<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1995
REGISTRATION NO. 33-61672
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF THE SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------------------
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
(EXACT NAME OF TRUST)
ML LIFE INSURANCE COMPANY OF NEW YORK
(NAME OF DEPOSITOR)
100 CHURCH STREET, 11TH FLOOR
NEW YORK, NEW YORK 10080-6511
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BARRY G. SKOLNICK, ESQ.
Senior Vice President & General Counsel
ML LIFE INSURANCE COMPANY OF NEW YORK
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN
1275 PENNSYLVANIA AVENUE, NW
WASHINGTON, D.C. 20004-2404
------------------------
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on May 1, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Check box if it is proposed that the filing will become effective on (date)
at (time) pursuant to Rule 487 / /
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933. The Registrant filed the 24f-2 Notice for the year ended
December 31, 1994 on February 24, 1995.
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ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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1 Cover Page
2 Cover Page
3 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York; More About the Separate Account and its
Divisions
4 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (ML of New York and MLPF&S); More About
the Contract (Selling the Contracts)
5 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (ML of New York and MLPF&S); More About
ML Life Insurance Company of New York (State Regulation)
6 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (The Separate Account); More About the
Separate Account and its Divisions (Charges to Series Fund Assets)
7 Not Applicable
8 Experts
9 More About ML Life Insurance Company of New York (Legal Proceedings)
10 Summary of the Contract; Facts About the Contract; More About the Contract;
More About the Separate Account and its Divisions
11 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and ML
of New York; More About the Separate Account and its Divisions (About the
Separate Account; The Zero Trusts)
12 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and ML
of New York; More About the Separate Account and its Divisions
13 Summary of the Contract (Loans; Fees and Charges); Facts About the Contract
(Charges Deducted from the Investment Base; Contract Loading; Charges to the
Separate Account; Guarantee Period; Cash Value; Loans; Partial Withdrawals;
Death Benefit Proceeds; Payment of Death Benefit Proceeds; Rights to Cancel
(or Exchange); More About the Contract (Group or Sponsored Arrangements; ML
of New York's Income Taxes); More About the Separate Account and its
Divisions (Charges to Series Fund Assets; Charges to Variable Series Funds
Assets)
14 Facts About the Contract (Who May Be Covered; Purchasing a Contract;
Additional Payments); More About the Contract (Other Contract Provisions)
15 Summary of the Contract (Availability and Payments); Facts About the Contract
(Purchasing A Contract; Additional Payments); More About the Contract
(Income Plans)
16 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York; More About the Separate Account and its
Divisions
17 Summary of the Contract (Net Cash Surrender Value; Rights to Cancel ("Free
Look" Period) or Exchange; Partial Withdrawals); Facts About the Contract
(Cash Value; Partial Withdrawals; Right to Cancel or Exchange); More About
the Contract (Using the Contract; Some Administrative Procedures)
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<TABLE>
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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18 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York; More About the Separate Account and its
Divisions
19 More About ML Life Insurance Company of New York
20 Not Applicable
21 Summary of the Contract (Loans); Facts About the Contract (Loans)
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (ML of New York and MLPF&S); More About
ML Life Insurance Company of New York
26 Not Applicable
27 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (ML of New York and MLPF&S); More About
ML Life Insurance Company of New York
28 More About ML Life Insurance Company of New York
29 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (ML of New York and MLPF&S)
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (ML of New York and MLPF&S)
36 Not Applicable
37 Not Applicable
38 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML Life of New York (ML of New York and MLPF&S); More
About the Contract (Selling the Contracts)
39 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (ML of New York and MLPF&S); More About
the Contract (Selling the Contracts)
40 More About the Contract (Selling the Contract)
41 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (ML of New York and MLPF&S); More About
the Contract (Selling the Contracts)
42 Not Applicable
43 Not Applicable
44 Facts About the Contract; More About the Contract
45 Not Applicable
46 Summary of the Contract; Facts About the Contract (Net Cash Surrender Value;
Partial Withdrawals)
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<TABLE>
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N-8B-2 ITEM CAPTION IN PROSPECTUS
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47 Summary of the Contract (The Investment Divisions); Facts About the Separate
Account, the Series Fund, the Variable Series Funds, the Zero Trusts and ML
of New York; More About the Separate Account and its Divisions
48 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York (ML of New York and MLPF&S); More About
ML Life Insurance Company of New York (State Regulation)
49 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York; Facts About the Contract (Charges
Deducted from the Investment Base; Contract Loading; Charges to the Separate
Account); More About the Contract (Selling the Contracts)
50 Not Applicable
51 Facts About the Contract; More About the Contract
52 Facts About the Separate Account, the Series Fund, the Variable Series Funds,
the Zero Trusts and ML of New York; More About the Separate Account and its
Divisions
53 More About the Contract (Tax Considerations; ML of New York's Income Taxes)
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 More About ML Life Insurance Company of New York (Financial Statements)
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<PAGE> 5
PROSPECTUS
MAY 1, 1995
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE 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 9025
SPRINGFIELD, MASSACHUSETTS 01102-9025
1414 MAIN STREET, THIRD FLOOR
SPRINGFIELD, MASSACHUSETTS 01104-1007
PHONE: (800) 831-8172
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This Prospectus is for a flexible premium variable universal life insurance
contract (the "Contract") offered by ML Life Insurance Company of New York ("ML
of New York"), a subsidiary of Merrill Lynch & Co., Inc.
During the "free look" period, the initial payment less contract loading will be
invested only in the division investing in the Money Reserve Portfolio. After
the "free look" period, the contract owner may invest in up to any five of the
35 investment divisions of ML of New York Variable Life Separate Account II (the
"Separate Account"), the ML of New York separate investment account available
under the Contract. The investments available through the investment divisions
include 10 mutual fund portfolios of the Merrill Lynch Series Fund, Inc., six
mutual fund portfolios of the Merrill Lynch Variable Series Funds, Inc. and 19
unit investment trusts in The Merrill Lynch Fund of Stripped ("Zero") U.S.
Treasury Securities. Currently, the contract owner may change his or her
investment allocation as many times as desired.
The Contract provides an estate benefit through life insurance coverage on the
life of the insured. The Contract offers two death benefit options. At the
election of the contract owner, the death benefit may include the Contract's
cash value. Subject to certain conditions, contract owners may purchase
additional insurance through an additional insurance rider. ML of New York
guarantees that the coverage will remain in force for the guarantee period. Each
payment will extend the guarantee period until such time as the guarantee period
is established for the whole of life of the insured. During this guarantee
period, ML of New York will terminate the Contract only if the debt exceeds
certain contract values. After the guarantee period, the Contract will remain in
force as long as there is not excessive debt and as long as the cash value is
sufficient to cover the charges due. While the Contract is in force, the death
benefit may vary to reflect the investment results of the investment divisions
chosen, but will generally never be less than the current face amount.
The Contract allows for additional payments. Contract owners may also borrow up
to the loan value of the Contract, make partial withdrawals or turn in the
Contract for its net cash surrender value. The net cash surrender value will
vary with the investment results of the investment divisions chosen. ML of New
York does not guarantee any minimum net cash surrender value.
It may not be advantageous to replace existing insurance with the Contract. The
Contract may be exchanged for a contract with benefits that do not vary with the
investment results of a separate account.
THE PURCHASE OF THIS CONTRACT INVOLVES CERTAIN RISKS. BECAUSE IT IS A VARIABLE
LIFE INSURANCE CONTRACT, THE VALUE OF THE CONTRACT REFLECTS THE INVESTMENT
PERFORMANCE OF THE SELECTED INVESTMENT OPTIONS. INVESTMENT RESULTS CAN VARY BOTH
UP AND DOWN AND CAN EVEN DECREASE THE VALUE OF PREMIUM PAYMENTS. THEREFORE,
CONTRACT OWNERS COULD LOSE ALL OR PART OF THE MONEY THEY HAVE INVESTED. ML OF
NEW YORK DOES NOT GUARANTEE THE VALUE OF THE CONTRACT. RATHER, CONTRACT OWNERS
BEAR ALL INVESTMENT RISKS.
LIFE INSURANCE IS INTENDED TO BE A LONG-TERM INVESTMENT. CONTRACT OWNERS SHOULD
EVALUATE THEIR INSURANCE NEEDS AND THE CONTRACT'S LONG-TERM INVESTMENT POTENTIAL
AND RISKS BEFORE PURCHASING THE CONTRACT.
PARTIAL WITHDRAWALS AND SURRENDER OF THE CONTRACT ARE SUBJECT TO TAX, AND BEFORE
THE CONTRACT OWNER ATTAINS AGE 59 1/2 MAY ALSO BE SUBJECT TO A 10% FEDERAL
PENALTY TAX. LOANS MAY BE TAXABLE IF THE CONTRACT BECOMES A "MODIFIED ENDOWMENT
CONTRACT."
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT MUST BE
ACCOMPANIED BY CURRENT PROSPECTUSES FOR THE MERRILL LYNCH SERIES FUND, INC., THE
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND THE MERRILL LYNCH FUND OF STRIPPED
("ZERO") U.S. TREASURY SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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IMPORTANT TERMS....................................................................... 4
SUMMARY OF THE CONTRACT
Purpose of the Contract............................................................. 5
Availability and Payments........................................................... 5
CMA(R) Insurance Service............................................................ 6
The Investment Divisions............................................................ 6
How the Death Benefit Varies........................................................ 6
How the Investment Base Varies...................................................... 6
Net Cash Surrender Value............................................................ 6
Illustrations....................................................................... 6
Replacement of Existing Coverage.................................................... 7
Rights to Cancel ("Free Look" Period) or Exchange................................... 7
How Death Benefit and Cash Value Increases are Taxed................................ 7
Loans............................................................................... 7
Partial Withdrawals................................................................. 8
Fees and Charges.................................................................... 8
FACTS ABOUT THE SEPARATE ACCOUNT, THE SERIES FUND, THE VARIABLE SERIES FUNDS, THE ZERO
TRUSTS AND ML OF NEW YORK
The Separate Account................................................................ 8
The Series Fund..................................................................... 9
The Variable Series Funds........................................................... 10
Equity Growth Fund -- Exemptive Relief.............................................. 11
Certain Risks of the Series Fund and Variable Series Funds.......................... 11
The Zero Trusts..................................................................... 12
ML of New York and MLPF&S........................................................... 12
FACTS ABOUT THE CONTRACT
Who May be Covered.................................................................. 12
Purchasing a Contract............................................................... 13
Additional Insurance Rider.......................................................... 14
Additional Payments................................................................. 14
Effect of Additional Payments....................................................... 15
Investment Base..................................................................... 15
Charges Deducted from the Investment Base........................................... 16
Contract Loading.................................................................... 17
Charges to the Separate Account..................................................... 17
Guarantee Period.................................................................... 18
Cash Value.......................................................................... 19
Loans............................................................................... 19
Partial Withdrawals................................................................. 20
Death Benefit Proceeds.............................................................. 21
Payment of Death Benefit Proceeds................................................... 22
Rights to Cancel or Exchange........................................................ 22
Reports to Contract Owners.......................................................... 23
MORE ABOUT THE CONTRACT
Using the Contract.................................................................. 23
Some Administrative Procedures...................................................... 25
Other Contract Provisions........................................................... 25
Income Plans........................................................................ 26
Group or Sponsored Arrangements..................................................... 27
Unisex Legal Considerations for Employers........................................... 27
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Selling the Contracts............................................................... 27
Tax Considerations.................................................................. 28
ML of New York's Income Taxes....................................................... 31
Reinsurance......................................................................... 32
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account.......................................................... 32
Changes Within the Account.......................................................... 32
Net Rate of Return for an Investment Division....................................... 32
The Series Fund and the Variable Series Funds....................................... 33
Charges to Series Fund Assets....................................................... 34
Charges to Variable Series Funds Assets............................................. 35
The Zero Trusts..................................................................... 35
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Net Cash Surrender Values and
Accumulated Payments............................................................. 36
EXAMPLES
Additional Payments................................................................. 42
Partial Withdrawals................................................................. 42
Changing the Death Benefit Option................................................... 43
MORE ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK
Directors and Executive Officers.................................................... 44
Service Arrangement................................................................. 46
State Regulation.................................................................... 46
Legal Proceedings................................................................... 46
Experts............................................................................. 46
Legal Matters....................................................................... 46
Registration Statements............................................................. 47
Financial Statements................................................................ 47
Financial Statements of ML of New York Variable Life Separate Account II............ 48
Financial Statements of ML Life Insurance Company of New York....................... 61
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
3
<PAGE> 8
IMPORTANT TERMS
additional payment: is a payment which may be made after the "free look"
period. Additional payments do not require evidence of insurability.
