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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NO. 33-43654
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 12 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 13 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
ML OF NEW YORK VARIABLE ANNUITY
SEPARATE ACCOUNT A
(EXACT NAME OF REGISTRANT)
ML LIFE INSURANCE COMPANY
OF NEW YORK
(NAME OF DEPOSITOR)
100 CHURCH STREET
11TH FLOOR
NEW YORK, NEW YORK 10080-6511
(212) 602-8250
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
--------------------------
BARRY G. SKOLNICK, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
ML LIFE INSURANCE COMPANY OF NEW YORK
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
COPY TO:
STEPHEN E. ROTH, ESQ.
KIMBERLY J. SMITH, ESQ.
SUTHERLAND, ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, NW
WASHINGTON, D.C. 20004-2415
------------------------
It is proposed that this filing will become effective (check appropriate
space):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on ___May 1, 1998___ pursuant to paragraph (b) of Rule 485
(date)
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on _______________ pursuant to paragraph (a)(1) of Rule 485
(date)
Title of Securities Being Registered: Units of Interest in Flexible Premium
Individual Deferred Variable Annuity Contracts.
EXHIBIT INDEX CAN BE FOUND ON PAGE C-12
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(a) UNDER THE 1933 ACT)
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N-4 ITEM NUMBER AND CAPTION LOCATION
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PART A
1. Cover Page........................................... Cover Page
2. Definitions.......................................... Definitions
3. Synopsis............................................. Fee Table
4. Condensed Financial Information...................... Accumulation Unit Value Table; Yields and Total
Returns
Part B: Calculation of Yields and Total Returns
5. General Description of Registrant Depositor, and
Portfolio Companies................................ ML Life Insurance Company of New York; The Accounts;
Investments of the Accounts
6. Deductions and Expenses.............................. Capsule Summary of the Contract (Fees and Charges;
Transfers; Withdrawals); Charges and Deductions;
Description of the Contract (Accumulation Units;
Transfers; Withdrawals and Surrenders; Payments to
Contract Owners)
7. General Description of Variable Annuity Contracts.... Capsule Summary of the Contract (The Accounts; The
Funds; Premiums; Annuity Payments; Transfers;
Withdrawals, Ten Day Review); The Accounts;
Description of the Contract; Other Information
(Voting Rights; State Regulation)
8. Annuity Period....................................... Capsule Summary of the Contract (Annuity Payments);
Description of the Contract (Annuity Date; Annuity
Options)
9. Death Benefit........................................ Capsule Summary of the Contract (Death Benefit);
Description of the Contract (Death Benefit; Death
of Annuitant); Federal Income Tax (Taxation of
Annuities)
10. Purchases and Contract Value......................... Capsule Summary of the Contract (The Accounts;
Premiums); Description of the Contract (Premiums;
Premium Investments; Accumulation Units); Other
Information (Reports to Contract Owners)
Part B: Other Information (Principal Underwriter)
11. Redemptions.......................................... Capsule Summary of the Contract (Ten Day Review);
Charges and Deductions; Description of the Contract
(Issuing the Contract; Ten Day Right to Review;
Withdrawals and Surrenders; Payments to Contract
Owners; Annuity Options)
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<TABLE>
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N-4 ITEM NUMBER AND CAPTION LOCATION
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12. Taxes................................................ Capsule Summary of the Contract (Fees and Charges;
Withdrawals) Charges and Deductions (Premium Taxes;
Other Charges); Description of the Contract
(Accumulation Units; Death Benefit; Withdrawals and
Surrenders; Annuity Options); Federal Income Taxes
13. Legal Proceedings.................................... Other Information (Legal Proceedings)
14. Table of Contents of the Statement of Additional
Information........................................ Table of Contents of the Statement of Additional
Information
PART B
15. Cover Page........................................... Cover Page
16. Table of Contents.................................... Table of Contents
17. General Information and History...................... Part A: ML Life Insurance Company of New York; The
Accounts; Investments of the Accounts
Part B: Other Information (General Information and
History)
18. Services............................................. Part A: Other Information (Experts)
Part B: Administrative Service Arrangements
19. Purchase of Securities Being Offered................. Part A: Other Information (Selling the Contract)
20. Underwriters......................................... Part A: Other Information (Selling the Contract)
Part B: Other Information (Principal Underwriter)
21. Calculation of Performance Data...................... Part A: Yields and Total Returns
Part B: Calculation of Yields and Total Returns
22. Annuity Payments..................................... Part A: Capsule Summary of the Contract (Annuity
Payments); Description of the Contract (Annuity
Date; Annuity Options)
23. Financial Statements................................. Other Information (Financial Statements); Financial
Statements of ML of New York Variable Annuity
Separate Account A; Financial Statements of ML of
New York Variable Annuity Separate Account B;
Financial Statements of ML Life Insurance Company
of New York.
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
MAY 1, 1998
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
AND
ML OF NEW YORK 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
ML LIFE INSURANCE COMPANY OF NEW YORK
Home Office: 100 Church Street, 11th Floor
New York, New York 10080-6511
Phone: (800) 333-6524
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
The individual deferred variable annuity contract described in this Prospectus
(the "Contract") is designed to provide comprehensive and flexible ways to
invest and to create a source of income protection for later in life through the
payment of annuity benefits. The Contract is issued by ML Life Insurance Company
of New York ("ML of New York") both on a nonqualified basis, and as an
Individual Retirement Annuity ("IRA") that is given qualified tax status.
Premiums will be allocated as the contract owner directs into one or more
subaccounts of ML of New York Variable Annuity Separate Account A ("Account A")
and/or ML of New York Variable Annuity Separate Account B ("Account B"),
(together, the "Accounts"). The assets of each of the current subaccounts will
be invested in a corresponding portfolio of the Merrill Lynch Variable Series
Funds, Inc.; AIM Variable Insurance Funds, Inc.; Alliance Variable Products
Series Fund, Inc.; MFS Variable Insurance Trust; Hotchkis and Wiley Variable
Trust; and Defined Asset Funds (each portfolio, a "Fund"; collectively, the
"Funds"). Currently, there are seventeen subaccounts available through Account A
and one subaccount available through Account B. Effective following the close of
business on June 5, 1998, five additional subaccounts will become available
through Account A for the allocation of premiums or contract value. Three
subaccounts previously available through Account A are no longer available for
the allocation of premiums or contract value. Effective following the close of
business on June 5, 1998, two additional subaccounts of Account A will not be
available for the allocation of premiums or contract value. Other subaccounts
and corresponding investment options may be added or closed in the future. The
value of a contract owner's investment in each subaccount will vary with
investment experience, and it is the contract owner who bears the full
investment risk with respect to his or her investments.
The Contract provides a choice of fixed annuity payment options. On the annuity
date, the entire contract value, after the deduction of a charge for any
applicable premium taxes, will be transferred to ML of New York's general
account, from which the annuity payments will be made. Prior to the annuity
date, the contract owner may make transfers among Account A subaccounts, limited
transfers from Account A into Account B, and full or partial withdrawals from
the Contract to suit investment and liquidity needs. Withdrawals may be taxable
and may be subject to a contingent deferred sales charge.
This Prospectus contains information about the Contract and the Accounts that a
prospective contract owner should know before investing. Additional information
about the Contract and the Accounts is contained in a Statement of Additional
Information, dated May 1, 1998, which has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information is available on request and without charge by writing to
or calling ML of New York at its Home Office address or phone number set forth
above. The table of contents for the Statement of Additional Information is
included on page 40 of this Prospectus.
THE PURCHASE OF THIS CONTRACT INVOLVES CERTAIN RISKS. BECAUSE IT IS A VARIABLE
ANNUITY, THE VALUE OF THE CONTRACT REFLECTS THE INVESTMENT PERFORMANCE OF THE
SELECTED INVESTMENT OPTIONS. INVESTMENT RESULTS CAN VARY BOTH UP AND DOWN AND
CAN EVEN DECREASE THE VALUE OF PREMIUM PAYMENTS. THEREFORE, CONTRACT OWNERS
COULD LOSE ALL OR PART OF THE MONEY THEY HAVE INVESTED. ML OF NEW YORK DOES NOT
GUARANTEE THE VALUE OF THE CONTRACT. RATHER, CONTRACT OWNERS BEAR ALL INVESTMENT
RISKS.
AN ANNUITY IS INTENDED TO BE A LONG TERM INVESTMENT. WITHDRAWALS OR SURRENDER OF
THE CONTRACT PREMATURELY MAY RESULT IN SUBSTANTIAL PENALTIES. CONTRACT OWNERS
SHOULD CONSIDER THEIR INCOME NEEDS BEFORE PURCHASING THE CONTRACT.
ALL WITHDRAWALS FROM AND SURRENDER OF THE CONTRACT ARE SUBJECT TO TAX, AND IF
TAKEN BEFORE AGE 59 1/2 MAY ALSO BE SUBJECT TO A 10% FEDERAL PENALTY TAX.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
CURRENT PROSPECTUSES FOR THE FUNDS WHICH SHOULD ALSO BE READ AND KEPT FOR
REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
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DEFINITIONS................................................................................................ 4
CAPSULE SUMMARY OF THE CONTRACT............................................................................ 5
FEE TABLE.................................................................................................. 9
ACCUMULATION UNIT VALUES................................................................................... 13
YIELDS AND TOTAL RETURNS................................................................................... 15
ML LIFE INSURANCE COMPANY OF NEW YORK...................................................................... 16
THE ACCOUNTS............................................................................................... 16
INVESTMENTS OF THE ACCOUNTS................................................................................ 17
Merrill Lynch Variable Series Funds, Inc. ............................................................. 17
Domestic Money Market Fund......................................................................... 18
Prime Bond Fund.................................................................................... 18
High Current Income Fund........................................................................... 18
Quality Equity Fund................................................................................ 19
Special Value Focus Fund........................................................................... 19
Natural Resources Focus Fund....................................................................... 19
American Balanced Fund............................................................................. 19
Global Strategy Focus Fund......................................................................... 19
Basic Value Focus Fund............................................................................. 19
Global Bond Focus Fund............................................................................. 20
Global Utility Focus Fund.......................................................................... 20
International Equity Focus Fund.................................................................... 20
Government Bond Fund............................................................................... 20
Developing Capital Markets Focus Fund.............................................................. 20
Reserve Assets Fund................................................................................ 20
Index 500 Fund..................................................................................... 21
Capital Focus Fund................................................................................. 21
Global Growth Focus Fund........................................................................... 21
Defined Asset Funds--Select Ten Trust.................................................................. 21
AIM Variable Insurance Funds, Inc. .................................................................... 22
AIM V.I. Capital Appreciation Fund................................................................. 23
AIM V.I. Value Fund................................................................................ 23
Alliance Variable Products Series Fund, Inc. .......................................................... 23
Alliance Premier Growth Portfolio.................................................................. 23
Alliance Quasar Portfolio.......................................................................... 24
MFS Variable Insurance Trust........................................................................... 24
MFS Emerging Growth Series......................................................................... 24
MFS Research Series................................................................................ 24
Hotchkis and Wiley Variable Trust...................................................................... 25
Hotchkis and Wiley International VIP Portfolio..................................................... 25
Purchases and Redemptions of Fund Shares; Reinvestment................................................. 25
Material Conflicts, Substitution of Investments and Changes to Accounts................................ 26
CHARGES AND DEDUCTIONS..................................................................................... 26
Contract Maintenance Charge............................................................................ 26
Mortality and Expense Risk Charge...................................................................... 27
Administration Charge.................................................................................. 27
Contingent Deferred Sales Charge....................................................................... 27
Premium Taxes.......................................................................................... 28
Other Charges.......................................................................................... 29
</TABLE>
2
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<TABLE>
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DESCRIPTION OF THE CONTRACT................................................................................ 29
Ownership of the Contract.............................................................................. 29
Issuing the Contract................................................................................... 29
Ten Day Right to Review................................................................................ 30
Contract Changes....................................................................................... 30
Premiums............................................................................................... 30
Premium Investments.................................................................................... 31
Accumulation Units..................................................................................... 31
Death Benefit.......................................................................................... 32
Death of Annuitant..................................................................................... 33
Transfers.............................................................................................. 33
Dollar Cost Averaging.................................................................................. 34
Merrill Lynch Retirement Plus Advisor-SM-.............................................................. 35
Withdrawals and Surrenders............................................................................. 35
Payments to Contract Owners............................................................................ 37
Annuity Date........................................................................................... 37
Annuity Options........................................................................................ 37
Unisex................................................................................................. 39
FEDERAL INCOME TAXES....................................................................................... 39
Introduction........................................................................................... 39
ML of New York's Tax Status............................................................................ 39
Taxation of Annuities.................................................................................. 39
Internal Revenue Service Diversification Standards..................................................... 41
IRA Contracts.......................................................................................... 42
Roth IRAs.............................................................................................. 42
Transfers, Assignments, or Exchanges of a Contract..................................................... 42
Withholding............................................................................................ 43
Possible Changes in Taxation........................................................................... 43
Other Tax Consequences................................................................................. 43
OTHER INFORMATION.......................................................................................... 43
Voting Rights.......................................................................................... 43
Reports to Contract Owners............................................................................. 44
Selling the Contract................................................................................... 44
State Regulation....................................................................................... 45
Year 2000.............................................................................................. 45
Legal Proceedings...................................................................................... 45
Experts................................................................................................ 45
Legal Matters.......................................................................................... 45
Registration Statements................................................................................ 46
Table of Contents of the Statement of Additional Information........................................... 46
</TABLE>
3
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DEFINITIONS
ACCOUNTS: Two segregated investment accounts of ML Life Insurance Company of New
York, named ML of New York Variable Annuity Separate Account A and ML of New
York Variable Annuity Separate Account B. (See page 15.)
ACCOUNT VALUE: The value of a contract owner's interest in a particular Account.
ACCUMULATION UNIT: An index used to compute the value of the contract owner's
interest in a subaccount prior to the annuity date. (See page 26.)
ANNUITANT: The person on whose continuation of life annuity payments may depend.
ANNUITY DATE: The date on which annuity payments begin. (See page 32.)
BENEFICIARY: The person to whom payment is to be made on the death of the
contract owner.
CONTRACT: The variable annuity offered by this Prospectus.
CONTRACT ANNIVERSARY: The same date each year as the date of issue of the
Contract.
CONTRACT OWNER: The person entitled to exercise all rights under the Contract.
(See page 25.)
CONTRACT VALUE: The value of a contract owner's interest in the Accounts.
CONTRACT YEAR: The period from one contract anniversary to the day preceding the
next contract anniversary.
DATE OF ISSUE: The date on which an initial premium is received and required
contract owner information is approved by ML of New York. (See page 25.)
DUE PROOF OF DEATH: A certified copy of the death certificate, Beneficiary
Statement, and any additional paperwork necessary to process the death claim.
FUNDS: The mutual funds, or separate investment portfolios within a series
mutual fund, and the unit investment trust portfolio, designated as eligible
investments for the Accounts. (See page 16.)
INDIVIDUAL RETIREMENT ACCOUNT OR ANNUITY ("IRA"): A Contract issued in
connection with a retirement arrangement that receives favorable tax status
under Section 408 of the Internal Revenue Code.
MONTHIVERSARY: The same date of each month as the date on which the Contract was
issued.
NET INVESTMENT FACTOR: An index used to measure the investment performance of a
subaccount from one valuation period to the next. (See page 27.)
NONQUALIFIED CONTRACT: A Contract issued in connection with a retirement
arrangement other than a qualified arrangement described under Section 401, 403,
408, 457 or any similar provisions of the Internal Revenue Code.
PREMIUMS: Money paid into the Contract. (See page 26.)
SUBACCOUNT: A division of each of the Accounts consisting of the shares of a
particular Fund held by that Account.
VALUATION PERIOD: The interval from one determination of the net asset value of
a subaccount to the next. Net asset values are determined as of the close of
business on each day the New York Stock Exchange is open. (See page 27.)
VARIABLE ANNUITY: A contract with a value that reflects investment experience
prior to the annuity date, and provides periodic payments of set amounts after
the annuity date.
4
<PAGE>
CAPSULE SUMMARY OF THE CONTRACT
The following capsule summary is intended to provide a brief overview of the
Contract. More detailed information about the Contract can be found in the
sections of this Prospectus that follow, all of which should be read in their
entirety.
THE ACCOUNTS
Premiums will be allocated to ML of New York Variable Annuity Separate Account A
("Account A") and/or ML of New York Variable Annuity Separate Account B
("Account B") segregated investment accounts (together, the "Accounts"), as
directed by the contract owner. The Accounts are divided into subaccounts
corresponding to the Funds in which contract value may be invested. Premiums are
not invested directly in the underlying Funds. For the first 14 days following
the date of issue, all premiums directed into Account A will be allocated to the
Domestic Money Market Fund Subaccount. Thereafter, the account value will be
reallocated to the Account A subaccounts selected. Account A account value may
be periodically transferred among Account A subaccounts, subject to certain
limitations. Currently, a contract owner may allocate premiums or contract value
among a total of eighteen subaccounts. The contract value and annuity payments
will reflect the investment performance of the Funds selected. (See THE ACCOUNTS
on page 15 and TRANSFERS on page 29.)
THE FUNDS
The Funds are separate investment portfolios of the Merrill Lynch Variable
Series Funds, Inc. ("Merrill Variable Funds"); AIM Variable Insurance Funds,
Inc. ("AIM V.I. Funds"); Alliance Variable Products Series Fund, Inc. ("Alliance
Fund"); MFS Variable Insurance Trust ("MFS Trust"); Hotchkis and Wiley Variable
Trust ("Hotchkis and Wiley Trust"); and Defined Asset Funds (each portfolio, a
"Fund"; collectively, the "Funds"). The following eighteen Funds are currently
available for contract owner investment (seventeen available through Account A
and one available through Account B), each with a different investment
objective: Domestic Money Market Fund, Prime Bond Fund, High Current Income
Fund, Quality Equity Fund, Special Value Focus Fund, Global Strategy Focus Fund,
Basic Value Focus Fund, Global Bond Focus Fund, International Equity Focus Fund,
Government Bond Fund, Developing Capital Markets Focus Fund, Index 500 Fund, and
Reserve Assets Fund, each of Merrill Variable Funds; AIM V.I. Capital
Appreciation Fund and AIM V.I. Value Fund, each of AIM V.I. Funds; Alliance
Premier Growth Portfolio of Alliance Fund; and MFS Emerging Growth Series and
MFS Research Series, each of MFS Trust. Effective following the close of
business on June 5, 1998, the following five additional Funds will become
available for contract owner investment through Account A, each with a different
investment objective: Capital Focus Fund and Global Growth Focus Fund, each of
Merrill Variable Funds; Alliance Quasar Portfolio of Alliance Fund; Hotchkis and
Wiley International VIP Portfolio of Hotchkis and Wiley Trust; and the 1998 ML
Select Ten V.I. Trust ("Select Ten Trust") of Defined Asset Funds. Subaccounts
investing in the Natural Resources Focus Fund, the American Balanced Fund, and
the Global Utility Focus Fund of Merrill Variable Funds are closed to
allocations of premiums and contract value. Subaccounts investing in the Global
Bond Focus Fund and the International Equity Focus Fund of Merrill Variable
Funds will be closed to allocations of premiums and contract value following the
close of business on June 5, 1998. Other investment options may be added or
closed in the future. (See INVESTMENTS OF THE ACCOUNTS on page 16.)
Detailed information about the investment objectives of the Funds can be found
under INVESTMENTS OF THE ACCOUNTS on page 16 and in the attached prospectuses
for the Funds.
PREMIUMS
The Contract generally allows contract owners the flexibility to make premium
payments as often as desired. The Contract is purchased by making an initial
premium payment of $5,000 or more on a nonqualified Contract and $2,000 or more
on an IRA Contract. Subsequent premium payments
5
<PAGE>
generally must be $100 or more and can be made at any time prior to the annuity
date. Maximum annual contributions to IRA Contracts are limited by federal law.
Under an automatic investment feature, subsequent premium payments can be
systematically made from a Merrill Lynch Pierce, Fenner & Smith Incorporated
account. A Financial Consultant should be contacted for additional information.
ML of New York reserves the right to refuse to accept subsequent premium
payments, if required by law. (See PREMIUMS on page 26.)
FEES AND CHARGES
A charge is made to reimburse ML of New York for expenses related to maintenance
of the Contract. A $40 contract maintenance charge will be deducted from the
contract value on each contract anniversary that occurs on or prior to the
annuity date. It will also be deducted when the Contract is surrendered, if it
is surrendered on any date other than a contract anniversary. This charge will
be 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. It is not deducted after the
annuity date.
A mortality and expense risk charge is imposed on the Accounts. It equals 1.25%
annually for Account A and 0.65% annually for Account B and is deducted daily
from the net asset value of the Accounts. Of this amount, 0.75% annually for
Account A and 0.35% annually for Account B is attributable to mortality risks
assumed by ML of New York for the annuity payment and death benefit guarantees
made under the Contract. The remainder, 0.50% annually for Account A and 0.30%
annually for Account B, is attributable to expense risks assumed by ML of New
York should the contract maintenance and administration charges be insufficient
to cover all Contract maintenance and administration expenses.
An administration charge is made to reimburse ML of New York for costs
associated with the establishment and administration of the Contract. A charge
of 0.10% annually will be deducted daily only from the net asset value of
Account A. No administration charge is imposed on the assets of Account B.
A contingent deferred sales charge may be imposed on withdrawals and surrenders
from Account A. The maximum contingent deferred sales charge is 7% of premium
withdrawn during the first year after that premium is paid, decreasing by 1%
annually to 0% after year seven. No contingent deferred sales charge will be
imposed on withdrawals or surrenders from Account B. In addition, ML of New York
reserves the right not to impose a contingent deferred sales charge on
withdrawals or surrenders from Contracts purchased by employees of ML of New
York or from Contracts purchased by the employees' spouses or dependents, where
permitted by state regulation.
A charge for any premium taxes imposed by a state or local government will be
deducted from the contract value on the annuity date. State premium tax rates
vary from jurisdiction to jurisdiction and currently range from 0% to 5%. In
those jurisdictions that do not allow an insurance company to reduce its current
taxable premium income by the amount of any withdrawal, surrender or death
benefit paid, ML of New York will also deduct a charge for these taxes on any
withdrawal, surrender or death benefit effected under the Contract.
ML of New York reserves the right, subject to any necessary regulatory approval,
to charge for assessments or federal premium taxes or federal, state or local
excise, profits or income taxes measured by or attributable to the receipt of
premiums. ML of New York also reserves the right to deduct from the Accounts any
taxes imposed on the Accounts' investment earnings. (See ML OF NEW YORK'S TAX
STATUS on page 34.)
Detailed information about fees and charges imposed on the Contract can be found
under CHARGES AND DEDUCTIONS on page 22.
6
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ANNUITY PAYMENTS
The Contract provides a choice of fixed annuity payment options. On the annuity
date, the entire contract value will be transferred to ML of New York's general
account, from which the annuity payments will be made. The amount of each
payment is predetermined.
The contract owner selects an annuity date when annuity payments will begin.
Contract owners may change the annuity date up to 30 days prior to that date.
However, the annuity date for nonqualified Contracts may not be later than the
annuitant's 85th birthday. The annuity date for IRA Contracts will not be later
than when the owner/annuitant reaches the age of 70 1/2 unless the contract
owner selects a later annuity date.
If the contract value on the annuity date after the deduction of any applicable
premium taxes is less than $2,000 (or a different minimum amount, if required by
state law), ML of New York may pay the annuity benefits in a lump sum, rather
than as periodic payments. If any annuity payment would be less than $20 (or a
different minimum amount, if required by state law), ML of New York may change
the frequency of payments so that all payments will be at least $20 (or the
minimum amount required by state law). All annuity payments will be directly
transferred to the contract owner's designated Merrill Lynch, Pierce, Fenner &
Smith Incorporated brokerage account, unless otherwise specified.
Details about the annuity options available under the Contract can be found
under ANNUITY OPTIONS on page 32.
TRANSFERS
Once each contract year, contract owners may transfer from Account A to Account
B an amount equal to any gain in account value and/or any premium not subject to
a contingent deferred sales charge. Where permitted by state regulation, once
each contract year, contract owners may transfer all or a portion of the greater
of that amount or 10% of premiums subject to a contingent deferred sales charge
(minus any of that premium already withdrawn or transferred). Additionally,
where permitted by state regulation, periodic transfers of all or a portion of
the greater amount, determined at the time of each periodic transfer, are
permitted on a monthly, quarterly, semi-annual or annual basis.
This is the only amount which may be transferred from Account A to Account B
during that contract year. There is no charge imposed on the transfer of this
amount. No transfers are permitted from Account B to Account A.
Prior to their annuity date, contract owners may transfer all or part of their
Account A value among the subaccounts of Account A up to six times per contract
year without charge. Additional transfers among available Account A subaccounts
may be made at a charge of $25 per transfer. Contract owners may elect a Dollar
Cost Averaging feature in which Account A value invested in the Domestic Money
Market Subaccount may be systematically transferred among the other Account A
subaccounts on a monthly basis without charge, subject to certain limitations.
In addition, through participation in the Merrill Lynch RPA-SM- program,
contract owners may have their Account A values allocated in accordance with an
investment program consistent with the contract owner's investment profile. (See
TRANSFERS on page 29; DOLLAR COST AVERAGING on page 29; and MERRILL LYNCH
RETIREMENT PLUS ADVISOR-SM- on page 30.)
Transfers may no longer be made to the Natural Resources Focus Subaccount, the
American Balanced Subaccount, or the Global Utility Focus Subaccount. Effective
following the close of business on June 5, 1998, transfers may no longer be made
to the Global Bond Focus Subaccount and the International Equity Focus
Subaccount.
WITHDRAWALS
Contract owners may make up to six withdrawals from the Contract per contract
year. Value withdrawn from Account A is generally subject to a contingent
deferred sales charge. (See
7
<PAGE>
CONTINGENT DEFERRED SALES CHARGE on page 23.) However, a contingent deferred
sales charge will not be applied to the first withdrawal in any contract year
out of Account A to the extent that the withdrawal consists of gain and/or any
premium not subject to such a charge. Where permitted by state regulation, a
contingent deferred sales charge will not be applied to that portion of the
first withdrawal from Account A in any contract year that does not exceed the
greater of any gain in account value and/or any premium not subject to a
contingent deferred sales charge and 10% of premiums subject to a contingent
deferred sales charge (minus any of that premium already transferred out of
Account A). Additionally, where permitted by state regulation, the amount
withdrawn may be elected to be paid on a monthly, quarterly, semi-annual or
annual basis.
The first withdrawal of the contract year out of Account A will be treated as
withdrawing gain in account value first, followed by premium not subject to a
contingent deferred sales charge, then followed by premium subject to such a
charge. If the amount withdrawn is paid on a monthly, quarterly, semi-annual or
annual basis, all such payments will be treated in the same way. All subsequent
withdrawals will be treated as withdrawing premium accumulated the longest
first. (See WITHDRAWALS AND SURRENDERS on page 31.)
Value withdrawn from Account B is not subject to any contingent deferred sales
charge. In addition, ML of New York reserves the right not to impose a
contingent deferred sales charge on withdrawals from Contracts purchased by
employees of ML of New York or from Contracts purchased by the employees'
spouses or dependents, where permitted by state regulation.
In addition to the six withdrawals permitted each contract year, the value in
Account B may be automatically withdrawn on a monthly, quarterly, semi-annual,
or annual basis. These automatic withdrawals are not subject to any contingent
deferred sales charge. (See WITHDRAWALS AND SURRENDERS on page 31.)
Withdrawals will decrease the contract value. Withdrawals from either Account A
or Account B are subject to tax and prior to age 59 1/2 may also be subject to a
10% federal penalty tax. (See FEDERAL INCOME TAXES on page 34.)
DEATH BENEFIT
The Contract provides a death benefit feature that guarantees a death benefit if
the contract owner dies prior to the annuity date, regardless of investment
experience. Currently, for contract owners age 80 or under on the Contract date
of issue, the death benefit will be equal to the greatest of (a) premiums paid
less any withdrawals, (b) the contract value, or (c) the maximum death benefit
value. (For contract owners over age 80 on the Contract date of issue, the death
benefit will be the greater of (a) premiums paid less any withdrawals or (b) the
contract value.) The maximum death benefit value will be equal to the greatest
anniversary value of Account A, plus the value of Account B. (See DEATH BENEFIT
on page 27). If the contract owner dies prior to the annuity date, ML of New
York will pay the Contract's death benefit to the owner's beneficiary.
TEN DAY REVIEW
When the contract owner receives the Contract, it should be reviewed carefully
to make sure it is what the contract owner intended to purchase. Generally,
within 10 days after the contract owner receives the Contract, it may be
returned for a refund. Some states allow a longer period of time to return the
Contract. The Contract must be delivered to ML of New York's Home Office or to
the Financial Consultant who sold it for a refund to be made. ML of New York
will then refund to the contract owner the greater of all premiums paid into the
Contract or the contract value as of the date the Contract is returned. The
Contract will then be deemed void. (See TEN DAY RIGHT TO REVIEW on page 25.)
8
<PAGE>
FEE TABLE
<TABLE>
<S> <C> <C>
A. Contract Owner Transaction Expenses
1. Sales Load Imposed on Premium.......................................................... None
2. Contingent Deferred Sales Charge
</TABLE>
<TABLE>
<CAPTION>
COMPLETE YEARS ELAPSED
SINCE CONTINGENT DEFERRED SALES CHARGE AS A
PAYMENT OF PREMIUM PERCENTAGE OF PREMIUM WITHDRAWN
- --------------------------- ---------------------------------------
<S> <C>
0 years 7.00%
1 year 6.00%
2 years 5.00%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 or more years 0.00%
</TABLE>
<TABLE>
<S> <C> <C>
3. Transfer Fee........................................................................... $ 25
The first 6 transfers among Separate Account A subaccounts in a contract year are free. A
$25 fee may be charged on all subsequent transfers. These rules apply only to transfers
among Separate Account A subaccounts. They do not apply to transfers from Separate Account
A to Separate Account B. No transfers may be made from Separate Account B.
B. Annual Contract Maintenance Charge........................................................ $ 40
The Contract Maintenance Charge will be assessed annually on each contract anniversary,
only if the contract value is less than $50,000.
C. Separate Account Annual Expenses (as a percentage of account value)
</TABLE>
<TABLE>
<CAPTION>
SEPARATE ACCT A SEPARATE ACCT B
----------------- -------------------
<S> <C> <C>
Mortality and Expense Risk Charge............................... 1.25% .65%
Administration Charge........................................... .10% .00%
--
---
Total Separate Account Annual Expenses.......................... 1.35% .65%
</TABLE>
<TABLE>
<S> <C> <C>
D. Fund Expenses for the Year Ended December 31, 1997 (a)(b)(c)(d)(e)(f)(g)(h)(i) (as a
percentage of each Fund's average net assets)
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. (CLASS A SHARES)
-----------------------------------------------------------------------------------------------
HIGH SPECIAL NATURAL GLOBAL
RESERVE PRIME CURRENT QUALITY VALUE RESOURCES STRATEGY
ANNUAL EXPENSES ASSETS BOND INCOME EQUITY FOCUS FOCUS* FOCUS(C)
- -------------------------- ----------- ----------- ------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees.. .50% .42% .47% .44% .75% .65% .65%
Other Expenses............ .12% .05% .07% .04% .05% .16% .08%
Total Annual Operating
Expenses................ .62% .47% .54% .48% .80% .81% .73%
<CAPTION>
DOMESTIC
AMERICAN MONEY
ANNUAL EXPENSES BALANCED* MARKET
- -------------------------- --------------- -------------
<S> <C> <C>
Investment Advisory Fees.. .55% .50%
Other Expenses............ .05% .04%
Total Annual Operating
Expenses................ .60% .54%
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. (CLASS A SHARES) (CONT'D)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DEVELOPING
BASIC GLOBAL GLOBAL INTERNATIONAL CAPITAL
VALUE BOND UTILITY EQUITY GOVERNMENT MARKETS
ANNUAL EXPENSES FOCUS FOCUS(C)** FOCUS* FOCUS** BOND(A)(C) FOCUS(B)
- -------------------------- ----- --------------- ----------- ----------------- --------------- -------------
Investment Advisory Fees.. .60% .60% .60% .75% .50% .83%
Other Expenses............ .05% .13% .07% .15% .07% .42%
Total Annual Operating
Expenses................ .65% .73% .67% .90% .57% 1.25%
<CAPTION>
<S> <C> <C> <C>
GLOBAL
INDEX 500 GROWTH CAPITAL
ANNUAL EXPENSES FUND(A) FOCUS(D)*** FOCUS(D)***
- -------------------------- ------------- --------------- ---------------
Investment Advisory Fees.. .30% .75% .60%
Other Expenses............ .10% .50% .26%
Total Annual Operating
Expenses................ .40% 1.25% .86%
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE VARIABLE
AIM VARIABLE PRODUCTS SERIES MFS VARIABLE
INSURANCE FUNDS, INC. FUND, INC. INSURANCE TRUST
-------------------------------- ------------------------------------ ----------------------------
AIM V.I. ALLIANCE MFS
CAPITAL AIM V.I. PREMIER ALLIANCE EMERGING MFS
APPRECIATION VALUE GROWTH QUASAR GROWTH RESEARCH
ANNUAL EXPENSES FUND(G) FUND(G) PORTFOLIO(E) PORTFOLIO(E)*** SERIES(F) SERIES(F)
- -------------------------- ----------------- ------------- --------------- ------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees.. .63% .62% 1.00% .58% .75% .75%
Other Expenses............ .05% .08% .10% .37% .12% .13%
Total Annual Operating
Expenses................ .68% .70% 1.10% .95% .87% .88%
<CAPTION>
HOTCHKIS AND WILEY
VARIABLE TRUST
-------------------------
HOTCHKIS AND WILEY
ANNUAL EXPENSES INTERNATIONAL VIP(H)***
- -------------------------- -------------------------
<S> <C>
Investment Advisory Fees.. .75%
Other Expenses............ .60%
Total Annual Operating
Expenses................ 1.35%
</TABLE>
<TABLE>
<CAPTION>
DEFINED ASSET FUNDS
-------------------------------
ANNUAL EXPENSES SELECT TEN TRUST(I)***
- --------------------------------------------------------------------------------- -------------------------------
<S> <C>
Deferred Transaction Fee......................................................... $4.70 per 1,000 Trust Units
Trustee's Fee.................................................................... .082%
Portfolio Supervision, Bookkeeping & Administrative Fees......................... .045%
Organizational Expenses.......................................................... .046%
Other Operating Expenses......................................................... .006%
---
Total Annual Operating Expenses.................................................. .179%
</TABLE>
- ------------------------------
* Closed to allocations of premiums or contract value following the close of
business on December 6, 1996.
** Closed to allocations of premiums or contract value following the close of
business on June 5, 1998.
*** Available for allocations of premiums or contract value following the close
of business on June 5, 1998.
