<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1999
REGISTRATION NO. 33-43053
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 11 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 13 [X]
(CHECK APPROPRIATE BOX OR BOXES)
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MERRILL LYNCH LIFE VARIABLE ANNUITY
SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
MERRILL LYNCH LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(609) 282-1429
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
----------------------------------
BARRY G. SKOLNICK, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
MERRILL LYNCH LIFE INSURANCE COMPANY
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
STEPHEN E. ROTH, ESQ.
KIMBERLY J. SMITH, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, NW
WASHINGTON, D.C. 20004-2415
----------------------------------
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on __________ pursuant to paragraph (a)(1) of Rule 485
(date)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Units of Interest in Flexible Premium
Individual Deferred Variable Annuity Contracts.
The prospectus and the statement of additional information incorporated by
reference therein contained in this registration statement also relate to
variable annuity contracts which are covered by an earlier registration
statement, File No. 33-43052.
Exhibit Index can be found on page C-9
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<PAGE> 2
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 3
PROSPECTUS
May 1, 1999
Merrill Lynch Life Variable Annuity Separate Account ("Variable Account")
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
FLEXIBLE PREMIUM - 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
This prospectus gives you information you need to know before you invest. Keep
it for future reference. Address all communications concerning the Contract to
our Service Center at the address above.
The variable annuity contract described here provides a variety of investment
features. It also provides options for income protection later in life. It is
important that you understand how the contract works, and its benefits, costs,
and risks. First, some basics.
WHAT IS AN ANNUITY?
An annuity provides for the systematic liquidation of a sum of money at the
annuity date through a variety of annuity options. Each Annuity Option has
different protection features intended to cover different kinds of income needs.
Many of these Annuity Options provide income streams that can't be outlived.
WHAT IS A VARIABLE ANNUITY?
A variable annuity bases its benefits on the performance of underlying
investments. These investments may typically include stocks, bonds, and money
market instruments. The annuity described here is a variable annuity.
WHAT ARE THE RISKS IN OWNING A VARIABLE ANNUITY?
A variable annuity does not guarantee the performance of the underlying
investments. The performance can go up or down. It can even DECREASE the value
of money you've put in. You bear all of this risk. You could lose all or part of
the money you've put in.
HOW DOES THIS ANNUITY WORK?
We put your premium payments as you direct into one or more subaccounts of the
Variable Account. In turn, we invest each subaccount's assets in the following
corresponding portfolios of the Merrill Lynch Variable Series Funds, Inc.:
- - Reserve Assets Fund
- - Prime Bond Fund
- - High Current Income Fund
- - Quality Equity Fund
- - Special Value Focus Fund
- - Global Strategy Focus Fund
- - Natural Resources Focus Fund
- - American Balanced Fund
- - Index 500 Fund
- - International Equity Focus Fund
- - Basic Value Focus Fund
- - Global Growth Focus Fund
You may also put your premium payments into the Fixed Account.
The value of your contract at any point in time up to the Annuity Date is called
your contract value. Before the Annuity Date, you are generally free to direct
your contract value among the subaccounts or the Fixed
<PAGE> 4
Account as you wish. You may also withdraw all or part of your contract value.
If you die before the Annuity Date, we pay a death benefit to your beneficiary.
We've designed this annuity as a long-term investment. If you withdraw money
from the annuity too soon, you may incur substantial charges. In addition, any
money you take out of the contract may be subject to tax, and if taken before
age 59 1/2 may also be subject to a 10% federal penalty tax. FOR THESE REASONS,
YOU NEED TO CONSIDER YOUR CURRENT AND SHORT-TERM INCOME NEEDS CAREFULLY BEFORE
YOU DECIDE TO BUY THE CONTRACT.
WHAT DOES THIS ANNUITY COST?
We impose a number of charges. The two most significant charges are a sales
charge and a mortality and expense risk charge.
We provide more details on these two charges as well as a description of all
other charges later in the prospectus.
*****************************************************************
This prospectus contains information about the Contract and the Accounts that
you should know before you invest. A Statement of Additional Information
contains more information about the Contract and the Accounts. We have filed
this Statement of Additional Information, dated May 1, 1999, with the Securities
and Exchange Commission. We incorporate this Statement of Additional Information
by reference. If you want to obtain this Statement of Information, simply call
or write us at the phone number or address noted above. There is no charge to
obtain it. The table of contents for this Statement of Additional Information is
found on page 36 of this prospectus.
THE CURRENT PROSPECTUS FOR THE MERRILL LYNCH VARIABLE SERIES FUNDS, INC. MUST
ACCOMPANY THIS PROSPECTUS. PLEASE READ IT CAREFULLY AND RETAIN IT FOR FUTURE
REFERENCE.
The Securities and Exchange Commission has not approved these Contracts or
determined that this Prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DEFINITIONS................................................. 5
FEE TABLE................................................... 6
CAPSULE SUMMARY OF THE CONTRACT............................. 8
Premiums.................................................. 8
The Variable Account...................................... 8
The Funds Available For Investment........................ 9
Fees and Charges.......................................... 9
Mortality Risk Charge.................................. 9
Expense Risk Charge.................................... 9
Sales Charge........................................... 9
Administration Charge.................................. 9
Distribution Expense Charge............................ 9
Premium Taxes.......................................... 9
Transfers................................................. 9
Withdrawals............................................... 9
Death Benefit............................................. 10
Annuity Payments.......................................... 10
Retirement Plans.......................................... 10
Ten Day Review............................................ 10
MERRILL LYNCH LIFE INSURANCE COMPANY........................ 10
THE VARIABLE ACCOUNT........................................ 11
Segregation of Account Assets............................. 11
The Reinsurance Agreement................................. 11
Number of Subaccounts; Subaccount Investments............. 11
FINANCIAL STATEMENTS........................................ 12
INVESTMENTS OF THE ACCOUNTS................................. 12
General Information and Investment Risks.................. 12
Merrill Lynch Asset Management, L.P. ("MLAM")............. 12
Investment Objectives..................................... 13
Reserve Assets Fund.................................... 13
Prime Bond Fund........................................ 13
High Current Income Fund............................... 13
Quality Equity Fund.................................... 13
Special Value Focus Fund............................... 14
Global Strategy Focus Fund............................. 14
Natural Resources Focus Fund........................... 14
American Balanced Fund................................. 14
Index 500 Fund......................................... 14
International Equity Focus Fund........................ 14
Basic Value Focus Fund................................. 14
Global Growth Focus Fund............................... 14
Purchases and Redemptions of Fund Shares; Reinvestment.... 15
Material Conflicts, Substitution of Investments and
Changes to Accounts...................................... 15
CHARGES AND DEDUCTIONS...................................... 15
Mortality Risk Charge..................................... 16
Expense Risk Charge....................................... 16
Distribution Expense Charge............................... 16
Sales Charge.............................................. 16
When Imposed........................................... 16
Amount of Charge....................................... 16
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C>
Contract Administration Charge............................ 17
Waiver of Charges......................................... 17
Payments of Charges and Deductions........................ 17
Fund Expenses............................................. 17
Premium Taxes............................................. 17
FEATURES AND BENEFITS OF THE CONTRACT....................... 18
Ownership of The Contract................................. 18
Issuing the Contract...................................... 18
Information We Need To Issue The Contract.............. 18
Ten Day Right to Review................................ 18
Premiums.................................................. 18
Minimum and Maximum Premiums........................... 18
Premium Investments.................................... 18
Accumulation Units........................................ 19
ADDITIONAL PROVISIONS APPLICABLE TO ALL CONTRACTS........... 20
Beneficiary............................................... 20
Transfers................................................. 20
Withdrawals and Surrenders................................ 20
When and How Withdrawals are Made...................... 20
Minimum Amounts........................................ 21
Surrenders............................................. 21
Payments to Contract Owners............................... 21
Death Benefit............................................. 21
Annuity Payments.......................................... 22
First Variable Annuity Payment............................ 22
Subsequent Variable Annuity Payment....................... 23
Annuity Units............................................. 23
Annuity Options........................................... 23
Payments for a Fixed Period............................ 23
Life Annuity........................................... 24
Life Annuity With Payments Guaranteed for 10 or 20
Years................................................. 24
Joint and Survivor Life Annuity........................ 24
Proof of Age, Sex and Survival......................... 24
FEDERAL INCOME TAXES........................................ 24
Federal Income Taxes...................................... 24
Tax Status of the Contract................................ 24
Taxation of Annuities..................................... 25
Penalty Tax on Some Withdrawals........................... 26
Transfers, Assignments, or Exchanges of a Contract........ 26
Withholding............................................... 26
Multiple Contracts........................................ 26
Possible Changes In Taxation.............................. 26
Possible Charge For Merrill Lynch Life's Taxes............ 26
TAXATION OF QUALIFIED CONTRACTS............................. 26
Individual Retirement Accounts (IRAs)..................... 27
SIMPLE IRAs............................................... 27
Simplified Employee Pension (SEP) IRAs.................... 27
Roth IRAs................................................. 27
Corporate Pension and Profit Sharing Plans................ 27
Tax-Sheltered Annuities................................... 27
Section 457 Plans......................................... 28
Other Tax Issues.......................................... 28
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C>
OTHER INFORMATION........................................... 28
Notices and Elections..................................... 28
Contract Amendment........................................ 28
Voting Rights............................................. 28
Reports to Contract Owners................................ 29
Selling the Contract...................................... 29
State Regulation.......................................... 29
Year 2000................................................. 29
Legal Proceedings......................................... 30
Experts................................................... 30
Legal Matters............................................. 30
Registration Statements................................... 30
APPENDIX A (CONDENSED FINANCIAL INFORMATION)................ 31
APPENDIX B.................................................. 35
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION............................................... 36
</TABLE>
4
<PAGE> 8
DEFINITIONS
accumulation unit: An index used to compute the value of the contract owner's
interest in a subaccount prior to the annuity date.
annuitant: The person on whose continuation of life annuity payments may depend.
annuity date: The date on which annuity payments begin.
annuity unit: An index we use to compute variable annuity payments.
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.
net investment factor: An index used to measure the investment performance of a
subaccount from one valuation period to the next.
nonqualified contract: A Contract issued in connection with a retirement
arrangement other than a qualified arrangement described under Section 401, 403,
408, 408A, 457 or any similar provisions of the Internal Revenue Code.
qualified contract: A Contract we issue in connection with a qualified plan.
valuation period: The interval from one valuation day of a fund to the next
valuation day, measured from the time each day we value the fund.
tax sheltered annuity: A Contract issued in connection with a retirement
arrangement that receives favorable tax status under Section 403(b) of the
Internal Revenue Code.
5
<PAGE> 9
FEE TABLE
<TABLE>
<S> <C> <C>
A. Contract Owner Transaction Expenses
Contingent Deferred Sales Charge (as a percentage of
purchase payments or amount withdrawn, as applicable) 5.00%
We impose a contingent deferred sales charge if you withdraw
all or part of your contract value. We apply it to the
premiums you paid within the past 7 years (adjusted for any
prior withdrawals) or the amount you withdraw, whichever is
less. We will not charge for the part of your first
withdrawal that does not exceed 10% of the premiums you paid
prior to the date of your withdrawal.
The Fee Table and Examples do not include charges to
contract owners for premium taxes. Premium taxes may be
applicable. Refer to the PREMIUM TAXES section in this
Prospectus for further details.
B. Annual Contract Administration Charge....................... $30
The Contract Administration Charge will be assessed annually
on each contract anniversary on or prior to the annuity
date, or at full withdrawal if made other than on a contract
anniversary.
C. Separate Account Annual Expenses (as a percentage of account
value)
</TABLE>
<TABLE>
<S> <C>
Expense Risk Charge(a)...................................... 0.50
Mortality Risk Charge(b).................................... 0.75
Distribution Expense Charge(b).............................. 0.05
====
Total Separate Account Annual Expenses...................... 1.30
</TABLE>
D. Fund Expenses for the Year Ended December 31, 1998 (as a
percentage of each Fund's average net assets)
<TABLE>
<CAPTION>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. (CLASS A SHARES)(d)
-------------------------------------------------------------------------------
HIGH SPECIAL NATURAL GLOBAL
RESERVE PRIME CURRENT QUALITY VALUE RESOURCES STRATEGY AMERICAN
ANNUAL EXPENSES ASSETS BOND INCOME EQUITY FOCUS FOCUS FOCUS(C) BALANCED
--------------- ------- ----- ------- ------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees............... .50% .42% .47% .44% .75% .65% .65% .55%
Other Expenses....... .18% .06% .06% .05% .06% .23% .07% .07%
Total Annual
Operating
Expenses........... .68% .48% .53% .49% .81% .88% .72% .62%
</TABLE>
<TABLE>
<CAPTION>
BASIC INTERNATIONAL GLOBAL
VALUE EQUITY INDEX 500 GROWTH
ANNUAL EXPENSES FOCUS FOCUS FUND FOCUS
--------------- ----- ------------- --------- --------
<S> <C> <C> <C> <C>
Investment Advisory Fees.................. .60% .75% .30% .75%
Other Expenses............................ .06% .14% .06% .28%
Total Annual Operating Expenses........... .66% .89% .36% 1.03%
</TABLE>
6
<PAGE> 10
EXAMPLES OF CHARGES
If you surrender the Contract at the end of the applicable time period:
You would pay the following cumulative expenses on each $1,000 invested,
assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Reserve Assets Fund...................... $68 $115 $163 $242
Prime Bond Fund.......................... $66 $109 $152 $221
High Current Income Fund................. $66 $111 $155 $226
Quality Equity Fund...................... $66 $109 $153 $222
Special Value Focus Fund................. $69 $119 $169 $256
Natural Resources Focus Fund............. $70 $121 $173 $263
Global Strategy Focus Fund............... $68 $116 $165 $247
American Balanced Fund................... $67 $113 $160 $236
Basic Value Focus Fund................... $68 $115 $162 $240
International Equity Focus Fund.......... $70 $121 $174 $264
Index 500 Fund........................... $65 $106 $146 $208
Global Growth Focus Fund................. $72 $127 $183 $284
</TABLE>
If you annuitize or do not surrender the Contract at the end of the applicable
time period:
You would pay the following cumulative expenses on each $1,000 invested,
assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Reserve Assets Fund...................... $21 $66 $113 $242
Prime Bond Fund.......................... $19 $59 $102 $221
High Current Income Fund................. $20 $61 $105 $226
Quality Equity Fund...................... $19 $60 $103 $222
Special Value Focus Fund................. $23 $70 $119 $256
Natural Resources Focus Fund............. $23 $72 $123 $263
Global Strategy Focus Fund............... $22 $67 $115 $247
American Balanced Fund................... $21 $64 $110 $236
Basic Value Focus Fund................... $21 $65 $112 $240
International Equity Focus Fund.......... $23 $72 $124 $264
Index 500 Fund........................... $18 $56 $ 96 $208
Global Growth Focus Fund................. $25 $78 $133 $284
</TABLE>
The preceding Fee Table and Examples help you understand the costs and expenses
you will bear, directly or indirectly. The Fee Table and Examples include
expenses and charges of the Variable Account as well as the Funds. The Examples
also reflect the $30 contract administration charge as 0.0682%. See the Charges
and Deductions section in this Prospectus and the Fund prospectuses for a
further discussion of fees and charges.
THE EXAMPLES 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
EXAMPLES.
NOTES TO FEE TABLE
(a) 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 0.20%
(b) 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.
7
<PAGE> 11
(c) Effective following the close of business on December 6, 1996, the Flexible
Strategy Fund was merged with and into the Global Strategy Focus Fund. See
the accompanying prospectus for Merrill Lynch Variable Series Funds, Inc.
for additional information regarding this change.
(d) MLAM and Merrill Lynch Life Agency, Inc. have entered into a Reimbursement
Agreement that limits the operating expenses, exclusive of any distribution
fees imposed on Class B shares, paid by each Fund of the Merrill Lynch
Variable Series Funds, Inc. in a given year to 1.25% of its average net
asset. This Reimbursement Agreement is expected to remain in effect for the
current year.
You can find condensed financial information for The Merrill Lynch Life Variable
Annuity Separate Account in Appendix A to this prospectus.
CAPSULE SUMMARY OF THE CONTRACT
This capsule summary provides 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.
PREMIUMS
Generally, before the annuity date you can pay premiums as often as you like.
The minimum initial premium is $1,500 for a non-qualified Contract and $10 for
qualified Contracts. Subsequent premiums must be $300 ($50 in Tennessee) for
non-qualified Contracts, and $10 for qualified Contracts.
Tax-deferred arrangements, including qualified plans, should carefully consider
the costs and benefits of the Contracts, including annuity income benefits
before purchasing the Contract, since they also provide for tax deferred growth
of contract value.
THE VARIABLE ACCOUNT
As you direct, we will put premiums into sub-accounts of the Variable Account
corresponding to the Funds in which we invest your contract value or into the
Fixed Account. For the first 14 days following the date of issue, we put all
premiums you've directed into the Variable Account into the Reserve Assets Fund
Subaccount. After the 14 days, we'll put the money into the Variable Account
subaccounts you've selected. In Pennsylvania, however, we won't wait 14 days.
Instead, we'll invest your premium immediately in the subaccounts you've
selected. You may change the selection later, subject to certain conditions.
THE FUNDS AVAILABLE FOR INVESTMENT
The Funds available for investment are all funds of Merrill Lynch Variable
Series Funds. They are:
- Reserve Assets Fund
- Prime Bond Fund
- High Current Income Fund
- Quality Equity Fund
- Special Value Focus Fund
- Global Strategy Focus Fund
- Natural Resources Focus Fund
- American Balanced Fund
- Index 500 Fund
- International Equity Focus Fund
- Basic Value Focus Fund
- Global Growth Focus Fund
If you want detailed information about the investment objectives of the Funds,
see "Investments of the Accounts" and the attached prospectuses for the Funds.
8
<PAGE> 12
FEES AND CHARGES
MORTALITY RISK CHARGE
We impose a mortality risk charge to compensate us for mortality risks we assume
for the annuity payment and death benefit guarantees made under the Contract.
The charge equals 0.75% annually. We deduct it daily from the net asset value of
the Variable Account.
EXPENSE RISK CHARGE
We impose an expense risk charge to compensate us for the expense risks we
assume if the contract maintenance and administration charges aren't enough to
cover all Contract maintenance and administration expenses. The charge equals
0.5% annually for non-qualified contracts, and 0.2% annually for qualified
contracts. We deduct it daily from the net asset value of the Variable Account.
DISTRIBUTION EXPENSE CHARGE
We deduct a distribution expense charge to compensate us in part for expenses we
incur distributing the Contracts. The charge equals 0.05% annually. We deduct it
daily from the net asset value of the Variable Account.
SALES CHARGE
We impose a contingent deferred sales charge if you withdraw money from the
Variable Account, subject to certain exceptions.
It equals the lesser of:
- 5% of the premiums you pay within 7 years prior to the date you withdraw
your money (adjusted for any prior withdrawals); or
- 5% of the amount you withdraw.
This charge permits us to recover sales expenses we incur. The charges will
never exceed 5% of your total premiums.
ADMINISTRATION CHARGE
We deduct a $30 contract administration charge on each contract anniversary to
reimburse us for costs associated with the administration of the Contract. We
will also deduct this charge if you fully withdraw your contract value on any
day other than a contract anniversary. This charge ends on the Annuity Date.
PREMIUM TAXES
On the Annuity Date we deduct a charge for any premium taxes imposed by a state
or local government. Premium tax rates vary from jurisdiction to jurisdiction.
They currently range from 0% to 5%.
You can find detailed information about fees and charges imposed on the Contract
under "Charges and Deductions".
TRANSFERS
You may transfer all or part of the contract value between the Variable Account
and the Fixed Account and among the subaccounts, subject to certain limitations.
For Contracts issued before April 30, 1986 and reinsured by us, see the Appendix
for special provisions.
WITHDRAWALS
You may withdraw all or part of your accumulated contract value prior to the
annuity date or the annuitant's death, whichever is earlier. The amount you
withdraw 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
would prevent you from
9
<PAGE> 13
making a partial withdrawal, you may nevertheless make a full withdrawal of your
contract value. We may impose a contingent deferred sales charge and a contract
administration charge. Withdrawals will decrease your contract value.
Withdrawals are subject to tax, and prior to age 59 1/2 may also be subject to a
10% federal penalty tax. Withdrawals under Tax-Sheltered Annuities are
restricted.
DEATH BENEFIT
If either the annuitant or the contract owner dies before the annuity date, we
will pay the greater of:
- the sum of all premiums you paid (adjusted for any withdrawals); or
- the then current contract value.
We will not impose a contingent deferred sales charge.
ANNUITY PAYMENTS
Annuity payments begin on the Annuity Date and are made under the annuity option
you select. You may also select an annuity payment frequency. You may change
your selections before the annuity date.
Details about the annuity options available under the Contract can be found
under "Annuity Options".
RETIREMENT PLANS
We may issue the Contract pursuant to nonqualified retirement plans or plans
qualifying for special tax treatment such as "H.R. 10" plans, Individual
Retirement Annuities or Individual Retirement Accounts ("IRAs"), 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.
TEN DAY REVIEW
When you receive the Contract, read it carefully to make sure it's what you
want. Generally, within 10 days after you receive the Contract, you may return
it for a refund. Some states allow a longer period of time to return the
Contract. To get a refund, return the Contract to our Service Center or to the
Financial Consultant who sold it. We will then refund the greater of all
premiums paid into the Contract or the contract value as of the date you return
the Contract. For contracts issued in Pennsylvania, we'll refund your premiums
allocated to the Fixed Account, plus your contract value in the Variable Account
as of the date you return the Contract.
MERRILL LYNCH LIFE INSURANCE COMPANY
We are a stock life insurance company organized under the laws of the State of
Washington on January 27, 1986. We changed our corporate location to Arkansas on
August 31, 1991. We are owned by Merrill Lynch & Co., Inc., a corporation whose
common stock is traded on the New York Stock Exchange.
On October 1, 1991, Tandem Insurance Group, Inc. (adba Tandem Life Insurance
Company) ("Tandem"), an affiliate of ours, merged into and with us. We are the
surviving company.
As a result of the merger, all of the contracts Tandem issued, we now issue.
Contract owners maintain their identical coverage through us.
In addition, the Tandem Variable Annuity Separate Account was combined with the
Variable Account, and its assets became the assets of the Variable Account.
These assets are segregated from all of our other assets. The combination of
accounts had no adverse impact on any contract owners, accumulation units,
annuity units or annuity unit values.
Our financial statements can be found in the Statement of Additional
Information. You should consider them only in the context of our ability to meet
any Contract obligation.