attained age: is the issue age of the insured plus the number of full years
since the contract date.
base premium: is the amount equal to the level annual premium necessary for the
face amount of the contract to endow at the insured's age 100. ML of New York
assumes death benefit option 1 is elected and further assumes a 5% annual rate
of return on the base premium less contract loading and a maximum cost of
insurance charge. Once determined, the base premium will not change.
cash value: is equal to the investment base plus any unearned charges for cost
of insurance and rider costs plus any debt less any accrued net loan cost since
the last contract anniversary (or since the contract date during the first
contract year).
cash value corridor factor: is used to determine the amount of death benefit
purchased by $1.00 of cash value. ML of New York uses this factor in the
calculation of the variable insurance amount to make sure that the Contract
always meets the requirements of what constitutes a life insurance contract
under the Internal Revenue Code.
contract anniversary: is the same date of each year as the contract date.
contract date: is used to determine processing dates, contract years and
anniversaries. It is usually the business day next following the receipt of the
initial payment at the Service Center. It is also referred to as the policy
date.
contract loading: is chargeable to all payments for sales load, federal tax and
premium tax charges.
death benefit: if option 1 is elected, it is the larger of the face amount and
the variable insurance amount; if option 2 is elected it is the larger of the
face amount plus the cash value and the variable insurance amount.
death benefit proceeds: are equal to the death benefit plus the amount of any
insurance provided by a rider less any debt.
debt: is the sum of all outstanding loans on a contract plus accrued interest.
excess sales load: a portion of the sales load calculated during the first two
policy years which is in excess of the amount specified under applicable
regulations in effect under the Investment Company Act of 1940 and therefore may
be refunded in the event of surrender during the first two policy years. After
policy year two, the excess sales load is zero.
face amount: is the minimum death benefit as long as the Contract remains in
force. The face amount will change if a change in death benefit option is made
or if a partial withdrawal is taken.
fixed base: is calculated in the same manner as the cash value except that 5%
is substituted for the net rate of return, the guaranteed maximum cost of
insurance rates and guaranteed maximum rider costs are substituted for current
rates and loans and repayments are not taken into account. After the end of the
guarantee period, the fixed base is zero.
guarantee period: is the time guaranteed that the Contract will remain in force
regardless of investment experience, unless the debt exceeds certain values. It
is the period that a comparable fixed life insurance contract (same face amount,
payments made, guaranteed mortality table, contract loading and guaranteed
maximum rider costs) would remain in force if credited with 5% interest per
year.
in force date: is the date when the underwriting process is complete, the
initial payment is received and outstanding contract amendments (if any) are
received.
initial payment: is the payment required to put the Contract into effect.
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<PAGE> 9
investment base: is the amount available under a Contract for investment in the
Separate Account at any time. A contract owner's investment base is the sum of
the amounts invested in each of the selected investment divisions.
investment division: is any division in the Separate Account.
issue age: is the insured's age as of his or her birthday nearest the contract
date.
issue date: is the date that the Contract is issued. The contestable and
suicide periods are measured from this date.
net amount at risk: is the excess, as of a processing date, of the death
benefit (adjusted for interest at an annual rate of 5%) over the cash value, but
before the deduction for cost of insurance.
net cash surrender value: is equal to the cash value less debt.
processing dates: are the contract date and the first day of each contract
quarter thereafter. Processing dates are the days when ML of New York deducts
certain charges from the investment base.
processing period: is the period between consecutive processing dates.
target premium: is equal to 75% of the base premium.
variable insurance amount: is computed daily by multiplying the cash value
(plus certain excess sales load during the first 24 months after the Contract is
issued) by the cash value corridor factor for the insured at his or her attained
age.
SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACT
This flexible premium variable universal life insurance contract offers a choice
of investments and an opportunity for the Contract's investment base, cash value
and death benefit to grow based on investment results.
ML of New York does not guarantee that contract values will increase. Depending
on the investment results of selected investment divisions, the investment base,
cash value and death benefit may increase or decrease on any day. The contract
owner bears the investment risk. ML of New York guarantees to keep the Contract
in force during the guarantee period subject to the effect of any debt.
Life insurance is not a short term investment. The contract owner should
evaluate the need for insurance and the Contract's long term investment
potential and risks before purchasing a contract.
AVAILABILITY AND PAYMENTS
The Contract is available in New York. A Contract may be issued for an insured
from age 20 through age 85. The minimum initial payment is 75% of the base
premium.
ML of New York will not accept an initial payment that provides a guarantee
period of less than two years. The guarantee period is the period of time ML of
New York guarantees that the Contract will remain in force regardless of
investment experience unless the debt exceeds certain values.
ML of New York will issue a Contract only with a face amount (including any
additional insurance rider face amount) greater than $750,000.
Contract owners may make additional payments. Contract owners may specify an
additional payment amount on the application to be paid on either a quarterly or
annual basis. For additional payments not being withdrawn from a CMA account, ML
of New York will send reminder notices for such amounts beginning in the second
contract year.
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CMA(R) INSURANCE SERVICE
Contract owners who subscribe to the Merrill Lynch Cash Management Account(R)
financial service ("CMA account") may elect to have their Contract linked to
their CMA account electronically. Certain transactions will be reflected in
monthly CMA account statements. Payments may be transferred to and from the
Contract through a CMA account.
THE INVESTMENT DIVISIONS
During the "free look" period, the initial payment less contract loading will be
invested in the investment division of the Separate Account investing in the
Money Reserve Portfolio. After the "free look" period, the contract owner may
select up to five of the 35 investment divisions in the Separate Account. See
"Changing the Allocation" on page 16.
Payments are invested in investment divisions of the Separate Account. Ten
investment divisions of the Separate Account invest exclusively in shares of
designated mutual fund portfolios of the Merrill Lynch Series Fund, Inc. (the
"Series Fund"). Six investment divisions of the Separate Account invest
exclusively in shares of designated mutual fund portfolios of the Merrill Lynch
Variable Series Funds, Inc. (the "Variable Series Funds"). Each mutual fund
portfolio has a different investment objective. The other 19 investment
divisions invest in units of designated unit investment trusts in The Merrill
Lynch Fund of Stripped ("Zero") U.S. Treasury Securities (the "Zero Trusts").
The contract owner's payments are not invested directly in the Series Fund, the
Variable Series Funds or the Zero Trusts.
HOW THE DEATH BENEFIT VARIES
Contract owners elect a death benefit option on the application. Under option 1,
the death benefit equals the larger of the face amount or the variable insurance
amount. Under option 2, the death benefit equals the larger of the sum of the
face amount plus the cash value or the variable insurance amount. Subject to
certain conditions, contract owners may change the death benefit option. The
death benefit may increase or decrease on any day depending on the investment
results of the investment divisions chosen by the contract owner. Death benefit
proceeds equal the death benefit reduced by any debt and increased by any rider
benefits payable. (See "Death Benefit Proceeds" on page 21.)
HOW THE INVESTMENT BASE VARIES
A Contract's investment base is the amount available for investment at any time.
On the contract date (usually the business day next following receipt of the
initial payment at the Service Center), the investment base is equal to the
initial payment less contract loading and charges for cost of insurance and
rider costs. Afterwards, it varies daily based on investment performance of the
investment divisions chosen. The contract owner bears the risk of poor
investment performance and receives the benefit of favorable investment
performance.
NET CASH SURRENDER VALUE
Contract owners may surrender their Contracts at any time and receive the net
cash surrender value. The net cash surrender value varies daily based on
investment performance of the investment divisions chosen. ML of New York
doesn't guarantee any minimum net cash surrender value. If the Contract is
surrendered within 24 months after issue, the contract owner will receive
certain excess sales load. (See "Contract Loading -- Excess Sales Load" on page
17.)
ILLUSTRATIONS
Illustrations in this Prospectus or used in connection with the purchase of the
Contract are based on hypothetical investment rates of return. These rates are
not guaranteed. They are illustrative only and
- ---------------
Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
6
<PAGE> 11
should not be deemed a representation of past or future performance. Actual
rates of return may be more or less than those reflected in the illustrations
and, therefore, actual values will be different than those illustrated.
REPLACEMENT OF EXISTING COVERAGE
Before purchasing a Contract, the contract owner should ask his or her Merrill
Lynch registered representative if changing, or adding to, current insurance
coverage would be advantageous. Generally, it is not advisable to purchase
another contract as a replacement for existing coverage. In particular,
replacement should be carefully considered if the decision to replace existing
coverage is based solely on a comparison of contract illustrations.
RIGHTS TO CANCEL ("FREE LOOK" PERIOD) OR EXCHANGE
Once the contract owner receives the contract, he or she should review it
carefully to make sure it is what he or she intended to purchase. A Contract may
be returned for a refund within the later of ten days after the contract owner
receives it, 45 days after the contract owner completes the application, or ten
days after ML of New York mails or personally delivers the Notice of Withdrawal
Right to the contract owner. If the Contract is returned during the "free look"
period, ML of New York will refund the initial payment without interest.
Once the Contract is issued, a contract owner may also exchange the Contract for
a contract with benefits that do not vary with the investment results of a
separate account. (See "Exchanging the Contract" on page 23.)
HOW DEATH BENEFIT AND CASH VALUE INCREASES ARE TAXED
Under current federal tax law, life insurance contracts receive tax-favored
treatment. The death benefit is generally excludable from the beneficiary's
gross income for federal income tax purposes, according to Section 101(a)(1) of
the Internal Revenue Code. An owner of a life insurance contract is not taxed on
any increase in the cash value while the contract remains in force.
If the Contract is a modified endowment contract under federal tax law, certain
distributions made during the insured's lifetime, such as loans and partial
withdrawals from, and collateral assignments of, the Contract are includable in
gross income on an income-first basis. A 10% penalty tax may also be imposed on
distributions made before the contract owner attains age 59 1/2. Contracts that
are not modified endowment contracts under federal tax law receive preferential
tax treatment with respect to certain distributions.
For a discussion of the tax issues associated with this Contract, see "Tax
Considerations" on page 28.
LOANS
Contract owners may borrow up to the loan value of their Contracts, which is 90%
of the cash value. The maximum loan amount that may be borrowed at any time is
the difference between the loan value and debt. (See "Loans" on page 19.)
Debt is deducted from the amount payable on surrender of the Contract and is
also subtracted from any death benefit payable. Loan interest accrues daily and,
if it is not repaid each year, it is capitalized and added to the debt. If the
Contract is a modified endowment contract, the amount of capitalized interest
will be treated as a taxable withdrawal. Depending upon investment performance
of the divisions and the amounts borrowed, loans may cause a Contract to lapse.
If the Contract lapses with a loan outstanding, adverse tax consequences may
result. (See "Tax Considerations" on page 28.)
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PARTIAL WITHDRAWALS
Contract owners may make partial withdrawals beginning in contract year sixteen,
subject to certain conditions. (See "Partial Withdrawals" on page 20.)
