<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1999
REGISTRATION NO. 33-43654
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 14 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 15 /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, 1999___ 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)
/X/ If appropriate, check the following box: This
post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Title of Securities Being Registered: Units of Interest in Flexible Premium
Individual Deferred Variable Annuity Contracts.
EXHIBIT INDEX CAN BE FOUND ON PAGE C-12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
May 1, 1999
ML of New York Variable Annuity Separate Account A (Account A)
and
ML of New York Variable Annuity Separate Account B (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 ("ML OF NEW YORK")
Home Office: 100 Church Street, 11th Floor
New York, New York 10080-6511
Service Center: P.O. Box 44222
Jacksonville, Florida 32231-4222
4804 Deer Lake Drive East,
Jacksonville, Florida 32246
Phone: (800) 333-6524
offered through
Merrill Lynch, Pierce, Fenner & Smith Incorporated
This prospectus gives you information you need to know before you invest. Keep
it for future reference. Address all communications concerning the Contract to
the Service Center at the address above.
The variable annuity contract described here provides a variety of investment
features. It also provides options for income protection later in life. It is
important that you understand how the contract works, and its benefits, costs,
and risks. First, some basics.
WHAT IS AN ANNUITY?
An annuity provides for the SYSTEMATIC LIQUIDATION of a sum of money at the
annuity date through a variety of annuity options. Each Annuity Option has
different protection features intended to cover different kinds of income needs.
Many of these Annuity Options provide income streams that can't be outlived.
WHAT IS A VARIABLE ANNUITY?
A variable annuity bases its benefits on the performance of underlying
investments. These investments may typically include stocks, bonds, and money
market instruments. The annuity described here is a variable annuity.
WHAT ARE THE RISKS IN OWNING A VARIABLE ANNUITY?
A variable annuity does not guarantee the performance of the underlying
investments. The performance can go up or down. It can even decrease the value
of money you've put in. You bear all of this risk. You could lose all or part of
the money you've put in.
<PAGE>
HOW DOES THIS ANNUITY WORK?
We put your premium payments as you direct into one or more subaccounts of
Account A and/or Account B. In turn, we invest each subaccount's assets in
corresponding portfolios of the following:
- - MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
- 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
- Capital Focus Fund
- Global Growth Focus Fund
- Government Bond Fund
- Developing Capital Markets Focus Fund
- Index 500 Fund
- Reserve Assets Fund
- - AIM VARIABLE INSURANCE FUNDS, INC.
- V.I. Capital Appreciation Fund
- V.I. Value Fund
- - ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
- Premier Growth Portfolio
- Quasar Portfolio
- - MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
- Emerging Growth Series
- Research Series
- - HOTCHKIS AND WILEY VARIABLE TRUST
- International VIP Portfolio
- - DEFINED ASSET FUNDS
- 1999 ML Select Ten V.I. Trust
The value of your contract at any point in time up to the annuity date is called
your contract value. Before the annuity date, you are generally free to direct
your contract value among the subaccounts as you wish. You may also withdraw all
or part of your contract value. If you die before the annuity date, we pay a
death benefit to your beneficiary.
We've designed this annuity as a long-term investment. If you withdraw money
from the annuity too soon, you may incur substantial charges. In addition, any
money you take out of the contract is subject to tax, and if taken before age
59 1/2 may also be subject to a 10% federal penalty tax. FOR THESE REASONS, YOU
NEED TO CONSIDER YOUR CURRENT AND SHORT-TERM INCOME NEEDS CAREFULLY BEFORE YOU
DECIDE TO BUY THE CONTRACT.
WHAT DOES THIS ANNUITY COST?
We impose a number of charges. The two most significant charges are a sales
charge and a mortality and expense risk charge.
We provide more details on these two charges as well as a description of all
other charges later in the prospectus.
************************************************************************
This prospectus contains information about the Contract and the Accounts that
you should know before you invest. A Statement of Additional Information con
tains more information about the Contract and the Accounts. We have filed this
Statement of Additional Information, dated May 1, 1999, with the Securities and
Exchange Commission. We incorporate this Statement of Additional Information by
reference. If you want to obtain this Statement of Information, simply call or
write us at the phone number or address noted above. There is no charge to
obtain it. The table of contents for this Statement of Additional Information is
found on page of this prospectus.
2
<PAGE>
CURRENT PROSPECTUSES FOR THE MERRILL LYNCH VARIABLE SERIES FUNDS, INC., THE AIM
VARIABLE INSURANCE FUNDS, INC., THE ALLIANCE VARIABLE PRODUCTS SERIES FUND,
INC., THE MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-, THE HOTCHKIS
AND WILEY VARIABLE TRUST, THE MERCURY ASSET MANAGEMENT V.I. FUNDS, INC., AND THE
DEFINED ASSET FUNDS MUST ACCOMPANY THIS PROSPECTUS. PLEASE READ THESE DOCUMENTS
CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE CONTRACTS OR
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
DEFINITIONS ..................................................................................... 7
FEE TABLE ....................................................................................... 8
CAPSULE SUMMARY OF THE CONTRACT.................................................................. 14
Premiums .................................................................................... 14
The Accounts................................................................................. 14
The Funds Available For Investment........................................................... 14
Fees and Charges............................................................................. 15
Mortality & Expense Risk Charge......................................................... 15
Sales Charge............................................................................ 15
Administration Charge................................................................... 15
Contract Maintenance Charge............................................................. 15
Premium Taxes........................................................................... 15
Transfers ................................................................................... 16
Transfers Among Account A Subaccounts................................................... 16
Transfers From Account A to Account B................................................... 16
Withdrawals............................................................................. 16
Death Benefit........................................................................... 17
Annuity Payments........................................................................ 17
Ten Day Review.......................................................................... 17
YIELDS AND TOTAL RETURNS......................................................................... 18
ML LIFE INSURANCE COMPANY OF NEW YORK............................................................ 19
THE ACCOUNTS..................................................................................... 19
Segregation of Account Assets................................................................ 19
Number of Subaccounts; Subaccount Investments................................................ 20
INVESTMENTS OF THE ACCOUNTS...................................................................... 20
General Information and Investment Risks..................................................... 20
Merrill Lynch Variable Series Funds, Inc..................................................... 20
Merrill Lynch Asset Management, L.P. ("MLAM")................................................ 21
Investment Objectives........................................................................ 21
Domestic Money Market Fund.............................................................. 21
Prime Bond Fund......................................................................... 21
High Current Income Fund................................................................ 21
Quality Equity Fund..................................................................... 22
Special Value Focus Fund................................................................ 22
Natural Resources Focus Fund............................................................ 22
American Balanced Fund.................................................................. 22
Global Strategy Focus Fund.............................................................. 22
Basic Value Focus Fund.................................................................. 23
Global Bond Focus Fund.................................................................. 23
Global Utility Focus Fund............................................................... 23
International Equity Focus Fund......................................................... 23
Government Bond Fund.................................................................... 23
Developing Capital Markets Focus Fund................................................... 24
Reserve Assets Fund..................................................................... 24
Index 500 Fund.......................................................................... 24
Capital Focus Fund...................................................................... 24
Global Growth Focus Fund................................................................ 24
Defined Asset Funds -- Select Ten Trust...................................................... 24
AIM Variable Insurance Funds, Inc............................................................ 25
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
AIM V.I. Capital Appreciation Fund...................................................... 26
AIM V.I. Value Fund..................................................................... 26
Alliance Variable Products Series Fund, Inc.................................................. 26
Alliance Premier Growth Portfolio....................................................... 26
Alliance Quasar Portfolio............................................................... 27
MFS-Registered Trademark- Variable Insurance Trust-SM-....................................... 27
MFS Emerging Growth Series.............................................................. 27
MFS Research Series..................................................................... 27
Hotchkis and Wiley Variable Trust............................................................ 27
Hotchkis and Wiley International VIP Portfolio.......................................... 28
Mercury Asset Management V.I. Funds, Inc..................................................... 28
Mercury V.I. U.S. Large Cap Fund........................................................ 29
Purchases and Redemptions of Fund Shares; Reinvestment....................................... 29
Material Conflicts, Substitution of Investments and Changes to Accounts...................... 29
CHARGES AND DEDUCTIONS........................................................................... 30
Mortality and Expense Risk Charge............................................................ 30
Sales Charge................................................................................. 30
When Imposed............................................................................ 30
Amount of Charge........................................................................ 31
How Deducted............................................................................ 31
Administration Charge........................................................................ 32
Contract Maintenance Charge.................................................................. 32
Other Charges................................................................................ 32
Transfer Charges........................................................................ 32
Tax Charges............................................................................. 32
Fund Expenses........................................................................... 33
Retirement Plus Advisor Expenses........................................................ 33
Premium Taxes................................................................................ 33
FEATURES AND BENEFITS OF THE CONTRACT............................................................ 33
Ownership of The Contract.................................................................... 33
Issuing the Contract......................................................................... 34
Issue Age............................................................................... 34
Information We Need To Issue The Contract............................................... 34
Ten Day Right to Review................................................................. 34
Premiums .................................................................................... 34
Minimum and Maximum Premiums............................................................ 34
How to Make Payments.................................................................... 34
Premium Investments..................................................................... 35
Accumulation Units........................................................................... 35
ADDITIONAL PROVISIONS APPLICABLE TO ALL CONTRACTS................................................ 36
Death of Annuitant Prior to Annuity Date..................................................... 36
Transfers ................................................................................... 36
Transfers Within Account A.............................................................. 36
Dollar Cost Averaging........................................................................ 37
What Is It?............................................................................. 37
Minimum Amounts......................................................................... 37
When Do We Make DCA Transfers?.......................................................... 37
Merrill Lynch Retirement Plus Advisor-SM-.................................................... 37
Fees and Charges for RPA................................................................ 38
Transfers From Account A to Account B........................................................ 38
Withdrawals and Surrenders................................................................... 38
When and How Withdrawals are Made....................................................... 38
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Automatic Withdrawals................................................................... 39
Minimum Amounts......................................................................... 39
Surrenders.............................................................................. 39
Payments to Contract Owners.................................................................. 39
Contract Changes............................................................................. 40
Death Benefit................................................................................ 40
Annuity Payments............................................................................. 41
Annuity Options.............................................................................. 42
Payments of a Fixed Amount.............................................................. 43
Payments for a Fixed Period............................................................. 43
Life Annuity............................................................................ 43
Life Annuity With Payments Guaranteed for 10 or 20 Years................................ 43
Life Annuity With Guaranteed Return of Contract Value................................... 43
Joint and Survivor Life Annuity......................................................... 43
Individual Retirement Account Annuity................................................... 43
Gender-based Annuity Purchase Rates.......................................................... 44
FEDERAL INCOME TAXES............................................................................. 44
Federal Income Taxes......................................................................... 44
Tax Status of the Contract................................................................... 44
Taxation of Annuities........................................................................ 45
Penalty Tax on Some Withdrawals.............................................................. 46
Transfers, Assignments, or Exchanges of a Contract........................................... 46
Withholding ................................................................................. 46
Multiple Contracts........................................................................... 46
Possible Changes In Taxation................................................................. 46
Possible Charge For Our Taxes................................................................ 47
Individual Retirement Annuities.............................................................. 47
Other Tax Issues for IRAs and Roth IRAs...................................................... 48
OTHER INFORMATION................................................................................ 48
Voting Rights................................................................................ 48
Reports to Contract Owners................................................................... 48
Selling the Contract......................................................................... 48
State Regulation............................................................................. 49
Year 2000 ................................................................................... 49
Legal Proceedings............................................................................ 49
Experts ..................................................................................... 49
Legal Matters................................................................................ 50
Registration Statements...................................................................... 50
ACCUMULATION UNIT VALUES......................................................................... 51
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION..................................... 53
</TABLE>
6
<PAGE>
DEFINITIONS
ACCUMULATION UNIT: An index used to compute the value of the contract owner's
interest in a subaccount prior to the annuity date.
ANNUITANT: The person on whose continuation of life annuity payments may depend.
ANNUITY DATE: The date on which annuity payments begin.
BENEFICIARY: The person to whom payment is to be made on the death of the
contract owner.
CONTRACT ANNIVERSARY: The same date each year as the date of issue of the
Contract.
CONTRACT YEAR: The period from one contract anniversary to the day preceding the
next contract anniversary.
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.
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.
TAX SHELTERED ANNUITY: A Contract issued in connection with a retirement
arrangement that receives favorable tax status under Section 403(b) of the
Internal Revenue Code.
VALUATION PERIOD: The interval from one determination of the net asset value of
a subaccount to the next.
7
<PAGE>
FEE TABLE
A. Contract Owner Transaction Expenses
1. Sales Load Imposed on Premium ................................. None
2. Contingent Deferred Sales Charge
<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>
3. Transfer Fee ................................................... $25
The first 6 transfers among Separate Account A subaccounts in a
contract year are free. We currently do not, but may in the future,
charge a $25 fee 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.
The Fee Table and Examples do not include charges to contract owners
for premium taxes. Premium taxes may be applicable. Refer to the
PREMIUM TAXES section in this Prospectus for further details.
B. Annual Contract 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>
<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>
D. Fund Expenses for the Year Ended December 31, 1998 (see "Notes to Fee
Table") (as a percentage of each Fund's
average net assets)
<TABLE>
<CAPTION>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. (CLASS A SHARES)
----------------------------------------------------------------------------------------------------
HIGH SPECIAL NATURAL GLOBAL DOMESTIC
RESERVE PRIME CURRENT QUALITY VALUE RESOURCES STRATEGY AMERICAN MONEY
ANNUAL EXPENSES ASSETS BOND INCOME EQUITY FOCUS FOCUS* FOCUS(b) BALANCED* MARKET
- ------------------------- ------- ----- ------- ------- ------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees................... .50% .42% .47% .44% .75% .65% .65% .55% .50%
Other Expenses........... .18% .06% .06% .05% .06% .23% .07% .07% .06%
Total Annual Operating
Expenses............... .68% .48% .53% .49% .81% .88% .72% .62% .56%
Expense Reimbursements... 0% 0% 0% 0% 0% 0% 0% 0% 0%
Net Expenses............. .68% .48% .53% .49% .81% .88% .72% .62% .56%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. (CLASS A SHARES) (CONT'D)
------------------------------------------------------------------------------------------------------
DEVELOPING
BASIC GLOBAL GLOBAL INTERNATIONAL CAPITAL GLOBAL
VALUE BOND UTILITY EQUITY GOVERNMENT MARKETS INDEX 500 GROWTH CAPITAL
ANNUAL EXPENSES FOCUS FOCUS(b)** FOCUS* FOCUS** BOND(b) FOCUS(b) FUND FOCUS FOCUS
- -------------------- ----- -------- ------- ------------- ---------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees.............. .60% .60% .60% .75% .50% 1.00% .30% .75% .60%
Other Expenses...... .06% .15% .08% .14% .06% .42% .06% .28% .26%
Total Annual
Operating
Expenses.......... .66% .75% .68% .89% .56% 1.42% .36% 1.03% .86%
Expense
Reimbursements.... 0% 0% 0% 0% 0% .17% 0% 0% 0%
Net Expenses........ .66% .75% .68% .89% .56% 1.25% .36% 1.03% .86%
</TABLE>
<TABLE>
<CAPTION>
MFS-REGISTERED
TRADEMARK- VARIABLE MERCURY ASSET
AIM VARIABLE ALLIANCE VARIABLE PRODUCTS INSURANCE HOTCHKIS AND WILEY MANAGEMENT
INSURANCE FUNDS, INC. SERIES FUND, INC. TRUST-SM- VARIABLE TRUST V.I. FUNDS, INC.
---------------------- -------------------------- ------------------ ------------------ ----------------
AIM V.I. ALLIANCE MFS
CAPITAL AIM V.I. PREMIER ALLIANCE EMERGING MFS MERCURY V.I.
APPRECIATION VALUE GROWTH QUASAR GROWTH RESEARCH HOTCHKIS AND WILEY U.S. LARGE
ANNUAL EXPENSES FUND(e) FUND(e) PORTFOLIO(d) PORTFOLIO(d) SERIES SERIES INTERNATIONAL VIP CAP(c)***
- -------------------- ------------ -------- ------------ ------------ -------- -------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees.............. .62% .61% 1.00% .65% .75% .75% .75% .65%
Other Expenses...... .05% .05% .09% .30% .10% .11% .30% 1.05%
Total Annual
Operating
Expenses.......... .67% .66% 1.09% .95% .85% .86% 1.05% 1.70%
Expense
Reimbursements.... 0% 0% 0% 0% 0% 0% 0% .45%
Net Expenses........ .67% .66% 1.09% .95% .85% .86% 1.05% 1.25%
</TABLE>
<TABLE>
<CAPTION>
DEFINED ASSET FUNDS
-------------------------------------
ANNUAL EXPENSES SELECT TEN TRUST(f)
- -------------------------------------------------- -------------------------------------
<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 on or about June
18, 1999.
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+.......... $14 $44 $76 $167
SEPARATE ACCOUNT A SUBACCOUNT
INVESTING IN:
Prime Bond Fund+.............. $84 $110 $135 $222
High Current Income Fund+..... $85 $111 $137 $228
Quality Equity Fund+.......... $85 $110 $135 $223
Special Value Focus Fund+..... $88 $119 $151 $257
Natural Resources Focus
Fund+*...................... $88 $121 $155 $265
Global Strategy Focus Fund+... $87 $117 $147 $248
American Balanced Fund+*...... $86 $114 $142 $237
Domestic Money Market Fund+... $85 $112 $139 $231
Basic Value Focus Fund+....... $86 $115 $144 $242
Global Bond Focus Fund+**..... $87 $117 $148 $251
Global Utility Focus Fund+*... $86 $115 $145 $244
International Equity Focus
Fund+**..................... $88 $122 $155 $266
Government Bond Fund+......... $85 $112 $139 $231
Developing Capital Markets
Focus Fund+................. $92 $132 $173 $302
Index 500 Fund+............... $83 $106 $129 $209
Global Growth Focus Fund+..... $90 $126 $162 $280
Capital Focus Fund+........... $88 $121 $154 $262
Select Ten Trust.............. $86 $114 $142 $232
AIM V.I. Capital Appreciation
Fund........................ $86 $115 $144 $243
AIM V.I. Value Fund........... $86 $115 $144 $242
Alliance Premier Growth
Portfolio................... $90 $127 $165 $286
Alliance Quasar Portfolio..... $89 $123 $158 $272
MFS Emerging Growth Series.... $88 $120 $153 $261
MFS Research Series........... $88 $121 $154 $262
Hotchkis and Wiley
International VIP
Portfolio................... $90 $126 $163 $282
Mercury V.I. U.S. Large Cap
Fund***..................... $93 $135 $178 $312
</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+.......... $14 $44 $76 $167
SEPARATE ACCOUNT A SUBACCOUNT
INVESTING IN:
Prime Bond Fund+.............. $19 $60 $103 $222
High Current Income Fund+..... $20 $61 $105 $228
Quality Equity Fund+.......... $19 $60 $103 $223
Special Value Focus Fund+..... $23 $70 $120 $257
Natural Resources Focus
Fund+*...................... $23 $72 $124 $265
Global Strategy Focus Fund+... $22 $67 $115 $248
American Balanced Fund+*...... $21 $64 $110 $237
Domestic Money Market Fund+... $20 $62 $107 $231
Basic Value Focus Fund+....... $21 $65 $112 $242
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Global Bond Focus Fund+**..... $22 $68 $117 $251
Global Utility Focus Fund+*... $21 $66 $113 $244
International Equity Focus
Fund+**..................... $24 $73 $124 $266
Government Bond Fund+......... $20 $62 $107 $231
Developing Capital Markets
Focus Fund+................. $27 $84 $143 $302
Index 500 Fund+............... $18 $56 $96 $209
Global Growth Focus Fund+..... $25 $77 $131 $280
Capital Focus Fund+........... $23 $72 $123 $262
Select Ten Trust.............. $21 $64 $110 $237
AIM V.I. Capital Appreciation
Fund........................ $21 $66 $113 $243
AIM V.I. Value Fund........... $21 $65 $112 $242
Alliance Premier Growth
Portfolio................... $26 $79 $134 $286
Alliance Quasar Portfolio..... $24 $74 $127 $272
MFS Emerging Growth Series.... $23 $71 $122 $261
MFS Research Series........... $23 $72 $123 $262
Hotchkis and Wiley
International VIP
Portfolio................... $25 $77 $132 $282
Mercury V.I. U.S. Large Cap
Fund***..................... $28 $87 $148 $312
</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 on or about June
18, 1999.
11
<PAGE>
The preceding Fee Table and Examples help you understand the costs and expenses
you will bear, directly or indirectly. The Fee Table and Examples include
expenses and charges of the Accounts as well as the Funds. The Examples also
reflect the $40 contract maintenance charge as .028% of average assets. See the
CHARGES AND DEDUCTIONS section in this Prospectus and the Fund prospectuses for
a further discussion of fees and charges.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR ANNUAL RATES OF RETURN OF ANY FUND. ACTUAL EXPENSES AND ANNUAL RATES
OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR THE PURPOSE OF THE
EXAMPLES.
Condensed financial information containing the accumulation unit value history
appears at the end of this prospectus.
NOTES TO FEE TABLE
(a) Merrill Lynch Asset Management L.P. ("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. Under this Reimbursement Agreement, the
Developing Capital Markets Focus Fund was reimbursed for a portion of its
operating expenses for 1998.
(b) Effective following the close of business on December 6, 1996, (i) the
International Bond Fund 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
merged with and into the Global Strategy Focus Fund; and (iii) the
Intermediate Government Bond Fund and its investment objective was modified.
See the accompanying prospectus for Merrill Variable Funds for additional
information regarding these changes.
(c) "Other Expenses" and "Total Annual Operating Expenses" shown for the
Mercury V.I. U.S. Large Cap Fund are based on expenses estimated for the
current fiscal year. The Mercury V.I. U.S. Large Cap Fund is subject to a
Reimbursement Agreement that limits the operating expenses paid by the Fund
in a given year to 1.25% of its average net assets.
(d) The Fee Table does not reflect fees waived or expenses assumed by Alliance
Capital Management L.P. ("Alliance") for the Alliance Quasar Portfolio and
the Alliance Premier Growth Portfolio during the year ended December 31,
1998. Such waivers and assumption of expenses were made on a voluntary
basis. Alliance may discontinue or reduce any such waiver or assumption of
expenses at any time without notice. During the fiscal year ended December
31, 1998, Alliance waived management fees totaling 0.35% for the Alliance
Quasar Portfolio and 0.03% for Alliance Premier Growth Portfolio.