9
<PAGE>
EXAMPLES OF CHARGES
If the Contract is surrendered at the end of the applicable time period:
The following cumulative expenses would be paid on each $1,000 invested,
assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Separate Account B subaccount investing in:
Reserve Assets Fund+..................................... $ 83 $ 91 $ 101 $ 157
Separate Account A subaccount investing in:
Prime Bond Fund+......................................... $ 89 $ 109 $ 131 $ 218
High Current Income Fund+................................ $ 90 $ 111 $ 134 $ 226
Quality Equity Fund+..................................... $ 89 $ 109 $ 131 $ 219
Special Value Focus Fund+................................ $ 92 $ 119 $ 148 $ 253
Natural Resources Focus Fund+*........................... $ 92 $ 119 $ 149 $ 254
Global Strategy Focus Fund+.............................. $ 92 $ 117 $ 144 $ 246
American Balanced Fund+*................................. $ 90 $ 113 $ 138 $ 232
Domestic Money Market Fund+.............................. $ 90 $ 111 $ 134 $ 226
Basic Value Focus Fund+.................................. $ 91 $ 114 $ 140 $ 238
Global Bond Focus Fund+**................................ $ 92 $ 117 $ 144 $ 246
Global Utility Focus Fund+*.............................. $ 91 $ 115 $ 141 $ 240
International Equity Focus Fund+**....................... $ 93 $ 122 $ 153 $ 264
Government Bond Fund+.................................... $ 90 $ 112 $ 136 $ 229
Developing Capital Markets Focus Fund+................... $ 97 $ 133 $ 171 $ 299
Index 500 Fund+.......................................... $ 88 $ 106 $ 127 $ 211
Global Growth Focus Fund+***............................. $ 97 $ 133 $ 171 $ 299
Capital Focus Fund+***................................... $ 93 $ 121 $ 151 $ 260
Select Ten Trust***...................................... $ 91 $ 114 $ 139 $ 236
AIM V.I. Capital Appreciation Fund....................... $ 91 $ 115 $ 142 $ 241
AIM V.I. Value Fund...................................... $ 91 $ 116 $ 143 $ 243
Alliance Premier Growth Portfolio........................ $ 95 $ 128 $ 163 $ 284
Alliance Quasar Portfolio***............................. $ 94 $ 124 $ 156 $ 269
MFS Emerging Growth Series............................... $ 93 $ 121 $ 152 $ 261
MFS Research Series...................................... $ 93 $ 121 $ 152 $ 262
Hotchkis and Wiley International VIP Portfolio***........ $ 98 $ 136 $ 176 $ 309
</TABLE>
If the Contract is annuitized, or not surrendered, at the end of the applicable
time period:
The following cumulative expenses would be paid on each $1,000 invested,
assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Separate Account B subaccount investing in:
Reserve Assets Fund+..................................... $ 13 $ 41 $ 71 $ 157
Separate Account A subaccount investing in:
Prime Bond Fund+......................................... $ 19 $ 59 $ 101 $ 218
High Current Income Fund+................................ $ 20 $ 61 $ 104 $ 226
Quality Equity Fund+..................................... $ 19 $ 59 $ 101 $ 219
Special Value Focus Fund+................................ $ 22 $ 69 $ 118 $ 253
Natural Resources Focus Fund+*........................... $ 22 $ 69 $ 119 $ 254
Global Strategy Focus Fund+.............................. $ 22 $ 67 $ 114 $ 246
American Balanced Fund+*................................. $ 20 $ 63 $ 108 $ 232
Domestic Money Market Fund+.............................. $ 20 $ 61 $ 104 $ 226
Basic Value Focus Fund+.................................. $ 21 $ 64 $ 110 $ 238
Global Bond Focus Fund+**................................ $ 22 $ 67 $ 114 $ 246
Global Utility Focus Fund+*.............................. $ 21 $ 65 $ 111 $ 240
International Equity Focus Fund+**....................... $ 23 $ 72 $ 123 $ 264
Government Bond Fund+.................................... $ 20 $ 62 $ 106 $ 229
Developing Capital Markets Focus Fund+................... $ 27 $ 83 $ 141 $ 299
Index 500 Fund+.......................................... $ 18 $ 56 $ 97 $ 211
Global Growth Focus Fund+***............................. $ 27 $ 83 $ 141 $ 299
Capital Focus Fund+***................................... $ 23 $ 71 $ 121 $ 260
Select Ten Trust***...................................... $ 21 $ 64 $ 109 $ 236
AIM V.I. Capital Appreciation Fund....................... $ 21 $ 65 $ 112 $ 241
AIM V.I. Value Fund...................................... $ 21 $ 66 $ 113 $ 243
Alliance Premier Growth Portfolio........................ $ 25 $ 78 $ 133 $ 284
Alliance Quasar Portfolio***............................. $ 24 $ 74 $ 126 $ 269
MFS Emerging Growth Series............................... $ 23 $ 71 $ 122 $ 261
MFS Research Series...................................... $ 23 $ 71 $ 122 $ 262
Hotchkis and Wiley International VIP Portfolio***........ $ 28 $ 86 $ 146 $ 309
</TABLE>
- ------------------------
+ Class A Shares.
* Closed to allocations of premiums or contract value following the close of
business on
December 6, 1996.
** Closed to allocations of premiums or contract value following the close of
business on June 5, 1998.
*** Available for allocations of premiums or contract value following the close
of business on June 5, 1998.
10
<PAGE>
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR ANNUAL RATES OF RETURN OF ANY FUND. ACTUAL EXPENSES AND ANNUAL RATES
OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR THE PURPOSE OF THE
EXAMPLES.
The preceding Fee Table and Examples are intended to assist investors in
understanding the costs and expenses that a contract owner will bear, directly
or indirectly. The Fee Table and Examples include expenses and charges of the
Accounts as well as the Funds. The Examples also reflect the $40 contract
maintenance charge as .0008% of average assets, determined by dividing the total
amount of such charges collected by the total average net assets of the
subaccounts. See the CHARGES AND DEDUCTIONS section in this Prospectus and the
Fund prospectuses for a further discussion of fees and charges.
The Fee Table and Examples do not include charges to contract owners for premium
taxes. Premium taxes may be applicable. Refer to the PREMIUM TAXES section in
this Prospectus for further details.
NOTES TO FEE TABLE
(a) The Fee Table does not reflect any fees waived or expenses assumed by
Merrill Lynch Asset Management, L.P. ("MLAM") during the year ended December
31, 1997 with respect to any Fund because such waivers and assumption of
expenses were made on a voluntary basis and MLAM may discontinue or reduce
any such waiver or assumption of expenses at any time without notice. During
the fiscal year ended December 31, 1997, MLAM waived management fees and
reimbursed expenses totaling 0.06% for the Government Bond Fund and 0.06%
for the Index 500 Fund, after which each such Fund's total expense ratio,
net of reimbursement, was 0.51% for the Government Bond Fund, and 0.34% for
the Index 500 Fund. See also note (b).
(b) MLAM and Merrill Lynch Life Agency, Inc. have entered into a Reimbursement
Agreement that limits the operating expenses, exclusive of any distribution
fees imposed on Class B shares, paid by each Fund of the Merrill Variable
Funds in a given year to 1.25% of its average net assets. This Reimbursement
Agreement is expected to remain in effect for the current year. Pursuant to
this Reimbursement Agreement, the Developing Capital Market Focus Fund was
reimbursed for a portion of its operating expenses for 1997. Absent the
reimbursement, "Investment Advisory Fees" would have been 1.00% and "Total
Annual Operating Expenses" would have been 1.42% for the Developing Capital
Markets Focus Fund. Expenses shown for all other Funds of the Merrill
Variable Funds do not reflect any reimbursement under the Reimbursement
Agreement.
(c) Effective following the close of business on December 6, 1996, (i) the
International Bond Fund was merged with and into the former World Income
Focus Fund; the World Income Focus Fund was renamed the Global Bond Focus
Fund and its investment objective was modified; (ii) the Flexible Strategy
Fund was merged with and into the Global Strategy Focus Fund; and (iii) the
Intermediate Government Bond Fund was renamed the Government Bond Fund and
its investment objective was modified. See the accompanying prospectus for
Merrill Variable Funds for additional information regarding these changes.
(d) "Other Expenses" and "Total Annual Operating Expenses" shown for the Global
Growth Focus Fund and the Capital Focus Fund are based on expenses estimated
for the current fiscal year. Absent the Reimbursement Agreement discussed in
(b), estimated "Other Expenses" for the Global Growth Focus Fund would have
been 0.67%.
(e) The Fee Table reflects fees waived or expenses assumed by Alliance Capital
Management L.P. ("Alliance") for the Alliance Quasar Portfolio during the
year ended December 31, 1997. Such waivers and assumption of expenses were
made on a voluntary basis and Alliance may discontinue or reduce any such
waiver or assumption of expenses at any time without notice; however,
Alliance intends to continue such reimbursements for the forseeable future.
During the fiscal year ended December 31, 1997, Alliance waived management
fees totaling 0.42% for the
11
<PAGE>
Alliance Quasar Portfolio. Without such reimbursements, "Investment Advisory
Fees" would have been 1.00% and "Total Annual Operating Expenses" would have
been 1.37% for the Alliance Quasar Portfolio. The Fee Table does not reflect
fees waived or expenses assumed by Alliance for the Alliance Premier Growth
Portfolio during the year ended December 31, 1997 because Alliance
discontinued such expense reimbursements with respect to the Alliance
Premier Growth Portfolio effective May 1, 1998.
(f) "Other Expenses" for the MFS Emerging Growth Series and the MFS Research
Series (the "Series") are estimates, based on actual expenses incurred by
each Series during the year ended December 31, 1997, less certain amounts
(0.03% for the MFS Emerging Growth Series and 0.04% for the MFS Research
Series) reimbursed by the Series to MFS for expenses assumed by MFS above
0.25% of average daily net assets during years prior to the year ended
December 31, 1997. After December 31, 1997, no further expenses are
reimbursable by the Series.
(g) Effective May 1, 1998, the Funds reimburse A I M Advisors, Inc. in an amount
up to 0.25% of the average net asset value of each Fund, for expenses
incurred in providing, or assuring that participating insurance companies
provide, certain administrative services. Currently the fee only applies to
the average net asset value of each Fund in excess of the net asset value of
each Fund as calculated on April 30, 1998.
(h) "Other Expenses" and "Total Annual Operating Expenses" shown for the
Hotchkis and Wiley International VIP Portfolio are based on expenses
estimated for the current fiscal year. Hotchkis and Wiley has voluntarily
agreed to reimburse the International VIP Portfolio to the extent necessary
so that regular annual operating expenses will not exceed 1.35% of the
Fund's average daily net assets for the fiscal year ending December 31,
1998. If Hotchkis and Wiley had not agreed to limit the Fund's expenses,
"Other Expenses" would be estimated to be 0.70% of the Fund's average daily
net assets.
(i) Merrill Lynch, Pierce, Fenner & Smith Incorporated, the sponsor of Defined
Asset Funds, receives a deferred transaction fee accrued daily at an annual
rate of $4.70 per 1,000 units of the Select Ten Trust ("Trust Units") (about
0.47% per Trust Unit) for creating and maintaining the Select Ten Trust.
This deferred transaction fee also applies to income and principal
distributions on Trust Units, which are reinvested in Trust Units. Other
annual operating expenses are shown as a percentage of net assets of the
Select Ten Trust, and are based on estimates. The amount of each of these
other expenses, on a per 1,000 Trust Units basis, are as follows: $0.82
(trustee's fee); $0.45 (portfolio supervision, bookkeeping & administrative
fees); $0.46 (organizational expenses); and $0.06 (other operating
expenses); for a total of $1.79 per 1,000 Trust Units. These estimates do
not include the costs of purchasing and selling the underlying stocks held
by the Select Ten Trust.
12
<PAGE>
ACCUMULATION UNIT VALUES
(CONDENSED FINANCIAL INFORMATION)
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC MONEY MARKET PRIME BOND
------------------------------------------------------ ----------------------------------------
<CAPTION>
1/1/97 1/1/96 1/1/95 1/1/94 1/1/97 1/1/96 1/1/95
TO TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/97 12/31/96 12/31/95
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at beginning
of period........... $11.50 $11.09 $10.64 $10.37 $13.40 $13.29 $11.21
(2) Accumulation unit
value at end of
period.............. $11.94 $11.50 $11.09 $10.64 $14.36 $13.40 $13.29
(3) Number of
accumulation units
outstanding at end
of period........... 2,392,904.0 1,677,743.10 2,104,307.1 1,725,685.7 2,776,167.1 2,933,851.00 2,866,758.2
<CAPTION>
QUALITY EQUITY SPECIAL VALUE FOCUS*
------------------------------------------------------ ----------------------------------------
1/1/97 1/1/96 1/1/95 1/1/94 1/1/97 1/1/96 1/1/95
TO TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/97 12/31/96 12/31/95
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at beginning
of period........... $16.01 $13.77 $11.38 $11.87 $15.20 $14.25 $9.90
(2) Accumulation unit
value at end of
period.............. $19.54 $16.01 $13.77 $11.38 $16.75 $15.20 $14.25
(3) Number of
accumulation units
outstanding at end
of period........... 2,617,428.2 2,798,594.00 2,587,997.3 2,368,801.5 1,789,233.1 1,684,158.80 1,332,688.3
<CAPTION>
AMERICAN BALANCED NATURAL RESOURCES FOCUS
------------------------------------------------------ ----------------------------------------
1/1/97 1/1/96 1/1/95 1/1/94 1/1/97 1/1/96 1/1/95
TO TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/97 12/31/96 12/31/95
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at beginning
of period........... $14.47 $13.37 $11.21 $11.88 $14.06 $12.56 $11.30
(2) Accumulation unit
value at end of
period.............. $16.72 $14.47 $13.37 $11.21 $12.14 $14.06 $12.56
(3) Number of
accumulation units
outstanding at end
of period........... 935,102.6 1,196,131.90 1,294,854.9 1,205,254.3 115,513.8 144,754.30 167,533.9
<CAPTION>
BASIC VALUE FOCUS GLOBAL BOND FOCUS***
------------------------------------------------------ ----------------------------------------
1/1/97 1/1/96 1/1/95 1/1/94 1/1/97 1/1/96 1/1/95
TO TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/97 12/31/96 12/31/95
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at beginning
of period........... $16.19 $13.60 $10.98 $10.88 $12.20 $11.45 $9.94
(2) Accumulation unit
value at end of
period.............. $19.27 $16.19 $13.60 $10.98 $12.27 $12.20 $11.45
(3) Number of
accumulation units
outstanding at end
of period........... 1,942,837.1 1,766,570.40 1,241,769.4 850,329.6 404,574.9 459,402.30 504,390.5
<CAPTION>
<S> <C> <C> <C> <C> <C>
HIGH CURRENT INCOME
------------------------------------------------------
1/1/94 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/94 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at beginning
of period........... $11.94 $15.46 $14.08 $12.18 $12.80
(2) Accumulation unit
value at end of
period.............. $11.21 $16.93 $15.46 $14.08 $12.18
(3) Number of
accumulation units
outstanding at end
of period........... 2,939,785.1 1,794,232.4 1,341,055.50 1,274,375.1 1,116,584.4
FLEXIBLE STRATEGY
------------------------------------------------------
1/1/94 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/94 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at beginning
of period........... $10.82 ** $13.00 $11.22 $11.87
(2) Accumulation unit
value at end of
period.............. $9.90 ** ** $13.00 $11.22
(3) Number of
accumulation units
outstanding at end
of period........... 1,048,612.8 0.0 0.00 1,137,134.8 1,113,369.6
GLOBAL STRATEGY FOCUS
------------------------------------------------------
1/1/94 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/94 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at beginning
of period........... $11.29 $14.35 $12.85 $11.78 $12.12
(2) Accumulation unit
value at end of
period.............. $11.30 $15.85 $14.35 $12.85 $11.78
(3) Number of
accumulation units
outstanding at end
of period........... 190,785.7 3,196,842.1 3,436,164.50 2,678,814.8 2,924,265.0
GLOBAL UTILITY FOCUS
------------------------------------------------------
1/1/94 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/94 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at beginning
of period........... $10.52 $13.10 $11.75 $9.58 $10.61
(2) Accumulation unit
value at end of
period.............. $9.94 $16.27 $13.10 $11.75 $9.58
(3) Number of
accumulation units
outstanding at end
of period........... 556,854.0 475,558.5 646,792.9 724,247.5 786,888.0
</TABLE>
- ----------------------------------
* Effective August 15, 1997, the Equity Growth Fund changed its name to the
Special Value Focus Fund.
** Effective following the close of business on December 6, 1996, the Flexible
Strategy Fund was merged with and into Global Strategy Focus Fund.
*** Effective following the close of business on December 6, 1996, the
International Bond Fund was merged with and into the former World Income
Focus Fund; the World Income Focus Fund was renamed the Global Bond Focus
Fund and its investment objective was modified.
13
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FOCUS RESERVE ASSETS
-------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1/1/96 1/1/95 1/1/94 1/1/97 1/1/96 1/1/95
TO TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/97 12/31/96 12/31/95
------------- ------------- ------------ ------------ ------------- ------------- ------------
(1) Accumulation unit
value at
beginning of
period........... $11.90 $11.31 $10.87 $10.96 $11.79 $11.29 $10.76
(2) Accumulation unit
value at end of
period........... $11.20 $11.90 $11.31 $10.87 $12.32 $11.79 $11.29
(3) Number of
accumulation
units outstanding
at end of
period........... 2,327,316.1 1,535,723.1 1,275,506.6 1,313,991.8 82,335.6 101,151.2 114,114.3
<CAPTION>
DEVELOPING CAPITAL
GOVERNMENT BOND FUND MARKETS FOCUS
-------------------------------------------------------- ------------------------------------------
1/1/97 1/1/96 1/1/95 5/16/94* 1/1/97 1/1/96 1/1/95
TO TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/97 12/31/96 12/31/95
------------- ------------- ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at
beginning of
period........... $11.59 $11.42 $10.08 $10.00 $9.99 $9.16 $9.38
(2) Accumulation unit
value at end of
period........... $12.45 11.59 $11.42 $10.08 $9.21 9.99 $9.16
(3) Number of
accumulation
units outstanding
at end of
period........... 900,981.0 401,866.8 153,524.3 69,485.0 892,320.3 411,686.3 240,156.6
<CAPTION>
MFS EMERGING
AIM V.I. CAPITAL GROWTH
APPRECIATION AIM V.I. VALUE ALLIANCE PREMIER GROWTH SERIES
---------------------------- -------------------------- ---------------------------- ------------
1/1/97 1/1/96 1/1/97 1/1/96 1/1/97 1/1/96 1/1/97
TO TO TO TO TO TO TO
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
------------- ------------- ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at
beginning of
period........... $10.03 $0.00 $10.26 $0.00 $10.00 $0.00 $9.83
(2) Accumulation unit
value at end of
period........... $11.23 10.03 $12.52 10.26 $13.21 10.00 $11.83
(3) Number of
accumulation
units outstanding
at end of
period........... 705,468.0 0.00 694,794.1 0.00 1,273,236.9 0.00 600,105.0
<CAPTION>
INTERNATIONAL BOND***
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1/1/94 1/1/97 1/1/96 1/1/95 5/16/94*
TO TO TO TO TO
12/31/94 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------- ------------- ------------ ------------
(1) Accumulation unit
value at
beginning of
period........... $10.43 *** $11.40 $9.93 $10.00
(2) Accumulation unit
value at end of
period........... $10.76 *** *** $11.40 $9.93
(3) Number of
accumulation
units outstanding
at end of
period........... 120,482.2 0.0 0.00 40,678.5 18,139.0
INDEX 500 FUND
----------------------------
5/16/94* 1/1/97 12/18/96*
TO TO TO
12/31/94 12/31/97 12/31/96
------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at
beginning of
period........... $10.00 $10.12 $0.00
(2) Accumulation unit
value at end of
period........... $9.38 $13.27 10.12
(3) Number of
accumulation
units outstanding
at end of
period........... 174,741.4 1,245,291.7 10,445.7
MFS RESEARCH SERIES
----------------------------
1/1/96 1/1/97 1/1/96
TO TO TO
12/31/96 12/31/97 12/31/96
------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
(1) Accumulation unit
value at
beginning of
period........... $0.00 $10.08 $0.00
(2) Accumulation unit
value at end of
period........... 9.83 $11.96 10.08
(3) Number of
accumulation
units outstanding
at end of
period........... 15,002.00 589,190.5 0.0
</TABLE>
- ----------------------------------
* Commencement of business
*** Effective following the close of business on December 6, 1996, the
International Bond Fund was merged with and into the former World Income
Focus Fund; the World Income Focus Fund was renamed the Global Bond Focus
Fund and its investment objective was modified.
14
<PAGE>
YIELDS AND TOTAL RETURNS
From time to time, ML of New York may advertise yields, effective yields, and
total returns for the Account A subaccounts and the Account B subaccount. THESE
FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT INDICATE OR PROJECT FUTURE
PERFORMANCE. ML of New York also from time to time may advertise performance of
the subaccounts relative to certain performance rankings and indices. More
detailed information as to the calculation of performance information, as well
as comparisons with unmanaged market indices appears in the Statement of
Additional Information.
Effective yields and total returns for a subaccount are based on the investment
performance of the corresponding Fund. A Fund's performance in part reflects
that Fund's expenses. Merrill Lynch Asset Management, L.P. ("MLAM") and Merrill
Lynch Life Agency, Inc. (see SELLING THE CONTRACT on page 39) have entered into
a Reimbursement Agreement that limits the operating expenses paid by each Fund
of the Merrill Variable Funds in a given year to 1.25% of its average net
assets.
The yields of the Domestic Money Market Subaccount and the Reserve Assets
Subaccount refer to the annualized income generated by an investment in each
subaccount over a specified 7-day period. The yield is calculated by assuming
that the income generated for that 7-day period is generated each 7-day period
over a 52-week period and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income earned
by an investment in the subaccount or Account is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding affect of this assumed reinvestment.
The yield of an Account A subaccount (other than the Domestic Money Market
Subaccount) refers to the annualized income generated by an investment in the
subaccount over a specified 30-day or one-month period. The yield is calculated
by assuming that the income generated by the investment during that 30-day or
one-month period is generated each period over a 12-month period and is shown as
a percentage of the investment.
The average annual total return of a subaccount refers to return quotations
assuming an investment under a Contract has been held in each subaccount for 1,
5 and 10 years, or for a shorter period, if applicable. The average annual total
return quotations represent the average annual compounded rates of return that
would equate an initial investment of $1,000 under a Contract to the redemption
value of that investment as of the last day of each of the periods for which
return quotations are provided. Average annual total return information shows
the average percentage change in the value of an investment in a subaccount
(including any contingent deferred sales charge that would apply if an owner
terminated the Contract at the end of each period indicated, but excluding any
deductions for premium taxes).
ML of New York may, in addition, advertise or present yield or total return
performance information computed on different bases. ML of New York may present
total return information computed on the same basis as described above, except
the information will not reflect a deduction for the contingent deferred sales
charge. This presentation assumes that an investment in the Contract will
persist beyond the period when the contingent deferred sales charge applies,
consistent with the long-term investment and retirement objectives of the
Contract. ML of New York may also advertise total return performance information
for the Funds, but this information will always be accompanied by average annual
total returns for the corresponding subaccounts. ML of New York may also present
total return performance information for a subaccount for periods prior to the
date the subaccount commenced operations based on the performance of the
corresponding Fund and the assumption that the subaccount was in existence for
the same periods as those indicated for the corresponding Fund, with a level of
fees and charges approximately equal to those currently imposed under the
Contracts. ML of New York may also present total performance information for a
hypothetical Contract assuming allocation of the initial premium to more than
one subaccount or assuming monthly transfers from the Domestic Money Market
Subaccount to designated subaccounts under a dollar cost averaging program. This
information will reflect the performance of the affected subaccounts for the
duration of the allocation under the hypothetical Contract. It also will reflect
the deduction of charges
15
<PAGE>
described above except for the contingent deferred sales charge. This
information may also be compared to various indices.
Advertising and sales literature for the Contracts may also compare the
performance of the subaccounts or Funds to the performance of other variable
annuity issuers in general or to the performance of particular types of variable
annuities investing in mutual funds, or series of mutual funds, with investment
objectives similar to each of the Funds corresponding to the subaccounts.
Performance information may also be based on rankings by services which monitor
and rank the performance of variable annuity issuers in each of the major
categories of investment objectives on an industry-wide basis. Some services'
rankings include variable life insurance issuers as well as variable annuity
issuers, while others' rankings compare only variable annuity issuers.
Performance analysis prepared by services may rank such issuers on the basis of
total return, assuming reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at the separate account
level into consideration. In addition, some such services prepare risk-adjusted
rankings, which consider the effect of market risk on total return performance.
This type of ranking provides data as to which funds provide the highest total
return within various categories of funds defined by the degree of risk inherent
in their investment objectives. Ranking services ML of New York may use as
sources of performance comparison are Lipper, VARDS, CDA/Weisenberger,
Morningstar, MICROPAL, and Investment Company Data, Inc.
Advertising and sales literature for the Contracts may also compare the
performance of the subaccounts to the Standard & Poor's Index of 500 Common
Stocks, the Morgan Stanley EAFE Index, the Russell 2000 Index and the Dow Jones
Indices, all widely used measures of stock market performance. These unmanaged
indices assume the reinvestment of dividends, but do not reflect any "deduction"
for the expense of operating or managing an investment portfolio. Other sources
of performance comparison that ML of New York may use are Chase Investment
Performance Digest, Money, Forbes, Fortune, Business Week, Financial Services
Weekly, Kiplinger Personal Finance, Wall Street Journal, USA Today, Barrons,
U.S. News & World Report, Strategic Insight, Donaghues, Investors Business
Daily, and Ibbotson Associates.
Advertising and sales literature for the Contracts may also contain information
on the effect of tax deferred compounding on subaccount investment returns, or
returns in general, which may be illustrated by graphs, charts or otherwise and
which may include a comparison at various points in time of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a currently taxable basis.
ML LIFE INSURANCE COMPANY OF NEW YORK
ML Life Insurance Company of New York ("ML of New York") is a stock life
insurance company organized under the laws of the State of New York in 1973. ML
of New York is an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.,
a corporation whose common stock is traded on the New York Stock Exchange.
ML of New York's financial statements can be found in the Statement of
Additional Information and should only be considered in the context of its
ability to meet any obligations it may have under the Contract.
All communications concerning the Contract should be addressed to ML of New
York's Home Office at the address printed on the first page of this Prospectus.
THE ACCOUNTS
Contract owners may direct their premiums into one or both of two segregated
investment accounts available to the Contract (the "Accounts"). The ML of New
York Variable Annuity Separate Account A ("Account A") offers a variety of
investment options, each with a different investment objective, through its
subaccounts. The ML of New York Variable Annuity Separate Account B ("Account
B") offers a money market investment through its subaccount.
16
<PAGE>
The Accounts were established on August 14, 1991, as separate investment
accounts. They are registered with the Securities and Exchange Commission as
unit investment trusts pursuant to the Investment Company Act of 1940. Their
registration does not involve any supervision by the Securities and Exchange
Commission over the investment policies or practices of the Accounts. The
Accounts each meet the definition of a separate account under the federal
securities laws. The Accounts' assets are segregated from all of ML of New
York's other assets.
Obligations to contract owners and beneficiaries that arise under the Contract
are obligations of ML of New York. ML of New York owns all of the assets in the
Accounts. With respect to each Account, income, gains, and losses, whether or
not realized, from assets allocated to that Account are, in accordance with the
Contracts, credited to or charged against the Account without regard to other
income, gains or losses of ML of New York. As required, the assets in each
Account will always be at least equal to the reserves and other liabilities of
the Account. If the assets exceed the required reserves and other Contract
liabilities (which will always be at least equal to the aggregate contract value
allocated to the Account under the Contracts), ML of New York may transfer the
excess to its general account. New York insurance law provides that each
Account's assets, to the extent of its reserves and liabilities, may not be
charged with liabilities arising out of any other business ML of New York
conducts nor may the assets of either Account be charged with any liabilities of
the other Account.
There are seventeen subaccounts currently available through Account A and one
subaccount currently available through Account B. Effective following the close
of business on June 5, 1998, five additional subaccounts will become available
through Account A (the Capital Focus Subaccount, the Global Growth Focus
Subaccount, the Alliance Quasar Subaccount, the Hotchkis and Wiley International
VIP Subaccount, and the Select Ten Subaccount). Three subaccounts previously
available through Account A (the Natural Resources Focus Subaccount, the
American Balanced Subaccount, and the Global Utility Focus Subaccount) are
closed to allocations of premiums and contract value. Effective following the
close of business on June 5, 1998, two additional subaccounts of Account A (the
Global Bond Focus Subaccount and the International Equity Focus Subaccount) are
not available for allocations of premiums and contract value. All subaccounts
invest in a corresponding mutual fund portfolio of the Merrill Variable Funds;
AIM V.I. Funds; Alliance Fund; MFS Trust; Hotchkis and Wiley Trust; or Defined
Asset Funds. Additional subaccounts may be added or closed in the future.
THE INVESTMENT OBJECTIVES AND POLICIES OF CERTAIN FUNDS ARE SIMILAR TO THE
INVESTMENT OBJECTIVES AND POLICIES OF OTHER PORTFOLIOS THAT MAY BE MANAGED OR
SPONSORED BY THE SAME INVESTMENT ADVISER, MANAGER, OR SPONSOR. THE INVESTMENT
RESULTS OF THE FUNDS, HOWEVER, MAY BE HIGHER OR LOWER THAN THE RESULTS OF SUCH
OTHER PORTFOLIOS. THERE CAN BE NO ASSURANCE, AND NO REPRESENTATION IS MADE, THAT
THE INVESTMENT RESULTS OF ANY OF THE FUNDS WILL BE COMPARABLE TO THE INVESTMENT
RESULTS OF ANY OTHER PORTFOLIO, EVEN IF THE OTHER PORTFOLIO HAS THE SAME
INVESTMENT ADVISER, MANAGER, OR SPONSOR.
The Accounts' financial statements can be found in the Statement of Additional
Information.
INVESTMENTS OF THE ACCOUNTS
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
The Merrill Lynch Variable Series Funds, Inc. ("Merrill Variable Funds") is
registered with the Securities and Exchange Commission as an open-end management
investment company. It currently offers the Accounts Class A shares of sixteen
of its separate investment mutual fund portfolios. The Reserve Assets Fund is
available only to Account B. The fifteen remaining Funds of Merrill Variable
Funds (three of which are closed to allocations of premiums and contract value)
are available only to Account A. Effective following the close of business on
June 5, 1998, two additional Funds will become available to Account A for
allocations of premiums and contract value and two Funds currently available to
Account A are not available for allocations of premiums and contract value.
These Funds' shares are currently sold to separate accounts of ML of New York,
Merrill Lynch Life, and insurance companies not affiliated with ML of New York,
to fund benefits under certain variable annuity and variable life insurance
contracts.
17
<PAGE>
Merrill Lynch Asset Management, L.P. ("MLAM") is the investment adviser to the
Funds of Merrill Variable Funds. MLAM is a worldwide mutual fund leader and
together with its affiliate Fund Asset Management, L.P. had a total of $460
billion in investment company and other portfolio assets under management as of
January 1998, including selected accounts of certain affiliates of MLAM. It is
registered as an investment adviser under the Investment Advisers Act of 1940.
MLAM is an indirect subsidiary of Merrill Lynch & Co., Inc. MLAM's principal
business address is 800 Scudders Mill Road, Plainsboro, New Jersey 08536. As the
investment adviser, MLAM is paid fees by these Funds for its services. The fees
charged to each of these Funds are set forth in the summary of investment
objectives and certain investment policies below.
Details about these Funds, including their investment objectives, management,
policies, restrictions, their expenses and risks associated with investments
therein (including specific risks associated with investment in the High Current
Income Fund), and other aspects of these Funds' operation can be found in the
attached prospectus for the Merrill Variable Funds and in their Statement of
Additional Information which should be read carefully before investing. As
described in the prospectus for Merrill Variable Funds, many of these Funds
should be considered a long-term investment and a vehicle for diversification,
and not as a balanced investment program. Such Funds may not be appropriate as
the exclusive investment to fund a Contract for all contract owners. The Merrill
Variable Funds prospectus also describes certain additional risks, including
investing on an international basis or in foreign securities and investing in
lower rated or unrated fixed income securities. There is no guarantee that any
Fund will be able to meet its investment objective. Meeting the objectives
depends upon future economic conditions as well as upon how well these Funds'
management anticipates changes in those economic conditions.
DOMESTIC MONEY MARKET FUND. This Fund seeks to preserve capital, maintain
liquidity, and achieve the highest possible current income consistent with the
foregoing objectives by investing in short-term domestic money market
securities. The Fund invests in short-term United States government securities;
United States government agency securities; bank certificates of deposit and
bankers' acceptances; short-term debt securities such as commercial paper and
variable amount master demand notes; repurchase agreements and other domestic
money market instruments. MLAM receives from the Fund an advisory fee at the
annual rate of 0.50% of the average daily net assets of the Fund.
PRIME BOND FUND. This Fund seeks to obtain as high a level of current income as
is consistent with the investment policies of the Fund and with prudent
investment management. Secondarily, the Fund seeks capital appreciation when
consistent with the foregoing objective. The Fund invests primarily in long-term
corporate bonds rated in the top three ratings categories by Moody's Investor
Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("Standard &
Poor's"). MLAM receives from the Fund an advisory fee at the annual rate of
0.50% of the first $250 million of the combined average daily nets assets of the
Fund and High Current Income Fund; 0.45% of the next $250 million; 0.40% of the
next $250 million; and 0.35% of the combined average daily net assets in excess
of $750 million. The reduction of the advisory fee applicable to the Fund is
determined on a uniform percentage basis as described in the Statement of
Additional Information for the Merrill Variable Funds.
HIGH CURRENT INCOME FUND. This Fund seeks to obtain the highest level of
current income as is consistent with the investment policies of the Fund and
with prudent investment management. Secondarily, the Fund seeks capital
appreciation to the extent consistent with the foregoing objective. The Fund
invests principally in fixed-income securities that are rated in the lower
rating categories of the established rating services or in unrated securities of
comparable quality (including securities commonly known as "junk bonds").
Investment in such securities entails relatively greater risk of loss of income
or principal. In an effort to minimize risk, the Fund will diversify its
holdings among many issuers. However, there can be no assurance that
diversification will protect the Fund from widespread defaults during periods of
sustained economic downturn. MLAM receives from the Fund an advisory fee at the
annual rate of 0.55% of the first $250 million of the combined average daily net
assets of the Fund and Prime Bond Fund; 0.50% of the next $250 million; 0.45% of
the next $250 million; and 0.40% of the combined average daily net assets in
excess of $750 million. The reduction of
18
<PAGE>
the advisory fee applicable to the Fund is determined on a uniform percentage
basis as described in the Statement of Additional Information for the Merrill
Variable Funds.
QUALITY EQUITY FUND. This Fund seeks to achieve the highest total investment
return consistent with prudent risk. The Fund employs a fully managed investment
policy utilizing equity securities, primarily common stocks of
large-capitalization companies, as well as investment grade debt and convertible
securities. Management of the Fund will shift the emphasis among investment
alternatives for capital growth, capital stability, and income as market trends
change. MLAM receives from the Fund an advisory fee at the annual rate of 0.50%
of the first $250 million of average daily net assets; 0.45% of the next $250
million; 0.425% of the next $100 million; and 0.40% of the average daily net
assets in excess of $400 million.
SPECIAL VALUE FOCUS FUND (FORMERLY, THE EQUITY GROWTH FUND). This Fund seeks
long-term growth of capital by investing in a diversified portfolio of
securities, primarily common stocks, of relatively small companies that
management of the Merrill Variable Funds believes have special investment value,
of emerging growth companies regardless of size. Companies are selected by
management on the basis of their long-term potential for expanding their size
and profitability or for gaining increased market recognition for their
securities. Current income is not a factor in the selection of securities. MLAM
receives from the Fund an advisory fee at the annual rate of 0.75% of the
average daily net assets of the Fund. This is a higher fee than that of many
other mutual funds, but management of the Fund believes it is justified by the
high degree of care that must be given to the initial selection and continuous
supervision of the types of portfolio securities in which the Fund invests.
NATURAL RESOURCES FOCUS FUND. This Fund seeks to achieve long-term growth of
capital and protect the purchasing power of capital by investing primarily in
equity securities of domestic and foreign companies with substantial natural
resource assets. MLAM receives from the Fund an advisory fee at the annual rate
of 0.65% of the average daily net assets of the Fund.
ML of New York and Account A reserve the right to suspend the sale of units of
the Natural Resources Focus Subaccount in response to conditions in the
securities markets or otherwise.
The subaccount corresponding to this Fund was closed to allocations of premiums
and contract value following the close of business on December 6, 1996.
AMERICAN BALANCED FUND. This Fund seeks a level of current income and a degree
of stability of principal not normally available from an investment solely in
equity securities and the opportunity for capital appreciation greater than is
normally available from an investment solely in debt securities by investing in
a balanced portfolio of fixed income and equity securities. MLAM receives from
the Fund an advisory fee at the annual rate of 0.55% of the average daily net
assets of the Fund.
