<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
AND
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
ALSO KNOWN AS
MODIFIED SINGLE PREMIUM INDIVIDUAL DEFERRED
VARIABLE ANNUITY CONTRACT
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 individual deferred variable annuity contract (the "Contract") is designed
to provide comprehensive and flexible ways to invest and to create a source of
income protection for later in life through the payment of annuity benefits. An
annuity is intended to be a long term investment. Contract owners should
consider their need for deferred income before purchasing the Contract. The
Contract is issued by Merrill Lynch Life Insurance Company ("Merrill Lynch
Life") both on a nonqualified basis, and as an Individual Retirement Annuity
("IRA") that is given qualified tax status.
This Statement of Additional Information is not a Prospectus and should be read
together with the Contract's Prospectus dated May 1, 1999, which is available on
request and without charge by writing to or calling Merrill Lynch Life at the
Service Center address or phone number set forth above.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
OTHER INFORMATION......................................................................................... 3
Principal Underwriter..................................................................................... 3
Financial Statements...................................................................................... 3
Administrative Services Arrangements...................................................................... 3
CALCULATION OF YIELDS AND TOTAL RETURNS................................................................... 3
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A............................ S-1
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B............................ S-xx
FINANCIAL STATEMENTS OF MERRILL LYNCH LIFE INSURANCE COMPANY.............................................. G-1
</TABLE>
2
<PAGE>
OTHER INFORMATION
PRINCIPAL UNDERWRITER
Merrill Lynch, Pierce, Fenner & Smith Incorporated, 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 A and Merrill Lynch Life Variable Annuity
Separate Account B (the "Accounts") under the Investment Company Act of 1940.
The offering is continuous. For the years ended December 31, 1998, 1997, and
1996, Merrill Lynch, Pierce, Fenner & Smith Incorporated received $50.2 million,
$49.4 million, and $26.1 million, respectively, in commissions in connection
with the sale of the Contracts.
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 Accounts and should be considered only as bearing upon the ability of
Merrill Lynch Life to meet any obligations it may have under the Contract.
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 Accounts 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.
CALCULATION OF YIELDS AND TOTAL RETURNS
MONEY MARKET YIELDS
From time to time, Merrill Lynch Life may quote in advertisements and sales
literature the current annualized yield for the Domestic Money Market Subaccount
of Account A and the Reserve Assets Subaccount of Account B for a 7-day period
in a manner that does not take into consideration any realized or unrealized
gains or losses on shares of the underlying Funds or on their respective
portfolio securities. The current annualized yield is computed by: (a)
determining the net change (exclusive of realized gains and losses on the sales
of securities and unrealized appreciation and depreciation) at the end of the
7-day period in the value of a hypothetical account under a Contract having a
balance of 1 unit at the beginning of the period, (b) dividing such net change
in account value by the value of the account at the beginning of the period to
determine the base period return; and (c) annualizing this quotient on a 365-day
basis. The net change in account value reflects: (1) net income from the Fund
attributable to the hypothetical account; and (2) charges and deductions imposed
under the Contract which are attributable to the hypothetical account. The
charges and deductions include the per unit charges for the hypothetical account
for: (1) the mortality and expense risk charge; (2) the administration charge in
the case of the Domestic Money Market Subaccount; and (3) the annual contract
maintenance charge. For purposes of calculating current yields for a Contract,
an average per unit
3
<PAGE>
contract maintenance charge is used, as described below. Current yield will be
calculated according to the following formula:
Current Yield = ((NCF - ES/UV)X(365/7)
Where:
<TABLE>
<S> <C> <C>
NCF = the net change in the value of the Fund (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation) for the 7-day period attributable to
a hypothetical account having a balance of 1 unit.
ES = per unit expenses for the hypothetical account for the 7-day
period.
UV = the unit value on the first day of the 7-day period.
</TABLE>
Merrill Lynch Life also may quote the effective yield of the Domestic Money
Market Subaccount or the Reserve Assets Subaccount for the same 7-day period,
determined on a compounded basis. The effective yield is calculated by
compounding the unannualized base period return according to the following
formula:
Effective Yield = (1 + ((NCF - ES)/UV)) TO THE POWER OF (365/7) - 1
Where:
<TABLE>
<S> <C> <C>
NCF = the net change in the value of the Fund (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation) for the 7-day period attributable to
a hypothetical account having a balance of 1 unit.
ES = per unit expenses of the hypothetical account for the 7-day period.
UV = the unit value for the first day of the 7-day period.
</TABLE>
The effective yield for the Domestic Money Market subaccount for the 7-day
period ended December 31, 1998 was 3.41%. The effective yield for the Reserve
Assets subaccount for the 7-day period ended December 31, 1998 was 4.02%.
Because of the charges and deductions imposed under the Contract, the yield for
the Domestic Money Market Subaccount and the Reserve Assets Subaccount will be
lower than the yield for the corresponding underlying Fund.
The yields on amounts held in the Domestic Money Market Subaccount or the
Reserve Assets Subaccount normally will fluctuate on a daily basis. Therefore,
the disclosed yield for any given past period is not an indication or
representation of future yields or rates of return. The actual yield for those
subaccounts is affected by changes in interest rates on money market securities,
average portfolio maturity of the underlying Fund, the types and qualities of
portfolio securities held by the Fund and the Fund's operating expenses. Yields
on amounts held in the Domestic Money Market Subaccount and Reserve Assets
Subaccount may also be presented for periods other than a 7-day period.
OTHER SUBACCOUNT YIELDS
From time to time, Merrill Lynch Life may quote in sales literature or
advertisements the current annualized yield of one or more of the Account A
subaccounts (other than the Domestic Money Market Subaccount) for a contract for
30-day or one-month periods. The annualized yield of a subaccount refers to
income generated by the subaccount over a specified 30-day or one-month period.
Because the yield is annualized, the yield generated by the subaccount during
the 30-day or one-month period is assumed to be generated each period over a
12-month period. The yield is computed by: (1) dividing the net investment
income of the Fund attributable to the subaccount units less subaccount expenses
4
<PAGE>
for the period; by (2) the maximum offering price per unit on the last day of
the period times the daily average number of units outstanding for the period;
then (3) compounding that yield for a 6-month period; and then (4) multiplying
that result by 2. Expenses attributable to the subaccount include the mortality
and expense risk charge, the administration charge and the annual contract
maintenance charge. For purposes of calculating the 30-day or one-month yield,
an average contract maintenance charge per dollar of contract value in the
subaccount is used to determine the amount of the charge attributable to the
subaccount for the 30-day or one-month period; as described below. The 30-day or
one-month yield is calculated according to the following formula:
Yield = 2 ((((NI - ES)/(U X UV)) + 1) TO THE POWER OF (6) - 1)
Where:
<TABLE>
<S> <C> <C>
NI = net investment income of the Fund for the 30-day or one-month
period attributable to the subaccount's units.