Considering such reimbursements, "Investment Advisory Fees" would have been
0.65% and 0.97% and "Total Annual Operating Expenses" would have been 1.00%
and 1.06% for the Alliance Quasar Portfolio and Alliance Premier Growth
Portfolio, respectively.
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(e) Effective May 1, 1998, the Funds reimburse AIM Advisors, Inc. 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.
(f) 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 Unit basis, are as follows: $0.82
(trustee's fee); $0.45 (portfolio supervision, bookkeeping and
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.
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CAPSULE SUMMARY OF THE CONTRACT
------------------------------
This capsule summary provides a brief overview of the Contract. More detailed
information about the Contract can be found in the sections of this prospectus
that follow, all of which should be read in their entirety.
PREMIUMS
Generally, before the annuity date you can pay premiums as often as you like.
The minimum initial premium is $5,000 for a non-qualified Contract and $2,000
for an IRA Contract. It is intended that, in the future, rollover and transfer
amounts from tax sheltered annuity plans that are not subject to the Employee
Retirement Income Security Act of 1974, as amended, will be accepted as premium
payments, as permitted by law, under a Contract. Other premium payments will not
be accepted under a Contract used as a tax sheltered annuity. Subsequent
premiums generally must be $100 or more. Federal law limits maximum annual
contributions to IRA Contracts. Under an automatic investment feature, you can
make subsequent premium payments systematically from your Merrill Lynch
brokerage account. For more information, contact your Financial Consultant.
Tax-deferred arrangements, including qualified plans, purchasing the
Contract--which also provides tax deferral on contract value--should carefully
consider the costs and benefits of the Contracts, including annuity income
benefits.
THE ACCOUNTS
As you direct, we will put premiums into sub-accounts of Account A and/or
Account B corresponding to the Funds in which we invest your contract value. For
the first 14 days following the date of issue, we put all premiums you've
directed into Account A into the Domestic Money Market Subaccount. After the 14
days, we'll put the money into the Account A subaccounts you've selected.
Currently, you may allocate premiums or contract value among 18 of 21 available
subaccounts. Generally, within certain limits you may transfer Account A account
value periodically among Account A subaccounts. On or about June 18, 1999, an
additional subaccount corresponding to the Mercury V.I. U.S. Large Cap Fund of
the Mercury Asset Management V.I. Funds, Inc. becomes available for allocations
of premium and contract value. Generally, within certain limits you may transfer
Account A account value periodically among Account A subaccounts.
THE FUNDS AVAILABLE FOR INVESTMENT
- --ARROW-- FUNDS OF MERRILL LYNCH VARIABLE SERIES FUNDS
--ARROW-- Domestic Money Market Fund
--ARROW-- Prime Bond Fund
--ARROW-- High Current Income Fund
--ARROW-- Quality Equity Fund
--ARROW-- Special Value Focus Fund
--ARROW-- Global Strategy Focus Fund
--ARROW-- Basic Value Focus Fund
--ARROW-- Capital Focus Fund
--ARROW-- Global Growth Focus Fund
--ARROW-- Government Bond Fund
--ARROW-- Developing Capital Markets Focus Fund
--ARROW-- Index 500 Fund
--ARROW-- Reserve Assets Fund
- --ARROW-- FUNDS OF ALLIANCE VARIABLE PRODUCTS SERIES FUND
--ARROW-- Premier Growth Portfolio
--ARROW-- Quasar Portfolio
- --ARROW-- FUNDS OF AIM VARIABLE INSURANCE FUNDS, INC.
--ARROW-- V.I. Capital Appreciation Fund
--ARROW-- V.I. Value Fund
- --ARROW-- FUNDS OF MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
--ARROW-- Emerging Growth Series
--ARROW-- Research Series
- --ARROW-- FUNDS OF HOTCHKIS AND WILEY VARIABLE TRUST
--ARROW-- International VIP Portfolio
- --ARROW-- TRUSTS OF DEFINED ASSETS FUNDS
--ARROW-- 1999 ML Select Ten V.I. Trust
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We have closed subaccounts investing in the Natural Resources Focus Fund,
American Balanced Fund, Global Bond Focus Fund, International Equity Focus Fund,
and Global Utility Focus Fund of the Merrill Lynch Variable Series Funds.
If you want detailed information about the investment objectives of the Funds,
see "Investments of the Accounts" and the attached prospectuses for the Funds.
FEES AND CHARGES
MORTALITY & EXPENSE RISK CHARGE
We impose a mortality and expense risk charge to cover certain risks. The
mortality portion compensates us for mortality risks we assume for the annuity
payment and death benefit guarantees made under the Contract. The expense
portion compensates us for expense risks we assume if the contract maintenance
and administration charges aren't enough to cover all Contract maintenance and
administration expenses. The charge equals 1.25% annually for Account A and
0.65% annually for Account B. We deduct it daily from the net asset value of the
Accounts. This charge ends on the annuity date.
SALES CHARGE
We may impose a deferred sales charge only if you withdraw money from Account A.
The maximum charge is 7% of premium withdrawn during the first year after that
premium is paid. The charges decrease by 1% each year. After year seven, it's
0%. We don't impose a sales charge on withdrawals or surrenders from Account B.
ADMINISTRATION CHARGE
We charge 0.10% annually to reimburse us for costs associated with the
establishment and administration of the Contract. We deduct this charge daily
only from the net asset value of Account A. We don't impose the charge on the
assets of Account B. This charge ends on the annuity date.
CONTRACT MAINTENANCE CHARGE
We charge $40 a year to reimburse us for expenses related to maintenance of the
Contract. We waive this charge on all Contracts with a contract value of at
least $50,000 and in certain circumstances where you own at least three
contracts. The charge ends on the annuity date.
PREMIUM TAXES
On the annuity date we deduct a charge for any premium taxes imposed by a state
or local government. Premium tax rates vary from jurisdiction to jurisdiction.
They currently range from 0% to 5%.
You can find detailed information about fees and charges imposed on the Contract
under "Charges and Deductions".
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TRANSFERS
TRANSFERS AMONG ACCOUNT A SUBACCOUNTS
Before the annuity date, you may transfer all or part of your Account A value
among the subaccounts up to six times per contract year without charge. However,
the Natural Resources Focus Subaccount, American Balanced Subaccount, Global
Bond Focus Subaccount, International Equity Focus Subaccount, and Global Utility
Focus Subaccount are closed to new transfers.
You may make more than six transfers among available subaccounts, but we may
charge $25 per extra transfer. You may elect a Dollar Cost Averaging feature so
that monthly money you've put in the Domestic Money Market Subaccount is
systematically transferred into other Account A subaccounts you select without
charge. In addition, through participation in the Merrill Lynch RPA-SM- program,
you may have your Account A values invested under an investment program based on
your investment profile (See "Transfers", "Dollar Cost Averaging", and "Merrill
Lynch Retirement Plus Advisor-SM-").
TRANSFERS FROM ACCOUNT A TO ACCOUNT B
Once each contract year, you may transfer from Account A to Account B an amount
equal to any gain in account value since the date of issue and/or any premium no
longer subject to a sales charge. Where permitted by state regulation, once each
contract year, you may transfer from Account A to Account B all or a portion of
the greater of that amount or 10% of premiums still subject to a sales charge
(minus any premium already withdrawn or transferred). Additionally, where
permitted by state regulation, we allow periodic transfers of all or a portion
of the greater amount, determined at the time of each periodic transfer, on a
monthly, quarterly, semiannual or annual basis.
This is the only amount you may transfer from Account A to Account B during a
contract year. We impose no charge on this transfer. We don't permit transfers
from Account B to Account A. The following example shows how transfers work.
WITHDRAWALS
You can withdraw money from the Contract six times each contract year.
Withdrawals from Account A are generally subject to a sales charge (see "Sales
Charge"). However, we won't impose a sales charge to the first withdrawal in any
contract year of gain out of Account A and/or to any premium no longer subject
to a sales charge. Where permitted by state regulation, we won't impose a sales
charge on that portion of the first withdrawal from Account A in any contract
year that does not exceed the greater of:
(1) any gain in account value and/or any premium not subject to a sales
charge; and
(2) 10% of premiums subject to a sales charge (minus any of that premium
already withdrawn or transferred out of Account A).
Additionally, where permitted by state regulation, you may elect that the amount
withdrawn be paid on a monthly, quarterly, semi-annual or annual basis. The
following example shows how withdrawals work.
We don't impose a sales charge on withdrawals from Account B.
In addition to the six withdrawals permitted each contract year, you may
withdraw the value in Account B automatically on a monthly, quarterly,
semi-annual, or annual basis. These automatic withdrawals are not subject to any
sales charge (see "Withdrawals & Surrenders").
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A withdrawal may have adverse tax consequences (see "Federal Income Taxes").
DEATH BENEFIT
Regardless of investment experience, the Contract provides a guaranteed minimum
death benefit if you die before the annuity date.
Currently, if you are age 80 or under on the issue date, the death benefit
equals the greatest of:
(1) premiums paid less any withdrawals,
(2) the contract value, or
(3) the maximum death benefit value.
If you are over age 80 on the issue date, the death benefit equals the greater
of:
(1) premiums paid less any withdrawals, or
(2) the contract value.
The maximum death benefit value equals the greatest anniversary value of Account
A, plus the value of Account B.
ANNUITY PAYMENTS
Annuity payments begin on the annuity date and are made under the annuity option
you select. When you first buy the Contract, the annuity date for nonqualified
Contracts is the annuitant's 85th birthday. The annuity date for IRA Contracts
or Tax Sheltered Annuity Contracts is when the owner/annuitant reaches age
70 1/2.
Details about the annuity options available under the Contract can be found
under "Annuity Options".
TEN DAY REVIEW
When you receive the Contract, read it carefully to make sure it's what you
want. Generally, within 10 days after you receive the Contract, you may return
it for a refund. Some states allow a longer period of time to return the
Contract. To get a refund, return the Contract to the Service Center or to the
Financial Consultant who sold it. We will then refund the greater of all
premiums paid into the Contract or the contract value as of the date you return
the Contract.
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<PAGE>
YIELDS AND TOTAL RETURNS
From time to time, we may advertise yields, effective yields, and total returns
for the subaccounts. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT
INDICATE OR PROJECT FUTURE PERFORMANCE. We may also advertise performance of the
subaccounts in comparison relative to certain performance rankings and indices.
More detailed information on 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. Fund expenses influence Fund performance.
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 is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of an Account A subaccount (besides 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 the income generated by the investment during that 30-day or
one-month period is generated each period over 12 months and is shown as a
percentage of the investment.
The average annual total return of a subaccount refers to return quotations
assuming an investment has been held in each subaccount for 1, 5 and 10 years,
or for a shorter period, if applicable. The average annual total returns
represent the average compounded rates of return that would cause an initial
investment of $1,000 to equal the value of that investment at the end of each
period. These percentages include any sales charge that would apply if you
terminated the Contract at the end of each period indicated, but exclude any
deductions for premium taxes.
We may also advertise or present yield or total return performance information
computed on different bases, but this information will always be accompanied by
average annual total returns for the corresponding subaccounts. For example, we
may present total return information that doesn't reflect a deduction for the
sales charge. This presentation assumes that an investment in the Contract will
extend beyond the period when the sales charge applies, consistent with the long
term investment and retirement objectives of the Contract. We may also advertise
total return performance information for the Funds. We may also present total
return performance information for a subaccount for periods before the date the
subaccount commenced operations. If we do, we'll base performance of the
corresponding Fund as if the subaccount existed for the same periods as those
indicated for the corresponding Fund, with a level of fees and charges equal to
those currently imposed under the Contracts. We 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 described above except
for the 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 and 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, with investment objectives similar to each
of the Funds corresponding to the subaccounts.
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<PAGE>
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. Ranking services
we 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 we 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. The tax deferral may be illustrated by graphs and charts and
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
We are a stock life insurance company organized under the laws of the State of
New York on November 28, 1973. We are owned by Merrill Lynch & Co., Inc., a
corporation whose common stock is traded on the New York Stock Exchange.
Our financial statements can be found in the Statement of Additional
Information. You should consider them only in the context of our ability to meet
any Contract obligation.
THE ACCOUNTS
You may direct 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 through its subaccounts a variety of
investment options. Each option has a different investment objective. The ML of
New York Variable Annuity Separate Account B ("Account B") offers a money market
investment through its subaccount.
We established the Accounts on August 14, 1991. They are governed by New York
law, our state of domicile. They are registered with the Securities and Exchange
Commission as unit investment trusts under the Investment Company Act of 1940.
Each account meets the definition of a separate account under the federal
securities laws. The Accounts' assets are SEGREGATED from all of our other
assets.
SEGREGATION OF ACCOUNT ASSETS
Obligations to contract owners and beneficiaries that arise under the
Contract are our obligations. We own all of the assets in the Accounts. Each
Account's income, gains, and losses, whether or not realized, derived from
Account assets are credited to or charged against the Account without regard to
our other income, gains or losses. The assets in each Account will always be at
least equal to the reserves and other liabilities of the Account. If an
Account's assets exceed the required reserves and other Contract liabilities, we
may transfer the excess to our general account. Under New York insurance law the
assets in each Account, to the extent of its
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reserves and liabilities, may not be charged with liabilities arising out of any
other business we conduct nor may the assets of either Account be charged with
any liabilities of the other Account.
NUMBER OF SUBACCOUNTS; SUBACCOUNT INVESTMENTS
There are 20 subaccounts currently available through Account A and one
subaccount currently available through Account B. Five subaccounts previously
available through Account A (the Natural Resources Focus Subaccount, the
American Balanced Subaccount, the Global Bond Focus Subaccount, the
International Equity Focus Subaccount and the Global Utility Focus Subaccount)
are closed to allocations of premiums and contract value. All subaccounts invest
in a corresponding portfolio of the Merrill Lynch Variable Series Funds, Inc.
(the "Merrill Variable Funds"); the AIM Variable Insurance Funds, Inc. (the "AIM
V.I. Funds"); the Alliance Variable Products Series Fund, Inc. (the "Alliance
Fund"); the MFS-Registered Trademark- Variable Insurance Trust-SM- (the "MFS
Trust"); the Hotchkis and Wiley Variable Trust (the "Hotchkis and Wiley Trust");
or the Defined Asset Funds. Additional subaccounts may be added or closed in the
future. On or about June 18, 1999, an additional subaccount corresponding to the
Mercury V.I. U.S. Large Cap Fund of the Mercury Asset Management V.I. Funds,
Inc. becomes available for allocations of premiums and contract value.
Although the investment objectives and policies of certain Funds are similar to
the investment objectives and policies of other portfolios that may be managed
or sponsored by the same investment adviser, manager, or sponsor, nevertheless,
we do not represent or assure that the investment results will be comparable to
any other portfolio, even where the investment advisors or manager is the same.
Differences in portfolio size, actual investments held, fund expenses, and other
factors all contribute to differences in fund performance. For all of these
reasons, you should expect investment results to differ. In particular, certain
funds available only through the contract have names similar to funds not
available through the Contract. The performance of a fund not available through
the Contract should not be indicative of performance of the similarly named fund
available through the Contract.
INVESTMENTS OF THE ACCOUNTS
GENERAL INFORMATION AND INVESTMENT RISKS
Information about investment objectives, management, policies, restrictions,
expenses and all other aspects of fund operations can be found in the applicable
prospectus and its Statement of Additional Information. Fund shares are
currently sold to our separate accounts as well as separate accounts of Merrill
Lynch Life Insurance Company (an indirect wholly owned subsidiary of Merrill
Lynch & Co., Inc.), and insurance companies not affiliated with us to fund
benefits under certain variable annuity and variable life insurance contracts.
Shares of these funds may be offered in the future to certain pension or
retirement plans.
Generally, you should consider the funds long-term investments and vehicles for
diversification, but not as a balanced investment program. Many of these funds
may not be appropriate as the exclusive investment to fund a Contract for all
contract owners. There is no guarantee that any fund will be able to meet its
investment objectives. Meeting these objectives depends upon future economic
conditions and upon how well fund management anticipates changes in economic
conditions.
MERRILL LYNCH 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 18 of its
separate investment mutual fund portfolios. The Reserve Assets Fund is available
only to Account B. These Funds' shares are currently sold to our separate
accounts as well as separate accounts of Merrill Lynch Life Insurance Company
(an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.),
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and insurance companies not affiliated with us to fund benefits under certain
variable annuity and variable life insurance contracts.
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM")
MLAM is the investment adviser to the Merrill Variable Funds. MLAM is a
worldwide mutual fund leader, and together with its affiliate, Fund Asset
Management, L.P., had a total of $460 billion in investment company and other
portfolio assets under management as of January 1998. It is registered as an
investment adviser under the Investment Advisers Act of 1940. MLAM is an
indirect subsidiary of Merrill Lynch & Co., Inc. MLAM's principal business
address is 800 Scudders Mill Road, Plainsboro, New Jersey 08536. As the
investment adviser, it is paid fees by these Funds for its services. The fees
charged to each of these Funds are set forth in the summary below.
INVESTMENT OBJECTIVES
Details about these Funds, including their investment objectives,
management, policies, restrictions, expenses and risks, and all other aspects of
these Funds' operation can be found in the attached prospectus for the Merrill
Variable Funds and in their Statement of Additional Information. Read these
carefully before investing. As described in the prospectus for Merrill Variable
Funds, many of these Funds should be considered a long-term investment and a
vehicle for diversification, and not as a balanced investment program. Such
Funds may not be appropriate as the exclusive investment to fund a Contract for
all contract owners. The Merrill Variable Funds prospectus also describes
certain additional risks, including investing on an international basis or in
foreign securities and investing in lower rated or unrated fixed income
securities. There is no guarantee that any Fund will be able to meet its
investment objective. Meeting the objectives depends upon future economic
conditions and upon how well these Funds' management anticipates changes in
those economic conditions.
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 an advisory fee from the Fund 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 Investors
Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("Standard &
Poor's"). MLAM receives an advisory fee from the Fund at the annual rate of
0.50% of the first $250 million of the combined average daily nets assets of the
Fund and High Current Income Fund; 0.45% of the next $250 million; 0.40% of the
next $250 million; and 0.35% of the combined average daily net assets, in excess
of $750 million. The reduction of the advisory fee applicable to the Fund is
determined on a uniform percentage basis as described in the Statement of
Additional Information for the Merrill Variable Funds.
HIGH CURRENT INCOME FUND. This Fund seeks to obtain the highest level of current
income as is consistent with the investment policies of the Fund and with
prudent investment management. Secondarily, the Fund seeks capital appreciation
to the extent consistent with the foregoing objective. The Fund invests
principally in fixed-income securities that are rated in the lower rating
categories of the established rating services or in unrated securities of
comparable quality (including securities commonly known as "junk bonds").
Investment in such securities entails relatively greater risk of loss of income
or principal. In an effort to minimize risk, the Fund
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will diversify its holdings among many issuers. However, there can be no
assurance that diversification will protect the Fund from widespread defaults
during periods of sustained economic downturn. MLAM receives an advisory fee
from the Fund at the annual rate of 0.55% of the first $250 million of the
combined average daily net assets of the Fund and Prime Bond Fund; 0.50% of the
next $250 million; 0.45% of the next $250 million; and 0.40% of the combined
average daily net assets in excess of $750 million. The reduction of the
advisory fee applicable to the Fund is determined on a uniform percentage basis
as described in the Statement of Additional Information for the Merrill Variable
Funds.
QUALITY EQUITY FUND. This Fund seeks to achieve the highest total investment
return consistent with prudent risk. The Fund employs a fully managed investment
policy utilizing equity securities, primarily common stocks of
large-capitalization companies, as well as investment grade debt and convertible
securities. Management of the Fund will shift the emphasis among investment
alternatives for capital growth, capital stability, and income as market trends
change. MLAM receives an advisory fee from the Fund at the annual rate of 0.50%
of the first $250 million of average daily net assets; 0.45% of the next $50
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,
and of emerging growth companies regardless of size. Companies are selected by
management on the basis of their long-term potential for expanding their size
and profitability or for gaining increased market recognition for their
securities. Current income is not a factor in the selection of securities. MLAM
receives an advisory fee from the Fund at the annual rate of 0.75% of the
average daily net assets of the Fund. This is a higher fee than that of many
other mutual funds, but management of the Fund believes it is justified by the
high degree of care that must be given to the initial selection and continuous
supervision of the types of portfolio securities in which the Fund invests.
NATURAL RESOURCES FOCUS FUND. This Fund seeks to achieve long-term growth of
capital and protect the purchasing power of capital by investing primarily in
equity securities of domestic and foreign companies with substantial natural
resource assets. MLAM receives an advisory fee from the Fund at the annual rate
of 0.65% of the average daily net assets of the Fund.
We reserve the right to suspend the sale of units of the Natural Resources Focus
Subaccount in response to conditions in the securities markets or otherwise.
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 an
advisory fee from the Fund 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,
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<PAGE>
Western Europe, the Far East and Latin America. MLAM receives an advisory fee
from the Fund at the annual rate of 0.65% of the average daily net assets of the
Fund.
Effective following the close of business on December 6, 1996, the Flexible
Strategy Fund was merged with and into the Global Strategy Focus Fund.
BASIC VALUE FOCUS FUND. This Fund seeks capital appreciation and, secondarily
income by investing in securities, primarily equities, that management of the
Fund believes are undervalued and therefore represent basic investment value.
The Fund seeks special opportunities in securities that are selling at a
discount, either from book value or historical price-earnings ratios, or seem
capable of recovering from temporarily out-of-favor considerations. Particular
emphasis is placed on securities which provide an above-average dividend return
and sell at a below-average price/earnings ratio. MLAM receives an advisory fee
from the Fund at the annual rate of 0.60% of the average daily net assets of the
Fund.
GLOBAL 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 an advisory fee from the Fund 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 was 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 an advisory fee from the Fund 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 an advisory fee from the Fund at the annual rate of 0.75% 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 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.