10
<PAGE> 14
THE VARIABLE ACCOUNT
You may direct premiums into a segregated investment account available to the
Contract. The Merrill Lynch Life Variable Annuity Separate Account (the
"Variable Account") offers through its subaccounts a variety of investment
options. Each option has a different investment objective.
We established the Variable Account on March 15, 1991. It is governed by
Arkansas law, our state of domicile. It is registered with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. The Variable Account meets the definition of a separate account under
the federal securities laws. The Variable Account's assets are segregated from
all of our other assets.
SEGREGATION OF ACCOUNT ASSETS
Obligations to contract owners and beneficiaries that arise under the Contract
are our obligations. We own all of the assets in the Variable Account. The
Variable Account's income, gains, and losses, whether or not realized, derived
from its assets are credited to or charged against the Variable Account without
regard to our other income, gains or losses. The assets in the Variable Account
will always be at least equal to its reserves and other liabilities. If the
Variable Account's assets exceed the required reserves and other Contract
liabilities, we may transfer the excess to our general account. Under Arkansas
insurance law the assets in the Variable Account, to the extent of its reserves
and liabilities, may not be charged with liabilities arising out of any other
business we conduct nor may the assets of the Variable Account be charged with
any liabilities of the other account.
THE REINSURANCE AGREEMENT
On March 22, 1991, we 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. As of September 1, 1991, we 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 we 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 our assumption of
the FLIC Contracts, we will issue a certificate of assumption to the owners of
the FLIC Contracts informing them of our 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 we assumption reinsure a Contract, 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 us and future
premiums will be forwarded directly to us. 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.
NUMBER OF SUBACCOUNTS; SUBACCOUNT INVESTMENTS
There are 12 subaccounts currently available through the Variable Account. All
subaccounts invest in a corresponding portfolio of the Merrill Lynch Variable
Series Funds, Inc. (the "Merrill Variable Funds"). Merrill Variable Funds is
registered with the Securities and Exchange Commission as an open-end management
investment company. Additional subaccounts may be added or closed in the future.
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Although the investment objectives and policies of certain Funds are similar to
the investment objectives and policies of other portfolios that may be managed
or sponsored by the same investment adviser, manager, or sponsor, nevertheless,
we do not represent or assure that the investment results will be comparable to
any other portfolio, even where the investment advisors or manager is the same.
Differences in portfolio size, actual investments held, fund expenses, and other
factors all contribute to differences in fund performance. For all of these
reasons, you should expect investment results to differ. In particular, certain
funds available only through the contract have names similar to funds not
available through the Contract. The performance of a fund not available through
the Contract should not be indicative of performance of the similarly named fund
available through the Contract.
FINANCIAL STATEMENTS
You can find our financial statements and those of the Variable Account in the
Statement of Additional Information. Commencing on September 1, 1991, the
Variable Account acquired a majority of the assets of the Merrill Lynch Variable
Annuity Account of FLIC in connection with our assumption reinsurance of certain
of FLIC's variable annuity contracts. Therefore, the Variable Account's
financial statements include the financial operations of the FLIC separate
account for periods prior to September 1, 1991. You can obtain the Statement of
Additional Information upon request and without charge, by writing or calling
our Service Center at the address or telephone number on the first page of this
prospectus.
INVESTMENTS OF THE ACCOUNTS
GENERAL INFORMATION AND INVESTMENT RISKS
Information about investment objectives, management, policies, restrictions,
expenses and all other aspects of fund operations can be found in the applicable
prospectus and its Statement of Additional Information. Fund shares are
currently sold to our separate accounts as well as separate accounts of ML Life
Insurance Company of New York (an indirect wholly owned subsidiary of Merrill
Lynch & Co., Inc.), and insurance companies not affiliated with Merrill Lynch,
to fund benefits under certain variable annuity and variable life insurance
contracts. Shares of these funds may be offered in the future to certain pension
or retirement plans.
Generally, you should consider the funds long-term investments and vehicles for
diversification, but not as a balanced investment program. Many of these funds
may not be appropriate as the exclusive investment to fund a Contract for all
contract owners. There is no guarantee that any fund will be able to meet its
investment objectives. Meeting these objectives depends upon future economic
conditions and upon how well fund management anticipates changes in economic
conditions.
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM")
MLAM is the investment adviser to the Merrill Variable Funds. MLAM is a
worldwide mutual fund leader, and together with its affiliate, Fund Asset
Management, L.P., had a total of $460 billion in investment company and other
portfolio assets under management as of January 1999. 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. As the
investment adviser, it is paid fees by these Funds for its services. The fees
charged to each of these Funds are set forth in the summary below.
MLAM has entered into an agreement with Merrill Lynch Insurance Group, Inc.
("MLIG"), an affiliate of ours, under which MLIG provides administration
services for the Funds of Merrill Variable Funds used with the Contracts and
other variable life insurance and variable annuity contracts we issue. Under
this agreement, MLAM compensates MLIG in an amount equal to a portion of the
annual gross investment advisory fees paid by these Funds to MLAM attributable
to contracts we issue.
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INVESTMENT OBJECTIVES
Details about these Funds, including their investment objectives, management,
policies, restrictions, expenses and risks, and all other aspects of these
Funds' operation can be found in the attached prospectus for the Merrill
Variable Funds and in their Statement of Additional Information. Read these
carefully before investing. As described in the prospectus for Merrill Variable
Funds, many of these Funds should be considered a long-term investment and a
vehicle for diversification, and not as a balanced investment program. Such
Funds may not be appropriate as the exclusive investment to fund a Contract for
all contract owners. The Merrill Variable Funds prospectus also describes
certain additional risks, including investing on an international basis or in
foreign securities and investing in lower rated or unrated fixed income
securities. There is no guarantee that any Fund will be able to meet its
investment objective. Meeting the objectives depends upon future economic
conditions and upon how well these Funds' management anticipates changes in
those economic conditions.
RESERVE ASSETS FUND. This Fund seeks to preserve capital, maintain liquidity,
and achieve 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; U.S. government agency
securities; bank certificates of deposit and bankers' acceptances; short-term
debt securities such as commercial paper and variable amount master demand
notes; repurchase agreements and other money market instruments. MLAM receives
an advisory fee from the Fund 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. This Fund seeks to obtain as high a level of current income as
is consistent with the investment policies of the Fund and with prudent
investment management. Secondarily, the Fund seeks capital appreciation when
consistent with the foregoing objective. The Fund invests primarily in long-term
corporate bonds rated in the top three ratings categories by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("Standard &
Poor's"). MLAM receives an advisory fee from the Fund at the annual rate of
0.50% of the first $250 million of the combined average daily nets 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 Merrill Variable Funds.
HIGH CURRENT INCOME FUND. This Fund seeks to obtain the highest level of current
income as is consistent with the investment policies of the Fund and with
prudent investment management. Secondarily, the Fund seeks capital appreciation
to the extent consistent with the foregoing objective. The Fund invests
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 (including securities commonly known as "junk bonds").
Investment in such securities entails relatively greater risk of loss of income
or principal. In an effort to minimize risk, the Fund will diversify its
holdings among many issuers. However, there can be no assurance that
diversification will protect the Fund from widespread defaults during periods of
sustained economic downturn. MLAM receives an advisory fee from the Fund 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 Merrill Variable Funds.
QUALITY EQUITY FUND. This Fund seeks to achieve the highest total investment
return consistent with prudent risk. The Fund employs 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 an advisory fee from the Fund at the annual rate of 0.50%
of the first $250 million of average daily net assets; 0.45% of the next $250
million; 0.425% of the next $100 million; and 0.40% of the average daily net
assets in excess of $400 million.
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SPECIAL VALUE FOCUS FUND (FORMERLY, THE EQUITY GROWTH FUND). This Fund seeks
long term growth of capital by investing primarily in common stocks of
relatively small companies that management of the Merrill Variable Funds
believes have special investment value, and of emerging growth companies
regardless of size. Companies are selected by management on the basis of their
long-term potential for expanding their size and profitability or for gaining
increased market recognition for their securities. Current income is not a
factor in the selection of securities. MLAM receives an advisory fee from the
Fund 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.
GLOBAL STRATEGY FOCUS FUND. This Fund seeks high total investment return by
investing primarily in a portfolio of equity and fixed income securities,
including convertible securities, of U.S. and foreign issuers. The Fund seeks to
achieve its objective by investing primarily in securities of issuers located in
the United States, Canada, Western Europe, the Far East and Latin America. MLAM
receives an advisory fee from the Fund at the annual rate of 0.65% of the
average daily net assets of the Fund.
Effective following the close of business on December 6, 1996, the Flexible
Strategy Fund was merged with and into the Global Strategy Focus Fund.
NATURAL RESOURCES FOCUS FUND. This Fund seeks to achieve long-term growth of
capital and protect the purchasing power of capital by investing primarily in
equity securities of domestic and foreign companies with substantial natural
resource assets. MLAM receives an advisory fee from the Fund at the annual rate
of 0.65% of the average daily net assets of the Fund.
We reserve the right to suspend the sale of units of the Natural Resources Focus
Subaccount in response to conditions in the securities markets or otherwise.
AMERICAN BALANCED FUND. This 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 an
advisory fee from the Fund at the annual rate of 0.55% of the average daily net
assets of the Fund.
INDEX 500 FUND. This Fund seeks investment results that, before expenses,
correspond to the aggregate price and yield performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index"). MLAM receives an advisory
fee from the Fund at an annual rate of 0.30% of the Fund's average daily net
assets.
INTERNATIONAL EQUITY FOCUS FUND. This Fund seeks capital appreciation and,
secondarily, income by investing in a diversified portfolio of equity securities
of issuers located in countries other than the United States. Under normal
conditions, at least 65% of the Fund's net assets will be invested in such
equity securities and at least 65% of the Fund's total assets will be invested
in the securities of issuers from at least three different foreign countries.
MLAM receives an advisory fee from the Fund at the annual rate of 0.75% of the
average daily net assets of the Fund.
BASIC VALUE FOCUS FUND. This Fund seeks capital appreciation and, secondarily,
income by investing in securities, primarily equities, that management of the
Fund believes are undervalued and therefore represent basic investment value.
The Fund seeks special opportunities in securities that are selling at a
discount, either from book value or historical price-earnings ratios, or seem
capable of recovering from temporarily out-of-favor considerations. Particular
emphasis is placed on securities which provide an above-average dividend return
and sell at a below-average price/earnings ratio. MLAM receives an advisory fee
from the Fund at the annual rate of 0.60% of the average daily net assets of the
Fund.
GLOBAL GROWTH FOCUS FUND. This Fund seeks long-term growth of capital. The Fund
invests in a diversified portfolio of equity securities of issuers located in
various countries and the United States, placing particular emphasis on
companies that have exhibited above-average growth rates in earnings. Because a
substantial portion of the Fund's assets may be invested on an international
basis, contract owners should be aware of certain risks, such as fluctuations in
foreign exchange rates, future political and economic developments,
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different legal systems, and the possible imposition of exchange controls or
other foreign government laws or restrictions. An investment in the Fund may be
appropriate only for long-term investors who can assume the risk of loss of
principal, and do not seek current income. MLAM receives an advisory fee from
the Fund at an annual rate of 0.75% of the Fund's average daily net assets.
PURCHASES AND REDEMPTIONS OF FUND SHARES; REINVESTMENT
Fund distributions to the Variable Account are automatically reinvested at net
asset value in additional Fund shares.
MATERIAL CONFLICTS, SUBSTITUTION OF INVESTMENTS AND CHANGES TO THE VARIABLE
ACCOUNT
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 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, we
may be required to eliminate one or more subaccounts of the Variable Account or
substitute a new subaccount. In responding to any conflict, we will take the
action we believe necessary to protect our contract owners.
We may substitute a different investment option for any of the current Funds. We
can do this for both existing investments and the investment of future premiums.
However, before any such substitution, we would need the approval of the
Securities and Exchange Commission and applicable state insurance departments.
We will notify you of any substitutions.
We may also make additional subaccounts available to the Variable Account,
eliminate subaccounts in the Variable Account, deregister of the Variable
Account under the Investment Company Act of 1940 (the "1940 Act"), make any
changes required by the 1940 Act, operate the Variable Account as a managed
investment company under the 1940 Act or any other form permitted by law,
transfer all or a portion of the assets of a subaccount or account to another
subaccount or account pursuant to a combination or otherwise, and create new
accounts. Before we make certain changes we need approval of the Securities and
Exchange Commission and applicable state insurance departments. We will notify
you of any changes.
Under the Contract you may also allocate your premiums (and transfer contract
values) to the Fixed Account. In the Fixed Account, your premiums accumulate at
a guaranteed interest rate, and become part of our general account. For some
qualified contracts, you may also take loans based on Fixed Account contract
values. Your interests 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. Our 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.
We have 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.
CHARGES AND DEDUCTIONS
We deduct the charges described below to cover costs and expenses, services
provided, and risks assumed under the Contracts. The amount of a charge may not
necessarily correspond to the costs associated with providing the services or
benefits. For example, the sales charge may not fully cover all of the sales and
distribution expenses we actually incur, and we may use proceeds from other
charges, including the mortality and expense risk charge, in part to cover such
expenses.
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MORTALITY RISK CHARGE
We impose a mortality risk charge on the Variable Account. It equals 0.75%
annually. We deduct it daily from the net asset value of each subaccount.
If this charge is inadequate to cover the actual cost of the mortality risk, we
will bear the loss. If the charge exceeds the actual cost, we will add the
excess to our profit and it may be used to finance distribution expenses. The
charge will never increase.
EXPENSE RISK CHARGE
We deduct an expense risk charge from the Variable Account to compensate us for
assuming the risk that our actual expenses for administering the Contract will
not increase. We compute this charge and deduct it on a daily basis from each
subaccount.
- For nonqualified Contracts, we deduct an annual charge equal to 0.5% of
the Variable Account's daily net asset value.
- For qualified Contracts, we deduct an annual charge equal to 0.2% of
the Variable Account's daily net asset value.
If this charge is insufficient to cover the actual cost of our expense risk, we
will bear the loss. If the charge is more than the actual cost of our expense
risk, it will be part of our profit. This charge will not change.
DISTRIBUTION EXPENSE CHARGE
We anticipate that the cost of distributing the Contracts will be greater than
the amount we receive from the contingent deferred sales charge. Therefore, we
deduct a distribution expense charge from the Variable Account to compensate us
for some of the distribution costs we incur. We deduct an annual charge equal to
0.05% of the Variable Account's daily net asset value. We compute this charge
and deduct it daily from each subaccount.
SALES CHARGE
WHEN IMPOSED
We may impose a contingent deferred sales charge on withdrawals and surrenders
from the Variable Account. This charge is for expenses relating to the sale of
the Contract, such as commissions, preparation of sales literature, and other
promotional activity. We impose the charge when you withdraw all or part of your
contract value. However, up to 10% of the sum of your premiums will not be
subject to such a charge if withdrawn as part of the first withdrawal of the
contract year. We will not impose this charge to death benefits we pay upon the
death of the annuitant or contract owner.
AMOUNT OF CHARGE
The charge is equal to the lesser of:
- 5% of the sum of the premiums you pay within 7 years prior to the date
of withdrawal (adjusted for any prior withdrawals); or
- 5% of the amount you withdraw.
The cumulative sum of all contingent deferred sales charges we make within 7
years prior to the date you make a withdrawal will never be more than 5% of the
sum of all premiums you make during the same period. We will deem that you make
withdrawals first from premiums you paid on a first-in, first out basis, and
then from any gain. The cumulative sum of the contingent deferred sales charges
will never exceed 5% of your total premiums.
We may reduce the contingent deferred sales charge for Contracts we sell to a
trustee, employer, or similar party pursuant to a retirement plan, or for a
similar arrangement for Contracts we sell to a group of individuals if such
program results in a savings of sales expenses. The amount of the reduction will
depend on factors such as the size of the group, the total amount of premiums,
and other relevant factors that might
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tend to reduce expenses we incur in connection with such sales. We will not
impose this reduction in a discriminatory manner.
(See "Accumulation Units" for a discussion of the effect the deduction of this
charge will have on the number of accumulation units credited to a Contract.)
CONTRACT ADMINISTRATION CHARGE
We charge $30 annually to reimburse us for costs associated with the
administration of the Contract. We deduct the charge from your contract value on
each contract anniversary on or prior to the annuity date, and if you make a
full withdrawal on any day other than a contract anniversary. This charge covers
such expenses as:
- issuing contracts,
- maintaining contract owner records,
- accounting,
- valuation,
- regulatory compliance, and
- reporting.
This charge will never increase.
WAIVER OF CHARGES
Where state law permits, we will waive the contingent deferred sales charge and
the contract administration charge for Contracts we issue to a trustee, employer
or similar party pursuant to a retirement plan or similar arrangement for the
benefit of a group of individuals.
- The initial premium must be at least $500,000, and
- The contract owner must agree to a Contract endorsement prohibiting the
allocation of premiums, and the transfer of values to the Fixed
Account.
PAYMENTS OF CHARGES AND DEDUCTIONS
We compute and deduct the expense risk charge, the mortality risk charge, and
the distribution expense charge from each Variable Account subaccount for each
day the Contract is in force. We deduct the contract administration charge and
the contingent deferred sales charge from the Fixed Account and from each
Variable Account subaccount in the ratio of your interest in each to your
contract value.
FUND EXPENSES
In calculating the net asset values of the Funds, advisory fees and operating
expenses are deducted from the assets of each Fund. Information about those fees
and expenses can be found in the attached prospectuses for the Funds, and in the
Statement of Additional Information for each Fund, if applicable.
PREMIUM TAXES
Various states and municipalities impose a premium tax on annuity premiums when
they are received by an insurance company. In other jurisdictions, a premium tax
is paid on the contract value on the annuity date.
Premium tax rates vary from jurisdiction to jurisdiction and currently range
from 0% to 5%. Although we pay these taxes when due, we won't deduct them from
your contract value until the annuity date. (See "Accumulation Units" for a
discussion of the effect the deduction of this charge will have on the number of
accumulation units credited to a 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, we will also deduct a
charge for these taxes on any withdrawal, surrender or death benefit paid under
the Contract.
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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, our status within that state, and the
premium tax laws of that state.
FEATURES AND BENEFITS OF THE CONTRACT
As we describe the contract, we will often use the word "you". In this context
"you" means "contract owner".
OWNERSHIP OF THE CONTRACT
The contract owner is entitled to exercise all rights under the Contract. Unless
otherwise specified, the annuitant will be the contract owner. A contract owner
who is not also the annuitant may designate a contingent owner. A contract owner
who is also the annuitant may only designate his or her spouse as a contingent
owner. A contingent owner becomes the contract owner if the contract owner dies
and the Contract continues in force. You may generally transfer ownership of
your Contract to a new owner. Such transfer cancels any designation of a
contingent owner, but does not affect the designation of a beneficiary. If we
issue the Contract pursuant to a qualified plan, however, you may not assign,
pledge, or transfer it, unless permitted by law. A collateral assignment does
not change contract ownership. A collateral assignee's rights have priority over
a beneficiary's. You should consult a competent tax advisor before you make any
designations, transfers or assignments because these transactions may result in
adverse tax consequences.
ISSUING THE CONTRACT
INFORMATION WE NEED TO ISSUE THE CONTRACT
Before we issue the Contract, we need certain information from you. We may
require you to complete and return a written Contract application in certain
circumstances, such as when the Contract is being issued to replace, or in
exchange for, another annuity or life insurance contract. Once we review and
approve that information or application, and you pay the initial premium, we'll
issue a Contract. Generally, we'll do this and invest the premium within two
business days. If we haven't received necessary information within five business
days, however, we will offer to return the premium and no Contract will be
issued.
TEN DAY RIGHT TO REVIEW
When you get the Contract, review it carefully to make sure it is what you
intended to purchase. Generally, within ten days after you receive the Contract,
you may return it for a refund. The Contract will then be deemed void. Some
states allow a longer period of time to return the Contract. To get a refund,
return the Contract to our Service Center or to the Financial Consultant who
sold it. We will then refund the greater of all premiums paid into the Contract
or the contract value as of the date you return the Contract. For contracts
issued in Pennsylvania, we'll refund your premiums allocated to the Fixed
Account, plus your contract value in the Variable Account as of the date you
return the Contract.
PREMIUMS
MINIMUM AND MAXIMUM PREMIUMS
Initial premium payments must be $1,500 or more on a nonqualified Contract and
$10 or more on a qualified Contract. Subsequent premium payments must be $300 or
more ($50 in Tennessee) for nonqualified Contracts, and $10 or more for
qualified Contracts. You can make them at any time before the annuity date
without giving us prior notice. We must consent to subsequent premiums for
Tax-Sheltered Annuities, where you have made a prior withdrawal from the
Contract. The Contract will not be in default if you do not pay subsequent
premiums. Maximum annual contributions to IRA Contracts are limited by federal
law.
PREMIUM INVESTMENTS
For the first 14 days following the date of issue, we'll hold all premiums
directed into Variable Account in the Reserve Assets Fund Subaccount. After the
14 days, we'll reallocate the account value to the Variable
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Account subaccounts you selected. (In Pennsylvania, we'll invest all premiums as
of the date of issue in the subaccounts you selected.)
ACCUMULATION UNITS
Each subaccount has a distinct value, called the accumulation unit value. The
accumulation unit value varies daily with the performance and expenses of the
corresponding subaccount funds. We use this value to determine the number of
subaccount accumulation units represented by your investment in a subaccount.
HOW ARE MY CONTRACT TRANSACTIONS PRICED?
We calculate an accumulation unit value for each sub-account at the close of
business on each day that the New York Stock Exchange is open. Transactions are
priced, which means that accumulation units in your contract are purchased
(added to your contract) or redeemed (taken out of your contract), at the unit
value next calculated after our Service Center receives notice of the
transaction. For premium payments and transfers into a subaccount, units are
purchased. For payment of contract proceeds (i.e., partial withdrawals,
surrenders, annuitization, and death benefits), transfers out of a subaccount,
and deduction for the contract administration charge, any contingent deferred
sales charge, and any premium taxes due, units are redeemed.
HOW DO WE DETERMINE THE NUMBER OF UNITS?
We determine the number of units by dividing the dollar value of the amount of
the purchase or redemption allocated to the subaccount by the value of one
accumulation unit for that subaccount for the valuation period in which the
transfer is made. The number of accumulation units in each subaccount credited
to a Contract will therefore increase or decrease as these transactions are
made. The number of subaccount accumulation units credited to a Contract will
not change as a result of investment experience. Instead, the investment
experience is reflected in the accumulation unit value.
Accumulation unit values increase, decrease, or stay the same from one valuation
period to the next. A valuation period is the time period from one determination
of the net asset value of a subaccount to the next, measured from the time each
day the Funds are valued. The Funds are valued at the close of business on each
day the New York Stock Exchange is open. An accumulation unit value for any
valuation period is determined by multiplying the accumulation unit value for
the last prior valuation period by the net investment factor for the subaccount
for the current valuation period.