ES = expenses of the subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the 30-day or
one-month period.
</TABLE>
Currently, Merrill Lynch Life may quote yields on bond subaccounts within
Account A. The yield for those subaccounts for the 30-day period ended December
31, 1998 was:
<TABLE>
<CAPTION>
NAME OF SUBACCOUNT YIELD
- -------------------------------------------------------------------------------------- -----------
<S> <C>
Prime Bond 4.28%
High Current Income 8.86%
Global Bond Focus (formerly, World Income Focus) 2.36%
Government Bond (formerly, Intermediate Government Bond) 3.17%
</TABLE>
Because of the charges and deductions imposed under the contracts, the yield for
an Account A subaccount will be lower than the yield for the corresponding Fund.
The yield on the amounts held in the Account A subaccounts normally will
fluctuate over time. Therefore, the disclosed yield for any given past period is
not an indication or representation of future yields or rates of return. A
subaccount's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Fund, and its operating expenses.
Yield calculations do not take into account the declining contingent deferred
sales charge under the Contract of amounts surrendered or withdrawn under the
Contract deemed to consist of premiums paid within the preceding seven years. A
contingent deferred sales charge will not be imposed on the first withdrawal in
any Contract year to the extent that it is deemed to consist of gain on premiums
paid during the preceding seven contract years and/or premiums not subject to
such a charge.
5
<PAGE>
TOTAL RETURNS
From time to time, Merrill Lynch Life also may quote in sales literature or
advertisements, total returns, including average annual total returns for one or
more of the subaccounts for various periods of time. Average annual total
returns will be provided for a subaccount for 1, 5 and 10 years, or for a
shorter period, if applicable. For the year ended December 31, 1998, returns
were:
<TABLE>
<CAPTION>
5 10 SINCE
NAME OF SUBACCOUNT 1 YEAR YEAR YEAR INCEPTION
- ----------------------------------------- ---------- --------- ----- -----------
<S> <C> <C> <C> <C>
Prime Bond -0.45% 4.46% N/A 6.16%
High Current Income -10.47% 4.19% N/A 7.06%
Quality Equity 6.91% 13.32% N/A 12.19%
Special Value Focus
(formerly, Equity Growth) -13.60% 6.82% N/A 6.33%
Natural Resources Focus* -21.67% -2.74% N/A -0.03%
American Balanced* 4.92% 9.03% N/A 9.38%
Global Strategy Focus 0.49% 6.47% N/A 7.86%
Basic Value Focus 1.01% 13.37% N/A 13.91%
Global Bond Focus**
(formerly, World Income Focus) 3.99% 4.72% N/A 5.39%
Global Utility Focus* 15.27% 12.92% N/A 12.99%
International Equity Focus** -0.49% 1.03% N/A 2.80%
Government Bond
(formerly, Intermediate Government
Bond) 0.39% N/A N/A 5.82%
Developing Capital Markets Focus -34.58% N/A N/A -9.74%
Index 500 19.42% N/A N/A 26.88%
Capital Focus N/A N/A N/A -15.72%
Global Growth Focus N/A N/A N/A 0.78%
Select Ten Trust N/A N/A N/A -9.07%
AIM V.I. Capital Appreciation 10.58% N/A N/A 12.34%
AIM V.I. Value 23.49% N/A N/A 25.21%
Alliance Premier Growth 38.83% N/A N/A 36.08%
Alliance Quasar N/A N/A N/A -31.85%
MFS Emerging Growth 25.22% N/A N/A 22.47%
MFS Research 14.60% N/A N/A 18.03%
Hotchkis and Wiley International VIP N/A N/A N/A -18.66%
</TABLE>
Total returns assume the Contract was surrendered at the end of the period
shown, and are not indicative of performance if the Contract was continued for a
longer period.
- ------------------------
* This subaccount was closed to allocations of premiums or contract value
following the close of business on December 6, 1996.
** This subaccount was closed to allocations of premiums or contract value
following the close of business on June 5, 1998.
6
<PAGE>
Average annual total returns for other periods of time may also be disclosed
from time to time. For example, average annual total returns may be provided
based on the assumption that a subaccount had been in existence and had invested
in the corresponding underlying Fund for the same period as the corresponding
Fund had been in operation. The Funds commenced operations as indicated below:
<TABLE>
<CAPTION>
FUND COMMENCED OPERATIONS
- --------------------------------------------------------- -----------------------
<S> <C>
Domestic Money Market Fund February 21, 1992
Prime Bond Fund April 29, 1982
High Current Income Fund April 29, 1982
Quality Equity Fund April 29, 1982
Equity Growth Fund April 29, 1982
Natural Resources Focus Fund* June 1, 1988
American Balanced Fund* June 1, 1988
Global Strategy Focus Fund February 21, 1992
Basic Value Focus Fund July 1, 1993
Global Bond Focus Fund**
(formerly, World Income Focus) July 1, 1993
Global Utility Focus Fund* July 1, 1993
International Equity Focus Fund** July 1, 1993
Government Bond Fund
(formerly, Intermediate Government Bond) May 16, 1994
Developing Capital Markets Focus Fund May 16, 1994
Reserve Assets Fund November 23, 1981
Index 500 Fund December 18, 1996
AIM V.I. Capital Appreciation Fund May 5, 1993
AIM V.I. Value Fund May 5, 1993
Alliance Premier Growth Portfolio March 12, 1992
Alliance Quasar Portfolio September 17, 1990
MFS Emerging Growth Series July 24, 1995
MFS Research Series July 26, 1995
Hotchkis and Wiley International VIP Portfolio June 10, 1998
</TABLE>
Average annual total returns represent the average annual compounded rates of
return that would equate an initial investment of $1,000 under a contract to the
redemption value or that investment as of the last day of each of the periods.
The ending date for each period for which total return quotations are provided
will generally be as of the most recent calendar quarter-end.
Average annual total returns are calculated using subaccount unit values
calculated on each valuation day based on the performance of the corresponding
underlying Fund, the deductions for the mortality and expense risk charge, the
administration charge (in the case of Account A subaccounts), and the contract
maintenance charge, and assume a surrender of the Contract at the end of the
period for the return quotation. Total returns therefore reflect a deduction of
the contingent deferred sales charge for any period of less than seven years.
For purposes of calculating total return, an average per dollar contract
maintenance charge attributable to the hypothetical account for the period is
used, as described below. The total return is then calculated according to the
following formula:
TR = ((ERV/P) TO THE POWER OF (1/N)) + 1
<TABLE>
<S> <C> <C>
Where:
TR = the average annual total return net of subaccount recurring charges
(such as the mortality and expense risk charge, administration
charge, if applicable, and contract maintenance charge).