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<PAGE>
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 an advisory fee from the Fund 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; U.S. government agency
securities; bank certificates of deposit and bankers' acceptances; short-term
debt securities such as commercial paper and variable amount master demand
notes; repurchase agreements and other money market instruments. MLAM receives
an advisory fee from the Fund at the annual rate of 0. 50% of the first $500
million of the Fund's average daily net assets; 0.425% of the next $250 million;
0.375% of the next $250 million; 0.35% of the next $500 million; 0.325% of the
next $500 million; 0.30% of the next $500 million; and 0.275% of the average
daily net assets in excess of $2.5 billion.
INDEX 500 FUND. This Fund seeks investment results that, before expenses,
correspond to the aggregate price and yield performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index"). MLAM receives an advisory
fee from the Fund at an annual rate of 0.30% of the Fund's average daily net
assets.
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
an advisory fee from the Fund at the annual rate of 0.60% of the Fund's average
daily net assets.
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 an advisory fee from the Fund at an
annual rate of 0.75% of the Fund's average daily net assets.
DEFINED ASSET FUNDS--SELECT TEN TRUST
Defined Asset Funds is America's oldest and largest family of unit
investment trusts, with over $160 billion sponsored over the last 28 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. Units are redeemable securities.
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<PAGE>
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 MLIG 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 10
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, 1999) and holds them for about one year. 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,
2000), THE SELECT TEN TRUST WILL BE LIQUIDATED. WE CURRENTLY ANTICIPATE THAT THE
SAME INVESTMENT STRATEGY WILL BE REAPPLIED TO THE DJIA TO SELECT (AS OF THREE
BUSINESS DAYS PRIOR TO MAY 1, 2000) A NEW STOCK PORTFOLIO FOR A SUCCESSOR TRUST,
SUBJECT TO OUR OBTAINING NECESSARY REGULATORY APPROVALS. At that time, it is
contemplated that Trust Units will be redeemed, and the proceeds will be
immediately invested in a new trust. Brokerage commissions in selling and
purchasing stocks for the rollover trust will be borne indirectly by contract
owners.
The Select Ten Trust will terminate on or about May 1, 2000. From that date, for
thirty days after the Rollover Date, you will be permitted to make one transfer
from the Select Ten subaccount of all account value in the Select Ten subaccount
to other subaccounts of Account A. This special transfer won't count toward the
six transfers among subaccounts of Account A that may be made without charge
during a contract year. In addition, we won't exercise our right to impose
additional conditions or charges on transfers during this thirty day time
period. See "TRANSFERS".
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.
WE RESERVE THE RIGHT TO CEASE OFFERING THE SELECT TEN SUBACCOUNT AT ANY TIME.
THERE CAN BE NO ASSURANCE THAT DEFINED ASSET FUNDS OR MLPF&S WILL CONTINUE TO
MAKE TRUSTS AVAILABLE IN 2000 OR THEREAFTER.
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.
AIM 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 is a wholly owned subsidiary of AIM 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.
- --------
* 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>
AIM V.I. Funds has entered into an Administrative Services Agreement with AIM,
under 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 us with respect to administrative
services for these Funds in connection with the Contracts. Under this agreement,
AIM pays us compensation in an amount equal to a percentage of the average net
assets of these Funds attributable to the Contracts.
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 you 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 an advisory fee
from the Fund 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. You shouldn't select the subaccount
corresponding to this Fund if income is your primary investment objective. AIM
receives an advisory fee from the Fund 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 two of its separate investment
portfolios. 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 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 us with respect to administrative services for these
Funds in connection with the Contracts. Under this agreement, AFD pays us
compensation 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 is
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<PAGE>
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 receives an advisory fee
from the Fund 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 an advisory fee from the Fund at an
annual rate of 1.00% of the Fund's average daily net assets. (See "Notes to Fee
Table" for a discussion of a reimbursement arrangement applicable to this Fund.)
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
MFS-Registered Trademark- Variable Insurance Trust-SM- ("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.
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 a subsidiary of Sun Life of Canada
(U.S.), Financial Services Holdings, Inc. which, in turn, is a indirect 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 will seek long-term growth of capital. The series
invests, under normal market conditions, at least 65% of its total assets in
common stocks and related securities, such as preferred stocks, convertible
securities and depositary receipts for those securities, of emerging growth
companies. These companies are companies that the series' adviser believes are
either early in their life cycle but have the potential to become major
enterprises or are major enterprises whose rates of earnings growth are expected
to accelerate.
MFS RESEARCH SERIES will seek to provide long-term growth of capital and future
income. The series invests, under normal market conditions, at least 80% of its
total assets in common stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts. The series focuses on companies
that the series' adviser believes have favorable prospects for long-term growth,
attractive valuations based on current and expected earnings or cash flow,
dominant or growing market share and superior management.
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.
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<PAGE>
The Hotchkis and Wiley Trust 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, 725 S. Figueroa Street, Suite 4000, Los Angeles, California
90017-5400, 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 MLAM. 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 objectives 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 the
Hotchkis and Wiley International VIP Portfolio to Hotchkis and Wiley
attributable to such contracts.
HOTCHKIS AND WILEY INTERNATIONAL VIP PORTFOLIO. The Fund's investment objective
is to provide CURRENT INCOME and LONG-TERM GROWTH OF INCOME, accompanied by
GROWTH OF CAPITAL.
The Fund invests at least 65% of its total assets in stocks in at least ten
foreign markets. Ordinarily, the Fund invests in stocks of companies located in
the developed foreign markets and invests at least 80% of its total assets in
stocks that pay dividends. It also may invest in stocks that don't pay dividends
or interest, but have growth potential unrecognized by the market or changes in
business or management that indicate growth potential. In investing the Fund,
Hotchkis and Wiley follows a VALUE style. This means that it buys stocks that it
believes are currently undervalued by the market and thus have a lower price
than their true worth. Typical VALUE characteristics include:
- low price-to-earnings ration relative to the market;
- high dividend yield relative to the market;
- Low price-to-book value ratio relative to the market;
- financial strength.
Stocks may be "undervalued" because they are part of an industry that is out of
favor with investors generally. Even in those industries, though, individual
companies may have high rates of growth of earnings and be financially sound. At
the same time, the price of their common stock may be depressed because
investors associate the companies with their industries. This value discipline
sometimes prevents investments in stocks that are in well-known indexes, like
the S&P 500 or similar large foreign indexes. 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.
MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
Mercury Asset Management V.I. Funds, Inc. ("Mercury V.I. Funds") is
registered with the Securities and Exchange Commission as an open-end management
investment company, and its adviser is Mercury Asset Management International
Ltd. One of its mutual fund portfolios becomes available through the Separate
Account on or about June 18, 1999. The investment objective of the Mercury V.I.
U.S. Large Cap Fund is described below.
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<PAGE>
Mercury Asset Management International Ltd. is located at 33 King William
Street, London EC4R 9AS, England. Its intermediate parent is Mercury Asset
Management Group Ltd. a London-based holding company. The ultimate parent of
Mercury Asset Management Group Ltd. is Merrill Lynch & Co., Inc. The Mercury
V.I. U.S. Large Cap Fund, as part of its operating expenses, pays an investment
advisory fee to Mercury Asset Management International Ltd. set forth in the
summary of investment objective below.
Mercury Asset Management International Ltd. has entered into an agreement with
MLIG with respect to administrative services for the Mercury V.I. Funds in
connection with the Contracts and certain contracts issued by Merrill Lynch Life
Insurance Company. Under this agreement, Mercury Asset Management International
Ltd. pays compensation to MLIG in an amount equal to a portion of the annual
gross investment advisory fees paid by the Mercury V.I. U.S. Large Cap Fund to
Mercury Asset Management Internatonal Ltd. attributable to such contracts.
MERCURY V.I. U.S. LARGE CAP FUND. This Fund's main goal is long-term capital
growth. The Fund invests primarily in a diversified portfolio of equity
securities of large cap companies (which are companies whose market
capitalization is at least $5 billion) located in the U.S. that Fund Management
believes are undervalued or have good prospects for earnings growth. The Fund
may also invest up to 10% of its assets in stocks of companies located in
Canada. The Mercury V.I. Funds incurs operating expenses and pays a monthly
advisory fee to Mercury Asset Management International Ltd. at an annual rate of
.65% of the average daily net assets of the Mercury V.I. U.S. Large Cap Fund.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about June 18, 1999.
PURCHASES AND REDEMPTIONS OF FUND SHARES; REINVESTMENT
The Accounts will purchase and redeem shares or Trust Units of the Funds at
net asset value to provide benefits under the Contract. Fund distributions to
the Accounts are automatically reinvested at net asset value in additional
shares or Trust Units of the Funds.
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, we
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, we will take the action we believe necessary to protect our contract
owners.
We may substitute a different investment option for any of the current Funds. We
can do this for both existing investments and the investment of future premiums.
However, before any such substitution, we would need the approval of the
Securities and Exchange Commission and applicable state insurance departments.
We will notify you of any substitutions.
We may also add new subaccounts 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
29
<PAGE>
another subaccount or Account pursuant to a combination or otherwise, and create
new accounts. Before we make certain changes we need approval of the Securities
and Exchange Commission and applicable state insurance departments. We will
notify you of any changes.
CHARGES AND DEDUCTIONS
We deduct the charges described below to cover costs and expenses, services
provided, and risks assumed under the Contracts. The amount of a charge may not
necessarily correspond to the costs associated with providing the services or
benefits. For example, the sales charge may not fully cover all of the sales and
distribution expenses we actually incur, and we may use proceeds from other
charges, including the mortality and expense risk charge, in part to cover such
expenses.
MORTALITY AND EXPENSE RISK CHARGE
We impose a mortality and expense risk charge on the Accounts. It equals
1.25% annually for Account A and 0.65% annually for Account B. We deduct it
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 we assume for the annuity payment and death benefit guarantees made under
the Contract. These guarantees include making annuity payments which won't
change based on our actual mortality experience, and providing a guaranteed
minimum death benefit under the Contract.
The remaining portion of the charge, 0.50% annually for Account A and 0.30%
annually for Account B, is attributable to expense risks we assume 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 guaranteed greater death benefit and higher administrative
expenses are attributable to Account A. If this charge is inadequate to cover
the actual expenses of mortality, maintenance, and administration, we will bear
the loss. If the charge exceeds the actual expenses, we will add the excess to
our profit and it may be used to finance distribution expenses. The charge will
never increase.
SALES CHARGE
WHEN IMPOSED
We may impose a contingent deferred sales charge on withdrawals and surrenders
from Account A. We don't impose the charge on withdrawals or surrenders from
Account B. This charge is for expenses relating to the sale of the Contract,
such as commissions, preparation of sales literature, and other promotional
activity. We impose the charge only on premium withdrawn from Account A 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 from Account A
as part of the first withdrawal of the contract year, whether paid in a lump sum
or paid on a monthly, quarterly, semi-annual or annual basis. In addition, where
permitted by state regulation, we won't impose a contingent deferred sales
charge on any premium withdrawn from Contracts purchased by our employees or our
affiliates or from Contracts purchased by the employees' spouses or dependents.
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AMOUNT OF CHARGE
The maximum charge is 7% of the premium withdrawn during the first year after
that premium is paid. The charge decreases by 1% annually to 0% after year
seven, as shown below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS ELAPSED CONTINGENT DEFERRED SALES
SINCE PREMIUM WAS PAID CHARGE
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
</TABLE>
The charge is calculated on total premiums withdrawn from Account A. If,
however, your account value at the time of withdrawal is less than your premiums
paid in, the charge is based on your account value. Gain in account value is
never subject to this sales charge. The example below explains this charge.
HOW THE SALES CHARGE WORKS
If you made a $5,000 premium payment to Account
A and withdrew the entire $5,000 three years
later, we would impose a 4% charge on the $5,000
withdrawal. If you had made a $5,000 premium
payment to Account A and due to negative
investment experience only $4,500 remained in
Account A when you withdrew it three years
later, we would impose a 4% charge only on
$4,500 of the original premium. If instead the
$5,000 premium payment you made to Account A
grew to $5,500 due to positive investment
experience, and you 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, we would impose no contingent
deferred sales charge on the $200 first
withdrawn (as it represents gain, and not
premium) and we would impose a 4% contingent
deferred sales charge only on $5,000 of the
$5,300 subsequent withdrawal (as $300 of that
amount represents gain).
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HOW DEDUCTED
We deduct the charge on a pro rata basis from among the subaccounts you're
invested in, based on the ratio of your subaccount value to your Account A
account value. The example below shows how this works.
PRO-RATA DEDUCTIONS
Kim Investor's Retirement Plus contract has a
current account value of $100,000. $60,000 is in
the Basic Value Focus Fund, and $40,000 is in
the Capital Focus Fund. Kim withdraws $20,000
from the contract, and the entire $20,000 is
subject to a 7% sales charge ($1400).
Accordingly, $840--60% of $1400--is deducted
from the Basic Value Focus Fund and $560--40% of
$1400--is deducted from the Capital Focus Fund.
(See "Withdrawals and Surrenders" and "Accumulation Units" for a discussion of
the effect the deduction of this charge will have on the number of accumulation
units credited to a Contract.)
ADMINISTRATION CHARGE
We charge 0.10% annually to reimburse us for costs associated with the
establishment and administration of the Contract. We deduct the charge daily
only from the net asset value of Account A. We don't impose the charge on the
assets in Account B. This charge covers such expenses as optional contract
transactions (for example, processing transfers and Dollar Cost Averaging
transactions). This charge will never increase.
CONTRACT MAINTENANCE CHARGE
We charge $40 a year to reimburse us for expenses related to maintenance of the
Contract. These expenses include issuing Contracts, maintaining records, and
performing accounting, regulatory compliance, and reporting functions. We deduct
this charge from your contract value on each contract anniversary that occurs on
or before the annuity date. We won't deduct it after the annuity date. We also
deduct the charge if you surrender the contract on any date besides a contract
anniversary. We deduct the charge on a pro rata basis from among all subaccounts
in which your contract value is invested. The contract maintenance charge will
never increase.
We'll waive this charge on all Contracts with a contract value equal to or
greater than $50,000 on the date the charge would normally be deducted.
Currently, a contract owner of three or more Contracts will be assessed no more
than $120 in Contract Maintenance Charges annually. We reserve the right to
change this limit at any time.
OTHER CHARGES
TRANSFER CHARGES
You may make up to six transfers among Account A subaccounts per contract year
without charge. If you make more than six, we may, but currently do not, charge
you $25 for each extra 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" and "Transfers".)
TAX CHARGES
We reserve 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.
We also reserve the right to deduct from the Accounts any taxes imposed on the
Accounts' investment earnings. (See "Tax Status of the Contract".)
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FUND EXPENSES
In calculating the net asset values of the Funds (except the Select Ten Trust),
advisory fees and operating expenses are deducted from the assets of each Fund.
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.
RETIREMENT PLUS ADVISOR FEES
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-".)
PREMIUM TAXES
Various states and municipalities impose a premium tax on annuity premiums when
they are received by an insurance company. In other jurisdictions, a premium tax
is paid on the contract value on the annuity date.
Premium tax rates vary from jurisdiction to jurisdiction and currently range
from 0% to 5%. Although we pay these taxes when due, we won't deduct them from
your contract value until the annuity date. (See "Accumulation Units" for a
discussion of the effect the deduction of this charge will have on the number of
accumulation units credited to a Contract.) In those jurisdictions that do not
allow an insurance company to reduce its current taxable premium income by the
amount of any withdrawal, surrender or death benefit paid, we will also deduct a
charge for these taxes on any withdrawal, surrender or death benefit paid under
the Contract.
Premium tax rates are subject to change by law, administrative interpretations,
or court decisions. Premium tax amounts will depend on, among other things, the
contract owner's state of residence, our status within that state, and the
premium tax laws of that state.
FEATURES AND BENEFITS OF THE CONTRACT
As we describe the contract, we will often use the word "you". In this context
"you" means "contract owner".
OWNERSHIP OF THE CONTRACT
The contract owner is entitled to exercise all rights under the Contract. Unless
otherwise specified, the purchaser of the Contract will be the contract owner.
The contract can be owned by a trust or a corporation. However, special tax
rules apply to contracts owned by "non-natural persons" such as corporations or
trusts. If you are a human being, you are considered a "natural person." You may
designate a beneficiary. If you die, the beneficiary will receive a death
benefit. You may also designate an annuitant. You may change the annuitant at
any time prior to the annuity date. If you don't select an annuitant, you are
the annuitant.
If a non-natural person owns the contract and changes the annuitant, the
Internal Revenue Code requires us to treat the change as the death of a contract
owner. We will then pay the beneficiary the contract value, less any applicable
fees and charges.
Only spouses may be co-owners of the Contract. When co-owners are established,
they exercise all rights under the Contract jointly unless they elect otherwise.
Co-owner spouses must each be designated as beneficiary for the other. Co-owners
may also designate a beneficiary to receive benefits on the surviving co-owner's
death. IRA Contracts may not have co-owners.
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You may assign the Contract to someone else by giving notice to the Service
Center. Only complete ownership of the Contract may be assigned to someone else.
You can't do it in part. An assignment to a new owner cancels all prior
beneficiary designations except an irrevocable prior beneficiary designation.
Assignment of the Contract may have tax consequences or may be prohibited on
certain IRA Contracts, so you should consult with a qualified tax adviser before
assigning the Contract. (See "Federal Income Taxes".)
ISSUING THE CONTRACT
ISSUE AGE
You can buy a nonqualified Contract if you are less than 85 years old.
Annuitants on nonqualified Contracts must also be less than 85 years old when we
issue the contract. For qualified Contracts owned by natural persons, the
contract owner and annuitant must be the same person. Contract owners and
annuitants on qualified Contracts must be less than 70 1/2 years old when we
issue the contract.
INFORMATION WE NEED TO ISSUE THE CONTRACT
Before we issue the Contract, we need certain information from you. We may
require you to complete and return a written Contract application in certain
circumstances, such as when the Contract is being issued to replace, or in
exchange for, another annuity or life insurance contract. Once we review and
approve that information or application, and you pay the initial premium, we'll
issue a Contract. The date we do this is called the Date of Issue. Generally,
we'll do this and invest the premium within two business days of our receiving
your premium. If we haven't received necessary information within five business
days, however, we will offer to return the premium and no Contract will be
issued. You can consent to our holding the premium until we get all necessary
information, and then we will invest the premium within two business days after
we get the information.
TEN DAY RIGHT TO REVIEW
When you get the Contract, review it carefully to make sure it is what you
intended to purchase. Generally, within ten days after you receive the Contract,
you may return it for a refund. The Contract will then be deemed void. Some
states allow a longer period of time to return the Contract. To get a refund,
return the Contract to the Service Center or to the Financial Consultant who
sold it. We will then refund the greater of all premiums paid into the Contract
or the contract value as of the date the Contract is returned.
PREMIUMS
MINIMUM AND MAXIMUM 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 generally must be
$100 or more. It is intended that, in the future, rollover and transfer amounts
from tax sheltered annuity plans that are not subject to the Employee Retirement
Income Security Act of 1974, as amended, will be accepted as premium payments,
as permitted by law. Other premium payments will not be accepted under a
Contract used as a tax sheltered annuity. You can make them at any time before
the annuity date. We may waive the $100 minimum for premiums paid under IRA
Contracts held in Retirement Plan Operations accounts of MLPF&S where you're
transferring the complete cash balance of such Account into a Contract. We
reserve the right to reject subsequent premium payments, if required by law.
Maximum annual contributions to IRA Contracts are limited by federal law.
HOW TO MAKE PAYMENTS
You can pay premiums directly the Service Center at the address printed on the
cover of this Prospectus or have money debited from your MLPF&S brokerage
account. Under an automatic investment feature, you can make systematic premium
payments on a monthly, quarterly, semi-annual or annual basis from a MLPF&S
brokerage account. Contact your Financial Consultant for additional information.
You may cancel the automatic investment feature at any time.
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PREMIUM INVESTMENTS
For the first 14 days following the date of issue, we'll hold all premiums
directed into Account A in the Domestic Money Market Subaccount. After the 14
days, we'll reallocate the Account value to the Account A subaccounts you
selected. We'll place premiums directed into Account B in the Reserve Assets
Subaccount on the issue date. We'll place subsequent premiums allocated to
Account B in the Reserve Assets Subaccount as of the end of the valuation period
in which the Service Center receives them.
Currently, you may allocate your premium among 18 of 21 subaccounts (20
available through Account A and one available through Account B). Allocations
must be made in whole numbers. For example, 12% of a premium received may be
allocated to the Prime Bond Fund, 58% allocated to the High Current Income Fund,
and 30% allocated to the Quality Equity Fund. However, you may not allocate 33
1/3% to the Prime Bond Fund and 66 2/3%, to the High Current Income Fund. If we
don't get allocation instructions when we receive subsequent premiums, we will
allocate those premiums according to the allocation instructions you last gave
us. We reserve 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 with the performance and expenses of the
corresponding subaccount funds. We use this value to determine the number of
subaccount accumulation units represented by your investment in a subaccount.
HOW ARE MY CONTRACT TRANSACTIONS PRICED?
We calculate an accumulation unit value for each subaccount at the
close of business on each day that the New York Stock Exchange is
open. Transactions are priced, which means that accumulation units
in your contract are purchased (added to your contract) or redeemed
(taken out of your contract), at the unit value next calculated
after our Service Center receives notice of the transaction. For
premium payments and transfers into a subaccount, units are
purchased. For payment of contract proceeds (i.e., partial
withdrawals, surrenders, annuitization, and death benefits),
transfers out of a subaccount, and deduction for the contract
maintenance charge, any sales charge, any transfer charge, and any
premium taxes due, units are redeemed.
HOW DO WE DETERMINE THE NUMBER OF UNITS?
We determine the number of units by dividing the dollar value of the
amount of the purchase or redemption allocated to the subaccount by
the value of one accumulation unit for that subaccount for the
valuation period in which the transfer is made. The number of
accumulation units in each subaccount credited to a Contract will
therefore increase or decrease as these transactions are made. The
number of subaccount accumulation units credited to a Contract will
not change as a result of investment experience or the deduction of
mortality and expense risk and administration charges. Instead,
these charges and investment experience are reflected in the
accumulation unit value.
When we first established each subaccount, we arbitrarily set the value of an
accumulation unit at $10. Accumulation unit values increase, decrease, or stay
the same from one valuation period to the next. A valuation period is the time
period from one determination of the net asset value of a subaccount to the
next, measured from the time each day the Funds are valued. The Funds are valued
at the close of business on each day the New York Stock Exchange is open. An
accumulation unit value for any valuation period is determined by multiplying
the accumulation unit value for the last prior valuation period by the net
investment factor for the subaccount for the current valuation period.