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, we
determine the net investment factor 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
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The per-share amount of any dividend or capital gain distributions
made 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. For nonqualified
Contracts, these charges equal 1.3% annually, and for qualified
Contracts they equal 1.0% annually, 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. We may adjust the net
investment factor to make provisions for any change in the law that requires us
to pay tax on capital gains in the Variable Account.
ADDITIONAL PROVISIONS APPLICABLE TO ALL CONTRACTS
BENEFICIARY
You name the beneficiary 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 you irrevocably designate a beneficiary, you may change the
beneficiary during the annuitant's or the contract owner's lifetime. 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, we will make
payment to the contract owner or to the contract owner's estate.
TRANSFERS
You may transfer all or part of your contract value among the Fixed Account and
the Variable Account subaccounts, subject to the following restrictions:
- You may not make a transfer from one Variable Account subaccount to
another within 30 days of the date of issue or within 30 days of a
prior transfer.
- You may not make a transfer from the Fixed Account to any Variable
Account subaccount within six months of the date of issue or within six
mounts of any prior transfer to the Fixed Account, except for one
transfer from the Fixed Account to the Variable Account subaccounts in
January of each year.
- Transfers from the Variable Account to the Fixed Account must be at
least 30 days apart.
- You may not make any transfers between the Fixed Account and the
Variable Account after the annuity date.
You may request transfers in writing or by telephone. Transfer requests may also
be made through your Merrill Lynch Financial Consultant. Transfers will take
effect as of the end of the valuation period on the date the Service Center
receives the request. We will consider telephone transfer requests received
after 4:00 p.m. (ET) to be received the following business day.
WITHDRAWALS
WHEN AND HOW WITHDRAWALS ARE MADE
You may withdraw all or part of your contract value, less any charges. We must
receive your election prior to the annuity date or the annuitant's death,
whichever is earlier. Under certain qualified plans, your spouse may have to
consent to the withdrawal.
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When we receive your election, we will cancel the number of accumulation units
necessary to equal the dollar amount of your withdrawal plus any contingent
deferred sales charge or administration charge. Unless you direct us otherwise,
withdrawals will be taken from the Fixed Account and the Variable Account
subaccounts in the same proportion as your value in the Fixed Account and the
Variable Account subaccounts from which the withdrawal is made bears to your
contract value. We will base withdrawals and related charges on values for the
valuation period in which we receive your election (and the Contract if
required) at our Service Center.
You may make a withdrawal request in writing to our Service Center. We may defer
payments of withdrawals (see "Payment to Contract Owners"). Withdrawals under
Tax-Sheltered Annuities are restricted. Withdrawals are subject to tax, and
prior to age 59 1/2 may also be subject to a 10% federal penalty tax. (See
"Federal Income Taxes").
MINIMUM AMOUNTS
The minimum amount that you may withdraw for a partial withdrawal is $500. At
least $500 must remain in the Contract after you make a withdrawal, or we will
not permit the partial withdrawal.
SURRENDERS
At any time before the annuity date you may surrender the Contract through a
full withdrawal. The Contract must be delivered to our Service Center. We will
pay you an amount equal to the contract value as of the end of the valuation
period when we receive your election, minus any applicable contingent deferred
sales charge or contract administration charge. (See "Charges and Deductions".)
PAYMENTS TO CONTRACT OWNERS
We'll make any payments to you usually within seven days of our Service Center
receiving your request. However, we may delay any payment, or delay processing
any transfer request if:
(a) the New York Stock Exchange is closed, other than for a customary
weekend or holiday;
(b) trading on the New York Stock Exchange is restricted by the
Securities and Exchange Commission;
(c) the Securities and Exchange Commission declares that an emergency
exists making it difficult to dispose of securities held in the
Variable Account or to determine their value; or
(d) the Securities and Exchange Commission by order so permits for the
protection of security holders.
DEATH BENEFIT
If either the annuitant or a contract owner dies prior to the annuity date, we
will pay to the beneficiary (once we receive due proof of death) the greater of:
- the sum of all premiums (adjusted for any withdrawals), or
- the contract value for the valuation period in which we receive such
proof at our Service Center.
The death benefit is determined as of the date we receive certain information at
our Service Center. We call this due proof of death. It consists of the
beneficiary statement, a certified death certificate, and any additional
documentation we need to process a claim.
An annuitant's beneficiary may generally choose a lump sum payment or payment
under any of the annuity options of the Contract. However, if any owner is not
an individual or if the deceased annuitant was an owner, the annuitant's
beneficiary must take distribution of the death benefit in accordance with the
contract owner beneficiary distribution rules that follow.
A deceased contract owner's surviving spouse who is a contract owner's
beneficiary may choose a lump sum or payment under any of the Contract's annuity
options. If a deceased contract owner's surviving spouse is both
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the contract owner's beneficiary and a contingent owner, 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 deceased contract owner's
surviving spouse, may choose:
(a) a lump sum, which must be paid within five years of the contract
owner's death,
(b) a life annuity option, 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 beneficiary's life
expectancy.
Payment under (b) and (c) must start within one year of the contract owner's
death.
If either the annuitant or a contract owner dies after the annuity date, we will
continue to pay, pursuant to the annuity option in force at the date of death,
any guaranteed amounts remaining unpaid, unless the beneficiary chooses to
receive the present value of the remaining guaranteed payments in a lump sum.
Other rules may apply to qualified Contracts.
ANNUITY PAYMENTS
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. We will make annuity payments to you unless you specify
otherwise in writing. You may or may not be the annuitant; you make the choice
in the application. You may select the annuity date and an annuity option in
your application.
You may select the annuity date and an annuity option in your application. We'll
make the first annuity payment on the annuity date, and payments will continue
according to the annuity option selected. Contract owners may select from a
variety of annuity payment options, as outlined below in "Annuity Options," or
any other option satisfactory to you and to us. If you don't choose an annuity
option, the annuity date will be the first day of the next month after the
annuitant's 75(th) birthday and we'll use the Life Annuity with Payments
Guaranteed for 10 Years annuity option. For qualified Contracts other than IRAs,
the annuity date may not be later than April 1 of the calendar year after the
later of the calendar year in which the annuitant attains age 70 1/2 or retires.
For IRAs (or if the annuitant is a "5 percent owner" as described in the Code),
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 1/2. You may change the
annuity option by telephone or by written notice up to 30 days before the
annuity date.
We will make annuity payments monthly. You may elect quarterly, semi-annual or
annual payments, in which case we will base the calculation of the periodic
annuity payments on the monthly amount adjusted by a factor that takes into
account the longer interval between payments. If the net contract value (i.e.,
contract value minus premium tax) to be applied at the annuity date is less than
$5,000 ($3,500 for qualified Contracts) we may cash out your contract in a lump
sum. If any annuity payment would be less than $50, we may change the frequency
of payments so that all payments will be at least $50.
FIRST VARIABLE ANNUITY PAYMENT
We determine the dollar amount of the first monthly annuity payment by applying
your 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. We
base the tables on the 1983 Table "a" for Individual Annuity Valuation with
interest at 4% and the annuitant's age set back one year.
To determine the dollar amount of the first monthly annuity payment for each
$1,000 we apply under an annuity option, the Contract contains a formula to
adjust the annuitant's age based on the annuity date. If the annuity date is
between the years 1990 and 1999, we reduce the annuitant's age by one year. For
each decade thereafter the annuitant's age is reduced by one additional year.
The maximum age adjustment is five years.
An age adjustment results in a reduction in the monthly annuity payments that we
would otherwise make. It may be advantageous for you to designate an annuity
date that immediately precedes the date on which an
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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 we
will reduce the annuitant's age an additional year in the new decade.
SUBSEQUENT VARIABLE ANNUITY PAYMENTS
Subsequent variable annuity payments will vary in amount according to the
investment performance of the Variable Account subaccounts in which you have
allocated premiums. The amount of subsequent annuity payments, which may change
from month to month, is equal to the number of annuity units for each subaccount
you choose, multiplied by the value of an annuity unit for such subaccount for
the valuation period in which payment is due. We guarantee that variations in
expenses or mortality experience will not affect the amount of each subsequent
annuity payment.
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. We base the
amount of the first payment attributable to a subaccount on the ratio of your
interest in that subaccount at the annuity date to your interest in all
subaccounts. The number will not change as a result of investment experience.
For each subaccount, we set the value of an annuity unit 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 us and FLIC. 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. We
multiply the result by a factor to neutralize the assumed investment rate of 4%
built into the annuity table.
ASSUMED INVESTMENT RATE
We build a 4% assumed investment rate 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.
ANNUITY OPTIONS
We currently provide the following annuity payment options. Under certain
circumstances, several options provide the ability to take the present value of
future payments in a lump sum.
PAYMENTS FOR A FIXED PERIOD
We will make payments for a period you select of at least five years. With
respect to the Variable Account only, this option is not available until 3 years
after you make the last premium payment for this Contract. You may elect to
receive the present value of the remaining payments, computed at 4% interest, in
a lump sum. We will consider a lump sum payment a withdrawal, and a contingent
deferred sales charge may apply. The contingent deferred sales charge does not
apply to any other variable annuity option. We will continue to deduct the
mortality and expense risk charge under this option (as other options) even
though we assume no mortality risk.
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*LIFE ANNUITY
We make payments for as long as the annuitant lives. Payments will cease with
the last payment made before the annuitant's death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS
We make payments for as long as the annuitant lives. In addition, even if the
annuitant dies before the guaranteed period ends, we guarantee payments for
either 10 or 20 years as you selected. If the annuitant dies before the end of
the guaranteed period, the beneficiary may elect to receive the present value of
the remaining guaranteed payments (computed at the interest in effect when
annuity payments began) in a lump sum.
*JOINT AND SURVIVOR LIFE ANNUITY
We make payments for the lives of the annuitant and a designated second person.
Payments will continue as long as either one is living.
*These options are life annuities. Therefore, it is possible for the payee to
receive only one annuity payment if the person (or persons) on whose life
(lives) payment is based dies after only one payment or to receive only two
annuity payments if that person (those persons) dies after only two payments,
etc.
PROOF OF AGE, SEX AND SURVIVAL
We may require proof of age, sex or survival of any person upon whose
continuation of life annuity payments depend.
FEDERAL INCOME TAXES
FEDERAL INCOME TAXES
The following summary discussion is based on our understanding of current
federal income tax law as the Internal Revenue Service (IRS) now interprets it.
We can't guarantee that the law or the IRS's interpretation won't change. It
does not purport to be complete or to cover all tax situations. This discussion
is not intended as tax advice. Counsel or other tax advisors should be consulted
for further information.
We haven't considered any applicable federal gift, estate or any state or other
tax laws. Of course, your own tax status or that of your beneficiary can affect
the tax consequences of ownership or receipt of distributions.
When you invest in an annuity contract, you usually do not pay taxes on your
investment gains until you withdraw the money -- generally for retirement
purposes. If you invest in an annuity as part of a pension plan or
employer-sponsored retirement program, your contract is called a Qualified
Contract. If your annuity is independent of any formal retirement or pension
plan, it is termed a Non-Qualified Contract. The tax rules applicable to
Qualified Contracts vary according to the type of retirement plan and the terms
and conditions of the plan. The ultimate effect of federal income taxes on the
amounts held under an annuity contract, on annuity payments, and on the economic
benefit to the owner, the annuitant or the beneficiary depends on the type of
retirement plan, on the tax status of the individual concerned and on our tax
status.
TAX STATUS OF THE CONTRACT
Diversification Requirements. Section 817(h) of the Internal Revenue Code (IRC)
and the regulations under it provide that separate account investments
underlying a contract must be "adequately diversified" for it to qualify as an
annuity contract under IRC section 72. The separate account intends to comply
with the diversification requirements of the regulations under section 817(h).
This will affect how we make investments.
Owner Control. In certain circumstances, owners of variable annuity contracts
have been considered for Federal income tax purposes to be the owners of the
assets of the separate account supporting their contracts
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due to their ability to exercise investment control over those assets. When this
is the case, the contract owners have been currently taxed on income and gains
attributable to the separate account assets. There is little guidance in this
area, and some features such as the flexibility of an owner to allocate premium
payments and transfer contract accumulation values, have not been explicitly
addressed in published rulings. While we believe that the contracts do not give
owners investment control over Variable Account assets, we reserve the right to
modify the contracts as necessary to prevent an owner from being treated as the
owner of the Variable Account assets supporting the contract.
Required Distributions. To qualify as an annuity contract under section 72(s)
of the IRC, a non-qualified annuity contract must provide that: (a) if any owner
dies on or after the annuity starting date but before all amounts under the
contract have been distributed, the remaining amounts will be distributed at
least as quickly as under the method being used where the owner died; and (b) if
any owner dies before the annuity starting date, all amounts under the contract
will be distributed within five years of the date of death. So long as the
distributions begin within a year of the owner's death, the IRS will consider
these requirements satisfied for any part of the owner's interest payable to or
for the benefit of a "designated beneficiary" and distributed over the
beneficiary's life or over a period that cannot exceed the beneficiary's life
expectancy. A designated beneficiary is the person the owner names as
beneficiary and who assumes ownership when the owner dies. A designated
beneficiary must be a natural person. If the deceased owner's spouse is the
designated beneficiary, he or she can continue the contract when such
contractowner dies.
The contract is designed to comply with section 72 (s). We will review the
contract and amend it if necessary to make sure that it continues to comply with
the section's requirements.
Other rules regarding required distributions apply to qualified Contracts.
TAXATION OF ANNUITIES
In General. IRC section 72 governs annuity taxation generally. We believe an
owner who is a natural person usually won't be taxed on increases in the value
of a contract until there is a distribution (i.e., the owner withdraws all or
part of the accumulation or takes annuity payments). Assigning, pledging, or
agreeing to assign or pledge any part of the accumulation usually will be
considered a distribution. Withdrawals of accumulated investment earnings are
taxable as ordinary income.
The owner of any annuity contract who is not a natural person (e.g., a
corporation or a trust) generally must include in income any increase in the
excess of the accumulation over the "investment in the contract" during the
taxable year. There are some exceptions to this rule and a prospective owner
that is not a natural person may wish to discuss them with a competent tax
advisor.
The following discussion applies generally to contracts owned by a natural
person:
Partial Withdrawals and Surrenders. When a withdrawal from a Contract occurs,
the amount received generally will be treated as ordinary income subject to tax
up to an amount equal to the excess (if any) of the account value immediately
before the distribution over the investment in the Contract (generally, the
premiums or other consideration paid for the Contract, reduced by any amount
previously distributed from the Contract that was not subject to tax) at that
time. Other rules apply to qualified Contracts.
If you withdraw your entire accumulation under a contract, you will be taxed
only on the part that exceeds your investment in the contract.
Annuity Payments. Although tax consequences may vary depending on the payout
option elected under an annuity contract, a portion of each annuity payment is
generally not taxed and the remainder is taxed as ordinary income. The
non-taxable portion of an annuity payment is generally determined in a manner
that is designed to allow you to recover your investment in the Contract ratably
on a tax-free basis over the expected stream of annuity payments, as determined
when annuity payments start. Once your investment in the Contract has been fully
recovered, however, the full amount of each annuity payment is subject to tax as
ordinary income.
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Taxation of Death Benefit Proceeds. Amounts may be paid from a contract because
an owner or annuitant has died. If the payments are made in a single sum,
they're taxed the same way a full withdrawal from the contract is taxed. If they
are distributed as annuity payments, they're taxed as annuity payments.
PENALTY TAX ON SOME WITHDRAWALS
You may have to pay a penalty tax (10 percent of the amount treated as taxable
income) on some withdrawals. However, there is usually no penalty on
distributions:
(1) on or after you reach age 59 1/2;
(2) after you die (or after the annuitant dies, if the owner isn't an
individual)
(3) after you become disabled; or
(4) that are part of a series of substantially equal periodic (at least annual)
payments for your life (or life expectancy) or the joint lives (or life
expectancies) of you and your beneficiary.
Other exceptions may be applicable under certain circumstances and special rules
may apply in connection with the exceptions enumerated above. Also, additional
exceptions apply to distributions from a qualified Contract. You should consult
a tax adviser with regard to exceptions from the penalty tax.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A CONTRACT
Transferring or assigning ownership of the contract, designating a payee or
other beneficiary who is not also the owner, or exchanging a contract can have
other tax consequences that we don't discuss here. If you're thinking about any
of those transactions, contact a tax advisor.
WITHHOLDING
Annuity distributions usually 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. However, recipients can usually
choose not to have tax withheld from distributions.
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts that we (or our affiliates) issued
to the same owner during any calendar year are generally treated as one annuity
contract for purposes of determining the amount includible in such owner's
income when a taxable distribution occurs. This could affect when income is
taxable and how much is subject to the ten percent penalty tax discussed above.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the contracts could change by legislation
or other means. It is also possible that any change could be retroactive (that
is, effective prior to the date of the change). A tax adviser should be
consulted with respect to legislative developments and their effect on the
contract.
POSSIBLE CHARGE FOR MERRILL LYNCH LIFE'S TAXES
Currently we don't charge the separate account for any federal, state, or local
taxes on it or its contracts (other than premium taxes), but we reserve the
right to charge the separate account or the contracts for any tax or other cost
resulting from the tax laws that we believe should be attributed to them.
TAXATION OF QUALIFIED CONTRACTS
The tax rules applicable to Qualified Contracts vary according to the type of
retirement plan and the terms and conditions of the plan. Your rights under a
Qualified Contract may be subject to the terms of the retirement plan itself,
regardless of the terms of the Qualified Contract. Adverse tax consequences may
result if you do not ensure that contributions, distributions and other
transactions with respect to the contract comply with the law.
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INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)
Individual Retirement Accounts (IRAs), as defined in Section 408 of the IRC,
permit individuals to make annual contributions of up to the lesser of $2,000 or
100% of adjusted gross income. The contributions may be deductible in whole or
in part, depending on the individual's income. Distributions from certain
pension plans may be "rolled over" into an IRA on a tax-deferred basis without
regard to these limits. Amounts in the IRA (other than nondeductible
contributions) are taxed when distributed from the IRA. A 10% penalty tax
generally applies to distributions made before age 59 1/2, unless certain
exceptions apply.
SIMPLE IRAS
SIMPLE IRAs permit certain small employers to establish SIMPLE plans as provided
by Section 408(p) of the IRC, under which employees may elect to defer to a
SIMPLE IRA a percentage of compensation up to $6,000 (as increased for cost of
living adjustments). The sponsoring employer is required to make matching or
non-elective contributions on behalf of employees. Distributions from SIMPLE
IRAs are subject to the same restrictions that apply to IRA distributions and
are taxed as ordinary income. Subject to certain exceptions, premature
distributions prior to age 59 1/2 are subject to a 10% penalty tax, which is
increased to 25% if the distribution occurs within the first two years after the
commencement of the employee's participation in the plan.
SIMPLIFIED EMPLOYEE PENSION (SEP) IRAS
Simplified Employee Pension (SEP) IRAs may be established by employers under
section 408(k) of the IRC to provide IRA contributions on behalf of their
employees. In addition to all of the general rules of the IRC governing IRAs,
such plans are subject to certain requirements regarding participation and
amounts of contributions.
ROTH IRAS
A Contract is available for purchase by an individual who has separately
established a Roth IRA custodial account with Merrill Lynch, Pierce, Fenner &
Smith Incorporated. Roth IRAs, as described in section 408A of the IRC, permit
certain eligible individuals to contribute to make non-deductible contributions
to a Roth IRA in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA is generally
subject to tax and other special rules apply. You may wish to consult a tax
adviser before combining any converted amounts with any other Roth IRA
contributions, including any other conversion amounts from other tax years.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to any Roth IRA. A 10% penalty tax
may apply to amounts attributable to a conversion from an IRA if they are
distributed during the five taxable years beginning with the year in which the
conversion was made.
CORPORATE PENSION AND PROFIT-SHARING PLANS
Corporate pension and profit-sharing plans under Section 401(a) of the IRC allow
corporate employers to establish various types of retirement plans for
employees, and self-employed individuals to establish qualified plans for
themselves and their employees. Adverse tax consequences to the retirement plan,
the owner or both may result if the Contract is transferred to any individual as
a means to provide benefit payments, unless the plan complies with all the
requirements applicable to such benefits prior to transferring the Contract.
TAX SHELTERED ANNUITIES
Tax Sheltered Annuities under section 403(b) of the IRC allow employees of
certain Section 501(c)(3) organizations and public schools to exclude from their
gross income the premium payments made, within certain limits, on a contract
that will provide an annuity for the employee's retirement. These premium
payments may be subject to FICA (social security) tax. Distributions of (1)
salary reduction contributions made in years beginning after December 31, 1988;
(2) earnings on those contributions; and (3) earnings on
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amounts held as of the last year beginning before January 1, 1989, are not
allowed prior to age 59 1/2, separation from service, death or disability.
Salary reduction contributions may also be distributed upon hardship, but would
generally be subject to penalties.
SECTION 457 PLANS
Section 457 Plans, while not actually providing for a qualified plan as that
term is normally used, provides for certain deferred compensation plans with
respect to service for state governments, local governments, political
subdivisions, agencies, instrumentalities and certain affiliates of such
entities, and tax exempt organizations. The Contract can be used with such
plans. Under such plans a participant may specify the form of investment in
which his or her participation will be made. All such investments, however, are
owned by and are subject to, the claims of the general creditors of the
sponsoring employer. In general, all amounts received under a section 457 plan
are taxable and are subject to federal income tax withholding as wages.
OTHER TAX ISSUES
Qualified Contracts have minimum distribution rules that govern the timing and
amount of distributions. You should refer to your retirement plan, adoption
agreement, or consult a tax advisor for more information about these
distribution rules.
Distributions from Qualified Contracts generally are subject to withholding for
the owner's federal income tax liability. The withholding rate varies according
to the type of distribution and the owner's tax status. The owner will be
provided the opportunity to elect not have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans are subject to a
mandatory federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution from such a plan, except
certain distributions such as distributions required by the IRC or distributions
in a specified annuity form. The 20% withholding does not apply, however, if the
owner chooses a "direct rollover" from the plan to another tax-qualified plan or
IRA.
OTHER INFORMATION
NOTICES AND ELECTIONS
Generally for all notices and elections under the Contract to be effective:
- we must receive them at our Service Center;
- they must be in writing; and
- the proper party must sign them.
You may make reallocations, account transfers, and changes of annuity date or
annuity option in writing or by telephone once we receive a proper telephone
transfer authorization. We are not responsible for their validity. If acceptable
to us, notices or elections relating to beneficiaries and ownership will take
effect as of the date you sign such a request, unless we have already acted in
reliance on the prior status.