FEES AND CHARGES
Contract Loading. ML of New York deducts certain charges from all payments
before they are invested in the investment divisions. These charges are:
- Sales load equal to 46.25% of each payment through the second base
premium and 1.25% of each payment thereafter.
- State and local premium tax charge of 2% of each payment.
- A charge for federal taxes of 1.25% of each payment.
(See "Contract Loading" on page 17.)
Investment Base Charges. ML of New York deducts certain charges from the
investment base. The charges deducted are:
- On the contract date and on all processing dates after the contract date,
ML of New York makes deductions for cost of insurance (see "Cost of
Insurance" on page 16) and any rider costs (see "Additional Insurance
Rider" on page 14).
- On each contract anniversary, ML of New York makes deductions for the net
loan cost if there has been any debt during the prior year. It equals a
maximum of 2% of the debt per year.
Separate Account Charges. There are certain charges deducted daily from the
investment results of the investment divisions in the Separate Account. These
charges are:
- an asset charge designed to cover mortality and expense risks deducted
from all investment divisions which is equivalent to .90% annually at the
beginning of the year; and
- a trust charge deducted from only those investment divisions investing in
the Zero Trusts, which is currently equivalent to .34% annually at the
beginning of the year and will never exceed .50% annually.
Advisory Fees. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 34 and "Charges to Variable Series Funds Assets" on page 35.)
This summary is intended to provide only a very brief overview of the more
significant aspects of the Contract. Further detail is provided in this
Prospectus and in the Contract. The Contract together with its attached
applications, medical exam(s), amendments, riders and endorsements constitutes
the entire agreement between the contract owner and ML of New York and should be
retained.
For the definition of certain terms used in this Prospectus, see "Important
Terms" on page 4.
FACTS ABOUT THE SEPARATE ACCOUNT, THE SERIES FUND, THE VARIABLE SERIES
FUNDS, THE ZERO TRUSTS AND ML OF NEW YORK
THE SEPARATE ACCOUNT
The Separate Account is a separate investment account established by ML of New
York on December 4, 1991. It is registered with the Securities and Exchange
Commission as a unit investment trust pursuant to the Investment Company Act of
1940. This registration does not involve any supervision by the Securities and
Exchange Commission over the investment policies or practices of the Separate
Account. It meets the definition of a separate account under the federal
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securities laws. The Separate Account is used to support the Contract as well as
to support other variable life insurance contracts issued by ML of New York.
ML of New York owns all of the assets in the Separate Account. The assets of the
Separate Account are kept separate from ML of New York's general account and any
other separate accounts it may have and, to the extent of its reserves and
liabilities, may not be charged with liabilities arising out of any other
business ML of New York conducts.
Obligations to contract owners and beneficiaries that arise under the Contract
are obligations of ML of New York. Income, gains, and losses, whether or not
realized, from assets allocated are, in accordance with the Contracts, credited
to or charged against the Separate Account without regard to other income, gains
or losses of ML of New York. As required, the assets in the Separate Account
will always be at least equal to the reserves and other liabilities of the
Separate Account. If the assets exceed the required reserves and other Contract
liabilities (which will always be at least equal to the aggregate contract value
allocated to the Separate Account under the Contracts), ML of New York may
transfer the excess to its general account.
There are currently 35 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Six invest in shares of a
specific portfolio of the Variable Series Funds. Nineteen invest in units of a
specific Zero Trust. Complete information about the Series Fund, the Variable
Series Funds and the Zero Trusts, including the risks associated with each
portfolio (including any risks associated with investment in the High Yield
Portfolio of the Series Fund) can be found in the accompanying prospectuses.
They should be read in conjunction with this Prospectus.
THE SERIES FUND
The Merrill Lynch Series Fund, Inc. is registered with the Securities and
Exchange Commission as an open-end management investment company. All of its ten
mutual fund portfolios are currently available through the Separate Account. The
investment objectives of the Series Fund portfolios are described below. There
is no guarantee that any portfolio will meet its investment objective.
Money Reserve Portfolio seeks to preserve capital, maintain liquidity and
achieve the highest possible current income consistent with those objectives by
investing in short-term money market securities.
Intermediate Government Bond Portfolio seeks the highest possible current income
consistent with the protection of capital by investing in debt securities issued
or guaranteed by the U.S. Government or its agencies with a maximum maturity of
15 years.
Long-Term Corporate Bond Portfolio primarily seeks as high a level of current
income as is believed to be consistent with prudent investment risk and
secondarily to preserve shareholders' capital. It invests primarily in corporate
bonds which have been rated within the three highest grades of a major rating
agency.
High Yield Portfolio seeks as high a level of current income as is believed to
be consistent with prudent management, and secondarily capital appreciation, by
investing principally in fixed income securities rated in the lower categories
of the established rating services or in unrated securities of comparable
quality (commonly known as "junk bonds").
Capital Stock Portfolio seeks long-term growth of capital and income, plus
moderate current income. It principally invests in common stocks considered to
be of good or improving quality or considered to be undervalued based on
criteria such as historical price/book value and price/earnings ratios.
Growth Stock Portfolio seeks long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks of aggressive
growth companies considered to have special investment value.
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<PAGE> 14
Multiple Strategy Portfolio seeks a high total investment return consistent with
prudent risk through a fully managed investment policy utilizing equity
securities, investment grade intermediate and long-term debt securities and
money market securities.
Natural Resources Portfolio seeks long-term growth of capital and protection of
the purchasing power of shareholders' capital by investing primarily in equity
securities of domestic and foreign companies with substantial natural resource
assets.
Global Strategy Portfolio 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.
Balanced Portfolio 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 that normally
available from an investment solely in debt securities by investing in a
balanced portfolio of fixed-income and equity securities.
The investment adviser for the Series Fund is Merrill Lynch Asset Management,
L.P. ("MLAM"), a subsidiary of Merrill Lynch & Co., Inc. and a registered
adviser under the Investment Advisers Act of 1940. The Series Fund, as part of
its operating expenses, pays an investment advisory fee to MLAM. (See "Charges
to Series Fund Assets" on page 34.)
THE VARIABLE SERIES FUNDS
The Merrill Lynch Variable Series Funds, Inc. is registered with the Securities
and Exchange Commission as an open-end management investment company. Six of its
18 mutual fund portfolios are currently available through the Separate Account.
The investment objectives of the six available Variable Series Funds portfolios
are described below. There is no guarantee that any portfolio will meet its
investment objective.
Basic Value Focus 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.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio.
World Income Focus Fund seeks to achieve high current income by investing in a
global portfolio of fixed-income securities denominated in various currencies,
including multinational currency units. The fund may invest in United States and
foreign government and corporate fixed-income securities, including high yield,
high risk, lower rated and unrated securities. The Fund will allocate its
investments among different types of fixed-income securities denominated in
various currencies.
Global Utility Focus Fund seeks to obtain 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
management of the Fund, primarily engaged in the ownership or operation of
facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water.
International Equity Focus Fund seeks to obtain capital appreciation through
investment in securities, principally equities, of issuers 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.
International Bond Fund seeks to achieve a high total investment return by
investing in a non-U.S. international portfolio of debt instruments denominated
in various currencies and multi-national currency units.
Developing Capital Markets Focus Fund seeks to achieve 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. Currently, these four countries are Japan, the United Kingdom,
the United States, and Germany.
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MLAM is the investment adviser for the Variable Series Funds. The Variable
Series Funds, as part of its operating expenses, pays an investment advisory fee
to MLAM. (See "Charges to Variable Series Funds Assets" on page 35.)
EQUITY GROWTH FUND -- EXEMPTIVE RELIEF
An application for exemptive relief has been filed with the Securities and
Exchange Commission on behalf of the Variable Series Funds, the Separate Account
and other affiliated parties. This relief is required under the current rules of
the Securities and Exchange Commission in order for the Equity Growth Fund of
the Variable Series Funds to be made available through the Separate Account.
(See "Resolving Material Conflicts" on page 34.) Contract owners will be
notified when the necessary relief is obtained and the Equity Growth Fund is
available.
Equity Growth Fund seeks to attain long-term growth of capital by investing
primarily in common stocks of relatively small companies that management of the
Fund believes have special investment value and emerging growth companies
regardless of size. Such companies are selected by management on the basis of
their long-term potential for expanding their size and profitability or for
gaining increased market recognition for their securities. Current income is not
a factor in such selection. MLAM receives from the Fund an advisory fee at the
annual rate of 0.75% of the average daily net assets of the Fund. This is a
higher fee than that of many other mutual funds, but management of the Fund
believes it is justified by the high degree of care that must be given to the
initial selection and continuous supervision of the types of portfolio
securities in which the Fund invests.
CERTAIN RISKS OF THE SERIES FUND AND VARIABLE SERIES FUNDS
Investment in lower-rated debt securities, such as those in which the High Yield
Portfolio of the Series Fund and the High Current Income Fund of the Variable
Series Funds invest, entails relatively greater risk of loss of income or
principal. In an effort to minimize risk, the Funds will diversify holdings
among many issuers. However, there can be no assurance that diversification will
protect the Funds from widespread defaults during periods of sustained economic
downturn.
In seeking to protect the purchasing power of capital, the Natural Resources
Portfolio of the Series Fund reserves the right, when management anticipates
significant economic, political, or financial instability, such as high
inflationary pressures or upheaval in foreign currency exchange markets, to
invest a majority of its assets in companies that explore for, extract, process
or deal in gold or in asset-based securities indexed to the value of gold
bullion. The Natural Resources Portfolio will not concentrate its investments in
such securities until it has been advised that no adverse tax consequences will
result.
The World Income Focus Fund of the Variable Series Funds has no established
rating criteria for the securities in which it may invest. In an effort to
minimize risk, the Fund will diversify its holdings among many issuers. However,
there can be no assurance that diversification will protect the Fund from
widespread defaults during periods of sustained economic downturn.
The Developing Capital Markets Focus Fund of the Variable Series Funds 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.
Because investment in these Portfolios and Funds entails relatively greater risk
of loss of income or principal, it may not be appropriate to allocate all
payments and investment base to an investment division that invests in one of
these Portfolios or Funds.
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<PAGE> 16
THE ZERO TRUSTS
The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities was formed
to provide safety of capital and a high yield to maturity. It seeks this through
U.S. Government-backed investments which make no periodic interest payments and,
therefore, are purchased at a deep discount. When held to maturity the
investments should receive approximately a fixed yield. The value of Zero Trust
units before maturity varies more than it would if the Zero Trusts contained
interest-bearing U.S. Treasury securities of comparable maturities.
The Zero Trust portfolios consist mainly of:
- bearer debt obligations issued by the U.S. Government stripped of their
unmatured interest coupons;
- coupons stripped from U.S. debt obligations; and
- receipts and certificates for such stripped debt obligations and coupons.
The Zero Trusts currently available have maturity dates in years 1995 through
2011, 2013 and 2014.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
Merrill Lynch & Co., Inc., is the sponsor for the Zero Trusts. The sponsor will
sell units of the Zero Trusts to the Separate Account and has agreed to
repurchase units when ML of New York needs to sell them to pay benefits and make
reallocations. ML of New York pays the sponsor a fee for these transactions and
is reimbursed through the trust charge assessed to the divisions investing in
the Zero Trusts. (See "Charges to Divisions Investing in the Zero Trusts" on
page 18.)
ML OF NEW YORK AND MLPF&S
ML of New York is a stock life insurance company organized under the laws of the
State of New York in 1973. It is an indirect wholly owned subsidiary of Merrill
Lynch & Co., Inc. ML of New York is authorized to sell life insurance and
annuities in 9 states. It is also authorized to sell variable life insurance and
variable annuities in certain of those jurisdictions.