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The net investment factor is an index used to measure the investment performance
of a subaccount from one valuation period to the next. For any subaccount, we
determine the net investment factor by dividing 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. We subtract from that result the
valuation period equivalent of the annual administration and mortality and
expense risk charges. The net investment factor takes into account the
reinvestment of dividends and capital gains. We may adjust the net investment
factor to make provisions for any change in law that requires us 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").
ADDITIONAL PROVISIONS APPLICABLE TO ALL CONTRACTS
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the annuitant dies before the annuity date, and the annuitant is not a
contract owner, the owner may designate a new annuitant. If a new annuitant is
not designated, the contract owner will become the annuitant unless any owner is
not a natural person. If any contract owner is not a natural person, no new
annuitant may be named and the death benefit will be paid.
If the deceased owner's beneficiary is the surviving spouse, the spouse may
elect to continue the Contract. The spouse will then become the contract owner
and the beneficiary until a new beneficiary is named.
If you are age 80 or under on the Contract date of issue, the death benefit
equals the greatest of:
(a) premiums paid less any withdrawals,
(b) the contract value, or
(c) the maximum death benefit value.
If you are over age 80 on the Contract date of issue, the death benefit equals
the greater of:
(a) premiums paid less any withdrawals, or
(b) the contract value.
TRANSFERS
TRANSFERS WITHIN ACCOUNT A
Before the annuity date, you may transfer all or part of your Account A value
among the Account A subaccounts up to six times per contract year without
charge. You can make additional transfers among Account A subaccounts, but we
may charge you $25 for each extra transfer. We will deduct the transfer charge
pro rata from among the subaccounts you're transferring from. 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".) We reserve the right to change the number of
additional transfers permitted each contract year.
Transfers among subaccounts may be made in specific dollar amounts or as a
percentage of Account A value. You must transfer at least $100 or the total
value of a subaccount, if less. Transfers specified as percentages are also
subject to a $100 minimum with allocations in whole numbers. For example, 10% or
30% of $1,000 Account A value in the Prime Bond Fund may be transferred to the
High Current Income Fund, but 10.5% may not. Also, 20% of $600 Account A value
in the Prime Bond Fund may be transferred to the High Current Income Fund, but
10% of $600 ($60) may not.
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You may request transfers in writing or by telephone, once we get proper
telephone transfer authorization. Transfer requests may also be made through
your Merrill Lynch Financial Consultant, or another person you designate, once
we receive proper authorization. Transfers will take effect as of the end of the
valuation period on the date the Home Office receives the request. We will
consider telephone transfer requests received after 4:00 p.m. (ET) to be
received the following business day.
DOLLAR COST AVERAGING
WHAT IS IT?
The Contract offers an optional transfer feature called Dollar Cost Averaging
("DCA"). This feature allows you to reallocate money at monthly intervals from
the Account A Domestic Money Market Subaccount to any of the remaining Account A
subaccounts. The DCA feature is intended to reduce the effect of short term
price fluctuations on investment cost. 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, over the long haul a DCA
program may let you buy accumulation units at a lower than average cost.
However, a DCA program does not assure a profit or protect against a loss in
declining markets.
You can choose the DCA feature any time before the annuity date. Once you start
using it, you must continue it for at least three months. Once you reach the
annuity date, you may no longer use Dollar Cost Averaging.
If you participate in the RPA program, you can't use DCA.
MINIMUM AMOUNTS
To elect DCA, you need to have a minimum amount of money in the Domestic Money
Market subaccount. We determine the amount required by multiplying the specified
length of your DCA program in months by your specified monthly transfer amount.
Amounts of $100 or more must be allotted for transfer each month in the DCA
feature. Allocations must be designated in whole percentage increments of 10%.
No specific dollar amount designations may be made. We reserve the right to
change these minimums. Should the amount in your Domestic Money Market
Subaccount drop below the selected monthly transfer amount, we'll notify you
that you need to put more money in to continue DCA.
WHEN DO WE MAKE DCA TRANSFERS?
You select the date for DCA transfers. After we receive your request at the
Service Center, we will make the first DCA transfer on the next selected date of
the following month. We'll make subsequent DCA transfers on the same day of each
succeeding month. We don't charge for DCA transfers. These transfers are in
addition to the six annual transfers permitted under the Contract.
MERRILL LYNCH RETIREMENT PLUS ADVISOR-SM-
If you qualify, you may participate in the Merrill Lynch Retirement Plus
Advisor-SM- ("RPA") program. Through RPA, an investment program developed by
MLPF&S, premiums and Account A money are allocated and transferred periodically
among the subaccounts of Account A based on your investment profile. MLPF&S is a
registered investment adviser under the Investment Advisers Act of 1940.
Before you can participate, you must complete a profiling questionnaire and
client agreement for each contract with which you're using the RPA program.
If you participate in the RPA program, you can't use DCA. In addition, MLPF&S
may ask you to give up the RPA program if you request a transfer while the RPA
program is in effect; such transfers may be inconsistent with investment
strategies being implemented through the RPA program.
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FEES AND CHARGES FOR RPA
MLPF&S charges a fee for the RPA program. MLPF&S deducts this fee directly from
your brokerage account. The fee is not deducted from your contract value or
imposed on the Accounts. We don't charge for RPA program transfers of Account A
money.
If you wish to participate in the RPA program, consult with your Financial
Consultant for additional information regarding the availability of the program
and specific eligibility requirements.
Participation in the program does not guarantee that you will attain your
investment goals. In addition, the program does not guarantee investment gains,
or protect against investment losses.
TRANSFERS FROM ACCOUNT A TO ACCOUNT B
Once each contract year, you may transfer from Account A to Account B an amount
equal to any gain in account value and/or any premium not subject to sales
charge, determined as of the date we receive the request. Where permitted by
state regulation, once each contract year, you may transfer from Account A to
Account B all or a portion of the greater of that amount, or 10% of premiums
still subject to a sales charge determined as of the date we receive the request
(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, semiannual or annual basis. You may cancel
periodic transfers at any time. Once canceled, they can not be activated again
until the next contract year.
Generally, we will deduct the amount transferred on a pro rata basis from among
the Account A subaccounts you specify, based on your proportional interest in
each of these subaccounts to the Account A value, unless you request otherwise.
However, if you want the amount transferred on a monthly, quarterly, semi-annual
or annual basis, it must be deducted on a pro rata basis. There is no charge
imposed on the transfer of this amount. No transfers are permitted from Account
B to Account A.
WITHDRAWALS AND SURRENDERS
WHEN AND HOW WITHDRAWALS ARE MADE
Before the annuity date, you may withdraw money from the Contract up to six
times per contract year. Withdrawals are subject to tax and prior to age 59 1/2
may also be subject to a 10% federal penalty tax. (See "Federal Income Taxes".)
The Contract provides a specific order for
withdrawals. We treat the first withdrawal from
Account A in any contract year in the following order:
1. Gain in account value and premium no longer
subject to a sales charge; then
2. Premium on a "first-in, first-out" basis.
"Gain" means any positive difference between
account value and premiums paid, less
withdrawals.
By using this order, we don't impose a sales charge on the first withdrawal in
any contract year out of Account A to the extent that the withdrawal consists of
gain and/or any premium no longer subject to such a charge. Where permitted by
state regulation, we won't impose a sales charge on that portion of the first
withdrawal from Account A in any contract year that does not exceed the greater
of:
(1) 10% of premiums subject to a sales charge determined as of the date the
request is received, minus any prior amount withdrawn or transferred
from Account A to Account B, and
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(2) any gain in Account A plus premiums allocated to Account A that are not
subject to a sales charge.
Where permitted by state regulation, you may elect that the amount withdrawn be
paid on a monthly, quarterly, semi-annual or annual basis.
Unless you direct us otherwise, withdrawals will be taken from subaccounts in
the same proportion as your contract value bears to the subaccounts of the
Accounts from which the withdrawal is made. You may withdraw money by telephone,
once you've submitted a proper telephone authorization form to the Service
Center, but only if the amount withdrawn is to be paid into a Merrill Lynch
brokerage account. You may make a withdrawal request in writing to the Service
Center. We will consider telephone withdrawal requests received after 4:00 p.m.
(ET) to be received the following business day.
We will treat all subsequent withdrawals from Account A in the same contract
year 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 sales charge. (See "Sales
Charge".)
We don't impose sales charges on any withdrawals from Account B. In addition,
where permitted by state regulation we don't impose a sales charge on
withdrawals from Account A on a Contract purchased by our employees or employees
of our affiliates or purchased by the employee's spouse or dependents.
AUTOMATIC WITHDRAWALS
You may request monthly, quarterly, semiannual, or annual automatic withdrawals
from Account B. You may activate or cancel this optional automatic withdrawal
program once each contract year. Once canceled, you can't activate the program
again until the next contract year. You may increase or decrease withdrawals at
any time by contacting the Service Center. These automatic withdrawals are in
addition to the annual six withdrawals permitted under the Contract.
MINIMUM AMOUNTS
The minimum amount that may be withdrawn is $100. At least $2,000 must remain in
the Contract after you make a withdrawal. We reserve the right to change these
minimums.
SURRENDERS
At any time before the annuity date you may surrender the Contract through a
full withdrawal. The Contract must be delivered to the Service Center. We will
pay you an amount equal to the contract value as of the end of the valuation
period when we process the surrender, minus any applicable sales charge, minus
any applicable contract maintenance charge, and minus any applicable charge for
premium taxes. (See "Charges and Deductions".)
PAYMENTS TO CONTRACT OWNERS
We'll make any payments to you usually within seven days of the Service Center
receiving your proper request. However, we may delay any payment, or delay
processing 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
making it difficult to dispose of securities held in the Accounts or to
determine their value;
(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.
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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". See
also "Ownership of the Contract".
DEATH BENEFIT
Regardless of investment experience, the Contract provides a guaranteed minimum
death benefit if you die before the annuity date.
Unless you irrevocably designated a beneficiary, you may change the beneficiary
at any time before the annuity date. If your beneficiary is your surviving
spouse, your spouse may elect to continue the Contract. Your spouse becomes the
contract owner and the beneficiary until your spouse names a new beneficiary.
If you are age 80 or under on the Contract date of issue, the death benefit
equals the greatest of:
(a) premiums paid less any withdrawals,
(b) the contract value, or
(c) the maximum death benefit value.
If you are over age 80 on the Contract date of issue, the death benefit equals
the greater of:
(a) premiums paid less any withdrawals, or
(b) the contract value.
The maximum death benefit value equals the greatest anniversary value of Account
A, plus the value of Account B. We calculate each anniversary value of Account A
as follows:
- the value of Account A on the issue date and each contract anniversary
thereafter; plus
- premium payments you 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 equals 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.
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EXAMPLE: Assume you are below age 80 at issue, and you made no allocations to
Account B. Your maximum death benefit values, based on hypothetical values of
Account A* and the contract transactions shown, are illustrated 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 BENEFITS
- --------- -----------
<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 Anniversary values reflect hypothetical positive and negative
investment performance to demonstrate the calculation of the maximum death
benefit value. There is, of course, no assurance that Account A will
experience positive investment performance.
For Contracts issued on a joint ownership basis, we calculate the greatest
anniversary value based on the period of time through the earlier of:
(a) the older co-owner attaining age 80; or
(b) the anniversary on or prior to either co-owner's date of death.
If the contract owner changes, we will not increase the period of time during
which we use anniversary values to determine the maximum death benefit value.
Subsequent changes could shorten the 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, we will base
the period of time used in the calculation of the maximum death benefit value on
the age of the new contract owner when the owner changes. If the new contract
owner is over attained age 80 when the owner changes, we will calculate the
maximum death benefit value 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 we use the annuitant's age, rather than the
contract owner's age, to determine the period of time used in the calculation of
the maximum death benefit value.
We will pay the death benefit in a lump sum unless the beneficiary chooses an
annuity payment option available under the Contract. (See "Annuity Options".)
However, if you die 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 a surviving spouse. (See "Federal Income
Taxes".)
We determine the death benefit as of the date we receive certain information at
our Home Office. We call this information due proof of death. It consists of the
Beneficiary Statement, a certified copy of the death certificate, and any
additional documentation we may need to process the death claim. If we haven't
received the other documents within 60 days following our receipt of a certified
death certificate, we will consider due proof of death to have been received and
we will pay the death benefit in a lump sum.
ANNUITY PAYMENTS
We'll make the first annuity payment on the annuity date, and payments will
continue according to the annuity option selected. When you first buy the
Contract, the annuity date for non-qualified Contracts is the annuitant's 85th
birthday. The annuity date for IRA Contracts is when the owner/annuitant reaches
age 70 1/2. However, you may specify an earlier annuity date. Contract owners
may select from a variety of fixed annuity payment
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options, as outlined below in "Annuity Options." If you don't choose an annuity
option, we'll use 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).
You may change the annuity option up to 30 days before the annuity date. We
reserve the right to limit annuity options available to IRA contract owners to
comply with the Internal Revenue Code or regulations under it.
We determine the dollar amount of annuity payments by applying your contract
value on the annuity date to our then current annuity purchase rates. Purchase
rates show the amount of periodic payment that a $1000 value buys. These rates
are based on the annuitant's age and sex at the time payments begin. The rates
will never be worse than those shown in the Contract.
If the age and/or sex of the annuitant was misstated to us, resulting in an
incorrect calculation of annuity payments, we will adjust future annuity
payments to reflect the correct age and/or sex. We will deduct any amount we
overpaid as the result of a misstatement from future payments with 6% annual
interest charges. Likewise, if we underpaid any amount as the result of a
misstatement, we correct it with the next payment made with 6% annual interest
credited.
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), we may cash out your contract in a lump sum. If any annuity payment
would be less than $20 (or a different minimum amount, if required by state
law), we may change the frequency of payments so that all payments will be at
least $20 (or the minimum amount required by state law). Unless you tell us
differently, we'll make annuity payments directly to your Merrill Lynch
brokerage account.
ANNUITY OPTIONS
We currently provide the following fixed annuity payment options. After the
annuity date, your contract value does not vary with the performance of the
Accounts. We may in the future offer more options. Under certain circumstances,
several options provide the ability to take the present value of future
guaranteed payments in a lump sum.
HOW WE DETERMINE PRESENT VALUE OF
FUTURE GUARANTEED ANNUITY PAYMENTS
Present value refers to the amount of money needed
today to fund the remaining guaranteed payments under
the annuity payment option you select. The primary
factor in determining present value is the interest
rate assumption we use. If you are receiving annuity
payments under an option that gives you the ability to
take the present value of future payments in a lump
sum and you elect to take the lump sum, we will use
the same interest rate assumption in calculating the
present value that we used to determine your payment
stream at the time your annuity payments commenced.
42
<PAGE>
PAYMENTS OF A FIXED AMOUNT
We will make equal payments in an amount you choose until the sum of all
payments equals the contract value applied, increased for interest credited. The
amount you choose must provide at least five years of payments. These payments
don't depend on the annuitant's life. If the annuitant dies before the end of
the period, you 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, the beneficiary may elect to receive the present value of
the remaining guaranteed payments in a lump sum.
PAYMENTS FOR A FIXED PERIOD
We will make equal payments for a period you select of at least five years.
These payments don't depend on the annuitant's life. If the annuitant dies
before the end of the period, you 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, the beneficiary may elect to receive the
present value of the remaining guaranteed payments in a lump sum.
*LIFE ANNUITY
We make payments for as long as the annuitant lives. Payments will cease with
the last payment made before the annuitant's death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS
We make payments for as long as the annuitant lives. In addition, even if the
annuitant dies before the period ends, we guarantee payments for either 10 or 20
years as you selected. If the annuitant dies before the end of the period, you
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, the
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
We make payments for as long as the annuitant lives. In addition, even if the
annuitant dies, we guarantee payments until the sum of all annuity payments
equals the contract value applied, increased by interest credited.
*JOINT AND SURVIVOR LIFE ANNUITY
We make payments for the lives of the annuitant and a designated second person.
Payments will continue as long as either one is living.
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; (c)
the life expectancy of the surviving spouse if the owner/annuitant dies before
the annuity date.
- --------
* These options are "pure" 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.
43
<PAGE>
Each annual payment will be equal to the remaining contract value applied,
divided by the then current life expectancy, as defined by Internal Revenue
Service regulations. If the measuring life or lives dies before the remaining
value has been distributed, we will pay that value to you in a lump sum.
GENDER-BASED ANNUITY PURCHASE RATES
Generally, the Contract provides for gender-based annuity purchase rates when
life annuity options are chosen. However, in states that have adopted
regulations prohibiting gender-based rates, blended unisex annuity purchase
rates will be applied to both male and female annuitants. 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 to purchase the Contract should
consult with their legal advisor to determine whether purchasing the Contract
containing gender-based annuity purchase rates is consistent with Title VII of
the Civil Rights Act of 1964 or other applicable law. We may offer such contract
owners Contracts containing unisex annuity purchase rates.
FEDERAL INCOME TAXES
FEDERAL INCOME TAXES
The following summary discussion is based on our understanding of current
federal income tax law as the Internal Revenue Service (IRS) now interprets it.
We can't guarantee that the law or the IRS's interpretation won't change. It
does not purport to be complete or to cover all tax situations. This discussion
is not intended as tax advice. Counsel or other tax advisors should be consulted
for further information.
We haven't considered any applicable federal gift, estate or any state or other
tax laws. Of course, your own tax status or that of your beneficiary can affect
the tax consequences of ownership or receipt of distributions.
TAX STATUS OF THE CONTRACT
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Internal Revenue Code (IRC)
and the regulations under it provide that separate account investments
underlying a contract must be "adequately diversified" for it to qualify as an
annuity contract under IRC section 72. The separate account intends to comply
with the diversification requirements of the regulations under section 817(h).
This will affect how we make investments.
OWNER CONTROL. In certain circumstances, owners of variable annuity contracts
have been considered for Federal
income tax purposes to be the owners of the assets of the separate account
supporting their contracts due to their ability to exercise investment control
over those assets. When this is the case, the contract owners have been
currently taxed on income and gains attributable to the separate account assets.
There is little guidance in this area, and some features such as the flexibility
of an owner to allocate premium payments and transfer contract accumulation
values, have not been explicitly addressed in published rulings. While we
believe that the contracts do not give owners investment control over Account
assets, we reserve the right to modify the contracts as necessary to prevent an
owner from being treated as the owner of the Account assets supporting the
contract.
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<PAGE>
REQUIRED DISTRIBUTIONS. To qualify as an annuity contract under section 72(s) of
the IRC, a non-qualified annuity contract must provide that: (a) if any owner
dies on or after the annuity starting date but before all amounts under the
contract have been distributed, the remaining amounts will be distributed at
least as quickly as under the method being used when the owner died; and (b) if
any owner dies before the annuity starting date, all amounts under the contract
will be distributed within five years of the date of death. So long as the
distributions begin within a year of the owner's death, the IRS will consider
these requirements satisfied for any part of the owner's interest payable to or
for the benefit of a "designated beneficiary" and distributed over the
beneficiary's life or over a period that cannot exceed the beneficiary's life
expectancy. A designated beneficiary is the person the owner names as
beneficiary and who assumes ownership when the owner dies. A designated
beneficiary must be a natural person. If the deceased owner's spouse is the
designated beneficiary, he or she can continue the contract when such contract
owner dies.
The contract is designed to comply with section 72(s) of the IRC. We will review
the contract and amend it if necessary to make sure that it continues to comply
with the section's requirements.
Other rules regarding required distributions apply to Individual Retirement
Annuities.
TAXATION OF ANNUITIES
IN GENERAL. IRC section 72 governs annuity taxation generally. We believe an
owner who is a natural person usually won't be taxed on increases in the value
of a contract until there is a distribution (i.e., the owner withdraws all or
part of the accumulation or takes annuity payments). Assigning, pledging, or
agreeing to assign or pledge any part of the accumulation usually will be
considered a distribution. Withdrawals of accumulated investment earnings are
taxable as ordinary income.
The owner of any annuity contract who is not a natural person (e.g., a
corporation or a trust) generally must include in income any increase in the
excess of the accumulation over the "investment in the contract" during the
taxable year. There are some exceptions to this rule and a prospective owner
that is not a natural person may wish to discuss them with a competent tax
advisor.
The following discussion applies generally to contracts owned by a natural
person:
PARTIAL WITHDRAWALS AND SURRENDERS. When you take a withdrawal from a contract,
the amount received generally will be treated as ordinary income subject to tax
up to an amount equal to the excess (if any) of the account value immediately
before the distribution over the investment in the contract (generally, the
premiums or other consideration paid for the contract, reduced by any amount
previously distributed from the contract that was not subject to tax) at that
time. Other rules apply to Individual Retirement Annuities.
If you withdraw your entire account value under a contract, you will be taxed
only on the part that exceeds your investment in the contract.
ANNUITY PAYMENTS. Although tax consequences may vary depending on the annuity
option selected under an annuity contract, a portion of each annuity payment is
generally not taxed and the remainder is taxed as ordinary income. The
non-taxable portion of an annuity payment is generally determined in a manner
that is designed to allow you to recover your investment in the contract ratably
on a tax-free basis over the expected stream of annuity payments, as determined
when annuity payments start. Once your investment in the contract has been fully
recovered, however, the full amount of each annuity payment is subject to tax as
ordinary income.
45
<PAGE>
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be paid from a contract because
an owner or annuitant (if the owner is not a natural person) has died. If the
payments are made in a single sum, they're taxed the same way a full withdrawal
from the contract is taxed. If they are distributed as annuity payments, they're
taxed as annuity payments.
PENALTY TAX ON SOME WITHDRAWALS
You may have to pay a penalty tax (10 percent of the amount treated as taxable
income) on some withdrawals. However, there is usually no penalty on
distributions:
(1) on or after you reach age 59 1/2;
(2) after you die (or after the annuitant dies, if the owner isn't an
individual)
(3) after you become disabled; or
(4) that are part of a series of substantially equal periodic (at least annual)
payments for your life (or life expectancy) or the joint lives (or life
expectancies) of you and your beneficiary.