ERV = the ending redeemable value (net of any applicable contingent
deferred sales charge) at the end of the period of the hypothetical
account with an initial payment of $1,000.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
</TABLE>
- ------------------------
* The subaccount corresponding to this Fund was closed to allocations of
premiums or contract value following the close of business on December 6,
1996.
** The subaccount corresponding to this Fund was closed to allocations of
premiums or contract value following the close of business on June 5, 1998.
7
<PAGE>
From time to time, Merrill Lynch Life also may quote in sales literature or
advertisements, total returns that do not reflect the contingent deferred sales
charge. These are calculated in exactly the same way as average annual total
returns described above, except that the ending redeemable value of the
hypothetical account for the period is replaced with an ending value for the
period that does not take into account any contingent deferred sales charge on
surrender of the Contract. In addition, such nonstandard returns may also be
quoted for other periods.
For the year ended December 31, 1998, returns not reflecting any contingent
deferred sales charge were:
<TABLE>
<CAPTION>
5 10 SINCE
NAME OF SUBACCOUNT 1 YEAR YEAR YEAR INCEPTION
- ---------------------------------------------------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C>
Prime Bond 6.30% 4.96% N/A 6.27%
High Current Income -4.48% 4.70% N/A 7.16%
Quality Equity 13.92% 13.69% N/A 12.27%
Special Value Focus
(formerly, Equity Growth) -7.85% 7.28% N/A 6.44%
Natural Resources Focus* -16.52% -2.21% N/A 0.10%
American Balanced* 11.93% 9.46% N/A 9.46%
Global Strategy Focus 7.31% 6.93% N/A 7.95%
Basic Value Focus 7.87% 13.74% N/A 14.11%
Global Bond Focus**
(formerly, World Income Focus) 11.00% 5.21% N/A 5.67%
Global Utility Focus* 22.27% 13.29% N/A 13.20%
International Equity Focus** 6.25% 1.59% N/A 3.12%
Government Bond
(formerly, Intermediate Government Bond) 7.20% N/A N/A 6.35%
Developing Capital Markets Focus -30.40% N/A N/A -9.23%
Index 500 26.43% N/A N/A 28.80%
Capital Focus N/A N/A N/A -5.60%
Global Growth Focus N/A N/A N/A 13.02%
Select Ten Trust N/A N/A N/A 1.90%
AIM V.I. Capital Appreciation 17.59% N/A N/A 14.51%
AIM V.I. Value 30.50% N/A N/A 27.15%
Alliance Premier Growth 45.84% N/A N/A 37.87%
Alliance Quasar N/A N/A N/A -23.80%
MFS Emerging Growth 32.23% N/A N/A 24.45%
MFS Research 21.61% N/A N/A 20.09%
Hotchkis and Wiley International VIP N/A N/A N/A -8.92%
</TABLE>
From time to time, Merrill Lynch Life also may quote in sales literature or
advertisements total returns or other performance information for a hypothetical
Contract assuming the initial premium is allocated to more than one subaccount
or assuming monthly transfers from the Domestic Money Market Subaccount to one
or more designated subaccounts under a dollar cost averaging program. These
returns will reflect the performance of the affected subaccount(s) for the
amount and duration of the allocation to each subaccount for the hypothetical
Contract. They also will reflect the deduction of charges described above except
for the contingent deferred sales charge. For example, total return information
for a Contract with a dollar cost averaging program for a 12-month period will
assume commencement of the program at the beginning of the most recent 12-month
period for which average annual total return information is available. This
information will assume an initial lump-sum investment in the Domestic Money
Market Subaccount at the beginning of that period and monthly transfers of a
portion of the contract value from that subaccount to designated subaccount(s)
during the 12-month period. The total return for the Contract for this 12-month
period therefore will reflect the return on the portion of the contract value
that remains invested in the Domestic Money Market Subaccount for the period it
is assumed to be so invested, as affected by monthly transfers, and the return
on amounts transferred to the designated subaccounts for the period during which
those amounts are assumed to be invested in those subaccounts. The return for an
amount invested in a subaccount will be based on the performance of that
subaccount for the duration of the investment, and will reflect the charges
described above other than the contingent deferred sales charge. Performance
information for a dollar cost-averaging program also may show the returns for
various periods for a designated subaccount assuming monthly transfers to the
subaccount, and may compare those returns to returns assuming an initial
lump-sum investment in that subaccount. This
8
<PAGE>
information also may be compared to various indices, such as the Merrill Lynch
91-day Treasury Bills index or the U.S. Treasury Bills index and may be
illustrated by graphs, charts, or otherwise.
- --------------------------
* This subaccount was closed to allocations of premiums or contract value
following the close of business on December 6, 1996.
** This subaccount was closed to allocations of premiums or contract value
following the close of business on June 5, 1998.
9
<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 A (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 A
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):
Domestic Money Market Fund $ 377,446,495 377,446,495 $ 377,446,495
Prime Bond Fund 514,485,002 42,835,488 524,734,734
High Current Income Fund 524,495,554 46,502,682 470,142,111
Quality Equity Fund 582,380,022 19,655,200 749,256,238
Special Value Focus Fund 441,981,115 19,592,697 390,874,307
American Balanced Fund 138,083,934 9,863,772 165,119,545
Natural Resources Focus Fund 20,841,181 1,871,967 14,320,549
Global Strategy Focus Fund 643,470,358 51,236,216 687,077,655
Global Utility Focus Fund 80,735,754 7,410,553 126,572,241
International Equity Focus Fund 172,599,146 15,289,569 163,292,594
Global Bond Focus Fund 59,389,774 6,228,451 61,661,662
Basic Value Focus Fund 527,685,763 40,049,179 587,521,462
Government Bond Fund 314,860,295 29,837,366 324,630,543
Developing Capital Markets Focus Fund 83,234,404 8,292,233 53,319,060
Index 500 Fund 259,682,231 19,936,506 323,552,430
Global Growth Focus Fund 15,694,261 1,589,855 17,202,236
Capital Focus Fund 24,917,029 2,610,939 25,482,768
--------------------------- ---------------------------
4,781,982,318 5,062,206,630
--------------------------- ---------------------------
Investments In Hotchkis & Wiley
Variable Trust (Note 1):
International VIP Portfolio 271,422,364 27,976,187 266,333,296
--------------------------- ---------------------------
271,422,364 266,333,296
--------------------------- ---------------------------
Investments In Defined Asset Funds,
Equity Investor Fund (Note 1):
1998 ML Select Ten V.I. Trust 20,226,869 20,637,326 20,927,074
--------------------------- ---------------------------
20,226,869 20,927,074
--------------------------- ---------------------------
Investments in Alliance
Variable Products Series Fund, Inc. (Note 1):
Quasar Portfolio 10,772,950 929,917 10,359,277
Premier Growth Portfolio 438,895,741 20,169,409 625,856,761
--------------------------- ---------------------------
449,668,691 636,216,038
--------------------------- ---------------------------
Investments in MFS
Variable Insurance Trust (Note 1):
MFS Emerging Growth Series 158,132,573 9,735,412 209,019,300
MFS Research Series 169,556,549 10,952,119 208,637,871
--------------------------- ---------------------------
327,689,122 417,657,171
--------------------------- ---------------------------
</TABLE> (continued)
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Market