MLPF&S is a wholly owned subsidiary of Merrill Lynch & Co., Inc. and provides a
broad range of securities brokerage and investment banking services in the
United States. It provides marketing services for ML of New York and is the
principal underwriter of the Contracts issued through the Separate Account. ML
of New York retains MLPF&S to provide services relating to the Contracts under a
distribution agreement. (See "Selling the Contracts" on page 27.)
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
The Contract is available in New York. ML of New York will issue a Contract on
the life of the insured provided the relationship between the applicant and the
insured meets ML of New York's insurable interest requirements and provided the
insured is not over age 85 or under age 20. The insured's issue age will be
determined using age as of his or her birthday nearest the contract date. The
insured must also meet ML of New York's medical and other underwriting
requirements, which will include undergoing a medical examination.
ML of New York assigns insureds to underwriting classes which determine the
current cost of insurance rates used in calculating cost of insurance
deductions. Contracts may be issued on insureds in standard, non-smoker or
preferred non-smoker underwriting classes. Contracts may also be issued on
insureds in a substandard underwriting class. For a discussion of the effect of
underwriting classification on deductions for cost of insurance, see "Cost of
Insurance" on page 16.
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PURCHASING A CONTRACT
To purchase a Contract, the contract owner must complete an application and make
a payment. The payment is required to put the Contract into effect. In the
application, the contract owner selects the face amount of the Contract. The
amount of the minimum initial payment for a given Contract depends on the face
amount selected and the issue age, sex and underwriting class of the insured.
The minimum initial payment for any Contract is 75% of the base premium. ML of
New York will not accept an initial payment for a specified face amount that
will provide a guarantee period of less than two years. (See "Selecting the
Initial Face Amount" and "Initial Guarantee Period" below.) ML of New York also
will not accept an initial payment that would cause the Contract to fail to
qualify as life insurance under federal tax law as interpreted by ML of New
York.
Insurance coverage generally begins as of the contract date, which is usually
the next business day following receipt of the initial payment at ML of New
York's Service Center. Temporary life insurance coverage may be provided prior
to the contract date under the terms of a temporary insurance agreement. In
accordance with ML of New York's underwriting rules, temporary life insurance
coverage may not exceed $300,000 and may not be in effect for more than 90 days.
As provided for under state insurance law, the contract owner, to preserve
insurance age, may be permitted to backdate the Contract. In no case may the
contract date be more than six months prior to the date the application was
completed. Charges for cost of insurance and rider costs for the backdated
period are deducted on the contract date.
If ML of New York determines that, based on the contract owner's initial payment
and face amount, the Contract will be a modified endowment contract, ML of New
York will issue the Contract provided the contract owner signs a statement
acknowledging that the Contract is a modified endowment contract or agrees
either to reduce the initial payment or to increase the face amount to a level
at which the Contract will not be a modified endowment contract. For a
discussion of the tax consequences of purchasing a modified endowment contract,
see "Tax Considerations" on page 28.
Selecting the Initial Face Amount. The minimum initial face amount (excluding
any additional insurance rider face amount) is $250,000 or that face amount
which generates a $4,000 base premium, if larger. ML of New York will issue a
Contract only with a face amount (including any additional insurance rider face
amount) greater than $750,000. The maximum face amount that may be specified for
a given initial payment is the amount which will provide an initial guarantee
period of at least two years. For the same initial payment amount, the larger
the face amount requested, the shorter the guarantee period. The initial face
amount will change if the contract owner changes the death benefit option or
takes a partial withdrawal. Subject to certain conditions, the contract owner
may purchase additional insurance coverage through an additional insurance
rider. (See "Additional Insurance Rider" on page 14.)
Initial Guarantee Period. The initial guarantee period for a Contract will be
determined by the initial payment, face amount and any additional insurance
rider face amount. The guarantee period will be adjusted each time an additional
payment is made, when a partial withdrawal is taken, when a death benefit option
change results in a change in face amount and when the additional insurance
rider face amount is increased or decreased.
The guarantee period is the period of time ML of New York guarantees that the
Contract will remain in force regardless of investment experience unless the
debt exceeds certain values. The guarantee period is based on the guaranteed
maximum cost of insurance rates in the Contract, guaranteed maximum rider costs
(if an additional insurance rider is elected), the contract loading and a 5%
interest assumption. This means that for a given initial payment and face
amount, different insureds will have different guarantee periods depending on
the age, sex and underwriting class of the insureds. For example, an older
insured will have a shorter guarantee period than a younger insured in the same
underwriting class.
The maximum guarantee period is for the whole of life of the insured.
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<PAGE> 18
ADDITIONAL INSURANCE RIDER
The contract owner may purchase additional insurance coverage payable to the
beneficiary on the death of the insured. Additional insurance coverage may be
purchased through an additional insurance rider when the Contract is purchased.
Under ML of New York's current procedures, the maximum additional insurance
rider face amount at the time the Contract is purchased is three times the face
amount of the Contract. The rider can also be added on any contract anniversary
thereafter, as long as an application is completed, satisfactory evidence of
insurability of the insured is provided, and the insured has not attained the
age of 69. The minimum additional insurance rider face amount at any time is
$100,000. A cost of insurance charge for the rider ("rider charge") will be
deducted from the Contract's investment base on each processing date. The rider
charge will be based on the same cost of insurance rates as the Contract. (See
"Cost of Insurance" on page 16.) Because insurance coverage through an
additional insurance rider is purchased through deductions from the Contract's
investment base that are not taken into account in determining the base premium,
there is no additional contract loading associated with this coverage.
The additional insurance rider and all charges associated with the rider will
terminate upon the insured attaining age 70. At that time, all additional
insurance coverage will terminate.
Once each year, the additional insurance rider face amount may be increased
(subject to evidence of insurability for the insured) or decreased (after the
seventh contract anniversary); however, any change in the additional insurance
rider face amount must be at least $100,000. The effective date of the change
will be the contract anniversary next following underwriting approval of the
change. As of the effective date of the increase or decrease in the additional
insurance rider face amount, ML of New York uses the existing fixed base and the
face amount of the Contract plus the new additional insurance rider face amount
to calculate a new guarantee period. A decrease in the additional insurance
rider face amount will increase the guarantee period. An increase in the
additional insurance rider face amount will decrease the guarantee period. An
increase will not be allowed on the first contract anniversary if the face
amount of the Contract plus the new rider face amount provide a guarantee period
of less than one year from the effective date of the increase.
A decrease in the additional insurance rider face amount can cause a Contract
which is not a modified endowment contract to become a modified endowment
contract. In such a case, ML of New York will not process the decrease until the
contract owner confirms in writing his or her intent to convert the Contract to
a modified endowment contract. For a discussion of the tax consequences of
increasing or decreasing the additional insurance rider face amount, see "Tax
Considerations" on page 28.
ADDITIONAL PAYMENTS
After the "free look" period, contract owners may make additional payments while
the insured is living. Additional payments must be submitted with an additional
payment form. The minimum ML of New York will accept for these payments is $100.
For Contracts that are not modified endowment contracts, making an additional
payment may cause them to become modified endowment contracts. (See "Tax
Considerations" on page 28.) ML of New York will return that portion of any
additional payment beyond that necessary to extend the guarantee period to the
whole of life of the insured. ML of New York will also return that portion of
any additional payment that would cause the Contract to fail to qualify as life
insurance under federal tax law as interpreted by ML of New York.
Contract owners may specify an additional payment amount on the application to
be paid on either an annual or quarterly basis. For additional payments not
being withdrawn from a CMA account, ML of New York will send reminder notices
beginning in the second contract year. If a contract owner has the CMA Insurance
Service, such additional payments may be withdrawn automatically from his or her
CMA account and transferred to his or her Contract. The withdrawals will
continue under the selected plan until ML of New York is notified otherwise.
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EFFECT OF ADDITIONAL PAYMENTS
Generally, any additional payments will be accepted the day they are received at
the Service Center. However, if acceptance of any portion of the payment would
cause a Contract which is not a modified endowment contract to become a modified
endowment contract, to the extent feasible, ML of New York will not accept that
portion of the payment unless the contract owner confirms in writing his or her
intent to convert the Contract to a modified endowment contract. ML of New York
may return that portion of the payment pending receipt of instructions from the
contract owner.
On the date ML of New York receives and accepts an additional payment, ML of New
York will:
- increase the Contract's investment base by the amount of the payment less
contract loading applicable to the payment;
- reflect the additional payment in the calculation of the variable
insurance amount (see "Variable Insurance Amount" on page 21); and
- increase the fixed base by the amount of the payment less contract
loading applicable to the payment (see "The Contract's Fixed Base" on
page 18).
As of the processing date on or next following receipt and acceptance of an
additional payment, ML of New York will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment is
less than for the whole of life of the insured.
ML of New York will determine the increase in the guarantee period by taking the
immediate increase in the cash value resulting from the additional payment and
adding to that interest at the annual rate of 5% for the period from the date ML
of New York receives and accepts the payment to the contract processing date on
or next following such date. This is the guarantee adjustment amount. The
guarantee adjustment amount is added to the fixed base and the resulting new
fixed base is used to calculate a new guarantee period. For a discussion of the
effect of additional payments on a Contract's guarantee period, see "Additional
Payments" in the Examples on page 42.
If any excess sales load has been applied to keep the Contract in force, any
additional payment, less contract loading, will first be applied to recover such
excess sales load (see "Excess Sales Load" on page 17). Next, unless specified
otherwise, if there is any debt, any payment made will be applied first as a
loan repayment, with any excess applied as an additional payment. (See "Loans"
on page 19.)
INVESTMENT BASE
A Contract's investment base is the amount available for investment at any time.
It is the sum of the amounts invested in each of the investment divisions. On
the contract date, the investment base equals the initial payment less contract
loading and charges for cost of insurance and rider costs. ML of New York
adjusts the investment base daily to reflect the investment performance of the
investment divisions the contract owner has selected. (See "Net Rate of Return
for an Investment Division" on page 32.) The investment performance reflects the
deduction of Separate Account charges. (See "Charges to the Separate Account" on
page 17.)
Partial withdrawals, loans and deductions for cost of insurance, rider costs and
net loan cost decrease the investment base. (See "Charges Deducted from the
Investment Base" on page 16, "Partial Withdrawals" on page 20 and "Loans" on
page 19.) Loan repayments and additional payments increase it. Contract owners
may elect from which investment divisions loans and partial withdrawals are
taken and to which investment divisions repayments and additional payments are
added. If an election is not made, ML of New York will allocate increases and
decreases proportionately to the contract owner's investment base as then
allocated in the investment divisions.
Investment Allocation During the "Free Look" Period and Preallocation. The
initial payment less contract loading will be invested only in the division
investing in the Money Reserve Portfolio. Through the first 14 days following
the in force date, the initial payment less contract loading will
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<PAGE> 20
remain in that division. Thereafter, the investment base will be reallocated to
the investment divisions selected by the contract owner on the application, if
different. The contract owner may invest in up to five of the 35 investment
divisions in the Separate Account.
Changing the Allocation. After the "free look" period, a contract owner's
investment base may be invested in up to five investment divisions at any one
time. Currently, investment allocations may be changed as often as desired. ML
of New York reserves the right to charge up to $25 for each change in excess of
six each year. In order to change their investment base allocation, contract
owners must call or write to the Service Center. (See "Some Administrative
Procedures" on page 25.)
Zero Trust Allocations. ML of New York will notify contract owners 30 days
before a Zero Trust in which they have invested matures. Contract owners must
notify ML of New York by calling or writing at least seven days before the
maturity date how to reinvest their funds in the division investing in that Zero
Trust. If ML of New York is not notified, it will move the contract owner's
investment base in that division to the investment division investing in the
Money Reserve Portfolio.