Other exceptions may be applicable under certain circumstances and special rules
may apply in connection with the exceptions listed above. Also, additional
exceptions apply to distributions from an Individual Retirement Annuity. You
should consult a tax adviser with regard to exceptions from the penalty tax.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A CONTRACT
Transferring or assigning ownership of the contract, designating a payee or
beneficiary who is not also the owner, or exchanging a contract can have other
tax consequences that we don't discuss here. If you're thinking about any of
those transactions, contact a tax advisor.
WITHHOLDING
Annuity distributions usually are subject to withholding for the recipient's
federal income tax liability at rates that vary according to the type of
distribution and the recipient's tax status. However, recipients can usually
choose not to have tax withheld from distributions.
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts that we (or our affiliates) issue
to the same owner during any calendar year are generally treated as one annuity
contract for purposes of determining the amount includible in such owner's
income when a taxable distribution occurs. This could affect when income is
taxable and how much is subject to the ten percent penalty tax discussed above.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the contracts could change by legislation
or other means. It is also possible that any change could be retroactive (that
is, effective prior to the date of the change). A tax adviser should be
consulted with respect to legislative developments and their effect on the
contract.
46
<PAGE>
POSSIBLE CHARGE FOR OUR TAXES
Currently we don't charge the separate account for any federal, state, or local
taxes on it or its contracts (other than premium taxes), but we reserve the
right to charge the separate account or the contracts for any tax or other cost
resulting from the tax laws that we believe should be attributed to them.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA." An individual may make annual contributions of up to the lesser of $2,000
or 100% of adjusted gross income to an IRA. The contributions may be deductible
in whole or in part, depending on the individual's income. Distributions from
certain pension plans may be "rolled over" into an IRA on a tax-deferred basis
without regard to these limits. Amounts in the IRA (other than nondeductible
contributions) are taxed when distributed from the IRA. A 10% penalty tax
generally applies to distributions made before age 59 1/2, unless certain
exceptions apply. IRAs have minimum distribution rules that govern the timing
and amount of distributions. You should refer to your adoption agreement or
consult a tax advisor for more information about these distribution rules.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions with respect to the Contract comply with
the law. The IRS 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 enhanced death benefit provision in the Contract comports
with IRA qualification requirements.
TAX SHELTERED ANNUITIES. Section 403(b) of the IRC allow employees of certain
Section 501(c)(3) organizations and public schools to exclude from their gross
income the premium payments made, within certain limits, on a contract that will
provide an annuity for the employee's retirement. In the future, it is intended
that rollover and transfer amounts from tax sheltered annuity plans that are not
subject to the Employee Retirement Income Security Act of 1974, as amended, will
be accepted as premium payments, as permitted by law, under a Contract. Other
premium payments, including premium payments subject to Internal Revenue Code
("IRC") Section 402(g), will not be accepted. Distributions of (1) salary
reduction contributions made in years beginning after December 31, 1988; (2)
earnings on those contributions; and (3) earnings on amounts held as of the last
year beginning before January 1, 1989, are not allowed prior to age 59 1/2,
separation from service, death or disability. Salary reduction contributions may
also be distributed upon hardship, but would generally be subject to penalties.
ROTH IRAS. A Contract is available for purchase by an individual who has
separately established a Roth IRA custodial account with Merrill Lynch, Pierce,
Fenner & Smith Incorporated. Roth IRAs, as described in section 408A of the IRC,
permit certain eligible individuals to contribute to make non-deductible
contributions to a Roth IRA in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA is
generally subject to tax and other special rules apply. You may wish to consult
a tax adviser before combining any converted amounts with any other Roth IRA
contributions, including any other conversion amounts from other tax years.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to any Roth IRA. A 10% penalty tax
may apply to amounts attributable to a conversion from an IRA if they are
distributed during the five taxable years beginning with the year in which the
conversion was made.
47
<PAGE>
OTHER TAX ISSUES FOR IRAS AND ROTH IRAS.
Distributions from an IRA or Roth IRA generally are subject to withholding for
the participant's federal income tax liability. The withholding rate varies
according to the type of distribution and the owner's tax status. The owner will
be provided the opportunity to elect not have tax withheld from distributions.
OTHER INFORMATION
VOTING RIGHTS
We own all Fund shares and Trust Units held in the Accounts. As the owner, we
have the right to vote on any matter put to vote at any Funds' shareholder
meetings.(1) However, we will vote all Fund shares attributable to Contracts by
following instructions we receive from you. If we don't receive voting
instructions, we'll vote those shares in the same proportion as shares for which
we receive instructions. We determine the number of shares you may give voting
instructions on by dividing your interest in a subaccount by the net asset value
per share of the corresponding Fund. We'll determine the number of shares you
may give voting instructions on as of a record date we choose. We may vote Fund
shares in our own right if laws change to permit us to do so.
You have voting rights until the annuity date. You 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
your selected subaccounts;
(4) any change in a fundamental investment policy of a Fund corresponding to
your selected subaccounts; and
(5) any other matter requiring a vote of the Funds' shareholders.
REPORTS TO CONTRACT OWNERS
At least once each contract year before the annuity date, we will send you
information about your Contract. It will outline all your Contract transactions
during the year, your Contract's current number of accumulation units in each
Fund, the value of each accumulation unit, and the contract value.
You will also receive an annual and a semi-annual report containing financial
statements and a list of portfolio securities of the Funds.
SELLING THE CONTRACT
MLPF&S is the principal underwriter of the Contract. Its principal business
address is World Financial Center, 250 Vesey Street, New York, New York 10281.
It was organized in 1958 under the laws of the state of Delaware and is
registered as a broker-dealer under the Securities Exchange Act of 1934. It is a
member of the National Association of Securities Dealers, Inc.
Registered representatives (Financial Consultants) of MLPF&S sell the contract.
These Financial Consultants are also licensed through Merrill Lynch Life Agency,
Inc. as our insurance agents. Financial Consultants are compensated by MLPF&S
and/or Merrill Lynch Life Agency, Inc. through a distribution agreement we have
with MLPF&S and companion sales agreement we have with Merrill Lynch Life
Agency, Inc. The maximum commission paid to a Financial Consultant is 2.3% of
each premium allocated to Separate Account A. In addition, on the annuity date,
the Financial Consultant will receive compensation of up to 1.5% of contract
- ----------
(1) The Select 10 Trust is a unit investment trust. It has no board of
directors. No voting rights exists.
48
<PAGE>
value not subject to a sales charge. Financial Consultants may also be paid
additional annual compensation of up to 0.51% of contract value. A reduced
compensation is paid on Contracts purchased by our employees or their spouses or
dependents.
The maximum commission we 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.
MLPF&S may arrange for sales of the Contract by other broker-dealers. Registered
representatives of these other broker-dealers may be compensated on a different
basis than MLPF&S Financial Consultants.
STATE REGULATION
We are subject to the laws of the State of New York and to the regulations of
the New York Insurance Department. We are also subject to the insurance laws and
regulations of all jurisdictions in which we're licensed to do business.
We file an annual statement with the insurance departments of jurisdictions
where we do business. The statement discloses our operations for the preceding
year and our financial condition as of the end of that year. Our books and
accounts are subject to insurance department review at all times. The New York
Insurance Department, in conjunction with the National Association of Insurance
Commissions, conducts a full examination of our operations periodically.
YEAR 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Accounts could be adversely affected
if the computer systems we use or the other service providers we use do not
properly address this problem before January 1, 2000. Merrill Lynch & Co., Inc.
has established a dedicated group to analyze these issues and to implement any
systems modifications necessary to prepare for the Year 2000. Substantial
resources are devoted to this effort. Currently, we don't anticipate that the
transition to the 21st century will have any material impact on our ability to
continue to service the Contract at current levels. In addition we have sought
assurances from the other service providers that they are taking all necessary
steps to ensure that their computer systems will accurately reflect the Year
2000. We will continue to monitor the situation. At this time, however, we can't
give assurance that the other service providers have anticipated every step
necessary to avoid any adverse effect on the Accounts attributable to the Year
2000 Problem.
LEGAL PROCEEDINGS
There are no legal proceedings involving the Accounts. We and MLPF&S are engaged
in various kinds of routine litigation that, in our judgment, is not material to
our total assets.
EXPERTS
Deloitte & Touche LLP, independent auditors, have audited our financial
statements as of December 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1998. They've also audited financial statements of
the Accounts as of December 31, 1998 and for the periods presented in the
Statement of Additional Information. We include these financial statements in
reliance upon the reports of Deloitte & Touche given upon their authority as
experts in accounting and auditing. Their principal business address is Two
World Financial Center, New York, New York 10281-1420.
49
<PAGE>
LEGAL MATTERS
Our organization, our authority to issue the Contract, and the validity of the
form of the Contract have been passed upon by Barry G. Skolnick, our Senior Vice
President and General Counsel. Sutherland Asbill & Brennan LLP of Washington,
D.C. has provided advice on certain matters relating to federal securities laws.
REGISTRATION STATEMENTS
Registration statements that relate to the Contract and its investment options
have been filed with the Securities and Exchange Commission under the Securities
Act of 1933 and the Investment Company Act of 1940. This Prospectus does not
contain all of the information in the registration statements. You can obtain
the omitted information from the Securities and Exchange Commission's principal
office in Washington, D.C., upon payment of a prescribed fee.
50
<PAGE>
ACCUMULATION UNIT VALUES
(CONDENSED FINANCIAL INFORMATION)
<TABLE>
<CAPTION>
SUBACCOUNTS
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DOMESTIC MONEY MARKET
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1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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 $11.50 $11.09 $10.64 $10.37
(2) Accumulation unit value at end of
period............................. $12.39 $11.94 $11.50 $11.09 $10.64
(3) Number of accumulation units
outstanding at end of period....... 2,714,662.2 2,392,904.0 1,677,743.10 2,104,307.1 1,725,685.7
<CAPTION>
QUALITY EQUITY
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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.......................... $19.54 $16.01 $13.77 $11.38 $11.87
(2) Accumulation unit value at end of
period............................. $22.28 $19.54 $16.01 $13.77 $11.38
(3) Number of accumulation units
outstanding at end of period....... 2,374,281.3 2,617,428.2 2,798,594.00 2,587,997.3 2,368,801.5
<CAPTION>
AMERICAN BALANCED
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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.......................... $16.72 $14.47 $13.37 $11.21 $11.88
(2) Accumulation unit value at end of
period............................. $18.73 $16.72 $14.47 $13.37 $11.21
(3) Number of accumulation units
outstanding at end of period....... 805,270.1 935,102.6 1,196,131.90 1,294,854.9 1,205,254.3
<CAPTION>
BASIC VALUE FOCUS
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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.......................... $19.27 $16.19 $13.60 $10.98 $10.88
(2) Accumulation unit value at end of
period............................. $20.81 $19.27 $16.19 $13.60 $10.98
(3) Number of accumulation units
outstanding at end of period....... 2,134,295.9 1,942,837.1 1,766,570.40 1,241,769.4 850,329.6
<CAPTION>
PRIME BOND
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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.......................... $14.36 $13.40 $13.29 $11.21 $11.94
(2) Accumulation unit value at end of
period............................. $15.28 $14.36 $13.40 $13.29 $11.21
(3) Number of accumulation units
outstanding at end of period....... 2,943,385.0 2,776,167.1 2,933,851.00 2,866,758.2 2,939,785.1
SPECIAL VALUE FOCUS*
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1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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.......................... $16.75 $15.20 $14.25 $9.90 $10.82
(2) Accumulation unit value at end of
period............................. $15.45 $16.75 $15.20 $14.25 $9.90
(3) Number of accumulation units
outstanding at end of period....... 1,911,721.5 1,789,233.1 1,684,158.80 1,332,688.3 1,048,612.8
NATURAL RESOURCES FOCUS
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1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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.......................... $12.14 $14.06 $12.56 $11.30 $11.29
(2) Accumulation unit value at end of
period............................. $10.14 $12.14 $14.06 $12.56 $11.30
(3) Number of accumulation units
outstanding at end of period....... 70,808.7 115,513.8 144,754.30 167,533.9 190,785.7
GLOBAL BOND FOCUS***
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1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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.......................... $12.27 $12.20 $11.45 $9.94 $10.52
(2) Accumulation unit value at end of
period............................. $13.63 $12.27 $12.20 $11.45 $9.94
(3) Number of accumulation units
outstanding at end of period....... 324,790.1 404,574.9 459,402.30 504,390.5 556,854.0
<CAPTION>
HIGH CURRENT INCOME
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
(1) Accumulation unit value at beginning
of period.......................... $16.93 $15.46 $14.08 $12.18 $12.80
(2) Accumulation unit value at end of
period............................. $16.18 $16.93 $15.46 $14.08 $12.18
(3) Number of accumulation units
outstanding at end of period....... 1,935,113.5 1,794,232.4 1,341,055.50 1,274,375.1 1,116,584.4
FLEXIBLE STRATEGY
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
(1) Accumulation unit value at beginning
of period.......................... ** ** $13.00 $11.22 $11.87
(2) Accumulation unit value at end of
period............................. ** ** ** $13.00 $11.22
(3) Number of accumulation units
outstanding at end of period....... 0.0 0.00 1,137,134.8 1,113,369.6
GLOBAL STRATEGY FOCUS
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
(1) Accumulation unit value at beginning
of period.......................... $15.85 $14.35 $12.85 $11.78 $12.12
(2) Accumulation unit value at end of
period............................. $17.02 $15.85 $14.35 $12.85 $11.78
(3) Number of accumulation units
outstanding at end of period....... 2,708,721.4 3,196,842.1 3,436,164.50 2,678,814.8 2,924,265.0
GLOBAL UTILITY FOCUS
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
(1) Accumulation unit value at beginning
of period.......................... $16.27 $13.10 $11.75 $9.58 $10.61
(2) Accumulation unit value at end of
period............................. $19.91 $16.27 $13.10 $11.75 $9.58
(3) Number of accumulation units
outstanding at end of period....... 408,706.9 475,558.5 646,792.9 724,247.5 786,888.0
</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.
51
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FOCUS
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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.......................... $11.20 $11.90 $11.31 $10.87 $10.96
(2) Accumulation unit value at end of
period............................. $11.91 $11.20 $11.90 $11.31 $10.87
(3) Number of accumulation units
outstanding at end of period....... 893,307.1 2,327,316.1 1,535,723.1 1,275,506.6 1,313,991.8
<CAPTION>
RESERVE ASSETS
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 1/1/94
TO TO TO TO TO
12/31/98 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.......................... $12.32 $11.79 $11.29 $10.76 $10.43
(2) Accumulation unit value at end of
period............................. $12.87 $12.32 $11.79 $11.29 $10.76
(3) Number of accumulation units
outstanding at end of period....... 95,017.1 82,335.6 101,151.2 114,114.3 120,482.2
<CAPTION>
INTERNATIONAL BOND***
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 5/16/94*
TO TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
(1) Accumulation unit value at beginning
of period.......................... *** *** $11.40 $9.93 $10.00
(2) Accumulation unit value at end of
period............................. *** *** *** $11.40 $9.93
(3) Number of accumulation units
outstanding at end of period....... *** 0.0 0.00 40,678.5 18,139.0
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 5/16/94*
TO TO TO TO TO
12/31/98 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.......................... $12.45 $11.59 $11.42 $10.08 $10.00
(2) Accumulation unit value at end of
period............................. $13.36 $12.45 $11.59 $11.42 $10.08
(3) Number of accumulation units
outstanding at end of period....... 1,670,377.7 900,981.0 401,866.8 153,524.3 69,485.0
<CAPTION>
DEVELOPING CAPITAL
MARKETS FOCUS
--------------------------------------------------------------------
1/1/98 1/1/97 1/1/96 1/1/95 5/16/94*
TO TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(1) Accumulation unit value at beginning
of period.......................... $9.21 $9.99 $9.16 $9.38 $10.00
(2) Accumulation unit value at end of
period............................. $6.42 $9.21 $9.99 $9.16 $9.38
(3) Number of accumulation units
outstanding at end of period....... 563,805.5 892,320.3 411,686.3 240,156.6 174,741.4
<CAPTION>
GLOBAL CAPITAL
GROWTH FOCUS FOCUS SELECT TEN
INDEX 500 FUND FUND FUND TRUST
---------------------------------------- ------------ ------------ ------------
1/1/98 1/1/97 12/18/96* 1/1/98 1/1/98 1/1/98
TO TO TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/98 12/31/98 12/31/98
------------ ------------ ------------ ------------ ------------ ------------
(1) Accumulation unit value at beginning
of period.......................... $13.27 $10.12 $0.00 *** *** ***
(2) Accumulation unit value at end of
period............................. $16.79 $13.27 $10.12 $10.74 $9.68 $10.12
(3) Number of accumulation units
outstanding at end of period....... 1,908,674.0 1,245,291.7 10,445.7 127,229.2 114,280.3 190,745.2
</TABLE>
<TABLE>
<CAPTION>
AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. VALUE
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1/1/98 1/1/97 1/1/96 1/1/98 1/1/97 1/1/96
TO TO TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/98 12/31/97 12/31/96
------------ ------------ ------------ ------------ ------------ ------------
(1) Accumulation unit value at
beginning of period...... $11.23 $10.03 $0.00 $12.52 $10.26 $0.00
(2) Accumulation unit value at
end of period............ $13.22 $11.23 $10.03 $16.35 $12.52 $10.26
(3) Number of accumulation
units outstanding at end
of period................ 637,817.5 705,468.0 0.00 1,623,648.9 694,794.1 0.00
<CAPTION>
ALLIANCE
QUASAR MFS EMERGING
ALLIANCE PREMIER GROWTH PORTFOLIO GROWTH SERIES
---------------------------------------- ------------ ----------------------------------------
<S> <C> <C> <C> <C>
1/1/98 1/1/97 1/1/96 1/1/98 1/1/98 1/1/97 1/1/96
TO TO TO TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/98 12/31/98 12/31/97 12/31/96
------------ ------------ ------------ ------------ ------------ ------------ ------------
(1) Accumulation unit value at
beginning of period...... $13.21 $10.00 $0.00 *** $11.83 $9.83 $0.00
(2) Accumulation unit value at
end of period............ $19.28 $13.21 $10.00 $8.57 $15.66 $11.83 $9.83
(3) Number of accumulation
units outstanding at end
of period................ 2,559,574.5 1,273,236.9 0.00 94,213.1 1,327,153.4 600,105.0 15,002.00
<CAPTION>
HOTCHKIS AND
WILEY
INTERNATIONAL
VIP
MFS RESEARCH SERIES PORTFOLIO
---------------------------------------- ------------
1/1/98 1/1/97 1/1/96 1/1/98
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/98
------------ ------------ ------------ ------------
(1) Accumulation unit value at
beginning of period...... $11.96 $10.08 $0.00 ***
(2) Accumulation unit value at
end of period............ $14.56 $11.96 $10.08 $9.49
(3) Number of accumulation
units outstanding at end
of period................ 1,161,685.9 589,190.5 0.0 2,303,167.1
</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.
52
<PAGE>
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
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
53
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
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
SERVICE CENTER: P.O. BOX 44222
JACKSONVILLE, FLORIDA 32231-4222
4804 DEER LAKE DRIVE EAST,
JACKSONVILLE, FLORIDA 32246
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, 1999, which is available on
request and without charge by writing to or calling ML of New York at its
Service Center 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-xx
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 on November
28, 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, 1998, 1997, and 1996, Merrill
Lynch, Pierce, Fenner & Smith Incorporated received $3.3 million, $3.5 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, 1998, 1997, and 1996, ML of New York paid
administrative services fees of $4.8 million, $4.3 million, and $4.3 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, 1998 was 3.41%. The effective yield for the Reserve
Assets subaccount for the 7-day period ended December 31, 1998 was 4.02%.
Because of the charges and deductions imposed under the Contract, the yield for
the Domestic Money Market Subaccount and the Reserve Assets Subaccount will be
lower than the yield for the corresponding underlying Fund.
The yields on amounts held in the Domestic Money Market Subaccount or the
Reserve Assets Subaccount normally will fluctuate on a daily basis. Therefore,
the disclosed yield for any given past period is not an indication or
representation of future yields or rates of return. The actual yield for those
subaccounts is affected by changes in interest rates on money market securities,
average portfolio maturity of the underlying Fund, the types and qualities of
portfolio securities held by the Fund and the Fund's operating expenses. Yields
on amounts held in the Domestic Money Market Subaccount and Reserve Assets
Subaccount may also be presented for periods other than a 7-day period.
OTHER SUBACCOUNT YIELDS
From time to time, 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, 1998
was:
<TABLE>
<CAPTION>
NAME OF SUBACCOUNT YIELD
- -------------------------------------------------------------------------------------- -----------
<S> <C>
Prime Bond 4.28%
High Current Income 8.86%
Global Bond Focus
(formerly, World Income Focus) 2.36%
Government Bond
(formerly, Intermediate Government Bond) 3.17%
</TABLE>
Because of the charges and deductions imposed under the contracts, the yield for
an Account A subaccount will be lower than the yield for the corresponding Fund.
The yield on the amounts held in the Account A subaccounts normally will
fluctuate over time. Therefore, the disclosed yield for any given past period is
not an indication or representation of future yields or rates of return. A
subaccount's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Fund, and its operating expenses.
Yield calculations do not take into account the declining contingent deferred
sales charge under the Contract of amounts surrendered or withdrawn under the
Contract deemed to consist of premiums paid within the preceding seven years. A
contingent deferred sales charge will not be imposed on the first withdrawal in
any Contract year to the extent that it is deemed to consist of gain on premiums
paid during the preceding seven contract years and/or premiums not subject to
such a charge.