The subaccount corresponding to this Fund was closed to allocations of premiums
and contract value following the close of business on December 6, 1996.
GLOBAL STRATEGY FOCUS FUND. This Fund seeks high total investment return by
investing primarily in a portfolio of equity and fixed income securities,
including convertible securities, of U.S. and foreign issuers. The Fund seeks to
achieve its objective by investing primarily in securities of issuers located in
the United States, Canada, Western Europe, the Far East and Latin America. MLAM
receives from the Fund an advisory fee at the annual rate of 0.65% of the
average daily net assets of the Fund.
Effective following the close of business on December 6, 1996, the Flexible
Strategy Fund was merged with and into the Global Strategy Focus Fund.
BASIC VALUE FOCUS FUND. This Fund seeks capital appreciation and, secondarily,
income by investing in securities, primarily equities, that management of the
Fund believes are undervalued and therefore represent basic investment value.
The Fund seeks special opportunities in securities that are selling at a
discount, either from book value or historical price-earnings ratios, or seem
capable of recovering from temporarily out of favor considerations. Particular
emphasis is placed on securities which provide an above-average dividend return
and sell at a below-average price/earnings ratio. MLAM
19
<PAGE>
receives from the Fund an advisory fee at the annual rate of 0.60% of the
average daily net assets of the Fund.
GLOBAL BOND FOCUS FUND (FORMERLY, THE WORLD INCOME FOCUS FUND). This Fund seeks
to provide high total investment return by investing in a global portfolio of
fixed income securities denominated in various currencies, including
multinational currency units. The Fund may invest in fixed income securities
that have a credit rating of A or better by Standard & Poor's or by Moody's or
commercial paper rated A-1 by Standard & Poor's or Prime-1 by Moody's or
obligations that MLAM has determined to be of similar creditworthiness. MLAM
receives from the Fund an advisory fee at the annual rate of 0.60% of the
average daily net assets of the Fund.
Effective following the close of business on December 6, 1996, the International
Bond Fund was merged with and into the Global Bond Focus Fund. The subaccount
corresponding to this Fund will be closed to allocations of premiums and
contract value following the close of business on June 5, 1998.
GLOBAL UTILITY FOCUS FUND. This Fund seeks both capital appreciation and
current income through investment of at least 65% of its total assets in equity
and debt securities issued by domestic and foreign companies which are, in the
opinion of MLAM, primarily engaged in the ownership or operation of facilities
used to generate, transmit or distribute electricity, telecommunications, gas or
water. MLAM receives from the Fund an advisory fee at the annual rate of 0.60%
of the average daily net assets of the Fund.
The subaccount corresponding to this Fund was closed to allocations of premiums
and contract value following the close of business on December 6, 1996.
INTERNATIONAL EQUITY FOCUS FUND. This Fund seeks capital appreciation and,
secondarily, income by investing in a diversified portfolio of equity securities
of issuers located in countries other than the United States. Under normal
conditions, at least 65% of the Fund's net assets will be invested in such
equity securities and at least 65% of the Fund's total assets will be invested
in the securities of issuers from at least three different foreign countries.
MLAM receives from the Fund an advisory fee at the annual rate of 0.75% of the
average daily net assets of the Fund.
The subaccount corresponding to this Fund will be closed to allocations of
premiums and contract value following the close of business on June 5, 1998.
GOVERNMENT BOND FUND (FORMERLY, THE INTERMEDIATE GOVERNMENT BOND FUND). This
Fund seeks the highest possible current income consistent with the protection of
capital afforded by investing in debt securities issued or guaranteed by the
United States Government, its agencies or instrumentalities. MLAM receives from
the Fund an advisory fee at an annual rate of 0.50% of the average daily net
assets of the Fund.
DEVELOPING CAPITAL MARKETS FOCUS FUND. This Fund seeks long-term capital
appreciation by investing in securities, principally equities, of issuers in
countries having smaller capital markets. For purposes of its investment
objective, the Fund considers countries having smaller capital markets to be all
countries other than the four countries having the largest equity market
capitalizations. The Developing Capital Markets Focus Fund has established no
rating criteria for the debt securities in which it may invest, and will rely on
the investment adviser's judgment in evaluating the creditworthiness of an
issuer of such securities. In an effort to minimize the risk, the Fund will
diversify its holdings among many issuers. However, there can be no assurance
that diversification will protect the Fund from widespread defaults during
periods of sustained economic downturn. Investment in the Developing Capital
Markets Focus Fund entails relatively greater risk of loss of income or
principal. MLAM receives from the Fund an advisory fee at an annual rate of
1.00% of the average daily net assets of the Fund.
RESERVE ASSETS FUND. This Fund seeks to preserve capital, maintain liquidity,
and achieve the highest possible current income consistent with the foregoing
objectives by investing in short-term money market securities. The Fund invests
in short-term United States government securities; United States government
agency securities; bank certificates of deposit and bankers' acceptances; short-
20
<PAGE>
term debt securities such as commercial paper and variable amount master demand
notes; repurchase agreements and other money market instruments. MLAM receives
from the Fund an advisory fee at the annual rate of 0.50% of the first $500
million of the Fund's average daily net assets; 0.425% of the next $250 million;
0.375% of the next $250 million; 0.35% of the next $500 million; 0.325% of the
next $500 million; 0.30% of the next $500 million; and 0.275% of the average
daily net assets in excess of $2.5 billion.
INDEX 500 FUND. This Fund seeks investment results that, before expenses,
correspond to the aggregate price and yield performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index"). MLAM receives from the
Fund an advisory fee at an annual rate of 0.30% of the Fund's average daily net
assets.
CAPITAL FOCUS FUND. This Fund seeks to achieve the highest total investment
return consistent with prudent risk. To do this, management of the Fund uses a
flexible "fully managed" investment policy that shifts the emphasis among
equity, debt (including money market), and convertible securities. MLAM receives
from the Fund an advisory fee at the annual rate of 0.60% of the Fund's average
daily net assets.
Effective following the close of business on June 5, 1998, this Fund will become
available for allocations of premiums and contract value.
GLOBAL GROWTH FOCUS FUND. This Fund seeks long-term growth of capital. The Fund
invests in a diversified portfolio of equity securities of issuers located in
various countries and the United States, placing particular emphasis on
companies that have exhibited above-average growth rates in earnings. Because a
substantial portion of the Fund's assets may be invested on an international
basis, contract owners should be aware of certain risks, such as fluctuations in
foreign exchange rates, future political and economic developments, different
legal systems, and the possible imposition of exchange controls or other foreign
government laws or restrictions. An investment in the Fund may be appropriate
only for long-term investors who can assume the risk of loss of principal, and
do not seek current income. MLAM receives from the Fund an advisory fee at an
annual rate of 0.75% of the Fund's average daily net assets.
Effective following the close of business on June 5, 1998, this Fund will become
available for allocations of premiums and contract value.
DEFINED ASSET FUNDS--SELECT TEN TRUST
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $115 billion sponsored over the last 25 years. Each Defined
Asset Fund is a portfolio of preselected securities. The portfolio is divided
into "units" representing equal shares of the underlying assets ("Trust Units").
Each Trust Unit receives an equal share of income and principal distributions.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") serves as sponsor
of Defined Asset Funds. For its services as sponsor, MLPF&S receives a deferred
transaction fee, accrued daily at an annual rate of $4.70 per 1,000 Trust Units
(about 0.47%) for creating and maintaining the Select Ten Trust. Half of this
fee is paid to Merrill Lynch Insurance Group, Inc. ("MLIG"), an affiliate of ML
of New York, to compensate it for its administrative services in making Trust
Units available for investment by Account A. The Select Ten Trust is also
subject to additional operating expenses, summarized in the Fee Table on page 9
and described more fully in the attached prospectus for the Select Ten Trust.
The Select Ten Trust, one portfolio of Defined Asset Funds, buys approximately
equal amounts of the ten highest dividend-yielding common stocks of the 30
stocks in the Dow Jones Industrial Average* ("DJIA") (determined three business
days prior to May 1, 1998) and holds them for about one year.
* The name "Dow Jones Industrial Average" is the property of Dow Jones &
Company, Inc., which is not affiliated with MLPF&S, has not participated in any
way in the creation of the Select Ten Trust or in the selection of stocks
included in the Select Ten Trust and has not reviewed or approved any
information included in this prospectus.
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<PAGE>
MLPF&S anticipates that the Select Ten Trust portfolio will remain unchanged
over its one year life despite any adverse developments concerning an issuer, an
industry, or the economy or stock market generally. AT THE END OF THE YEAR (ON
OR ABOUT MAY 1, 1999, OR THE "ROLLOVER DATE"), THE SELECT TEN TRUST WILL BE
LIQUIDATED AND THE SAME INVESTMENT STRATEGY WILL BE REAPPLIED TO THE DJIA TO
SELECT (AS OF THREE BUSINESS DAYS PRIOR TO MAY 1, 1999) A NEW STOCK PORTFOLIO
FOR A "ROLLOVER" OR SUCCESSOR TRUST, SUBJECT TO ML OF NEW YORK OBTAINING
NECESSARY REGULATORY APPROVALS. At the time of the rollover, it is contemplated
that Trust Units will be redeemed, and the proceeds will be immediately invested
in the rollover trust. Brokerage commissions in selling and purchasing stocks
for the rollover trust will be borne indirectly by contract owners.
Effective following the close of business on June 5, 1998, this Fund will become
available for allocations of premiums and contract value. The Select Ten Trust
will terminate on or about May 1, 1999, at which time assets of the Select Ten
subaccount will be reinvested in a rollover trust, if such trust is available
and subject to necessary regulatory approvals. From the Rollover Date to thirty
days after the Rollover Date, contract owners can make one transfer from the
Select Ten subaccount of all account value in the Select Ten subaccount to other
subaccounts of Account A, without such transfer counting toward the six
transfers among subaccounts of Account A that may be made without charge during
a contract year. In addition, ML of New York will not exercise its right to
impose additional conditions or charges on transfers during this thirty day time
period.
MLPF&S RESERVES THE RIGHT TO DEPART FROM THE SELECT TEN INVESTMENT STRATEGY
DESCRIBED ABOVE IN ORDER TO MAINTAIN THE SELECT TEN TRUST'S COMPLIANCE WITH THE
DIVERSIFICATION REQUIREMENTS OF SECTION 817(H) OF THE INTERNAL REVENUE CODE AND
REGULATIONS THEREUNDER. IN ADDITION, ML OF NEW YORK RESERVES THE RIGHT TO CEASE
OFFERING THE SELECT TEN SUBACCOUNT AT ANY TIME, AND THERE CAN BE NO ASSURANCE
THAT DEFINED ASSET FUNDS OR MLPF&S WILL CONTINUE TO MAKE ROLLOVER TRUSTS
AVAILABLE IN THE FUTURE.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. ("AIM V.I. Funds") is registered with the
Securities and Exchange Commission as an open-end, series, management investment
company. It currently offers Account A two of its separate investment
portfolios. Shares of the Funds of AIM V.I. Funds are currently offered only to
insurance company separate accounts to fund the benefits of variable annuity
contracts and variable life insurance policies. Shares of these Funds may be
offered, in the future, to certain pension or retirement plans.
A I M Advisors, Inc. ("AIM"), 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, serves as the investment adviser to each of the Funds of AIM V.I.
Funds. AIM was organized in 1976, and, together with its subsidiaries, manages
or advises over 50 investment company portfolios (including these Funds)
encompassing a broad range of investment objectives. AIM is a wholly owned
subsidiary of A I M Management Group Inc., a holding company engaged in the
financial services business and an indirect wholly owned subsidiary of AMVESCAP
PLC. As the investment adviser, AIM is paid fees by these Funds for its
services. The fees charged to each of these Funds are set forth in the summary
of investment objectives below.
AIM V.I. Funds has entered into an Administrative Services Agreement with AIM,
pursuant to which AIM has agreed to provide certain accounting and other
administrative services to these Funds, including the services of a principal
financial officer and related staff. As compensation to AIM for its services
under the Administrative Services Agreement, these Funds reimburse AIM for
expenses incurred by AIM or its affiliates in connection with such services.
AIM has entered into an agreement with ML of New York with respect to
administrative services for these Funds in connection with the Contracts. Under
this agreement, AIM pays compensation to ML of New York in an amount equal to a
percentage of the average net assets of these Funds attributable to the
Contracts.
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<PAGE>
AIM V.I. CAPITAL APPRECIATION FUND. This Fund seeks capital appreciation
through investments in common stocks, with emphasis on medium-sized and smaller
emerging growth companies. AIM will be particularly interested in companies that
are likely to benefit from new or innovative products, services or processes
that should enhance such companies' prospects for future growth in earnings. As
a result of this policy, the market prices of many of the securities purchased
and held by this Fund may fluctuate widely. Any income received from securities
held by the Fund will be incidental, and a contract owner should not consider a
purchase of shares of the Fund as equivalent to a complete investment program.
The Fund's portfolio is primarily comprised of securities of two basic
categories of companies: (1) "core" companies, which AIM considers to have
experienced above-average and consistent long-term growth in earnings with
excellent prospects for outstanding future growth, and (2) "earnings
acceleration" companies which AIM believes are currently enjoying a dramatic
increase in profits. AIM receives from the Fund an advisory fee at an annual
rate of 0.65% of the first $250 million of the Fund's average daily net assets
and 0.60% of the Fund's average daily net assets in excess of $250 million.
AIM V.I. VALUE FUND. This Fund seeks to achieve long-term growth of capital by
investing primarily in equity securities judged by AIM to be undervalued
relative to the current or projected earnings of the companies issuing the
securities, or relative to current market values of assets owned by the
companies issuing the securities or relative to the equity markets generally.
Income is a secondary objective. The subaccount corresponding to this Fund
should not be selected by contract owners who seek income as their primary
investment objective. AIM receives from the Fund an advisory fee at an annual
rate of 0.65% of the first $250 million of the Fund's average daily net assets
and 0.60% of the Fund's average daily net assets in excess of $250 million.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Alliance Variable Products Series Fund, Inc. ("Alliance Fund") is registered
with the Securities and Exchange Commission as an open-end management investment
company. It currently offers Account A one of its separate investment
portfolios. Effective following the close of business on June 5, 1998, an
additional separate investment portfolio of Alliance Fund will become available
to Account A for allocations of premiums and contract value. These Funds are
intended to serve as the investment medium for variable annuity contracts and
variable life insurance policies to be offered by the separate accounts of
certain insurance companies.
Alliance Capital Management L.P. ("Alliance"), a Delaware limited partnership
with principal offices at 1345 Avenue of the Americas, New York, New York 10105
serves as the investment adviser to each Fund of the Alliance Series Fund.
Alliance is an international investment manager supervising client accounts with
assets of December 31, 1997 totaling more than $218 billion (of which
approximately $85 billion represented the assets of investment companies).
Alliance Capital Management Corporation ("ACMC"), the sole general partner of
Alliance, is an indirect wholly-owned subsidiary of The Equitable Life Assurance
Society of the United States, which is in turn a wholly-owned subsidiary of the
Equitable Companies Incorporated, a holding company which is controlled by AXA,
a French insurance holding company. As the investment adviser, Alliance is paid
fees by the Funds for its services. The fees charged to the Funds are set forth
in the summary of investment objective below.
Alliance Fund Distributors, Inc. ("AFD"), an affiliate of Alliance, has entered
into an agreement with ML of New York with respect to administrative services
for these Funds in connection with the Contracts. Under this agreement, AFD pays
compensation to ML of New York in an amount equal to a percentage of the average
net assets of these Funds attributable to the Contracts.
ALLIANCE PREMIER GROWTH PORTFOLIO. This Fund seeks growth of capital by
pursuing aggressive investment policies. Since investments will be made based
upon their potential for capital appreciation, current income will be incidental
to the objective of capital growth. Because of the market risks inherent in any
investment, the selection of securities on the basis of their appreciation
possibilities cannot ensure against possible loss in value. This Fund is
therefore not intended for contract owners whose principal objective is assured
income and conservation of capital. Alliance
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<PAGE>
receives from the Fund an advisory fee at an annual rate of 1.00% of the Fund's
average daily net assets.
ALLIANCE QUASAR PORTFOLIO. This Fund seeks growth of capital by pursuing
aggressive investment policies. The Fund invests principally in a diversified
portfolio of equity securities of any company and industry and in any type of
security which is believed to offer possibilities for capital appreciation, and
invests only incidentally for current income. The selection of securities based
on the possibility of appreciation cannot prevent loss in value. Moreover,
because the Fund's investment policies are aggressive, an investment in the Fund
is risky and is not intended for contract owners who want assured income or
preservation of capital. Alliance receives from the Fund an advisory fee at an
annual rate of 1.00% of the Fund's average daily net assets. (See the NOTE TO
FEE TABLE on page 11 for a discussion of a reimbursement arrangement applicable
to the Fund.)
Effective following the close of business on June 5, 1998, this Fund will become
available for allocations of premiums and contract value.
MFS VARIABLE INSURANCE TRUST
MFS Variable Insurance Trust ("MFS Trust") is registered with the Securities and
Exchange Commission as an open-end management investment company. It currently
offers Account A two of its separate investment portfolios. The Funds of MFS
Trust are intended to serve as the investment medium for variable annuity
contracts and variable life insurance policies to be offered by the separate
accounts of certain insurance companies.
Massachusetts Financial Services Company ("MFS"), a Delaware corporation, 500
Boylston Street, Boston, Massachusetts 02116, serves as the investment adviser
to each of the Funds of MFS Trust. MFS is America's oldest mutual fund
organization. MFS and its predecessor organizations have a history of money
management dating from 1924 and the founding of the first mutual fund in the
United States, Massachusetts Investors Trust. Net assets under the management of
the MFS organization were approximately $80 billion as of March 31, 1998. MFS is
a subsidiary of Sun Life of Canada (U.S.), which, in turn, is a wholly-owned
subsidiary of Sun Life Assurance Company of Canada. As the investment adviser,
MFS is paid fees by each of these Funds for its services. The fees charged to
these Funds are set forth in the summary of investment objectives below.
MFS has entered into an agreement with MLIG with respect to administrative
services for these Funds in connection with the Contracts and certain contracts
issued by Merrill Lynch Life Insurance Company. Under this agreement, MFS pays
compensation to MLIG in an amount equal to a percentage of the average net
assets of these Funds attributable to such contracts.
MFS EMERGING GROWTH SERIES. This Fund seeks long-term growth of capital by
investing primarily (i.e., at least 80% of its assets under normal
circumstances) in common stocks of emerging growth companies. Emerging growth
companies include companies that MFS believes are early in their life cycle but
which have the potential to become major enterprises. Dividend and interest
income from portfolio securities, if any, is incidental to the Fund's objective
of long-term growth of capital. MFS receives from the Fund an advisory fee at an
annual rate of 0.75% of average daily net assets of the Fund.
MFS RESEARCH SERIES. This Fund seeks to provide long-term growth of capital and
future income. The portfolio securities of the MFS Research Series are selected
by a committee of investment research analysts. This committee includes
investment analysts employed not only by the Adviser but also by MFS
International (U.K.) Limited, a wholly-owned subsidiary of MFS. The Series'
assets are allocated among industries by the analysts acting together as a
group. Individual analysts are then responsible for selecting what they view as
the securities best suited to meet the Series' investment objective within their
assigned industry responsibility. MFS receives from the Fund an advisory fee at
an annual rate of 0.75% of average daily net assets of the Fund.
24
<PAGE>
HOTCHKIS AND WILEY VARIABLE TRUST
Hotchkis and Wiley Variable Trust ("Hotchkis and Wiley Trust"), a Massachusetts
business trust, is registered with the Securities and Exchange Commission as an
open-end management investment company. Effective following the close of
business on June 5, 1998, one of the separate investment portfolios of the
Hotchkis and Wiley Trust will become available to Account A for allocations of
premiums and contract value. This Fund is intended to serve as the investment
medium for variable annuity contracts and variable life insurance policies to be
offered by the separate accounts of certain insurance companies.
Hotchkis and Wiley, 800 West Sixth Street, Fifth Floor, Los Angeles, California
90017, serves as the investment adviser to the Hotchkis and Wiley International
VIP Portfolio and generally administers the affairs of the Hotchkis and Wiley
Trust. Hotchkis and Wiley is a division of the Merrill Lynch Capital Management
Group of MLAM, and a separate business unit of Merrill Lynch & Co., Inc. As the
investment adviser, Hotchkis and Wiley is paid fees by the Fund for its
services. The fees charged to the Fund for advisory services are set forth in
the summary of investment objective below.
Hotchkis and Wiley has entered into an agreement with MLIG with respect to
administrative services for the Hotchkis and Wiley Trust in connection with the
Contracts and certain contracts issued by Merrill Lynch Life Insurance Company.
Under this agreement, Hotchkis and Wiley pays compensation to MLIG in an amount
equal to a portion of the annual gross investment advisory fees paid by Hotchkis
and Wiley International VIP Portfolio to Hotchkis and Wiley attributable to such
contracts.
HOTCHKIS AND WILEY INTERNATIONAL VIP PORTFOLIO. This Fund seeks to provide
current income and long-term growth of income, accompanied by growth of capital.
The Fund will attempt to achieve its objective by investing at least 65% of its
total assets in equity securities in at least three non-U.S. markets.
Ordinarily, the Fund will invest in equity securities issued by companies
located in some or all of the developed foreign equity markets. These markets
generally include fifteen markets in Europe, as well as Australia, New Zealand,
Japan, Hong Kong, Singapore, Malaysia, Canada, and South Korea. Investing in
emerging market and other foreign securities involves certain risk
considerations not typically associated with investing in securities of U.S.
issuers, including: currency devaluations and other currency exchange rate
fluctuations, political uncertainty and instability, more substantial government
involvement in the economy, higher rates of inflation, less government
supervision and regulation of the securities markets and participants in those
markets, controls on foreign investment and limitations on repatriation of
invested capital and on the Fund's ability to exchange local currencies for U.S.
dollars, greater price volatility, substantially less liquidity and
significantly smaller capitalization of securities markets, absence of uniform
accounting and auditing standards, generally higher commission expenses, delay
in settlement of securities transactions, and greater difficulty in enforcing
shareholder rights and remedies. Because investment in this Fund entails
relatively greater loss of principal, an investment in the Fund may not be
appropriate as the exclusive investment to fund a Contract. Hotchkis and Wiley
receives from the Fund an advisory fee at an annual rate of 0.75% of the Fund's
average daily net assets.
Effective following the close of business on June 5, 1998, this Fund will become
available for allocations of premiums and contract value.
PURCHASES AND REDEMPTIONS OF FUND SHARES; REINVESTMENT
The Accounts will purchase and redeem shares or Trust Units of the Funds to the
extent necessary to provide benefits under the Contract or for such other
purposes as may be consistent with the Contract. The Accounts will purchase and
redeem shares or Trust Units of the Funds at net asset value. Fund distributions
to the Accounts are automatically reinvested in additional shares or Trust Units
of the Funds at net asset value.
25
<PAGE>
MATERIAL CONFLICTS, SUBSTITUTION OF INVESTMENTS AND CHANGES TO ACCOUNTS
It is conceivable that material conflicts could arise as a result of both
variable annuity and variable life insurance separate accounts investing in the
Funds. Although no material conflicts are foreseen, the participating insurance
companies will monitor events in order to identify any material conflicts
between variable annuity and variable life insurance contract owners to
determine what action, if any, should be taken. Material conflicts could result
from such things as (1) changes in state insurance law, (2) changes in federal
income tax law or (3) differences between voting instructions given by variable
annuity and variable life insurance contract owners. If a conflict occurs, the
ML of New York may be required to eliminate one or more subaccounts of Separate
Account A or Separate Account B or substitute a new subaccount. In responding to
any conflict, ML of New York will take the action which it believes necessary to
protect its contract owners.
ML of New York may substitute a different investment option for any of the
current Funds. Substitution may be made with respect to both existing
investments and the investment of future premiums. However, no such substitution
will be made without any necessary approval of the Securities and Exchange
Commission and applicable state insurance departments. Contract owners will be
notified of any substitutions. Additional investment options may be added in the
future as eligible investments through the Accounts.
In addition, ML of New York may make additional subaccounts available to either
Account, eliminate subaccounts in either Account, deregister either or both of
the Accounts under the Investment Company Act of 1940 (the "1940 Act"), make any
changes required by the 1940 Act, operate either or both Accounts as a managed
investment company under the 1940 Act or any other form permitted by law,
transfer all or a portion of the assets of a subaccount or Account to another
subaccount or account pursuant to a combination or otherwise, and create new
accounts. No such changes will be made without any necessary approval of the
Securities and Exchange Commission and applicable state insurance departments.
Contract owners will be notified of any changes.
CHARGES AND DEDUCTIONS
ML of New York deducts the charges described below to cover costs and expenses,
services provided, and risks assumed under the Contracts. The amount of a charge
may not necessarily correspond to the costs associated with providing the
services or benefits indicated by the designation of the charge or associated
with the particular Contract. For example, the contingent deferred sales charge
may not fully cover all of the sales and distribution expenses actually incurred
by ML of New York, and proceeds from other charges, including the mortality and
expense risk charge, may be used in part to cover such expenses.
CONTRACT MAINTENANCE CHARGE
A charge is made to reimburse ML of New York for expenses related to maintenance
of the Contract. These expenses include issuing Contracts, maintaining records,
and performing accounting, regulatory compliance, and reporting functions. This
$40 maintenance charge will be deducted from the contract value on each contract
anniversary that occurs on or prior to the annuity date. It will also be
deducted when the Contract is surrendered if it is surrendered on any date other
than a contract anniversary. The contract maintenance charge will be deducted on
a pro rata basis from among all subaccounts in which contract value is invested.
(See ACCUMULATION UNITS on page 26 for a discussion of the effect the deduction
of this charge will have on the number of accumulation units credited to a
Contract.) The contract maintenance charge will never increase.
This charge will be waived on all Contracts with a contract value equal to or
greater than $50,000 on the date the charge would otherwise be deducted. It is
not deducted after the annuity date.
Currently, a contract owner of three or more Contracts will be assessed no more
than $120 in Contract Maintenance Charges annually, regardless of the number of
Contracts owned. Once Contract
26
<PAGE>
Maintenance Charges in an amount equal to $120 have been paid in a calendar year
by a contract owner, remaining Contract Maintenance Charges to which the
contract owner would otherwise be subject in the same calendar year will be
waived. ML of New York reserves the right to discontinue this waiver at any
time.
MORTALITY AND EXPENSE RISK CHARGE
A mortality and expense risk charge is imposed on the Accounts. It equals 1.25%
annually for Account A and 0.65% annually for Account B deducted daily from the
net asset value of the Accounts. Of this amount, 0.75% annually for Account A
and 0.35% annually for Account B is attributable to mortality risks assumed by
ML of New York for the annuity payment and death benefit guarantees made under
the Contract. These guarantees include making annuity payments unaffected by
mortality experience and providing a minimum death benefit under the Contract.
Additionally, of the total mortality and expense risk charge, 0.50% annually for
Account A and 0.30% annually for Account B is attributable to expense risks
assumed by ML of New York should the contract maintenance and administration
charges be insufficient to cover all Contract maintenance and administration
expenses.
The mortality and expense risk charge is greater for Account A than for Account
B because a greater death benefit and higher administrative expenses are
attributable to Account A. If the mortality and expense risk charge is
inadequate to cover the actual expenses of mortality, maintenance, and
administration, ML of New York will bear the loss. If the charge exceeds the
actual expenses, the excess will be added to ML of New York's profit and may be
used to finance distribution expenses. The mortality and expense risk charge
will never increase.
ADMINISTRATION CHARGE
An administration charge is made to reimburse ML of New York for costs
associated with the establishment and administration of Account A. This charge
covers such expenses as optional contract transactions (for example, processing
transfers and Dollar Cost Averaging transactions). A charge of 0.10% annually
will be deducted daily only from the net asset value of Account A. The
administration charge will never increase.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge may be imposed on withdrawals and surrenders
from Account A. This charge reimburses ML of New York for expenses relating to
the sale of the Contract, such as commissions, preparation of sales literature,
and other promotional activity. The charge is imposed only on premium withdrawn
or surrendered from Account A that was held for less than seven years. However,
where permitted by state regulation, up to 10% of this premium will not be
subject to such a charge if withdrawn or surrendered from Account A during the
first withdrawal of the contract year, whether paid in a lump sum or elected to
be paid on a monthly, quarterly, semi-annual or annual basis. In addition, where
permitted by state regulation, ML of New York reserves the right not to impose a
contingent deferred sales charge on any premium withdrawn or surrendered from
Contracts purchased by employees of ML of New York or from Contracts purchased
by the employees' spouses or dependents.
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<PAGE>
The maximum contingent deferred sales charge is 7% of the premium withdrawn
during the first year after that premium is paid, decreasing by 1% annually to
0% after year seven, as shown below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
ELAPSED SINCE PREMIUM WAS PAID CONTINGENT DEFERRED SALES CHARGE
- ----------------------------------------- -----------------------------------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
</TABLE>
Contingent deferred sales charges are calculated on total premiums withdrawn
from Account A, but not to exceed the account value. Gain in account value is
never subject to a contingent deferred sales charge. (See page 31 for a
discussion of the rules for determining whether a withdrawal is considered to
come from premiums or gain for contingent deferred sales charge purposes.) For
example, if a contract owner made a $5,000 premium payment to Account A and
withdrew the entire $5,000 three years later when there had been no gain or loss
on that premium, a 4% contingent deferred sales charge would be imposed on the
$5,000 withdrawal. If that contract owner had made a $5,000 premium payment to
Account A and due to negative investment experience only $4,500 remained in
Account A when the contract owner withdrew it three years later, a 4% contingent
deferred sales charge would be imposed only on $4,500 of the original premium.
If instead the $5,000 premium payment the contract owner made to Account A grew
to $5,500 due to positive investment experience, and the contract owner withdrew
$200 of gain in account value as the first withdrawal three years later, and
thereafter withdrew the remaining $5,300 in a subsequent withdrawal that same
year, no contingent deferred sales charge would be imposed on the $200 first
withdrawn (as it represents gain in account value and not premium) and a 4%
contingent deferred sales charge would be imposed only on $5,000 of the $5,300
subsequent withdrawal (as $300 of that amount represents gain in account value).
When imposed, the contingent deferred sales charge will be deducted on a pro
rata basis from among the subaccounts in which the contract owner has invested,
on the basis of the contract owner's interest in each subaccount to the Account
A account value. (See WITHDRAWALS AND SURRENDERS on page 31 and ACCUMULATION
UNITS on page 26 for a discussion of the effect the deduction of this charge
will have on the number of accumulation units credited to a Contract.)
To the extent that the contingent deferred sales charge is inadequate to recover
all sales expenses associated with the Contract, the deficiency will be met by
ML of New York's surplus, which may be partly derived from the mortality and
expense risk charge on the Contract.
No contingent deferred sales charge will be imposed on withdrawals or surrenders
from Account B.
PREMIUM TAXES
Various states and municipalities impose a premium tax on annuity premiums when
they are received by an insurance company. In other jurisdictions, a premium tax
is paid on the contract value on the annuity date.
State premium tax rates vary from jurisdiction to jurisdiction and currently
range from 0% to 5%. ML of New York will pay these taxes when due, and a charge
for any premium taxes imposed by a state or local government will be deducted
from the contract value on the annuity date. (See ACCUMULATION UNITS on page 26
for a discussion of the effect the deduction of this charge will have on the
number of accumulation units credited to a Contract.) In those jurisdictions
that do not allow an insurance company to reduce its current taxable premium
income by the amount of any withdrawal, surrender
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<PAGE>
or death benefit paid, ML of New York will also deduct a charge for these taxes
on any withdrawal, surrender or death benefit effected under the Contract.
Premium tax rates are subject to change by law, administrative interpretations,
or court decisions. Premium tax amounts will depend on, among other things, the
contract owner's state of residence, ML of New York's status within that state,
and the premium tax laws of that state.
OTHER CHARGES
Contract owners may make up to six transfers among Account A subaccounts per
contract year without charge. Additional transfers may be permitted at a charge
of $25 per transfer. Certain transfers from the Select Ten subaccount will not
count toward the six transfers permitted among Account A subaccounts per
contract year without charge. (See DEFINED ASSET FUNDS--SELECT TEN TRUST on page
21 and TRANSFERS on page 29.)
ML of New York reserves the right, subject to any necessary regulatory approval,
to charge for assessments or federal premium taxes or federal, state or local
excise, profits or income taxes measured by or attributable to the receipt of
premiums. ML of New York also reserves the right to deduct from the Accounts any
taxes imposed on the Accounts' investment earnings. (See ML OF NEW YORK'S TAX
STATUS on page 34.)
In calculating the net asset values of the Funds, advisory fees and operating
expenses are deducted from the assets of each Fund other than the Select Ten
Trust. Deferred transaction fees, trustee's fees, portfolio supervision,
bookkeeping and administrative fees, organizational expenses, and other
operating expenses are deducted from the assets of the Select Ten Trust.
Information about those fees and expenses can be found in the attached
prospectuses for the Funds, and in the Statement of Additional Information for
each Fund, if applicable.
Fees associated with participation in the Merrill Lynch RPA-SM- program are paid
by the participating contract owner and are not deducted from the contract value
or imposed on the Accounts. (See MERRILL LYNCH RETIREMENT PLUS ADVISOR-SM- on
page 30.)
DESCRIPTION OF THE CONTRACT
OWNERSHIP OF THE CONTRACT
The contract owner is entitled to exercise all rights under the Contract. Unless
otherwise specified, the purchaser of the Contract will be the contract owner.
The contract owner may designate a beneficiary. The beneficiary will receive all
outstanding Contract benefits if the owner dies. The contract owner may also
designate an annuitant. The annuitant may be changed at any time prior to the
annuity date. If no annuitant is selected, the contract owner will be the
annuitant. If the annuitant is changed on a contract owned by other than a
natural person, the change will be treated as the death of the contract owner
for purposes of the Internal Revenue Code. ML of New York will then pay to the
owner's beneficiary the contract value, less any applicable fees and charges.
The Contract may be assigned to another owner upon notice to ML of New York's
Home Office. The Contract may only be assigned to another owner in full, not in
part. An assignment to a new owner cancels all prior beneficiary designations
except for those prior beneficiary designations that have been made irrevocably.
Assignment of the Contract may have tax consequences or may be prohibited on
certain IRA Contracts, so the contract owner should consult with a qualified tax
adviser before assigning the Contract. (See FEDERAL INCOME TAXES on page 34.)
When co-owners are established, they exercise all rights under the Contract
jointly unless they elect otherwise. IRA Contracts may not have co-owners.
ISSUING THE CONTRACT
A nonqualified Contract may generally be issued to contract owners who are less
than 85 years of age. Annuitants on nonqualified Contracts must also be less
than age 85 at issue. For IRA Contracts owned
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by natural persons, the contract owner and annuitant must be the same person.
Therefore, contract owners and annuitants on IRA Contracts must be less than age
70 1/2 at issue.
Before issuing the Contract, ML of New York requires certain information from
the prospective contract owner. Prospective contract owners may be required to
complete and return a written Contract application in certain circumstances,
such as when the Contract is being issued to replace, or in exchange for,
another annuity contract. Once that information or application is reviewed and
approved, and the prospective contract owner submits an initial premium, a
Contract will be issued. Generally, this review and approval process is
completed and the premium invested within two business days, but if any
necessary information has not been obtained within five business days, ML of New
York will offer to return the premium and no Contract will be processed. If the
prospective contract owner instead consents, ML of New York will hold the
premium until all necessary information is obtained, and will then invest the
premium within two business days after obtaining the information. The initial
premium will be invested as described under PREMIUM INVESTMENTS, on page 26.
The date of issue will be the date the required information and initial premium
are received at ML of New York's Home Office.
TEN DAY RIGHT TO REVIEW
When the contract owner receives the Contract, it should be reviewed carefully
to make sure it is what the contract owner intended to purchase. Generally,
within 10 days after the contract owner receives the Contract, he or she may
return it for a refund. Some states allow a longer period of time to return the
Contract. The Contract must be delivered to ML of New York's Home Office or to
the Financial Consultant who sold it for a refund to be made. ML of New York
will then refund to the contract owner the greater of all premiums paid into the
Contract or the contract value as of the date the Contract is returned. The
Contract will then be deemed void.