Cost Shares Value
=========================== =========================== ===========================
<S> <C> <C> <C>
Investments in AIM
Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund 248,531,747 11,293,799 296,462,211
AIM V.I. Capital Appreciation Fund 84,365,407 3,817,372 96,197,770
--------------------------- ---------------------------
332,897,154 392,659,981
--------------------------- ---------------------------
TOTAL ASSETS $ 6,183,886,518 6,796,000,190
=========================== ---------------------------
LIABILITIES:
Due to Merrill Lynch Life Insurance Company 3,252,245
---------------------------
TOTAL LIABILITIES 3,252,245
---------------------------
NET ASSETS $ 6,792,747,945
===========================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
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 $ 628,885,650 $ 290,197,843
Mortality and Expense Charges (Note 3) (83,552,677) (68,664,481)
--------------------------- ---------------------------
Net Investment Income 545,332,973 221,533,362
--------------------------- ---------------------------
Realized and Unrealized Gains on Investments:
Net Realized Gains 34,560,089 87,299,391
Net Change in Unrealized Gains 8,212,946 211,226,102
--------------------------- ---------------------------
Net Gain on Investments 42,773,035 298,525,493
--------------------------- ---------------------------
Increase in Net Assets
Resulting from Operations 588,106,008 520,058,855
--------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 998,726,012 1,036,438,880
Transfer of Contract Owner Withdrawals (363,871,766) (264,290,075)
Transfers Out - Net (45,292,152) (34,499,626)
Transfer of Contract Maintenance Charges (Note 3) (1,701,345) (1,494,689)
Transfers From (To) General Account - Net 11,999,508 (11,026,253)
--------------------------- ---------------------------
Increase in Net Assets
Resulting from Principal Transactions 599,860,257 725,128,237
--------------------------- ---------------------------
Increase in Net Assets 1,187,966,265 1,245,187,092
Net Assets Beginning Balance 5,604,781,680 4,359,594,588
--------------------------- ---------------------------
Net Assets Ending Balance $ 6,792,747,945 $ 5,604,781,680
=========================== ===========================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Merrill Lynch Life Variable Annuity Separate Account A
("Separate Account A"), 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"). Separate Account A is governed by Arkansas
State Insurance Law. Merrill Lynch Life is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("Merrill Lynch & Co."). Separate Account A is
registered as a unit investment trust under the
Investment Company Act of 1940 and consists of twenty-
five investment divisions. The investment divisions are
as follows:
Merrill Lynch Variable Series Funds, Inc.: Seventeen
of 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. Effective following the close of
business on June 5, 1998, the International Equity
Focus Fund and Global Bond Focus Fund were closed to
allocations of premiums and contract value. Three
other investment divisions; Natural Resources Focus
Fund, American Balanced Fund and Global Utility Focus
Fund have been closed to allocations of premiums and
contract value since 1996.
Hotchkis & Wiley Variable Trust: One of the investment
divisions invests in the securities of a single mutual
fund portfolio of the Hotchkis & Wiley Variable Trust
("H&W Trust"). The investment advisor to the fund of
the H&W Trust is Hotchkis & Wiley, a division of
Merrill Lynch Capital Management Group of MLAM.
Defined Asset Funds, Equity Investor Fund: One of the
investment divisions invests in the securities of a
single unit investment trust of the Equity Investor
Fund. Equity Investor Fund is sponsored by Merrill
Lynch, Pierce, Fenner & Smith, Incorporated, a wholly-
owned subsidiary of Merrill Lynch & Co.
Alliance Variable Products Series Fund, Inc.: Two
investment divisions each invest in the securities of
a single mutual fund portfolio of the Alliance Variable
Products Series Fund, Inc. ("Alliance Variable Fund").
The investment advisor to the funds of the Alliance
Variable Fund is Alliance Capital Management, L.P.
MFS Variable Insurance Trust: Two of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the MFS Variable Insurance
Trust ("MFS Variable Trust"). The investment advisor
to the funds of the MFS Variable Trust is Massachusetts
Financial Services Company.
AIM Variable Insurance Funds, Inc.: Two of the
investment divisions each invest in the securities of
a single mutual fund portfolio of the AIM Variable
Insurance Funds, Inc. ("AIM Variable Funds"). The
investment advisor to the funds of the AIM Variable
Funds is AIM Advisors, Inc.
The assets of Separate Account A are registered in the
name of Merrill Lynch Life. The portion of Separate
Account A's assets applicable to the Contracts are not
chargeable with liabilities arising out of any other
business Merrill Lynch Life may conduct.
The change in net assets accumulated in Separate Account
A 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.
2. SIGNIFICANT ACCOUNTING POLICIES
Investments in the divisions are included in the
statement of net assets at the net asset value of the
shares held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Realized gains and losses on the sales of investments are
computed on the first in first out method.
Investment transactions are recorded on the trade date.
The operations of Separate Account A 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 Separate Account A for any Federal
income tax attributable to Separate Account A. No charge
is currently being made against Separate Account A 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
Separate Account A if the law is changed. Charges for
state and local taxes, if any, attributable to Separate
Account A may also be made.
3. CHARGES AND FEES
Merrill Lynch Life assumes mortality and expense risks
related to Contracts investing in Separate Account A and
deducts daily charges at a rate of 1.25% (on an annual
basis) of the net assets of Separate Account A to cover
these risks.
An administration charge of .10% annually is deducted
daily from the net asset value of Separate Account A.
This charge is made to reimburse Merrill Lynch Life for
costs associated with the establishment and
administration of Separate Account A.
Merrill Lynch Life deducts a contract maintenance charge
of $40 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 a contract anniversary
date. The contract maintenance charge is borne by
Contract owners by redeeming accumulation units with a
value equal to the charge. This charge is waived on all
Contracts with a Contract value equal to or greater than
$50,000 on the date the charge would otherwise be
deducted, and in certain circumstances where multiple
contracts are owned.
Contract owners may make up to six transfers among the
Separate Account A divisions per contract year without
charge. Certain transfers from the Equity Investor Fund
do not count towards the six transfers. Additional
transfers may be permitted at a charge of $25 per
transfer.
4. INVESTMENTS IN SEPARATE ACCOUNT
The net assets attributable to Merrill Lynch Life in
Separate Account A represent an investment by Merrill
Lynch Life in certain investment divisions to facilitate
the establishment of those investment divisions. Merrill
Lynch Life's $12 million investment is not subject to
charges for mortality and expense risks. Merrill Lynch
Life's investment in Separate Account A may be
transferred to Merrill Lynch Life's General Account.