CONTRACT AMENDMENT
We may amend the Contract at any time to conform it to any law, regulation or
ruling issued by any government agency to which the Contract is subject.
VOTING RIGHTS
We will vote all Fund shares held in the Variable Account at any special
meetings of the Fund's shareholders according to instructions we receive from
you. If we don't receive voting instructions, we'll vote those shares in the
same proportion as shares for which we receive instructions. We will also vote
shares not attributable to the Contracts in the same proportion as shares in the
respective subaccounts for which we receive instructions. Prior to the annuity
date, we determine the number of shares you may give voting instructions on by
dividing your interest in a subaccount by the net asset value per share of the
corresponding Fund. After the
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annuity date, we'll determine the number of shares for each Fund for which you
may give voting instructions 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 a Contract will decrease as the reserves underlying the
Contract decrease. We may vote Fund shares in our own right if laws change to
permit us to do so.
We will determine the number of Fund shares for which you may give voting
instructions as of a date that we choose. This date will not be more than 90
days prior to the Fund's meeting.
We will give you periodic reports relating to the Funds in which you have a
voting interest. These reports will include proxy material and a form with which
to give voting instructions.
REPORTS TO CONTRACT OWNERS
At least once each contract year before the annuity date, we will send you
information about your Contract. It will outline all your Contract transactions
during the year, your Contract's current number of accumulation units in each
Fund, the value of each accumulation unit, and the total contract value.
You will also receive an annual and a semi-annual report containing financial
statements and a list of portfolio securities of the Funds.
SELLING THE CONTRACT
MLPF&S is the principal underwriter of the Contract. Its principal business
address is World Financial Center, 250 Vesey Street, New York, New York 10281.
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.
Registered representatives (Financial Consultants) of MLPF&S sell the contract.
These Financial Consultants are also licensed through various Merrill Lynch Life
Agencies as our insurance agents. Through a distribution agreement we have with
MLPF&S and companion sales agreements we have with the Merrill Lynch Life
Agencies, Merrill Lynch Life Agencies and/or MLPF&S compensate the Financial
Consultants. The maximum commission paid to a Financial Consultant is 2.6% of
each premium. In addition, on the annuity date, the Financial Consultant will
receive additional compensation of up to 1.5% of contract value. Financial
Consultants may also be paid additional annual compensation of up to 0.13% of
contract value.
The maximum commission we will pay to Merrill Lynch Life Agencies to be used to
pay commissions to Financial Consultants is 5.0% of each premium.
MLPF&S may arrange for sales of the Contract by other broker-dealers. Registered
representatives of these other broker-dealers may be compensated on a different
basis than MLPF&S Financial Consultants.
STATE REGULATION
We are subject to the laws of the State of Arkansas and to the regulations of
the Arkansas Insurance Department. We are also subject to the insurance laws and
regulations of all jurisdictions in which we're licensed to do business.
We file an annual statement with the insurance departments of jurisdictions
where we do business. The statement discloses our operations for the preceding
year and our financial condition as of the end of that year. Our books and
accounts are subject to insurance department review at all times. The Arkansas
Insurance Department, in conjunction with the National Association of Insurance
Commissions, conducts a full examination of our operations periodically.
YEAR 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Variable Account could be adversely
affected if the computer systems we use or the other service providers we use do
not properly
29
<PAGE> 33
address this problem before January 1, 2000. Merrill Lynch & Co., Inc. has
established a dedicated group to analyze these issues and to implement any
systems modifications necessary to prepare for the Year 2000. Substantial
resources are devoted to this effort. Currently, we don't anticipate that the
transition to the 21st century will have any material impact on our ability to
continue to service the Contracts at current levels. In addition we have sought
assurances from the other service providers that they are taking all necessary
steps to ensure that their computer systems will accurately reflect the Year
2000. We will continue to monitor the situation. At this time, however, we can't
give assurance that the other service providers have anticipated every step
necessary to avoid any adverse effect on the Variable Account attributable to
the Year 2000 Problem.
LEGAL PROCEEDINGS
There are no legal proceedings involving the Variable Account. We and MLPF&S are
engaged in various kinds of routine litigation that, in our judgment, is not
material to our total assets.
EXPERTS
Deloitte & Touche LLP, independent auditors, have audited our financial
statements as of December 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1998. They've also audited financial statements of
the Variable Account as of December 31, 1998 and for the periods presented in
the Statement of Additional Information. We include these financial statements
in reliance upon the reports of Deloitte & Touche LLP given upon their authority
as experts in accounting and auditing. Their principal business address is Two
World Financial Center, New York, New York 10281-1420.
LEGAL MATTERS
Our organization, our authority to issue the Contract, and the validity of the
form of the Contract have been passed upon by Barry G. Skolnick, our Senior Vice
President and General Counsel. Sutherland Asbill & Brennan LLP of Washington,
D.C. has provided advice on certain matters relating to federal securities laws.
REGISTRATION STATEMENTS
Registration statements that relate to the Contract and its investment options
have been filed with the Securities and Exchange Commission under the Securities
Act of 1933 and the Investment Company Act of 1940. This Prospectus does not
contain all of the information in the registration statements. You can obtain
the omitted information from the Securities and Exchange Commission's principal
office in Washington, D.C., upon payment of a prescribed fee.
30
<PAGE> 34
APPENDIX A
CONDENSED FINANCIAL INFORMATION
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
SCHEDULE OF ACCUMULATION UNITS VALUES*
FOR THE PERIOD JANUARY 1, 1989 THROUGH DECEMBER 31, 1998
*The accumulation unit values listed below for the periods January 1, 1989
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"). On September 1, 1991, Merrill Lynch Life assumption reinsured certain
of FLIC's variable annuity contracts (see THE REINSURANCE AGREEMENT). 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 1989 1990 1991 1992 1993 1994 1995 1996
CONTRACTS: ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve Assets Fund
January 1 value............. 16.252 17.44 18.55 19.38 19.76 20.04 20.54 21.41
December 31 value........... 17.439 18.55 19.38 19.76 20.04 20.54 21.41 22.23
Total units outstanding at
December 31............... 756,930.2 542,420.0 437,996.5 492,365.6 350,130.6 297,045.1
Prime Bond Fund
January 1 value............. 19.764 22.10 23.38 26.86 28.45 31.46 29.57 35.07
December 31 value........... 22.103 23.38 26.86 28.45 31.46 29.57 35.07 35.38
Total units outstanding at
December 31............... 618,656.9 667,898.6 741,333.5 610,532.0 510,791.1 488,173.0
High Current Income Fund
January 1 value............. 22.632 23.76 21.62 30.51 36.15 42.06 40.03 46.32
December 31 value........... 23.760 21.62 30.51 36.15 42.06 40.03 46.32 50.87
Total units outstanding at
December 31............... 181,893.1 182,229.2 245,495.0 198,985.9 175,671.0 161,397.6
Quality Equity Fund
January 1 value............. 22.626 29.21 29.03 37.30 37.81 42.76 41.72 50.48
December 31 value........... 29.210 29.03 37.30 37.81 42.76 41.71 50.48 58.75
Total units outstanding at
December 31............... 674,488.8 681,947.8 790,434.5 701,903.6 648,031.6 596,734.7
Special Value Focus Fund
January 1 value............. 14.079 16.20 13.99 20.73 20.35 23.66 21.66 31.20
December 31 value........... 16.205 13.99 20.73 20.35 23.66 21.66 31.20 33.30
Total units outstanding at
December 31............... 269,251.3 310,826.6 336,594.9 314,670.5 324,219.4 301,378.9
Flexible Strategy Fund
April 30 (commencement)
January 1 value............. 11.252 13.36 13.82 17.06 17.55 20.07 18.98 21.99
December 31 value........... 13.362 13.82 17.06 17.55 20.07 18.98 21.99 **
Total units outstanding at
December 31............... 1,491,361.1 1,526,734.4 1,689,884.9 1,451,982.2 1,178,582.2 0.0
American Balanced Fund
May 31 (commencement)
January 1 value............. 10.332 12.05 12.04 14.34 14.96 16.76 15.85 18.91
December 31 value........... 12.047 12.04 14.34 14.96 16.76 15.85 18.91 20.48
Total units outstanding at
December 31............... 226,441.1 309,664.2 344,819.9 282,733.9 237,332.7 225,557.1
Natural Resources Focus Fund
May 31 (commencement)
January 1 value............. 9.508 11.10 10.27 10.28 10.29 11.22 11.23 12.49
December 31 value........... 11.097 10.27 10.28 10.29 11.22 11.23 12.49 14.00
Total units outstanding at
December 31............... 36,077.3 50,350.70 97,956.9 92,609.5 81,046.5 69,028.9
<CAPTION>
NONQUALIFIED 1997 1998
CONTRACTS: ---- ----
<S> <C> <C>
Reserve Assets Fund
January 1 value............. 21.41 23.08
December 31 value........... 23.08 23.95
Total units outstanding at
December 31............... 214,402.3 188,659.8
Prime Bond Fund
January 1 value............. 35.38 37.94
December 31 value........... 37.94 40.40
Total units outstanding at
December 31............... 396,073.2 326,897.5
High Current Income Fund
January 1 value............. 50.87 55.74
December 31 value........... 55.74 53.33
Total units outstanding at
December 31............... 134,635.7 111,675.5
Quality Equity Fund
January 1 value............. 58.75 71.74
December 31 value........... 71.74 81.85
Total units outstanding at
December 31............... 505,746.5 392,645.2
Special Value Focus Fund
January 1 value............. 33.30 36.72
December 31 value........... 36.72 33.90
Total units outstanding at
December 31............... 215,656.9 161,911.5
Flexible Strategy Fund
April 30 (commencement)
January 1 value............. ** **
December 31 value........... ** **
Total units outstanding at
December 31............... 0.0 0.0
American Balanced Fund
May 31 (commencement)
January 1 value............. 20.48 23.68
December 31 value........... 23.68 26.54
Total units outstanding at
December 31............... 184,125.0 147,419.9
Natural Resources Focus Fund
May 31 (commencement)
January 1 value............. 14.00 12.09
December 31 value........... 12.09 10.11
Total units outstanding at
December 31............... 52,717.5 33,137.6
</TABLE>
**Effective following the close of business on December 6, 1996, the Flexible
Strategy Fund was merged with and into the Global Strategy Focus Fund.
31
<PAGE> 35
<TABLE>
<CAPTION>
NONQUALIFIED 1996 1997 1998
CONTRACTS: ---- ---- ----
<S> <C> <C> <C>
Global Strategy Focus
Fund
January 1 value........ 0.00 10.06 11.12
December 31 value...... 10.06 11.12 11.95
Total units outstanding
at December 31....... 2,546,221.8 2,163,814.8 1,551,157.9
Index 500 Fund
January 1 value........ 0.00 10.12 13.27
December 31 value...... 10.12 13.27 16.81
Total units outstanding
at December 31....... 4,257.5 135,036.0 268,216.4
International Equity Fund
January 1 value........ 0.00 10.05 9.47
December 31 value...... 10.05 9.47 10.08
Total units outstanding
at December 31....... 723.7 19,276.6 11,110.1
Basic Value Focus Fund
January 1 value........ 0.00 9.83 11.71
December 31 value...... 9.83 11.71 12.65
Total units outstanding
at December 31....... 17,412.4 147,773.7 157,487.7
Global Growth Focus Fund
January 1 value........ ***
December 31 value...... 10.74
Total units outstanding
at December 31....... 9,811.2
</TABLE>
***Available for allocations of premiums or contract value following the close
of business on June 5, 1998.
32
<PAGE> 36
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
SCHEDULE OF ACCUMULATION UNITS VALUES*
FOR THE PERIOD JANUARY 1, 1989 THROUGH DECEMBER 31, 1998
*The accumulation unit values listed below for the periods January 1, 1989
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"). On September 1, 1991, Merrill Lynch Life assumption reinsured certain
of FLIC's variable annuity contracts (see THE REINSURANCE AGREEMENT). 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>
1989 1990 1991 1992 1993 1994 1995 1996
QUALIFIED CONTRACTS: ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve Assets Fund
January 1 value............. 16.577 17.84 19.04 19.94 20.39 20.75 21.32 22.30
December 31 value........... 17.840 19.04 19.94 20.39 20.75 21.32 22.30 23.21
Total units outstanding at
December 31............... 574,284.7 370,601.0 308,644.8 252,365.2 194,679.2 186,463.2
Prime Bond Fund
January 1 value............. 20.347 22.82 24.21 27.90 29.64 32.87 30.98 36.86
December 31 value........... 22.823 24.21 27.90 29.64 32.87 30.98 36.86 37.30
Total units outstanding at
December 31............... 428,447.8 478,220.2 477,582.5 358,718.0 303,333.0 287,481.4
High Current Income Fund
January 1 value............. 23.687 24.94 22.76 32.22 38.29 44.68 42.65 49.49
December 31 value........... 24.941 22.76 32.22 38.29 44.68 42.65 49.49 54.52
Total units outstanding at
December 31............... 74,457.7 73,582.5 93,456.4 92,839.7 79,516.1 73,108.5
Quality Equity Fund
January 1 value............. 24.224 31.37 31.26 40.29 40.96 46.46 45.45 55.18
December 31 value........... 31.366 31.26 40.29 40.96 46.46 45.45 55.18 64.41
Total units outstanding at
December 31............... 432,953.7 457,836.2 516,176.0 469,259.2 412,217.8 395,390.6
Special Value Focus Fund
January 1 value............. 15.341 17.71 15.33 22.79 22.44 26.17 24.03 34.71
December 31 value........... 17.710 15.33 22.79 22.44 26.17 24.03 34.71 37.15
Total units outstanding at
December 31............... 139,492.7 156,274.5 195,677.9 184,213.2 188,466.9 209,262.6
Flexible Strategy Fund
April 30 (commencement)
January 1 value............. 11.341 13.51 14.02 17.35 17.90 20.53 19.47 22.63
December 31 value........... 13.508 14.02 17.35 17.90 20.53 19.47 22.63 **
Total units outstanding at
December 31............... 1,139,762.3 1,085,349.8 1,225,420.9 1,076,826.3 934,036.1 0.0
American Balanced Fund
May 31 (commencement)
January 1 value............. 10.350 12.10 12.13 14.49 15.17 17.04 16.17 19.34
December 31 value........... 12.104 12.13 14.49 15.17 17.04 16.17 19.34 21.01
Total units outstanding at
December 31............... 79,728.3 155,312.1 200,913.9 171,872.9 154,870.7 162,879.1
Natural Resources Focus Fund
May 31 (commencement)
January 1 value............. 9.524 11.15 10.35 10.39 10.43 11.40 11.45 12.78
December 31 value........... 11.149 10.35 10.39 10.43 11.40 11.45 12.78 14.36
Total units outstanding at
December 31............... 28,823.5 27,220.0 40,239.5 44,876.1 39,692.2 36,777.8
<CAPTION>
1997 1998
QUALIFIED CONTRACTS: ---- ----
<S> <C> <C>
Reserve Assets Fund
January 1 value............. 23.21 24.18
December 31 value........... 24.18 25.16
Total units outstanding at
December 31............... 145,942.9 137,724.1
Prime Bond Fund
January 1 value............. 37.30 40.12
December 31 value........... 40.12 42.84
Total units outstanding at
December 31............... 253,147.8 228,232.5
High Current Income Fund
January 1 value............. 54.52 59.52
December 31 value........... 59.52 57.50
Total units outstanding at
December 31............... 61,583.9 62,432.7
Quality Equity Fund
January 1 value............. 64.41 78.88
December 31 value........... 78.88 90.27
Total units outstanding at
December 31............... 337,738.4 301,125.0
Special Value Focus Fund
January 1 value............. 37.15 41.10
December 31 value........... 41.10 38.04
Total units outstanding at
December 31............... 176,237.7 143,975.2
Flexible Strategy Fund
April 30 (commencement)
January 1 value............. ** **
December 31 value........... ** **
Total units outstanding at
December 31............... 0.0 0.0
American Balanced Fund
May 31 (commencement)
January 1 value............. 21.01 24.36
December 31 value........... 24.36 27.39
Total units outstanding at
December 31............... 108,485.8 103,834.0
Natural Resources Focus Fund
May 31 (commencement)
January 1 value............. 14.36 12.49
December 31 value........... 12.49 10.43
Total units outstanding at
December 31............... 30,921.9 20,219.8
</TABLE>
**Effective following the close of business on December 6, 1996, the Flexible
Strategy Fund was merged with and into the Global Strategy Focus Fund.
33
<PAGE> 37
<TABLE>
<CAPTION>
1996 1997 1998
QUALIFIED CONTRACTS: ---- ---- ----
<S> <C> <C> <C>
Global Strategy Focus Fund
January 1 value........... 0.00 10.07 11.16
December 31 value......... 10.07 11.16 12.03
Total units outstanding at
December 31............. 1,987,382.0 1,738,999.2 1,319,815.2
Index 500 Fund
January 1 value........... 0.00 10.12 13.31
December 31 value......... 10.12 13.31 16.91
Total units outstanding at
December 31............. 0.00 76,239.7 168,861.5
International Equity Fund
January 1 value........... 0.00 10.05 9.50
December 31 value......... 10.05 9.50 10.14
Total units outstanding at
December 31............. 529.5 8,726.1 13,072.1
Basic Value Focus Fund
January 1 value........... 0.00 9.83 11.74
December 31 value......... 9.83 11.74 12.73
Total units outstanding at
December 31............. 27,787.1 76,376.9 126,510.4
Global Growth Focus Fund
January 1 value........... ***
December 31 value......... 10.76
Total units outstanding at
December 31............. 5,875.7
</TABLE>
***The Global Growth Focus Fund became available for allocations of premiums and
contract value following the close of business on June 5, 1998.
34
<PAGE> 38
APPENDIX B
APPLICABLE ONLY TO CONTRACTS ISSUED PRIOR TO APRIL 30, 1986
If we issued your Contract prior to April 30, 1986, and we assumption reinsured
it, you may transfer all of your contract value at net asset value to a new
Contract described in this prospectus. We will not impose a contingent deferred
sales charge on such transfer, and we will deem the new contract to be a
continuation of the old Contract when we compute withdrawal charges under the
new Contract.
Contracts we 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 you pay 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 you pay prior
to the withdrawal date.
In all other respects, both the 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").
2. The old Contracts do not provide for an annuity option of payments for a
fixed period (See "Annuity Options").
3. Under the old Contracts, we use different annuity tables to determine the
amount of the first annuity payment under the annuity options we offer. The
annuity tables in the old Contracts are more favorable to you 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 old
and new Contracts provide minimum guarantees.
4. Old Contracts (unlike new Contracts) permit you to transfer all or part of
your contract value to or from certain other fixed annuity contracts we
issued or reinsured to you. 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 you must make them prior to
the annuitant's death and at least 30 days prior to the annuity date. The
primary purpose of this transfer provision is to provide you with a means
for transfer in and out of our companion fixed annuity, a feature
unnecessary with respect to the new Contracts, because of the existence of
the Fixed Account.
You should contemplate an exchange of Contracts carefully. You should consider
the potential adverse effect on the level of future annuity payments that may
result from an exchange to a new Contract.
35
<PAGE> 39
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The contents of the Statement of Additional Information for the Contract include
the following:
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
36
<PAGE> 40
PART B
INFORMATION REQUIRED IN A STATEMENT
OF ADDITIONAL INFORMATION
<PAGE> 41
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
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, 1999.
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> 42
TABLE OF CONTENTS
<TABLE>
<S> <C>
Principal Underwriter....................................... 2
Financial Statements........................................ 2
Administrative Services Arrangements........................ 2
Financial Statements of Merrill Lynch Life Variable Annuity
Separate Account.......................................... S-1
Financial Statements of Merrill Lynch Life Insurance
Company................................................... G-1
</TABLE>
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, 1998, 1997, and 1996, MLPF&S received in
connection with the sale of the Contracts $0.6 million, $0.7 million and $0.7
million, 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 acquired 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, 1998, 1997 and 1996, Merrill Lynch Life
paid administrative services fees of $43.2 million, $43.0 million and $44.5
million, respectively.
2
<PAGE> 43
\<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statement of net assets of
Merrill Lynch Life Variable Annuity Separate Account (the
"Account") as of December 31, 1998 and the related
statements of operations and changes in net assets for each
of the two years in the period then ended. These financial
statements are the responsibility of the management of
Merrill Lynch Life Insurance Company (the "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, 1998. 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, 1998 and the results of its operations and
the changes in its net assets for each of the two years in
the period then ended 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.
February 4, 1999
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Market
Cost Shares Value
======================= ======================= =======================
<S> <C> <C> <C>
ASSETS:
Investments in Merrill Lynch
Variable Series Funds, Inc. (Note 1): 21
Reserve Assets Fund $ 7,986,889 7,986,889 $ 7,986,889
Prime Bond Fund 22,307,790 1,877,034 22,993,672
High Current Income Fund 10,519,516 944,565 9,549,548
Quality Equity Fund 46,700,574 1,556,789 59,344,814
Special Value Focus Fund 13,063,484 549,877 10,970,053
Global Strategy Focus Fund 33,772,911 2,567,356 34,428,244
International Equity Focus Fund 262,470 22,906 244,640
Basic Value Focus Fund 3,624,342 245,684 3,604,185
Index 500 Fund 6,297,103 453,951 7,367,239
American Balanced Fund 5,904,877 403,783 6,759,330
Natural Resources Focus Fund 814,466 71,391 546,141
Global Growth Focus Fund 149,813 15,588 168,667
----------------------- -----------------------
TOTAL ASSETS $ 151,404,235 163,963,422
======================= -----------------------
LIABILITIES:
Due to Merrill Lynch Life Insurance Company 67,432
-----------------------
TOTAL LIABILITIES 67,432
-----------------------
NET ASSETS $ 163,895,990
=======================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
1998 1997
======================= =======================
<S> <C> <C>
Investment Income:
Reinvested Dividends $ 24,024,457 $ 10,876,438
Mortality and Expense Charges (Note 3) (1,991,760) (2,155,370)
----------------------- -----------------------
Net Investment Income 22,032,697 8,721,068
----------------------- -----------------------
Realized and Unrealized Gains (Losses) on Investments:
Net Realized Gains 3,674,785 7,142,537
Net Change in Unrealized Gains (Losses) (12,213,463) 7,791,499
----------------------- -----------------------
Net Gain (Loss) on Investments (8,538,678) 14,934,036
----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 13,494,019 23,655,104
----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,870,960 2,374,001
Transfer of Contract Owner Withdrawals (32,095,903) (29,576,112)
Transfers In (Out) - Net 862,452 (1,094,172)
Transfer of Benefit Payments on Annuitized Contracts (271,884) (232,757)
Transfer of Contract Administration Charges (Note 3) (98,747) (112,015)
----------------------- -----------------------
Decrease in Net Assets
Resulting from Principal Transactions (29,733,122) (28,641,055)
----------------------- -----------------------
Decrease in Net Assets (16,239,103) (4,985,951)
Net Assets Beginning Balance 180,135,093 185,121,044
----------------------- -----------------------
Net Assets Ending Balance $ 163,895,990 $ 180,135,093
======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 162,496,202 $ 178,713,092
Contracts in the Annuity Period 1,399,788 1,422,001
----------------------- -----------------------
Total Contract Owners' Balance $ 163,895,990 $ 180,135,093
======================= =======================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Merrill Lynch Life Variable Annuity Separate Account
("Account"), a separate account of Merrill Lynch Life
Insurance Company ("Merrill Lynch Life"), was established
to support Merrill Lynch Life's operations with respect
to 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. The Account is a registered
unit investment trust under the Investment Company Act of
1940 and consists of twelve investment divisions. The
investment divisions each invest in the securities of a
single mutual fund portfolio of the Merrill Lynch
Variable Series Funds, Inc. ("Merrill Variable Funds").