5
<PAGE>
TOTAL RETURNS
From time to time, 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, 1998, returns were:
<TABLE>
<CAPTION>
SINCE
NAME OF SUBACCOUNT 1 YR 5 YR 10 YR INCEPTION
- ------------------------------------------ ---------- --------- ----- ----------
<S> <C> <C> <C> <C>
Prime Bond Fund........................... -0.45% 4.46% N/A 6.16%
High Current Income Fund.................. -10.47% 4.19% N/A 7.06%
Quality Equity Fund....................... 6.91% 13.32% N/A 12.19%
Special Value Focus Fund (formerly, Equity
Growth)................................. -13.60% 6.82% N/A 6.33%
Natural Resources Focus*.................. -21.67% -2.74% N/A -0.03%
Global Strategy Focus Fund................ 0.49% 6.47% N/A 7.86%
American Balanced Fund*................... 4.92% 9.03% N/A 9.38%
Basic Value Focus Fund.................... 1.01% 13.37% N/A 13.91%
Global Bond Focus Fund** (formerly, World
Income Focus)........................... 3.99% 4.72% N/A 5.39%
Global Utility Focus Fund*................ 15.27% 12.92% N/A 12.99%
International Equity Focus Fund**......... -0.49% 1.03% N/A 2.80%
Government Bond Fund (formerly,
Intermediate Government Bond)........... 0.39% N/A N/A 5.82%
Developing Capital Markets Focus Fund..... -34.58% N/A N/A -9.74%
Index 500 Fund............................ 19.42% N/A N/A 26.88%
Global Growth Focus Fund.................. N/A N/A N/A 0.78%
Capital Focus Fund........................ N/A N/A N/A -15.72%
Select Ten Trust.......................... N/A N/A N/A -9.07%
AIM V.I. Capital Appreciation Fund........ 10.58% N/A N/A 12.34%
AIM V.I. Value Fund....................... 23.49% N/A N/A 25.21%
Alliance Premier Growth Portfolio......... 38.83% N/A N/A 36.08%
Alliance Quasar Portfolio................. N/A N/A N/A -31.85%
MFS Emerging Growth Series................ 25.22% N/A N/A 22.47%
MFS Research Series....................... 14.60% N/A N/A 18.03%
Hotchkis and Wiley International VIP
Portfolio............................... N/A N/A N/A -18.66%
</TABLE>
Total returns assume the Contract was surrendered at the end of the period
shown, and are not indicative of performance if the Contract was continued for a
longer period.
- ------------------------
* The subaccount corresponding to this Fund was closed to allocations of
premiums or contract value following the close of business on December 6,
1996.
** The subaccount corresponding to this Fund was closed to allocations of
premiums or contract value following the close of business on June 5, 1998.
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
Alliance Quasar Portfolio September 17, 1990
MFS Emerging Growth Series July 24, 1995
MFS Research Series July 26, 1995
Hotchkis and Wiley International VIP Portfolio June 10, 1990
</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 was 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, 1998 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 Fund..................................... 6.30% 4.96% N/A 6.27%
High Current Income Fund............................ -4.48% 4.70% N/A 7.16%
Quality Equity Fund................................. 13.92% 13.69% N/A 12.27%
Special Value Focus Fund (formerly, Equity
Growth)........................................... -7.85% 7.28% N/A 6.44%
Natural Resources Focus*............................ -16.52% -2.21% N/A 0.10%
Global Strategy Focus Fund.......................... 7.31% 6.93% N/A 7.95%
American Balanced Fund*............................. 11.93% 9.46% N/A 9.46%
Basic Value Focus Fund.............................. 7.87% 13.74% N/A 14.11%
Global Bond Focus Fund** (formerly, World Income
Focus)............................................ 11.00% 5.21% N/A 5.67%
Global Utility Focus Fund*.......................... 22.27% 13.29% N/A 13.20%
International Equity Focus Fund**................... 6.25% 1.59% N/A 3.12%
Government Bond Fund (formerly, Intermediate
Government Bond).................................. 7.20% N/A N/A 6.35%
Developing Capital Markets Focus Fund............... -30.40% N/A N/A -9.23%
Index 500 Fund...................................... 26.43% N/A N/A 28.80%
Global Growth Focus Fund............................ N/A N/A N/A 13.02%
Capital Focus Fund.................................. N/A N/A N/A -5.60%
Select Ten Trust.................................... N/A N/A N/A 1.90%
AIM V.I. Capital Appreciation Fund.................. 17.59% N/A N/A 14.51%
AIM V.I. Value Fund................................. 30.50% N/A N/A 27.15%
Alliance Premier Growth Portfolio................... 45.84% N/A N/A 37.87%
Alliance Quasar Portfolio........................... N/A N/A N/A -23.80%
MFS Emerging Growth Series.......................... 32.23% N/A N/A 24.45%
MFS Research Series................................. 21.61% N/A N/A 20.09%
Hotchkis & Wiley International VIP Portfolio........ N/A N/A N/A -8.92%
</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 subaccount corresponding to this Fund was closed to allocations of
premiums or contract value following the close of business on December 6,
1996.
** The subaccount corresponding to this Fund was closed to allocations of
premiums or contract value following the close of business on June 5, 1998.
8
<PAGE>
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.
9
<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, 1998 and the related
statements of operations and changes in net assets for each
of the two years in the period then ended. These financial
statements are the responsibility of the management of ML
Life Insurance Company of New York (the "Company"). Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation
of mutual fund securities owned at December 31, 1998. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Account
at December 31, 1998 and the results of its operations and
the changes in its net assets for each of the two years in
the period then ended in conformity with generally accepted
accounting principles.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The supplemental schedules included herein are presented for
the purpose of additional analysis and are not a required
part of the basic financial statements. These schedules are
the responsibility of the Company's management. Such
schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects
when considered in relation to the basic financial
statements taken as a whole.
February 4, 1999
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Market
Cost Shares Value
======================= ======================= =======================
<S> <C> <C> <C>
ASSETS:
Investments in Merrill Lynch
Variable Series Funds, Inc. (Note 1):
Domestic Money Market Fund $ 33,650,875 33,650,875 $ 33,650,875
Prime Bond Fund 43,753,430 3,673,187 44,996,538
High Current Income Fund 34,739,225 3,098,436 31,325,188
Quality Equity Fund 42,673,010 1,388,359 52,924,246
Special Value Focus Fund 34,774,182 1,481,213 29,550,205
American Balanced Fund 12,614,386 901,430 15,089,930
Natural Resources Focus Fund 1,066,572 93,901 718,345
Global Strategy Focus Fund 43,554,565 3,439,561 46,124,510
Global Utility Focus Fund 5,151,377 476,654 8,141,246
International Equity Focus Fund 11,163,337 996,665 10,644,379
Global Bond Focus Fund 4,222,943 447,376 4,429,022
Basic Value Focus Fund 42,362,660 3,029,042 44,436,047
Government Bond Fund 21,664,932 2,052,127 22,327,137
Developing Capital Markets Focus Fund 5,170,890 563,198 3,621,360
Index 500 Fund 25,993,194 1,975,581 32,061,982
Global Growth Focus Fund 1,233,106 126,349 1,367,096
Capital Focus Fund 1,056,088 113,398 1,106,764
----------------------- -----------------------
364,844,772 382,514,870
----------------------- -----------------------
Investments In Hotchkis & Wiley
Variable Trust (Note 1):
International VIP Portfolio 22,220,943 2,297,008 21,867,517
----------------------- -----------------------
22,220,943 21,867,517
----------------------- -----------------------
Investments In Defined Asset Funds,
Equity Investor Fund (Note 1):
1998 ML Select Ten V.I. Trust 1,886,079 1,904,528 1,931,267
----------------------- -----------------------
1,886,079 1,931,267
----------------------- -----------------------
Investments in Alliance
Variable Products Series Fund, Inc. (Note 1):
Quasar Portfolio 825,293 72,513 807,790
Premier Growth Portfolio 35,739,648 1,591,110 49,372,147
----------------------- -----------------------
36,564,941 50,179,937
----------------------- -----------------------
Investments in MFS
Variable Insurance Trust (Note 1):
MFS Emerging Growth Series 16,128,553 968,473 20,793,124
MFS Research Series 14,450,754 888,306 16,922,227
----------------------- -----------------------
30,579,307 37,715,351
----------------------- -----------------------
(continued)
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT A
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998 (continued)
================================================================================
<TABLE>
<CAPTION>
Market
Cost Shares Value
======================= ======================= =======================
<S> <C> <C> <C>
Investments in AIM
Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund 22,756,036 1,011,785 26,559,346
AIM V.I. Capital Appreciation Fund 7,665,502 334,760 8,435,959
----------------------- -----------------------
30,421,538 34,995,305
----------------------- -----------------------
TOTAL ASSETS $ 486,517,580 529,204,247
======================= -----------------------
LIABILITIES:
Due to ML Life Insurance Company of New York 253,502
-----------------------
TOTAL LIABILITIES 253,502
-----------------------
NET ASSETS $ 528,950,745
=======================
</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, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
1998 1997
======================= =======================
<S> <C> <C>
Investment Income:
Reinvested Dividends $ 44,880,050 $ 19,823,996
Mortality and Expense Charges (Note 3) (6,329,552) (4,729,318)
----------------------- -----------------------
Net Investment Income 38,550,498 15,094,678
----------------------- -----------------------
Realized and Unrealized Gains on Investments:
Net Realized Gains 2,687,979 6,167,098
Net Change in Unrealized Gains 6,025,721 13,593,179
----------------------- -----------------------
Net Gain on Investments 8,713,700 19,760,277
----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 47,264,198 34,854,955
----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 97,074,808 100,897,509
Transfer of Contract Owner Withdrawals (19,903,885) (14,728,085)
Transfers Out - Net (2,741,911) (1,903,053)
Transfer of Contract Maintenance Charges (Note 3) (130,287) (107,946)
----------------------- -----------------------
Increase in Net Assets
Resulting from Principal Transactions 74,298,725 84,158,425
----------------------- -----------------------
Increase in Net Assets 121,562,923 119,013,380
Net Assets Beginning Balance 407,387,822 288,374,442
----------------------- -----------------------
Net Assets Ending Balance $ 528,950,745 $ 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
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
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 ML of New York's 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. ("Merrill
Lynch & Co."). Separate Account A is registered as a
unit investment trust under the Investment Company Act of
1940 and consists of twenty-five investment divisions.
The investment divisions are as follows:
Merrill Lynch Variable Series Funds, Inc.: Seventeen
of the investment divisions each invest in the
securities of a single mutual fund portfolio of the
Merrill Lynch Variable Series Funds, Inc. ("Merrill
Variable Funds"). The investment advisor to the
funds of the Merrill Variable Funds is Merrill Lynch
Asset Management, L.P.("MLAM"), an indirect subsidiary
of Merrill Lynch & Co. Effective following the close
of business on June 5, 1998, the International Equity
Focus Fund and Global Bond Focus Fund were closed to
allocations of premiums and contract value. Three
other investment divisions; Natural Resources Focus
Fund, American Balanced Fund and Global Utility Focus
Fund have been closed to allocations of premiums and
contract value since 1996.
Hotchkis & Wiley Variable Trust: One of the investment
divisions invests in the securities of a single mutual
fund portfolio of the Hotchkis & Wiley Variable Trust
("H&W Trust"). The investment advisor to the fund of
the H&W Trust is Hotchkis & Wiley, a division of
Merrill Lynch Capital Management Group of MLAM.
Defined Asset Funds, Equity Investor Fund: One of the
investment divisions invests in the securities of a
single unit investment trust of the Equity Investor
Fund. Equity Investor Fund is sponsored by Merrill
Lynch, Pierce, Fenner & Smith, Incorporated, a wholly-
owned subsidiary of Merrill Lynch & Co.
Alliance Variable Products Series Fund, Inc.: Two
investment divisions each invest in the securities of
a single mutual fund portfolio of the Alliance
Variable Products Series Fund, Inc. ("Alliance
Variable Fund"). The investment advisor to the funds
of the Alliance Variable Fund is Alliance Capital
Management, L.P.
MFS Variable Insurance Trust: Two of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the MFS Variable Insurance
Trust ("MFS Variable Trust"). The investment advisor
to the funds of the MFS Variable Trust is
Massachusetts Financial Services Company.
AIM Variable Insurance Funds, Inc.: Two of the
investment divisions each invest in the securities of
a single mutual fund portfolio of the AIM Variable
Insurance Funds, Inc. ("AIM Variable Funds"). The
investment advisor to the funds of the AIM Variable
Funds is AIM Advisors, Inc.
The assets of Separate Account A are registered in the
name of ML of New York. The portion of Separate Account
A's assets applicable to the Contracts 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. SIGNIFICANT ACCOUNTING POLICIES
Investments in the divisions are included in the
statement of net assets at the net asset value of the
shares held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Realized gains and losses on the sales of investments are
computed on the first in first out method.
Investment transactions are recorded on the trade date.
The operations of Separate Account A are included in the
Federal income tax return of 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 that is attributable to Separate Account A
if the law is changed. Charges for state and local taxes,
if any, attributable to Separate Account A may also be
made.
3. CHARGES AND FEES
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
daily 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. Certain transfers from the Equity Investor Fund
do not count towards the six transfers. Additional
transfers may be permitted at a charge of $25 per
transfer.
<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, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================
Domestic
Total Money Prime
Separate Market Bond
Account Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 44,880,050 $ 1,497,439 $ 2,711,273
Mortality and Expense Charges (6,329,552) (399,394) (574,804)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 38,550,498 1,098,045 2,136,469
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 2,687,979 0 (213,502)
Net Change In Unrealized Gains (Losses) 6,025,721 0 716,500
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 8,713,700 0 502,998
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 47,264,198 1,098,045 2,639,467
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 97,074,808 90,172,681 328,368
Transfer of Contract Owner Withdrawals (19,903,885) (1,128,980) (2,718,345)
Transfers In (Out) - Net (2,741,911) (85,073,226) 4,870,790
Transfer of Contract Maintenance Charges (130,287) (5,129) (11,117)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 74,298,725 3,965,346 2,469,696
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 121,562,923 5,063,391 5,109,163
Net Assets Beginning Balance 407,387,822 28,571,274 39,865,760
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 528,950,745 $ 33,634,665 $ 44,974,923
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 2,714,662.2 2,943,385.0
=========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 12.39 $ 15.28
=========================== ===========================
</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, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
High Special
Current Quality Value
Income Equity Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 3,220,838 $ 7,271,957 $ 6,953,329
Mortality and Expense Charges (441,055) (694,958) (419,355)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 2,779,783 6,576,999 6,533,974
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (637,087) 1,809,709 159,298
Net Change In Unrealized Gains (Losses) (3,767,853) (1,468,227) (8,979,417)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments (4,404,940) 341,482 (8,820,119)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations (1,625,157) 6,918,481 (2,286,145)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 510,831 415,437 397,820
Transfer of Contract Owner Withdrawals (1,368,987) (2,575,192) (1,159,909)
Transfers In (Out) - Net 3,425,551 (2,988,996) 2,624,849
Transfer of Contract Maintenance Charges (8,456) (15,290) (10,172)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,558,939 (5,164,041) 1,852,588
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 933,782 1,754,440 (433,557)
Net Assets Beginning Balance 30,376,355 51,144,547 29,969,654
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 31,310,137 $ 52,898,987 $ 29,536,097
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 1,935,113.5 2,374,281.3 1,911,721.5
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 16.18 $ 22.28 $ 15.45
=========================== =========================== ===========================
</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, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Natural Global
American Resources Strategy
Balanced Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,740,216 $ 213,456 $ 8,290,880
Mortality and Expense Charges (202,187) (13,390) (652,992)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 1,538,029 200,066 7,637,888
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 289,567 (146,792) 105,416
Net Change In Unrealized Gains (Losses) (95,892) (216,716) (4,324,379)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 193,675 (363,508) (4,218,963)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,731,704 (163,442) 3,418,925
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 0 0 220,343
Transfer of Contract Owner Withdrawals (699,889) (71,390) (2,851,994)
Transfers In (Out) - Net (1,579,197) (449,075) (5,336,133)
Transfer of Contract Maintenance Charges (4,825) (430) (18,650)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (2,283,911) (520,895) (7,986,434)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets (552,207) (684,337) (4,567,509)
Net Assets Beginning Balance 15,634,916 1,402,337 50,669,947
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 15,082,709 $ 718,000 $ 46,102,438
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 805,270.1 70,808.7 2,708,721.4
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 18.73 $ 10.14 $ 17.02
=========================== =========================== ===========================
</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, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Global International Global
Utility Equity Bond
Focus Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 568,715 $ 2,178,749 $ 266,877
Mortality and Expense Charges (104,208) (254,404) (61,364)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 464,507 1,924,345 205,513
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 413,976 (911,762) (30,323)
Net Change In Unrealized Gains (Losses) 684,665 993,764 300,269
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 1,098,641 82,002 269,946
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,563,148 2,006,347 475,459
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 0 219,304 36,400
Transfer of Contract Owner Withdrawals (525,821) (940,810) (303,400)
Transfers In (Out) - Net (635,109) (16,704,845) (744,029)
Transfer of Contract Maintenance Charges (2,200) (6,649) (1,675)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,163,130) (17,433,000) (1,012,704)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 400,018 (15,426,653) (537,245)
Net Assets Beginning Balance 7,737,336 26,065,940 4,964,134
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 8,137,354 $ 10,639,287 $ 4,426,889
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 408,706.9 893,307.1 324,790.1
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 19.91 $ 11.91 $ 13.63
=========================== =========================== ===========================
</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, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Basic Developing
Value Government Capital Markets
Focus Bond Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 5,989,857 $ 885,840 $ 102,086
Mortality and Expense Charges (592,549) (210,898) (89,956)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 5,397,308 674,942 12,130
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 1,307,153 21,921 (1,984,770)
Net Change In Unrealized Gains (Losses) (3,899,825) 376,997 (748,648)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments (2,592,672) 398,918 (2,733,418)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,804,636 1,073,860 (2,721,288)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 976,498 133,863 49,574
Transfer of Contract Owner Withdrawals (1,697,647) (443,784) (256,648)
Transfers In (Out) - Net 4,906,706 10,338,448 (1,668,298)
Transfer of Contract Maintenance Charges (13,967) (3,354) (1,979)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 4,171,590 10,025,173 (1,877,351)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 6,976,226 11,099,033 (4,598,639)
Net Assets Beginning Balance 37,438,471 11,217,213 8,218,270
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 44,414,697 $ 22,316,246 $ 3,619,631
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 2,134,295.9 1,670,377.7 563,805.5
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 20.81 $ 13.36 $ 6.42
=========================== =========================== ===========================
</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, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
Global
Index Growth Capital
500 Focus Focus
Fund Fund Fund
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,044,538 $ 0 $ 0
Mortality and Expense Charges (350,886) (5,308) (3,930)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) 693,652 (5,308) (3,930)
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 1,108,492 (1,580) (3,032)
Net Change In Unrealized Gains (Losses) 3,963,311 133,989 50,676
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 5,071,803 132,409 47,644
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 5,765,455 127,101 43,714
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 761,712 17,675 16,218
Transfer of Contract Owner Withdrawals (695,098) (391) (18,482)
Transfers In (Out) - Net 9,694,889 1,222,092 1,064,830
Transfer of Contract Maintenance Charges (5,343) (35) (47)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 9,756,160 1,239,341 1,062,519
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 15,521,615 1,366,442 1,106,233
Net Assets Beginning Balance 16,525,021 0 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 32,046,636 $ 1,366,442 $ 1,106,233
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 1,908,674.0 127,229.2 114,280.3
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 16.79 $ 10.74 $ 9.68
=========================== =========================== ===========================
</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, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
International 1998 ML
VIP Select Ten Quasar
Portfolio V.I. Trust Portfolio
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 88,965 $ 11,454 $ 4,730
Mortality and Expense Charges (141,560) (8,050) (3,058)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) (52,595) 3,404 1,672
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) (69,682) (179) (11,769)
Net Change In Unrealized Gains (Losses) (353,425) 45,189 (17,503)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments (423,107) 45,010 (29,272)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations (475,702) 48,414 (27,600)
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 21,540 110,797 13,850
Transfer of Contract Owner Withdrawals (297,160) (638) (7,094)
Transfers In (Out) - Net 22,610,549 1,771,805 828,288
Transfer of Contract Maintenance Charges (2,171) (37) (38)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 22,332,758 1,881,927 835,006
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 21,857,056 1,930,341 807,406
Net Assets Beginning Balance 0 0 0
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 21,857,056 $ 1,930,341 $ 807,406
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 2,303,167.1 190,745.2 94,213.1
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 9.49 $ 10.12 $ 8.57
=========================== =========================== ===========================
</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, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================================================================
MFS
Premier Emerging MFS
Growth Growth Research
Portfolio Series Series
=========================== =========================== ===========================
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 30,324 $ 115,462 $ 256,314
Mortality and Expense Charges (428,132) (195,235) (171,803)
--------------------------- --------------------------- ---------------------------
Net Investment Income (Loss) (397,808) (79,773) 84,511
--------------------------- --------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 398,722 154,517 479,127
Net Change In Unrealized Gains (Losses) 12,276,747 4,193,375 2,010,778
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 12,675,469 4,347,892 2,489,905
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 12,277,661 4,268,119 2,574,416
--------------------------- --------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 736,818 487,662 490,100
Transfer of Contract Owner Withdrawals (783,743) (348,319) (264,981)
Transfers In (Out) - Net 20,305,587 9,279,946 7,071,255
Transfer of Contract Maintenance Charges (7,186) (3,428) (3,362)
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 20,251,476 9,415,861 7,293,012
--------------------------- --------------------------- ---------------------------
Increase (Decrease) in Net Assets 32,529,137 13,683,980 9,867,428
Net Assets Beginning Balance 16,819,459 7,099,242 7,046,718
--------------------------- --------------------------- ---------------------------
Net Assets Ending Balance $ 49,348,596 $ 20,783,222 $ 16,914,146
=========================== =========================== ===========================
Units Outstanding at December 31, 1998 2,559,574.5 1,327,153.4 1,161,685.9
=========================== =========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 19.28 $ 15.66 $ 14.56
=========================== =========================== ===========================
</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, 1998
================================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================
AIM V.I.