CONTRACT CHANGES
Requests to change the owner, beneficiary, annuitant, or annuity date of a
Contract will take effect as of the date such a request is signed by the
contract owner, unless ML of New York has already acted in reliance on the prior
status. Such changes may have tax consequences. See FEDERAL INCOME TAXES on page
34. See also OWNERSHIP OF THE CONTRACT above.
PREMIUMS
Initial premium payments must be $5,000 or more on a nonqualified Contract and
$2,000 or more on an IRA Contract. Subsequent premium payments must be $100 or
more and can be made at any time prior to the annuity date. (The $100 minimum
may be waived in connection with premiums paid under IRA Contracts that are held
in Retirement Plan Operations (RPO) accounts of Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), in order to transfer any existing cash balance of
such account, in full, into a Contract.) ML of New York reserves the right to
refuse to accept subsequent premium payments, if required by law.
Premium payments can be made directly by the contract owner or debited from his
or her MLPF&S brokerage account and must be transmitted to ML of New York's Home
Office at the address printed on the cover of this Prospectus. Under an
automatic investment feature, premium payments can also be made systematically
on a monthly, quarterly, semi-annual or annual basis from a MLPF&S brokerage
account. A Financial Consultant should be contacted for additional information.
The automatic investment feature may be canceled by the contract owner at any
time. Once canceled, it cannot be activated again until the next contract year.
Maximum annual contributions to IRA Contracts are limited by federal law.
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PREMIUM INVESTMENTS
For the first 14 days following the date of issue, all premiums directed into
Account A will be held in the Domestic Money Market Subaccount. Thereafter, the
account value will be reallocated to the Account A subaccounts selected.
Subsequent premiums allocated to Account A will be directly placed in the
subaccounts selected as of the end of the valuation period in which they are
received at ML of New York's Home Office. Premiums directed into Account B will
be directly placed in the Reserve Assets Subaccount on the issue date.
Subsequent premiums allocated to Account B will be directly placed in its
Reserve Assets Subaccount as of the end of the valuation period in which they
are received at ML of New York's Home Office. Currently, a contract owner may
allocate his or her premium among eighteen subaccounts (seventeen available
through Account A and one available through Account B); allocations must be made
in increments that are even multiples of 10%. For example, 10% of a premium
received may be allocated to the Prime Bond Fund, 40% allocated to the High
Current Income Fund, and 50% allocated to the Quality Equity Fund. However, a
contract owner may not allocate 33 1/3% to the Prime Bond Fund and 66 2/3% to
the High Current Income Fund. If allocation instructions are not given with
subsequent premiums received, ML of New York will allocate those premiums
according to the allocation instructions last received from the contract owner.
ML of New York reserves the right to modify the limit on the number of
subaccounts to which future allocations may be made.
ACCUMULATION UNITS
Each subaccount has a distinct value, called the accumulation unit value. The
accumulation unit value varies daily, as described below. This value is used to
determine the number of subaccount accumulation units represented by a contract
owner's investment in a subaccount. When a contract owner invests a premium or
transfers an amount to a subaccount, accumulation units in that subaccount are
purchased and credited to the Contract. Conversely, when a contract owner
withdraws contract value or transfers an amount from a subaccount, accumulation
units credited to the Contract in that subaccount are redeemed. Similarly, when
a deduction is made under a Contract for the contract maintenance charge, any
contingent deferred sales charges, any transfer charge and any premium taxes
due, accumulation units credited to the Contract in the subaccounts are
redeemed. (See CHARGES AND DEDUCTIONS on page 22 for a discussion concerning the
allocation of charges to subaccounts.) The number of accumulation units in a
subaccount so purchased or redeemed for a Contract is based on the subaccount's
accumulation unit value as of the end of the valuation period during which the
purchase or redemption is made. It is determined by dividing the dollar value of
the amount of the purchase or redemption allocated to the subaccount by the
value of one accumulation unit for that subaccount for the valuation period in
which the transfer is effected. The number of accumulation units in each
subaccount credited to a Contract will therefore increase or decrease as these
transactions are effected.
The number of subaccount accumulation units credited to a Contract will not
change as a result of investment experience or the deduction of mortality and
expense risk and administration charges. Instead, these charges and investment
experience will be reflected in the accumulation unit value.
For each subaccount, the value of an accumulation unit was arbitrarily set at
$10 when it was established. Accumulation unit values may increase or decrease
from one valuation period to the next. A valuation period is the interval from
one determination of the net asset value of a subaccount to the next, measured
from the time each day the Funds are valued. The Funds are valued at the close
of business on each day the New York Stock Exchange is open. An accumulation
unit value for any valuation period is determined by multiplying the
accumulation unit value for the last prior valuation period by the net
investment factor for the subaccount for the current valuation period. The
Funds' investment performance, expenses, and the deduction of asset-based
charges affect the accumulation unit value.
The net investment factor is an index used to measure the investment performance
of a subaccount from one valuation period to the next. For any subaccount, the
net investment factor is determined by
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dividing the value of the assets of the subaccount for that valuation period by
the value of the assets of the subaccount for the preceding valuation period,
and subtracting from the result the valuation period equivalent of the annual
administration and mortality and expense risk charges. ML of New York may adjust
the net investment factor to make provisions for any change in the law that
requires it to pay tax on capital gains in the Accounts or for any assessments
or federal premium taxes or federal, state or local excise, profits or income
taxes measured by or attributable to the receipt of premiums. (See OTHER CHARGES
on page 24).
The net investment factor may be greater or less than one. Therefore, the value
of an accumulation unit may increase or decrease.
DEATH BENEFIT
Prior to the annuity date, the Contract provides a death benefit feature that
guarantees a death benefit if the contract owner dies, regardless of investment
experience. For contract owners age 80 or under on the Contract date of issue,
the death benefit will be equal to the greatest of (a) premiums paid less any
withdrawals, (b) the contract value, or (c) the maximum death benefit value.
(For contract owners over age 80 on the Contract date of issue, the death
benefit will be the greater of (a) premiums paid less any withdrawals or (b) the
contract value.)
ML of New York will calculate an anniversary value for the date of issue and
each contract anniversary through the earlier of (i) the contract owner's
attained age 80 or (ii) the anniversary on or prior to the date of death. (For
Contracts endorsed after their date of issue, the anniversary value is initially
calculated beginning with the first contract anniversary following the date of
endorsement.) The maximum death benefit value will be equal to the greatest
anniversary value of Account A, plus the value of Account B. Each anniversary
value of Account A is calculated as follows:
- the value of Account A on the date of issue and each contract anniversary
thereafter; plus
- premium payments allocated to Account A since the date of issue or that
anniversary; less
- withdrawals and transfers from Account A since the date of issue or that
anniversary.
After age 80, the greatest anniversary value of Account A will be equal to the
greatest anniversary value of Account A as of attained age 80, plus premium
payments allocated to Account A since such anniversary, less withdrawals and
transfers from Account A since such anniversary.
EXAMPLE: Assume a Contract is issued to a contract owner below age 80, and
that no allocations are made to Account B. Maximum death benefit values of
the Contract, based on hypothetical values of Account A* and the contract
transactions shown, are set forth below:
<TABLE>
<CAPTION>
MAXIMUM
TRANSACTIONS ANNIVERSARY VALUES DEATH PREMIUMS
------------------------------ ------------------------------------------ BENEFIT CONTRACT LESS
DATE PREMIUMS WITHDRAWALS 1/1/98 1/1/99 1/1/00 1/1/01 VALUE VALUE WITHDRAWALS
- --------- ----------- ----------------- --------- --------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/96... 100,000 100,000 100,000 100,000 100,000
1/1/99... 100,000 105,000 105,000 105,000 100,000
6/1/99... 10,000 110,000 115,000 115,000 114,000 110,000
7/1/99... 5,000 105,000 110,000 110,000 112,000 105,000
1/1/00... 105,000 110,000 109,000 110,000 109,000 105,000
1/1/01... 105,000 110,000 109,000 112,000 112,000 112,000 105,000
<CAPTION>
DEATH
DATE BENEFIT
- --------- -----------
<S> <C>
1/1/96... 100,000
1/1/99... 105,000
6/1/99... 115,000
7/1/99... 112,000
1/1/00... 110,000
1/1/01... 112,000
</TABLE>
- ------------------------
* Account A anniversary values reflect hypothetical positive and negative
investment performance to demonstrate the calculation of the maximum death
benefit value. There can, of course, be no assurance that Account A will
experience positive investment performance.
For Contracts issued on a joint ownership basis, the greatest anniversary value
is calculated based on the period of time through the earlier of (i) the older
co-owner attaining age 80 or (ii) the anniversary on or prior to either
co-owner's date of death. Subsequent changes in the contract owner will not
increase the period of time during which anniversary values are used to
determine the maximum
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death benefit value, but could shorten such period if a subsequent owner is
older than the prior owner. Specifically, if a new contract owner has not
attained age 80 and is older than the contract owner whose age is being used to
determine the maximum death benefit value at the time of the ownership change,
the period of time used in the calculation of the maximum death benefit value
will be based on the age of the new contract owner at the time of the ownership
change. If at the time of an ownership change the new contract owner is over
attained age 80, the maximum death benefit value will be calculated based on the
greatest anniversary value of Account A as of the contract anniversary prior to
the ownership change. If a contract owner is a non-natural person, then the
annuitant's age, rather than the contract owner's age will be used to determine
the period of time used in the calculation of the maximum death benefit value.
If the contract owner dies prior to the annuity date, ML of New York will pay
the Contract's death benefit to the owner's beneficiary. Unless the beneficiary
has been irrevocably designated, the contract owner may change the beneficiary
at any time prior to the annuity date. If the owner's beneficiary is his or her
surviving spouse, the spouse may elect to continue the Contract in force on the
same terms as applicable before the owner's death, and the spouse will then
become the contract owner and the beneficiary until a new beneficiary is named.
The death benefit will be paid in a lump sum unless the beneficiary chooses an
annuity payment option available under the Contract. (See ANNUITY OPTIONS on
page 32.) However, if the contract owner dies before the annuity date, federal
tax law generally requires the entire contract value to be distributed within
five years of the date of death. Special rules may apply to the surviving
spouse. (See FEDERAL INCOME TAXES on page 34.)
The death benefit is determined as of the date ML of New York receives due proof
of death at its Service Center. Due proof of death is received as of the date ML
of New York receives a certified copy of the contract owner's death certificate,
the Beneficiary Statement, and any other paperwork necessary to process the
death claim. If other documents have not been received by the 60th day following
receipt of the certified death certificate, due proof of death will be deemed to
have been received and the death benefit will be paid in a lump sum.
DEATH OF ANNUITANT
If the annuitant dies prior to the annuity date, and the annuitant is not the
contract owner, the owner may designate a new annuitant. If a new annuitant is
not designated, the contract owner will become the annuitant unless the owner is
not a natural person. If the contract owner is not a natural person, no new
annuitant may be named and the death benefit will be paid.
If the annuitant dies after the annuity date, while guaranteed amounts remain
unpaid, the contract owner may either (a) have payments continue for the amount
or period guaranteed; or (b) receive the present value of the remaining
guaranteed payments in a lump sum. If the contract owner dies while guaranteed
amounts remain unpaid, his or her beneficiary may either (a) have payments
continue for the amount or period guaranteed; or (b) receive the present value
of the remaining guaranteed payments in a lump sum.
TRANSFERS
Once each contract year, contract owners may transfer from Account A to Account
B an amount equal to any gain in account value and/or any premium not subject to
a contingent deferred sales charge, determined as of the date the request is
received. Where permitted by state regulation, once each contract year, contract
owners may transfer from Account A to Account B all or a portion of the greater
of that amount or 10% of premiums subject to a contingent deferred sales charge
determined as of the date the request is received (minus any of that premium
already withdrawn or transferred). Additionally, where permitted by state
regulation, periodic transfers of all or a portion of the greater amount,
determined at the time of each periodic transfer, are permitted, on a monthly,
quarterly, semi-
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<PAGE>
annual or annual basis. Periodic transfers may be canceled by the contract owner
at any time. Once canceled, they can not be activated again until the next
contract year.
Generally, the amount transferred will be deducted on a pro rata basis from
among the affected Account A subaccounts, on the basis of the contract owner's
interest in each subaccount to the Account A account value, unless the contract
owner requests otherwise. However, if the amount will be transferred on a
monthly, quarterly, semi-annual or annual basis, it must be deducted on a pro
rata basis.
This is the only amount which may be transferred from Account A to Account B
during that contract year. There is no charge imposed on the transfer of this
amount. No transfers are permitted from Account B to Account A.
Prior to the annuity date, contract owners may transfer all or part of their
Account A value among the subaccounts of Account A up to six times per contract
year without charge. Additional transfers among Account A subaccounts may be
made at a charge of $25 per transfer. Certain transfers from the Select Ten
subaccount will not count toward the six transfers permitted among Account A
subaccounts per contract year without charge. (See DEFINED ASSET FUNDS--SELECT
TEN TRUST on page 21.) The transfer charge will be deducted on a pro rata basis
from among the subaccounts from which account value is being transferred. ML of
New York reserves the right to change the number of additional transfers
permitted each contract year, as appropriate.
Transfers among subaccounts may be made in specific dollar amounts or as a
percentage of Account A value. Requests to transfer dollar amounts must be for
at least $100 or the total value of a subaccount, if less. Requests to transfer
a percentage of Account A value are also subject to a $100 minimum, with
allocations in increments that are even multiples of 10%. For example, 10% of
the $1,000 Account A value in the Prime Bond Fund may be transferred to the High
Current Income Fund, but 9% may not.
Contract owners may make transfer requests in writing or by telephone, once ML
of New York receives proper telephone transfer authorization. Transfer requests
may also be made through a Merrill Lynch Financial Consultant, or another person
designated by the owner, once ML of New York receives proper authorization.
Transfers will take effect as of the end of the valuation period on the date the
request is received at ML of New York's Home Office. Telephone transfer requests
received after 4:00 p.m. (ET) will be deemed to have been received the following
business day.
DOLLAR COST AVERAGING
The Contract offers an additional optional transfer feature called Dollar Cost
Averaging. This feature allows contract owners to reallocate value from the
Account A Domestic Money Market Subaccount to any of the remaining Account A
investment options. The main objective of the Dollar Cost Averaging feature is
to shield investment from short term price fluctuations. Since the same dollar
amount is transferred to selected subaccounts each month, more accumulation
units are purchased in a subaccount when their value is low and fewer
accumulation units are purchased when their value is high. Therefore, a lower
than average cost of purchasing accumulation units may be achieved over the long
term. This plan of investing allows contract owners to take advantage of
investment fluctuations, but does not assure a profit or protect against a loss
in declining markets.
Amounts will be transferred monthly to the subaccounts specified by the contract
owner. Amounts of $100 or more must be allotted for transfer each month in the
Dollar Cost Averaging feature. Allocations must be designated in percentage
increments that are even multiples of 10%. No specific dollar amount
designations may be made. ML of New York reserves the right to change these
minimums.
Contract owners may apply for the Dollar Cost Averaging feature at any time
prior to the annuity date. Dollar Cost Averaging transfers must continue for a
minimum of three months, subject to availability of Domestic Money Market
Subaccount value for this purpose. There is no maximum participation length for
Dollar Cost Averaging, although it cannot extend past the annuity date. When
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<PAGE>
the Dollar Cost Averaging feature is elected, the minimum required subaccount
value must have been deposited into the Domestic Money Market Subaccount. The
minimum required subaccount value of the Domestic Money Market Fund is
determined by multiplying the specified length of the contract owner's Dollar
Cost Averaging program in months by the contract owner's specified monthly
transfer amount. Should the contract owner's interest in the Domestic Money
Market Subaccount drop below the selected monthly transfer amount, ML of New
York will notify the contract owner that an additional premium payment will be
necessary in that subaccount if he or she wants to continue in the Dollar Cost
Averaging feature.
The first Dollar Cost Averaging transfer will be effected on the first
monthiversary date after ML of New York receives the contract owner's election
at its Home Office. Subsequent Dollar Cost Averaging transfers will take effect
as of the end of the valuation period on each of the Contract's monthiversary
dates. If, after subtracting the specified monthly transfer amount from the
Domestic Money Market Fund, the remaining value is less than the contract
owner's specified monthly transfer amount, the entire value of the subaccount
will be transferred and applied on a pro-rata basis.
There is no charge imposed on Dollar Cost Averaging transfers. These transfers
are in addition to the annual transfers permitted under the Contract, as
described above.
Dollar Cost Averaging is an investment strategy and does not guarantee an
investment gain, nor will it protect against an investment loss when markets
have declined.
MERRILL LYNCH RETIREMENT PLUS ADVISOR-SM-
Subject to certain eligibility requirements, a contract owner may elect to
participate in the Merrill Lynch Retirement Plus Advisor-SM- ("RPA") program.
Through RPA, premiums and Account A values are allocated and transferred
periodically among the subaccounts of Account A, in accordance with an
investment program developed by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") that is consistent with the contract owner's investment
profile. MLPF&S is registered as an investment adviser under the Investment
Advisers Act of 1940.
Prior to participating in this program, a contract owner must complete an RPA
profiling questionnaire and client agreement for each contract under which
Account A values will be allocated pursuant to the RPA program.
If premiums and Account A values under a contract are being invested pursuant to
the RPA program, then Dollar Cost Averaging is not available for the contract.
In addition, the contract owner's participation in the program may be terminated
in the discretion of MLPF&S if a contract owner requests a transfer while the
RPA program is in effect; such contract owner-initiated transfers may be
inconsistent with investment strategies being implemented through the program.
RPA program transfers of Account A values are not subject to any transfer
charge. Fees associated with participation in the RPA program, which are imposed
by MLPF&S, are paid by the participating contract owner directly through the
contract owner's Merrill Lynch brokerage account, and are not deducted from the
contract value or imposed on the Accounts.
A contract owner wishing to participate in the RPA program should consult with
his or her Financial Consultant for additional information regarding the
availability of the program and specific eligibility requirements.
Participation in the program does not guarantee that a contract owner will
attain his or her investment goals. In addition, the program does not guarantee
investment gains, or protect against investment losses.
WITHDRAWALS AND SURRENDERS
Withdrawals may be made from the Contract up to six times per contract year
prior to the annuity date. The first withdrawal from Account A in any contract
year will be effected as if gain in account
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<PAGE>
value and premium not subject to a contingent deferred sales charge is withdrawn
first, followed by premium on a "first-in, first-out" basis. A contingent
deferred sales charge will not be applied to the first withdrawal in any
contract year out of Account A to the extent that the withdrawal consists of
gain and/or any premium not subject to such a charge. Where permitted by state
regulation, a contingent deferred sales charge will not be applied to that
portion of the first withdrawal from Account A in any contract year that does
not exceed the greater of (a) or (b) where (a) is 10% of total premiums paid
into Account A that are subject to a contingent deferred sales charge determined
as of the date the request is received, less any prior amount withdrawn or
transferred from Account A to Account B in the contract year, and (b) is the
gain in Account A plus premiums allocated to Account A as of the date the
request is received that are not subject to a contingent deferred sales charge.
Additionally, where permitted by state regulation, the amount withdrawn may be
paid on a monthly, quarterly, semi-annual or annual basis, if the contract owner
so elects. Withdrawals are subject to tax and prior to age 59 1/2 may also be
subject to a 10% federal penalty tax. (See PENALTY TAXES on page 36.)
All subsequent withdrawals from Account A in the same contract year will be
effected as if premium is withdrawn on a "first-in, first-out" basis before any
gain in account value is withdrawn. Therefore, premium accumulated the longest
will be withdrawn first. These withdrawals are subject to a contingent deferred
sales charge. (See CONTINGENT DEFERRED SALES CHARGE on page 23.)
There are no contingent deferred sales charges imposed on any withdrawals from
Account B. In addition, ML of New York reserves the right not to impose a
contingent deferred sales charge on withdrawals from Account A on a Contract
purchased by an employee of ML of New York or purchased by the employee's spouse
or dependents, where permitted by state regulation.
In addition, the contract owner may request monthly, quarterly, semiannual, or
annual automatic withdrawals from Account B. This optional automatic withdrawal
program can be activated or canceled by the contract owner once each contract
year. Once canceled, the program can not be activated again until the next
contract year. Withdrawal amounts may be increased or decreased at any time,
once ML of New York receives a proper request at its Home Office. There are no
contingent deferred sales charges imposed on automatic withdrawals from Account
B. These withdrawals are in addition to the annual withdrawals permitted under
the Contract, as described above. Automatic withdrawals may be included in the
contract owner's gross income in the year in which the withdrawal occurs. (See
DISTRIBUTIONS on page 35.) Withdrawals may be taxable and subject to a 10% tax
penalty. (See PENALTY TAXES on page 36.)
If the contract owner has elected both the automatic withdrawal program and a
withdrawal from Account A on a monthly, quarterly, semi-annual or annual basis,
both forms of withdrawal must be paid out on the same date(s).
The minimum amount that may be withdrawn is $100. At least $2,000 must remain in
the Contract after a withdrawal is made. ML of New York reserves the right to
change these minimums. Withdrawals will be effected as of the end of the
valuation period on the date the request is received at ML of New York's Home
Office. Unless otherwise directed by the contract owner, withdrawals will be
taken from subaccounts in the same proportion as the owner's contract value
bears to the subaccounts of the Accounts from which the withdrawal is made. A
withdrawal may be effected by telephone, once a proper authorization form is
submitted to ML of New York's Home Office, if the amount withdrawn is to be paid
into a Merrill Lynch, Pierce, Fenner & Smith Incorporated brokerage account.
Otherwise, a withdrawal request must be submitted by the contract owner in
writing to ML of New York's Home Office. Telephone withdrawal requests received
after 4:00 p.m. (ET) will be deemed to have been received the following business
day.
The Contract may be surrendered at any time prior to the annuity date. To
surrender the Contract through a full withdrawal, the Contract must be delivered
to ML of New York's Home Office. The surrender will be effected as of the end of
the valuation period on the date the Contract is received at ML of New York's
Home Office. The amount payable on surrender is the contract value as of the end
of the valuation period when the surrender is effected, less any applicable
contingent deferred sales
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charge, less the contract maintenance charge if the contract value is less than
$50,000 and that valuation period is not a contract anniversary, less any
applicable charge for premium taxes. (See CHARGES AND DEDUCTIONS on page 22.)
Withdrawals will decrease the contract value. Withdrawals from either Account A
or Account B are subject to tax and prior to age 59 1/2 may also be subject to a
10% federal penalty tax. (See FEDERAL INCOME TAXES on page 34.)
PAYMENTS TO CONTRACT OWNERS
ML of New York will generally pay the amount of any withdrawal or surrender, any
annuity payment or death benefit, minus any applicable charges, premium taxes or
tax withholding, within seven days of receipt of a proper request at its Home
Office. However, ML of New York may delay the payment of any withdrawal,
surrender, or death benefit, or the processing of any annuity payment or
transfer request if (a) the New York Stock Exchange is closed, other than for a
customary weekend or holiday; (b) trading on the New York Stock Exchange is
restricted by the Securities and Exchange Commission; (c) the Securities and
Exchange Commission declares that an emergency exists such that it is not
reasonably practical to dispose of securities held in the Accounts or to
determine the value of their assets; (d) the Securities and Exchange Commission
by order so permits for the protection of security holders; or (e) payment is
derived from a check used to make a premium payment which has not cleared
through the banking system.
ANNUITY DATE
The contract owner selects an annuity date when the Contract is applied for. The
annuity date may be changed by telephone or by written notice submitted to the
Service Center, up to 30 days prior to that date. Generally, the annuity date
for nonqualified Contracts may not be later than the annuitant's 85th birthday.
For IRA Contracts, the annuity date may not be later than when the
owner/annuitant reaches the age of 70 1/2 unless the contract owner selects a
later annuity date. If no annuity date is chosen, the annuity date will
automatically be the date on which the annuitant reaches age 85 or 70 1/2, as
outlined above.
The first annuity payment will be made on the annuity date, and payments will
continue thereafter according to the schedule of the annuity option selected.
Contract owners may select from a variety of fixed annuity payment options, as
outlined below in ANNUITY OPTIONS.
ANNUITY OPTIONS
The Contract provides a choice of fixed annuity payment options. If an annuity
option is not chosen by the contract owner, ML of New York will automatically
effect the Life Annuity with Payments Guaranteed for 10 Years annuity option
when the contract owner reaches age 85 (age 70 1/2 for an IRA Contract). The
annuity option may be changed up to 30 days prior to the annuity date. ML of New
York reserves the right to limit annuity options available to IRA contract
owners to comply with provisions of the Internal Revenue Code or regulations
thereunder. On the annuity date, the entire contract value, after a deduction
for the cost of any applicable premium taxes, will be transferred to ML of New
York's general account, from which the annuity payments will be made. The amount
of each payment is predetermined.
The dollar amount of annuity payments is determined by the contract value on the
annuity date, applied to ML of New York's then current annuity purchase rates.
These rates will be furnished on request. The rates will never be less favorable
than those shown in the Contract.
If the age and/or sex of the annuitant was misstated to ML of New York,
resulting in an incorrect calculation of annuity payments on a Contract, future
annuity payments on that Contract will be adjusted to reflect the correct age
and/or sex. Any amount ML of New York overpaid as the result of a
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misstatement will be deducted from future payments with 6% annual interest
charges. Any amount ML of New York underpaid as the result of a misstatement
will be paid in full with the next payment made with 6% annual interest
credited.
If the contract value on the annuity date, after the deduction for the cost of
any applicable premium taxes, is less than $2,000 (or a different minimum
amount, if required by state law), ML of New York may pay the annuity benefits
in a lump sum, rather than as periodic payments. If any annuity payment would be
less than $20 (or a different minimum amount, if required by state law), the
frequency of payments may be changed so that all payments will be at least $20
(or the minimum amount required by state law). Otherwise, the contract owner has
the following annuity payment options. ML of New York reserves the right to
permit additional annuity payment options.
- - PAYMENTS OF A FIXED AMOUNT--Equal payments in an amount chosen by the contract
owner will be guaranteed until the sum of all annuity payments equals the
contract value transferred to ML of New York's general account on the annuity
date, adjusted for interest credited as shown in the Contract. The amount
chosen must provide for payments for at least five years. Payments are
guaranteed irrespective of the annuitant's life. If the annuitant dies before
the end of the guarantee period, the contract owner may elect to receive the
present value of the remaining guaranteed payments in a lump sum. If the
contract owner dies while guaranteed amounts remain unpaid, his or her
beneficiary may elect to receive the present value of the remaining guaranteed
payments in a lump sum.
- - PAYMENTS FOR A FIXED PERIOD--Payments will be made for five years or a longer
period if selected by the contract owner. Payments are guaranteed irrespective
of the annuitant's life. If the annuitant dies before the end of the guarantee
period, the contract owner may elect to receive the present value of the
remaining guaranteed payments in a lump sum. If the contract owner dies while
guaranteed amounts remain unpaid, his or her beneficiary may elect to receive
the present value of the remaining guaranteed payments in a lump sum.
- - *LIFE ANNUITY--Payments will be made for the life of the annuitant. Payments
will cease with the last payment due before the annuitant's death.
- - LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS--Payments will be
made for the life of the annuitant. In addition, even if the annuitant dies
before the guarantee period ends, payments will be guaranteed for either 10 or
20 years as selected by the contract owner. If the annuitant dies before the
end of the guarantee period, the contract owner may elect to receive the
present value of the remaining guaranteed payments in a lump sum. If the
contract owner dies while guaranteed amounts remain unpaid, his or her
beneficiary may elect to receive the present value of the remaining guaranteed
payments in a lump sum.
- - LIFE ANNUITY WITH GUARANTEED RETURN OF CONTRACT VALUE--Payments will be made
for the life of the annuitant. In addition, even if the annuitant dies
beforehand, payments will be guaranteed until the sum of all annuity payments
equals the contract value transferred to ML of New York's general account on
the annuity date, adjusted for interest credited as shown in the Contract.
- - *JOINT AND SURVIVOR LIFE ANNUITY--Payments will be made for the lives of the
annuitant and a designated second person. Payments will continue as long as
either one is living.
- - INDIVIDUAL RETIREMENT ACCOUNT ANNUITY--This annuity option is available only
to IRA contract owners. Payments will be made annually based on either (a) the
life expectancy of the owner/ annuitant; (b) the joint life expectancy of the
owner/annuitant and his or her spouse; or (c) the life expectancy of the
surviving spouse if the owner/annuitant dies before the annuity date. Each
annual payment will be equal to the remaining contract value transferred to ML
of New York's general account, divided by the then current life expectancy
chosen, as defined by Internal Revenue Service regulations. Payments will be
made on each anniversary of the annuity date. If the measuring life or lives
dies before the remaining value has been distributed, that value will be paid
to the contract owner in a lump sum.
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*These options are life annuities. Therefore, it is possible for the payee to
receive only one annuity payment if the person (or persons) on whose life
(lives) payment is based dies after only one payment or to receive only two
annuity payments if that person (those persons) dies after only two payments,
etc.
UNISEX
Generally, the Contract provides for sex-distinct annuity purchase rates for
life annuities. However, in those states that have adopted regulations
prohibiting sex-distinct rates, blended unisex annuity purchase rates for life
annuities will be applied, whether the annuitant is male or female. Unisex
annuity purchase rates will provide the same annuity payments for male or female
annuitants that are the same age on their annuity dates.
Employers and employee organizations considering purchasing the Contract should
consult with their legal advisor to determine whether purchasing the Contract
based on sex-distinct annuity purchase rates is consistent with Title VII of the
Civil Rights Act of 1964 or other applicable law. ML of New York may offer such
contract owners Contracts based on unisex annuity purchase rates.
FEDERAL INCOME TAXES
INTRODUCTION
The Contracts are designed for use in connection with retirement plans that are
not qualified plans under the provisions of the Internal Revenue Code and also
Individual Retirement Annuities (IRAs). The ultimate effect of federal income
taxes on contract value, on annuity payments, and on the economic benefit to the
contract owner, depends on the type of retirement plan for which the Contract is
purchased, on whether the investments of the Accounts meet Internal Revenue
Service diversification standards (discussed below) and on the tax status of the
individual concerned. The following discussion is general in nature and is not
intended as tax advice. This discussion is not intended to address the tax
consequences resulting from all situations in which a person may by entitled to
or may receive a distribution under the Contract. Contract owners should consult
a competent tax advisor before initiating any transaction. This discussion is
based on the Company's understanding of current federal income tax laws as
currently interpreted by the Internal Revenue Service and generally does not
discuss or consider any applicable state or other tax laws. No representation is
made as to the likelihood of continuation of current federal income tax laws or
of the current interpretations by the Internal Revenue Service. ML OF NEW YORK
DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY CONTRACT OR ANY
TRANSACTION INVOLVING THE CONTRACTS.
ML OF NEW YORK'S TAX STATUS
ML of New York is taxed as a life insurance company under the Internal Revenue
Code. The Accounts are not a separate entity and for tax purposes their
operations are part of the Company's. Therefore, the Company will be liable for
any taxes attributable to the Accounts. Under existing federal income tax law
the investment income of the Accounts is includable in the Company's gross
income. ML of New York currently incurs no income taxes on this income. ML of
New York reserves the right, however, to deduct from the Accounts any such taxes
which are imposed on the investment earnings or taxes measured by or
attributable to the receipt of premium.
TAXATION OF ANNUITIES
IN GENERAL
Section 72 of the Internal Revenue Code governs taxation of annuities in
general. With respect to contracts held by natural persons, ML of New York
believes that the contract owner is not taxed on increases in the value of the
Contract until distribution occurs, either in the form of a withdrawal or as
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annuity payments under the annuity option elected. The taxable portion of a
distribution (in the form of a single sum payment or an annuity) is taxable as
ordinary income. Additionally, certain transfers of a Contract for less than
full consideration, such as a gift, will trigger tax on the excess of the net
contract value over the contract owner's investment in the Contract.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
section 72(s) of the Code requires any nonqualified Contract to provide that (a)
if any contract owner dies on or after the annuity commencement date but prior
to the time the entire interest in the Contract has been distributed, the
remaining portion of such interest will be distributed at least as rapidly as
under the method of distribution being used as of the date of that contract
owner's death; and (b) if any contract owner dies prior to the annuity
commencement date, the entire interest in the Contract will be distributed
within five years after the date of the contract owner's death. These
requirements will be considered satisfied as to any portion of the contract
owner's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such "designated
beneficiary" or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of that
owner's death. The contract owner's "designated beneficiary" (referred to herein
as the "Owner's Beneficiary") is the person designated by such contract owner as
a beneficiary and to whom ownership of the Contract passes by reason of death
and must be a natural person. However, if the contract owner's "designated
beneficiary" is the surviving spouse of the contract owner, the Contract may be
continued with the surviving spouse as the new owner. Solely for purposes of
applying the provisions of Section 72(s) of the Code, when nonqualified
Contracts are held by other than a natural person, the death of, or change of,
the annuitant is treated as the death of the contract owner.
The nonqualified Contracts contain provisions which are intended to comply with
the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code section 72(s) when clarified by regulation or
otherwise. Other rules may apply to IRAs.
NON-NATURAL OWNERS
Nonqualified contracts held by other than a natural person generally are not
treated as annuities, and the contract owner generally must include in income
any increase in the excess of the contract value over the contract owner's
investment in the Contract. This is not applicable to trusts or other entities
acting as an agent for a natural person, and there are certain other exceptions
to this rule. Prospective contract owners who are not natural persons should
consult a competent tax advisor.
DISTRIBUTIONS
The taxable portion of annuity payments is generally determined by a formula
that establishes the ratio that the cost basis of the contract bears to the
expected return under the contract. After such time as the sum of the nontaxable
portion of annuity payments received equals the sum of premium payments
(adjusted for any withdrawals or outstanding loans), all subsequent annuity
payments are fully taxable as ordinary income. With respect to nonqualified
Contracts, partial withdrawals of contract value are treated as taxable income
to the extent that the contract value just before the withdrawal exceeds the
investment in the Contract. The assignment or pledge (or agreement to assign or
pledge) of any portion of the value of the Contract shall be treated as a
withdrawal subject to this rule. Full withdrawals are treated as taxable income
under section 72(e) of the Internal Revenue Code to the extent that the net
amount received exceeds the investment in the Contract. (For the tax treatment
of any premium paid prior to August 14, 1982, under another annuity contract,
which contract has been exchanged for this Contract, consult your tax advisor.)
Amounts may be distributed from a Contract because of the death of the owner.
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Generally, such amounts are includable in the income of the recipient as
follows: (1) if distributed in a lump sum, the amount is taxed in the same
manner as a full withdrawal; or (2) if distributed under a payment option, the
amounts are taxed in the same manner as annuity payments. For both withdrawals
and annuity payments under IRAs, there may be no cost basis in the contract
within the meaning of Section 72 of the Internal Revenue Code, and the total
amount received may be taxable as ordinary income.
MULTIPLE ANNUITY CONTRACTS
All nonqualified annuity contracts entered into after October 21, 1988 that are
issued by ML of New York (or its affiliates) to the same owner during any
calendar year are treated as one annuity contract for purposes of determining
the amount includable in gross income under Section 72(e) of the Internal
Revenue Code. In addition, the Treasury Department has specific authority to
issue regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. Congress has also indicated that the
Treasury Department may have authority to treat the combination purchase of an
immediate annuity contract and a separate deferred annuity contract as a single
annuity contract under its general authority to prescribe rules as may be
necessary to enforce the income tax laws.
PENALTY TAXES
A penalty tax may be imposed equal to 10% of the taxable income portion of a
withdrawal. The penalty tax applies to both nonqualified Contracts and IRAs,
with different exceptions for each. The exceptions applicable to both
nonqualified Contracts and IRAs include (a) distributions made at or after the
contract owner attains age 59 1/2, (b) distributions made on or after the
contract owner's death, (c) distributions attributable to the contract owner's
disability, and (d) substantially equal periodic payments for the contract
owner's life or life expectancy (or joint life or joint life expectancy of the
contract owner and a second designated person). In certain circumstances, other
exceptions may apply. Other tax penalties may apply to certain distributions,
loans and other transactions under IRAs.