The investment advisor to the funds of the Merrill
Variable Funds is Merrill Lynch Asset Management, L.P.
("MLAM"), an indirect subsidiary of Merrill Lynch & Co.
The assets of the Account are registered in the name of
Merrill Lynch Life. The Account's assets 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 Contracts issued in connection with
retirement plans that are qualified under the Internal
Revenue Code, 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 accumulated in the Account
provides the basis for the periodic determination of the
amount of increased or decreased benefits under the
Contracts.
The net assets may not be less than the amount required
under Arkansas State Insurance Law to provide for death
benefits (without regard to the minimum death benefit
guarantee) and other Contract benefits
The financial statements included herein have been
prepared in accordance with generally accepted accounting
principles for variable annuity separate accounts
registered as unit investment trusts. The preparation of
financial statements in conformity with generally
accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
<PAGE>
2. SIGNIFICANT ACOUNTING POLICIES
Investments in the divisions are included in the
statement of net assets at the net asset values of the
shares held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Realized gains and losses on the sale of investments are
computed on the first in first out method.
Investment transactions are recorded on the trade date.
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 that is attributable to the Account if the law
is changed. Charges for state and local taxes, if any,
attributable to the Account may also be made.
3. CHARGES AND FEES
Merrill Lynch Life deducts a contract administration
charge of $30 for each Contract on each Contract's
anniversary that occurs on or prior to the annuity date.
It is also deducted when the Contract is surrendered if
it is surrendered on any date other than the contract
anniversary date. The contract administration charge is
borne by Contract owners by redeeming 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 asset
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.
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Total
Total Non- Total
Separate Qualified Qualified
Account Contracts Contracts
======================= ======================= =======================
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 24,024,457 $ 13,679,746 $ 10,344,711
Mortality and Expense Charges (1,991,760) (1,254,773) (736,987)
----------------------- ----------------------- -----------------------
Net Investment Income 22,032,697 12,424,973 9,607,724
----------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses) on Investments:
Net Realized Gains 3,674,785 2,329,744 1,345,041
Net Change in Unrealized Losses (12,213,463) (7,188,243) (5,025,220)
----------------------- ----------------------- -----------------------
Net Loss on Investments (8,538,678) (4,858,499) (3,680,179)
----------------------- ----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 13,494,019 7,566,474 5,927,545
----------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,870,960 166,143 1,704,817
Transfer of Contract Owner Withdrawals (32,095,903) (21,177,486) (10,918,417)
Transfers In - Net 862,452 83,306 779,146
Transfer of Benefit Payments on Annuitized Contracts (271,884) (223,512) (48,372)
Transfer of Contract Administration Charges (98,747) (50,373) (48,374)
----------------------- ----------------------- -----------------------
Decrease in Net Assets
Resulting from Principal Transactions (29,733,122) (21,201,922) (8,531,200)
----------------------- ----------------------- -----------------------
Decrease in Net Assets (16,239,103) (13,635,448) (2,603,655)
Net Assets Beginning Balance 180,135,093 104,445,152 75,689,941
----------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 163,895,990 $ 90,809,704 $ 73,086,286
======================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 162,496,202 $ 89,856,978 $ 72,639,224
Contracts in the Annuity Period 1,399,788 952,726 447,062
----------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 163,895,990 $ 90,809,704 $ 73,086,286
======================= ======================= =======================
</TABLE>
NOTE: A Qualified contract is a contract issued in connection with a retirement
plan that receives favorable tax treatment under sections 401, 403,
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 OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Total
Total Non- Total
Separate Qualified Qualified
Account Contracts Contracts
======================= ======================= =======================
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 10,876,438 $ 6,373,247 $ 4,503,191
Mortality and Expense Charges (2,155,370) (1,380,224) (775,146)
----------------------- ----------------------- -----------------------
Net Investment Income 8,721,068 4,993,023 3,728,045
----------------------- ----------------------- -----------------------
Realized and Unrealized Gains on Investments:
Net Realized Gains 7,142,537 4,007,992 3,134,545
Net Change in Unrealized Gains 7,791,499 4,490,732 3,300,767
----------------------- ----------------------- -----------------------
Net Gain on Investments 14,934,036 8,498,724 6,435,312
----------------------- ----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 23,655,104 13,491,747 10,163,357
----------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 2,374,001 290,416 2,083,585
Transfer of Contract Owner Withdrawals (29,576,112) (17,349,901) (12,226,211)
Transfers Out - Net (1,094,172) (360,428) (733,744)
Transfer of Benefit Payments on Annuitized Contracts (232,757) (170,039) (62,718)
Transfer of Contract Administration Charges (112,015) (58,116) (53,899)
----------------------- ----------------------- -----------------------
Decrease in Net Assets
Resulting from Principal Transactions (28,641,055) (17,648,068) (10,992,987)
----------------------- ----------------------- -----------------------
Decrease in Net Assets (4,985,951) (4,156,321) (829,630)
Net Assets Beginning Balance 185,121,044 108,601,473 76,519,571
----------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 180,135,093 $ 104,445,152 $ 75,689,941
======================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 178,713,092 $ 103,465,409 $ 75,247,683
Contracts in the Annuity Period 1,422,001 979,743 442,258
----------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 180,135,093 $ 104,445,152 $ 75,689,941
======================= ======================= =======================
</TABLE>
NOTE: A Qualified contract is a contract issued in connection with a retirement
plan that receives favorable tax treatment under sections 401, 403,
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 OPERATIONS AND
CHANGES IN NET ASSETS - NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================
Total
Non- Reserve Prime
qualified Assets Bond
Contracts Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 13,679,746 $ 238,960 $ 880,586
Mortality and Expense Charges (1,254,773) (61,931) (176,308)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 12,424,973 177,029 704,278
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 2,329,744 0 (141,363)
Net Change In Unrealized Gains (Losses) (7,188,243) 0 307,319
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments (4,858,499) 0 165,956
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Operations 7,566,474 177,029 870,234
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 166,143 0 21,679
Transfer of Contract Owner Withdrawals (21,177,486) (1,567,406) (3,046,426)
Transfers In (Out) - Net 83,306 972,030 368,491
Transfer of Benefit Payments on Annuitized Contracts (223,512) (8,179) (28,175)
Transfer of Contract Administration Charges (50,373) (3,476) (6,162)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (21,201,922) (607,031) (2,690,593)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets (13,635,448) (430,002) (1,820,359)
Net Assets Beginning Balance 104,445,152 4,948,404 15,027,016
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 90,809,704 $ 4,518,402 $ 13,206,657
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 89,856,978 $ 4,485,446 $ 13,117,772
Contracts in the Annuity Period 952,726 32,956 88,885
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 90,809,704 $ 4,518,402 $ 13,206,657
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 187,283.8 324,697.3
Units Allocable to Contracts in the Annuity Period 1,376.0 2,200.1
----------------------- -----------------------
Total Units Outstanding at December 31, 1998 188,659.8 326,897.4
======================= =======================
Accumulation Unit Value at December 31, 1998 $ 23.95 $ 40.40
======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
High Special
Current Quality Value
Income Equity Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 688,258 $ 5,133,393 $ 1,828,741
Mortality and Expense Charges (89,471) (438,113) (88,565)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 598,787 4,695,280 1,740,176
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (52,173) 2,454,219 (276,614)
Net Change In Unrealized Gains (Losses) (817,902) (2,744,981) (1,915,100)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments (870,075) (290,762) (2,191,714)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Operations (271,288) 4,404,518 (451,538)
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 370 97,478 0
Transfer of Contract Owner Withdrawals (1,296,998) (7,260,598) (1,441,159)
Transfers In (Out) - Net 31,242 (1,280,715) (491,973)
Transfer of Benefit Payments on Annuitized Contracts (8,836) (87,658) (41,591)
Transfer of Contract Administration Charges (3,428) (17,271) (3,860)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,277,650) (8,548,764) (1,978,583)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets (1,548,938) (4,144,246) (2,430,121)
Net Assets Beginning Balance 7,504,592 36,282,256 7,918,921
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 5,955,654 $ 32,138,010 $ 5,488,800
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 5,902,955 $ 31,610,749 $ 5,427,015
Contracts in the Annuity Period 52,699 527,261 61,785
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 5,955,654 $ 32,138,010 $ 5,488,800
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 110,687.3 386,203.4 160,088.9
Units Allocable to Contracts in the Annuity Period 988.2 6,441.8 1,822.6
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1998 111,675.5 392,645.2 161,911.5
========================= ======================= =======================
Accumulation Unit Value at December 31, 1998 $ 53.33 $ 81.85 $ 33.90
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
Global International Basic
Strategy Equity Value
Focus Focus Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 3,926,069 $ 15,139 $ 269,038
Mortality and Expense Charges (275,921) (1,996) (22,404)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 3,650,148 13,143 246,634
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 146,609 (17,237) (96,841)
Net Change In Unrealized Gains (Losses) (2,225,236) 13,586 (66,993)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments (2,078,627) (3,651) (163,834)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,571,521 9,492 82,800
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 17,700 40 20,000
Transfer of Contract Owner Withdrawals (4,345,629) (45,741) (90,131)
Transfers In (Out) - Net (2,712,163) (34,252) 250,136
Transfer of Benefit Payments on Annuitized Contracts (45,037) 0 0
Transfer of Contract Administration Charges (11,676) (98) (1,015)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (7,096,805) (80,051) 178,990
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets (5,525,284) (70,559) 261,790
Net Assets Beginning Balance 24,061,621 182,549 1,730,430
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 18,536,337 $ 111,990 $ 1,992,220
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 18,372,201 $ 111,990 $ 1,992,220
Contracts in the Annuity Period 164,136 0 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 18,536,337 $ 111,990 $ 1,992,220
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 1,537,422.7 11,110.1 157,487.7
Units Allocable to Contracts in the Annuity Period 13,735.2 0.0 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1998 1,551,157.9 11,110.1 157,487.7
========================= ======================= =======================
Accumulation Unit Value at December 31, 1998 $ 11.95 $ 10.08 $ 12.65
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
Natural
Index American Resources
500 Balanced Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 111,319 $ 492,500 $ 95,743
Mortality and Expense Charges (40,660) (53,263) (5,806)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 70,659 439,237 89,937
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 235,987 168,388 (90,847)
Net Change In Unrealized Gains (Losses) 424,054 (105,189) (66,829)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 660,041 63,199 (157,676)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Operations 730,700 502,436 (67,739)
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 8,000 756 120
Transfer of Contract Owner Withdrawals (809,728) (1,196,367) (66,030)
Transfers In (Out) - Net 2,789,307 251,216 (168,374)
Transfer of Benefit Payments on Annuitized Contracts 0 (4,036) 0
Transfer of Contract Administration Charges (1,489) (1,563) (310)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,986,090 (949,994) (234,594)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets 2,716,790 (447,558) (302,333)
Net Assets Beginning Balance 1,791,928 4,360,081 637,354
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 4,508,718 $ 3,912,523 $ 335,021
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 4,508,718 $ 3,887,519 $ 335,021
Contracts in the Annuity Period 0 25,004 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 4,508,718 $ 3,912,523 $ 335,021
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 268,216.4 146,477.7 33,137.6
Units Allocable to Contracts in the Annuity Period 0.0 942.1 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1998 268,216.4 147,419.8 33,137.6
========================= ======================= =======================
Accumulation Unit Value at December 31, 1998 $ 16.81 $ 26.54 $ 10.11
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================
Global
Growth
Focus
Fund
=========================
<S> <C>
Investment Income (Loss):
Reinvested Dividends $ 0
Mortality and Expense Charges (335)
-------------------------
Net Investment Income (Loss) (335)
-------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (384)
Net Change In Unrealized Gains (Losses) 9,028
-------------------------
Net Gain (Loss) on Investments 8,644
-------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 8,309
-------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 0
Transfer of Contract Owner Withdrawals (11,273)
Transfers In (Out) - Net 108,361
Transfer of Benefit Payments on Annuitized Contracts 0
Transfer of Contract Administration Charges (25)
-------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 97,063
-------------------------
Increase (Decrease) in Net Assets 105,372
Net Assets Beginning Balance 0
-------------------------
Net Assets Ending Balance $ 105,372
=========================
Comprised of:
Contracts in the Accumulation Period $ 105,372
Contracts in the Annuity Period 0
-------------------------
Total Contract Owners' Balance $ 105,372
=========================
<PAGE>
Units Allocable to Contracts in Accumulation Period 9,811.2
Units Allocable to Contracts in the Annuity Period 0.0
-------------------------
Total Units Outstanding at December 31, 1998 9,811.2
=========================
Accumulation Unit Value at December 31, 1998 $ 10.74
=========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1997
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================
Total
Non- Reserve Prime
qualified Assets Bond
Contracts Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 6,373,247 $ 290,399 $ 1,033,100
Mortality and Expense Charges (1,380,224) (74,283) (200,586)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 4,993,023 216,116 832,514
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 4,007,992 0 (192,231)
Net Change In Unrealized Gains (Losses) 4,490,732 0 422,327
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 8,498,724 0 230,096
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Operations 13,491,747 216,116 1,062,610
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 290,416 (74,766) 53,517
Transfer of Contract Owner Withdrawals (17,349,901) (1,213,495) (2,400,686)
Transfers In (Out) - Net (360,428) (572,136) (931,247)
Transfer of Benefit Payments on Annuitized Contracts (170,039) (6,582) (21,052)
Transfer of Contract Administration Charges (58,116) (4,047) (7,685)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (17,648,068) (1,871,026) (3,307,153)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets (4,156,321) (1,654,910) (2,244,543)
Net Assets Beginning Balance 108,601,473 6,603,314 17,271,559
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 104,445,152 $ 4,948,404 $ 15,027,016
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 103,465,409 $ 4,908,681 $ 14,916,323
Contracts in the Annuity Period 979,743 39,723 110,693
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 104,445,152 $ 4,948,404 $ 15,027,016
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 212,681.2 393,155.6
Units Allocable to Contracts in the Annuity Period 1,721.1 2,917.6
----------------------- -----------------------
Total Units Outstanding at December 31, 1997 214,402.3 396,073.2
======================= =======================
Accumulation Unit Value at December 31, 1997 $ 23.08 $ 37.94
======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1997
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
High Special
Current Quality Value
Income Equity Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 725,482 $ 1,857,066 $ 521,351
Mortality and Expense Charges (100,955) (461,695) (115,737)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 624,527 1,395,371 405,614
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (61,137) 2,179,678 1,107,270
Net Change In Unrealized Gains (Losses) 157,446 3,485,792 (575,797)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 96,309 5,665,470 531,473
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Operations 720,836 7,060,841 937,087
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 13,000 226,658 20,801
Transfer of Contract Owner Withdrawals (1,426,874) (5,665,861) (1,357,938)
Transfers In (Out) - Net 187 (305,088) (1,691,831)
Transfer of Benefit Payments on Annuitized Contracts (8,809) (73,230) (20,186)
Transfer of Contract Administration Charges (4,042) (19,227) (4,928)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,426,538) (5,836,748) (3,054,082)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets (705,702) 1,224,093 (2,116,995)
Net Assets Beginning Balance 8,210,294 35,058,163 10,035,916
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 7,504,592 $ 36,282,256 $ 7,918,921
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 7,440,639 $ 35,843,709 $ 7,814,216
Contracts in the Annuity Period 63,953 438,547 104,705
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 7,504,592 $ 36,282,256 $ 7,918,921
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 133,488.3 499,633.5 212,805.4
Units Allocable to Contracts in the Annuity Period 1,147.3 6,113.0 2,851.4
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1997 134,635.7 505,746.5 215,656.9
========================= ======================= =======================
Accumulation Unit Value at December 31, 1997 $ 55.74 $ 71.74 $ 36.72
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1997
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
Global International Basic
Strategy Equity Value
Focus Focus Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,331,852 $ 941 $ 18,718
Mortality and Expense Charges (333,549) (2,384) (10,290)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 998,303 (1,443) 8,428
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 766,331 1,331 43,509
Net Change In Unrealized Gains (Losses) 913,712 (25,263) 60,689
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 1,680,043 (23,932) 104,198
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,678,346 (25,375) 112,626
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 19,450 0 0
Transfer of Contract Owner Withdrawals (4,262,620) (7,533) (74,235)
Transfers In (Out) - Net 62,847 208,292 1,521,294
Transfer of Benefit Payments on Annuitized Contracts (36,476) 0 0
Transfer of Contract Administration Charges (14,917) (108) (419)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (4,231,716) 200,651 1,446,640
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets (1,553,370) 175,276 1,559,266
Net Assets Beginning Balance 25,614,991 7,273 171,164
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 24,061,621 $ 182,549 $ 1,730,430
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 23,865,664 $ 182,549 $ 1,730,430
Contracts in the Annuity Period 195,957 0 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 24,061,621 $ 182,549 $ 1,730,430
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 2,146,192.8 19,276.6 147,773.7
Units Allocable to Contracts in the Annuity Period 17,622.0 0.0 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1997 2,163,814.8 19,276.6 147,773.7
========================= ======================= =======================
Accumulation Unit Value at December 31, 1997 $ 11.12 $ 9.47 $ 11.71
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - NONQUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1997
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
Natural
Index American Resources
500 Balanced Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 110 $ 525,781 $ 68,447
Mortality and Expense Charges (13,554) (55,790) (11,401)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) (13,444) 469,991 57,046
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 37,220 101,331 24,690
Net Change In Unrealized Gains (Losses) 193,972 45,273 (187,419)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 231,192 146,604 (162,729)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Operations 217,748 616,595 (105,683)
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 14,000 17,056 700
Transfer of Contract Owner Withdrawals (26,863) (813,906) (99,890)
Transfers In (Out) - Net 1,544,464 (73,549) (123,661)
Transfer of Benefit Payments on Annuitized Contracts 0 (3,704) 0
Transfer of Contract Administration Charges (406) (1,821) (516)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,531,195 (875,924) (223,367)
------------------------- ----------------------- -----------------------
Increase (Decrease) in Net Assets 1,748,943 (259,329) (329,050)
Net Assets Beginning Balance 42,985 4,619,410 966,404
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 1,791,928 $ 4,360,081 $ 637,354
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 1,791,928 $ 4,333,916 $ 637,354
Contracts in the Annuity Period 0 26,165 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 1,791,928 $ 4,360,081 $ 637,354
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 135,036.0 183,020.1 52,717.5
Units Allocable to Contracts in the Annuity Period 0.0 1,104.9 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1997 135,036.0 184,125.0 52,717.5
========================= ======================= =======================
Accumulation Unit Value at December 31, 1997 $ 13.27 $ 23.68 $ 12.09
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=============================================
Total Reserve Prime
Qualified Assets Bond
Contracts Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 10,344,711 $ 182,676 $ 623,983
Mortality and Expense Charges (736,987) (36,499) (96,876)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 9,607,724 146,177 527,107
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 1,345,041 0 (48,759)
Net Change In Unrealized Gains (Losses) (5,025,220) 0 161,351
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments (3,680,179) 0 112,592
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Operations 5,927,545 146,177 639,699
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,704,817 239,220 200,307
Transfer of Contract Owner Withdrawals (10,918,417) (335,986) (1,285,552)
Transfers In (Out) - Net 779,146 (107,440) 76,800
Transfer of Benefit Payments on Annuitized Contracts (48,372) (2,397) (4,707)
Transfer of Contract Administration Charges (48,374) (3,335) (5,355)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Principal Transactions (8,531,200) (209,938) (1,018,507)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets (2,603,655) (63,761) (378,808)
Net Assets Beginning Balance 75,689,941 3,528,899 10,156,289
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 73,086,286 $ 3,465,138 $ 9,777,481
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 72,639,224 $ 3,448,842 $ 9,733,146
Contracts in the Annuity Period 447,062 16,296 44,335
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 73,086,286 $ 3,465,138 $ 9,777,481
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 137,076.4 227,197.6
Units Allocable to Contracts in the Annuity Period 647.7 1,034.9
----------------------- -----------------------
Total Units Outstanding at December 31, 1998 137,724.1 228,232.5
======================= =======================
Accumulation Unit Value at December 31, 1998 $ 25.16 $ 42.84
======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
High Special
Current Quality Value
Income Equity Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 359,853 $ 3,770,679 $ 1,668,616
Mortality and Expense Charges (36,235) (265,921) (63,258)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 323,618 3,504,758 1,605,358
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (41,152) 1,022,538 164,664
Net Change In Unrealized Gains (Losses) (440,074) (997,802) (2,207,876)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments (481,226) 24,736 (2,043,212)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Operations (157,608) 3,529,494 (437,854)
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 68,606 466,652 170,276
Transfer of Contract Owner Withdrawals (391,399) (3,210,336) (1,312,903)
Transfers In (Out) - Net 382,498 (193,025) (181,813)
Transfer of Benefit Payments on Annuitized Contracts 0 (35,259) 0
Transfer of Contract Administration Charges (2,319) (15,781) (4,258)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Principal Transactions 57,386 (2,987,749) (1,328,698)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets (100,222) 541,745 (1,766,552)
Net Assets Beginning Balance 3,690,105 26,640,807 7,243,369
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 3,589,883 $ 27,182,552 $ 5,476,817
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 3,589,883 $ 26,836,380 $ 5,476,817
Contracts in the Annuity Period 0 346,172 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 3,589,883 $ 27,182,552 $ 5,476,817
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 62,432.7 297,290.1 143,975.2
Units Allocable to Contracts in the Annuity Period 0.0 3,834.9 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1998 62,432.7 301,125.0 143,975.2
========================= ======================= =======================
Accumulation Unit Value at December 31, 1998 $ 57.50 $ 90.27 $ 38.04