Units of a specific Zero Trust may no longer be available when a request for
allocation is received. Should this occur, ML of New York will attempt to notify
the contract owner immediately so that the request can be changed.
Allocation to the Division Investing in the Natural Resources Portfolio. ML of
New York and the Separate Account reserve the right to suspend the sale of units
of the investment division investing in the Natural Resources Portfolio in
response to conditions in the securities markets or otherwise.
CHARGES DEDUCTED FROM THE INVESTMENT BASE
The charges described below are deducted pro-rata from the investment base on
processing dates.
Cost of Insurance. ML of New York deducts the cost of insurance from the
investment base on the contract date and on each processing date thereafter.
This charge compensates ML of New York for the cost of providing life insurance
coverage for the insured. It is based on the underwriting class, sex and
attained age of the insured and the Contract's net amount at risk.
To determine the cost of insurance, ML of New York multiplies the current cost
of insurance rate by the Contract's net amount at risk. The net amount at risk
is the difference, as of a processing date, between the death benefit (adjusted
for interest at an annual rate of 5%) and the cash value, but before the
deduction for cost of insurance.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates depending on the underwriting class, sex and attained age of
the insured. Current cost of insurance rates are lower for insureds in a
preferred non-smoker underwriting class than for insureds of the same age in a
non-smoker underwriting class and are lower for insureds in a non-smoker
underwriting class than for insureds of the same age and sex in a standard
underwriting class.
ML of New York guarantees that the current cost of insurance rates will never
exceed the maximum guaranteed rates shown in the Contract. The maximum
guaranteed rates for Contracts (other than those issued on a substandard basis)
do not exceed the rates based on the 1980 Commissioners Standard Ordinary
Mortality Table (CSO Table). ML of New York may use rates that are equal to or
less than these rates, but never greater. The maximum rates for Contracts issued
on a substandard basis are based on a multiple of the 1980 CSO Table. Any change
in the cost of insurance rates will apply to all insureds of the same age, sex
and underwriting class whose Contracts have been in force for the same length of
time.
Net Loan Cost. The net loan cost is explained under "Loans" on page 19.
Rider Charges. Rider charges are deducted on the contract date and on each
processing date thereafter. These charges are explained under "Additional
Insurance Rider" on page 14.
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CONTRACT LOADING
Chargeable to each payment is an amount called the contract loading. The
contract loading equals 49.5% of each payment through the second base premium
and 4.5% of each payment thereafter. This charge consists of a sales load, a
charge for federal taxes and a state and local premium tax charge.
The sales load, equal to 46.25% of each payment through the second base premium
and 1.25% of each payment thereafter, compensates ML of New York for sales
expenses and the costs for underwriting and issuing the Contract. The sales load
may be reduced in certain group or sponsored arrangements as described on page
27. ML of New York anticipates that the sales load may be insufficient to cover
its distribution expenses. Any shortfall will be made up from ML of New York's
general account which may include amounts derived from mortality gains and asset
charges. In no event will the sales load exceed the amount permitted by the
Investment Company Act of 1940.
The charge for federal taxes equal to 1.25% of each payment, compensates ML of
New York for a higher corporate income tax liability resulting from Section 848
of the Internal Revenue Code as enacted by the Omnibus Budget Reconciliation Act
of 1990. (See "ML of New York's Income Taxes" on page 31.) The charge for
federal taxes is reasonable in relation to ML of New York's increased federal
tax burden under Section 848 resulting from the receipt of premiums under the
Contract.
The state and local premium tax charge, equal to 2% of each payment, compensates
ML of New York for state and local premium taxes ML of New York must pay when a
payment is accepted.
Excess Sales Load. Excess sales load is equal to any sales load deducted from
the first two base premiums in excess of 30% of premiums paid up to an amount
equal to the first base premium, and then 10% of the premiums paid up to an
amount equal to the second base premium. It is calculated and applied in the
following situations only during the first 24 months after the Contract is
issued:
- It is refunded if the Contract is surrendered during the first 24 months
after issue.
- It is added to the cash value so as to keep the Contract in force if debt
exceeds the larger of (i) cash value plus any excess sales load not
previously applied to keep the Contract in force and (ii) the fixed base
during the first 24 months after issue.
- It is added to the cash value in determining the variable insurance
amount during the first 24 months after issue.
CHARGES TO THE SEPARATE ACCOUNT
Each day ML of New York deducts an asset charge from each division of the
Separate Account. The total amount of this charge is computed at .90% annually
at the beginning of the year. Of this amount, .75% is for
- the risk assumed by ML of New York that insureds as a group will live for
a shorter time than actuarial tables predict. As a result, ML of New York
would be paying more in death benefits than planned; and
- the risk assumed by ML of New York that it will cost more to issue and
administer the Contracts than expected.
The remaining amount, .15%, is for
- the risk assumed by ML of New York with respect to potentially
unfavorable investment results. This risk is that the Contract's cash
value cannot cover the charges due during the guarantee period.
The total asset charge may not be increased. ML of New York will realize a gain
from this charge to the extent it is not needed to provide for benefits and
expenses under the Contracts.
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<PAGE> 22
Charges to Divisions Investing in the Zero Trusts. ML of New York assesses a
daily trust charge against the assets of each division investing in the Zero
Trusts. This charge reimburses ML of New York for the transaction charge paid to
MLPF&S when units are sold to the Separate Account.
The trust charge is currently equivalent to .34% annually at the beginning of
the year. It may be increased, but will not exceed .50% annually at the
beginning of the year. The charge is based on cost (taking into account loss of
interest) with no expected profit.
Tax Charges. ML of New York has the right under the Contract to impose a charge
against Separate Account assets for any taxes imposed on the Separate Account's
investment earnings. (See "ML of New York's Income Taxes" on page 31.)
Advisory Fees. The portfolios in the Series Fund and the Variable Series Funds
pay monthly advisory fees and other expenses. (See "Charges to Series Fund
Assets" on page 34 and "Charges to Variable Series Funds Assets" on page 35.)
GUARANTEE PERIOD
ML of New York guarantees that the Contract will stay in force for the guarantee
period unless the debt exceeds certain contract values. (See "Loans" on page
19.) Additional payments will extend the guarantee period until such time as it
is guaranteed for the whole of life of the insured. The guarantee period will be
affected by partial withdrawals, by changes in death benefit options and by
increases and decreases in the face amount of the additional insurance rider. A
reserve is held in ML of New York's general account to support this guarantee.
When the Guarantee Period is Less Than for Life. After the end of the guarantee
period, ML of New York may cancel the Contract if the cash value plus certain
excess sales load on a processing date is insufficient to cover charges due on
that date. (See "Charges Deducted from the Investment Base" on page 16 and
"Contract Loading -- Excess Sales Load" on page 17.)
ML of New York will notify the contract owner at the contract owner's last known
address before cancelling the Contract. The contract owner will then have 61
days to pay an amount which, after deducting contract loading, equals at least
three times the charges that were due (and not deducted) on the processing date
when the cash value was determined to be insufficient, plus any excess sales
load previously applied to keep the Contract in force. If this amount is paid,
ML of New York will deduct the charges due on the processing date and apply the
balance to investment base. ML of New York will cancel the Contract at the end
of this grace period if payment has not yet been received. At that time, ML of
New York will deduct any charges for cost of insurance and rider costs that were
applicable to the grace period and refund any unearned charges for cost of
insurance, rider costs and any excess sales load not previously applied to keep
the Contract in force.
If ML of New York cancels a Contract, it may be reinstated while the insured is
still living if:
- the reinstatement is requested within three years after the end of the
grace period;
- ML of New York receives satisfactory evidence of the insured's
insurability; and
- the reinstatement payment is made. The reinstatement payment is the
minimum payment for which ML of New York would then issue a Contract for
the minimum guarantee period with the same face amount as the original
Contract, based on the insured's attained age and underwriting class as
of the effective date of the reinstated Contract.
A reinstated Contract will be effective on the processing date on or next
following the date the reinstatement application is approved.
The Contract's Fixed Base. On the contract date, the fixed base equals the cash
value. From then on, the fixed base is calculated in the same manner as the cash
value except that the calculation substitutes 5% for the net rate of return, the
guaranteed maximum cost of insurance rates and the guaranteed maximum rider
costs are substituted for the current rates and it is calculated as though there
had been no loans or repayments. The fixed base is equivalent to the cash value
for a
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<PAGE> 23
comparable fixed benefit contract with the same face amount and guarantee
period. After the end of the guarantee period the fixed base is zero. The fixed
base is used to limit ML of New York's right to cancel the Contract during the
guarantee period.
Automatic Adjustment. On any contract anniversary, if the cash value is greater
than the fixed base necessary to cause the guarantee period to equal the whole
of life of the insured, the guarantee period will be extended to the whole of
life of the insured.
CASH VALUE
A Contract's cash value fluctuates daily with the investment results of the
investment divisions selected. ML of New York does not guarantee any minimum
cash value. The cash value on any date equals the total investment base plus
debt plus unearned charges for cost of insurance and rider costs less any
accrued net loan cost since the last contract anniversary (or since the contract
date during the first contract year).
Cancelling the Contract. A contract owner may cancel the Contract at any time
the insured is living. The request must be in writing in a form satisfactory to
ML of New York. All rights to death benefits will end on the date the written
request is sent to ML of New York.
The contract owner will then receive the net cash surrender value. The contract
owner may elect to receive this amount either in a single payment or under one
or more income plans described on page 26. The net cash surrender value will be
determined as of the date of receipt of the written request at the Service
Center.
If the Contract is cancelled during the first 24 months after the issue date of
the Contract, excess sales load will be refunded except to the extent previously
applied to keep the contract in force. (See "Contract Loading -- Excess Sales
Load" on page 17.)
LOANS
Contract owners may use the Contract as collateral to borrow funds from ML of
New York. The minimum loan is $200. Contract owners may repay all or part of the
loan at any time during the insured's lifetime. Each repayment must be for at
least $200 or the amount of the debt, if less. If any excess sales load was
previously applied to keep the Contract in force, any loan repayment will first
be applied to repay such excess sales load.
When a loan is taken, ML of New York transfers a portion of the contract owner's
investment base equal to the amount borrowed out of the investment divisions and
holds it as collateral in its general account. When a loan repayment is made, ML
of New York transfers an amount equal to the repayment from the general account
to the investment divisions. The contract owner may select from which divisions
borrowed amounts should be taken and which divisions should receive repayments
(including interest payments). Otherwise, ML of New York will take the borrowed
amounts proportionately from and make repayments proportionately to the contract
owner's investment base as then allocated in the investment divisions.
If a contract owner has the CMA Insurance Service, loans may be transferred to
and loan repayments transferred from his or her CMA account.
Effect on Death Benefit and Cash Value. Whether or not a loan is repaid, taking
a loan will have a permanent effect on a Contract's cash value and may have a
permanent effect on its death benefit. This is because the collateral for a loan
does not participate in the performance of the investment divisions while the
loan is outstanding. If the amount credited to the collateral is more than what
is earned in the investment divisions, the cash value may be higher as a result
of the loan, as may be the death benefit. Conversely, if the amount credited is
less, the cash value will be lower, as may be the death benefit. In that case,
the lower cash value may cause the Contract to lapse sooner than if no loan had
been taken.
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<PAGE> 24
Loan Value. The loan value of a Contract equals 90% of its cash value. The sum
of all outstanding loan amounts plus accrued interest is called debt. The
maximum amount that can be borrowed at any time is the difference between the
loan value and the debt.
Interest. While a loan is outstanding, ML of New York may charge interest at a
maximum rate of 6% annually. Currently ML of New York charges interest of 5.25%
annually. Interest accrues each day and payments are due at the end of each
contract year. If the interest isn't paid when due, it is added to the
outstanding loan amount. Interest paid on a loan may not be tax deductible.
