affiliate entered into
a 100% reinsurance agreement with respect to all variable life
policies issued by Monarch Life and sold through the Merrill
Lynch & Co. retail network. As a result of the indemnity
provisions of the agreement, the Company became obligated to
reimburse Monarch Life for its net amount at risk with regard
to the reinsured policies. At the date of acquisition, assets
of approximately $553,000,000 supporting general account
reserves, on a statutory accounting basis, were transferred
from Monarch Life to the Company. This agreement provides for
contingent ceding commission payments to Monarch Life dependent
upon the lapse rate during the five years ending in 1995 and
mortality experience during the ten years ending in 2000. To
date, the Company has paid approximately $225,900,000 to
Monarch Life under the terms of the agreement. As of December
31, 1993, the Company has accrued $7,673,000 for such payments.
On various dates during 1992 and 1991, the Company and an
affiliate assumption reinsured substantially all such policies,
wherever permitted by appropriate regulatory authorities. Upon
assumption, the policy liabilities and the underlying assets of
approximately $2,625,000,000 were transferred to the Merrill
Lynch Life Variable Life Separate Account II. As a result of
the assumptions, the Company became directly obligated to the
policyholders, rather than to Monarch Life. Certain contract
owners of the reinsured policies elected to remain with Monarch
Life as permitted under certain
<PAGE>
state insurance laws. Assets
and liabilities of those policies not assumption reinsured by
the Company or its affiliate have remained with Monarch Life.
The Company and its affiliate have indemnified Monarch Life
against its net amount at risk on such policies. As of
December 31, 1993, approximately 10 life insurance policies
with $1,499,000 life insurance in force remain under the
indemnity provisions of the reinsurance agreement.
During 1992, the Company, and its affiliates, entered into an
agreement with Monarch Life for the purchase, transfer or
assignment of certain services and assets owned, licensed or
leased by Monarch Life. Additionally, the Company along with
its affiliates were allowed to actively solicit the employment
of individuals employed by Monarch Life, who are required to
service the Company's and its affiliates' variable life
insurance policies and Monarch Life's variable life insurance
policies. In consideration of this, the Company and its
affiliate, ML Life, transferred title to Monarch Life certain
telecommunications equipment owned by Merrill Lynch Insurance
Group Services, Inc., an affiliate of the Company, with a net
book value of $1,753,000. The Company agreed to service
Monarch Life's variable life insurance policies for a period of
five years at an annual rate of $100 per policy. Monarch Life
has an option to terminate the service agreement upon proper
notification.
NOTE 7. INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap contracts for the
purpose of minimizing exposure to fluctuations in interest
rates of specific assets held. The notional amount of such
swaps outstanding at December 31, 1993 and 1992 was
approximately $155,082,000 and $197,024,000 respectively. The
average unexpired term at December 31, 1993 and 1992 was 3.2
and 3.5 years, respectively.
The current amount at risk, on a present value basis, of
terminating or replacing at current market rates all
outstanding matched swaps in a loss position at December 31,
1993 and 1992 was $0 and $0, respectively. During 1992 and
1991, a net investment gain of approximately $2,302,000 and
$4,750,000, respectively, was recorded in connection with
interest rate swap activity. The Company did not realize net
investment gains (losses) from interest rate swap activity
during 1993.
During 1993, 1992 and 1991, the Company did not enter into
unmatched interest rate swap arrangements and did not act as an
intermediary or broker in interest rate swaps.
Estimated fair values for the Company's interest rate swaps are
based on broker quotes. At December 31, 1993 and 1992, the
estimated fair value for these contracts was $4,317,000 and
$10,551,000, respectively.
NOTE 8. SALE OF FAMILY LIFE INSURANCE COMPANY
On June 12, 1991, MLIG sold Family Life to a non-affiliated
entity. Prior to closing, MLIG transferred to affiliates of
Family Life, to the extent permitted by law, all assets and
liabilities of Family Life that were not related to Family
Life's mortgage protection life insurance business. Certain
life insurance and annuity products sold through the retail
network of Merrill Lynch & Co. and underwritten by Family Life
have been or will be assumption reinsured by the Company or its
affiliate in those jurisdictions in which the Company or its
affiliate has the authority to do so. (See Note 6)
NOTE 9. COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). During 1991, and to a lesser extent 1992, there were
certain highly
<PAGE>
publicized life insurance insolvencies. The
Company has utilized public information to estimate what future
assessments it will incur as a result of these insolvencies.
At December 31, 1993 and 1992, the Company had accrued an
estimated liability for future guaranty fund assessments of
$28,083,000 and $27,104,000, respectively. The Company
regularly monitors public information regarding insurer
insolvencies and will adjust its estimated liability where
appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