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
Global International Basic
Strategy Equity Value
Focus Focus Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 3,172,365 $ 6,960 $ 138,631
Mortality and Expense Charges (175,645) (1,183) (12,788)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 2,996,720 5,777 125,843
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 137,228 (2,703) 9,757
Net Change In Unrealized Gains (Losses) (1,688,206) 1,357 (85,246)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments (1,550,978) (1,346) (75,489)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Operations 1,445,742 4,431 50,354
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 319,059 9,320 41,450
Transfer of Contract Owner Withdrawals (3,605,452) (14,065) (79,856)
Transfers In (Out) - Net (1,669,977) 50,064 702,592
Transfer of Benefit Payments on Annuitized Contracts (6,009) 0 0
Transfer of Contract Administration Charges (12,784) (97) (727)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Principal Transactions (4,975,163) 45,222 663,459
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets (3,529,421) 49,653 713,813
Net Assets Beginning Balance 19,407,231 82,898 896,665
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 15,877,810 $ 132,551 $ 1,610,478
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 15,837,551 $ 132,551 $ 1,610,478
Contracts in the Annuity Period 40,259 0 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 15,877,810 $ 132,551 $ 1,610,478
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 1,316,504.7 13,072.1 126,510.4
Units Allocable to Contracts in the Annuity Period 3,346.6 0.0 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1998 1,319,851.2 13,072.1 126,510.4
========================= ======================= =======================
Accumulation Unit Value at December 31, 1998 $ 12.03 $ 10.14 $ 12.73
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
Natural
Index American Resources
500 Balanced Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 66,852 $ 294,953 $ 59,143
Mortality and Expense Charges (20,373) (25,391) (2,596)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 46,479 269,562 56,547
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 61,095 77,296 (34,934)
Net Change In Unrealized Gains (Losses) 342,791 (59,695) (61,646)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 403,886 17,601 (96,580)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Operations 450,365 287,163 (40,033)
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 115,732 68,490 5,369
Transfer of Contract Owner Withdrawals (115,056) (505,231) (62,581)
Transfers In (Out) - Net 1,391,155 352,782 (77,777)
Transfer of Benefit Payments on Annuitized Contracts 0 0 0
Transfer of Contract Administration Charges (1,499) (1,904) (300)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Principal Transactions 1,390,332 (85,863) (135,289)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets 1,840,697 201,300 (175,322)
Net Assets Beginning Balance 1,014,751 2,642,713 386,214
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 2,855,448 $ 2,844,013 $ 210,892
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 2,855,448 $ 2,844,013 $ 210,892
Contracts in the Annuity Period 0 0 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 2,855,448 $ 2,844,013 $ 210,892
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 168,861.5 103,834.0 20,219.8
Units Allocable to Contracts in the Annuity Period 0.0 0.0 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1998 168,861.5 103,834.0 20,219.8
========================= ======================= =======================
Accumulation Unit Value at December 31, 1998 $ 16.91 $ 27.39 $ 10.43
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1998
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================
Global
Growth
Focus
Fund
=========================
<S> <C>
Investment Income (Loss):
Reinvested Dividends $ 0
Mortality and Expense Charges (222)
-------------------------
Net Investment Income (Loss) (222)
-------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 11
Net Change In Unrealized Gains (Losses) 9,826
-------------------------
Net Gain (Loss) on Investments 9,837
-------------------------
Increase (Decrease) In Net Assets
Resulting from Operations 9,615
-------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 336
Transfer of Contract Owner Withdrawals 0
Transfers In (Out) - Net 53,287
Transfer of Benefit Payments on Annuitized Contracts 0
Transfer of Contract Administration Charges (15)
-------------------------
Increase (Decrease) In Net Assets
Resulting from Principal Transactions 53,608
-------------------------
Increase (Decrease) In Net Assets 63,223
Net Assets Beginning Balance 0
-------------------------
Net Assets Ending Balance $ 63,223
=========================
Comprised of:
Contracts in the Accumulation Period $ 63,223
Contracts in the Annuity Period 0
-------------------------
Total Contract Owners' Balance $ 63,223
=========================
<PAGE>
Units Allocable to Contracts in Accumulation Period 5,875.7
Units Allocable to Contracts in the Annuity Period 0.0
-------------------------
Total Units Outstanding at December 31, 1998 5,875.7
=========================
Accumulation Unit Value at December 31, 1998 $ 10.76
=========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1997
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===============================================
Total Reserve Prime
Qualified Assets Bond
Contracts Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 4,503,191 $ 195,459 $ 675,217
Mortality and Expense Charges (775,146) (38,526) (101,438)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 3,728,045 156,933 573,779
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 3,134,545 0 (71,579)
Net Change In Unrealized Gains (Losses) 3,300,767 0 237,265
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 6,435,312 0 165,686
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Operations 10,163,357 156,933 739,465
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 2,083,585 212,611 257,506
Transfer of Contract Owner Withdrawals (12,226,211) (767,899) (1,584,998)
Transfers In (Out) - Net (733,744) (394,377) 41,810
Transfer of Benefit Payments on Annuitized Contracts (62,718) (2,393) (13,901)
Transfer of Contract Administration Charges (53,899) (3,786) (6,648)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Principal Transactions (10,992,987) (955,844) (1,306,231)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets (829,630) (798,911) (566,766)
Net Assets Beginning Balance 76,519,571 4,327,810 10,723,055
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 75,689,941 $ 3,528,899 $ 10,156,289
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 75,247,683 $ 3,510,888 $ 10,110,584
Contracts in the Annuity Period 442,258 18,011 45,705
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 75,689,941 $ 3,528,899 $ 10,156,289
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 145,198.0 252,008.6
Units Allocable to Contracts in the Annuity Period 744.9 1,139.2
----------------------- -----------------------
Total Units Outstanding at December 31, 1997 145,942.9 253,147.8
======================= =======================
Accumulation Unit Value at December 31, 1997 $ 24.18 $ 40.12
======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1997
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
High Special
Current Quality Value
Income Equity Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 380,047 $ 1,353,207 $ 405,237
Mortality and Expense Charges (40,699) (266,811) (74,824)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 339,348 1,086,396 330,413
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (31,658) 1,738,935 718,613
Net Change In Unrealized Gains (Losses) 79,871 2,561,399 (287,806)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 48,213 4,300,334 430,807
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Operations 387,561 5,386,730 761,220
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 95,306 602,801 240,163
Transfer of Contract Owner Withdrawals (717,971) (4,156,292) (1,119,563)
Transfers In (Out) - Net (58,247) (600,736) (407,331)
Transfer of Benefit Payments on Annuitized Contracts 0 (40,493) 0
Transfer of Contract Administration Charges (2,417) (18,310) (5,224)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Principal Transactions (683,329) (4,213,030) (1,291,955)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets (295,768) 1,173,700 (530,735)
Net Assets Beginning Balance 3,985,873 25,467,107 7,774,104
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 3,690,105 $ 26,640,807 $ 7,243,369
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 3,690,105 $ 26,305,403 $ 7,243,369
Contracts in the Annuity Period 0 335,404 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 3,690,105 $ 26,640,807 $ 7,243,369
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 61,583.9 333,486.3 176,237.7
Units Allocable to Contracts in the Annuity Period 0.0 4,252.1 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1997 61,583.9 337,738.4 176,237.7
========================= ======================= =======================
Accumulation Unit Value at December 31, 1997 $ 59.92 $ 78.88 $ 41.10
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1997
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
Global International Basic
Strategy Equity Value
Focus Focus Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,039,888 $ 223 $ 30,056
Mortality and Expense Charges (204,827) (686) (6,729)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) 835,061 (463) 23,327
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 525,904 (19) 1,676
Net Change In Unrealized Gains (Losses) 754,033 (7,586) 79,716
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 1,279,937 (7,605) 81,392
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Operations 2,114,998 (8,068) 104,719
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 421,496 19,460 24,461
Transfer of Contract Owner Withdrawals (2,854,477) 0 (52,006)
Transfers In (Out) - Net (267,383) 66,245 546,686
Transfer of Benefit Payments on Annuitized Contracts (5,931) 0 0
Transfer of Contract Administration Charges (14,408) (60) (342)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Principal Transactions (2,720,703) 85,645 518,799
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets (605,705) 77,577 623,518
Net Assets Beginning Balance 20,012,936 5,321 273,147
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 19,407,231 $ 82,898 $ 896,665
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 19,364,093 $ 82,898 $ 896,665
Contracts in the Annuity Period 43,138 0 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 19,407,231 $ 82,898 $ 896,665
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 1,735,133.8 8,726.1 76,376.9
Units Allocable to Contracts in the Annuity Period 3,865.4 0.0 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1997 1,738,999.2 8,726.1 76,376.9
========================= ======================= =======================
Accumulation Unit Value at December 31, 1997 $ 11.16 $ 9.50 $ 11.74
========================= ======================= =======================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS - QUALIFIED CONTRACTS
FOR THE YEAR ENDED DECEMBER 31, 1997
=============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=========================================================================
Natural
Index American Resources
500 Balanced Focus
Fund Fund Fund
========================= ======================= =======================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 386,423 $ 37,434
Mortality and Expense Charges (5,234) (30,429) (4,943)
------------------------- ----------------------- -----------------------
Net Investment Income (Loss) (5,234) 355,994 32,491
------------------------- ----------------------- -----------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 11,151 225,613 15,909
Net Change In Unrealized Gains (Losses) 108,773 (121,067) (103,831)
------------------------- ----------------------- -----------------------
Net Gain (Loss) on Investments 119,924 104,546 (87,922)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Operations 114,690 460,540 (55,431)
------------------------- ----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 111,438 89,512 8,831
Transfer of Contract Owner Withdrawals (18,952) (892,431) (61,622)
Transfers In (Out) - Net 807,845 (435,011) (33,245)
Transfer of Benefit Payments on Annuitized Contracts 0 0 0
Transfer of Contract Administration Charges (270) (1,986) (448)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets
Resulting from Principal Transactions 900,061 (1,239,916) (86,484)
------------------------- ----------------------- -----------------------
Increase (Decrease) In Net Assets 1,014,751 (779,376) (141,915)
Net Assets Beginning Balance 0 3,422,089 528,129
------------------------- ----------------------- -----------------------
Net Assets Ending Balance $ 1,014,751 $ 2,642,713 $ 386,214
========================= ======================= =======================
Comprised of:
Contracts in the Accumulation Period $ 1,014,751 $ 2,642,713 $ 386,214
Contracts in the Annuity Period 0 0 0
------------------------- ----------------------- -----------------------
Total Contract Owners' Balance $ 1,014,751 $ 2,642,713 $ 386,214
========================= ======================= =======================
<PAGE>
Units Allocable to Contracts in Accumulation Period 76,239.7 108,485.8 30,921.9
Units Allocable to Contracts in the Annuity Period 0.0 0.0 0.0
------------------------- ----------------------- -----------------------
Total Units Outstanding at December 31, 1997 76,239.7 108,485.8 30,921.9
========================= ======================= =======================
Accumulation Unit Value at December 31, 1997 $ 13.31 $ 24.36 $ 12.49
========================= ======================= =======================
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill Lynch
Life Insurance Company (the "Company"), a wholly-owned subsidiary
of Merrill Lynch Insurance Group, Inc., as of December 31, 1998
and 1997, and the related statements of earnings, comprehensive
income, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles.
February 22, 1999
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------- ------------- -------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1998 - $2,504,599; 1997 - $2,927,562) $ 2,543,097 $ 3,008,608
Equity securities, at estimated fair value
(cost: 1998 - $162,710; 1997 - $72,599) 158,591 73,612
Trading account securities, at estimated fair value 17,280 15,625
Real estate held-for-sale 25,960 31,805
Policy loans on insurance contracts 1,139,456 1,118,139
------------- -------------
Total Investments 3,884,384 4,247,789
CASH AND CASH EQUIVALENTS 95,377 86,388
ACCRUED INVESTMENT INCOME 73,459 78,224
DEFERRED POLICY ACQUISITION COSTS 405,640 365,105
FEDERAL INCOME TAXES - DEFERRED 9,403 -
REINSURANCE RECEIVABLES 2,893 1,617
AFFILIATED RECEIVABLES - NET - 166
RECEIVABLES FROM SECURITIES SOLD 14,938 75,820
OTHER ASSETS 46,512 49,353
SEPARATE ACCOUNTS ASSETS 10,571,489 9,149,119
------------- -------------
TOTAL ASSETS $ 15,104,095 $ 14,053,581
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
- ------------------------------------ ------------- -------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,816,744 $ 4,188,110
Claims and claims settlement expenses 63,925 50,574
------------- -------------
Total policy liabilities and accruals 3,880,669 4,238,684
OTHER POLICYHOLDER FUNDS 20,802 27,160
LIABILITY FOR GUARANTY FUND ASSESSMENTS 13,864 15,374
FEDERAL INCOME TAXES - DEFERRED - 1,183
FEDERAL INCOME TAXES - CURRENT 15,840 24,438
AFFILIATED PAYABLES - NET 822 -
PAYABLES FOR SECURITIES PURCHASED 10,541 95,135
UNEARNED POLICY CHARGE REVENUE 55,235 32,102
OTHER LIABILITIES 24,273 22,332
SEPARATE ACCOUNTS LIABILITIES 10,559,459 9,149,119
------------- -------------
Total Liabilities 14,581,505 13,605,527
------------- -------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 347,324 347,324
Retained earnings 173,496 80,735
Accumulated other comprehensive income (loss) (230) 17,995
------------- -------------
Total Stockholder's Equity 522,590 448,054
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 15,104,095 $ 14,053,581
============= =============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 272,038 $ 308,702 $ 336,661
Net realized investment gains 12,460 13,289 8,862
Policy charge revenue 197,662 178,933 158,829
------------ ------------ ------------
Total Revenues 482,160 500,924 504,352
------------ ------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 195,676 209,542 235,255
Market value adjustment expense 5,528 4,079 6,071
Policy benefits (net of reinsurance recoveries: 1998 - $9,761;
1997 - $10,439; 1996 - $8,317) 31,891 27,029 21,052
Reinsurance premium ceded 19,972 17,879 15,582
Amortization of deferred policy acquisition costs 44,835 72,111 62,036
Insurance expenses and taxes 51,735 49,105 47,077
------------ ------------ ------------
Total Benefits and Expenses 349,637 379,745 387,073
------------ ------------ ------------
Earnings Before Federal Income Tax Provision 132,523 121,179 117,279
------------ ------------ ------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 40,535 52,705 22,814
Deferred (773) (12,261) 15,078
------------ ------------ ------------
Total Federal Income Tax Provision 39,762 40,444 37,892
------------ ------------ ------------
NET EARNINGS $ 92,761 $ 80,735 $ 79,387
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET EARNINGS $ 92,761 $ 80,735 $ 79,387
------------ ------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period (31,718) 22,347 (79,749)
Reclassification adjustment for gains included in net earnings (15,932) (12,390) (8,622)
------------ ------------ ------------
Net unrealized gains (losses) on investment securities (47,650) 9,957 (88,371)
Adjustments for:
Policyholder liabilities 14,483 10,094 58,415
Deferred policy acquisition costs 5,129 (822) 12,411
Income tax (expense) benefit related to items of
other comprehensive income 9,813 (6,730) 6,141
------------ ------------ ------------
Other comprehensive income (loss), net of tax (18,225) 12,499 (11,404)
------------ ------------ ------------
COMPREHENSIVE INCOME $ 74,536 $ 93,234 $ 67,983
============ ============ ============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholder's
Stock Capital Earnings Income (loss) Equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 2,000 $ 501,455 $ 76,482 $ 16,900 $ 596,837
Dividend to Parent (98,518) (76,482) (175,000)
Net earnings 79,387 79,387
Other comprehensive loss, net of tax (11,404) (11,404)
----------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1996 2,000 402,937 79,387 5,496 498,820
Dividend to Parent (55,613) (79,387) (135,000)
Net earnings 80,735 80,735
Other comprehensive income, net of tax 12,499 12,499
----------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1997 2,000 347,324 80,735 17,995 448,054
Net earnings 92,761 92,761
Other comprehensive loss, net of tax (18,225) (18,225)
----------- ----------- ----------- ------------ -------------
BALANCE, DECEMBER 31, 1998 $ 2,000 $ 347,324 $ 173,496 $ (230) $ 522,590
=========== =========== =========== ============ =============
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 92,761 $ 80,735 $ 79,387
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 44,835 72,111 62,036
Capitalization of policy acquisition costs (80,241) (71,577) (43,668)
Amortization (accretion) of investments (5,350) (4,672) (4,836)
Net realized investment gains (12,460) (13,289) (8,862)
Interest credited to policyholders' account balances 195,676 209,542 235,255
Provision (benefit) for deferred Federal income tax (773) (12,261) 15,078
Changes in operating assets and liabilities:
Accrued investment income 4,765 7,962 5,756
Claims and claims settlement expenses 13,351 10,908 9,854
Federal income taxes - current (8,598) 3,470 13,935
Other policyholder funds (6,358) 7,740 5,813
Liability for guaranty fund assessments (1,510) (3,399) (2,371)
Affiliated receivables/payables 988 (6,330) 3,735
Policy loans on insurance contracts (21,317) (26,068) (52,804)
Trading account securities (287) (14,928) -
Unearned policy charge revenue 23,133 11,269 7,801
Other, net 3,506 452 (10,194)
Net cash and cash equivalents provided ----------- ----------- -----------
by operating activities 242,121 251,665 315,915
----------- ----------- -----------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 893,619 846,041 847,091
Maturities of available-for-sale securities 451,759 595,745 536,449
Purchases of available-for-sale securities (1,028,086) (1,156,222) (956,840)
Mortgage loans principal payments received - 68,864 22,789
Purchases of mortgage loans - (5,375) -
Sales of real estate held-for-sale 14,135 6,060 5,407
Recapture of investment in Separate Accounts - 11,026 8,829
Investment in Separate Accounts (12,000) (21) (10,063)
Net cash and cash equivalents provided ----------- ----------- -----------
by investing activities 319,427 366,118 453,662
----------- ----------- -----------
</TABLE>
See notes to financial statements.
(Continued)
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Continued) (Dollars In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ - $ (135,000) $ (175,000)
Policyholders' account balances:
Deposits 1,042,509 1,101,934 542,062
Withdrawals (including transfers to/from Separate Accounts) (1,595,068) (1,593,320) (1,090,572)
Net cash and cash equivalents used ------------ ------------ ------------
by financing activities (552,559) (626,386) (723,510)
============ ============ ============
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,989 (8,603) 46,067
CASH AND CASH EQUIVALENTS
Beginning of year 86,388 94,991 48,924
------------ ------------ ------------
End of year $ 95,377 $ 86,388 $ 94,991
============ ============ ============
Supplementary Disclosure of Cash Flow Information
Cash paid to affiliates for:
Federal income taxes $ 49,133 $ 49,235 $ 8,880
Interest 860 842 988
</TABLE>
See notes to financial statements.
<PAGE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of Merrill Lynch Insurance Group,Inc.)
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Merrill Lynch Life Insurance Company
(the "Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells non-participating life insurance and annuity
products primarily variable life insurance, variable annuities,
market value adjusted annuities and immediate annuities. The
Company is currently licensed to sell insurance in forty-nine
states, the District of Columbia, the U.S. Virgin Islands and
Guam. The Company markets its products solely through the
retail network of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated ("MLPF&S"), a wholly-owned broker-dealer
subsidiary of Merrill Lynch & Co.
Basis of Reporting: The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles and prevailing industry practices, both of which
require management to make estimates that affect the reported
amounts and disclosure of contingencies in the financial
statements. Actual results could differ from those estimates.
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.
To facilitate comparisons with the current year, certain
amounts in the prior years have been reclassified.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for mortality
risk and the cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
Investments: The Company's investments in debt and equity
securities are classified as either available-for-sale or
trading and are reported at estimated fair value. Unrealized
gains and losses on available-for-sale securities are included
in stockholder's equity as a component of accumulated other
comprehensive income (loss), net of tax. Unrealized gains and
losses on trading account securities are included in net
realized investment gains (losses). If a decline in value of a
security is determined by management to be other-than-
temporary, the carrying value is adjusted to the estimated fair
value at the date of this determination and recorded as net
realized investment gains (losses).
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted to
the maturity date, and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of specific identification.
Certain fixed maturity securities are considered non-investment
grade. The Company defines non-investment grade fixed maturity
securities as unsecured debt obligations that do not have a rating
equivalent to Standard and Poor's (or similar rating agency)
BBB- or higher.
All outstanding mortgage loans were repaid during 1997. The
Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may have been
different from the accrual interest rate of the loan for
certain mortgage loans. The Company recognized a realized gain
at the date of the satisfaction of the loan at contractual
terms for loans where there was a difference between the cash
payment interest rate and the accrual interest rate. For all
loans the Company stopped accruing income when an interest
payment default either occurred or was probable. Impairments of
mortgage loans were established as valuation allowances and
recorded to net realized investment gains (losses).
Real estate held-for-sale is stated at estimated fair value
less estimated selling costs.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Investments in limited partnerships are carried at cost.
Deferred Policy Acquisition Costs: Policy acquisition costs for
life and annuity contracts are deferred and amortized based on
the estimated future gross profits for each group of contracts.
These future gross profit estimates are subject to periodic
evaluation by the Company, with necessary revisions applied
against amortization to date. It is reasonably possible that
estimates of future gross profits could be reduced in the
future, resulting in a material reduction in the carrying
amount of deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance that are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed. The deferred costs are amortized in
proportion to the estimated future gross profits over the
anticipated life of the acquired insurance contracts utilizing
an interest methodology.
<PAGE>
The Company has entered into an assumption reinsurance
agreement with an unaffiliated insurer. The acquisition costs
relating to this agreement are being amortized over a twenty-
year period using an effective interest rate of 7.5%. This
reinsurance agreement provides for payment of contingent ceding
commissions based upon the persistency and mortality experience
of the insurance contracts assumed. Any payments made for the
contingent ceding commissions are capitalized and amortized
using an identical methodology as that used for the initial
acquisition costs. The following is a reconciliation of the
acquisition costs related to the reinsurance agreement for the
years ended December 31:
1998 1997 1996
----------- ----------- -----------
Beginning balance $ 102,252 $ 112,249 $ 124,833
Capitalized amounts 6,085 5,077 5,077
Interest accrued 7,669 9,653 10,669
Amortization (14,213) (24,727) (28,330)
----------- ----------- -----------
Ending balance $ 101,793 $ 102,252 $ 112,249
=========== =========== ===========
The following table presents the expected amortization, net of
interest accrued, of these deferred acquisition costs over the
next five years. The amortization may be adjusted based on
periodic evaluation of the expected gross profits on the
reinsured policies.