INTERNAL REVENUE SERVICE DIVERSIFICATION STANDARDS
The Internal Revenue Service has published regulations prescribing
diversification standards to be met by nonqualified variable annuity contracts
as a condition to being taxed as annuities under Section 72 of the Internal
Revenue Code. The standards provide that investments of a subaccount of the
Accounts are adequately diversified if no more than (a) 55% of the value of its
assets is represented by any one investment, (b) 70% is represented by any two
investments, (c) 80% is represented by any three investments, and (d) 90% is
represented by any four investments. Each Fund is obligated to comply with the
diversification standards imposed by the Internal Revenue Service.
The Treasury Department has announced that the diversification regulations do
not provide guidance concerning the extent to which contract owners may direct
their investments to particular subaccounts of a separate account. Such guidance
will be included in regulations or Revenue Rulings under Section 817(d) of the
Internal Revenue Code relating to the definition of a variable contract. It is
unknown what standards will be adopted in such regulations. ML of New York,
however, believes that according to current law the Contract will be treated as
an annuity for federal income tax purposes and that the Company, not the
contract owner, will be treated as the owner of the contract investments.
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the Internal Revenue Service in rulings in
which it determined that the owners were not owners of separate account assets.
For example, the owner of the Contract has additional flexibility in allocating
premium payments and account values. Moreover, the investment strategy for the
Select Ten Trust is innovative and has not been addressed by the IRS. These
differences could result in the
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owner being treated as the owner of the assets of the Accounts. ML of New York
reserves the right to modify the Contract as necessary to prevent the contract
owner from being considered the owner of the assets of the Accounts for federal
tax purposes. Any such changes will apply uniformly to affected contract owners
and will be made with such notice to affected contract owners as is feasible
under the circumstances.
IRA CONTRACTS
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to an individual retirement program known as an Individual Retirement
Annuity ("IRA"). IRAs are subject to limits on the amount that may be
contributed, the contributions that may be deducted from taxable income, the
persons who may be eligible, and on the time when distributions may commence and
the duration of those distributions. Also, distributions from certain other
types of qualified plans may be "rolled over" on a tax-deferred basis into an
IRA. The ultimate effect of federal income taxes on the amounts contributed to
and held under a Contract, on annuity payments, and on the economic benefit to
the contract owner, the annuitant, or the beneficiary depends on the tax status
of the individual concerned and on ML of New York's tax status. In addition,
certain requirements must be satisfied in purchasing an IRA with proceeds from a
tax qualified retirement plan and receiving distributions from an IRA in order
to continue receiving favorable tax treatment. Sales of the Contract for use
with IRAs may be subject to special disclosure requirements of the Internal
Revenue Service. Purchasers of the Contract for use with IRAs will be provided
with supplemental information required by the Internal Revenue Service or other
appropriate agency. Such purchasers will have the right to revoke the Contract
within seven days of the earlier of the establishment of the IRA or the purchase
of the Contract. Purchasers should seek competent tax advice as to the
suitability of the Contract for use with or as an IRA. The Contract is not
available for use as a SEP IRA or a SIMPLE IRA. The Internal Revenue Service has
not reviewed the Contract for qualification as an IRA, and has not addressed in
a ruling of general applicability whether a death benefit provision such as the
provision in the Contract comports with IRA qualification requirements.
ROTH IRAS
The Contract is available for purchase by an individual who has separately
established a Roth IRA custodial account with Merrill Lynch, Pierce, Fenner &
Smith Incorporated. Effective January 1, 1998, Section 408A of the Code permits
certain eligible individuals to contribute to a Roth IRA. Contributions to a
Roth IRA, which are subject to certain limitations, are not deductible and must
be made in cash or as a rollover or transfer from another Roth IRA or other IRA.
A rollover from or conversion of an IRA to a Roth IRA may be subject to tax and
other special rules may apply. You should consult a tax advisor before combining
any converted amounts with any other Roth IRA contributions, including any other
conversion amounts from other tax years. Distributions from a Roth IRA generally
are not taxed, except that, once aggregate distributions exceed contributions to
the Roth IRA, income tax and a 10% penalty tax may apply to distributions made
(1) before age 59 1/2 (subject to certain exceptions) or (2) during the five
taxable years starting with the year in which the first contribution is made to
the Roth IRA.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A CONTRACT
A transfer of ownership of the Contract, the designation of an annuitant who is
not also the owner, or the exchange of the Contract (or this Contract along with
one or more other annuity contracts) for one or more new annuity contracts may
result in certain tax consequences to the contract owner that are not discussed
herein. A contract owner contemplating any such transfer, assignment, or
exchange should contact a competent tax advisor with respect to the potential
tax effects of such a transaction.
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WITHHOLDING
Unless the contract owner elects to the contrary, the taxable portion of any
amounts received under the Contract will be subject to withholding to meet
federal and state income tax obligations. The rate of withholding on annuity
payments will generally be determined on the basis of the withholding
certificate filed by the contract owner with ML of New York. If no such
certificate is filed, the contract owner will be treated, for purposes of
determining the withholding rate, as a married person with three exemptions.
The rate of withholding on all other payments made under the Contract, such as
amounts received upon withdrawals, will generally be 10%. Thus, if the contract
owner fails to elect that there be no withholding, ML of New York will withhold
from every withdrawal or annuity payment the appropriate percentage of the
amount of the payment that is taxable. ML of New York will provide the contract
owner with forms and instructions concerning the right to elect that no amount
be withheld from payments. Generally, there will be no withholding for taxes
until payments are actually received under the Contract.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Contracts could change by legislation
or other means. For instance, the President's 1999 Budget Proposal recommended
legislation that, if enacted, would adversely modify the federal taxation of the
Contracts. It is also possible that any change could be retroactive (that is,
effective prior to the date of the change). A tax advisor should be consulted
with respect to legislative developments and their effect on the Contract.
OTHER TAX CONSEQUENCES
ML of New York does not make any guarantee regarding the tax status of the
Contract or any transaction regarding the Contract. As noted above, the
foregoing discussion of the income tax consequences under the Contract is not
exhaustive and special rules are provided with respect to other tax situations
not discussed in the Prospectus. Further, the income tax consequences discussed
herein reflect the Company's understanding of current law and the law may
change. Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of distributions under the Contract depend
on the individual circumstances of each contract owner or recipient of the
distribution. A competent tax advisor should be consulted for further
information.
OTHER INFORMATION
VOTING RIGHTS
ML of New York is the legal owner of all Fund shares and Trust Units held in the
Accounts. As the owner, it has the right to vote on any matter put to vote at
the Funds' shareholder meetings if such meetings are held. However, ML of New
York will vote all Fund shares attributable to Contracts according to
instructions received from contract owners. Shares attributable to Contracts for
which no voting instructions are received will be voted in the same proportion
as shares in the respective subaccounts for which instructions are received.
Shares not attributable to Contracts will also be voted in the same proportion
as shares in the respective subaccounts for which instructions are received. If
any federal securities laws or regulations, or their present interpretation,
change to permit ML of New York to vote Fund shares in its own right, it may
elect to do so.
Contract owners have voting rights prior to their annuity date. They may give
voting instructions concerning (1) the election of a Fund's Board of Directors;
(2) ratification of a Fund's independent accountant; (3) approval of the
investment advisory agreement for a Fund corresponding to the contract owner's
selected subaccounts; (4) any change in the fundamental investment policy of a
Fund corresponding to the contract owner's selected subaccounts; and (5) any
other matter requiring a vote
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of the Funds' shareholders. The number of shares for which a contract owner may
give voting instructions prior to the annuity date is determined by dividing the
contract owner's interest in a subaccount by the net asset value per share of
the corresponding Fund. The number of shares for which contract owners may give
voting instructions will be determined as of a record date chosen by ML of New
York. The record date will be no earlier than 90 days prior to the shareholder
meeting.
After the annuity date, contract owners no longer have voting rights, since
their contract value has then been moved out of the Funds.
Contract owners will receive periodic reports relating to the Funds in which
they have an interest including proxy material and voting instruction forms.
The Select Ten Trust is a unit investment trust, and as such, has no Board of
Directors. There are no voting rights associated with Trust Units.
REPORTS TO CONTRACT OWNERS
At least once each contract year prior to the annuity date, contract owners will
be sent a statement that provides information pertinent to their own Contract.
The statement will outline all Contract transactions during the year, the
Contract's current number of accumulation units, the value of each accumulation
unit, and the total contract value.
Contract owners will also be sent an annual and a semiannual report containing
financial statements and a list of portfolio securities of the Funds, as
required by the Investment Company Act of 1940.
SELLING THE CONTRACT
Merrill Lynch, Pierce, Fenner & Smith Incorporated is the principal underwriter
of the Contract. It was organized in 1958 under the laws of the state of
Delaware and is registered as a broker-dealer under the Securities Exchange Act
of 1934. It is a member of the National Association of Securities Dealers, Inc.
("NASD"). Merrill Lynch, Pierce, Fenner & Smith Incorporated's principal
business address is World Financial Center, 250 Vesey Street, New York, New York
10281.
Contracts are sold by registered representatives (Financial Consultants) of
Merrill Lynch, Pierce, Fenner & Smith Incorporated who are also licensed through
Merrill Lynch Life Agency, Inc. as insurance agents for ML of New York. ML of
New York has entered into a distribution agreement with Merrill Lynch, Pierce,
Fenner & Smith Incorporated and a companion sales agreement with Merrill Lynch
Life Agency, Inc. through which agreements the Contracts are sold and the
Financial Consultants are compensated by Merrill Lynch Life Agency, Inc. and/or
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The maximum commission paid
to the Financial Consultant is 2.0% of each premium allocated to Separate
Account A. In addition, on the annuity date, the Financial Consultant will
receive additional compensation of no more than 1.4% of contract value not
subject to a contingent deferred sales charge. Additional annual compensation of
no more than 0.50% of contract value may also be paid to the Financial
Consultant. Commission may be paid in the form of non-cash compensation, in
accordance with NASD rules. ML of New York reserves the right not to pay
commission or annuity date compensation on Contracts purchased by employees of
ML of New York or Contracts purchased by the employees' spouses or dependents.
The maximum commission ML of New York will pay to Merrill Lynch Life Agency,
Inc. to be used to pay commissions to Financial Consultants is 3.5% of each
premium allocated to Separate Account A.
Merrill Lynch, Pierce, Fenner & Smith Incorporated may arrange for sales of the
Contract by other broker-dealers who are registered under the Securities
Exchange Act of 1934 and are members of the NASD. Registered representatives of
these other broker-dealers may be compensated on a different basis than Merrill
Lynch, Pierce, Fenner & Smith Incorporated registered representatives.
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STATE REGULATION
ML of New York is subject to the laws of the State of New York and to the
regulations of the New York Insurance Department. It is also subject to the
insurance laws and regulations of all jurisdictions in which it is licensed to
do business.
An annual statement in the prescribed form is filed with the insurance
departments of jurisdictions where ML of New York does business disclosing the
Company's operations for the preceding year and its financial condition as of
the end of that year. Insurance department regulation includes periodic
examination to verify Contract liabilities and reserves and to determine
solvency and compliance with all insurance laws and regulations. ML of New
York's books and accounts are subject to insurance department review at all
times. A full examination of ML of New York's operations is conducted
periodically by the New York Insurance Department and under the auspices of the
National Association of Insurance Commissioners.
YEAR 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Separate Account could be adversely
affected if the computer systems used by ML of New York or the other service
providers do not properly address this problem prior to January 1, 2000. Merrill
Lynch & Co., Inc. has established a dedicated group to analyze these issues and
to implement any systems modifications necessary to prepare for the Year 2000.
The resources that are being devoted to this effort are substantial. It is
difficult to predict with precision whether the amount of resources ultimately
devoted, or the outcome of these efforts, will have any negative impact on ML of
New York. Currently, ML of New York does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Contracts at current levels. In addition, ML of New York has sought
assurances from the other service providers that they are taking all necessary
steps to ensure that their computer systems will accurately reflect the Year
2000, and ML of New York will continue to monitor the situation. At this time,
however, no assurance can be given that the other service providers have
anticipated every step necessary to avoid any adverse effect on the Separate
Account attributable to the Year 2000 Problem.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Accounts are a party or to which the
assets of the Accounts are subject. ML of New York and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are engaged in various kinds of routine litigation
that, in the Company's judgment, is not material to its total assets. No
litigation relates to the Accounts.
EXPERTS
The financial statements of ML of New York as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 and of the
Accounts as of December 31, 1997 and for the periods presented in the Statement
of Additional Information have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing therein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing. Deloitte & Touche LLP's principal business
address is Two World Financial Center, New York, New York 10281-1420.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contract, and the
validity of the form of the Contract have been passed upon by Barry G. Skolnick,
ML of New York's Senior Vice President
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and General Counsel. Sutherland, Asbill & Brennan LLP of Washington, D.C. has
provided advice on certain matters relating to federal securities laws.
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940 that relate to the Contract and its investment options. This Prospectus
does not contain all of the information in the registration statements as
permitted by Securities and Exchange Commission regulations. The omitted
information can be obtained from the Securities and Exchange Commission's
principal office in Washington, D.C., upon payment of a prescribed fee.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The contents of the Statement of Additional Information for the Contract include
the following:
OTHER INFORMATION
General Information and History
Principal Underwriter
Financial Statements
Administrative Services Arrangements
CALCULATION OF YIELDS AND TOTAL RETURNS
FINANCIAL STATEMENTS OF ML OF NEW YORK VARIABLE ANNUITY
SEPARATE ACCOUNT A
FINANCIAL STATEMENTS OF ML OF NEW YORK VARIABLE ANNUITY
SEPARATE ACCOUNT B
FINANCIAL STATEMENTS OF ML LIFE INSURANCE COMPANY OF NEW YORK
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STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
AND ML OF NEW YORK 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
ML LIFE INSURANCE COMPANY OF NEW YORK
HOME OFFICE: 100 CHURCH STREET, 11TH FLOOR
NEW YORK, NEW YORK 10080-6511
PHONE: (800) 333-6524
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 ML Life Insurance Company of New York ("ML of New York")
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, 1998, which is available on
request and without charge by writing to or calling ML of New York at its Home
Office address or phone number set forth above.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
OTHER INFORMATION......................................................................................... 3
General Information and History........................................................................... 3
Principal Underwriter..................................................................................... 3
Financial Statements...................................................................................... 3
Administrative Services Arrangements...................................................................... 3
CALCULATION OF YIELDS AND TOTAL RETURNS................................................................... 3
FINANCIAL STATEMENTS OF ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A................................ S-1
FINANCIAL STATEMENTS OF ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT B................................ S-12
FINANCIAL STATEMENTS OF ML LIFE INSURANCE COMPANY OF NEW YORK............................................. G-1
</TABLE>
2
<PAGE>
OTHER INFORMATION
GENERAL INFORMATION AND HISTORY
ML Life Insurance Company of New York ("ML of New York") is a stock life
insurance company organized under the laws of the State of New York in 1973.
Prior to September 11, 1991, ML of New York conducted its business under the
name Royal Tandem Life Insurance Company. The name change was effected under the
authority of the New York Insurance Department.
PRINCIPAL UNDERWRITER
Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of ML of New
York, performs all sales and distribution functions regarding the Contracts and
may be deemed the principal underwriter of ML of New York Variable Annuity
Separate Account A and ML of New York Variable Annuity Separate Account B (the
"Accounts") under the Investment Company Act of 1940. The offering is
continuous. For the years ended December 31, 1997, 1996, and 1995, Merrill
Lynch, Pierce, Fenner & Smith Incorporated received $3.5 million, $0.8 million,
and $0.8 million, respectively, in commissions in connection with the sale of
the Contracts.
FINANCIAL STATEMENTS
The financial statements of ML of New York 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 ML of
New York to meet any obligations it may have under the Contract.
ADMINISTRATIVE SERVICES ARRANGEMENTS
ML of New York has entered into a Service Agreement with its parent, Merrill
Lynch Insurance Group, Inc. ("MLIG") pursuant to which ML of New York can
arrange for MLIG to provide directly or through affiliates certain services.
Pursuant to this agreement, ML of New York 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 ML of New York, 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, 1997, 1996, and 1995, ML of New York paid
administrative services fees of $4.3 million, $4.3 million, and $4.4 million,
respectively.
CALCULATION OF YIELDS AND TOTAL RETURNS
MONEY MARKET YIELDS
From time to time, ML of New York 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>
ML of New York 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))(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, 1997 was 4.05%. The effective yield for the Reserve
Assets subaccount for the 7-day period ended December 31, 1997 was 4.67%.
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, ML of New York 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
4
<PAGE>
the net investment income of the Fund attributable to the subaccount units less
subaccount expenses 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 ((((NY - ES)/(U X UV)) + 1)(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, ML of New York may quote yields on bond subaccounts within Account A.
The yield for those subaccounts for the 30-day period ended December 31, 1997
was:
<TABLE>
<CAPTION>
NAME OF SUBACCOUNT YIELD
- -------------------------------------------------------------------------------------- -----------
<S> <C>
Prime Bond 4.60%
High Current Income 7.28%
Global Bond Focus
(formerly, World Income Focus) 4.66%
Government Bond
(formerly, Intermediate Government Bond) 4.04%
</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, ML of New York 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. ML of New York will always
include quotes of average annual total return for the period measured from the
date the subaccount commenced operations until it has been in operation for more
than 10 years. In addition, the average annual total returns will be provided
for an Account A subaccount or Account B for 1, 5 and 10 years, or for a shorter
period, if applicable. For the year ended December 31, 1997, returns were:
<TABLE>
<CAPTION>
SINCE
NAME OF SUBACCOUNT 1 YR 5 YR 10 YR INCEPTION
- ------------------------------------------ ---------- --------- ----- ----------
<S> <C> <C> <C> <C>
Prime Bond................................ 0.28% 5.28% N/A 6.01%
High Current Income....................... 2.44% 8.44% N/A 9.07%
Quality Equity............................ 14.92% 13.12% N/A 11.80%
Special Value Focus
(formerly, Equity Growth)............... 3.11% 11.97% N/A 8.87%
American Balanced*........................ 8.42% 9.02% N/A 8.83%
Natural Resources Focus*.................. -19.11% 2.59% N/A 2.96%
Global Strategy Focus..................... 3.33% 8.80% N/A 7.83%
Global Utility Focus*..................... 17.09% N/A N/A 10.83%
International Equity Focus**.............. -11.81% N/A N/A 1.82%
Global Bond Focus**
(formerly, World Income Focus).......... -5.85% N/A N/A 3.95%
Basic Value Focus......................... 11.89% N/A N/A 15.15%
Government Bond
(formerly, Intermediate Government
Bond)................................... 0.50% N/A N/A 5.16%
Developing Capital Markets Focus.......... -13.63% N/A N/A -3.32%
Index 500 Fund............................ 23.91% N/A N/A 25.38%
AIM V.I. Capital Appreciation............. 4.87% N/A N/A 5.84%
AIM V.I. Value............................ 14.91% N/A N/A 18.24%
Alliance Premier Growth................... 24.95% N/A N/A 24.83%
MFS Emerging Growth....................... 13.15% N/A N/A 11.61%
MFS Research.............................. 11.53% N/A N/A 12.87%
</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.
- ------------------------
* Closed to allocations of premiums or contract value following the close of
business on December 6, 1996.
** 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 February 21, 1992
Prime Bond April 29, 1982
High Current Income April 29, 1982
Quality Equity April 29, 1982
Equity Growth April 29, 1982
Natural Resources Focus* June 1, 1988
American Balanced * June 1, 1988
Global Strategy Focus February 21, 1992
Basic Value Focus July 1, 1993
Global Bond Focus** July 1, 1993
(formerly, World Income Focus)
Global Utility Focus* July 1, 1993
International Equity Focus** July 1, 1993
Government Bond May 16, 1994
(formerly, Intermediate Government Bond)
Developing Capital Markets Focus May 16, 1994
Reserve Assets November 23, 1981
Index 500 Fund December 18, 1996
A.I.M. V.I. Capital Appreciation May 5, 1993
A.I.M. V.I. Value May 5, 1993
Alliance Premier Growth March 12, 1992
MFS Emerging Growth Series July 24, 1995
MFS Research Series July 26, 1995
</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 of 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 deduction 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)(1/N)) - 1
Where:
<TABLE>
<S> <C> <C>
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 will be closed to allocations of
premiums or contract value following the close of business on June 5, 1998.
7
<PAGE>
From time to time, ML of New York 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, 1997 returns not reflecting any contingent
deferred sales charge were:
<TABLE>
<CAPTION>
SINCE
NAME OF SUBACCOUNT 1 YR 5 YR 10 YR INCEPTION
- ---------------------------------------------------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Prime Bond 7.07% 5.76% N/A 6.27%
High Current Income 9.40% 8.87% N/A 9.29%
Quality Equity 21.92% 13.49% N/A 12.00%
Special Value Focus
(formerly, Equity Growth) 10.11% 12.35% N/A 9.09%
American Balanced* 15.42% 9.44% N/A 9.06%
Natural Resources Focus* -13.78% 3.12% N/A 3.26%
Global Strategy Focus 10.33% 9.22% N/A 8.07%
Global Utility Focus* 24.09% N/A N/A 11.29%
International Equity Focus** -5.93% N/A N/A 2.44%
Global Bond Focus**
(formerly, World Income Focus) 0.48% N/A N/A 4.53%
Basic Value Focus 18.89% N/A N/A 15.56%
Government Bond
(formerly, Intermediate Government Bond) 7.32% N/A N/A 6.12%
Developing Capital Markets Focus -7.88% N/A N/A -2.34%
Index 500 Fund 30.91% N/A N/A 31.12%
AIM V.I. Capital Appreciation 11.87% N/A N/A 11.61%
AIM V.I. Value 21.91% N/A N/A 23.99%
Alliance Premier Growth 31.95% N/A N/A 30.58%
MFS Emerging Growth 20.15% N/A N/A 17.38%
MFS Research 18.53% N/A N/A 18.63%
</TABLE>
From time to time, ML of New York 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 corrge. 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 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.
- ------------------------
* 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 will be closed to allocations of
premiums or contract value following the close of business on June 5, 1998.
8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
ML Life Insurance Company of New York:
We have audited the accompanying statement of net assets of
ML of New York Variable Annuity Separate Account A (the
"Account") as of December 31, 1997 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 ML
Life Insurance Company of New York. 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, 1997. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Account
at December 31, 1997 and the results of its operations and
the changes in its net assets for the above periods in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The supplemental schedules included herein are 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
supplemental schedules have been subjected to the auditing
procedures applied in our audits of the basic financial
statements and, in our opinion, are fairly stated in all
material respects when considered in relation to the basic
financial statements taken as a whole.
January 23, 1998
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1997
================================================================================
<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 $ 28,584,935 28,584,935 $ 28,584,935
Prime Bond Fund 39,356,849 3,293,432 39,883,457
High Current Income Fund 30,036,332 2,638,034 30,390,147
Quality Equity Fund 39,447,629 1,331,783 51,167,092
Special Value Focus Fund 26,227,446 1,080,464 29,982,886
American Balanced Fund 13,070,392 942,847 15,641,828
Natural Resources Focus Fund 1,534,467 131,609 1,402,957
Global Strategy Focus Fund 43,798,057 3,446,117 50,692,381
Global Utility Focus Fund 5,435,547 521,614 7,740,751
International Equity Focus Fund 27,590,229 2,414,584 26,077,507
Global Bond Focus Fund 5,060,529 532,869 4,966,339
Basic Value Focus Fund 31,481,785 2,364,583 37,454,997
Government Bond Fund 10,937,392 1,058,736 11,222,601
Developing Capital Markets Focus Fund 9,022,772 891,745 8,221,891
Index 500 Fund 14,426,831 1,226,607 16,532,307
----------------------- -----------------------
326,011,192 359,962,076
----------------------- -----------------------
Investments in Alliance Variable Products Series Funds, Inc. (Note 1):
Premier Growth Portfolio 15,471,110 801,661 16,826,862
----------------------- -----------------------
15,471,110 16,826,862
----------------------- -----------------------
Investments in MFS Variable Insurance Trust (Note 1):
MFS Emerging Growth Series 6,631,173 440,048 7,102,370
MFS Research Series 6,589,132 446,474 7,049,827
----------------------- -----------------------
13,220,305 14,152,197
----------------------- -----------------------
Investments in AIM Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund 8,534,407 417,795 8,702,665
AIM V.I. Capital Appreciation Fund 7,671,728 364,409 7,925,891
----------------------- -----------------------
16,206,135 16,628,556
----------------------- -----------------------
TOTAL ASSETS $ 370,908,742 407,569,691
======================= -----------------------
LIABILITIES:
Due to ML Life Insurance Company of New York 181,869
-----------------------
TOTAL LIABILITIES 181,869
-----------------------
NET ASSETS $ 407,387,822
=======================
</TABLE>
See Notes to Financial Statements
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
================================================================================
<TABLE>
<CAPTION>
1997 1996
======================= =======================
<S> <C> <C>
Investment Income:
Reinvested Dividends $ 19,823,996 $ 19,992,869
Mortality and Expense Charges (Note 3) (4,729,318) (3,651,529)
----------------------- -----------------------
Net Investment Income 15,094,678 16,341,340
----------------------- -----------------------
Realized and Unrealized Gains:
Net Realized Gains 6,167,098 1,645,231
Net Unrealized Gains 13,593,179 5,886,055
----------------------- -----------------------
Net Realized and Unrealized Gains 19,760,277 7,531,286
----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 34,854,955 23,872,626
----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 100,897,509 24,089,677
Transfer of Contract Owner Withdrawals (14,728,085) (10,472,995)
Transfers Out - Net (1,903,053) (1,649,834)
Transfer of Contract Maintenance Charges (Note 3) (107,946) (109,752)
----------------------- -----------------------
Increase in Net Assets
Resulting from Principal Transactions 84,158,425 11,857,096
----------------------- -----------------------
Increase in Net Assets 119,013,380 35,729,722
Net Assets Beginning Balance 288,374,442 252,644,720
----------------------- -----------------------
Net Assets Ending Balance $ 407,387,822 $ 288,374,442
======================= =======================
</TABLE>
See Notes to Financial Statements
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. ML of New York Variable Annuity Separate Account A
("Separate Account A"), a separate account of ML Life
Insurance Company of New York ("ML of New York"), was
established to support the operations with respect to
certain variable annuity contracts ("Contracts").
Separate Account A is governed by New York State
Insurance Law. ML of New York is an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. Separate Account
A is registered as a unit investment trust under the
Investment Company Act of 1940 and consists of twenty
investment divisions. At any point in time, the Account
may or may not be invested in all available divisions.
The investment divisions are as follows:
- Merrill Lynch Variable Series Funds, Inc.: Fifteen of
the investment divisions each invest in the securities
of a single mutual fund portfolio of the Merrill Lynch
Variable Series Funds, Inc. (See Note 4). Three of the
investment divisions; Natural Resources Focus Fund,
American Balanced Fund and Global Utility Focus Fund
were closed to allocations of premiums and contract
value following the close of business on December 6,
1997.
- Alliance Variable Products Series Fund, Inc.: One
investment division invests in the securities of a
single mutual fund portfolio of the Alliance Variable
Products Series Fund, Inc.
- 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.
- 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.
The assets of Separate Account A are registered in the
name of ML of New York. Separate Account A's assets are
not chargeable with liabilities arising out of any other
business ML of New York 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 New York 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. The following is a summary of significant accounting
policies of Separate Account A:
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.
The operations of Separate Account A are included in the
Federal income tax return of ML of New York. Under the
provisions of the Contracts, ML of New York 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, ML of New York pays no
tax on investment income and capital gains reflected in
variable annuity contract reserves. However, ML of New
York retains the right to charge for any Federal income
tax incurred which 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. ML of New York 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
from the net asset value of Separate Account A. This
charge is made to reimburse ML of New York for costs
associated with the establishment and administration of
Separate Account A.
ML of New York 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. Additional transfers may be permitted at a charge
of $25 per transfer.
4. Effective following the close of business on August 15,
1997, the Equity Growth Fund was renamed the Special
Value Focus Fund. The Fund's investment objective was
not modified.
Effective following the close of business on December 6,
1996, (i) the International Bond Fund was merged with and
into the former World Income Focus Fund; the World Income
Focus Fund was renamed the Global Bond Focus Fund; and
the Fund's investment objective was modified; (ii) the
Flexible Strategy Fund was merged with and into the
Global Strategy Focus Fund; and (iii) the Intermediate
Government Bond Fund was renamed the Government Bond
Fund, and the Fund's investment objective was modified.
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
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 $ 19,823,996 $ 1,289,520 $ 2,573,009
Mortality and Expense Charges (4,729,318) (340,808) (526,595)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 15,094,678 948,712 2,046,414
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 6,167,098 0 (843,730)
Net Unrealized Gains (Losses) 13,593,179 0 1,472,775
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 19,760,277 0 629,045
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 34,854,955 948,712 2,675,459
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 100,897,509 92,525,230 534,726
Transfer of Contract Owner Withdrawals (14,728,085) (1,022,456) (1,831,891)
Transfers In (Out) - Net (1,903,053) (83,169,568) (814,376)
Transfer of Contract Maintenance Charges (107,946) (4,690) (11,761)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 84,158,425 8,328,516 (2,123,302)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 119,013,380 9,277,228 552,157
Net Assets Beginning Balance 288,374,442 19,294,046 39,313,603
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 407,387,822 $ 28,571,274 $ 39,865,760
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 2,392,904.0 2,776,167.1
=========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 11.94 $ 14.36
=========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
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 $ 2,309,221 $ 2,398,409 $ 1,330,574
Mortality and Expense Charges (342,867) (642,638) (369,227)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 1,966,354 1,755,771 961,347
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (71,138) 1,710,486 1,122,704
Net Unrealized Gains (Losses) 358,380 5,703,018 434,251
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 287,242 7,413,504 1,556,955
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,253,596 9,169,275 2,518,302
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,118,397 1,052,777 368,601
Transfer of Contract Owner Withdrawals (1,108,863) (2,184,323) (985,698)
Transfers In (Out) - Net 7,387,844 (1,682,406) 2,478,993
Transfer of Contract Maintenance Charges (7,337) (16,266) (9,758)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 7,390,041 (2,830,218) 1,852,138
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 9,643,637 6,339,057 4,370,440
Net Assets Beginning Balance 20,732,718 44,805,490 25,599,214
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 30,376,355 $ 51,144,547 $ 29,969,654
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 1,794,232.4 2,617,428.2 1,789,233.1
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 16.93 $ 19.54 $ 16.75
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
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 $ 1,977,020 $ 144,142 $ 2,569,175
Mortality and Expense Charges (218,517) (25,092) (699,824)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 1,758,503 119,050 1,869,351
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 302,250 61,968 1,080,156
Net Unrealized Gains (Losses) 251,324 (396,055) 2,073,480
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 553,574 (334,087) 3,153,636
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,312,077 (215,037) 5,022,987
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 0 0 930,225
Transfer of Contract Owner Withdrawals (533,003) (101,426) (2,432,059)
Transfers In (Out) - Net (3,446,357) (315,734) (2,139,579)
Transfer of Contract Maintenance Charges (5,829) (712) (20,587)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (3,985,189) (417,872) (3,662,000)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (1,673,112) (632,909) 1,360,987
Net Assets Beginning Balance 17,308,028 2,035,246 49,308,960
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 15,634,916 $ 1,402,337 $ 50,669,947
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 935,102.6 115,513.8 3,196,842.1
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 16.72 $ 12.14 $ 15.85
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
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 $ 255,641 $ 494,406 $ 327,948
Mortality and Expense Charges (101,216) (313,946) (67,311)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 154,425 180,460 260,637
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 437,714 21,501 (185,732)
Net Unrealized Gains (Losses) 1,012,728 (2,233,592) (68,589)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 1,450,442 (2,212,091) (254,321)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,604,867 (2,031,631) 6,316
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 0 490,188 97,579
Transfer of Contract Owner Withdrawals (225,066) (961,611) (262,356)
Transfers In (Out) - Net (2,112,968) 10,301,573 (480,361)
Transfer of Contract Maintenance Charges (2,484) (7,684) (1,752)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (2,340,518) 9,822,466 (646,890)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (735,651) 7,790,835 (640,574)
Net Assets Beginning Balance 8,472,987 18,275,105 5,604,708
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 7,737,336 $ 26,065,940 $ 4,964,134
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 475,558.5 2,327,316.1 404,574.9
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 16.27 $ 11.20 $ 12.27
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
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 $ 3,142,695 $ 513,895 $ 77,082
Mortality and Expense Charges (430,256) (106,786) (87,234)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 2,712,439 407,109 (10,152)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,473,426 28,055 89,268
Net Unrealized Gains (Losses) 883,128 229,149 (947,132)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 2,356,554 257,204 (857,864)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 5,068,993 664,313 (868,016)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 931,327 28,066 112,851
Transfer of Contract Owner Withdrawals (1,454,906) (165,492) (394,234)
Transfers In (Out) - Net 4,303,155 6,034,373 5,256,705
Transfer of Contract Maintenance Charges (10,873) (1,683) (1,782)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 3,768,703 5,895,264 4,973,540
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 8,837,696 6,559,577 4,105,524
Net Assets Beginning Balance 28,600,775 4,657,636 4,112,746
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 37,438,471 $ 11,217,213 $ 8,218,270
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 1,942,837.1 900,981.0 892,320.3
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 19.27 $ 12.45 $ 9.21
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
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 $ 258 $ 8,100 $ 203
Mortality and Expense Charges (137,941) (106,345) (44,429)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) (137,683) (98,245) (44,226)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 359,815 151,438 43,411
Net Unrealized Gains (Losses) 2,106,223 1,355,752 475,223
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 2,466,038 1,507,190 518,634
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,328,355 1,408,945 474,408
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 609,447 617,554 465,471
Transfer of Contract Owner Withdrawals (147,803) (205,625) (78,950)
Transfers In (Out) - Net 13,630,951 14,999,924 6,091,193
Transfer of Contract Maintenance Charges (1,639) (1,339) (350)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 14,090,956 15,410,514 6,477,364
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 16,419,311 16,819,459 6,951,772
Net Assets Beginning Balance 105,710 0 147,470
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 16,525,021 $ 16,819,459 $ 7,099,242
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 1,245,291.7 1,273,236.9 600,105.0
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 13.27 $ 13.21 $ 11.83
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
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 $ 0 $ 308,656 $ 104,042
Mortality and Expense Charges (54,593) (50,595) (63,098)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) (54,593) 258,061 40,944
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 296,427 85,546 3,533
Net Unrealized Gains (Losses) 460,695 168,258 254,163
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 757,122 253,804 257,696
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 702,529 511,865 298,640
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 295,874 424,766 294,430
Transfer of Contract Owner Withdrawals (366,386) (233,173) (32,764)
Transfers In (Out) - Net 6,415,168 7,995,616 7,362,801
Transfer of Contract Maintenance Charges (467) (252) (701)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 6,344,189 8,186,957 7,623,766
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 7,046,718 8,698,822 7,922,406
Net Assets Beginning Balance 0 0 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 7,046,718 $ 8,698,822 $ 7,922,406
=========================== =========================== ===========================
Units Outstanding at December 31, 1997 589,190.5 694,794.1 705,468.0
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1997 $ 11.96 $ 12.52 $ 11.23
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Domestic
Total Money Prime
Separate Market Bond
Account Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 19,992,869 $ 1,053,643 $ 2,489,569
Mortality and Expense Charges (3,651,529) (285,773) (512,769)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 16,341,340 767,870 1,976,800
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,645,231 0 (236,342)
Net Unrealized Gains (Losses) 5,886,055 0 (1,412,657)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 7,531,286 0 (1,648,999)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 23,872,626 767,870 327,801
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 24,089,677 21,601,863 171,449
Transfer of Contract Owner Withdrawals (10,472,995) (1,221,359) (1,377,532)
Transfers In (Out) - Net (1,649,834) (25,185,112) 2,106,661
Transfer of Contract Maintenance Charges (109,752) (5,990) (13,993)
Transfer of Merged Funds (Note 4) 0 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 11,857,096 (4,810,598) 886,585
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 35,729,722 (4,042,728) 1,214,386
Net Assets Beginning Balance 252,644,720 23,336,774 38,099,217
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 288,374,442 $ 19,294,046 $ 39,313,603
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 1,677,743.1 2,933,851.0
=========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 11.50 $ 13.40
=========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<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 $ 1,821,672 $ 5,463,249 $ 2,589,092
Mortality and Expense Charges (264,763) (537,782) (306,066)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 1,556,909 4,925,467 2,283,026
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (86,284) 343,662 480,977
Net Unrealized Gains (Losses) 351,511 830,591 (1,346,029)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 265,227 1,174,253 (865,052)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,822,136 6,099,720 1,417,974
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 226,054 236,747 315,764
Transfer of Contract Owner Withdrawals (731,415) (1,430,347) (700,054)
Transfers In (Out) - Net 1,480,573 4,279,495 5,583,678
Transfer of Contract Maintenance Charges (7,831) (16,848) (8,956)
Transfer of Merged Funds (Note 4) 0 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 967,381 3,069,047 5,190,432
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 2,789,517 9,168,767 6,608,406
Net Assets Beginning Balance $ 17,943,201 $ 35,636,723 $ 18,990,808
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance 20,732,718 44,805,490 25,599,214
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 1,341,055.5 2,798,594.0 1,684,158.8
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 15.46 $ 16.01 $ 15.20
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Natural
Flexible American Resources
Strategy Balanced Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 2,512,470 $ 667,661 $ 70,323
Mortality and Expense Charges (185,273) (236,562) (29,859)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 2,327,197 431,099 40,464
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 58,891 244,136 95,744
Net Unrealized Gains (Losses) (731,387) 694,290 113,454
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) (672,496) 938,426 209,198
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,654,701 1,369,525 249,662
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 46,511 38,725 13,049
Transfer of Contract Owner Withdrawals (537,269) (606,939) (139,278)
Transfers In (Out) - Net (1,362,614) (798,159) (191,480)
Transfer of Contract Maintenance Charges (6,620) (7,334) (933)
Transfer of Merged Funds (Note 4) (14,577,461) 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (16,437,453) (1,373,707) (318,642)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (14,782,752) (4,182) (68,980)
Net Assets Beginning Balance 14,782,752 17,312,210 2,104,226
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 0 $ 17,308,028 $ 2,035,246
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 0.0 1,196,131.9 144,754.3
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 0.00 $ 14.47 $ 14.06
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Global Global International
Strategy Utility Equity
Focus Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 809,196 $ 390,696 $ 199,915
Mortality and Expense Charges (482,898) (115,702) (224,149)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 326,298 274,994 (24,234)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 447,320 145,345 68,974
Net Unrealized Gains (Losses) 3,069,358 492,972 735,166
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) 3,516,678 638,317 804,140
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 3,842,976 913,311 779,906
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 250,324 47,386 223,501
Transfer of Contract Owner Withdrawals (1,292,347) (537,614) (541,263)
Transfers In (Out) - Net (2,475,347) (456,941) 3,394,438
Transfer of Contract Maintenance Charges (16,877) (3,063) (7,457)
Transfer of Merged Funds (Note 4) 14,577,461 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 11,043,214 (950,232) 3,069,219
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 14,886,190 (36,921) 3,849,125
Net Assets Beginning Balance 34,422,770 8,509,908 14,425,980
--------------------------- --------------------------- ---------------------------
Net Assets Beginning Balance $ 49,308,960 $ 8,472,987 $ 18,275,105
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 3,436,164.5 646,792.9 1,535,723.1
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 14.35 $ 13.10 $ 11.90
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Global Basic
Bond Value International
Focus Focus Bond
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 456,727 $ 1,197,719 $ 34,739
Mortality and Expense Charges (77,569) (302,451) (5,598)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 379,158 895,268 29,141
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (80,228) 219,102 (3,056)
Net Unrealized Gains (Losses) 60,539 2,828,056 (12,628)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) (19,689) 3,047,158 (15,684)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 359,469 3,942,426 13,457
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 73,100 592,211 10,656
Transfer of Contract Owner Withdrawals (339,363) (896,787) (7,742)
Transfers In (Out) - Net (673,936) 8,083,834 (67,374)
Transfer of Contract Maintenance Charges (2,297) (8,973) (268)
Transfer of Merged Funds (Note 4) 412,464 0 (412,464)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (530,032) 7,770,285 (477,192)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (170,563) 11,712,711 (463,735)
Net Assets Beginning Balance 5,775,271 16,888,064 463,735
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 5,604,708 $ 28,600,775 $ 0
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 459,402.3 1,766,570.4 0.0
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 12.20 $ 16.19 $ 0.00
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Developing
Government Capital Markets Index
Bond Focus 500
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 179,267 $ 55,687 $ 0
Mortality and Expense Charges (39,923) (44,277) (47)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 139,344 11,410 (47)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 5,713 (58,723) 0
Net Unrealized Gains (Losses) (44,905) 262,497 (746)
--------------------------- --------------------------- ---------------------------
Net Realized and Unrealized Gains (Losses) (39,192) 203,774 (746)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 100,152 215,184 (793)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 1,010 241,327 0
Transfer of Contract Owner Withdrawals (33,371) (80,315) 0
Transfers In (Out) - Net 2,837,481 1,538,145 106,503
Transfer of Contract Maintenance Charges (883) (1,429) 0
Transfer of Merged Funds (Note 4) 0 0 0
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,804,237 1,697,728 106,503
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 2,904,389 1,912,912 105,710
Net Assets Beginning Balance 1,753,247 2,199,834 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 4,657,636 $ 4,112,746 $ 105,710
=========================== =========================== ===========================
Units Outstanding at December 31, 1996 401,866.8 411,686.3 10,455.7
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1996 $ 11.59 $ 9.99 $ 10.12
=========================== =========================== ===========================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND
CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===========================
MFS
Emerging
Growth
Series
===========================
<S> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,244
Mortality and Expense Charges (68)
---------------------------
Net Investment Income (Loss) 1,176
---------------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 0
Net Unrealized Gains (Losses) (4,027)
---------------------------
Net Realized and Unrealized Gains (Losses) (4,027)
---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations (2,851)
---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 0
Transfer of Contract Owner Withdrawals 0
Transfers In (Out) - Net 150,321
Transfer of Contract Maintenance Charges 0
Transfer of Merged Funds (Note 4) 0
---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 150,321
---------------------------
Increase (Decrease) in Net Assets 147,470
Net Assets Beginning Balance 0
---------------------------
Net Assets Ending Balance $ 147,470
===========================
Units Outstanding at December 31, 1996 15,002.0
===========================
Accumulation Unit Value at December 31, 1996 $ 9.83
===========================
</TABLE>
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
ML Life Insurance Company of New York:
We have audited the accompanying statement of net assets of
ML of New York Variable Annuity Separate Account B (the
"Account") as of December 31, 1997 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 ML
Life Insurance Company of New York. 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,
1997. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Account
at December 31, 1997 and the results of its operations and
the changes in its net assets for the above periods in
conformity with generally accepted accounting principles.