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Total Investment of
Separate Total Merrill Lynch
Account Contracts Life
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 628,885,650 $ 628,885,650 $ 0
Mortality and Expense Charges (83,552,677) (83,552,677) 0
--------------------------- --------------------------- ---------------------------
Net Investment Income 545,332,973 545,332,973 0
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains
on Investments:
Net Realized Gains 34,560,089 34,559,597 492
Net Change in Unrealized Gains 8,212,946 8,182,946 30,000
--------------------------- --------------------------- ---------------------------
Net Gain on Investments 42,773,035 42,742,543 30,492
--------------------------- --------------------------- ---------------------------
Increase in Net Assets
Resulting from Operations 588,106,008 588,075,516 30,492
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 998,726,012 998,726,012 0
Transfer of Contract Owner Withdrawals (363,871,766) (363,871,766) 0
Transfers Out - Net (45,292,152) (45,292,152) 0
Transfer of Contract Maintenance Charges (1,701,345) (1,701,345) 0
Transfers From General Account - Net 11,999,508 0 11,999,508
--------------------------- --------------------------- ---------------------------
Increase in Net Assets
Resulting from Principal Transactions 599,860,257 587,860,749 11,999,508
--------------------------- --------------------------- ---------------------------
Increase in Net Assets 1,187,966,265 1,175,936,265 12,030,000
Net Assets Beginning Balance 5,604,781,680 5,604,781,680 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 6,792,747,945 $ 6,780,717,945 $ 12,030,000
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Total Investment of
Separate Total Merrill Lynch
Account Contracts LIfe
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 290,197,843 $ 290,177,491 $ 20,352
Mortality and Expense Charges (68,664,481) (68,664,481) 0
--------------------------- --------------------------- ---------------------------
Net Investment Income 221,533,362 221,513,010 20,352
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains 87,299,391 86,293,490 1,005,901
Net Change in Unrealized Gains (Losses) 211,226,102 211,394,592 (168,490)
--------------------------- --------------------------- ---------------------------
Net Gain on Investments 298,525,493 297,688,082 837,411
--------------------------- --------------------------- ---------------------------
Increase in Net Assets
Resulting from Operations 520,058,855 519,201,092 857,763
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,036,438,880 1,036,438,880 0
Transfer of Contract Owner Withdrawals (264,290,075) (264,290,075) 0
Transfers Out - Net (34,499,626) (34,499,626) 0
Transfer of Contract Maintenance Charges (1,494,689) (1,494,689) 0
Transfers To General Account (11,026,253) 0 (11,026,253)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 725,128,237 736,154,490 (11,026,253)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 1,245,187,092 1,255,355,582 (10,168,490)
Net Assets Beginning Balance 4,359,594,588 4,349,426,098 10,168,490
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 5,604,781,680 $ 5,604,781,680 $ 0
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================
Domestic
Total Money Prime
Separate Market Bond
Account Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 628,885,650 $ 16,161,384 $ 31,271,685
Mortality and Expense Charges (83,552,677) (4,308,043) (6,640,341)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 545,332,973 11,853,341 24,631,344
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 34,559,597 0 (1,410,191)
Net Change In Unrealized Gains (Losses) 8,182,946 0 7,222,005
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 42,742,543 0 5,811,814
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 588,075,516 11,853,341 30,443,158
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 998,726,012 891,355,953 5,698,065
Transfer of Contract Owner Withdrawals (363,871,766) (37,545,529) (34,805,434)
Transfers In (Out) - Net (45,292,152) (783,503,989) 61,038,180
Transfer of Contract Maintenance Charges (1,701,345) (55,834) (122,109)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 587,860,749 70,250,601 31,808,702
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 1,175,936,265 82,103,942 62,251,860
Net Assets Beginning Balance 5,604,781,680 295,160,710 462,230,810
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 6,780,717,945 $ 377,264,652 $ 524,482,670
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 30,449,124.5 34,324,782.1
=========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 12.39 $ 15.28
=========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
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 $ 50,689,306 $ 107,492,905 $ 97,153,882
Mortality and Expense Charges (6,921,597) (10,129,281) (5,632,234)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 43,767,709 97,363,624 91,521,648
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (8,728,259) 29,270,917 (927,981)
Net Change In Unrealized Gains (Losses) (59,393,378) (28,225,772) (119,246,044)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments (68,121,637) 1,045,145 (120,174,025)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations (24,353,928) 98,408,769 (28,652,377)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 7,990,057 7,301,242 4,212,667
Transfer of Contract Owner Withdrawals (34,175,045) (46,903,023) (23,158,893)
Transfers In (Out) - Net 15,041,011 (68,148,961) 18,652,580
Transfer of Contract Maintenance Charges (143,284) (222,604) (131,615)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (11,287,261) (107,973,346) (425,261)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (35,641,189) (9,564,577) (29,077,638)
Net Assets Beginning Balance 505,557,411 758,463,220 419,765,335
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 469,916,222 $ 748,898,643 $ 390,687,697
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 29,043,029.8 33,613,045.0 25,287,229.6
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 16.18 $ 22.28 $ 15.45
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Natural Global
American Resources Strategy
Balanced Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 19,198,769 $ 3,760,055 $ 126,485,784
Mortality and Expense Charges (2,262,411) (257,236) (9,942,393)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 16,936,358 3,502,819 116,543,391
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 2,920,918 (2,143,881) 4,481,772
Net Change In Unrealized Gains (Losses) (967,160) (4,480,623) (70,281,875)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 1,953,758 (6,624,504) (65,800,103)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 18,890,116 (3,121,685) 50,743,288
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 0 0 7,178,663
Transfer of Contract Owner Withdrawals (11,546,133) (1,536,964) (49,358,277)
Transfers In (Out) - Net (15,076,786) (5,715,356) (97,999,601)
Transfer of Contract Maintenance Charges (55,019) (6,960) (266,876)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (26,677,938) (7,259,280) (140,446,091)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (7,787,822) (10,380,965) (89,702,803)
Net Assets Beginning Balance 172,828,352 24,694,638 776,451,668
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 165,040,530 $ 14,313,673 $ 686,748,865