AIM V.I. Capital
Value Appreciation
Fund Fund
=========================== ===========================
<S> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,211,631 $ 225,120
Mortality and Expense Charges (224,703) (85,373)
--------------------------- ---------------------------
Net Investment Income (Loss) 986,928 139,747
--------------------------- ---------------------------
Realized and Unrealized Gains (Losses)
On Investments:
Net Realized Gains (Losses) 182,903 267,656
Net Change In Unrealized Gains (Losses) 3,635,052 516,294
--------------------------- ---------------------------
Net Gain (Loss) on Investments 3,817,955 783,950
--------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Operations 4,804,883 923,697
--------------------------- ---------------------------
Changes from Principal Transactions:
Transfer of Net Premiums 697,010 260,307
Transfer of Contract Owner Withdrawals (567,674) (177,509)
Transfers In (Out) - Net 12,917,014 (495,602)
Transfer of Contract Maintenance Charges (3,396) (1,351)
--------------------------- ---------------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 13,042,954 (414,155)
--------------------------- ---------------------------
Increase (Decrease) in Net Assets 17,847,837 509,542
Net Assets Beginning Balance 8,698,822 7,922,406
--------------------------- ---------------------------
Net Assets Ending Balance $ 26,546,659 $ 8,431,948
=========================== ===========================
Units Outstanding at December 31, 1998 1,623,648.9 637,817.5
=========================== ===========================
Accumulation Unit Value at December 31, 1998 $ 16.35 $ 13.22
=========================== ===========================
</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
=======================================================
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)
On Investments:
Net Realized Gains (Losses) 6,167,098 0 (843,730)
Net Change In Unrealized Gains (Losses) 13,593,179 0 1,472,775
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 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)
On Investments:
Net Realized Gains (Losses) (71,138) 1,710,486 1,122,704
Net Change In Unrealized Gains (Losses) 358,380 5,703,018 434,251
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 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)
On Investments:
Net Realized Gains (Losses) 302,250 61,968 1,080,156
Net Change In Unrealized Gains (Losses) 251,324 (396,055) 2,073,480
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 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)
On Investments:
Net Realized Gains (Losses) 437,714 21,501 (185,732)
Net Change In Unrealized Gains (Losses) 1,012,728 (2,233,592) (68,589)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 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)
On Investments:
Net Realized Gains (Losses) 1,473,426 28,055 89,268
Net Change In Unrealized Gains (Losses) 883,128 229,149 (947,132)
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 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)
On Investments:
Net Realized Gains (Losses) 359,815 151,438 43,411
Net Change In Unrealized Gains (Losses) 2,106,223 1,355,752 475,223
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 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)
On Investments:
Net Realized Gains (Losses) 296,427 85,546 3,533
Net Change In Unrealized Gains (Losses) 460,695 168,258 254,163
--------------------------- --------------------------- ---------------------------
Net Gain (Loss) on Investments 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>
\
<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, 1998 and the related
statements of operations and changes in net assets for each
of the two years in the period then ended. These financial
statements are the responsibility of the management of ML
Life Insurance Company of New York (the "Company"). Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included
confirmation of mutual fund securities owned at December 31,
1998. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Account
at December 31, 1998 and the results of its operations and
the changes in its net assets for each of the two years in
the period then ended in conformity with generally accepted
accounting principles.
February 4, 1999
<PAGE>
ML OF NEW YORK VARIABLE ANNUITY SEPARATE ACCOUNT B
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Market
Cost Shares Value
======================= ======================= =======================
<S> <C> <C> <C>
ASSETS:
Investments in Merrill Lynch
Variable Series Funds, Inc. (Note 1):
Reserve Assets Fund $ 1,223,158 1,223,158 $ 1,223,158
----------------------- -----------------------
TOTAL ASSETS $ 1,223,158 1,223,158
======================= -----------------------
LIABILITIES:
Due to ML Life Insurance Company of New York 289
-----------------------
TOTAL LIABILITIES 289
-----------------------
NET ASSETS $ 1,222,869
=======================
</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, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
1998 1997
======================= =======================
<S> <C> <C>
Investment Income:
Reinvested Dividends $ 61,838 $ 51,804
Mortality and Expense Charges (Note 3) (8,083) (6,677)
----------------------- -----------------------
Net Investment Income 53,755 45,127
----------------------- -----------------------
Increase in Net Assets
Resulting from Operations 53,755 45,127
----------------------- -----------------------
Changes from Principal Transactions:
Transfer of Net Premiums 90,383 75,662
Transfer of Contract Owner Withdrawals (2,852,928) (2,265,531)
Transfers In - Net 2,917,556 1,966,884
Transfer of Contract Maintenance Charges (Note 3) (271) (341)
----------------------- -----------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 154,740 (223,326)
----------------------- -----------------------
Increase (Decrease) in Net Assets 208,495 (178,199)
Net Assets Beginning Balance 1,014,374 1,192,573
----------------------- -----------------------
Net Assets Ending Balance $ 1,222,869 $ 1,014,374
======================= =======================
1998 1997
Reserve Assets Fund: ======================= =======================
Units Outstanding at December 31, 95,017.0 82,335.6
======================= =======================
Accumulation Unit Value at December 31, $ 12.87 $ 12.32
======================= =======================
</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. ORGANIZATION
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 ML of New York's 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.
("Merrill Lynch & Co."). Separate Account B is
registered as a unit investment trust under the
Investment Company Act of 1940 and consists of one
investment division. The investment division invests in
the securities of the Reserve Assets Fund portfolio of
the Merrill Lynch Variable Series Funds, Inc. ("Merrill
Variable Funds"). The investment advisor to the Reserve
Assets Fund portfolio is Merrill Lynch Asset Management,
L.P. ("MLAM"), an indirect subsidiary of Merrill Lynch &
Co.
The assets of Separate Account B are registered in the
name of 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.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES
Investments in the division are included in the statement
of net assets at the net asset value of the shares held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Investment transactions are recorded on the trade date.
The operations of Separate Account B are included in the
Federal income tax return of 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 that is attributable to Separate Account B
if the law is changed. Charges for state and local
taxes, if any, attributable to Separate Account B may
also be made.
3. CHARGES AND FEES
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, 1998 and 1997, and the related statements of earnings,
comprehensive income, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles.
February 22, 1999
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- -------- ------------- -------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1998 - $197,588; 1997 - $250,695) $ 200,681 $ 255,958
Equity securities, at estimated fair value
(cost: 1998 - $14,684; 1997 - $5,830) 13,718 5,029
Policy loans on insurance contracts 88,083 88,163
------------- -------------
Total Investments 302,482 349,150
CASH AND CASH EQUIVALENTS 18,707 10,063
ACCRUED INVESTMENT INCOME 4,968 5,416
DEFERRED POLICY ACQUISITION COSTS 29,742 30,406
REINSURANCE RECEIVABLES 652 429
OTHER ASSETS 4,261 3,405
SEPARATE ACCOUNTS ASSETS 887,170 739,712
------------- -------------
TOTAL ASSETS $ 1,247,982 $ 1,138,581
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 269,246 $ 307,333
Claims and claims settlement expenses 2,986 2,007
------------- -------------
Total policy liabilities and accruals 272,232 309,340
OTHER POLICYHOLDER FUNDS 1,783 1,941
FEDERAL INCOME TAXES - DEFERRED 119 1,905
FEDERAL INCOME TAXES - CURRENT 1,347 2,255
AFFILIATED PAYABLES - NET 1,253 3,492
OTHER LIABILITIES 2,124 2,155
SEPARATE ACCOUNTS LIABILITIES 887,170 739,712
------------- -------------
Total Liabilities 1,166,028 1,060,800
------------- -------------
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 66,259
Retained earnings 14,462 9,692
Accumulated other comprehensive loss (967) (370)
------------- -------------
Total Stockholder's Equity 81,954 77,781
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,247,982 $ 1,138,581
============= =============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 21,549 $ 25,465 $ 27,520
Net realized investment gains (losses) (1,998) 1,947 2,169
Policy charge revenue 15,484 13,064 11,959
------------- ------------- -------------
Total Revenues 35,035 40,476 41,648
------------- ------------- -------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 13,832 14,532 16,586
Market value adjustment expense 567 232 301
Policy benefits (net of reinsurance recoveries: 1998 - $1,191
1997 - $690; 1996 - $1,584) 1,630 781 1,311
Reinsurance premium ceded 1,705 1,584 1,262
Amortization of deferred policy acquisition costs 5,759 4,119 3,784
Insurance expenses and taxes 4,900 4,563 4,595
------------- ------------- -------------
Total Benefits and Expenses 28,393 25,811 27,839
------------- ------------- -------------
Earnings Before Federal Income Tax Provision 6,642 14,665 13,809
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 3,337 2,905 102
Deferred (1,465) 2,068 4,488
------------- ------------- -------------
Total Federal Income Tax Provision 1,872 4,973 4,590
------------- ------------- -------------
NET EARNINGS $ 4,770 $ 9,692 $ 9,219
============= ============= =============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
NET EARNINGS $ 4,770 $ 9,692 $ 9,219
------------- ------------ -------------
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding losses arising during the period (4,329) (413) (4,206)
Reclassification adjustment for (gains) losses included
in net earnings 1,994 (1,771) (1,858)
------------- ------------ -------------
Net unrealized losses on investment securities (2,335) (2,184) (6,064)
Adjustments for:
Policyholder liabilities 1,417 (70) 5,380
Income tax benefit related to items of
other comprehensive loss 321 789 240
------------- ------------ -------------
Other comprehensive loss, net of tax (597) (1,465) (444)
------------- ------------ -------------
COMPREHENSIVE INCOME $ 4,173 $ 8,227 $ 8,775
============= ============ =============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive Stockholder's
stock Capital earnings income (loss) equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 2,200 $ 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 loss, 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 loss, net of tax (1,465) (1,465)
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 2,200 66,259 9,692 (370) 77,781
Net earnings 4,770 4,770
Other comprehensive loss, net of tax (597) (597)
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 $ 2,200 $ 66,259 $ 14,462 $ (967) $ 81,954
=========== ============ ============ ============ ============
</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, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 4,770 $ 9,692 $ 9,219
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 5,759 4,119 3,784
Capitalization of policy acquisition costs (5,095) (5,253) (2,134)
Amortization (accretion) of investments (262) (239) 1
Net realized investment (gains) losses 1,998 (1,947) (2,169)
Interest credited to policyholders' account balances 13,832 14,532 16,586
Provision (benefit) for deferred Federal income tax (1,465) 2,068 4,488
Changes in operating assets and liabilities:
Accrued investment income 448 536 651
Claims and claims settlement expenses 979 (565) (329)
Federal income taxes - current (908) 156 1,914
Other policyholder funds (158) 781 421
Affiliated payables - net (2,239) (1,534) 964
Policy loans on insurance contracts 80 (2,615) (3,475)
Other, net (1,110) 2,306 (3,951)
------------ ------------ ------------
Net cash and cash equivalents provided by operating activites 16,629 22,037 25,970
------------ ------------ ------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 102,967 88,882 155,645
Maturities of available-for-sale securities 59,161 51,060 34,455
Purchases of available-for-sale securities (119,611) (120,965) (162,828)
Mortgage loans principal payments received - 2,057 1,975
------------ ------------ ------------
Net cash and cash equivalents provided by investing activities 42,517 21,034 29,247
------------ ------------ ------------
</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, 1998, 1997 AND 1996
(Continued) (Dollars In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ - $ (15,000) $ (35,000)
Policyholders' account balances:
Deposits 94,226 106,983 32,158
Withdrawals (including transfers to/from Separate Accounts) (144,728) (132,819) (61,934)
------------- ------------- -------------
Net cash and cash equivalents used by financing activites (50,502) (40,836) (64,776)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,644 2,235 (9,559)
CASH AND CASH EQUIVALENTS:
Beginning of year 10,063 7,828 17,387
------------- ------------- -------------
End of year $ 18,707 $ 10,063 $ 7,828
============= ============= =============
Supplementary Disclosure of Cash Flow Information:
Cash paid to (received from) affiliates for:
Federal income taxes $ 4,245 $ 2,749 $ (1,812)
Interest 148 494 440
</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
Description of Business: 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 primarily 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.
Basis of Reporting: The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles and prevailing industry practices, both of which
require management to make estimates that affect the reported
amounts and disclosure of contingencies in the financial
statements. Actual results could differ from those estimates.
For the purpose of reporting cash flows, cash and cash
equivalents include cash on hand and on deposit and short-term
investments with original maturities of three months or less.
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
mortality risk and cost of insurance, deferred sales charges,
policy administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
Investments: The Company's investments in fixed maturity and
equity securities are classified as available-for-sale and are
carried at estimated fair value with unrealized gains and
losses included in stockholder's equity as a component of
accumulated other comprehensive loss, 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.
<PAGE>
All outstanding mortgage loans were repaid during 1997. The
Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may have been
different from the accrual interest rate of the loan for
certain mortgage loans. The Company recognized a realized gain
at the date of the satisfaction of the loan at contractual
terms for loans where there was a difference between the cash
payment interest rate and the accrual interest rate. For all
loans, the Company stopped accruing income when an interest
payment default either occurred or was probable. Impairments
of mortgage loans were established as valuation allowances and
recorded to net realized investment gains or losses.
Policy loans on insurance contracts are stated at unpaid
principal balances.
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 7.5%. This
reinsurance agreement provides for payment of contingent ceding
commissions based upon the persistency and mortality experience
of the insurance contracts assumed. Any payments made for the
contingent ceding commissions 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:
1998 1997 1996
------------ ------------ ------------
Beginning balance $ 16,550 $ 17,151 $ 17,654
Capitalized amounts 691 577 577
Interest accrued 1,241 1,651 1,566
Amortization (5,698) (2,829) (2,646)
------------ ------------ ------------
Ending balance $ 12,784 $ 16,550 $ 17,151
============ ============ ============
<PAGE>
The following table presents the expected amortization, net of
interest accrued, of these deferred acquisition costs over the
next five years. The amortization may be adjusted based on
periodic evaluation of the expected gross profits on the
reinsured policies.
1999 $905
2000 $785
2001 $747
2002 $712
2003 $700
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.
Net investment income and net realized and unrealized gains
(losses) attributable to Separate Accounts assets accrue
directly to the policyholder and are not reported as revenue in
the Company's Statement of Earnings.
Assets and liabilities of Separate Accounts, representing net
deposits and accumulated net investment earnings less fees,
held primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest-crediting rates for the
Company's fixed-rate products are as follows:
Interest-sensitive life products 4.00% - 5.00%
Interest-sensitive deferred annuities 3.70% - 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.
Claims and Claims Settlement Expenses: For life insurance
products, the liability equals the death benefit for claims
that have been reported to the Company and an estimate based
upon prior experience for unreported claims. For annuity
products, the liability equals the guaranteed minimum death
benefit reserve.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current federal tax liability.
<PAGE>
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.
Accounting Pronouncements: During 1998, the Company adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This pronouncement requires a Company to
present disaggregated information based on the internal
segments used in managing its business. Adoption did not impact
the Company's financial position or results of operations, but
it did affect the presentation of the Company's disclosures
(See note 9).
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and for Hedging Activities". This
pronouncement will be effective for annual periods beginning
after June 15, 1999. Adoption of this pronouncement is not
expected to have a material impact on the Company's financial
position or results of operations.
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial
instruments as of December 31 were:
1998 1997
------------ ------------
Assets:
Fixed maturity securities (1) $ 200,681 $ 255,958
Equity securities (1) 13,718 5,029
Policy loans on insurance contracts (2) 88,083 88,163
Cash and cash equivalents (3) 18,707 10,063
Separate Accounts assets (4) 887,170 739,712
------------ ------------
Total financial instruments $ 1,208,359 $ 1,098,925
============ ============
(1) For publicly traded securities, the estimated fair value
is determined using quoted market prices. For securities
without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted
cash flow model, including provision for credit risk,
based upon the assumption that such securities will be
held to maturity. Such estimated fair values do not
necessarily represent the values for which these
securities could have been sold at the dates of the
balance sheets. At December 31, 1998 and 1997, securities
without a readily ascertainable market value, having an
amortized cost of $33,427 and $47,064, had an estimated
fair value of $33,879 and $48,188, respectively.
<PAGE>
(2) 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.
(3) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(4) Assets held in Separate Accounts are carried at quoted
market values.
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>
1998
------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 159,421 $ 3,404 $ 1,224 $ 161,601
Mortgage-backed securities 13,258 443 54 13,646
U.S. government and agencies 22,912 869 48 23,734
Foreign governments 1,997 - 297 1,700
------------ ------------ ------------ ------------
Total fixed maturity securities $ 197,588 $ 4,716 $ 1,623 $ 200,681
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 13,361 $ 58 $ 257 $ 13,162
Common stocks 1,323 - 767 556
------------ ------------ ------------ ------------
Total equity securities $ 14,684 $ 58 $ 1,024 $ 13,718
============ ============ ============ ============
</TABLE>
<PAGE>
<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
============ ============ ============ ============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
----------- -----------
Fixed maturity securities:
Due in one year or less $ 30,410 $ 29,997
Due after one year through five years 79,961 81,584
Due after five years through ten years 47,930 48,689
Due after ten years 26,029 26,765
----------- -----------
184,330 187,035
Mortgage-backed securities 13,258 13,646
----------- -----------
Total fixed maturity securities $ 197,588 $ 200,681
=========== ===========
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 penelties.
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by rating agency equivalent were:
Estimated
Amortized Fair
Cost Value
----------- -----------
AAA $ 53,959 $ 55,431
AA 5,484 5,515
A 53,720 54,593
BBB 74,577 76,069
Non-investment grade 9,848 9,073
----------- -----------
Total fixed maturity securities $ 197,588 $ 200,681
=========== ===========
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 available-for-sale
investments had actually been realized, with corresponding
credits or charges reported in stockholder's equity as a
component of accumulated other comprehensive loss, net of
taxes. The following reconciles net unrealized investment gains
(losses) on available-for-sale investments as of December 31:
1998 1997
----------- -----------
Assets:
Fixed maturity securities $ 3,093 $ 5,263
Equity securities (966) (801)
----------- -----------
2,127 4,462
----------- -----------
Liabilities:
Policyholders' account balances 3,615 5,032
Federal income taxes - deferred (521) (200)
----------- -----------
3,094 4,832
----------- -----------
Stockholder's equity:
Accumulated other comprehensive loss $ (967) $ (370)
=========== ===========
<PAGE>
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1998 1997 1996
----------- ----------- -----------
Proceeds $ 102,967 $ 88,882 $ 155,645
Gross realized investment gains 2,096 4,077 2,677
Gross realized investment losses 4,094 2,130 508
The company owned investment securities of $1,104 and $1,076
that were deposited with insurance regulatory authorities at
December 31, 1998 and 1997, respectively.
Net investment income arose from the following sources for the
years ended December 31:
1998 1997 1996
----------- ----------- -----------
Fixed maturity securities $ 16,244 $ 19,815 $ 22,153
Equity securities 734 761 183
Mortgage loans - 81 388
Policy loans on insurance contracts 4,316 4,333 4,133
Cash and cash equivalents 761 1,293 1,559
Other 29 65 -
----------- ----------- -----------
Gross investment income 22,084 26,348 28,416
Less investment expenses (535) (883) (896)
----------- ----------- -----------
Net investment income $ 21,549 $ 25,465 $ 27,520
=========== =========== ===========
Net realized investment gains (losses), including changes in
valuation allowances, for the years ended December 31:
1998 1997 1996
----------- ----------- -----------
Fixed maturity securities $ (1,944) $ (1,268) $ 657
Equity securities (54) 3,215 1,512
----------- ----------- -----------
Net realized investment gains (losses) $ (1,998) $ 1,947 $ 2,169
=========== =========== ===========
<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:
1998 1997 1996
----------- ----------- -----------
Provision for income taxes computed at
Federal statutory rate $ 2,325 $ 5,133 $ 4,833
State corporate income taxes - - (10)
Decrease in income taxes resulting from:
Dividend received deduction (300) (160) (235)
Foreign tax credit (153) - -
Other - - 2
----------- ----------- -----------
Federal income tax provision $ 1,872 $ 4,973 $ 4,590
=========== =========== ===========
The Federal statutory rate for each of the three years in the
period ended December 31, 1998 was 35%.
The Company provides for deferred income taxes resulting from
temporary differences that arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Deferred policy acquisition costs $ (158) $ 315 $ (259)
Policyholders' account balances (659) (140) 4,053
Liability for guaranty fund assessments - (50) 50
Investment adjustments (629) 1,943 642
Other (19) - 2
----------- ----------- -----------
Deferred Federal income tax provision (benefit) $ (1,465) $ 2,068 $ 4,488
=========== =========== ===========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
1998 1997
----------- -----------
Deferred tax assets:
Policyholders' account balances $ 5,023 $ 4,364
Investment adjustments 625 (4)
Net unrealized investment loss 521 200
Other 19 -
----------- -----------
Total deferred tax assets 6,188 4,560
----------- -----------
Deferred tax liabilities:
Deferred policy acquisition costs 6,307 6,465
----------- -----------
Net deferred tax liability $ 119 $ 1,905
=========== ===========
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
NOTE 5: REINSURANCE
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. The maximum amount of mortality risk retained by
the Company is approximately $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 $154 that can be drawn upon for
delinquent reinsurance recoverables.
<PAGE>
As of December 31, 1998, the Company had the following life
insurance in-force:
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Life insurance
in force $ 900,964 $ 159,582 $ 1,116,951 $ 1,858,333 60%
</TABLE>
NOTE 6: RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain accounting, data processing,
legal, actuarial, management, advertising and other services to
the Company. Expenses incurred by MLIG, in relation to this
service agreement, are reimbursed by the Company on an
allocated cost basis. Charges billed to the Company by MLIG
pursuant to the agreement were $4,767, $4,305 and $4,258 for
1998, 1997 and 1996 respectively. The Company is allocated
interest expense on its accounts payable to MLIG that
approximates the daily Federal funds rate. Total intercompany
interest paid was $69, $64 and $74 for 1998, 1997 and 1996,
respectively.
The Company and Merrill Lynch Asset Management, LP ("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 $157,
$159 and $186 for 1998, 1997 and 1996, 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 $3,798, $4,130 and $1,334 for
1998, 1997 and 1996, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisitions
costs and are being amortized in accordance with the policy
discussed in Note 1.
<PAGE>
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,
1998 and 1997, the outstanding loan balance was $434 and
$1,156, respectively. Repayments made on this loan during 1998
and 1997 were $722 and $1,919, respectively. There were no
repayments made during 1996. Loan interest was calculated at
LIBOR plus 150 basis points. Intercompany interest paid during
1998, 1997 and 1996 was $79, $359 and $366, respectively.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
NOTE 7: 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 1998, no dividend request was filed. During
1997 and 1996, the Company paid dividends of $15,000 and
$35,000, respectively, to MLIG. Statutory capital and surplus
at December 31, 1998 and 1997, was $55,851 and $51,080,
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 1998, 1997 and 1996 was
$5,405, $9,888 and $12,884, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital that
a life insurance company should have based upon that company's
risk profile. As of December 31, 1998, and 1997, based on the
RBC formula, the Company's total adjusted capital level was
761% and 649%, respectively, of the minimum amount of capital
required to avoid regulatory action.