January 23, 1998
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT B
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Market
Cost Shares Value
======================= ======================= =======================
<S> <C> <C> <C>
ASSETS:
Investments in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Reserve Assets Fund $ 1,014,603 1,014,603 $ 1,014,603
----------------------- -----------------------
TOTAL ASSETS $ 1,014,603 1,014,603
======================= -----------------------
LIABILITIES:
Due to ML Life Insurance Company of New York 229
-----------------------
TOTAL LIABILITIES 229
-----------------------
NET ASSETS $ 1,014,374
=======================
</TABLE>
See Notes to Financial Statements
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT B
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
================================================================================
<TABLE>
<CAPTION>
1997 1996
======================= =======================
<S> <C> <C>
Investment Income:
Reinvested Dividends $ 51,804 $ 62,067
Mortality and Expense Charges (Note 3) (6,677) (8,115)
----------------------- -----------------------
Net Investment Income 45,127 53,952
----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 45,127 53,952
----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 75,662 44,308
Transfer of Contract Owner Withdrawals (2,265,531) (1,858,092)
Transfers In - Net 1,966,884 1,664,422
Transfer of Contract Maintenance Charges (Note 3) (341) (367)
----------------------- -----------------------
Decrease in Net Assets
Resulting from Principal Transactions (223,326) (149,729)
----------------------- -----------------------
Decrease in Net Assets (178,199) (95,777)
Net Assets Beginning Balance 1,192,573 1,288,350
----------------------- -----------------------
Net Assets Ending Balance $ 1,014,374 $ 1,192,573
======================= =======================
Division Investing In
===============================================
Reserve Reserve
Assets Assets
Fund Fund
1997 1996
======================= =======================
<S> <C> <C>
Units Outstanding at December 31, 82,335.6 101,152.2
======================= =======================
Accumulation Unit Value at December 31, $ 12.32 $ 11.79
======================= =======================
</TABLE>
See Notes to Financial Statements
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT B
ML LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. ML of New York Variable Annuity Separate Account B
("Separate Account B"), a separate account of ML Life
Insurance Company of New York ("ML of New York"), was
established to support the operations with respect to
certain variable annuity contracts ("Contracts").
Separate Account B is governed by New York State
Insurance Law. ML of New York is an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. 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 of the Merrill
Lynch Variable Series Funds, Inc.
The assets of Separate Account B are registered in the
name of ML of New York. Separate Account B's assets are
not chargeable with liabilities arising out of any other
business ML of New York 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 New York 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. The following is a summary of significant accounting
policies of Separate Account B:
Investments in the divisions are included in the
statement of net assets at the net asset value of the
Series Funds shares held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
The operations of Separate Account B are included in the
Federal income tax return of ML of New York. Under the
provisions of the Contracts, ML of New York 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, ML of New York pays no
tax on investment income and capital gains reflected in
variable annuity contract reserves. However, ML of New
York retains the right to charge for any Federal income
tax incurred which 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. ML of New York 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.
ML of New York 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
ML Life Insurance Company of New York:
We have audited the accompanying balance sheets of ML Life
Insurance Company of New York (the "Company"), a wholly-owned
subsidiary of Merrill Lynch Insurance Group, Inc., as of
December 31, 1997 and 1996, and the related statements of
earnings, comprehensive income, stockholder's equity, and cash
flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Company at
December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
February 23, 1998
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
- ------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1997 - $250,695; 1996 - $264,341) $ 255,958 $ 269,103
Equity securities, at estimated fair value
(cost: 1997 - $5,830; 1996 - $8,975) 5,029 10,859
Mortgage loans - 2,057
Policy loans on insurance contracts 88,163 85,548
-------------- --------------
Total Investments 349,150 367,567
-------------- --------------
CASH AND CASH EQUIVALENTS 10,063 7,828
ACCRUED INVESTMENT INCOME 5,416 5,952
DEFERRED POLICY ACQUISITION COSTS 30,406 29,272
REINSURANCE RECEIVABLES 429 1,065
OTHER ASSETS 3,405 4,569
SEPARATE ACCOUNTS ASSETS 739,712 591,814
-------------- --------------
TOTAL ASSETS $ 1,138,581 $ 1,008,067
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 307,333 $ 318,567
Claims and claims settlement expenses 2,007 2,572
-------------- --------------
Total policy liabilities and accruals 309,340 321,139
OTHER POLICYHOLDER FUNDS 1,941 1,160
FEDERAL INCOME TAXES - DEFERRED 1,905 626
FEDERAL INCOME TAXES - CURRENT 2,255 2,099
AFFILIATED PAYABLES - NET 3,492 5,026
OTHER LIABILITIES 2,155 1,649
SEPARATE ACCOUNTS LIABILITIES 739,712 591,814
-------------- --------------
Total Liabilities 1,060,800 923,513
-------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 220,000 shares
authorized, issued and outstanding 2,200 2,200
Additional paid-in capital 66,259 72,040
Retained earnings 9,692 9,219
Accumulated other comprehensive income (370) 1,095
-------------- --------------
Total Stockholder's Equity 77,781 84,554
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,138,581 $ 1,008,067
============== ==============
</TABLE>
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 25,465 $ 27,520 $ 29,819
Net realized investment gains (losses) 1,947 2,169 (265)
Policy charge revenue 13,064 11,959 10,864
-------------- -------------- --------------
Total Revenues 40,476 41,648 40,418
-------------- -------------- --------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 14,532 16,586 17,375
Market value adjustment expense 232 301 238
Policy benefits (net of reinsurance recoveries: 1997 - $690
1996 - $1,584; 1995 - $917) 781 1,311 528
Reinsurance premium ceded 1,584 1,262 1,227
Amortization of deferred policy acquisition costs 4,119 3,784 1,300
Insurance expenses and taxes 4,563 4,595 4,508
-------------- -------------- --------------
Total Benefits and Expenses 25,811 27,839 25,176
-------------- -------------- --------------
Earnings Before Federal Income Tax Provision 14,665 13,809 15,242
-------------- -------------- --------------
FEDERAL INCOME TAX PROVISION:
Current 2,905 102 1,692
Deferred 2,068 4,488 3,486
-------------- -------------- --------------
Total Federal Income Tax Provision 4,973 4,590 5,178
-------------- -------------- --------------
NET EARNINGS $ 9,692 $ 9,219 $ 10,064
============== ============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
NET EARNINGS $ 9,692 $ 9,219 $ 10,064
-------------- -------------- --------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period (413) (4,206) 23,575
Reclassification adjustment for gains included in net earnings (1,771) (1,858) 294
-------------- -------------- --------------
Net unrealized gains (losses) on investment securities (2,184) (6,064) 23,869
Adjustments for:
Policyholder liabilities (70) 5,380 (13,149)
Deferred policy acquisition costs - - (3,177)
Income tax (expense) benefit related to items of
other comprehensive income 789 240 (2,641)
-------------- -------------- --------------
Other comprehensive income, net of tax (1,465) (444) 4,902
-------------- -------------- --------------
COMPREHENSIVE INCOME $ 8,227 $ 8,775 $ 14,966
============== ============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common paid-in Retained Comprehensive stockholder's
stock capital earnings Income equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,200 $ 83,006 $ 13,970 $ (3,363) $ 95,813
Net earnings 10,064 10,064
Other comprehensive income, net of tax 4,902 4,902
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1995 2,200 83,006 24,034 1,539 110,779
Dividend to Parent (10,966) (24,034) (35,000)
Net earnings 9,219 9,219
Other comprehensive income, net of tax (444) (444)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 2,200 72,040 9,219 1,095 84,554
Dividend to Parent (5,781) (9,219) (15,000)
Net earnings 9,692 9,692
Other comprehensive income, net of tax (1,465) (1,465)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,200 $ 66,259 $ 9,692 $ (370) $ 77,781
============= ============= ============= ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 9,692 $ 9,219 $ 10,064
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 4,119 3,784 1,300
Capitalization of policy acquisition costs (5,253) (2,134) (4,368)
Amortization, (accretion) and depreciation of investments (239) 1 (434)
Net realized investment (gains) losses (1,947) (2,169) 265
Interest credited to policyholders' account balances 14,532 16,586 17,375
Provision for deferred Federal income tax 2,068 4,488 3,486
Changes in operating assets and liabilities:
Accrued investment income 536 651 751
Claims and claims settlement expenses (565) (329) (1,413)
Federal income taxes - current 156 1,914 15
Other policyholder funds 781 421 (793)
Affiliated payable - net (1,534) 964 (180)
Policy loans on insurance contracts (2,615) (3,475) (4,246)
Other, net 2,306 (3,951) 1,723
-------------- -------------- --------------
Net cash and cash equivalents provided
by operating activities 22,037 25,970 23,545
-------------- -------------- --------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 88,882 155,645 68,736
Maturities of available-for-sale securities 51,060 34,455 38,420
Purchases of available-for-sale securities (120,965) (162,828) (103,568)
Mortgage loans principal payments received 2,057 1,975 -
Sales of mortgage loans - - 3,608
-------------- -------------- --------------
Net cash and cash equivalents provided
by investing activities 21,034 29,247 7,196
-------------- -------------- --------------
</TABLE>
See notes to financial statements. (Continued)
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Continued) (Dollars In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ (15,000) $ (35,000) $ -
Policyholders' account balances:
Deposits 106,983 32,158 43,191
Withdrawals (including transfers to/from Separate Accounts) (132,819) (61,934) (77,460)
-------------- -------------- --------------
Net cash and cash equivalents used
by financing activities (40,836) (64,776) (34,269)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,235 (9,559) (3,528)
CASH AND CASH EQUIVALENTS:
Beginning of year 7,828 17,387 20,915
-------------- -------------- --------------
End of year $ 10,063 $ 7,828 $ 17,387
============== ============== ==============
Supplementary Disclosure of Cash Flow Information:
Cash paid to (received from) affiliates for:
Federal income taxes $ 2,749 $ (1,812) $ 1,677
Interest 494 440 447
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance
Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: ML Life Insurance Company of New York (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells non-participating life insurance and annuity
products which comprise one business segment. The primary
products that the Company currently markets are variable life
insurance, variable annuities, market value adjusted annuities,
and immediate annuities. The Company is licensed to sell
insurance in nine states; however, it currently limits its
marketing activities to the State of New York. The Company
markets its products solely through the retail network of
Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("MLPF&S"),
a wholly-owned broker-dealer subsidiary of Merrill Lynch & Co.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles and
prevailing industry practices, both of which require
management to make estimates that affect the reported amounts and
disclosure of contingencies in the financial statements. Actual
results could differ from those estimates.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy administration
charges and/or withdrawal charges assessed against policyholders'
account balances during the period.
Policyholders' Account Balances: Liabilities for the
Company's universal life type contracts, including its life insurance
and annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency reserves
for certain products. Interest-crediting rates for the Company's
fixed-rate products are as follows:
Interest-sensitive life products 4.00% - 5.30%
Interest-sensitive deferred annuities 3.65% - 8.23%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company, subject
to minimum guarantees, after initial guaranteed rates expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for claims unreported.
Reinsurance: In the normal course of business, the Company seeks
to limit its exposure to loss on any single insured life and to
recover a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance agreements.
The maximum amount of mortality risk retained by the Company is
approximately $500 on a single life.
Indemnity reinsurance agreements do not relieve the Company from
its obligations to policyholders. Failure of reinsurers to honor
their obligations could result in losses to the Company. The
Company regularly evaluates the financial condition of its
reinsurers so as to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under
reinsurance agreements in the form of letters of credit and funds
withheld totaling $202 that can be drawn upon for delinquent
reinsurance recoverables.
As of December 31, 1997, the Company had life insurance inforce
that was ceded to other life insurance companies of $154,754.
Deferred Policy Acquisition Costs: Policy acquisition costs for
life and annuity contracts are deferred and amortized based on
the estimated future gross profits for each group of contracts.
These future gross profit estimates are subject to periodic
evaluation by the Company, with necessary revisions applied
against amortization to date. It is reasonably possible that
estimates of future gross profits could be reduced in the future,
resulting in a material reduction in the carrying amount of
deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy acquisition,
underwriting and issuance, that are primarily related to and vary
with the production of new business. Certain costs and expenses
reported in the statements of earnings are net of amounts deferred.
Policy acquisition costs can also arise from the acquisition or
reinsurance of existing in-force policies from other insurers.
These costs include ceding commissions and professional fees
related to the reinsurance assumed. The deferred costs are
amortized in proportion to the estimated future gross profits over
the anticipated life of the acquired insurance contracts utilizing
an interest methodology.
The Company has entered into an assumption reinsurance agreement
with an unaffiliated insurer. The acquisition costs relating to
this agreement are being amortized over a twenty-year period using
an effective interest rate of 9.01%. This reinsurance agreement
provides for payment of contingent ceding commissions based upon
the persistency and mortality experience of the insurance contracts
assumed. Any payments made for the contingent ceding commissions
will be capitalized and amortized using an identical methodology
as that used for the initial acquisition costs. The following is a
reconciliation of the acquisition costs related to the reinsurance
agreement for the years ended December 31:
<PAGE>
1997 1996 1995
----------- ----------- -----------
Beginning balance $ 17,151 $ 17,654 $ 14,923
Capitalized amounts 577 577 1,553
Interest accrued 1,651 1,566 2,138
Amortization (2,829) (2,646) (960)
----------- ----------- -----------
Ending balance $ 16,550 $ 17,151 $ 17,654
=========== =========== ===========
The following table presents the expected amortization, net of interest
accrued, of these deferred acquisition costs over the next five years.
The amortization may be adjusted based on periodic evaluation of the
expected gross profits on the reinsured policies.
1998 1,228
1999 1,105
2000 994
2001 895
2002 805
Investments: The Company's investments in fixed maturity and equity
securities are classified as available-for-sale securities, which are
carried at estimated fair value with unrealized gains and losses
included in stockholder's equity, net of tax. If a decline in value
of a security is determined by management to be other-than-temporary,
the carrying value is adjusted to the estimated fair value at the date
of this determination and recorded 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.
As of December 31, 1997, the Company has no mortgage loans
outstanding. Mortgage loans were stated at unpaid principal
balances, net of valuation allowances. Such valuation allowances
were based on the decline in value expected to be realized on
mortgage loans that may not be collectible in full. In establishing
valuation allowances, management considered, among other things, the
estimated fair value of the underlying collateral.
The Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may be different from the
accrual interest rate of the loan for certain outstanding mortgage
loans. The Company recognized a realized gain at the date of the
satisfaction of the loan at contractual terms for loans where there
was a difference between the cash payment interest rate and the
accrual interest rate. For all loans, the Company stopped accruing
income when an interest payment default either occurred or was
probable. Impairments of mortgage loans were established as
valuation allowances and recorded to net realized investment gains
or losses.
Policy loans on insurance contracts are stated at unpaid principal
balances.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of Merrill
Lynch & Co. The Company has entered into a tax-sharing agreement with
Merrill Lynch & Co. whereby the Company will calculate its current
tax provision based on its operations. Under the agreement, the
Company periodically remits to Merrill Lynch & Co. its current federal
tax liability.
The Company uses the asset and liability method in providing income
taxes on all transactions that have been recognized in the financial
statements. The asset and liability method requires that deferred
taxes be adjusted to reflect the tax rates at which future taxable
amounts will be settled or realized. The effects of tax rate changes
on future deferred tax liabilities and deferred tax assets, as well
as other changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums and in
substantially all states are exempt from state income taxes.
Separate Accounts: Separate Accounts are established in conformity with
New York State Insurance Law, the Company's domiciliary state, and are
generally not chargeable with liabilities that arise from any other
business of the Company. Separate Accounts assets may be subject to
general claims of the Company only to the extent the value of such
assets exceeds Separate Accounts liabilities.
Assets and liabilities of Separate Accounts, representing net deposits
and accumulated net investment earnings less fees, held primarily for
the benefit of policyholders, are shown as separate captions in the
balance sheets.
Statements of Comprehensive Income: During 1997, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS
No. 130 defines comprehensive income as all non-owner changes in equity
during a period. Comprehensive income is reported in the Statements of
Comprehensive Income included in the financial statements for the years
ended December 31, 1997, 1996 and 1995.
Statements of Cash Flows: For the purpose of reporting cash flows, cash
and cash equivalents include cash on hand and on deposit and short-term
investments with original maturities of three months or less.
Reclassifications: To facilitate comparisons with the current year,
certain amounts in the prior years have been reclassified.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial instruments
as of December 31 were:
1997 1996
-------------- --------------
Assets:
Fixed maturity securities (1) $ 255,958 $ 269,103
Equity securities (1) 5,029 10,859
Mortgage loans (2) - 2,057
Policy loans on insurance contracts (3) 88,163 85,548
Cash and cash equivalents (4) 10,063 7,828
Separate Accounts assets (5) 739,712 591,814
-------------- --------------
Total financial instruments recorded as assets $ 1,098,925 $ 967,209
============== ==============
(1) For publicly traded securities, the estimated fair value
is determined using quoted market prices. For securities
without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted
cash flow model, including provision for credit risk, based
upon the assumption that such securities will be held to
maturity. Such estimated fair values do not necessarily
represent the values for which these securities could have
been sold at the dates of the balance sheets. At December
31, 1997 and 1996, securities without a readily ascertainable
market value, having an amortized cost of $47,064 and $55,323,
had an estimated fair value of $48,188 and $57,018, respectively.
(2) The estimated fair value of mortgage loans approximates
the carrying value.
(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
and equity securities as of December 31 were:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 198,266 $ 4,595 $ 777 $ 202,084
Mortgage-backed securities 34,726 1,135 5 35,856
U.S. government and agencies 13,593 268 11 13,850
Municipals 2,090 90 - 2,180
Foreign governments 2,020 - 32 1,988
------------- ------------- ------------- -------------
Total fixed maturity securities $ 250,695 $ 6,088 $ 825 $ 255,958
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 4,507 $ - $ 34 $ 4,473
Common stocks 1,323 - 767 556
------------- ------------- ------------- -------------
Total equity securities $ 5,830 $ - $ 801 $ 5,029
============= ============= ============= =============
1996
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Fixed maturity securities:
Corporate debt securities $ 212,290 $ 4,743 $ 556 $ 216,477
Mortgage-backed securities 46,204 827 383 46,648
U.S. government and agencies 830 230 - 1,060
Foreign governments 5,017 10 109 4,918
------------- ------------- ------------- -------------
Total fixed maturity securities $ 264,341 $ 5,810 $ 1,048 $ 269,103
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 7,237 $ 2,429 $ 38 $ 9,628
Common stocks 1,738 260 767 1,231
------------- ------------- ------------- -------------
Total equity securities $ 8,975 $ 2,689 $ 805 $ 10,859
============= ============= ============= =============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
----------- -----------
Fixed maturity securities:
Due in one year or less $ 33,356 $ 33,722
Due after one year through five years 113,217 115,861
Due after five years through ten years 51,746 52,536
Due after ten years 17,650 17,983
----------- -----------
215,969 220,102
Mortgage-backed securities 34,726 35,856
----------- -----------
Total fixed maturity securities $ 250,695 $ 255,958
=========== ===========
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
----------- -----------
AAA $ 76,429 $ 78,021
AA 18,804 19,191
A 74,572 75,612
BBB 70,762 73,204
Non-investment grade 10,128 9,930
----------- -----------
Total fixed maturity securities $ 250,695 $ 255,958
=========== ===========
<PAGE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
conjunction with investments classified as available-for-sale. The
Company adjusts those assets and liabilities as if the unrealized
investment gains or losses from securities classified as available-
for-sale had actually been realized, with corresponding credits or
charges reported directly to shareholder's equity. The following
reconciles the net unrealized investment gain (loss) on investment
securities classified as available-for-sale as of December 31:
1997 1996
----------- -----------
Assets:
Fixed maturity securities $ 5,263 $ 4,762
Equity securities (801) 1,884
----------- -----------
4,462 6,646
----------- -----------
Liabilities:
Policyholders' account balances 5,032 4,962
Federal income taxes - deferred (200) 589
----------- -----------
4,832 5,551
----------- -----------
Stockholder's equity:
Net unrealized investment gain (loss) on
investment securities $ (370) $ 1,095
=========== ==========
Proceeds and gross realized investment gains and losses from the sale of
available-for-sale securities for the years ended December 31 were:
1997 1996 1995
----------- ----------- -----------
Proceeds $ 88,882 $ 155,645 $ 68,736
Gross realized investment gains 4,077 2,677 1,709
Gross realized investment losses 2,130 508 1,640
The Company owned investment securities of $1,076 and $1,060 that were
deposited with insurance regulatory authorities at December 31, 1997 and
1996, respectively.
<PAGE>
Net investment income arose from the following sources for the
years ended December 31:
1997 1996 1995
----------- ----------- -----------
Fixed maturity securities $ 19,815 $ 22,153 $ 25,046
Equity securities 761 183 -
Mortgage loans 81 388 686
Policy loans on insurance contracts 4,333 4,133 3,903
Cash and cash equivalents 1,293 1,559 1,103
Other 65 - -
----------- ----------- ------------
Gross investment income 26,348 28,416 30,738
Less investment expenses (883) (896) (919)
----------- ----------- ------------
Net investment income $ 25,465 $ 27,520 $ 29,819
=========== =========== ============
Net realized investment gains (losses), including changes in valuation
allowances, for the years ended December 31:
1997 1996 1995
----------- ----------- ------------
Fixed maturity securities $ (1,268) $ 657 $ 985
Equity securities 3,215 1,512 (916)
Mortgage loans - - (334)
----------- ----------- ------------
Net realized investment gains
(losses) $ 1,947 $ 2,169 $ (265)
=========== =========== ============
The following is a reconciliation of the change in valuation
allowances which have been recorded to reflect other-than-temporary
declines in estimated fair value of mortgage loans for the years ended
December 31, 1995. During 1997 and 1996, there were no valuation
allowances recorded:
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
------------ ------------ ------------ ------------
1995 1,536 - 1,536 -
The Company held no investments at December 31, 1997 which have been
non-income producing for the preceding twelve months.
<PAGE>
NOTE 4: FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income taxes
based on earnings before federal income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes for
the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Provision for income taxes computed at Federal statutory rate $ 5,133 $ 4,833 $ 5,334
State corporate income taxes - (10) (91)
Decrease in income taxes resulting from:
Dividend received deduction (160) (235) (31)
Other - 2 (34)
--------- --------- ----------
Federal income tax provision $ 4,973 $ 4,590 $ 5,178
========= ========= ==========
</TABLE>
The Federal statutory rate for each of the three years in the period
ended December 31, 1997 was 35%.
The Company provides for deferred income taxes resulting from temporary
differences that arise from recording certain transactions in different
years for income tax reporting purposes than for financial reporting
purposes. The sources of these differences and the tax effect of each
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 315 $ (259) $ 1,239
Policyholders' account balances (140) 4,053 738
Liability for guaranty fund assessments (50) 50 -
Investment adjustments 1,943 642 1,445
Other - 2 64
--------- --------- ---------
Deferred Federal income tax provision $ 2,068 $ 4,488 $ 3,486
========= ========= =========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 4,364 $ 4,224
Investment adjustments (4) 1,939
Net unrealized investment loss 200 -
--------- ---------
Total deferred tax assets 4,560 6,163
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 6,465 6,150
Liability for guaranty fund assessments - 50
Net unrealized investment gain - 589
--------- ---------
Total deferred tax liabilities 6,465 6,789
--------- ---------
Net deferred tax liability $ 1,905 $ 626
========= =========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
<PAGE>
NOTE 5: RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain accounting, data processing,
legal, actuarial, management, advertising and other services to
the Company. Expenses incurred by MLIG in relation to this
service agreement are reimbursed by the Company on an allocated
cost basis. Charges billed to the Company by MLIG pursuant to
the agreement were $4,305, $4,258 and $3,968 for 1997, 1996 and
1995 respectively. The Company is allocated interest expense on
its accounts payable to MLIG which approximates the daily
Federal funds rate. Total intercompany interest paid was $64,
$74 and $88 for 1997, 1996 and 1995, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were $159,
$186 and $206 for 1997, 1996 and 1995, respectively.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S, who are the Company's licensed insurance agents,
solicit applications for contracts to be issued by the Company.
MLLA is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were $4,130, $1,334 and $2,424 for
1997, 1996 and 1995, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition
costs and are being amortized in accordance with the policy
discussed in Note 1.
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company
("Monarch Life"), the Company borrowed funds from Merrill Lynch
& Co. to partially finance the transaction. As of December 31,
1997 and 1996, the outstanding balance of these loans were
$1,156 and $3,075, respectively. Repayments made on these loans
during 1997, 1996, and 1995 were $1,919, $0 and $1,261,
respectively. Interest was calculated on these loans at LIBOR
plus 150 basis points. Intercompany interest paid on these
loans during 1997, 1996 and 1995 was $359, $366 and $359,
respectively.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
NOTE 6: STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
Notice of intention to declare a dividend must be filed with
the New York Superintendent of Insurance who may disallow the
payment. During 1997 and 1996, the Company paid dividends of
$15,000 and $35,000, respectively, to MLIG. No dividends were
declared or paid during 1995. Statutory capital and surplus at
December 31, 1997 and 1996, was $51,080 and $52,895,
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 principals utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
income taxes and valuing securities on a different basis. The
Company's statutory net income for 1997, 1996 and 1995 was
$9,888, $12,884 and $3,080, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which
a life insurance company should have based upon that company's
risk profile. As of December 31, 1997, and 1996, based on the
RBC formula, the Company's total adjusted capital level was
649% and 626%, respectively, of the minimum amount of capital
required to avoid regulatory action.
NOTE 7: COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). Based upon the public information available at this
time, management believes the Company has no material financial
obligations to state guaranty associations.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
<PAGE>
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C> <C> <C>
(a) Financial Statements
(1) Financial Statements of ML of New York Variable Annuity Separate Account A as
of December 31, 1996 and for the two years ended December 31, 1996 and the
Notes relating thereto appear in the Statement of Additional Information
(Part B of the Registration Statement)
(2) Financial Statements of ML of New York Variable Annuity Separate Account B as
of December 31, 1996 and for the two years ended December 31, 1996 and the
Notes relating thereto appear in the Statement of Additional Information
(Part B of the Registration Statement)
(3) Financial Statements of ML Life Insurance Company of New York for the three
years ended December 31, 1996 and the Notes relating thereto appear in the
Statement of Additional Information (Part B of the Registration Statement)
(4) Schedule of Life Insurance In Force for ML Life Insurance Company of New York
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
CEDED TO ASSUMED AMOUNT
OTHER FROM OTHER ASSUMED
GROSS AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET
------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Life insurance
in force...................... 894,547 154,754 892,383 1,632,176 55%
</TABLE>
<TABLE>
<S> <C> <C> <C>
(b) Exhibits
(1) Resolution of the Board of Directors of ML Life Insurance Company of New York
establishing the ML of New York Variable Annuity Separate Account A and ML of
New York Variable Annuity Separate Account B. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 10 to Form N-4, Registration No.
33-43654 Filed December 9, 1996).
(2) Not Applicable
(3) Underwriting Agreement Between ML Life Insurance Company of New York and
Merrill Lynch, Pierce, Fenner & Smith Incorporated. (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-43654 Filed December 9, 1996).
(4) (a) Individual Variable Annuity Contract issued by ML Life Insurance Company of
New York. (Incorporated by Reference to Registrant's Post-Effective Amendment
No. 10 to Form N-4, Registration No. 33-43654 Filed December 9, 1996).
(b) ML Life Insurance Company of New York Contingent Deferred Sales Charge Waiver
Endorsement. (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 10 to Form N-4, Registration No. 33-43654 Filed December 9,
1996).
(c) ML Life Insurance Company of New York Individual Retirement Annuity
Endorsement. (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 10 to Form N-4, Registration No. 33-43654 Filed December 9,
1996).
(d) ML Life Insurance Company of New York Endorsement (MLNY008) (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 7 to Form N-4,
Registration No. 33-43654 Filed April 26, 1995).
(e) ML Life Insurance Company of New York Endorsement (MLNY011) (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 7 to Form N-4,
Registration No. 33-43654 Filed April 26, 1995).
(f) ML Life Insurance Company of New York Individual Variable Annuity Contract
(MLNY-VA-001NY1) (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 7 to Form N-4, Registration No. 33-43654 Filed April 26, 1995).
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
(g) ML Life Insurance Company of New York Endorsement (MLNY013). (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-43654 Filed December 9, 1996).
(h) ML Life Insurance Company of New York Endorsement (MLNY014). (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-43654 Filed December 9, 1996).
(5) (a) ML Life Insurance Company of New York Variable Annuity Application.
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 10 to
Form N-4, Registration No. 33-43654 Filed December 9, 1996).
(b) ML Life Insurance Company of New York Variable Annuity Application (MLNY010)
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 8 to
Form N-4, Registration No. 33-43654 Filed April 25, 1996).
(6) (a)(i) Certificate of Amendment and Restatement of Charter of Royal Tandem Life
Insurance Company. (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 10 to Form N-4, Registration No. 33-43654 Filed December 9,
1996).
(6) (a)(ii) Certificate of Amendment of the Charter of ML Life Insurance Company of New
York. (Incorporated by Reference to Registrant's Post-Effective Amendment No.