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 8,811,560.6 1,411,604.8 40,349,522.0
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 18.73 $ 10.14 $ 17.02
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Global International Global
Utility Equity Bond
Focus Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 9,037,961 $ 31,423,900 $ 3,799,087
Mortality and Expense Charges (1,641,919) (3,707,219) (873,665)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 7,396,042 27,716,681 2,925,422
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 7,073,816 (8,146,766) (684,994)
Net Change In Unrealized Gains (Losses) 10,189,446 8,113,828 4,544,461
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 17,263,262 (32,938) 3,859,467
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 24,659,304 27,683,743 6,784,889
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 0 1,405,783 377,877
Transfer of Contract Owner Withdrawals (9,128,280) (15,578,571) (4,951,276)
Transfers In (Out) - Net (12,333,808) (227,629,998) (10,084,003)
Transfer of Contract Maintenance Charges (37,489) (92,134) (18,991)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (21,499,577) (241,894,920) (14,676,393)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 3,159,727 (214,211,177) (7,891,504)
Net Assets Beginning Balance 123,352,015 377,425,655 69,523,479
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 126,511,742 $ 163,214,478 $ 61,631,975
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 6,354,180.9 13,703,986.4 4,521,788.3
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 19.91 $ 11.91 $ 13.63
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Basic Developing
Value Government Capital Markets
Focus Bond Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 84,619,045 $ 12,676,729 $ 1,485,449
Mortality and Expense Charges (8,054,145) (3,021,807) (1,288,361)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 76,564,900 9,654,922 197,088
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 12,749,915 498,136 (18,236,718)
Net Change In Unrealized Gains (Losses) (48,970,590) 4,897,522 (19,778,928)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments (36,220,675) 5,395,658 (38,015,646)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 40,344,225 15,050,580 (37,818,558)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 12,716,253 4,988,928 1,191,061
Transfer of Contract Owner Withdrawals (29,836,435) (10,789,806) (4,286,045)
Transfers In (Out) - Net 29,987,393 148,353,106 (25,326,693)
Transfer of Contract Maintenance Charges (171,649) (37,452) (30,176)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 12,695,562 142,514,776 (28,451,853)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 53,039,787 157,565,356 (66,270,411)
Net Assets Beginning Balance 534,199,390 166,904,651 119,564,011
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 587,239,177 $ 324,470,007 $ 53,293,600
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 28,219,085.9 24,286,677.2 8,301,183.8
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 20.81 $ 13.36 $ 6.42
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Global
Index Growth Capital
500 Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 11,213,689 $ 0 $ 0
Mortality and Expense Charges (3,600,184) (61,384) (69,455)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 7,613,505 (61,384) (69,455)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 11,102,229 (3,244) (30,107)
Net Change In Unrealized Gains (Losses) 40,479,138 1,261,974 781,739
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 51,581,367 1,258,730 751,632
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 59,194,872 1,197,346 682,177
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 10,033,068 686,602 1,568,342
Transfer of Contract Owner Withdrawals (9,963,346) (102,182) (190,708)
Transfers In (Out) - Net 85,628,340 12,168,422 14,631,520
Transfer of Contract Maintenance Charges (53,169) (620) (571)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 85,644,893 12,752,222 16,008,583
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 144,839,765 13,949,568 16,690,760
Net Assets Beginning Balance 178,557,805 0 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 323,397,570 $ 13,949,568 $ 16,690,760
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 19,261,320.4 1,298,842.5 1,724,252.1
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 16.79 $ 10.74 $ 9.68
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
International 1998 ML
VIP Select Ten Quasar
Portfolio V.I. Trust Portfolio
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,090,821 $ 118,581 $ 105,928
Mortality and Expense Charges (1,715,021) (78,905) (47,097)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) (624,200) 39,676 58,831
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (223,851) (332) (208,929)
Net Change In Unrealized Gains (Losses) (5,089,067) 700,205 (413,674)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments (5,312,918) 699,873 (622,603)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations (5,937,118) 739,549 (563,772)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 639,537 1,424,841 745,539
Transfer of Contract Owner Withdrawals (4,618,387) (42,345) (72,023)
Transfers In (Out) - Net 276,146,023 18,795,625 10,245,068
Transfer of Contract Maintenance Charges (24,176) (630) (466)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 272,142,997 20,177,491 10,918,118
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 266,205,879 20,917,040 10,354,346
Net Assets Beginning Balance 0 0 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 266,205,879 $ 20,917,040 $ 10,354,346
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 28,051,199.1 2,066,901.2 1,208,208.4
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 9.49 $ 10.12 $ 8.57
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
MFS
Premier Emerging MFS
Growth Growth Research
Portfolio Series Series
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 385,721 $ 1,213,360 $ 3,414,188
Mortality and Expense Charges (5,474,957) (2,033,974) (2,202,277)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) (5,089,236) (820,614) 1,211,911
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 1,827,952 484,669 2,818,933
Net Change In Unrealized Gains (Losses) 163,300,944 44,127,414 28,946,288
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 165,128,896 44,612,083 31,765,221
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 160,039,660 43,791,469 32,977,132
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 15,717,563 5,523,391 6,243,201
Transfer of Contract Owner Withdrawals (13,938,595) (4,599,636) (6,902,175)
Transfers In (Out) - Net 230,581,509 89,495,240 68,028,154
Transfer of Contract Maintenance Charges (86,376) (39,397) (40,904)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 232,274,101 90,379,598 67,328,276
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 392,313,761 134,171,067 100,305,408
Net Assets Beginning Balance 233,244,464 74,748,698 108,232,833
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 625,558,225 $ 208,919,765 $ 208,538,241
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 32,445,966.0 13,340,981.2 14,322,681.4
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 19.28 $ 15.66 $ 14.56
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================
AIM V.I.