1999 $ 7,045
2000 $ 6,110
2001 $ 5,670
2002 $ 5,400
2003 $ 5,386
Separate Accounts: Separate Accounts are established in
conformity with Arkansas State Insurance law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to general claims of
the Company only to the extent the value of such assets exceeds
Separate Accounts liabilities. At December 31, 1998, the
$12,030 excess of Separate Accounts Assets over Separate
Accounts liabilities represents the Company's temporary
investment in certain investment divisions that were made to
facilitate the establishment of those investment divisions.
Net investment income and net realized and unrealized gains
(losses) attributable to Separate Accounts assets accrue
directly to the policyholder and are not reported as revenue in
the Company's Statement of Earnings.
Assets and liabilities of Separate Accounts, representing net
deposits and accumulated net investment earnings less fees,
held primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
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:
<PAGE>
Interest-sensitive life products 4.00% - 5.70%
Interest-sensitive deferred annuities 3.40% - 8.69%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Claims and Claims Settlement Expenses: For life insurance
products, the liability equals the death benefit for claims
that have been reported to the Company and an estimate based
upon prior experience for unreported claims. For annuity
products, the liability equals the guaranteed minimum death
benefit reserve.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current Federal tax liability.
The Company uses the asset and liability method in providing
income taxes on all transactions that have been recognized in
the financial statements. The asset and liability method
requires that deferred taxes be adjusted to reflect the tax
rates at which future taxable amounts will be settled or
realized. The effects of tax rate changes on future deferred
tax liabilities and deferred tax assets, as well as other
changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums
and in substantially all states are exempt from state income
taxes.
Unearned Policy Charge Revenue: Certain variable life insurance
products contain policy charges that are assessed at policy
issuance. These policy charges are deferred and amortized into
policy charge revenue based on the estimated future gross
profits for each group of contracts. The Company records a
liability equal to the unamortized balance of these policy
charges.
Accounting Pronouncements: During 1998, the Company adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This pronouncement requires a Company to
present disaggregated information based on the internal
segments used in managing its business. Adoption did not impact
the Company's financial position or results of operations, but
it did affect the presentation of the Company's disclosures
(See Note 9).
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and for Hedging Activities". This
pronouncement will be effective for annual periods beginning
after June 15, 1999. Adoption of this pronouncement is not
expected to have a material impact on the Company's financial
position or results of operations.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial
instruments as of December 31 were:
1998 1997
------------ -------------
Assets:
Fixed maturity securities (1) $ 2,543,097 $ 3,008,608
Equity securities (1), (2) 158,591 73,612
Trading account securities (1) 17,280 15,625
Policy loans on insurance contracts (3) 1,139,456 1,118,139
Cash and cash equivalents (4) 95,377 86,388
Separate Accounts assets (5) 10,571,489 9,149,119
------------- -------------
Total financial instruments $ 14,525,290 $ 13,451,491
============= =============
(1) For publicly traded securities, the estimated fair value is
determined using quoted market prices. For securities without a
readily ascertainable market value, the Company has determined an
estimated fair value using a discounted cash flow model,
including provision for credit risk, based upon the assumption
that such securities will be held to maturity. Such estimated
fair values do not necessarily represent the values for which
these securities could have been sold at the dates of the balance
sheets. At December 31, 1998 and 1997, securities without a
readily ascertainable market value, having an amortized cost of
$376,993 and $389,728, had an estimated fair value of $375,470
and $396,253, respectively.
(2) The Company has investments in two limited partnerships that
do not have readily ascertainable market values. Management has
estimated the fair value as equal to cost based on the review of
the underlying investments of the partnerships. At December 31,
1998 and 1997, the Company's limited partnership investments were
$11,569 and $4,744, respectively.
(3) The Company estimates the fair value of policy loans as
equal to the book value of the loans. Policy loans are fully
collateralized by the account value of the associated insurance
contracts, and the spread between the policy loan interest rate
and the interest rate credited to the account value held as
collateral is fixed.
(4) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(5) Assets held in Separate Accounts are carried at quoted
market values.
<PAGE>
NOTE 3. INVESTMENTS
The amortized cost and estimated fair value of investments in
fixed maturity securities and equity securities (excluding
trading account securities) as of December 31 were:
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 2,079,867 $ 56,703 $ 29,078 $ 2,107,492
Mortgage-backed securities 229,197 7,908 43 237,062
U.S. Government and agencies 150,500 6,393 1,328 155,565
Foreign governments 21,157 35 2,996 18,196
Municipals 23,878 905 1 24,782
------------ ------------ ------------ ------------
Total fixed maturity securities $ 2,504,599 $ 71,944 $ 33,446 $ 2,543,097
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 151,130 $ 699 $ 4,823 $ 147,006
Limited partnerships 11,569 - - 11,569
Common stocks 11 5 - 16
------------ ------------ ------------ ------------
Total equity securities $ 162,710 $ 704 $ 4,823 $ 158,591
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 2,412,171 $ 73,318 $ 6,963 $ 2,478,526
Mortgage-backed securities 339,015 12,320 224 351,111
U.S. Government and agencies 119,107 2,767 111 121,763
Foreign governments 36,585 198 1,125 35,658
Municipals 20,684 866 - 21,550
------------ ------------ ------------ ------------
Total fixed maturity securities $ 2,927,562 $ 89,469 $ 8,423 $ 3,008,608
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 67,845 $ 1,187 $ 185 $ 68,847
Limited partnerships 4,744 - - 4,744
Common stocks 10 11 - 21
------------ ------------ ------------ ------------
Total equity securities $ 72,599 $ 1,198 $ 185 $ 73,612
============ ============ ============ ============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
------------ ------------
Fixed maturity securities:
Due in one year or less $ 383,825 $ 383,628
Due after one year through five years 926,665 950,938
Due after five years through ten years 599,278 610,339
Due after ten years 365,634 361,130
------------ ------------
2,275,402 2,306,035
Mortgage-backed securities 229,197 237,062
------------ ------------
Total fixed maturity securities $ 2,504,599 $ 2,543,097
============ ============
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
------------ ------------
AAA $ 479,923 $ 495,661
AA 146,703 148,169
A 756,880 773,977
BBB 992,041 1,005,835
Non-investment grade 129,052 119,455
------------ ------------
Total fixed maturity securities $ 2,504,599 $ 2,543,097
============ ============
<PAGE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with investments classified as available-for-sale.
The Company adjusts those assets and liabilities as if the
unrealized investment gains or losses from available-for-sale
investments had actually been realized, with corresponding
credits or charges reported in stockholder's equity as a
component of accumulated other comprehensive income (loss), net
of taxes. The following reconciles net unrealized investment
gains (losses) on available-for-sale investments at December 31:
1998 1997
------------ ------------
Assets:
Fixed maturity securities $ 38,498 $ 81,046
Equity securities (4,119) 1,013
Deferred policy acquisition costs (323) (5,452)
Federal income taxes - deferred 124 -
Separate Accounts assets 30 -
------------ ------------
34,210 76,607
------------ ------------
Liabilities:
Policyholders' account balances 34,440 48,923
Federal income taxes - deferred - 9,689
------------ ------------
34,440 58,612
------------ ------------
Stockholder's equity:
Accumulated other comprehensive income (loss) $ (230) $ 17,995
============ ============
During the third quarter 1997, the Company provided $15,000
initial funding for a trading portfolio, composed of
convertible debt and equity securities. The net unrealized
holdings gains on trading account securities included in net
realized investment gains were $932 and $520 at December 31,
1998 and 1997, respectively.
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1998 1997 1996
---------- ---------- ----------
Proceeds $ 893,619 $ 846,041 $ 847,091
Gross realized investment gains 20,232 16,783 19,078
Gross realized investment losses 17,429 7,193 10,749
<PAGE>
The Company had investment securities with a carrying value of
$27,189 and $26,508 that were deposited with insurance
regulatory authorities at December 31, 1998 and 1997,
respectively.
At December 31, 1998, the Company's $12,030 investment in
Separate Account assets included $30 of unrealized gains.
During 1997, the Company realized a $1,005 gain on the sale of
its investment in the Separate Accounts.
All outstanding mortgage loans were repaid during 1997.
Information on impaired loans for the years ended December 31
follows:
1997 1996
----------- -----------
Average investment in impaired loans $ 30,945 $ 79,668
Interest income recognized (cash basis) 2,830 4,848
For the years ended December 31, 1997 and 1996, $7,891 and
$28,555, respectively, of real estate held-for-sale was
acquired in satisfaction of debt.
Net investment income arose from the following sources for the
years ended December 31:
1998 1997 1996
------------ ----------- -----------
Fixed maturity securities $ 202,313 $ 236,325 $ 266,916
Equity securities 9,234 3,020 1,876
Mortgage loans - 4,627 9,764
Real estate held-for-sale 2,264 1,939 563
Policy loans on insurance contracts 59,236 57,998 56,512
Cash and cash equivalents 3,912 9,570 6,710
Other 761 709 899
------------ ----------- -----------
Gross investment income 277,720 314,188 343,240
Less investment expenses (5,682) (5,486) (6,579)
------------ ----------- -----------
Net investment income $ 272,038 $ 308,702 $ 336,661
============ =========== ===========
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
1998 1997 1996
------------ ----------- -----------
Fixed maturity securities $ 2,617 $ 6,149 $ 4,690
Equity securities 186 3,441 3,639
Trading account securities 1,368 697 -
Investment in Separate Accounts - 1,005 106
Mortgage loans - 6,252 599
Real estate held-for-sale 8,290 (4,252) (171)
Cash and cash equivalents (1) (3) (1)
------------ ----------- -----------
Net realized investment gains $ 12,460 $ 13,289 $ 8,862
============ =========== ===========
<PAGE>
The following is a reconciliation of the change in valuation
allowances that were recorded to reflect other-than-temporary
declines in the estimated fair value of mortgage loans for the
years ended December 31, 1997 and 1996.
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
----------- ----------- ----------- -----------
1997 $ 17,652 $ - $ 17,652 $ -
1996 35,881 - 18,229 17,652
NOTE 4. FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income
taxes based on earnings before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Provision for income taxes computed at
Federal statutory rate $ 46,383 $ 42,413 $ 41,048
Decrease in income taxes resulting from:
Dividend received deduction (3,664) (1,969) (3,135)
Foreign tax credit (2,957) - -
Other - - (21)
------------ ------------ ------------
Federal income tax provision $ 39,762 $ 40,444 $ 37,892
============ ============ ============
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1998 was 35%.
The Company provides for deferred income taxes resulting from
temporary differences that arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 11,062 $ (2,422) $ (5,770)
Policyholders' account balances (10,950) (16,099) 15,004
Liability for guaranty fund assessments 529 1,190 760
Investment adjustments (1,350) 5,070 5,122
Other (64) - (38)
------------ ------------ ------------
Deferred Federal income tax
provision (benefit) $ (773) $ (12,261) $ 15,078
============ ============ ============
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 106,132 $ 95,182
Investment adjustments 1,951 601
Liability for guaranty fund assessments 4,852 5,381
Net unrealized investment loss on investment securities 124 -
------------ ------------
Total deferred tax assets 113,059 101,164
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs 99,732 88,670
Net unrealized investment gain on investment securities - 9,689
Other 3,924 3,988
------------ ------------
Total deferred tax liabilities 103,656 102,347
------------ ------------
Net deferred tax (asset) liability $ (9,403) $ 1,183
============ ============
</TABLE>
The Company anticipates that all deferred tax assets will be
realized; therefore no valuation allowance has been provided.
NOTE 5. REINSURANCE
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. The maximum amount of mortality risk retained by
the Company is approximately $750 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 $589 that can be drawn upon for
delinquent reinsurance recoverables.
<PAGE>
As of December 31, 1998, the Company had the following life
insurance in-force:
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance
in force $13,124,108 $ 3,259,006 $ 1,771 $ 9,866,872 0%
</TABLE>
The Company has entered into an indemnity reinsurance agreement
with an unaffiliated insurer whereby the Company coinsures, on
a modified coinsurance basis, 50% of the unaffiliated insurer's
variable annuity premiums sold through the Merrill Lynch & Co.
distribution system.
NOTE 6. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain accounting, data processing,
legal, actuarial, management, advertising and other services to
the Company. Expenses incurred by MLIG in relation to this
service agreement are reimbursed by the Company on an allocated
cost basis. Charges billed to the Company by MLIG pursuant to
the agreement were $43,179, $43,028 and $43,515 for the years
ended December 31, 1998, 1997 and 1996, respectively. The
Company is allocated interest expense on its accounts payable
to MLIG that approximates the daily Federal funds rate. Total
intercompany interest paid was $860, $842 and $988 for 1998,
1997 and 1996, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were
$1,915, $1,913 and $2,279 for 1998, 1997 and 1996,
respectively.
MLIG has entered into agreements with MLAM and Hotchkis & Wiley
("H&W"), a division of MLAM, with respect to administrative
services for the Merrill Lynch Series Fund, Inc., Merrill Lynch
Variable Series Funds, Inc., and Hotchkis & Wiley Variable
Trust (collectively, "the Funds"). The Company invests in the
various mutual fund portfolios of the Funds in connection with
the variable life insurance and annuity contracts the Company
has in-force. Under this agreement, MLAM and H&W pay
compensation to MLIG in an amount equal to a portion of the
annual gross investment advisory fees paid by the Funds to MLAM
and H&W. The Company received from MLIG its allocable share of
such compensation in the amount of $20,289, $19,057 and $16,514
during 1998, 1997 and 1996, respectively.
<PAGE>
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S, who are the Company's licensed insurance agents,
solicit applications for contracts to be issued by the Company.
MLLA is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were $79,117, $72,729 and $42,639 for
1998, 1997 and 1996, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisitions
costs and are being amortized in accordance with the policy
discussed in Note 1.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
During 1997, the Company sold its investment in 2141 E.
Camelback, Corp. to Merrill Lynch Mortgage Capital, Inc. The
investment was sold at its carrying value of $5,375.
NOTE 7. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
The Company paid no dividends in 1998. During 1997 and 1996,
the Company paid dividends of $135,000 and $175,000,
respectively, to MLIG. Of these stockholders' dividends,
$110,030 and $175,000 respectively, were extraordinary
dividends as defined by Arkansas Insurance Law and were paid
pursuant to approval granted by the Arkansas Insurance
Commissioner.
At December 31, 1998 and 1997, approximately $29,707 and
$24,304, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1998 and 1997, were $299,069 and $245,042,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
income taxes, and valuing securities on a different basis. The
Company's statutory net income for 1998, 1997 and 1996 was
$55,813, $81,963 and $93,532, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital that
a life insurance company should have based upon that company's
risk profile. As of December 31, 1998 and 1997, based on the
RBC formula, the Company's total adjusted capital level was
473% and 394%, respectively, of the minimum amount of capital
required to avoid regulatory action.
<PAGE>
In March 1998, the NAIC adopted the Codification of Statutory
Accounting Principles ("Codification"). The Codification,
which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be
effective January 1, 2001. However, statutory accounting
principles will continue to be established by individual state
laws and permitted practices and it is uncertain when, or if,
the state of Arkansas will require adoption of Codification for
the preparation of statutory financial statements.
Codification is not expected to have a material impact on the
Company's capital requirements or statutory financial
statements.
NOTE 8. 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). The Company has utilized public information to
estimate what future assessments it will incur as a result of
insolvencies. At December 31, 1998 and 1997, the Company has
established an estimated liability for future guaranty fund
assessments of $13,864 and $15,374, respectively. The Company
regularly monitors public information regarding insurer
insolvencies and adjusts its estimated liability as
appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1998, $6,569 has been advanced towards the
Company's $10,000 commitment to the limited partnership.
NOTE 9. SEGMENT INFORMATION
In reporting to management, the Company's operating results are
categorized into two business segments: Life Insurance and
Annuities. The Company's Life Insurance segment consists of
variable life insurance products and interest-sensitive life
products. The Company's Annuity segment consists of variable
annuities and interest sensitive annuities
<PAGE>
The Company's organization is structured in accordance with its
two business segments. Each segment has its own administrative
service center that provides product support to the Company and
customer service support to the Company's policyholders.
Additionally, marketing and sales management functions, within
MLIG, are organized according to these two business segments.
The accounting policies of the business segments are the same
as those described in the summary of significant accounting
policies. All revenue and expense transactions are recorded at
the product level and accumulated at the business segment level
for review by management.
The "Other" category, presented in the following segment
financial information, represents assets and related earnings
that do not support policyholder liabilities.
The following table summarizes each business segment's
contribution to the consolidated amounts:
<TABLE>
<CAPTION>
Life
1998 Insurance Annuities Other Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 35,228 $ 32,765 $ 8,369 $ 76,362
Other revenues 84,836 124,864 422 210,122
------------ ------------ ------------ ------------
Net revenues 120,064 157,629 8,791 286,484
------------ ------------ ------------ ------------
Policy benefits 18,397 13,494 - 31,891
Reinsurance premiums ceded 19,972 - - 19,972
DAC amortization 13,040 31,795 - 44,835
Other non-interest expenses 18,030 39,233 - 57,263
------------ ------------ ------------ ------------
Total non-interest expenses 69,439 84,522 - 153,961
------------ ------------ ------------ ------------
Net earnings before Federal income
tax provision 50,625 73,107 8,791 132,523
Income tax expense 16,033 20,653 3,076 39,762
------------ ------------ ------------ ------------
Net earnings $ 34,592 $ 52,454 $ 5,715 $ 92,761
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 6,069,649 $ 8,885,981 $ 148,465 $15,104,095
Deferred policy acquisition costs $ 207,713 $ 197,927 $ - $ 405,640
Policy liabilities and accruals $ 2,186,001 $ 1,694,668 $ - $ 3,880,669
Other policyholder funds $ 16,033 $ - $ 4,769 $ 20,802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
1997 Insurance Annuities Other Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 38,826 $ 47,973 $ 12,361 $ 99,160
Other revenues 86,301 102,782 3,139 192,222
------------ ------------ ------------ ------------
Net revenues 125,127 150,755 15,500 291,382
------------ ------------ ------------ ------------
Policy benefits 15,876 11,153 - 27,029
Reinsurance premiums ceded 17,879 - - 17,879
DAC amortization 36,180 35,931 - 72,111
Other non-interest expenses 16,545 36,639 - 53,184
------------ ------------ ------------ ------------
Total non-interest expenses 86,480 83,723 - 170,203
------------ ------------ ------------ ------------
Net earnings before Federal
income tax provision 38,647 67,032 15,500 121,179
Income tax expense 12,753 22,265 5,426 40,444
------------ ------------ ------------ ------------
Net earnings $ 25,894 $ 44,767 $ 10,074 $ 80,735
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 5,925,872 $ 7,998,461 $ 129,248 $14,053,581
Deferred policy acquisition costs $ 182,610 $ 182,495 $ - $ 365,105
Policy liabilities $ 2,229,533 $ 2,009,151 $ - $ 4,238,684
Other policyholder funds $ 18,788 $ - $ 8,372 $ 27,160
</TABLE>
<TABLE>
<CAPTION>
Life
1996 Insurance Annuities Other Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 40,805 $ 44,994 $ 15,607 $ 101,406
Other revenues 78,759 86,430 2,502 167,691
------------ ------------ ------------ ------------
Net revenues 119,564 131,424 18,109 269,097
------------ ------------ ------------ ------------
Policy benefits 12,150 8,902 - 21,052
Reinsurance premiums ceded 15,582 - - 15,582
DAC amortization 30,988 31,048 - 62,036
Other non-interest expenses 18,169 34,979 - 53,148
------------ ------------ ------------ ------------
Total non-interest expenses 76,889 74,929 - 151,818
------------ ------------ ------------ ------------
Net earnings before Federal
income tax provision 42,675 56,495 18,109 117,279
Income tax expense 13,895 17,658 6,339 37,892
------------ ------------ ------------ ------------
Net earnings $ 28,780 $ 38,837 $ 11,770 $ 79,387
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 5,623,370 $ 6,957,228 $ 156,895 $12,737,493
Deferred policy acquisition costs $ 194,979 $ 171,482 $ - $ 366,461
Policy liabilities and accruals $ 2,638,177 $ 1,881,537 $ - $ 4,519,714
Other policyholder funds $ 16,256 $ - $ 3,164 $ 19,420
</TABLE>
<PAGE>
(a) Management considers investment income net of interest
credited to policyholders' account balances in evaluating
results.
The table below summarizes the Company's net revenues by
product for 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Life Insurance
Variable life insurance $ 91,806 $ 92,245 $ 89,897
Interest-sensitive life insurance 28,258 32,882 29,667
------------ ------------ ------------
Total Life Insurance 120,064 125,127 119,564
------------ ------------ ------------
Annuities
Variable annuities 105,545 88,509 70,116
Interest-sensitive annuities 52,084 62,246 61,308
------------ ------------ ------------
Total Annuities 157,629 150,755 131,424
------------ ------------ ------------
Other 8,791 15,500 18,109
------------ ------------ ------------
Total $ 286,484 $ 291,382 $ 269,097
============ ============ ============
</TABLE>
<PAGE> 44
PART C
OTHER INFORMATION
<PAGE> 45
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C>
(a) FINANCIAL STATEMENTS
(1) Financial Statements of Merrill Lynch Life Variable Annuity
Separate Account as of December 31, 1998 and for the two
years ended December 31, 1998 and the Notes relating thereto
appear in the Statement of Additional Information (Part B of
the Registration Statement)
(2) Financial Statements of Merrill Lynch Life Insurance Company
for the three years ended December 31, 1998 and the Notes
relating thereto appear in the Statement of Additional
Information (Part B of the Registration Statement)
</TABLE>
<TABLE>
<S> <C>
(b) EXHIBITS
(1) Resolution of the Board of Directors of Merrill Lynch Life
Insurance Company establishing the Merrill Lynch Life
Variable Annuity Separate Account. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to
Form N-4, Registration No. 33-43053 Filed December 5, 1996).
(2) Not Applicable.
(3) Underwriting Agreement Between Merrill Lynch Life Insurance
Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form N-4, Registration No.
33-43053 Filed December 5, 1996).
(4) (a) Individual Variable Annuity Contract issued by Family Life
Insurance Company. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form N-4,
Registration No. 33-43053 Filed December 4, 1996).
(b) Individual Variable Annuity Contract Issued by Merrill Lynch
Life Insurance Company. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 3 to Form N-4,
Registration No. 33-43053 Filed August 6, 1993).
(c) Endorsements to Individual Variable Annuity Contract Issued
by Family Life Insurance Company. (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 8 to Form N-4,
Registration No. 33-43053 Filed December 5, 1996).
(d) Assumption Certificate. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form N-4,
Registration No. 33-43053 Filed December 5, 1996).