The amount held in ML of New York's general account as collateral for a loan
earns interest at a minimum of 4% annually. Currently a loan amount earns
interest at 4.5%.
ML of New York may change the interest rates currently charged on loans and the
rates of interest earned on the loan collateral amounts. Any such changes will
be effective on the contract anniversary following the date such rates are
declared.
Net Loan Cost. On each contract anniversary, ML of New York reduces the
investment base by the net loan cost (the difference between the interest
charged and the earnings on the amount held as collateral in the general
account) and adds that amount to the amount held in the general account as
collateral for the loan. Since the interest charged is 5.25% and the collateral
earnings on such amounts are 4.5%, the current net loan cost on loaned amounts
is .75%. The net loan cost is taken into account in determining the net cash
surrender value of the Contract if the date of surrender is not a contract
anniversary.
Cancellation Due to Excess Debt. If on a processing date the debt exceeds the
larger of (i) cash value plus certain excess sales load, and less charges due on
that date, and (ii) the fixed base (if any), ML of New York will cancel the
Contract 61 days after a notice of intent to terminate the Contract is mailed to
the contract owner unless ML of New York has received at least the minimum
repayment amount specified in the notice. During the first 24 months after the
Contract is issued, ML of New York will add excess sales load to the cash value
as necessary to keep the Contract in force if debt exceeds the larger of the
cash value less charges due and the fixed base. (See "Contract Loading -- Excess
Sales Load" on page 17.) Upon termination, ML of New York will deduct any
charges for cost of insurance and rider costs that may be applicable to the
61-day period and refund any unearned charges for cost of insurance, rider costs
and any excess sales load not previously applied to keep the Contract in force.
If the Contract lapses with a loan outstanding, adverse tax consequences may
result. (See "Tax Considerations" on page 28.)
PARTIAL WITHDRAWALS
Beginning in contract year sixteen, a contract owner may make partial
withdrawals by submitting a request in a form satisfactory to ML of New York.
The effective date of the withdrawal is the date a withdrawal request is
received at the Service Center. Contract owners may elect to receive the
withdrawal amount either in a single payment or, subject to ML of New York's
rules, under one or more income plans.
Contract owners may make one partial withdrawal each contract year. The minimum
amount for each partial withdrawal is $1,000. The remaining cash value less any
debt following a partial withdrawal must equal or exceed $5,000. The amount of
any partial withdrawal may not exceed the loan value as of the effective date of
the partial withdrawal less any debt. A partial withdrawal may not be repaid.
Effect on Investment Base, Fixed Base, Cash Value and Death Benefit. As of the
effective date of the withdrawal, the investment base, fixed base, cash value
and, if the contract owner has elected death benefit option 1, the face amount
of the Contract will each be reduced by the amount of the partial withdrawal. ML
of New York allocates this reduction proportionately to the investment base in
each of the contract owner's investment divisions unless notified otherwise. The
variable insurance amount will also reflect the partial withdrawal as of the
effective date.
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<PAGE> 25
Effect on Guarantee Period. As of the processing date on or next following the
effective date of a partial withdrawal, ML of New York calculates a new
guarantee period. This is done by taking the immediate decrease in cash value
resulting from the partial withdrawal and adding to that amount interest at an
annual rate of 5% for the period from the date of the withdrawal to the contract
processing date on or next following such date. This is the guarantee adjustment
amount. The guarantee adjustment amount is subtracted from the fixed base and
the resulting new fixed base is used to calculate a new guarantee period. For a
discussion of the effect of partial withdrawals on a Contract's guarantee
period, see "Partial Withdrawals" in the Examples on page 42.
A partial withdrawal may cause a Contract which is not a modified endowment
contract to become a modified endowment contract. In such a case, ML of New York
will not process the partial withdrawal until the contract owner confirms in
writing his or her intent to convert the Contract to a modified endowment
contract. For a discussion of the tax issues associated with a partial
withdrawal, see "Tax Considerations" on page 28.
DEATH BENEFIT PROCEEDS
ML of New York will pay the death benefit proceeds to the beneficiary upon
receipt of all information needed to process the payment, including due proof of
the death of the insured.
If the insured should die within two years from the Contract's issue date,
within two years from the effective date of any requested change in the death
benefit option requiring evidence of insurability, or within two years of an
increase in the additional insurance rider face amount requiring evidence of
insurability, due proof of the insured's death should be sent promptly to the
Service Center since ML of New York may pay only a limited benefit or contest
the Contract. (See "Incontestability" on page 25 and "Payment in Case of
Suicide" on page 26.)
Death Benefit Proceeds. The death benefit payable depends on the death benefit
option in effect on the date of death.
- Under option 1, the death benefit is equal to the larger of the face
amount or the variable insurance amount.
- Under option 2, the death benefit is equal to the larger of the face
amount plus the cash value or the variable insurance amount.
Contract owners who wish to have investment experience reflected in insurance
coverage should choose option 2. Contract owners who wish to have insurance
coverage that generally does not vary in amount should choose option 1.
The death benefit will never be less than the amount required to keep the
Contract qualified as life insurance under federal income tax laws.
To determine the death benefit proceeds, ML of New York will subtract from the
death benefit any debt and add to the death benefit any rider benefits payable.
The values used in calculating the death benefit proceeds are as of the date of
death. If the insured dies during the grace period, the death benefit proceeds
equal the death benefit proceeds in effect immediately prior to the grace period
reduced by any overdue charges. (See "When the Guarantee Period is Less Than for
Life" on page 18.)
Variable Insurance Amount. ML of New York determines the variable insurance
amount daily by:
- calculating the cash value (plus any excess sales load during the first
24 months after the Contract is issued); and
- multiplying it by the cash value corridor factor (explained below) for
the insured at his or her attained age.
The variable insurance amount will never be less than required by federal tax
law.
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<PAGE> 26
Cash Value Corridor Factor. The cash value corridor factor is used to determine
the amount of death benefit purchased by $1.00 of cash value. It is based on the
attained age of the insured on the date of calculation. It decreases daily as
the insured's age increases. As a result, the variable insurance amount as a
multiple of the cash value will decrease over time. A table of cash value
corridor factors as of each anniversary is included in the Contract.
Table of Illustrative Cash Value Corridor Factors
on Anniversaries
<TABLE>
<CAPTION>
ATTAINED AGE FACTOR
- ------------- ------------
<S> <C>
40 and under %250
45 %215
55 %150
65 %120
75-90 %105
95 and over %100
</TABLE>
Changing the Death Benefit Option. On each contract anniversary beginning with
the fifteenth, the contract owner may change the death benefit option. ML of New
York will change the face amount in order to keep the death benefit constant on
the effective date of the change. Therefore, if the change is from option 1 to
option 2, the face amount of the Contract will be decreased by the cash value on
the date of the change. A change in the death benefit option will not be
permitted if it would result in a face amount of less than $100,000. If the
change is from option 2 to option 1, the face amount of the Contract will be
increased by the cash value on the date of the change. For a discussion of the
effect of a change in the death benefit option on a Contract, see "Changing the
Death Benefit Option" in the Examples on page 43.
If the contract owner requests a change in the death benefit option from option
1 to option 2, evidence of insurability in a form satisfactory to ML of New York
that the insured is insurable may be required. In no event will a change be
permitted if, after the change, the Contract would not qualify as life insurance
under federal tax laws as interpreted by ML of New York.
A change in the death benefit option may cause a Contract which is not a
modified endowment contract to become a modified endowment contract. In such a
case, ML of New York will not process the change until the contract owner
confirms in writing his or her intent to convert the Contract to a modified
endowment contract. For a discussion of the tax issues associated with a change
in the death benefit option, see "Tax Considerations" on page 28.
PAYMENT OF DEATH BENEFIT PROCEEDS
ML of New York will generally pay the death benefit proceeds to the beneficiary
within seven days after all the information needed to process the payment is
received at its Service Center. ML of New York will add interest from the date
of the insured's death to the date of payment at an annual rate of at least 4%.
The beneficiary may elect to receive the proceeds either in a single payment or
under one or more income plans described on page 26.
Payment may be delayed if the Contract is being contested or under the
circumstances described in "Using the Contract" on page 23 and "Other Contract
Provisions" on page 25. If a delay is necessary and death of the insured occurs
prior to the end of the guarantee period, ML of New York may delay payment of
any excess of the death benefit over the face amount. After the guarantee period
has expired, ML of New York may delay payment of the entire death benefit.
RIGHTS TO CANCEL OR EXCHANGE
"Free Look" Period. A contract owner may cancel his or her Contract during the
"free look" period by returning it for a refund. Generally, the "free look"
period ends the later of ten days after the
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<PAGE> 27
Contract is received, 45 days after the contract owner completes the application
or ten days after ML of New York mails or personally delivers to the contract
owner the Notice of Withdrawal Right. To cancel the Contract during the "free
look" period the contract owner must mail or deliver the Contract to ML of New
York's Service Center or to the registered representative who sold it. ML of New
York will refund the payment made without interest. If cancelled, ML of New York
may require the contract owner to wait six months before applying again.
Exchanging the Contract. Contract owners may exchange their Contract at any
time for a contract with benefits that do not vary with the investment results
of a separate account. A request to exchange must be made in writing. To
exchange, the original Contract must be returned to ML of New York's Service
Center. The exchange will not require evidence of insurability.
The new contract will have the same owner, insured and beneficiary as those of
the original Contract on the date of the exchange. The new contract will also
have the same death benefit and the same net amount at risk as this Contract at
the time of exchange, and will have payments which are based on the same issue
age, sex, and underwriting class of the insured. Any debt will be carried over
to the new contract. For a discussion of the tax consequences of exchanging the
Contract, see "Tax Considerations" on page 28.
REPORTS TO CONTRACT OWNERS
After the end of each processing period, contract owners will be sent a
statement of the allocation of their investment base, death benefit, cash value,
any debt and, if there has been a change, the face amount, the guarantee period
and the additional insurance rider face amount. All figures will be as of the
end of the immediately preceding processing period. The statement will show the
amounts deducted from or added to the investment base during the processing
period. The statement will also include any other information that may be
currently required by New York.
Contract owners will receive confirmation of all financial transactions. Such
confirmations will show the price per unit of each of the contract owner's
investment divisions, the number of units a contract owner has in the investment
division and the value of the investment division computed by multiplying the
quantity of units by the price per unit. (See "Net Rate of Return for an
Investment Division" on page 32.) The sum of the values in each investment
division is a contract owner's investment base.
Contract owners will also be sent an annual and a semi-annual report containing
financial statements and a list of portfolio securities of the Series Fund and
the Variable Series Funds, as required by the Investment Company Act of 1940.
CMA Account Reporting. Contract owners who have the CMA Insurance Service will
have certain Contract information included as part of their regular monthly CMA
account statement. It will list the investment base allocation, death benefit,
cash value, debt and any CMA account activity affecting the Contract during the
month.
MORE ABOUT THE CONTRACT
USING THE CONTRACT
Ownership. The contract owner is usually the insured, unless another owner has
been named in the application. The contract owner has all rights and options
described in the Contract.
The contract owner may want to name a contingent owner. If the contract owner
dies before the insured, the contingent owner will own the contract owner's
interest in the Contract and have the contract owner's rights. If the contract
owner doesn't name a contingent owner, the contract owner's estate will own the
contract owner's interest in the Contract upon the owner's death.
If there is more than one contract owner, ML of New York will treat the owners
as joint tenants with rights of survivorship unless the ownership designation
provides otherwise. The owners must
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<PAGE> 28
exercise their rights and options jointly, except that any one of the owners may
reallocate the Contract's investment base by phone if the owner provides the
personal identification number as well as the Contract number. One contract
owner must be designated, in writing, to receive all notices, correspondence and
tax reporting to which contract owners are entitled under the Contract.