AIM V.I. Capital
Value Appreciation
Fund Fund
=========================== ===========================
<S> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 13,521,377 $ 2,566,044
Mortality and Expense Charges (2,551,678) (1,037,093)
--------------------------- ---------------------------
Net Investment Income (Loss) 10,969,699 1,528,951
--------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 273,416 1,802,177
Net Change In Unrealized Gains (Losses) 42,993,616 7,471,477
--------------------------- ---------------------------
Net Gain (Loss) on Investments 43,267,032 9,273,654
--------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 54,236,731 10,802,605
--------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 8,263,895 3,463,484
Transfer of Contract Owner Withdrawals (6,929,160) (2,913,498)
Transfers In (Out) - Net 138,264,531 (16,529,659)
Transfer of Contract Maintenance Charges (42,911) (19,933)
--------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 139,556,355 (15,999,606)
--------------------------- ---------------------------
Increase (Decrease) in Net Assets 193,793,086 (5,197,001)
Net Assets Beginning Balance 102,527,511 101,349,024
--------------------------- ---------------------------
Net Assets Ending Balance $ 296,320,597 $ 96,152,023
=========================== ===========================
Units Outstanding at December 31, 1998 18,123,583.9 7,273,224.1
=========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 16.35 $ 13.22
=========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================
Domestic
Total Money Prime
Separate Market Bond
Account Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 290,177,491 $ 14,542,862 $ 30,327,250
Mortality and Expense Charges (68,664,481) (3,847,441) (6,195,296)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 221,513,010 10,695,421 24,131,954
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 86,293,490 0 (4,716,434)
Net Change In Unrealized Gains (Losses) 211,394,592 0 11,641,219
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 297,688,082 0 6,924,785
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 519,201,092 10,695,421 31,056,739
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,036,438,880 933,644,733 3,761,832
Transfer of Contract Owner Withdrawals (264,290,075) (29,212,336) (27,209,883)
Transfers In (Out) - Net (34,499,626) (873,970,780) (14,198,500)
Transfer of Contract Maintenance Charges (1,494,689) (53,790) (129,049)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 736,154,490 30,407,827 (37,775,600)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 1,255,355,582 41,103,248 (6,718,861)
Net Assets Beginning Balance 4,349,426,098 254,057,462 468,949,671
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 5,604,781,680 $ 295,160,710 $ 462,230,810
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 24,720,327.5 32,188,775.1
=========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 11.94 $ 14.36
=========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
High Special
Current Quality Value
Income Equity Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 40,374,819 $ 36,765,087 $ 20,905,658
Mortality and Expense Charges (5,968,459) (9,739,085) (5,480,346)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 34,406,360 27,026,002 15,425,312
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (249,044) 21,824,903 19,244,460
Net Change In Unrealized Gains (Losses) 5,341,214 91,851,168 4,677,975
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 5,092,170 113,676,071 23,922,435
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 39,498,530 140,702,073 39,347,747
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 11,744,090 9,977,901 5,357,994
Transfer of Contract Owner Withdrawals (24,818,883) (33,114,921) (19,308,829)
Transfers In (Out) - Net 98,457,214 (45,836,773) (4,985,253)
Transfer of Contract Maintenance Charges (130,439) (232,974) (133,369)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 85,251,982 (69,206,767) (19,069,457)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 124,750,512 71,495,306 20,278,290
Net Assets Beginning Balance 380,806,899 686,967,914 399,487,045
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 505,557,411 $ 758,463,220 $ 419,765,335
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 29,861,630.9 38,815,927.3 25,060,617.0
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 16.93 $ 19.54 $ 16.75
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Natural Global
American Resources Strategy
Balanced Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 21,360,451 $ 2,948,280 $ 40,369,873
Mortality and Expense Charges (2,385,023) (457,908) (10,835,736)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 18,975,428 2,490,372 29,534,137
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 3,780,214 1,566,646 12,747,513
Net Change In Unrealized Gains (Losses) 2,712,595 (7,915,418) 36,155,838
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 6,492,809 (6,348,772) 48,903,351
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 25,468,237 (3,858,400) 78,437,488
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 321 0 12,652,689
Transfer of Contract Owner Withdrawals (10,401,320) (1,985,165) (43,524,129)
Transfers In (Out) - Net (29,617,130) (11,234,544) (48,413,248)
Transfer of Contract Maintenance Charges (64,708) (11,184) (295,869)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (40,082,837) (13,230,893) (79,580,557)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (14,614,600) (17,089,293) (1,143,069)
Net Assets Beginning Balance 187,442,952 41,783,931 777,594,737
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 172,828,352 $ 24,694,638 $ 776,451,668
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 10,336,623.9 2,034,154.7 48,987,486.9
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 16.72 $ 12.14 $ 15.85
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Global International Global
Utility Equity Bond
Focus Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 4,179,108 $ 8,520,635 $ 4,914,811
Mortality and Expense Charges (1,654,299) (4,978,793) (1,002,848)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 2,524,809 3,541,842 3,911,963
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 8,056,044 1,669,626 (2,555,412)
Net Change In Unrealized Gains (Losses) 15,923,529 (32,014,455) (1,487,176)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 23,979,573 (30,344,829) (4,042,588)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 26,504,382 (26,802,987) (130,625)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 8,133 4,885,367 838,190
Transfer of Contract Owner Withdrawals (7,452,535) (17,978,233) (4,883,209)
Transfers In (Out) - Net (26,938,317) 102,717,003 (13,954,908)
Transfer of Contract Maintenance Charges (41,996) (113,230) (22,653)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (34,424,715) 89,510,907 (18,022,580)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (7,920,333) 62,707,920 (18,153,205)
Net Assets Beginning Balance 131,272,348 314,717,735 87,676,684
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 123,352,015 $ 377,425,655 $ 69,523,479
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 7,581,562.1 33,698,719.2 5,666,135.2
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 16.27 $ 11.20 $ 12.27
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Basic Developing
Value Government Capital Markets
Focus Bond Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 49,988,204 $ 8,335,134 $ 1,488,739
Mortality and Expense Charges (6,545,003) (1,725,650) (1,483,500)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 43,443,201 6,609,484 5,239
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 16,585,545 106,665 146,033
Net Change In Unrealized Gains (Losses) 20,005,200 3,709,134 (12,453,540)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 36,590,745 3,815,799 (12,307,507)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 80,033,946 10,425,283 (12,302,268)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 12,493,113 818,167 2,271,822
Transfer of Contract Owner Withdrawals (22,299,460) (5,804,954) (3,904,289)
Transfers In (Out) - Net 9,919,139 78,350,161 54,002,609
Transfer of Contract Maintenance Charges (142,677) (23,186) (31,308)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (29,885) 73,340,188 52,338,834
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 80,004,061 83,765,471 40,036,566
Net Assets Beginning Balance 454,195,329 83,139,180 79,527,445
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 534,199,390 $ 166,904,651 $ 119,564,011
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 27,721,815.8 13,405,996.1 12,981,977.3
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 19.27 $ 12.45 $ 9.21
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
MFS
Index Premier Emerging
500 Growth Growth
Fund Portfolio Series
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,003 $ 138,947 $ 1,219
Mortality and Expense Charges (1,609,747) (1,671,447) (534,089)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) (1,608,744) (1,532,500) (532,870)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 4,106,058 1,723,613 (30,146)
Net Change In Unrealized Gains (Losses) 23,388,329 23,660,431 6,765,039
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 27,494,387 25,384,044 6,734,893
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 25,885,643 23,851,544 6,202,023
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 3,957,378 9,250,515 5,768,632
Transfer of Contract Owner Withdrawals (4,367,198) (2,829,661) (782,634)
Transfers In (Out) - Net 152,765,923 202,844,111 63,330,519
Transfer of Contract Maintenance Charges (18,431) (17,670) (5,085)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 152,337,672 209,247,295 68,311,432
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 178,223,315 233,098,839 74,513,455
Net Assets Beginning Balance 334,490 145,625 235,243
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 178,557,805 $ 233,244,464 $ 74,748,698
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 13,455,750.2 17,656,658.9 6,318,571.3
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 13.27 $ 13.21 $ 11.83
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
AIM V.I.