(e) Assumption Certificate for use in Illinois. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to
Form N-4, Registration No. 33-43053 Filed December 5, 1996).
(f) Assumption Certificate for use in Tennessee. (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 8
to Form N-4, Registration No. 33-43053 Filed December 5,
1996).
(g) Assumption Certificate of Tandem Insurance Group, Inc. and
Company Name Change and Home Office Address Change
Endorsement. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form N-4, Registration No.
33-43053 Filed December 5, 1996).
(h) Endorsement to Individual Variable Annuity Contract Issued
by Merrill Lynch Life Insurance Company or Family Life
Insurance Company. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4,
Registration No. 33-43053 Filed April 25, 1994).
(i) Endorsement to Tax-Sheltered Annuity ML-AY-468/96.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 9 to Form N-4, Registration No. 33-43053 Filed
April 23, 1997).
(5) Annuity Application for Fixed and Variable Annuities.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 3 to Form N-4, Registration No. 33-43053 Filed
August 6, 1993).
(6) (a) Articles of Amendment, Restatement and Redomestication of
the Articles of Incorporation of Merrill Lynch Life
Insurance Company. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form N-4,
Registration No. 33-43053 Filed December 5, 1996).
(b) Amended and Restated By-Laws of Merrill Lynch Life Insurance
Company. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form N-4, Registration No.
33-43053 Filed December 5, 1996).
</TABLE>
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<PAGE> 46
<TABLE>
<C> <S> <C>
(7) Assumption Reinsurance Agreement Between Merrill Lynch Life
Insurance Company, Tandem Insurance Group, Inc. and Royal
Tandem Life Insurance Company and Family Life Insurance
Company. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form N-4, Registration No.
33-43053 Filed December 5, 1996).
(8) (a) Amended General Agency Agreement Between Merrill Lynch Life
Insurance Company and Merrill Lynch Life Agency, Inc.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 to Form N-4, Registration No. 33-43053 Filed
April 25, 1994).
(b) Indemnity Agreement Between Merrill Lynch Life Insurance
Company and Merrill Lynch Life Agency, Inc. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to
Form N-4, Registration No. 33-43053 Filed December 5, 1996).
(c) Agreement Between Merrill Lynch Life Insurance Company and
Merrill Lynch Variable Series Funds, Inc. Relating to
Maintaining Constant Net Asset Value for the Reserve Assets
Fund. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form N-4, Registration No.
33-43053 Filed December 5, 1996).
(d) Agreement Between Merrill Lynch Life Insurance Company and
Merrill Lynch Variable Series Funds, Inc. Relating to
Valuation and Purchase Procedures. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to
Form N-4, Registration No. 33-43053 Filed December 5, 1996).
(e) Plan and Agreement of Merger Between Merrill Lynch Life
Insurance Company and Tandem Insurance Group, Inc.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 8 to Form N-4, Registration No. 33-43053 Filed
December 5, 1996).
(f) Amended Service Agreement Between Merrill Lynch Life
Insurance Company and Merrill Lynch Insurance Group, Inc.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 to Form N-4, Registration No. 33-43053 Filed
April 25, 1994).
(g) Indemnity Agreement Between Merrill Lynch Life Insurance
Company and Merrill Lynch Life Agency, Inc. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to
Form N-4, Registration No. 33-43053 Filed December 5, 1996).
(h) Management Agreement Between Merrill Lynch Life Insurance
Company and Merrill Lynch Asset Management, Inc.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 8 to Form N-4, Registration No. 33-43053 Filed
December 5, 1996).
(i) Reimbursement Agreement Between Merrill Lynch Asset
Management, Inc. and Merrill Lynch Life Agency.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 8 to Form N-4, Registration No. 33-43053 Filed
December 5, 1996).
(j) Form of Participation Agreement Between Merrill Lynch
Variable Series Funds, Inc., Merrill Lynch Life Insurance
Company, ML Life Insurance Company of New York, and Family
Life Insurance Company. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4,
Registration No. 33-43053 Filed April 25, 1994).
(k) Form of Addendum to General Agency Compensation Schedule.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 3 to Form N-4, Registration No. 33-43053 Filed
August 6, 1993).
(l) Form of Participation Agreement Between Merrill Lynch
Variable Series Funds, Inc. and Merrill Lynch Life Insurance
Company. (Incorporated by Reference to Merrill Lynch Life
Variable Annuity Separate Account A's Post-Effective
Amendment No. 10 to Form N-4, Registration No. 33-43773
Filed December 10, 1996).
(m) Form of Amendment to Participation Agreement Between Merrill
Lynch Variable Series Funds, Inc. and Merrill Lynch Life
Insurance Company. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-43053 Filed April 29, 1998).
(9) Opinion of Barry G. Skolnick, Esq. and Consent to its use as
to the legality of the securities being registered.
(Incorporated by Reference to Registrant's Post-Effective
Amendment No. 8 to Form N-4, Registration No. 33-43053 Filed
December 5, 1996).
(10) (a) Written Consent of Sutherland Asbill & Brennan LLP.
(b) Written Consent of Deloitte & Touche LLP, independent
auditors.
(c) Written Consent of Barry G. Skolnick, Esq.
(11) Not Applicable.
</TABLE>
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<TABLE>
<C> <S> <C>
(12) Not Applicable.
(13) Not Applicable.
(14) (a) Power of Attorney from Joseph E. Crowne, Jr. (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 4
to Form N-4, Registration No. 33-43053 Filed April 25,
1994).
(b) Power of Attorney from David M. Dunford. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 4 to
Form N-4, Registration No. 33-43053 Filed April 25, 1994).
(c) Power of Attorney from John C.R. Hele. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 4 to
Form N-4, Registration No. 33-43053 Filed April 25, 1994).
(d) Power of Attorney from Allen N. Jones. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 4 to
Form N-4, Registration No. 33-43053 Filed April 25, 1994).
(e) Power of Attorney from Barry G. Skolnick. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 4 to
Form N-4, Registration No. 33-43053 Filed April 25, 1994).
(f) Power of Attorney from Anthony J. Vespa. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 4 to
Form N-4, Registration No. 33-43053 Filed April 25, 1994).
(g) Power of Attorney from Gail R. Farkas. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 6 to
Form N-4, Registration No. 33-43053 Filed April 26, 1996).
</TABLE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR*
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR*
---- -------------------------- ------------------------
<S> <C> <C>
Joseph E. Crowne, Jr. 800 Scudders Mill Road Director, Senior Vice President,
Plainsboro, NJ 08536 Chief Financial Officer, Chief Actuary, and
Treasurer.
David M. Dunford 800 Scudders Mill Road Director, Senior Vice President and Chief
Plainsboro, NJ 08536 Investment Officer.
Gail R. Farkas 800 Scudders Mill Road Director and Senior Vice President.
Plainsboro, NJ 08536
Barry G. Skolnick 800 Scudders Mill Road Director, Senior Vice President, General
Plainsboro, NJ 08536 Counsel, and Secretary.
Anthony J. Vespa 800 Scudders Mill Road Director, Chairman of the Board, President
Plainsboro, NJ 08536 and Chief Executive Officer.
Deborah J. Adler 800 Scudders Mill Road Vice President and Actuary.
Plainsboro, NJ 08536
Robert J. Boucher 1414 Main Street Senior Vice President, Variable Life
Springfield, MA 01102 Administration.
Michael P. Cogswell 800 Scudders Mill Road Vice President and Senior Counsel.
Plainsboro, NJ 08536
Edward W. Diffin, Jr. 800 Scudders Mill Road Vice President and Senior Counsel.
Plainsboro, NJ 08536
Linda Gillis 4804 Deer Lake Drive East Vice President and Assistant Secretary.
Jacksonville, FL 32246
Diana Joyner 1414 Main Street Vice President.
Springfield, MA 01102
Peter P. Massa 4804 Deer Lake Drive East Vice President.
Jacksonville, FL 32246
Kelly A. O'Dea 800 Scudders Mill Road Vice President and Senior Compliance Officer.
Plainsboro, NJ 08536
Robert Ostrander 800 Scudders Mill Road Vice President and Controller.
Plainsboro, NJ 08536
Shelley K. Parker 1414 Main Street Vice President and Assistant Secretary.
Springfield, MA 01102
Julia Raven 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR*
---- -------------------------- ------------------------
<S> <C> <C>
Lori M. Salvo 800 Scudders Mill Road Vice President and Senior Counsel.
Plainsboro, NJ 08536
John A. Shea 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Frederick H. Steele 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Tracy A. Bartoy 4804 Deer Lake Drive East Vice President and Assistant Secretary.
Jacksonville, FL 32246
Robert J. Viamari 1414 Main Street Vice President and Assistant Secretary.
Springfield, MA 01102
Chester Westergard 2200 Rodney Parham Road Vice President.
Suite 300
Little Rock, AR 72212
Denis G. Wuestman 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Matthew J. Rider 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Donald C. Stevens, III 800 Scudders Mill Road Vice President and Controller.
Plainsboro, NJ 08536
Amy S. Winston 800 Scudders Mill Road Vice President and Director of Compliance.
Plainsboro, NJ 08536
</TABLE>
- ---------------
* Each director is elected to serve until the next annual shareholder meeting or
until his or her successor is elected and shall have qualified.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Merrill Lynch Life Insurance Company is an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co.").
A list of subsidiaries of ML & Co. appears below.
SUBSIDIARIES OF THE REGISTRANT
The following are subsidiaries of ML & Co. as of February 24, 1999 and the
states or jurisdictions in which they are organized. Indentation indicates the
principal parent of each subsidiary. Except as otherwise specified, in each case
ML & Co. owns, directly or indirectly, at least 99% of the voting securities of
each subsidiary. The names of particular subsidiaries have been omitted because,
considered in the aggregate as a single subsidiary, they would not constitute,
as of the end of the year covered by this report, a "significant subsidiary" as
that term is defined in Rule 1.02(w) of Regulation S-X under the Securities
Exchange Act of 1934.
<TABLE>
<CAPTION>
NAME STATE OR JURISDICTION OF ENTITY
---- -------------------------------
<S> <C>
Merrill Lynch & Co., Inc. .................................. Delaware
Merrill Lynch, Pierce, Fenner & Smith Incorporated(1)..... Delaware
Broadcort Capital Corp. ............................... Delaware
Merrill Lynch Life Agency Inc.(2)...................... Washington
Merrill Lynch Professional Clearing Corp.(3)........... Delaware
Merrill Lynch Bank & Trust Co. ........................... New Jersey
Merrill Lynch Capital Services, Inc. ..................... Delaware
Merrill Lynch Government Securities Inc. ................. Delaware
Merrill Lynch Money Markets Inc. ...................... Delaware
Merrill Lynch Group, Inc. ................................ Delaware
Merrill Lynch & Co., Canada Ltd. ...................... Ontario
</TABLE>
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<TABLE>
<CAPTION>
NAME STATE OR JURISDICTION OF ENTITY
---- -------------------------------
<S> <C>
Merrill Lynch Canada Inc. ........................... Nova Scotia
Mercury Asset Management Group Holdings PLC(4)......... England
Mercury Asset Management Holdings Ltd................ England
Merrill Lynch Asset Management L.P.(5)................. Delaware
Merrill Lynch Capital Partners, Inc. .................. Delaware
Merrill Lynch Futures Inc. ............................ Delaware
Merrill Lynch Group Holdings Limited................... Ireland
Merrill Lynch Capital Markets Bank Limited........... Ireland
Merrill Lynch Insurance Group, Inc. ................... Delaware
Merrill Lynch Life Insurance Company................. Arkansas
ML Life Insurance Company of New York................ New York
Merrill Lynch International Finance Corporation........ New York
Merrill Lynch International Bank Limited............. England
Merrill Lynch Bank (Suisse) S.A. ................. Switzerland
Merrill Lynch Mortgage Capital Inc. ................... Delaware
Merrill Lynch Bank USA................................. Utah
Merrill Lynch Trust Company(6)......................... New Jersey
Merrill Lynch Business Financial Services Inc. ...... Delaware
Merrill Lynch Credit Corporation..................... Delaware
Merrill Lynch Investment Partners Inc. ................ Delaware
MLDP Holdings, Inc.(7)................................. Delaware
Merrill Lynch Derivative Products AG................. Switzerland
ML IBK Positions Inc. ................................. Delaware
Merrill Lynch Capital Corporation.................... Delaware
ML Leasing Equipment Corp.(8).......................... Delaware
Merrill Lynch International Incorporated.................. Delaware
Merrill Lynch (Australasia) Pty Limited................ New South Wales
Merrill Lynch International (Australia) Limited...... New South Wales
Merrill Lynch International Bank....................... United States
Merrill Lynch International Holdings Inc. ............. Delaware
Merrill Lynch Bank (Austria) Aktiengesellschaft A.G.. Austria
Merrill Lynch Bank and Trust Company (Cayman) Cayman Islands,
Limited............................................. British West Indies
Merrill Lynch Capital Markets A.G. .................. Switzerland
Merrill Lynch Europe PLC............................. England
Merrill Lynch Europe Holdings Limited............. England
Merrill Lynch International..................... England
Merrill Lynch, Pierce, Fenner & Smith (Brokers &
Dealers) Limited................................ England
Merrill Lynch Europe Ltd. ........................... Cayman Islands,
British West Indies
Merrill Lynch France................................. France
Merrill Lynch Capital Markets (France) S.A. ...... France
Merrill Lynch (Asia Pacific) Limited................. Hong Kong
Merrill Lynch Far East Limited.................... Hong Kong
Merrill Lynch Japan Incorporated....................... Cayman Islands,
British West Indies
</TABLE>
- ---------------
(1) MLPF&S also conducts business as "Merrill Lynch & Co."
(2) Similarly named affiliates and subsidiaries that engage in the sale of life
insurance and annuity products are incorporated in various other
jurisdictions.
(2) The preferred stock of the corporation is owned by an unaffiliated group of
investors.
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<PAGE> 50
(4) Held through several intermediate holding companies.
(5) Merrill Lynch Asset Management L.P. is a limited partnership whose general
partner is Princeton Services, Inc. and whose limited partner is ML & Co.
(6) Similarly named affiliates and subsidiaries that provide trust and custodial
services are incorporated in various other jurisdictions.
(7) Merrill Lynch Group, Inc. owns 100% of this corporation's outstanding common
voting stock. 100% of the outstanding preferred voting stock is held by
outside parties.
(8) This corporation has more than 45 direct or indirect subsidiaries operating
in the United States and serving as either general partners or associate
general partners of limited partnerships.
ITEM 27. NUMBER OF CONTRACTS
As of March 19, 1999, there were 2,092 Qualified Contracts and 1,815
Non-Qualified Contracts.
ITEM 28. INDEMNIFICATION
There is no indemnification of the principal underwriter, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, with respect to the Contract.
The indemnity agreement between Merrill Lynch Life Insurance Company ("Merrill
Lynch Life") and its affiliate Merrill Lynch Life Agency, Inc. ("MLLA"), with
respect to MLLA's general agency responsibilities on behalf of Merrill Lynch
Life and the Contract, provides:
Merrill Lynch Life will indemnify and hold harmless MLLA and all persons
associated with MLLA as such term is defined in Section 3(a)(21) of the
Securities Exchange Act of 1934 against all claims, losses, liabilities and
expenses, to include reasonable attorneys' fees, arising out of the sale by
MLLA of insurance products under the above-referenced Agreement, provided
that Merrill Lynch Life shall not be bound to indemnify or hold harmless
MLLA or its associated persons for claims, losses, liabilities and expenses
arising directly out of the willful misconduct or negligence of MLLA or its
associated persons.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Merrill Lynch, Pierce, Fenner & Smith Incorporated also acts as principal
underwriter for the following additional funds: CBA Money Fund; CMA Government
Securities Fund; CMA Money Fund; CMA Tax-Exempt Fund; CMA Treasury Fund; CMA
Multi-State Municipal Series Trust; The Corporate Fund Accumulation Program,
Inc.; The Municipal Fund Investment Accumulation Program, Inc.; The Corporate
Income Fund; Defined Asset Funds--Municipal Insured Series; Equity Investor
Fund; The Fund of Stripped ("Zero") U.S. Treasury Securities; The GNMA
Investment Accumulation Program; Government Securities Income Fund;
International Bond Fund; The Merrill Lynch Fund of Stripped ("Zero") U.S.
Treasury Securities; Merrill Lynch Trust for Government Securities; Municipal
Income Fund; Municipal Investment Trust Fund; and The Municipal Fund
Accumulation Program, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated also acts as principal
underwriter for the following additional accounts: Merrill Lynch Life Variable
Annuity Separate Account A; Merrill Lynch Life Variable
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Life Separate Account B; Merrill Lynch Life Variable Life Separate Account II;
ML of New York Variable Life Separate Account; ML of New York Variable Life
Separate Account II; ML of New York Variable Annuity Separate Account; ML of New
York Variable Annuity Separate Account A; ML of New York Variable Annuity
Separate Account B; and Merrill Lynch Variable Life Separate Account.
(b) The directors, president, treasurer and executive vice presidents of Merrill
Lynch, Pierce, Fenner & Smith Incorporated are as follows:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER
------------------ --------------------------------------
<S> <C>
Herbert M. Allison, Jr.*................ Director, President, and Chief Executive Officer
Thomas W. Davis......................... Executive Vice President
Barry S. Friedberg*..................... Executive Vice President
Edward L. Goldberg*..................... Executive Vice President
Jerome P. Kenney*....................... Executive Vice President
Theresa Lang*........................... Senior Vice President and Treasurer
E. Stanley O'Neal....................... Executive Vice President
Thomas H. Patrick*...................... Executive Vice President
George A. Schieren...................... General Counsel and Senior Vice President
Winthrop H. Smith, Jr.*................. Executive Vice President
John L. Steffens*....................... Director and Vice Chairman of the Board
Roger M. Vasey*......................... Executive Vice President
</TABLE>
- ---------------
* World Financial Center, 250 Vesey Street, New York, NY 10281
(c) Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and records required to be maintained by Section 31(a) of
the 1940 Act and the rules promulgated thereunder are maintained by the
depositor at the principal executive offices at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536 and the Service Center at 4804 Deer Lake Drive
East, Jacksonville, Florida 32246.
ITEM 31. NOT APPLICABLE
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) Registrant undertakes to file a post-effective amendment to the Registrant
Statement as frequently as is necessary to ensure that the audited financial
statements in the Registration Statement are never more than 16 months old for
so long as payments under the variable annuity contracts may be accepted.
(b) Registrant undertakes to include either (1) as part of any application to
purchase a contract offered by the prospectus, a space that an applicant can
check to request a statement of additional information, or (2) a postcard or
similar written communication affixed to or included in the prospectus that the
applicant can remove to send for a statement of additional information.
(c) Registrant undertakes to deliver any statement of additional information and
any financial statements required to be made available under this Form promptly
upon written or oral request.
(d) Merrill Lynch Life Insurance Company is relying on a no-action letter issued
to the American Counsel of Life Insurance published November 28, 1988. The
no-action letter provides certain assurances relating to variable annuity
registrants' compliance with Section 403(b)(11) of the Internal Revenue Code and
Sections 22(e), 27(c)(1) and 27(d) of the Investment Company Act of 1940.
Merrill Lynch Life hereby represents that it has complied with the provisions of
paragraph (1) through (4) of said no-action letter.
(e) Merrill Lynch Life Insurance Company hereby represents that the fees and
charges deducted under the contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by Merrill Lynch Life Insurance Company.
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SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Merrill Lynch Life Variable Annuity Separate Account,
certifies that it meets the requirements of Securities Act Rule 485(b) for
effectiveness of this Post-Effective Amendment No. 11 to the Registration
Statement and has caused this Registration Statement to be signed on its behalf,
in the City of Plainsboro, State of New Jersey, on the 20th day of April, 1999.
<TABLE>
<S> <C>
ATTEST: MERRILL LYNCH LIFE VARIABLE ANNUITY
SEPARATE ACCOUNT
(Registrant)
/s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
- --------------------------------------------- -----------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President and Senior Counsel Senior Vice President of
Merrill Lynch Life Insurance Company
ATTEST: MERRILL LYNCH LIFE INSURANCE COMPANY
(Depositor)
/s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
- --------------------------------------------- -----------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President and Senior Counsel Senior Vice President
</TABLE>
As required by the Securities Act of 1933, this Post-Effective Amendment No. 11
to the Registration Statement has been signed below by the following persons in
the capacities indicated on April 20, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Director, Chairman of the Board, President,
- --------------------------------------------- and Chief Executive Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief
- --------------------------------------------- Financial Officer, Chief Actuary, and
Joseph E. Crowne, Jr. Treasurer
* Director, Senior Vice President and Chief
- --------------------------------------------- Investment Officer
David M. Dunford
* Director and Senior Vice President
- ---------------------------------------------
Gail R. Farkas
By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior Vice
----------------------------------------- President, General Counsel, and Secretary
Barry G. Skolnick and as Attorney-In-Fact
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
(10)(a) Written Consent of Sutherland Asbill & Brennan LLP .........
(b) Written Consent of Deloitte & Touche LLP, independent
auditors..................................................
(c) Written Consent of Barry G. Skolnick, Esq. .................
</TABLE>
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<PAGE> 1
EXHIBIT 10(a)
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We hereby consent to the reference to our name under the caption "Legal Matters"
in the Prospectus filed as part of Post-Effective Amendment No. 11 to Form N-4
(File No. 33-43053) for Merrill Lynch Life Variable Annuity Separate Account of
Merrill Lynch Life Insurance Company. In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ KIMBERLY J. SMITH
------------------------------------
Kimberly J. Smith, Esq.
Washington, D.C.
April 22, 1999
<PAGE> 1
EXHIBIT 10(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 11 to Registration
Statement No. 33-43053 of Merrill Lynch Life Variable Annuity Separate Account
on Form N-4 of our reports on (i) Merrill Lynch Life Insurance Company dated
February 22, 1999, and (ii) Merrill Lynch Life Variable Annuity Separate Account
dated February 4, 1999, appearing in the Statement of Additional Information,
which is a part of such Registration Statement, and to the reference to us under
the heading "Experts" in the Prospectus, which is a part of such Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 22, 1999
<PAGE> 1
EXHIBIT 10(c)
[MERRILL LYNCH LIFE INSURANCE COMPANY Letterhead]
CONSENT OF BARRY G. SKOLNICK, ESQ.
I hereby consent to the reference to my name under the caption "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 11 to the
Registration Statement on Form N-4 for certain variable annuity insurance
contracts issued through Merrill Lynch Life Variable Annuity Separate Account of
Merrill Lynch Life Insurance Company, File No. 33-43053.
/s/ BARRY G. SKOLNICK
--------------------------------------
Barry G. Skolnick, Esq.
Senior Vice President and General
Counsel
April 20, 1999