10 to Form N-4, Registration No. 33-43654 Filed December 9, 1996).
(b) By-Laws of ML Life Insurance Company of New York. (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 10 to Form N-4, Registration No.
33-43654 Filed December 9, 1996).
(7) Not Applicable
(8) (a) Amended General Agency Agreement (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 5 to Form N-4, Registration No. 33-43654 Filed
April 28, 1994).
(b) Indemnity Agreement Between ML Life Insurance Company of New York and Merrill
Lynch Life Agency, Inc. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 10 to Form N-4, Registration No. 33-43654 Filed
December 9, 1996).
(c) Management Agreement Between ML Life Insurance Company of New York and Merrill
Lynch Asset Management, Inc. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 10 to Form N-4, Registration No. 33-43654 Filed
December 9, 1996).
(d) Agreement Between ML Life Insurance Company of New York and Merrill Lynch
Variable Series Funds, Inc. Relating to Maintaining Constant Net Asset Value
for the Reserve Assets Fund. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 10 to Form N-4, Registration No. 33-43654 Filed
December 9, 1996).
(e) Agreement Between ML Life Insurance Company of New York and Merrill Lynch
Variable Series Funds, Inc. Relating to Maintaining Constant Net Asset Value
for the Domestic Money Market Fund. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 10 to Form N-4, Registration No.
33-43654 Filed December 9, 1996).
(f) Agreement Between ML Life Insurance Company of New York and Merrill Lynch
Variable Series Funds, Inc. Relating to Valuation and Purchase Procedures.
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 10 to
Form N-4, Registration No. 33-43654 Filed December 9, 1996).
(g) Service Agreement Between Tandem Financial Group, Inc. and Royal Tandem Life
Insurance Company. (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 10 to Form N-4, Registration No. 33-43654 Filed December 9,
1996).
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
(h) Reimbursement Agreement Between Merrill Lynch Asset Management, Inc. and Mer-
rill Lynch Life Agency. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 10 to Form N-4, Registration No. 33-43654 Filed
December 9, 1996).
(i) Form of Participation Agreement Between Merrill Lynch Variable Series Funds,
Inc., Merrill Lynch Life Insurance Company, ML Life Insurance Company of New
York, and Family Life Insurance Company (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 5 to Form N-4, Registration No.
33-43654 Filed April 28, 1994).
(j) Form of Participation Agreement Between Merrill Lynch Variable Series Funds,
Inc. and ML Life Insurance Company of New York. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 10 to Form N-4, Registration No.
33-43654 Filed December 9, 1996).
(k) Participation Agreement By And Among AIM Variable Insurance Funds, Inc., AIM
Distributors, Inc., and ML Life Insurance Company of New York. (Incorporated
by Reference to Registrant's Post-Effective Amendment No. 11 to Form N-4,
Registration No. 33-43654 Filed April 23, 1997).
(l) Form of Participation Agreement Among ML Life Insurance Company of New York,
Alliance Capital Management L.P., and Alliance Fund Distributors, Inc.
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 10 to
Form N-4, Registration No. 33-43654 Filed December 9, 1996).
(m) Form of Participation Agreement Among MFS Variable Insurance Trust, ML Life
Insurance Company of New York, and Massachusetts Financial Services Company.
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 10 to
Form N-4, Registration No. 33-43654 Filed December 9, 1996).
(n) Form of Participation Agreement Among ML Life Insurance Company of New York,
Hotchkis and Wiley Variable Trust, and Hotchkis and Wiley.
(o) Form of Amendment to Participation Agreement Among ML Life Insurance Company
of New York, Alliance Capital Management L.P., and Alliance Fund
Distributors, Inc.
(p) Form of Amendment to Participation Agreement Between Merrill Lynch Variable
Series Funds, Inc. and ML Life Insurance Company of New York.
(q) Form of Participation Agreement Between Merrill Lynch, Pierce, Fenner & Smith
Incorporated and ML Life Insurance Company of New York.
(9) Opinion of Barry G. Skolnick, Esq. and Consent to its use as to the legality
of the securities being registered. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 10 to Form N-4, Registration No.
33-43654 Filed December 9, 1996).
(10) (a) Written Consent of Sutherland, Asbill & Brennan LLP
(b) Written Consent of Deloitte & Touche LLP, independent auditors.
(c) Consent of Barry G. Skolnick, Esq.
(11) Not Applicable
(12) Not Applicable
(13) Schedule for Computation of Performance Quotations. Incorporated by Reference
to Registrant's Post-Effective Amendment No. 10 to Form N-4, Registration No.
33-43654 Filed December 9, 1996.
(14) (a) Power of Attorney from Frederick J.C. Butler (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(b) Power of Attorney from Michael P. Cogswell (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
(c) Power of Attorney from Sandra K. Cox (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(d) Power of Attorney from Joseph E. Crowne, Jr. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(e) Power of Attorney from David M. Dunford (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(f) Power of Attorney from John C.R. Hele (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(g) Power of Attorney from Robert L. Israeloff (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(h) Power of Attorney from Allen N. Jones (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 11 to Form N-4, Registration No.
33-43654 Filed April 23, 1997).
(i) Power of Attorney from Cynthia L. Kahn (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(j) Power of Attorney from Robert A. King (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(k) Power of Attorney from Irving M. Pollack (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(l) Power of Attorney from Barry G. Skolnick (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(m) Power of Attorney from William A. Wilde (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(n) Power of Attorney from Anthony J. Vespa (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form N-4, Registration No.
33-43654 Filed March 2, 1994).
(o) Power of Attorney from Francis X. Ervin, Jr. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form N-4, Registration No.
33-43654 Filed April 25, 1996).
(p) Power of Attorney from Gail R. Farkas (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form N-4, Registration No.
33-43654 Filed April 25, 1996).
(q) Power of Attorney from Stanley C. Peterson (Incorporated by Reference to ML
Life Insurance Company of New York's Registration Statement on Form S-1,
Registration No. 333-48983 Filed March 31, 1998).
</TABLE>
C-4
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR*
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR*
- --------------------------- ------------------------------------ ---------------------------------------------
<S> <C> <C>
Frederick J.C. Butler Butler, Chapman & Co., Inc. Director.
609 Fifth Avenue
New York, NY 10017
Michael P. Cogswell 800 Scudders Mill Road Director, Vice President and
Plainsboro, NJ 08536 Senior Counsel.
Joseph E. Crowne, Jr. 800 Scudders Mill Road Director, Senior Vice President,
Plainsboro, NJ 08536 Chief Financial Officer, Chief
Actuary and Treasurer.
David M. Dunford 800 Scudders Mill Road Director, Senior Vice President
Plainsboro, NJ 08536 and Chief Investment Officer.
Gail R. Farkas 800 Scudders Mill Road Director and Senior Vice
Plainsboro, NJ 08536 President.
Robert L. Israeloff Israeloff, Trattner & Co. Director.
11 Sunrise Plaza
Valley Stream, NY 11580-6169
Allen N. Jones 800 Scudders Mill Road Director.
Plainsboro, NJ 08536
Cynthia L. Kahn Rogers & Wells Director.
200 Park Avenue
New York, NY 10166
Robert A. King 119 Formby Director.
Williamsburg, VA 23188
Stanley C. Peterson 800 Scudders Mill Road Director.
Plainsboro, NJ 08536
Irving M. Pollack 11400 Strand Drive Director.
Suite 310
Rockville, MD 20852-2970
Barry G. Skolnick 800 Scudders Mill Road Director, Senior Vice President,
Plainsboro, NJ 08536 General Counsel and Secretary.
Anthony J. Vespa 800 Scudders Mill Road Director, Chairman of the Board,
Plainsboro, NJ 08536 Chief Executive Officer and
President.
Deborah J. Adler 800 Scudders Mill Road Vice President and Actuary.
Plainsboro, NJ 08536
Robert J. Boucher 1414 Main Street Senior Vice President, Variable
Springfield, MA 01102 Life Administration.
Charles J. Cavanaugh 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Edward W. Diffin, Jr. 800 Scudders Mill Road Vice President and Senior Counsel.
Plainsboro, NJ 08536
Eileen Dyson 4804 Deer Lake Drive East Vice President and Assistant
Jacksonville, FL 32246 Secretary.
Diana Joyner 1414 Main Street Vice President.
Springfield, MA 01102
Peter P. Massa 4804 Deer Lake Drive East Vice President.
Jacksonville, FL 32246
Kelly A. O'Dea 800 Scudders Mill Road Vice President and Senior
Plainsboro, NJ 08536 Compliance Officer.
Robert Ostrander 1414 Main Street Vice President and Controller.
Springfield, MA 01102
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR*
- --------------------------- ------------------------------------ ---------------------------------------------
<S> <C> <C>
Shelley K. Parker 1414 Main Street Vice President and Assistant
Springfield, MA 01102 Secretary.
Julia Raven 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Lori M. Salvo 800 Scudders Mill Road Vice President and Senior
Plainsboro, NJ 08536 Counsel.
John A. Shea 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Frederick H. Steele 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Tracy A. Bartoy 4804 Deer Lake Drive East Vice President and Assistant
Jacksonville, FL 32246 Secretary.
Chi N. Hum 100 Church Street Vice President, Administrative
11th Floor Manager and Assistant
New York, NY 10080-6511 Secretary.
Robert J. Viamari 1414 Main Street Vice President and Assistant
Springfield, MA 01102 Secretary.
Denis G. Wuestman 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Matthew J. Rider 800 Scudders Mill Road Vice President and Actuary.
Plainsboro, NJ 08536
Donald C. Stevens, III 800 Scudders Mill Road Vice President and Controller.
Plainsboro, NJ 08536
Amy S. Winston 800 Scudders Mill Road Vice President and Director of
Plainsboro, NJ 08536 Compliance.
</TABLE>
- ------------------------
* Each director is elected to serve until the next annual shareholder meeting
or until his or her successor is elected and shall have qualified.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
ML Life Insurance Company of New York is an indirect wholly-owned subsidiary
of Merrill
Lynch & Co., Inc.
A list of subsidiaries of Merrill Lynch & Co., Inc. ("ML & Co.") appears
below.
SUBSIDIARIES OF THE REGISTRANT
The following are subsidiaries of ML & Co. as of February 23, 1998 and the
states or jurisdictions in which they are organized. Indentation indicates the
principal parent of each subsidiary. Except as otherwise specified, in each case
ML & Co. owns, directly or indirectly, at least 99% of the voting securities of
each subsidiary. The names of particular subsidiaries have been omitted because,
considered in the aggregate as a single subsidiary, they would not constitute,
as of the end of the year covered by this report, a "significant subsidiary" as
that term is defined in Rule 1.02(w) of Regulation S-X under the Securities
Exchange Act of 1934.
<TABLE>
<CAPTION>
STATE OF
NAME JURISDICTION OF ENTITY
- ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
Merrill Lynch & Co., Inc................................................................. Delaware
Merrill Lynch, Pierce, Fenner & Smith Incorporated(1).................................. Delaware
Broadcort Capital Corp............................................................... Delaware
Merrill Lynch & Co., Canada Ltd...................................................... Ontario
Merrill Lynch Canada Inc........................................................... Nova Scotia
Merrill Lynch Life Agency Inc.(2).................................................... Washington
Merrill Lynch Professional Clearing Corp.(3)......................................... Delaware
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
STATE OF
NAME JURISDICTION OF ENTITY
- ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
Merrill Lynch Bank & Trust Co.......................................................... New Jersey
MERRILL LYNCH & CO., INC.
Merrill Lynch Capital Services, Inc.................................................... Delaware
Merrill Lynch Government Securities Inc................................................ Delaware
Merrill Lynch Money Markets Inc...................................................... Delaware
Merrill Lynch Group, Inc............................................................... Delaware
Mercury Asset Management Group Holdings PLC(4)....................................... England
Merrill Lynch Asset Management L.P.(5)............................................... Delaware
Merrill Lynch Capital Partners, Inc.................................................. Delaware
Merrill Lynch Futures Inc............................................................ Delaware
Merrill Lynch Group Holdings Limited................................................. Ireland
Merrill Lynch Capital Markets Bank Limited......................................... Ireland
Merrill Lynch Insurance Group, Inc................................................... Delaware
Merrill Lynch Life Insurance Company............................................... Arkansas
ML Life Insurance Company of New York.............................................. New York
Merrill Lynch International Finance Corporation...................................... New York
Merrill Lynch International Bank Limited........................................... England
Merrill Lynch Bank (Suisse) S.A.................................................. Switzerland
Merrill Lynch Mortgage Capital Inc................................................... Delaware
Merrill Lynch National Financial..................................................... Utah
Merrill Lynch Trust Company(6)....................................................... New Jersey
Merrill Lynch Business Financial Services Inc...................................... Delaware
Merrill Lynch Credit Corporation................................................... Delaware
Merrill Lynch Investment Partners Inc................................................ Delaware
MLDP Holdings, Inc.(7)............................................................... Delaware
Merrill Lynch Derivative Products AG............................................... Switzerland
ML IBK Positions Inc................................................................. Delaware
Merrill Lynch Capital Corporation.................................................. Delaware
ML Leasing Equipment Corp.(8)........................................................ Delaware
Merrill Lynch International Incorporated............................................... Delaware
Merrill Lynch (Australasia) Pty Limited.............................................. New South Wales
Merrill Lynch International (Australia) Limited...................................... New South Wales
Merrill Lynch International Bank..................................................... United States
Merrill Lynch International Holdings Inc............................................. Delaware
Merrill Lynch Bank (Austria) Aktiengesellschaft A.G................................ Austria
Merrill Lynch Bank and Trust Company (Cayman) Limited.............................. Cayman Islands,
British West Indies
Merrill Lynch Capital Markets A.G.................................................. Switzerland
Merrill Lynch Europe PLC........................................................... England
Merrill Lynch Europe Holdings Limited............................................ England
Merrill Lynch International.................................................... England
Merrill Lynch, Pierce, Fenner & Smith (Brokers & Dealers) Limited................ England
Merrill Lynch Europe Ltd........................................................... Cayman Islands,
British West Indies
Merrill Lynch France............................................................... France
Merrill Lynch Capital Markets (France) S.A....................................... France
Merrill Lynch Far East Limited..................................................... Hong Kong
Merrill Lynch Japan Incorporated..................................................... Cayman Islands,
British West Indies
</TABLE>
- ------------------------
(1) MLPF&S also conducts business as "Merrill Lynch & Co."
C-7
<PAGE>
(2) Similarly named affiliates and subsidiaries that engage in the sale of life
insurance and annuity products are incorporated in various other
jurisdictions.
(3) The preferred stock of the corporation is owned by an unaffiliated group of
investors.
(4) Held through several intermediate holding companies.
(5) Merrill Lynch Asset Management L.P. is a limited partnership whose general
partner is Princeton Services, Inc. and whose limited partner is ML & Co.
(6) Similarly named affiliates and subsidiaries that provide trust and custodial
services are incorporated in various other jurisdictions.
(7) Merrill Lynch Group, Inc. owns 100% of this corporation's outstanding common
voting stock. 100% of the outstanding preferred voting stock is held by
outside parties.
(8) This corporation has more than 45 direct or indirect subsidiaries operating
in the United States and serving as either general partners or associate
general partners of limited partnerships.
ITEM 27. NUMBER OF CONTRACTS
The number of contracts in force as of February 28, 1998 was 6,386.
ITEM 28. INDEMNIFICATION
There is no indemnification of the principal underwriter, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, with respect to the Contract.
The indemnity agreement between ML Life Insurance Company of New York ("ML
of New York") and its affiliate Merrill Lynch Life Agency, Inc. ("MLLA"), with
respect to MLLA's general agency responsibilities on behalf of ML of New York
and the Contract, provides:
ML of New York will indemnify and hold harmless MLLA and all persons
associated with MLLA as such term is defined in Section 3(a)(21) of the
Securities Exchange Act of 1934 against all claims, losses, liabilities
and expenses, to include reasonable attorneys' fees, arising out of the
sale by MLLA of insurance products under the above-referenced Agreement,
provided that ML of New York shall not be bound to indemnify or hold
harmless MLLA or its associated persons for claims, losses, liabilities
and expenses arising directly out of the willful misconduct or
negligence of MLLA or its associated persons.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Merrill Lynch, Pierce, Fenner & Smith Incorporated also acts as
principal underwriter for the following additional funds: CBA Money Fund; CMA
Government Securities Fund; CMA Money Fund; CMA Tax-Exempt Fund; CMA Treasury
Fund; CMA Multi-State Municipal Series Trust; Corporate Income Fund; The
Corporate Fund Accumulation Program, Inc.; Defined Asset Funds--Municipal
Insured Series; Equity Investor Fund; The Fund of Stripped ("Zero") U.S.
Treasury Securities; The GNMA Investment Accumulation Program; Government
Securities Income Fund; International Bond Fund; The Merrill Lynch Fund of
Stripped ("Zero") U.S. Treasury Securities; Merrill Lynch Trust for Government
Securities; Municipal Income Fund; and Municipal Investment Trust Fund; and The
Municipal Fund Accumulation Program, Inc.
C-8
<PAGE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated also acts as principal
underwriter for the following additional accounts: ML of New York Variable
Annuity Separate Account B; Merrill Lynch Life Variable Life Separate Account;
Merrill Lynch Life Variable Life Separate Account II; Merrill Lynch Life
Variable Annuity Separate Account; Merrill Lynch Life Variable Annuity Separate
Account A; Merrill Lynch Life Variable Annuity Separate Account B; ML of New
York Variable Life Separate Account; ML of New York Variable Life Separate
Account II and ML of New York Variable Annuity Separate Account.
(b) The directors, president, treasurer and executive vice presidents of
Merrill Lynch, Pierce, Fenner & Smith Incorporated are as follows:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER
- ------------------------------------- -------------------------------------------------------
<S> <C>
Herbert M. Allison, Jr.* Director, President and Chief Executive Officer
Thomas W. Davis Executive Vice President
Barry S. Friedberg* Executive Vice President
Edward L. Goldberg* Executive Vice President
Stephen L. Hammerman* Director and Chairman of the Board
Jerome P. Kenney* Executive Vice President
David H. Komansky* Director
Theresa Lang* Senior Vice President and Treasurer
E. Stanley O'Neal Executive Vice President
Thomas H. Patrick* Executive Vice President
George A. Schieren General Counsel and Senior Vice President
Winthrop H. Smith, Jr.* Executive Vice President
John L. Steffens* Director and Vice Chairman of the Board
Roger M. Vasey* Executive Vice President
</TABLE>
- ------------------------
* World Financial Center, 250 Vesey Street, New York, NY 10281
(c) Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and records required to be maintained by Section 31(a)
of the 1940 Act and the rules promulgated thereunder are maintained by the
depositor at the principal executive offices at 100 Church Street, 11th Floor,
New York, NY 10080-6511, at Merrill Lynch Insurance Group Services, Inc., at
4804 Deer Lake Drive East, Jacksonville, Florida 32246, and at the office of the
General Counsel at 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
ITEM 31. NOT APPLICABLE
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) Registrant undertakes to file a post-effective amendment to the
Registrant Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include either (1) as part of any application
to purchase a contract offered by the prospectus, a space that an applicant can
check to request a statement of additional information, or (2) a postcard or
similar written communications affixed to or included in the prospectus that the
applicant can remove to send for a statement of additional information.
(c) Registrant undertakes to deliver any statement of additional information
and any financial statements required to be made available under this Form
promptly upon written or oral request.
(d) ML Life Insurance Company of New York hereby represents that the fees
and charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by ML Life Insurance Company of New York.
C-9
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, ML of New York Variable Annuity Separate Account A,
certifies that this Post-Effective Amendment meets all the requirements for
effectiveness under paragraph (b) of Rule 485, and accordingly, has caused this
Amendment to be signed on its behalf, in the City of Plainsboro, State of New
Jersey, on the 29th day of April, 1998.
<TABLE>
<S> <C> <C> <C>
ML of New York Variable Annuity
Separate Account A
(Registrant)
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
------------------------------------- --------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President and Senior Counsel Senior Vice President of
ML Life Insurance Company of New York
ML Life Insurance Company of New York
(Depositor)
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
------------------------------------- --------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President and Senior Counsel Senior Vice President
</TABLE>
As required by the Securities Act of 1933, this Post-Effective Amendment No.
12 to the Registration Statement has been signed below by the following persons
in the capacities indicated on April 29, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
* Chairman of the Board, President and Chief Executive
--------------------------------------------- Officer
Anthony J. Vespa
* Director, Senior Vice President, Chief Financial
--------------------------------------------- Officer, Chief Actuary and Treasurer
Joseph E. Crowne, Jr.
* Director, Senior Vice President, and Chief Investment
--------------------------------------------- Officer
David M. Dunford
* Director and Senior Vice President
---------------------------------------------
Gail R. Farkas
* Director, Vice President and Senior Counsel
---------------------------------------------
Michael P. Cogswell
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
* Director
---------------------------------------------
Frederick J.C. Butler
* Director
---------------------------------------------
Robert L. Israeloff
* Director
---------------------------------------------
Allen N. Jones
* Director
---------------------------------------------
Cynthia L. Kahn
* Director
---------------------------------------------
Robert A. King
* Director
---------------------------------------------
Stanley C. Peterson
* Director
---------------------------------------------
Irving M. Pollack
*By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior Vice
--------------------------------------------- President, General Counsel, and Secretary and as
Barry G. Skolnick Attorney-In-Fact
</TABLE>
C-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------- ----
<S> <C> <C>
(8)(n) Form of Participation Agreement Among ML Life Insurance Company of New York,
Hotchkis and Wiley Variable Trust, and Hotchkis and Wiley..................... C-
(8)(o) Form of Amendment to Participation Agreement Among ML Life Insurance Company of
New York, Alliance Capital Management L.P., and Alliance Fund Distributors,
Inc........................................................................... C-
(8)(p) Form of Amendment to Participation Agreement Between Merrill Lynch Variable
Series Funds, Inc. and ML Life Insurance Company of New York.................. C-
(8)(q) Form of Participation Agreement Between Merrill Lynch, Pierce, Fenner & Smith
Incorporated and ML Life Insurance Company of New York........................ C-
(10)(a) Written Consent of Sutherland, Asbill & Brennan LLP............................. C-
(10)(b) Written Consent of Deloitte & Touche LLP, independent auditors.................. C-
(10)(c) Written Consent of Barry G. Skolnick, Esq....................................... C-
</TABLE>
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<PAGE>
Exhibit 8(n)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made as of ______________, 1998, between HOTCHKIS AND
WILEY VARIABLE TRUST, a Massachusetts business (the "Fund"),
____________________, a life insurance company organized under the laws of
__________________________ (the "Company"), on its own behalf and on behalf of
each segregated asset account of the Company set forth on SCHEDULE A as attached
hereto, as such schedule may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Fund has an effective registration statement with the
Securities and Exchange Commission ("SEC") to register itself as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and to register the offer and sale of its shares under
the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Fund desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Fund (the "Participating Insurance
Companies"); and
WHEREAS, Merrill Lynch Funds Distributors, Inc. (the "Underwriter") is
registered as a broker-dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), is a member in good standing of The National
Association of Securities Dealers, Inc. (the "NASD") and acts as principal
underwriter of the shares of the Fund; and
WHEREAS, the capital stock of the Fund is divided into several series of
shares, each series representing an interest in a particular managed portfolio
of securities and other assets; and
WHEREAS, the several series of shares of the Fund offered by the Fund to
the Company and the Accounts are set forth on SCHEDULE B attached hereto (each,
a "Portfolio," and, collectively, the "Portfolios"); and
WHEREAS, the Fund has received an order from the SEC granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b) (15)
and 6e-3(T) (b) (15) thereunder, to the extent necessary to permit shares of the
Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
and certain qualified pension and retirement plans (the "Shared Fund Exemptive
Order"); and
WHEREAS, Merrill Lynch Asset Management, L.P. ("MLAM") is duly registered
as an investment adviser under the Investment Advisers Act of 1940, as amended,
and any applicable
-1-
<PAGE>
state securities laws and, through its Hotchkis and Wiley division, acts as the
Fund's investment adviser; and
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and/or variable annuity contracts
funded or to be funded through one or more of the Accounts (the "Contracts");
and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios (the "Shares") on behalf of the Accounts to fund the Contracts, and
the Fund intends to sell such Shares to the relevant Accounts at such Shares'
net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE 1
SALE OF THE FUND SHARES
1.1 Subject to Section 1.3 of this Agreement, the Fund shall cause the
Underwriter to make Shares of the Portfolios available to the Accounts at such
Shares' most recent net asset value provided to the Company prior to receipt of
such purchase order by the Fund (or the Underwriter as its agent), in accordance
with the operational procedures mutually agreed to by the Underwriter and the
Company from time to time and the provisions of the then-current prospectus of
the Fund. Shares of a particular Portfolio of the Fund shall be ordered in such
quantities and at such times as determined by the Company to be necessary to
meet the requirements of the Contracts. The Board of Trustees of the Fund (the
"Board") may refuse to sell Shares of any Portfolio to any person (including the
Company and the Accounts), or suspend or terminate the offering of Shares of any
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Portfolio.
1.2 Subject to Section 1.3 of this Agreement, the Fund will redeem any
full or fractional Shares of any Portfolio when requested by the Company on
behalf of an Account at such Shares' most recent net asset value provided to the
Company prior to receipt by the Fund (or the Underwriter as its agent) of the
request for redemption, as established in accordance with the operational
procedures mutually agreed to by the Underwriter and the Company from time to
time and the provisions of the then current-prospectus of the Fund. The Fund
shall make payment for such Shares in the manner established from time to time
by the Fund, but in no event shall payment be delayed for a greater period than
is permitted by the 1940 Act (including any Rule or order of the SEC
thereunder).
-2-
<PAGE>
1.3 The Fund shall accept purchase and redemption orders resulting from
investment in and payments under the Contracts on each Business Day, provided
that such orders are received prior to 9:00 a.m. Eastern Time on such Business
Day and reflect instructions received by the Company from Contract holders in
good order prior to the time the net asset value of each Portfolio is priced in
accordance with its prospectus (such Portfolio's "valuation time") on the prior
Business Day. Any purchase or redemption order for Shares of any Portfolio
received, on any Business Day, after such Portfolio's valuation time on such
Business Day shall be deemed received prior to 9:00 a.m. on the next succeeding
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates the net asset
value of its Portfolios pursuant to the rules of the SEC. Purchase and
redemption orders shall be provided by the Company to the Underwriter as agent
for the Fund in such written or electronic form (including facsimile) as may be
mutually acceptable to the Company and the Underwriter. The Underwriter may
reject purchase and redemption orders that are not in proper form. In the event
that the Company and the Underwriter agree to use a form of written or
electronic communication which is not capable of recording the time, date and
recipient of any communication and confirming good transmission, the Company
agrees that it shall be responsible (i) for confirming with the Underwriter that
any communication sent by the Company was in fact received by the Underwriter in
proper form, and (ii) for the effect of any delay in the Underwriter's receipt
of such communication in proper form. The Fund and its agents shall be entitled
to rely, and shall be fully protected from all liability in acting, upon the
instructions of the persons named in the list of authorized individuals attached
hereto as SCHEDULE C, or any subsequent list of authorized individuals provided
to the Fund or its agents by the Company in such form, without being required to
determine the authenticity of the authorization or the authority of the persons
named therein.
1.4 Purchase orders that are transmitted to the Fund in accordance with
Section 1.3 of this Agreement shall be paid for no later than 2:00 p.m. Eastern
Time on the same Business Day that the Fund receives notice of the order.
Payments shall be made in federal funds transmitted by wire. In the event that
the Company shall fail to pay in a timely manner for any purchase order validly
received by the Underwriter on behalf of the Fund pursuant to Section 1.3 of
this Agreement (whether or not such failure is the fault of the Company), the
Company shall hold the Fund harmless from any losses reasonably sustained by the
Fund as the result of acting in reliance on such purchase order.
1.5 Issuance and transfer of the Fund's Shares will be by book entry
only. Share certificates will not be issued to the Company or to any Account.
Shares ordered from the Fund will be recorded in the appropriate title for
each Account .
1.6 The Fund shall furnish prompt notice to the Company of any income,
dividends or capital gain distribution payable on Shares of any Portfolio. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's Shares in additional Shares of
that Portfolio. The Fund shall notify the Company of the number of Shares so
issued as payment of such dividends and distributions.
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1.7 The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
such net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6:30 p.m., Eastern Time.
1.8 The Company agrees that it will not take any action to operate any
Account as a management investment company under the 1940 Act without the Fund's
and the Underwriter's prior written consent.
1.9 The Fund agrees that its Shares will be sold only to Participating
Insurance Companies and their separate accounts. No Shares of any Portfolio
will be sold directly to the general public. The Company agrees that Fund
Shares will be used only for the purposes of funding the Contracts and Accounts
listed in Schedule A, as such schedule may be amended from time to time.
1.10 The Fund agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article 4 of
this Agreement.
ARTICLE 2
OBLIGATIONS OF THE PARTIES
2.1 The Fund shall prepare and be responsible for filing with the SEC and
any state securities regulators requiring such filing, all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information
of the Fund. The Fund shall bear the costs of registration and qualification of
its Shares, preparation and filing of the documents listed in this Section 2.1
and all taxes to which an issuer is subject on the issuance and transfer of its
Shares.
2.2 At least annually, the Fund or its designee shall provide the Company,
free of charge, with as many copies of the current prospectus (describing only
the Portfolios) for the Shares as the Company may reasonably request for
distribution to existing Contract owners whose Contracts are funded by such
Shares. The Fund or its designee shall provide the Company, at the Company's
expense, with as many copies of the current prospectus for the Shares as the
Company may reasonably request for distribution to prospective purchasers of
Contracts. If requested by the Company in lieu thereof, the Fund or its
designee shall provide such documentation (including a "camera ready" copy of
the new prospectus as set in type or, at the request of the Company, a diskette
in the form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once each year (or more frequently if
the prospectus for the Shares is supplemented or amended) to have the prospectus
for the Contracts and the prospectus for the Shares printed together in one
document. The expenses of such printing shall be borne by the Company. In the
event that the Company requests that the Fund or its designee provide the Fund's
prospectus in a "camera ready" or diskette format, the Fund shall be responsible
solely for providing the prospectus in the format in which it is accustomed to
formatting prospectuses and shall bear the expense of providing the
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prospectus in such format (E.G., typesetting expenses), and the Company shall
bear the expense of adjusting or changing the format to conform with any of its
prospectuses.
2.3 The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Fund or its
designee. The Fund or its designee, at its expense, shall print and provide
such statement of additional information to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to any owner
of a Contract funded by the Shares. The Fund or its designee, at the Company's
expense, shall print and provide such statement to the Company (or a master of
such statement suitable for duplication by the Company) for distribution to a
prospective purchaser who requests such statement.
2.4 The Fund or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Fund's proxy
materials, reports to Shareholders and other communications to Shareholders in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
2.5 The Company shall furnish, or cause to be furnished, to the Fund or
its designee, a copy of each prospectus for the Contracts or statement of
additional information for the Contracts in which the Fund or its investment
adviser is named prior to the filing of such document with the SEC. The Company
shall furnish, or shall cause to be furnished, to the Fund or its designee, each
piece of sales literature or other promotional material in which the Fund or its
investment adviser is named, at least five Business Days prior to its use. No
such prospectus, statement of additional information or material shall be used
if the Fund or its designee reasonably objects to such use within five Business
Days after receipt of such material.
2.6 At the request of the Fund or its designee, the Company shall
furnish, or shall cause to be furnished, to the Fund or its designee copies of
the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any);
(b) the Company's quarterly statements (statutory) (and GAAP, if
any);
(c) any financial statement, proxy statement, notice or report of the
Company relating to the Portfolio(s) sent to shareholders and/or
policyholders;
(d) any registration statement (without exhibits) and financial
reports of the Company relating to the Portfolio(s) filed with the SEC or
any state insurance regulator; and
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company relating to the Portfolio(s).
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2.7 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund or its investment
adviser in connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Fund Shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Fund, Fund-sponsored proxy statements, or in sales literature or other
promotional material approved by the Fund or its designee, except with the
written permission of the Fund or its designee.
2.8 The Fund shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, the Accounts or
the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may by amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
with the written permission of the Company.
2.9 The Company shall amend the registration statement of the Contracts
under the 1933 Act and registration statement for each Account under the 1940
Act from time to time as required in order to effect the continuous offering of
the Contracts or as may otherwise be required by applicable law. The Company
shall register and qualify the Contracts for sale to the extent required by
applicable securities laws and insurance laws of the various states.
2.10 The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
probable that such Contract would be a "modified endowment contract," as that
term is defined in Section 7702A of the Internal Revenue Code of 1986, as
amended (the "Code"), will identify such Contract as a modified endowment
contract (or policy).
2.11 Solely with respect to Contracts and Accounts that are subject to the
1940 Act, so long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for variable policyowners: (a) the
Company will provide pass-through voting privileges to owners of Contracts - or
policies whose cash values are invested, through the Accounts, in Shares of the
Fund; (b) the Fund shall require all Participating Insurance Companies to
calculate voting privileges in the same manner and the Company shall be
responsible for assuring that the Accounts calculate voting privileges in the
manner established by the Fund; (c) with respect to each Account, the Company
will vote Shares of the Fund held by the Account and for which no timely voting
instructions from Contract or policyowners are received, as well as Shares held
by the Account that are owned by the Company for its general account, in the
same proportion as the Company votes Shares held by the Account for which timely
voting instructions are received from Contract - or policyowners; and (d) the
Company and its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Fund Shares held by Contract owners without the
prior written consent of the Fund, which consent may be withheld in the Fund's
sole discretion.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the ____________________
and has established each Account as a segregated asset account under such law on
the date set forth in Schedule A.
3.2 The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
3.3 The Company represents and warrants that the issuance of the Contracts
will be registered under the 1933 Act prior to any issuance or sale of the
Contracts; the Contracts will be issued and sold in compliance in all material
respects will all applicable federal and state laws; and the sale of the
Contracts shall comply in all material respects with state insurance suitability
requirements.
3.4 The Company represents and warrants that, provided the Fund's
representations and warranties made pursuant to Section 3.7 of this Agreement
are true, the Contracts are currently and at the time of issuance will be
treated as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code. The Company shall make
every effort to maintain such treatment and shall notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
3.5 The Fund represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts.
3.6 The Fund represents and warrants that the sale of the Fund Shares
offered and sold pursuant to this Agreement will be registered under the 1933
Act and that the Fund is registered under the 1940 Act. The Fund shall use its
best efforts to amend its registration statement under the 1933 Act and the 1940
Act from time to time as required in order to affect the continuous offering of
its shares. The Company shall advise the Fund of any state requirements to
register Shares for sale in such states. If the Fund determines that notice
filings are appropriate, the Fund shall use its best efforts to make such notice
filings in accordance with the laws of all fifty states, the District of
Columbia, Virgin Islands and Puerto Rico and such other jurisdictions reasonably
requested by the Company.
3.7 The Fund represents and warrants that the investments of each
Portfolio will comply with Subchapter M of the Code and the diversification
requirements set forth in section 817(h) of the Code and the rules and
regulations thereunder.
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ARTICLE 4
POTENTIAL CONFLICTS
4.1 The parties acknowledge that the Fund's Shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Board will monitor the Fund for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a
variety of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Board shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Board. The Company will assist the Board
in carrying out their responsibilities under the Shared Fund Exemptive Order by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised including, but not limited to, information as to a
decision by the Company to disregard Contract owner voting instructions.
4.3 If it is determined by a majority of the Board, or a majority of the
Fund's Trustees who are not affiliated with MLAM or the Underwriter (the
"Disinterested Trustees"), that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Board), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing
the assets allocable to some or all of the Accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question of whether or not such segregation should be implemented to a vote of
all affected Contracts owners and, as appropriate, segregating the assets of any
appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's or
Accounts' investment in the Fund and terminate this Agreement with respect to
such Account(s); provided, however, that such withdrawal and
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termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Disinterested Board.