Changing the Owner. During the insured's lifetime, with the consent of any
irrevocable beneficiary, the contract owner has the right to transfer ownership
of the Contract. The new owner will have all rights and options described in the
Contract. The change will be effective as of the day the notice is signed, but
will not affect any payment made or action taken by ML of New York before
receipt of the notice of the change at the Service Center. Changing the owner
may have tax consequences. (See "Tax Considerations" on page 28.)
Assigning the Contract as Collateral. Contract owners may assign the Contract
as collateral security for a loan or other obligation. This does not change the
ownership. However, the contract owner's rights and any beneficiary's rights are
subject to the terms of the assignment. Contract owners must give satisfactory
written notice at the Service Center in order to make or release an assignment.
ML of New York is not responsible for the validity of any assignment.
For a discussion of the tax issues associated with a collateral assignment, see
"Tax Considerations" on page 28.
Naming Beneficiaries. ML of New York will pay the primary beneficiary the death
benefit proceeds of the Contract on the insured's death. If the primary
beneficiary has died, ML of New York will pay the contingent beneficiary. If no
contingent beneficiary is living, ML of New York will pay the estate of the
insured.
A contract owner may name more than one person as primary or contingent
beneficiaries. ML of New York will pay proceeds in equal shares to the surviving
beneficiaries unless the beneficiary designation provides otherwise.
A contract owner has the right to change beneficiaries during the insured's
lifetime, unless the primary beneficiary designation has been made irrevocable.
If the designation is irrevocable, the primary beneficiary must consent when
certain rights and options are exercised under this Contract. If the beneficiary
is changed, the change will take effect as of the day the notice is signed, but
will not affect any payment made or action taken by ML of New York before
receipt of the notice of the change at the Service Center.
Maturity Proceeds. The maturity date is the contract anniversary nearest the
insured's 100th birthday. On the maturity date, ML of New York will pay the net
cash surrender value to the contract owner, provided the insured is still living
at that time.
How ML of New York Makes Payments. ML of New York generally pays death benefit
proceeds, partial withdrawals, loans and net cash surrender value on
cancellation from the Separate Account within seven days after the Service
Center receives all the information needed to process the payment.
However, it may delay payment from the Separate Account if it isn't practical
for ML of New York to value or dispose of Trust units, Series Fund shares or
Variable Series Funds shares because:
- the New York Stock Exchange is closed, other than for a customary weekend
or holiday; or
- trading on the New York Stock Exchange is restricted by the Securities
and Exchange Commission; or
- the Securities and Exchange Commission declares that an emergency exists
such that it is not reasonably practical to dispose of securities held in
the Separate Account or to determine the value of their assets.
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<PAGE> 29
SOME ADMINISTRATIVE PROCEDURES
Described below are certain administrative procedures. ML of New York reserves
the right to modify them or to eliminate them. For administrative and tax
purposes, ML of New York may from time to time require that specific forms be
completed in order to accomplish certain transactions, including surrenders.
Personal Identification Number. ML of New York will send each contract owner a
four-digit personal identification number ("PIN") shortly after the Contract is
placed in force and before the end of the "free look" period. This number must
be given when the contract owner calls the Service Center to get information
about the Contract, to make a loan (if an authorization is on file), or to make
other requests. Each PIN will be accompanied by a notice reminding the contract
owner that all of the investment base is in the division investing in the Money
Reserve Portfolio, and that this allocation may be changed by calling or writing
to the Service Center. (See "Changing the Allocation" on page 16.)
Reallocating the Investment Base. Contract owners can reallocate their
investment base either in writing in a form satisfactory to ML of New York or by
phone. If the reallocation is requested by phone, contract owners must give
their personal identification number as well as their Contract number. ML of New
York will give a confirmation number over the phone and then follow up in
writing.
Requesting a Loan. A loan may be requested in writing in a form satisfactory to
ML of New York or, if all required authorization forms are on file, by phone.
Once the authorization has been received at the Service Center, contract owners
can call the Service Center, give their Contract number, name and personal
identification number, and tell ML of New York the loan amount and from which
divisions the loan should be transferred.
Upon request, ML of New York will wire the funds to the contract owner's account
at the financial institution named on the contract owner's authorization. ML of
New York will generally wire the funds within two working days of receipt of the
request. If the contract owner has the CMA Insurance Service, funds may be
transferred directly to that CMA account.
Requesting Partial Withdrawals. Beginning in contract year 16, partial
withdrawals may be requested in writing in a form satisfactory to ML of New
York. A contract owner may request a partial withdrawal by phone if all required
phone authorization forms are on file. Once the authorization has been received
at the Service Center, contract owners can call the Service Center, give their
Contract number, name and personal identification number, and tell ML of New
York how much to withdraw and from which investment divisions.
Upon request, ML of New York will wire the funds to the contract owner's account
at the financial institution named on the contract owner's authorization. ML of
New York will generally wire the funds within two working days of receipt of the
request. If the contract owner has the CMA Insurance Service, funds may be
transferred directly to that CMA account.
Telephone Requests. A telephone request for a loan, partial withdrawal or a
reallocation received before 4 p.m. (ET) generally will be processed the same
day. A request received at or after 4 p.m. (ET) will be processed the following
business day. ML of New York reserves the right to change or discontinue
telephone transfer procedures.
OTHER CONTRACT PROVISIONS
In Case of Errors in the Application. If an age or sex given in the application
is wrong, it could mean that the face amount or any other Contract benefit is
wrong. ML of New York will pay what the payments made would have bought for the
guarantee period at the true age or sex.
Incontestability. ML of New York will rely on statements made in the
applications. Legally, they are considered representations, not warranties. ML
of New York can contest the validity of a Contract if any material misstatements
are made in the initial application or any application for reinstatement.
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<PAGE> 30
ML of New York can also contest the validity of any change in face amount due to
a change in death benefit option if any material misstatements are made in any
application required for the change. ML of New York can also contest any amount
of any death benefit which wouldn't be payable except for the fact that an
increase in the additional insurance rider face amount which requires evidence
of insurability was requested if any material misstatements are made in any
application required for the increase.
ML of New York will not contest the validity of a Contract after it has been in
effect during the lifetime of the insured for two years from the date of issue
or the date of any reinstatement. A change in face amount due to a change in the
death benefit option won't be contested after the change has been in effect
during the lifetime of the insured for two years from the date of the change.
Nor will ML of New York contest any amount of death benefit attributable to an
increase in the additional insurance rider face amount which requires evidence
of insurability after the increase has been in effect during the lifetime of the
insured for two years from the date of the change.
Payment in Case of Suicide. If the insured commits suicide within two years
from the Contract's issue date or the date of any reinstatement, ML of New York
will pay only a limited death benefit and then terminate the Contract. The
benefit will be equal to the amount of the payments made, reduced by any debt.
If the insured commits suicide within two years of the effective date of a
change in death benefit option requiring evidence of insurability or of the
effective date of an increase in additional insurance rider face amount
requiring evidence of insurability, any amount of death benefit which would not
be payable except for the fact that the face amount was increased will be
limited to the amount of cost of insurance deductions made for the increase.
Contract Changes -- Applicable Federal Tax Law. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. Therefore, to maintain this qualification to the
maximum extent of the law, ML of New York reserves the right to return any
additional payments that would cause the Contract to fail to qualify as life
insurance under applicable tax law as interpreted by ML of New York. Further, ML
of New York reserves the right to make changes in the Contract or its riders or
to make distributions from the Contract to the extent it is necessary to
continue to qualify the Contract as life insurance. Any changes will apply
uniformly to all Contracts that are affected and contract owners will be given
advance written notice of such changes.
INCOME PLANS
ML of New York offers several income plans to provide for payment of the death
benefit proceeds to the beneficiary. The contract owner may choose one or more
income plans at any time during the lifetime of the insured. If no plan has been
chosen when the insured dies, the beneficiary has one year to apply the death
benefit proceeds either paid or payable to that beneficiary to one or more of
the plans. The contract owner may also choose one or more income plans if the
Contract is cancelled or a partial withdrawal is taken. ML of New York's
approval is needed for any plan where any income payment would be less than
$100. Payments under these plans do not depend on the investment results of a
separate account.
Income plans include:
Annuity Plan. An amount can be used to purchase a single premium
immediate annuity.
Interest Payment. Amounts can be left with ML of New York to earn
interest at an annual rate of at least 3%. Interest payments can be made
annually, semi-annually, quarterly or monthly.
Income for a Fixed Period. Payments are made in equal installments
for a fixed number of years.
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Income for Life. Payments are made in equal monthly installments
until death of a named person or end of a designated period, whichever is
later. The designated period may be for 10 or 20 years.
Income of a Fixed Amount. Payments are made in equal installments
until proceeds applied under the option and interest on unpaid balance at
not less than 3% per year are exhausted.
Joint Life Income. Payments are made in monthly installments as long
as at least one of two named persons is living. While both are living, full
payments are made. If one dies, payments at two-thirds of the full amount
are made. Payments end completely when both named persons die.
Once in effect, some of the plans may not provide any surrender rights.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, ML of New York may reduce the sales
load, cost of insurance rates and the minimum payment and may modify
underwriting classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows ML of New York to sell
Contracts to its employees on an individual basis. Costs for sales,
administration and mortality generally vary with the size and stability of the
group and the reasons the Contracts are purchased, among other factors. ML of
New York takes all these factors into account when reducing charges. To qualify
for reduced charges, a group or sponsored arrangement must meet certain
requirements, including requirements for size and number of years in existence.
Group or sponsored arrangements that have been set up solely to buy Contracts or
that have been in existence less than six months will not qualify for reduced
charges.
ML of New York makes any reductions according to rules in effect when an
application for a Contract or additional payment is approved. It may change
these rules from time to time. However, reductions in charges will not
discriminate unfairly against any person.
UNISEX LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983 the Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title Vll of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
Generally, the Contracts offered by this Prospectus are based on mortality
tables that distinguish between men and women. As a result, the Contract pays
different benefits to men and women of the same age. Employers and employee
organizations should check with their legal advisers before purchasing these
Contracts.
SELLING THE CONTRACTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") is the principal
underwriter of the Contract. It was organized in 1958 under the laws of the
state of Delaware and is registered as a broker dealer under the Securities
Exchange Act of 1934. It is a member of the National Association of Securities
Dealers, Inc. ("NASD"). The principal business address of MLPF&S is World
Financial Center, 250 Vesey Street, New York, New York 10281. MLPF&S also acts
as principal underwriter of other variable life insurance and variable annuity
contracts issued by ML of New York, as well as variable life insurance and
variable annuity contracts issued by Merrill Lynch Life Insurance Company, an
affiliate of ML of New York. MLPF&S also acts as principal underwriter of
certain
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mutual funds managed by MLAM, the investment adviser for the Series Fund and the
Variable Series Funds.
Contracts are sold by registered representatives of MLPF&S who are also licensed
through Merrill Lynch Life Agency, Inc. as insurance agents for ML of New York.
ML of New York has entered into a distribution agreement with MLPF&S and a
companion sales agreement with Merrill Lynch Life Agency, Inc. through which
agreements the Contracts and other variable life insurance contracts issued
through the Separate Account are sold and the registered representatives are
compensated by Merrill Lynch Life Agency, Inc. and/or MLPF&S.
The maximum commissions ML of New York will pay to the applicable insurance
agency to be used to pay commissions to registered representatives are as
follows: 55% of the target premium under the Contract; plus 3% of payments in
excess of the target premium, up to an amount of payments equal to ten base
premiums; plus 1.5% of payments thereafter. Commissions may be paid in the form
of non-cash compensation.