MFS AIM V.I. Capital
Research Value Appreciation
Series Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,829 $ 3,680,533 $ 1,333,049
Mortality and Expense Charges (949,113) (716,909) (883,789)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) (947,284) 2,963,624 449,260
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 3,235,812 20,750 (969,356)
Net Change In Unrealized Gains (Losses) 10,138,223 4,932,625 4,362,662
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 13,374,035 4,953,375 3,393,306
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 12,426,751 7,916,999 3,842,566
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 6,271,152 7,848,715 4,888,136
Transfer of Contract Owner Withdrawals (1,528,053) (993,891) (1,890,492)
Transfers In (Out) - Net 90,820,896 87,455,713 93,986,539
Transfer of Contract Maintenance Charges (10,875) (6,070) (10,126)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 95,553,120 94,304,467 96,974,057
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 107,979,871 102,221,466 100,816,623
Net Assets Beginning Balance 252,962 306,045 532,401
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 108,232,833 $ 102,527,511 $ 101,349,024
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 9,049,568.0 8,189,098.3 9,024,846.3
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 11.96 $ 12.52 $ 11.23
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================
Global
Investment of Growth Capital
Merrill Lynch Focus Focus
Life Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 0 $ 0 $ 0
--------------------------- --------------------------- ---------------------------
Net Investment Income 0 0 0
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains 492 0 0
Net Change In Unrealized Gains (Losses) 30,000 246,000 (216,000)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 30,492 246,000 (216,000)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 30,492 246,000 (216,000)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfers (To) From General Account 11,999,508 3,000,000 9,000,000
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 11,999,508 3,000,000 9,000,000
--------------------------- --------------------------- ---------------------------
Increase in Net Assets 12,030,000 3,246,000 8,784,000
Net Assets Beginning Balance 0 0 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 12,030,000 $ 3,246,000 $ 8,784,000
=========================== =========================== ===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===========================
1998 ML
Select Ten
V.I. Trust
===========================
<S> <C>
Investment Income:
Reinvested Dividends $ 0
---------------------------
Net Investment Income 0
---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains 492
Net Change In Unrealized Gains (Losses) 0
---------------------------
Net Gain (Loss) on Investments 492
---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 492
---------------------------
Changes from Principal Transactions:
Transfers (To) From General Account (492)
---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (492)
---------------------------
Increase in Net Assets 0
Net Assets Beginning Balance 0
---------------------------
Net Assets Ending Balance $ 0
===========================
</TABLE>
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A
MERRILL LYNCH LIFE INSURANCE COMPANY
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
INVESTMENT OF MERRILL LYNCH LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Division Investing In
===========================
Investment of Index
Merrill Lynch 500
Life Fund
=========================== ===========================
<S> <C> <C>
Investment Income:
Reinvested Dividends $ 20,352 $ 20,352
--------------------------- ---------------------------
Net Investment Income 20,352 20,352
--------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains 1,005,901 1,005,901
Net Change In Unrealized Losses (168,490) (168,490)
--------------------------- ---------------------------
Net Gain on Investments 837,411 837,411
--------------------------- ---------------------------
Increase in Net Assets
Resulting from Operations 857,763 857,763
--------------------------- ---------------------------
Changes from Principal Transactions:
Transfers To General Account (11,026,253) (11,026,253)
--------------------------- ---------------------------
Decrease in Net Assets
Resulting from Principal Transactions (11,026,253) (11,026,253)
--------------------------- ---------------------------
Decrease in Net Assets (10,168,490) (10,168,490)
Net Assets Beginning Balance 10,168,490 10,168,490
--------------------------- ---------------------------
Net Assets Beginning Balance $ 0 $ 0
=========================== ===========================
</TABLE>
<PAGE>
<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 B (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 audits 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.
February 4, 1999
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B
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):
Reserve Assets Fund $ 11,754,833 11,754,833 $ 11,754,833
----------------------- -----------------------
TOTAL ASSETS $ 11,754,833 11,754,833
======================= -----------------------
LIABILITIES:
Due to Merrill Lynch Life Insurance Company 2,783
-----------------------
TOTAL LIABILITIES 2,783
-----------------------
NET ASSETS $ 11,752,050
=======================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B
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 $ 597,392 $ 533,221
Mortality and Expense Charges (Note 3) (77,952) (68,596)
----------------------- -----------------------
Net Investment Income 519,440 464,625
----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 519,440 464,625
----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 707,731 1,478,356
Transfer of Contract Owner Withdrawals (46,464,192) (35,909,137)
Transfers In - Net 45,685,090 34,778,242
Transfer of Contract Maintenance Charges (Note 3) (2,819) (2,868)
----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (74,190) 344,593
----------------------- -----------------------
Increase in Net Assets 445,250 809,218
Net Assets Beginning Balance 11,306,800 10,497,582
----------------------- -----------------------
Net Assets Ending Balance $ 11,752,050 $ 11,306,800
======================= =======================
Reserve Assets Fund: 1998 1997
======================= =======================
Units Outstanding at December 31, 913,135.2 917,759.7
======================= =======================
Accumulation Unit Value at December 31, $ 12.87 $ 12.32
======================= =======================
</TABLE>
See Notes to Financial Statements
<PAGE>
MERRILL LYNCH LIFE VARIABLE ANNUITY SEPARATE ACCOUNT B
MERRILL LYNCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Merrill Lynch Life Variable Annuity Separate Account B
("Separate Account B"), 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"). Separate Account B is governed by
Arkansas State Insurance Law. Merrill Lynch Life is an
indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("Merrill Lynch & Co."). Separate Account B is
registered as a unit investment trust under the
Investment Company Act of 1940 and consists of one
investment division. The investment division invests in
the securities of the Reserve Assets Fund portfolio of
the Merrill Lynch Variable Series Funds, Inc. ("Merrill
Variable Funds"). The investment advisor to the Reserve
Assets Fund portfolio is Merrill Lynch Asset Management,
L.P. ("MLAM"), an indirect subsidiary of Merrill Lynch &
Co.
The assets of Separate Account B are registered in the
name of Merrill Lynch Life. Separate Account B's assets
are not chargeable with liabilities arising out of any
other business Merrill Lynch Life may conduct.
The change in net assets accumulated in Separate Account
B 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 ACCOUNTING POLICIES
Investments in the division are included in the statement
of net assets at the net asset value of the shares held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Investment transactions are recorded on the trade date.
The operations of Separate Account B 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 Separate Account B for any Federal
income tax attributable to Separate Account B. No charge
is currently being made against Separate Account B 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
Separate Account B if the law is changed. Charges for
state and local taxes, if any, attributable to Separate
Account B may also be made.
3. CHARGES AND FEES
Merrill Lynch Life assumes mortality and expense risks
related to Contracts investing in Separate Account B and
deducts a daily charge at a rate of .65% (on an annual
basis) of the net assets of Separate Account B to cover
these risks.
Merrill Lynch Life deducts a contract maintenance charge
of $40 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 a contract anniversary
date. The contract maintenance charge is borne by
Contract owners by redeeming accumulation units with a
value equal to the charge. This charge is waived on all
Contracts with a Contract value equal to or greater than
$50,000 on the date the charge would otherwise be
deducted, and in certain circumstances where multiple
contracts are owned.
<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>