Any such withdrawal and termination must take place within 30 days after the
Fund gives written notice that this provision is being implemented, subject to
applicable law but in any event consistent with the terms of the Shared Fund
Exemptive Order. Until the end of such 30 day- period, the Fund shall
continue to accept and implement orders by the Company for the purchase and
redemption of Shares of the Fund.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's (or Accounts') investment in the Fund and terminate this
Agreement with respect to such Account(s) within 30 days after the Fund informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Disinterested Board.
Until the end of such 30- day period, the Fund shall continue to accept and
implement orders by the Company for the purchase and redemption of Shares of the
Fund.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the Disinterested Board shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Company be required to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Board determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
affected Account's (or Accounts') investment in the Fund and terminate this
Agreement with respect to such Account(s) within 30 days after the Board inform
the Company in writing of the foregoing determination; provided, however, that
such withdrawal and termination shall, subject to applicable law but in any
event consistent with the terms of the Shared Fund Exemptive Order, be limited
to the extent required by any such material irreconcilable conflict as
determined by a majority of the Disinterested Board.
4.7 The Company shall at least annually submit to the Board such reports,
materials or data as the Board may reasonably request so that the Board may
fully carry out the duties imposed upon them by the Shared Fund Exemptive Order,
and said reports, materials and data shall be submitted more frequently if
deemed appropriate by the Board.
4.8 If and to the extent that (a) Rule 6e-2 and Rule 6e-3 (T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the application for the Shared Fund Exemptive Order) on
terms and conditions materially different from those contained in the
application for the Shared Fund Exemptive Order, or (b) the Shared Fund
Exemptive Order is granted on terms and conditions that differ from those set
forth in this Article 4, then the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such
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steps as may be necessary (a) to comply with Rules 6e-2 and 6e-3(T), as amended,
and Rule 6e-3, as adopted, to the extent such rules are applicable, or (b) to
conform this Article 4 to the terms and conditions contained in the Shared Fund
Exemptive Order, as the case may be.
ARTICLE 5
INDEMNIFICATION
5.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund and each of its Trustees, officers, employees and agents
and each person, if any, who controls the Fund within the meaning of Section 15
of the 1933 Act (collectively the "Indemnified Parties" for purposes of this
Article 5) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which such Indemnified
Parties may become subject under any statute or regulation, or common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in sales
literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article 5), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Fund for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Fund Documents (as defined in Section 5.2(a) below) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or acquisition of the Contracts or Shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Fund Documents or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Fund by
or on behalf of the Company; or
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(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company.
5.2 INDEMNIFICATION BY THE FUND. The Fund agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article 5) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which such Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statement of any material fact contained in the
registration statement or prospectus for the Fund (or any amendment or
supplement thereto) or in sales literature approved by the Fund (but
solely with respect to statements regarding the Fund), (collectively,
"Fund Documents" for the purposes of this Article 5), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and was accurately derived from written information
furnished to the Fund by or on behalf of the Company for use in Fund
Documents or otherwise for use in connection with the sale of the
Contracts or Shares; or
(b) arise out of or result from statement or representations
(other than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the Fund or
persons under its control, with respect to the sale or acquisition of
the Contracts or Shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company Documents or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Fund; or
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(d) arise out of or result from any failure by the Fund to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Fund.
5.3 Neither the Company nor the Fund shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to
any Losses incurred or assessed against any Indemnified Party to the extent such
Losses arise out of or result from such Indemnified Party's willful misfeasance,
bad faith or negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement.
5.4 Neither the Company nor the Fund shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to
any claim made against an Indemnified Party unless such Indemnified Party shall
have notified the party against whom indemnification is sought in writing within
a reasonable time after the summons, or other first written notification, giving
information of the nature of the claim shall have been served upon or otherwise
received by such Indemnified Party (or after such Indemnified Party shall have
received notice of service upon or other notification to any designated agent),
but failure to notify the party against whom indemnification is sought of any
such claim shall not relieve that party from any liability that it may have to
the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof other
than reasonable costs of investigation.
ARTICLE 6
TERMINATION
6.1 This Agreement may be terminated by either party for any reason by six
(6) months' advance written notice to the other party, and may be terminated by
either party pursuant to Sections 6.2 through 6.7 below upon written notice to
the other party.
6.2 This Agreement may be terminated at the option of the Fund upon
institution of formal proceedings against the Company by the NASD, the SEC, the
insurance department of any state, or any other regulatory body regarding the
Company's duties under this Agreement or
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related to the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of the Shares, or an expected or
anticipated ruling, judgment or outcome that would, in the Fund's reasonable
judgment, materially impair the Company's ability to meet and perform the
Company's obligations and duties hereunder.
6.3 This Agreement may be terminated at the option of the Fund if the
Contracts cease to qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify.
6.4 This Agreement may be terminated by the Fund, at its option, if the
Fund shall determine, in its sole judgment exercised in good faith, that either
(1) the Company shall have suffered a material adverse change in its business or
financial condition or (2) the Company shall have been the subject of material
adverse publicity that is likely to have a material adverse impact upon the
business and operations of either the Fund or the Underwriter.
6.5 This Agreement may be terminated at the option of the Company upon
institution of formal proceedings against the Fund by the NASD, the SEC, the
insurance department of any state, or any other regulatory body regarding the
Fund's duties under this Agreement or related to the sale of Fund shares or the
operation of the Fund, or an expected or anticipated ruling, judgment or outcome
that would, in the Company's reasonable judgment, materially impair the Fund's
ability to meet and perform the Fund's obligations hereunder.
6.6 This Agreement may be terminated at the option of the Company if the
Fund ceases to comply with Subchapter M of the Code, or Section 817(h) of the
Code and the rules and regulations thereunder, or if the Company reasonably
believes that the Fund may fail to so comply.
6.7 This Agreement may be terminated by the Company, at its option, if the
Company shall determine, in its sole judgment exercised in good faith, that
either (1) the Fund shall have suffered a material adverse change in its
business or financial condition or (2) the Fund shall have been the subject of
material adverse publicity that is likely to have a material adverse impact upon
the business and operations of the Company.
6.8 Notwithstanding any termination of this Agreement pursuant to this
Article 6, the Fund and the Underwriter may, at the option of the Fund, continue
to make available additional Fund Shares for so long after the termination of
this Agreement as the Fund desires pursuant to the terms and conditions of this
Agreement as provided in Section 6.9 below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, if the Fund or
Underwriter so elects to make additional Shares available, the owners of the
Existing Contracts or the Company, whichever shall have legal authority to do
so, shall be permitted to reallocate investments in the Fund, redeem investments
in the Fund and/or invest in the Fund upon the making of additional purchase
payments under the Existing Contracts.
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6.9 In the event of a termination of this Agreement pursuant to this
Article 6, the Fund and the Underwriter shall promptly notify the Company
whether the Underwriter and the Fund will continue to make Shares available
after such termination; if the Underwriter and the Fund will continue to make
Shares so available, the provisions of this Agreement shall remain in effect
except for Section 6.1 hereof and thereafter either the Fund or the Company may
terminate the Agreement, as so continued pursuant to this Section 6.9, upon
prior written notice to the other party, such notice to be for a period that is
reasonable under the circumstances but, if given by the Fund, need not be
greater than six months.
6.10 The provisions of Article 5 shall survive the termination of this
Agreement, and the provisions of Article 4 and Sections 2.4 and 2.10 shall
survive the termination of this Agreement so long as Shares of the Fund are held
on behalf of Contract owners in accordance with Section 6.8.
ARTICLE 7
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Hotchkis and Wiley Variable Trust
800 West Sixth Street, Fifth Floor
Los Angeles, CA 90017
Attention: Gracie Fermelia
If to the Company:
Merrill Lynch Insurance Group, Inc.
Administrative Offices
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: Barry Skolnick, Esq.
-14-
<PAGE>
ARTICLE 8
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York,
shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and the
rules, regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant and the terms hereof shall
be interpreted and construed in accordance therewith.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the relevant Portfolio(s) of the Fund and that no Director, officer, agent,
or holder of shares of beneficial interest of the Fund shall be personally
liable for any such liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
-----------------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
HOTCHKIS AND WILEY VARIABLE TRUST
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-16-
<PAGE>
SCHEDULE A
Segregated Accounts of ___________________________________
Participating in Portfolios of Hotchkis and Wiley Variable Trust
Name of Separate Account Date Established
------------------------ ----------------
<PAGE>
SCHEDULE B
Portfolios of Hotchkis and Wiley Variable Trust
Offered to Segregated Accounts of __________________________________
International VIP Portfolio
<PAGE>
SCHEDULE C
Persons Authorized to Act on Behalf of
--------------------------------------------------------
The Fund, the Underwriter and their respective agents are authorized to
rely on instructions from the following individuals on behalf of
_______________________________ on its own behalf and on behalf of each Account:
Name Signature
---- ---------
______________________________ ______________________________
______________________________ ______________________________
______________________________ ______________________________
<PAGE>
Exhibit 8(o)
AMENDMENT TO
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of ________________ ("Agreement"),
by and among ML Life Insurance Company of New York, a New York life insurance
company ("Insurer"); Alliance Capital Management L.P., a Delaware limited
partnership ("Adviser"), the investment adviser of the Fund referred to below;
and Alliance Fund Distributors, Inc., a Delaware corporation ("Distributor"),
the Fund's principal underwriter (collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS Insurer, the Distributor, and the Adviser have entered into a
Participation Agreement, (the "Participation Agreement") dated as of December
12, 1996, whereby shares of investment portfolios of Alliance Variable Products
Series Fund, Inc. (the "Fund") are made available to serve as the underlying
investment medium for variable annuity contracts of Insurer (the "Contracts");
and
WHEREAS, as of May 1, 1997 Schedule A of the Participation Agreement was
amended to provide for the contribution to the Fund of amounts attributable to
variable life insurance policies (the "Policies") of Insurer; and
WHEREAS, the parties now desire to amend Schedule A of the Participation
Agreement to make shares of an additional investment portfolio of the Fund
available to serve as the underlying investment medium for the Contracts.
<PAGE>
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereby amend Schedule A of the Participation
Agreement as reflected in the attached schedule to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
their names and on their behalf by and through their duly authorized officers
signing below.
ML LIFE INSURANCE COMPANY OF NEW YORK
By:
----------------------------------
Name:
Title:
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management Corporation,
its General Partner
By:
----------------------------------
Name:
Title:
ALLIANCE FUND DISTRIBUTORS, INC.
By:
----------------------------------
Name:
Title:
<PAGE>
As of May 1, 1998
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
Name of Separate
Account and Date
Established by Board of Contracts/Policies Funded Portfolios
Directors By Separate Account Applicable to Policies
- -------------------------------------------------------------------------------
ML of New York Variable Merrill Lynch Funds Premier Growth Portfolio
Annuity Separate Retirement Plus
Account A Quasar Portfolio
(8/14/91)
- -------------------------------------------------------------------------------
ML of New York Variable Merrill Lynch Funds Premier Growth Portfolio
Life Separate Account II Investor Life
(12/4/91)
Merrill Lynch Funds
Investor Life Plus
Merrill Lynch Funds
Estate Investor I
Merrill Lynch Funds
Estate Investor II
- -------------------------------------------------------------------------------
ML of New York Variable Prime Plan V, VI, 7 Premier Growth Portfolio
Life Separate Account
(11/19/90) Prime Plan Investor
- -------------------------------------------------------------------------------
<PAGE>
Exhibit 8(p)
AMENDMENT TO FUND PARTICIPATION AGREEMENT
Reference is made to the Fund Participation Agreement dated as of October
3rd, 1995, between MERRILL LYNCH VARIABLE SERIES FUNDS, INC., an open-end
management investment company organized as a Maryland corporation (the "Fund"),
and ML LIFE INSURANCE COMPANY OF NEW YORK, a life insurance company organized
under the laws of the state of New York (the "Company"), on its own behalf and
on behalf of each segregated asset account of the Company set forth on Schedule
A as attached thereto (the "Existing Agreement").
WHEREAS, the several series of shares of the Fund offered by the Fund to
the Company and the Accounts are set forth on Schedule B attached to the
Existing Agreement.
The Fund and the Company hereby amend and restate said Schedule B to the
Existing Agreement as attached hereto, and all references in the Existing
Agreement to the Portfolios shall be deemed to refer to the series of shares of
the Fund as set forth on Schedule B as attached hereto.
Capitalized terms used herein without definition and defined in the
Existing Agreement shall have the same meaning herein as therein.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Amendment to Fund Participation Agreement as of the date and
year first above written.
ML LIFE INSURANCE COMPANY OF NEW YORK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
SCHEDULE B
Portfolios of Merrill Lynch Variable Series Funds, Inc.
Offered to Segregated Accounts of
ML LIFE INSURANCE COMPANY OF NEW YORK
Class A shares of each of the following:
- ----------------------------------------
American Balanced Fund
Basic Value Focus Fund
Capital Focus Fund
Developing Capital Markets Focus Fund
Domestic Money Market Fund
Global Bond Focus Fund
Global Growth Focus Fund
Global Strategy Focus Fund
Global Utility Focus Fund
Government Bond Fund
High Current Income Fund
Index 500 Fund
International Equity Focus Fund
National Resources Focus Fund
Prime Bond Fund
Quality Equity Fund
Reserve Assets Fund
Special Value Focus Fund
<PAGE>
Exhibit 8(q)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made as of the day of , 1998, by and between
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), as Sponsor
and principal underwriter of Equity Investor Fund, 1998 ML Select Ten V.I. Trust
and each successor V.I. Trust (each, a "Fund"), and ML LIFE INSURANCE COMPANY OF
NEW YORK, a life insurance company organized under the laws of the state of New
York, (the "Company"), on its behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A as attached hereto, as such
schedule may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, Equity Investor Fund has a registration statement effective with
the Securities Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act") by which it has registered as a unit
investment trust and the Fund will have a registration statement effective with
the SEC registering its units of fractional undivided interest ("Units") for
offer and sale under the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, Merrill Lynch desires the Fund to act as an investment vehicle for
separate accounts established for variable annuity contracts and/or variable
life insurance contracts set forth on Schedule A attached hereto, as it may be
amended from time to time, to be offered by the Company; and
WHEREAS, Merrill Lynch is registered as a broker-dealer with the SEC under
the Securities Exchange Act of 1934, as amended (the "1934 Act") and is a member
in good standing of the National Association of Securities Dealers Inc. (the
"NASD"); and
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable annuity contracts and/or variable life insurance contracts
funded or to be funded through one or more of the Accounts (the "Contracts");
and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act, unless exempt from such registration; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase units of fractional undivided
interest of the Fund ("Units") on behalf of the Accounts to fund the Contracts,
and the Fund intends to sell such Units to the relevant Accounts at the
applicable net
<PAGE>
asset value of such Units, subject to a deferred transaction fee as described in
the Fund prospectus;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
SALE OF UNITS
1.1 Subject to Section 1.3 of this Agreement, Merrill Lynch shall cause
the Fund to make Units available to the Accounts at such Units' most recent net
asset value provided to the Company prior to receipt by the unit trust
department of Merrill Lynch ("Defined Asset Funds") of a purchase order, in
accordance with the operational procedures mutually agreed to by the Defined
Asset Funds and the Company from time to time and the provisions of the
then-current prospectus of the Fund. Units shall be ordered in such quantities
and at such times as determined by the Company to be necessary to meet the
requirements of the Contracts. The Fund, acting through Defined Asset Funds,
may refuse to sell Units to any person (including the Company and the Accounts)
or suspend or terminate the offering of Units if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole discretion
of Merrill Lynch acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interest of the
holders of Units.
1.2 Subject to Section 1.3 of this Agreement, the Fund will redeem any
full or fractional Units when requested by the Company on behalf of an Account
at their most recent net asset value (reflecting deduction of any accrued but
uncollected transaction fees) provided to the Company prior to receipt by
Defined Asset Funds of the request for redemption, established in accordance
with the operational procedures mutually agreed to by Defined Asset Funds and
the Company from time to time and the provisions of the then-current prospectus
of the Fund. The Fund's Trustee shall make payment for such Units in the manner
established from time to time by Defined Asset Funds, consistent with the terms
of the Indenture relating to the Fund, and will use its best efforts to make
such payment by 2:00 p.m. on the same Business Day on which such orders for
redemption are received by Defined Asset Funds. In no event shall payment be
delayed for a greater period than is permitted by the 1940 Act (including any
Rule or order of the SEC thereunder).
1.3 Defined Asset Funds, on behalf of the Fund, shall accept purchase and
redemption orders resulting from investment in and payments under the Contracts
on each Business Day, provided that such orders are received prior to 9:00 a.m.
New York time on such Business Day and reflect instructions received by the
2
<PAGE>
Company from Contract holders in good order prior to 4:00 p.m. Eastern time on
the prior Business Day. Any purchase or redemption order for Units received by
the Company from a Contract holder after said time on any Business Day shall not
be submitted by the Company until the second succeeding Business Day. "Business
Day" shall be defined as set forth in the Fund prospectus. Purchase and
redemption orders for Units shall be provided by the Company to Defined Asset
Funds in such written or electronic form (including facsimile) as may be
mutually acceptable to the Company and Defined Asset Funds. On behalf of the
Fund, Defined Asset Funds may reject purchase and redemption orders that are not
in proper form. In the event that the Company and Defined Asset Funds agree to
use a form of written or electronic communication which is not capable of
recording the time, date and recipient of any communication and confirming good
transmission, the Company agrees that it shall be responsible (i) for confirming
with Defined Asset Funds that any communication sent by the Company was in fact
received by Defined Asset Funds in proper form, and (ii) for the effect of any
delay in Defined Asset Funds' receipt of such communication in proper form.
Defined Asset Funds and its agents shall be entitled to rely, and shall be fully
protected from all liability in acting, upon the instructions of the persons
named in the list of authorized individuals attached hereto as Schedule B, or
any subsequent list of authorized individuals provided to Defined Asset Funds or
its agents by the Company in such form, without being required to determine the
authenticity of the authorization or the authority of the persons named therein.
1.4 Purchase orders that are received by Defined Asset Funds in accordance
with Section 1.3 of this Agreement shall be paid for no later than 2:00 p.m. on
the Business Day when Defined Asset Funds receives notice of the order.
Payments shall be made by the Company in federal funds transmitted by wire to
the Fund Trustee. In the event that the Company shall fail to pay in a timely
manner for any purchase order validly received by Defined Asset Funds on behalf
of the Fund pursuant to Section 1.3 of this Agreement (whether or not such
failure is the fault of the Company), the Company shall hold the Fund and
Merrill Lynch harmless from any losses reasonably sustained by either as the
result of acting in reliance on such purchase order.
1.5 Issuance and transfer of the Fund's Units will be by book entry only.
Certificates representing Units will not be issued to the Company or to any
Account. Units acquired by an Account will be recorded in the appropriate title
for the Account.
1.6 Merrill Lynch shall cause the Fund Trustee to furnish prompt written
notice to the Company of any income, dividends or capital gain distributions
payable on Units. The Company hereby elects to receive all such income
distributions and capital gain distributions in additional Units. The Trustee
shall notify the Company of the number of Units so issued.
3
<PAGE>
1.7 Merrill Lynch shall cause the Fund Trustee to make the net asset value
per Unit (reflecting deduction of any accrued but uncollected transaction fees)
available to the Company on a daily basis as soon as reasonably practical after
such net asset value is calculated and shall use its best efforts to make such
net asset value per Unit available no later than 6:30 p.m. New York time. Any
error in the net asset value per Unit that is discovered by the Trustee after
such value has been reported to the Company shall be reported to the Company
immediately.
1.8 Merrill Lynch agrees that Units will be sold only to the Company, any
affiliated insurance company and their separate accounts. No Units will be
sold directly to the general public. The Company agrees that Fund Units will be
used only for the purposes of funding the Contracts and Accounts listed in
Schedule A, as such schedule may be amended from time to time.
1.9 The Company hereby appoints Defined Asset Funds as its attorney in
fact for each Account purchasing Units for the purpose of executing any
documents required to be executed on behalf of an Account in connection with
purchase of Units under Article II of the Trust's Indenture or redemption of
Units under Article V thereof.
ARTICLE 2
OBLIGATIONS OF THE PARTIES
2.1 Merrill Lynch, acting through Defined Asset Funds, shall prepare and
be responsible for filing with the SEC and any state securities regulators, all
prospectuses, notices and other documents of the Fund required to be filed with
said regulators. The Fund shall bear the costs of registration and
qualification of its Shares, preparation and filing of the documents listed in
this Section 2.1 and all taxes to which the Fund, as an issuer, is subject on
the issuance and transfer of its securities.
2.2 At least annually, Merrill Lynch, acting through Defined Asset Funds
or its designee, shall provide the Company, free of charge, with a camera-ready
proof of the current prospectus of the Fund and any other assistance as is
reasonably necessary in order for the parties hereto once each year (or more
frequently if the Fund prospectus is supplemented or amended) to have the
prospectus for the Contracts and the Fund prospectus printed together in one
document; the expenses of such printing to be borne by the Company. Defined
Asset Funds shall be responsible solely for providing the Fund prospectus in the
format in which it is accustomed to formatting prospectuses, the Fund shall bear
the expense of providing the prospectus in such format (E.G., typesetting
expenses), and the Company shall bear the expense of adjusting or changing the
format to conform with any of its prospectuses.
4
<PAGE>
2.3 Merrill Lynch, acting through Defined Asset Funds or its designee,
shall provide the Company, if and to the extent applicable to the Units, free of
charge with copies of each Fund report to Unitholders and other communications
to Unitholders.
2.4 The Company shall furnish, or cause to be furnished, to Defined Asset
Funds or its designee, a copy of each prospectus for the Contracts or statement
of additional information for the Contracts in which the Fund or Merrill Lynch
is named prior to the filing of such document with the SEC. The Company shall
furnish, or shall cause to be furnished, to Defined Asset Funds or its designee,
each piece of sales literature or other promotional material intended for
distribution to the public in which the Fund or Merrill Lynch is named, at least
five Business Days prior to its use. No such prospectus, statement of
additional information or material shall be used if Defined Asset Funds or an
authorized agent thereof reasonably objects to such use within five Business
Days after receipt of such material.
2.5 The Company shall not give any information or make any representations
or statements on behalf of or concerning the Fund or Defined Asset Funds in
connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Fund (as such registration statement and
prospectus may be amended or supplemented from time to time) or in sales
literature or other promotional materials approved by Defined Asset Funds or its
designee, except with written permission of Defined Asset Funds or its designee.
2.6 Neither the Fund nor Defined Asset Funds shall give any information or
make any representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in materials
approved by the Company for distribution including sales literature or other
promotional materials, except with the written permission of the Company.
2.7 The Company shall amend the registration statement of the Contracts
under the 1933 Act and registration statement for each Account under the 1940
Act from time to time as required in order to effect the continuous offering of
the Contracts or as may otherwise be required by applicable law. The Company
shall register and qualify the Contracts for sale to the extent required by
applicable federal and state securities laws and insurance laws of the various
states.
5
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the state of its
incorporation and has established each Account as a segregated asset account
under such laws on the date set forth in Schedule A.
3.2 The Company represents and warrants that it has registered or, prior
to any issuance or sale of the contracts, unless exempt from such registration
will register each of its Accounts as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a segregated investment account for
the Contracts.
3.3 The Company represents and warrants that the issuance of the
Contracts, unless exempt from such registration, will be registered under the
1933 Act prior to any issuance or sale of the Contracts; the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws; and the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements.
3.4 The Company represents and warrants that, provided the representations
and warranties made pursuant to Section 3.7 of this Agreement are true, its
Contracts are currently and at the time of issuance will be treated as annuity
contracts or life insurance contracts under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company shall make
every effort to maintain such treatment and shall notify Defined Asset Funds
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
3.5 Merrill Lynch represents and warrants that the Fund, prior to any
issuance of sale of Units, will be duly organized and validly existing as a
trust in accordance with the laws of the State of New York.
3.6 Merrill Lynch represents and warrants that the Units offered and sold
pursuant to this Agreement will be registered under the 1933 Act and that the
Fund will be a part of a unit investment trust registered under the 1940 Act.
Defined Asset Funds shall use its best efforts to amend the Fund's registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of Units of the Fund and annual
successor series. The Company shall consult with Defined Asset Funds
concerning any requirements to register Units for sale to the Accounts in any
state. Defined Asset Funds will advise the Company promptly of any action of
the SEC or any state
6
<PAGE>
authority of which it may be advised, affecting registration or qualification of
the Units or the right to offer Units for sale. The Company agrees that it will
not solicit any orders for the purchase of Units if and so long as effectiveness
of the Fund's registration statement or any necessary amendments thereto shall
be suspended under any of the provisions of the 1933 Act, or if and so long as a
current prospectus, as required by Section 5(b) of such Act, is not on file with
the SEC, or redemption rights of shareholders have been suspended under any of
the circumstances specified in Section 22(e) of the 1940 Act, provided nothing
in this Section 3.6 shall affect the Fund's obligations to redeem its Units in
accordance with the provisions of the Indenture and the Fund's prospectus, and
PROVIDED FURTHER that the Company may continue to act under this Agreement until
it has been notified in writing (which may include written notice by facsimile)
of the occurrence of any of these events.
3.7 Merrill Lynch represents and warrants that the Fund's investments will
comply with the diversification requirements set forth in section 817(h) of the
Code and regulations thereunder and any successor provisions of the Code or
regulations thereunder.
3.8 Merrill Lynch represents that each Fund prospectus, as of their
respective effective dates, will contain all statements and information which
are required to be stated therein by the 1933 Act, will in all respects conform
to the requirements thereof and will not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein,
or necessary to make the statements therein not misleading; provided, however,
that this representation shall not apply to information contained in or omitted
from a Fund prospectus in reliance upon, and in conformity with, written
information furnished by the Company specifically for use in the preparation
thereof. Defined Asset Funds shall promptly advise the Company of the happening
of any event which makes untrue any material statement in a Fund's registration
statement or prospectus or which requires the making of any change in either of
those documents in order to make the statements therein not misleading.
ARTICLE 4
INDEMNIFICATION
4.1 The Company agrees to indemnify and hold harmless the Fund and Merrill
Lynch and each of its directors, officers, employees and agents and each person,
if any, who controls Merrill Lynch within the meaning of Section 15 of the 1933
Act (collectively, "Indemnified Parties") against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or expenses (including reasonable costs of investigating
or defending any alleged loss, claim, damage, liability or expense and
reasonable
7
<PAGE>
counsel fees incurred in connection therewith [collectively, "Losses"] to which
any such Indemnified Party may become subject under any statute or regulation,
or common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement, prospectus or statement of additional information for the
Contracts or in any sales literature or other promotional material
generated or approved by the Company on behalf of the Contracts or Accounts
(or any amendment or supplement to any of the foregoing) (collectively,
"Company Documents"), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this indemnity shall not apply as to any Indemnified Party if
such statement was made in reliance upon and was accurately derived from
written information furnished to the Company by or on behalf of the Fund
for use in Company Documents or otherwise for use in connection with the
sale of the Contracts or Units; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Fund Documents (as defined in Section 4.2(a) below) or wrongful conduct of
the Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Units; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Fund Documents or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to Defined Asset
Funds or its designee by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
8
<PAGE>
4.2 Merrill Lynch agrees to indemnify and hold harmless the Company and
each of its directors, officers, employees and agents and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act (also
collectively, the "Indemnified Parties") against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of Merrill Lynch) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability or expense
and reasonable legal fees incurred in connection therewith [collectively,
"Losses"] to which such Indemnified Parties may become subject under any statute
or regulation, or at common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Fund (or any amendment or supplement
thereto) or in sales literature with respect to the Fund generated or
approved by Defined Asset Funds (but regarding sales literature so
approved, solely with respect to statements regarding the Fund)
(collectively, "Fund Documents") or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and was accurately derived from
written information furnished to Defined Asset Funds by or on behalf of the
Company for use in Fund Documents or otherwise for use in connection with
the sale of the Contracts or Units; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Company Documents) or wrongful conduct of Defined Asset Funds or persons
under its control, with respect to the sale or acquisition of the Contracts
or Units; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information concerning the Fund furnished
to the Company by or on behalf of Defined Asset Funds; or
(d) arise out of or result from any failure by Merrill Lynch or
Defined Asset Funds to provide the services or furnish the materials
required under the terms of this Agreement; or
9
<PAGE>
(e) arise out of or result from any material breach of any
representation and/or warranty made by Merrill Lynch in this Agreement or
arise out of or result from any other material breach of this Agreement by
Merrill Lynch or Defined Asset Funds.
4.3 Neither the Company, Merrill Lynch nor Defined Asset Funds shall be
liable under the indemnification provisions of Section 4.1 or 4.2, as
applicable, with respect to any Losses incurred or assessed against any
Indemnified Party to the extent such Losses arise out of or result from such
Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
4.4 Neither the Company, Merrill Lynch nor Defined Asset Funds shall be
liable under the indemnification provisions of Section 4.1 or 4.2, as
applicable, with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the party against whom
indemnification is sought in writing within a reasonable time after the summons,
or other first written notification giving information of the nature of the
claim, shall have been served upon or otherwise received by such Indemnified
Party (or after such Indemnified Party shall have received notice of service
upon or other notification to any designated agent), but failure to notify the
party against whom indemnification is sought of any such claim shall not relieve
that party from any liability that it may have to the Indemnified Party in the
absence of Sections 4.1 and 4.2.
4.5 In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof other
than reasonable costs of investigation.
ARTICLE 5
TERMINATION
5.1 This Agreement may be terminated by either party for any reason by six
(6) months' advance written notice to the other party, and may be terminated
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by either party pursuant to Sections 5.2 through 5.7 below upon written notice
to the other party.
5.2 This Agreement may be terminated at the option Merrill Lynch, acting
through Defined Asset Funds, upon institution of formal proceedings against the
Company by the NASD, the SEC, the insurance department of any state, or any
other regulatory body regarding the Company's duties under this Agreement, or
related to the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of the Units, or an expected or
anticipated ruling, judgment or outcome that would, in Defined Asset Funds'
reasonable judgment, materially impair the Company's ability to meet and perform
the Company's obligations and duties hereunder.
5.3 This Agreement may be terminated at the option of Merrill Lynch,
acting through Defined Asset Funds if the Contracts cease to qualify as annuity
contracts under the Code, or if Defined Asset Funds reasonably believes that the
Contracts may fail to so qualify.
5.4 This Agreement may be terminated by Merrill Lynch, acting through
Defined Asset Funds, at its option, if it shall determine, in its sole judgment
exercised in good faith, that either (1) the Company shall have suffered a
materially adverse change in its business or financial condition or (2) the
Company shall have been the subject of material adverse publicity that is likely
to have a material adverse impact upon the business and operations of either the
Fund or Defined Asset Funds.
5.5 This Agreement may be terminated at the option of the Company upon
institution of formal proceedings against the Fund, Defined Asset Funds or
Merrill Lynch by the NASD, the SEC, the insurance department of any state, or
any other regulatory body regarding Merrill Lynch's or Defined Asset Funds'
duties under this Agreement or related to the sale of Units or the operation of
the Fund, or an expected or anticipated ruling, judgment or outcome that would,
in the Company's reasonable judgment, materially impair Merrill Lynch's or
Defined Asset Funds' ability to meet and perform its obligations hereunder.
5.6 This Agreement may be terminated at the option of the Company if the
Fund ceases to comply with Section 817(h) of the Code and the rules and
regulations thereunder, or if the Company reasonably believes that the Fund may
fail to so comply.
5.7 This Agreement may be terminated by the Company, at its option, if the
Company shall determine, in its sole judgment exercised in good faith, that
either (1) Merrill Lynch or the Fund shall have suffered a material adverse
change in its business or financial condition or (2) Merrill Lynch or the Fund
shall
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have been the subject of material adverse publicity that is likely to have a
material adverse impact upon the business and operations of the Company.
5.8 Nothwithstanding the termination of this Agreement pursuant to this
Article 5, the Fund, at the option of Merrill Lynch, acting through Defined
Asset Funds, may continue to make available additional Units for so long after
the termination of this Agreement as Merrill Lynch, acting through Defined Asset
Funds, desires pursuant to the terms and conditions of this Agreement as
provided in Section 5.9 below, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if Merrill Lynch, acting
through Defined Asset Funds, so elects to make additional Units available, the
owners of the Existing Contracts or the Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts.
5.9 In the event of a termination of this Agreement pursuant to this
Article 5, Merrill Lynch, acting through Defined Asset Funds, shall promptly
notify the Company whether the Fund will continue to make Units available after
such termination; if the Fund will continue to make Units so available, the
provisions of this Agreement shall remain in effect except for Section 5.1
hereof and thereafter either Merrill Lynch, acting through Defined Asset Funds,
or the Company may terminate the Agreement, as so continued pursuant to this
Section 5.9, upon prior written notice to the other party, such notice to be for
a period that is reasonable under the circumstances but, if given by Defined
Asset Funds, need not be greater than six months.
5.10 The provisions of Article 4 shall survive the termination of this
Agreement, and the provisions of Sections 2.4 and 2.10 shall survive the
termination of this Agreement so long as Units are held on behalf of Contract
owners in accordance with Section 5.8.
ARTICLE 6
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund, Merrill Lynch or Defined Asset Funds:
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Merrill Lynch, Pierce, Fenner & Smith Incorporated
Defined Asset Funds
800 Scudders Mill Road, Section F
Plainsboro, N.J. 08536
Attention: Teresa Koncick, Esq.
If to the Company:
Merrill Lynch Insurance Group, Inc.
Administrative Offices
800 Scudders Mill Road
Plainsboro, N.J. 08536
Attention: Barry Skolnick, Esq.
ARTICLE 7
MISCELLANEOUS
7.1 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
7.2 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York,
shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and the
rules, regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC has granted or may grant and the
terms thereof shall be interpreted and construed in accordance therewith.
7.3 Each party shall cooperate with each other party and all appropriate
governmental authorities (including, without limitation, the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
7.4 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
7.5 The parties to this Agreement acknowledge and agree that, for a period
of one year from the date of this Agreement, Merrill Lynch shall not create or
offer any unit investment trust applying the Select Ten Strategy to the Dow
Jones Industrial Average to fund any insurance company separate account other
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than one sponsored by an insurance company controlled by Merrill Lynch & Co.,
Inc., and the Company shall not offer any allocation option for a separate
account to be funded by investing in a unit investment trust applying that
Strategy other than a trust sponsored by Merrill Lynch.
7.6 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the other party.
7.7 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by all
parties hereto.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Agreement as of the date and year first above written.
ML LIFE INSURANCE COMPANY OF NEW YORK
By
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
<PAGE>
Exhibit 10(a)
[Sutherland, Asbill & Brennan LLP letterhead]
CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of Post-Effective Amendment No. 12 to
Form N-4 (File No. 33-43654) for ML of New York Variable Annuity Separate
Account A of ML Life Insurance Company of New York. In giving this consent, we
do not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
/s/Sutherland, Asbill & Brennan LLP
-----------------------------------
SUTHERLAND, ASBILL & BRENNAN LLP
Washington, D.C.
April 29, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 12 to Registration
Statement No. 33-43654 of ML of New York Variable Annuity Separate Account A on
Form N-4 of our reports on (i) ML Life Insurance Company of New York dated
February 23, 1998, and (ii) ML of New York Variable Annuity Separate Account A
dated January 23, 1998, appearing in the Statement of Additional Information,
which is a part of such Registration Statement, and to the reference to us under
the heading "Experts" in the Prospectus, which is a part of such Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 30, 1998
<PAGE>
[ML LIFE INSURANCE COMPANY OF NEW YORK]
CONSENT OF BARRY G. SKOLNICK, ESQ.
I hereby consent to the reference to my name under the caption "Legal Matters"
in the prospectus included in Post-Effective Amendment No. 12 to the
Registration Statement on Form N-4 for certain variable annuity insurance
contracts issued through ML of New York Variable Annuity Separate Account A and
included in the prospectus included in Post-Effective Amendment No. 12 to the
Registration Statement on Form N-4 for certain variable annuity insurance
contracts issued through ML of New York Variable Annuity Separate Account B of
ML Life Insurance Company of New York, File Nos. 33-43654 and 33-45380.
/s/ Barry G. Skolnick
--------------------------------------
Barry G. Skolnick, Esq.
Senior Vice President and General Counsel
April 29, 1998