In March 1998, the NAIC adopted the Codification of Statutory
Accounting Principles ("Codification"). The Codification,
which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be
effective January 1, 2001. However, statutory accounting
principles will continue to be established by individual state
laws and permitted practices and it is uncertain when, or if,
the state of New York will require adoption of Codification for
the preparation of statutory financial statements.
Codification is not expected to have a material impact on the
Company's capital requirements or statutory financial
statements.
<PAGE>
NOTE 8: COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). 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.
NOTE 9. SEGMENT INFORMATION
In reporting to management, the Company's operating results are
categorized into two business segments: Life Insurance and
Annuities. The Company's Life Insurance segment consists of
variable life insurance products and interest-sensitive life
insurance products. The Company's Annuity segment consists of
variable annuities and interest-sensitive annuities.
The Company's organization is structured in accordance with its
two business segments. Each segment has its own administrative
service center that provides product support to the Company and
customer service support to the Company's policyholders.
Additionally, the marketing and sales management functions,
within MLIG, are organized according to these two business
segments.
The accounting policies of the business segments are the same
as those described in the summary of significant accounting
policies. All revenue and expense transactions are recorded at
the product level and accumulated at the business segment level
for review by management.
The "Other" category, presented in the following segment
financial information, represents assets and related earnings
that do not support policyholder liabilities.
<PAGE>
The following table summarizes each business segment's
contribution to the consolidated amounts:
<TABLE>
<CAPTION>
Life
1998 Insurance Annuities Other Total
- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 789 $ 3,876 $ 3,052 $ 7,717
Other revenues 8,472 5,377 (363) 13,486
----------- ----------- ----------- -----------
Net revenues 9,261 9,253 2,689 21,203
----------- ----------- ----------- -----------
Policy benefits 1,570 60 - 1,630
Reinsurance premium ceded 1,705 - - 1,705
DAC amortization 3,571 2,188 - 5,759
Other non-interest expenses 1,973 3,494 - 5,467
----------- ----------- ----------- -----------
Total non-interest expenses 8,819 5,742 - 14,561
----------- ----------- ----------- -----------
Net earnings before Federal income
tax provision (benefit) 442 3,511 2,689 6,642
Income tax expense (benefit) (7) 938 941 1,872
----------- ----------- ----------- -----------
Net earnings $ 449 $ 2,573 $ 1,748 $ 4,770
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 481,305 $ 720,478 $ 46,182 $1,247,965
Deferred policy acquisition costs $ 15,325 $ 14,417 $ - $ 29,742
Policy liabilities and accruals $ 103,926 $ 168,306 $ - $ 272,232
Other policyholder funds $ 1,319 $ - $ 464 $ 1,783
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
1997 Insurance Annuities Other Total
- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 1,399 $ 6,060 $ 3,474 $ 10,933
Other revenues 7,759 7,172 80 15,011
----------- ----------- ----------- -----------
Net revenues 9,158 13,232 3,554 25,944
----------- ----------- ----------- -----------
Policy benefits 781 - - 781
Reinsurance premium ceded 1,584 - - 1,584
DAC amortization 1,992 2,127 - 4,119
Other non-interest expenses 1,747 3,048 - 4,795
----------- ----------- ----------- -----------
Total non-interest expenses 6,104 5,175 - 11,279
----------- ----------- ----------- -----------
Net earnings before Federal income
tax provision 3,054 8,057 3,554 14,665
Income tax expense 987 2,742 1,244 4,973
----------- ----------- ----------- -----------
Net earnings $ 2,067 $ 5,315 $ 2,310 $ 9,692
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 456,240 $ 635,673 $ 46,668 $1,138,581
Deferred policy acquisition costs $ 17,506 $ 12,900 $ - $ 30,406
Policy liabilities and accruals $ 103,677 $ 205,663 $ - $ 309,340
Other policyholder funds $ 974 $ - $ 967 $ 1,941
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
1996 Insurance Annuities Other Total
- -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 1,400 $ 5,721 $ 3,813 $ 10,934
Other revenues 7,680 6,431 17 14,128
----------- ----------- ----------- ------------
Net revenues 9,080 12,152 3,830 25,062
----------- ----------- ----------- ------------
Policy benefits 1,311 - - 1,311
Reinsurance premium ceded 1,262 - - 1,262
DAC amortization 1,736 2,048 - 3,784
Other non-interest expenses 1,755 3,141 - 4,896
----------- ----------- ----------- ------------
Total non-interest expenses 6,064 5,189 - 11,253
----------- ----------- ----------- ------------
Net earnings before Federal income
tax provision 3,016 6,963 3,830 13,809
Income tax expense 923 2,335 1,332 4,590
----------- ----------- ----------- ------------
Net earnings $ 2,093 $ 4,628 $ 2,498 $ 9,219
=========== =========== =========== ============
Balance Sheet Information:
Total assets $ 429,330 $ 534,376 $ 44,361 $ 1,008,067
Deferred policy acquisition costs $ 18,213 $ 11,059 $ - $ 29,272
Policy liabilities and accruals $ 101,689 $ 219,450 $ - $ 321,139
Other policyholder funds $ 994 $ - $ 166 $ 1,160
</TABLE>
(a) Management considers investment income net of interest
credited to policyholders' account balances in evaluating
results.
The table below summarizes the Company's net revenues by
product for 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Life Insurance
Variable Life $ 9,045 $ 8,828 $ 8,790
Interest-sensitive whole life 216 330 290
----------- ----------- ----------
Total Life Insurance 9,261 9,158 9,080
----------- ----------- ----------
Annuities
Variable annuities 6,240 4,673 3,602
Interest-sensitive annuities 3,013 8,559 8,550
----------- ----------- ----------
Total Annuities 9,253 13,232 12,152
----------- ----------- ----------
Other 2,689 3,554 3,830
----------- ----------- ----------
Total $ 21,203 $ 25,944 $ 25,062
=========== =========== ==========
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
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, 1998 and for the two years ended December
31, 1998 and the Notes relating thereto appear in the Statement of
Additional Information (Part B of the Registration Statement) (to be
filed by amendment)
(2) Financial Statements of ML of New York Variable Annuity Separate
Account B as of December 31, 1998 and for the two years ended December
31, 1998 and the Notes relating thereto appear in the Statement of
Additional Information (Part B of the Registration Statement) (to be
filed by amendment)
(3) Financial Statements of ML Life Insurance Company of New York for the
three years ended December 31, 1998 and the Notes relating thereto
appear in the Statement of Additional Information (Part B of the
Registration Statement) (to be filed by amendment)
(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).
(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).
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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).
(i) Tax-Sheltered Annuity Endorsement.
(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).
(h) Reimbursement Agreement Between Merrill Lynch Asset Management, Inc.
and Merrill 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).
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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
(Incorporated by Reference to Registrant's Post-Effective Amendment
No. 12 to Form N-4, Registration No. 33-43654 Filed May 1, 1998).
(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. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 12 to Form N-4, Registration No. 33-43654
Filed May 1, 1998).
(p) Form of Amendment to 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. 12 to Form N-4, Registration No. 33-43654 Filed May 1, 1998).
(q) Form of Participation Agreement Between Merrill Lynch, Pierce, Fenner &
Smith Incorporated and ML Life Insurance Company of New York
(Incorporated by Reference to Registrant's Post-Effective Amendment
No. 12 to Form N-4, Registration No. 33-43654 Filed May 1, 1998).
(r) Form of Participation Agreement Between Mercury Asset Management V.I.
Funds, Inc. 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).
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
(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).
(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.
Edward W. Diffin, Jr. 800 Scudders Mill Road Vice President and Senior Counsel.
Plainsboro, NJ 08536
Linda Gillis 4804 Deer Lake Drive East Vice President and Assistant
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
Shelley K. Parker 1414 Main Street Vice President and Assistant
Springfield, MA 01102 Secretary.
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR*
- --------------------------- ------------------------------------ ---------------------------------------------
<S> <C> <C>
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
Thomas Samalis 4804 Deer Lake Drive East Vice President.
Jacksonville, FL 32246
Frederick H. Steele 800 Scudders Mill Road Vice President.
Plainsboro, NJ 08536
Donald C. Stevens, III 800 Scudders Mill Road Vice President and Controller.
Plainsboro, NJ 08536
Tracy A. Bartoy 4804 Deer Lake Drive East Vice President and Assistant
Jacksonville, FL 32246 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
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 24, 1999 and the
states or jurisdictions in which they are organized. Indentation indicates the
principal parent of each subsidiary. Except as otherwise specified, in each case
ML & Co. owns, directly or indirectly, at least 99% of the voting securities of
each subsidiary. The names of particular subsidiaries have been omitted because,
considered in the aggregate as a single subsidiary, they would not constitute,
as of the end of the year covered by this report, a "significant subsidiary" as
that term is defined in Rule 1.02(w) of Regulation S-X under the Securities
Exchange Act of 1934.
<TABLE>
<CAPTION>
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 Life Agency Inc.(2).................................................... Washington
Merrill Lynch Professional Clearing Corp.(3)......................................... Delaware
Merrill Lynch Bank & Trust Co. ........................................................ New Jersey
Merrill Lynch Capital Services, Inc. .................................................. Delaware
Merrill Lynch Government Securities Inc. .............................................. Delaware
Merrill Lynch Money Markets Inc. .................................................... Delaware
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
STATE OF
NAME JURISDICTION OF ENTITY
- ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
MERRILL LYNCH & CO., INC.
Merrill Lynch Group, Inc. ............................................................. Delaware
Merrill Lynch & Co., Canada Ltd. .................................................... Ontario
Merrill Lynch Canada Inc. ......................................................... Nova Scotia
Mercury Asset Management Group Holdings PLC(4)....................................... England
Mercury Asset Management Holdings Ltd. ............................................ England
Merrill Lynch Asset Management L.P.(5)............................................... Delaware
Merrill Lynch Capital Partners, Inc. ................................................ Delaware
Merrill Lynch Futures Inc. .......................................................... Delaware
Merrill Lynch Group Holdings Limited................................................. Ireland
Merrill Lynch Capital Markets Bank Limited......................................... Ireland
Merrill Lynch Insurance Group, Inc. ................................................. Delaware
Merrill Lynch Life Insurance Company............................................... Arkansas
ML Life Insurance Company of New York.............................................. New York
Merrill Lynch International Finance Corporation...................................... New York
Merrill Lynch International Bank Limited........................................... England
Merrill Lynch Bank (Suisse) S.A. ................................................ Switzerland
Merrill Lynch Mortgage Capital Inc. ................................................. Delaware
Merrill Lynch Bank USA............................................................... Utah
Merrill Lynch Trust Company(6)....................................................... New Jersey
Merrill Lynch Business Financial Services Inc. .................................... Delaware
Merrill Lynch Credit Corporation................................................... Delaware
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. .......................................................... 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 (Asia Pacific) Limited............................................... Hong Kong
Merrill Lynch Far East Limited................................................... Hong Kong
Merrill Lynch Japan Incorporated..................................................... Cayman Islands
British West Indies
</TABLE>
- ------------------------
(1) MLPF&S also conducts business as "Merrill Lynch & Co."
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 March 19, 1999 was 7,391.
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
Jerome P. Kenney* Executive Vice President
Theresa Lang* Senior Vice President and Treasurer
E. Stanley O'Neal Executive Vice President
Thomas H. Patrick* Executive Vice President
George A. Schieren Director, 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.
(e) Registrant hereby represents that it is relying on the American Council
of Life Insurance (avail. Nov. 38, 1998) no-action letter with respect to
Contracts used in connection with retirement plans meeting the requirements of
Section 403(b) of the Internal Revenue Code, and represents further that it will
comply with the provisions of paragraphs (1) through (4) set forth in that
no-action letter.
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 12th day of April, 1999.
<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.
14 to the Registration Statement has been signed below by the following persons
in the capacities indicated on April 12, 1999.
<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>
(4)(i) Tax-Sheltered Annuity Endorsement...................................................... C-
(8)(r) Form of Participation Agreement Between Mercury Asset Management V.I. Funds, Inc. 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>
C-12
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
TAX-SHELTERED ANNUITY ENDORSEMENT
The contract is amended as follows:
1. The Annuitant is the sole Owner. The contract is not transferable and may
not be sold, assigned, discounted or pledged as security for a loan or as a
security for any other obligation, other than to ML Life Insurance Company
of New York ("we," "us" or "our"). Annuity payments under the contract
cannot be surrendered, commuted, assigned, encumbered or anticipated in any
way. Your interest in the contract is nonforfeitable. Only your spouse
may be designated as a Contingent Owner.
2. Rollover and transfer amounts from plans that are not subject to the
Employee Retirement Income Security Act of 1974, as amended, will be
accepted as premium payments, as permitted by law. Other premium payments,
including premium payments subject to Internal Revenue Code ("IRC") Section
402(g), will not be accepted.
3. Distributions under the contract must satisfy the minimum distribution
rules in IRC Section 403(b)(10), and the regulations thereunder. The
Annuity Date may not be later than the Required Beginning Date.
Required Beginning Date means April 1 of the calendar year following the
later of (i) the calendar year you attain age 70 1/2, or (ii) the calendar
year you retire. Except in the case of a governmental plan or a church
plan (as defined in IRC Section 401(a)(9)(C), if you are a 5% owner (as
defined in IRC Section 418), Required Beginning Date means April 1 of the
calendar year following the calendar year you attain age 70 1/2.
4. Any amount which becomes payable to you during your lifetime must begin on
or before the Annuity Date and will be payable to you in substantially
equal amounts, no less frequently than annually. Your entire interest in
the contract must be distributed under an Option described in paragraphs
5-9.
5. Under "OPTION 1 - PAYMENTS OF A FIXED AMOUNT," the term over which annuity
payments are made may not exceed your life expectancy, or the joint life
expectancy of you and your designated beneficiary, at the Annuity Date. If
you die before the Annuity Date, the term may not exceed the life
expectancy of your designated beneficiary.
6. Under "OPTION 2 - PAYMENTS FOR A FIXED PERIOD," the period may not exceed
your life expectancy, or the joint life expectancy of you and your
designated beneficiary, at the Annuity Date. If you die before the Annuity
Date, the period may not exceed the life expectancy of your designated
beneficiary.
7. Under "OPTION 4 - LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20
YEARS," the guaranteed period selected may not exceed your life expectancy,
or the joint life expectancy of you and your designated beneficiary, at the
Annuity Date. If you die before the Annuity Date, the guarantee period
selected may not exceed the life expectancy of your designated beneficiary.
8. Under "OPTION 5 - LIFE ANNUITY WITH GUARANTEED RETURN OF CONTRACT VALUE,"
the period required for distribution of the contract value applied under
this option may not exceed your life expectancy, or the joint life
expectancy of you and your designated beneficiary, at the Annuity Date. If
you die before the Annuity Date, the period required for distribution of
such contract value may not exceed the life expectancy of your designated
beneficiary.
-1-
<PAGE>
9. If "OPTION 6 - JOINT AND SURVIVOR LIFE ANNUITY" is chosen, the second
person must be your spouse if you have a spouse. If you die before the
Annuity Date, Option 6 is not available to your beneficiary.
10. If you die after distribution of your interest has begun, the remaining
portion of such interest will continue to be distributed at least as
rapidly as under the method of distribution being used immediately
preceding your death.
If you die before distribution has begun, the entire interest will be
distributed no later than December 31 of the calendar year in which the
fifth anniversary of your death occurs. However, proceeds which are
payable to a named beneficiary who is a natural person may be distributed
in substantially equal installments over the lifetime of the beneficiary or
over a period certain not exceeding the life expectancy of the beneficiary,
provided such distribution commences not later than December 31 of the
calendar year following the calendar year in which your death occurred.
If you die before distribution of your interest has begun and your
beneficiary is your surviving spouse, your surviving spouse may elect not
later than December 31 of the calendar year in which the fifth anniversary
of your death occurs to receive equal or substantially equal payments over
his or her life or life expectancy commencing at any date prior to the date
on which you would have attained age 70 1/2. Payments will be calculated
in accordance with Code section 403(b)(10) and the regulations thereunder.
For the purposes of this requirement, any amount paid to your child shall
be treated as if it had been paid to the surviving spouse if the remainder
of the interest becomes payable to the surviving spouse when the child
reaches the age of majority.
11. For purposes of the foregoing provisions, life expectancy and joint and
last survivor expectancy shall be determined by use of the expected return
multiples in Tables V and VI of Treasury Regulation Section 1.72-9 in
accordance with Code Section 403(b)(10) and the regulations thereunder. In
the case of distributions under paragraphs 5-9 of this endorsement, your
life expectancy or, if applicable, the joint and last survivor expectancy
of you and your beneficiary, will be initially determined on the basis of
attained ages in the year you reach 70 1/2. In the case of distribution
under paragraph 10 of this endorsement, life expectancy shall be initially
determined on the basis of the beneficiary's attained age in the year
distributions are required to commence. Unless you (or your spouse) elects
otherwise prior to the date distributions are required to commence, your
life expectancy and, if applicable, your spouse's life expectancy shall be
recalculated annually based on attained ages in the year for which the
required distribution is being determined. The life expectancy of a
nonspouse beneficiary shall not be recalculated.
In the case of a distribution other than in the form of life income or
joint life income, the annual distribution required to be made by the
Required Beginning Date is for the calendar year in which the Owner reaches
age 70 1/2. Annual payments for subsequent years, including the year in
which he Required Beginning Date occurs, must be made by December 31 of the
year. The amount distributed for each year shall equal or exceed the
annuity value as of the close of business on December 31 of the preceding
year, divided by the applicable life expectancy or joint and last survivor
expectancy.
12. Distributions for the contract attributable to contributions made pursuant
to a salary reduction agreement may be made only (1) after you attain age
59 1/2, (2) upon separation from service, (3) upon death or disability, or
(4) for an amount not greater than the total of such contributions in the
case of hardship. Any withdrawal from the contract shall effect a
surrender of the contract to the extent of such withdrawal. Any premium
payments thereafter may be made only with our consent.
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13. You, your spouse, or your former spouse, who is the alternate payee under a
Qualified Domestic Relations Order ("Distributee") may elect to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan. This is called a direct rollover. An eligible rollover
distribution ("Distribution") is any distribution unless it is:
(a) One of a series of substantially equal periodic payments (made at
least annually) for the life (or life expectancy) of the Distributee
or the joint lives (or joint life expectancies) of the Distributee and
the Distributee's Designated Beneficiary, or for a specified period of
ten years or more; or
(b) Any required distribution under IRC Section 403(b)(10); or
(c) Any part of a distribution that is not includible in income.
An eligible retirement plan is an IRC Section 403(b) annuity or an individual
retirement plan as defined in Internal Revenue Code Section 7701(a)(37) ("IRA")
that accepts Distributions. However, in the case of a Distribution to the
surviving spouse, an eligible retirement plan is an IRA.
14. We reserve the right to amend or modify the contract or this endorsement to
the extent necessary to comply with any law, regulations, ruling or other
requirement necessary to establish or maintain the tax advantages,
protections or benefits available to a tax-sheltered annuity under Code
section 403(b) and any other applicable law. You are responsible for
determining that premiums, distributions and other transactions under the
Contract comply with applicable law.
This endorsement controls over any contrary provisions of the contract.
ML LIFE INSURANCE COMPANY OF NEW YORK
BY: (Signature of Barry G. Skolnick)
--------------------------------
Secretary
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EXHIBIT (8)(r)
FORM OF FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made as of ______________, 1999, between MERCURY ASSET
MANAGEMENT V.I. FUNDS, INC., a Maryland business (the "Fund"), and ML LIFE
INSURANCE COMPANY OF NEW YORK, a life insurance company organized under the laws
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 hereto, as such
schedule may be amended from time to time (the "Account.")
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, Mercury Funds Distributor (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
<PAGE>
WHEREAS, Mercury Asset Management International Ltd. ("MAMI") is duly
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended, and any applicable state securities laws; 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).
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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
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<PAGE>
which it is accustomed to formatting prospectuses and 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.
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
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<PAGE>
(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).
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
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<PAGE>
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.
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 New York 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 State of Maryland.
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.
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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.
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 MAMI 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.
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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 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.
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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 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
10
<PAGE>
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
(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) rise 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
(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
11
<PAGE>
(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 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
12
<PAGE>
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.
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
13
<PAGE>
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:
Mercury Asset Management V.I. Funds, Inc.
800 Scudders Mill Road
Plainsboro, NJ 08536
Attention:
If to the Company:
Merrill Lynch Insurance Group, Inc.
Administrative Offices
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: Barry Skolnick, Esq.
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.
14
<PAGE>
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.
ML LIFE INSURANCE COMPANY OF NEW YORK
By:
-------------------------------
Name:
-----------------------------
Title:
-----------------------------
MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
-----------------------------
16
<PAGE>
SCHEDULE A
Segregated Accounts of ___________________________________
Participating in Portfolios of Mercury Asset Management V.I. Funds, Inc.
Name of Separate Account Date Established
- --------------------- --------------
<PAGE>
SCHEDULE B
Portfolios of Mercury Asset Management V.I. Funds, Inc.
Offered to Segregated Accounts of __________________________________
Mercury V.I. U.S. Large Cap Fund
<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 (10)(a)
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
CONSENT OF SUTHERLAND AND 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. 14 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.
SUTHERLAND ASBILL & BRENNAN LLP
/s/ KIMBERLY J. SMITH
-----------------------------------------
Kimberly J. Smith, Esq.
Washington, D.C.
April 15, 1999
<PAGE>
EXHIBIT (10)(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 14 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 22, 1999, and (ii) ML of New York Variable Annuity Separate
Account A dated February 4, 1999, appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
reference to us under the heading "Experts" in the Prospectus, which is a part
of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
-------------------------------
Deloitte & Touche LLP
New York, New York
April 13, 1999
<PAGE>
EXHIBIT (10)(c)
[MERRILL LYNCH LIFE INSURANCE COMPANY LETTERHEAD]
CONSENT OF BARRY G. SKOLNICK, ESQ.
I hereby consent to the reference to my name under the caption "Legal
Matters" in the prospectus included in Post-Effective Amendment No. 14 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. 13 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
Merrill Lynch Life Insurance Company, File Nos. 33-43654 and 33-45380.
/s/ BARRY G. SKOLNICK
-----------------------------------------
Barry G. Skolnick
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
April 12, 1999