The amounts paid under the distribution and sales agreements for the Separate
Account for the years ended December 31, 1994, December 31, 1993 and December
31, 1992 were $140,551, $143,207 and $226, respectively.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD. Registered representatives of these other broker-dealers may be
compensated on a different basis than MLPF&S registered representatives.
TAX CONSIDERATIONS
Definition of Life Insurance. In order to qualify as a life insurance contract
for federal tax purposes, the Contract must meet the definition of a life
insurance contract which is set forth in Section 7702 of the Internal Revenue
Code of 1986, as amended (the "Code"). The manner in which Section 7702 should
be applied to certain features of the Contract offered in this Prospectus is not
directly addressed by Section 7702. Nevertheless, ML of New York believes that
the Contract will meet the Section 7702 definition of a life insurance contract.
This means that:
- the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
- the contract owner should not be considered in constructive receipt of
the cash value, including any increases, until actual cancellation of the
Contract (see "Tax Treatment of Loans and Other Distributions" page 29).
In the absence of final regulations or other pertinent interpretations of
Section 7702, however, there is necessarily some uncertainty as to whether a
substandard risk Contract will meet the statutory life insurance contract
definition. There may also be some uncertainty with respect to a Contract with
an additional insurance rider attached. If a Contract were determined not to be
a life insurance contract for purposes of Section 7702, such Contract would not
provide most of the tax advantages normally provided by a life insurance
contracts.
ML of New York thus reserves the right to make changes in the Contract if such
changes are deemed necessary to attempt to assure its qualification as a life
insurance contract for tax purposes. (See "Contract Changes -- Applicable
Federal Tax Law" on page 26.)
Diversification. Section 817(h) of the Code provides that separate account
investments (or the investments of a mutual fund, the shares of which are owned
by separate accounts of insurance companies) underlying the Contract must be
"adequately diversified" in accordance with Treasury regulations in order for
the Contract to qualify as life insurance. The Treasury Department has issued
regulations prescribing the diversification requirements in connection with
variable contracts. The Separate Account, through the Series Fund and the
Variable Series Funds, intends to comply with these requirements. Although ML of
New York doesn't control the Series Fund or the Variable
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Series Funds, it intends to monitor the investments of the Series Fund and the
Variable Series Funds to ensure compliance with the requirements prescribed by
the Treasury Department.
In connection with the issuance of the temporary diversification regulations,
the Treasury Department stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which an owner's control of the
investments of a separate account may cause the owner, rather than the insurance
company, to be treated as the owner of the assets in the account. If the
contract owner is considered the owner of the assets of the Separate Account,
income and gains from the account would be included in the owner's gross income.
The ownership rights under the Contract offered in this Prospectus are similar
to, but different in certain respects from, those described by the Internal
Revenue Service in rulings in which it determined that the owners were not
owners of separate account assets. For example, the owner of the Contract has
additional flexibility in allocating payments and cash values. These differences
could result in the owner being treated as the owner of the assets of the
Separate Account. In addition, ML of New York does not know what standards will
be set forth in the regulations or rulings which the Treasury has stated it
expects to be issued. ML of New York therefore reserves the right to modify the
Contract as necessary to attempt to prevent the contract owner from being
considered the owner of the assets of the Separate Account.
Tax Treatment of Loans and Other Distributions. Federal tax law establishes a
class of life insurance contracts referred to as modified endowment contracts. A
modified endowment contract is any contract which satisfies the definition of
life insurance set forth in Section 7702 of the Code but fails to meet the 7-pay
test. This test applies a cumulative limit on the amount of payments that can be
made into a contract each year in the first seven contract years in order to
avoid modified endowment treatment. In effect, compliance with the 7-pay test
requires that contracts be purchased with a higher face amount for a given
initial payment than would otherwise be required, at a minimum, to meet the
definition of life insurance. Contracts that do not satisfy the 7-pay test,
including contracts which initially satisfied the 7-pay test but later failed
the test, will be considered modified endowment contracts subject to the
following distribution rules. Loans and partial withdrawals from, as well as
collateral assignments of, modified endowment contracts will be treated as
distributions to the contract owner. Furthermore, if the loan interest is
capitalized by adding the amount due to the balance of the loan, the amount of
the capitalized interest will be treated as a distribution which may be subject
to income tax, to the extent of the income in the contract. All pre-death
distributions (including loans, partial withdrawals and collateral assignments)
from these contracts will be included in gross income on an income-first basis
to the extent of any income in the contract (the cash value less the contract
owner's investment in the contract) immediately before the distribution.
The law also imposes a 10% penalty tax on pre-death distributions (including
loans, capitalized interest, collateral assignments, partial withdrawals and
complete surrenders) from modified endowment contracts to the extent they are
included in income, unless such amounts are distributed on or after the taxpayer
attains age 59 1/2, because the taxpayer is disabled, or as substantially equal
periodic payments over the taxpayer's life (or life expectancy) or over the
joint lives (or joint life expectancies) of the taxpayer and his or her
beneficiary.
Contracts that comply with the 7-pay test will not be classified as modified
endowment contracts. Loans from contracts that are not modified endowment
contracts will be considered indebtedness of an owner and no part of a loan will
constitute income to the owner. In addition, pre-death distributions from these
contracts will generally not be included in gross income to the extent that the
amount received does not exceed the owner's investment in the contract. A lapse
of such a contract with an outstanding loan will result in the treatment of the
loan cancellation (including the accrued interest) as a distribution under the
contract and may be taxable.
Compliance with the 7-pay test does not imply or guarantee that only seven
payments will be required for the initial death benefit to be guaranteed for
life. Making additional payments or reducing the benefits (for example, through
a partial withdrawal, a change in death benefit option or
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terminating additional benefits under a rider) may violate the 7-pay test or, at
a minimum, reduce the amount that may be paid in the future under the 7-pay
test. Further, reducing the death benefit during the first seven contract years
will require retroactive retesting and may well result in a failure of the 7-pay
test regardless of any efforts by ML of New York to provide a payment schedule
that will not violate the 7-pay test.
Any contract received in an exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts that is described in the
Prospectus. A contract that is not originally classified as a modified endowment
contract can become so classified if there is a reduction in benefits during the
first seven contract years (including, for example, by a decrease in the
additional insurance rider face amount or a change in death benefit option) or
if a material change is made in the contract at any time. A material change
includes, but is not limited to, a change in the benefits that was not reflected
in a prior 7-pay test computation, such as a change in death benefit option.
This could result from additional payments made after 7-pay test calculations
done at the time of the contract exchange. Contract owners may choose not to
exercise their right to make additional payments, in order to preserve their
contract's current tax treatment.
If a contract becomes a modified endowment contract, distributions that occur
during the contract year it becomes a modified endowment contract and any
subsequent contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a contract within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a contract that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Special Treatment of Loans on the Contract. If there is any borrowing against
the Contract, whether a modified endowment contract or not, the interest paid on
loans may not be tax deductible.
Aggregation of Modified Endowment Contracts. In the case of a pre-death
distribution (including a loan, partial withdrawal, collateral assignment or
complete surrender) from a contract that is treated as a modified endowment
contract under the rules described above, a special aggregation requirement may
apply for purposes of determining the amount of the income on the contract.
Specifically, if ML of New York or any of its affiliates issues to the same
contract owner more than one modified endowment contract within a calendar year,
then for purposes of measuring the income on the contract with respect to a
distribution from any of those contracts, the income on the contract for all
those contracts will be aggregated and attributed to that distribution.
Tax Treatment of Policy Split. The Contract may be issued upon exercise of
rights provided by a policy split rider under certain joint and last survivor
contracts issued by ML of New York. (For more information about this rider and
the conditions and rules relating to the exercise of any rights under the rider,
the contract owner should call the Service Center.) A policy split could have
adverse tax consequences; for example, it is not clear whether a policy split
will be treated as a nontaxable exchange under Sections 1031 through 1043 of the
Code. If a policy split is not treated as a nontaxable exchange, a split could
result in the recognition of taxable income in an amount up to any gain in the
joint and last survivor contract at the time of the split. In addition, it is
not clear whether the individual Contracts that result from a policy split would
in all circumstances be treated as life insurance contracts for federal income
tax purposes and, if so treated, whether the Contracts would be classified as
modified endowment contracts. (See "Tax Treatment of Loans and Other
Distributions" page 29.) Before the contract owner exercises rights provided by
a policy split rider in order to obtain this Contract, it is important that he
or she consult with a competent tax advisor regarding the possible consequences
of a policy split.
Other Tax Considerations. The transfer of the Contract or the designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation skipping
transfer taxes. For example, the transfer of the Contract to, or the designation
as beneficiary of, or the payment of proceeds to, a person who is assigned to a
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generation which is two or more generations below the generation assignment of
the contract owner, may have generation skipping transfer tax considerations
under Section 2601 of the Code.
The individual situation of each contract owner or beneficiary will determine
the extent, if any, to which federal, state and local transfer taxes may be
imposed. The contract owner should consult with a tax advisor for specific
information in connection with these taxes.
The particular situation of each contract owner or beneficiary will determine
how ownership or receipt of contract proceeds will be treated for purposes of
federal estate tax as well as state and local estate, inheritance, generation
skipping and other taxes.
Other Transactions. Changing the contract owner or an additional insurance
rider's face amount may have tax consequences. Exchanging this Contract for
another involving the same insured should have no federal income consequences if
there is no debt and no cash or other property is received, according to Section
1035(a)(1) of the Code. The new contract would have to satisfy the 7-pay test
from the date of the exchange to avoid characterization as a modified endowment
contract. An exchange for a new contract may, however, result in a loss of
grandfathering status for statutory changes made after the old contract was
issued. A tax advisor should be consulted before effecting an exchange.
In addition, the Contract may be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a contract in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.
Ownership of This Contract by Non-Natural Persons. The above discussion of the
tax consequences arising from the purchase, ownership and transfer of the
Contract has assumed that the owner of the Contract consists of one or more
individuals. Organizations exempt from taxation under Section 501(a) of the Code
may be subject to additional or different tax consequences with respect to
transactions such as contract loans. Further, organizations purchasing Contracts
covering the life of an individual who is an officer or employee of, or is
financially interested in, the taxpayer's trade or business, may be unable to
deduct all or a portion of the interest or payments made with respect to the
Contract. Such organizations should obtain tax advice prior to the acquisition
of this Contract and also before entering into any subsequent changes to or
transactions under this Contract.
ML of New York does not make any guarantee regarding the tax status of any
Contract or any transaction regarding the Contract.
The above discussion is not intended as tax advice. For tax advice contract
owners should consult a competent tax advisor. Although this tax discussion is
based on ML of New York's understanding of federal income tax laws as they are
currently interpreted, it can't guarantee that those laws or interpretations
will remain unchanged.
ML OF NEW YORK'S INCOME TAXES
Insurance companies are generally required to capitalize and amortize certain
policy acquisition expenses over a ten-year period rather than currently
deducting such expenses. This treatment applies to the deferred acquisition
expenses of a Contract and results in a significantly higher corporate income
tax liability for ML of New York in early contract years. ML of New York makes a
charge to compensate ML of New York for the anticipated higher corporate income
taxes that result from the receipt of payments under a Contract. (See "Contract
Loading" on page 17.)
Currently, ML of New York makes no charges to the Separate Account for any
federal, state or local taxes that it incurs that may be attributable to the
Separate Account or to the Contracts. ML of New
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York, however, reserves the right to make a charge for assessments of federal
premium taxes or federal, state or local excise, profits or income taxes
measured by or attributable to the receipt of premiums.
REINSURANCE
ML of New York intends to reinsure some of the risks assumed under the
Contracts.
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
ABOUT THE SEPARATE ACCOUNT
The Separate Account is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 as a unit investment trust. This
registration does not involve any supervision by the Securities and Exchange
Commission of ML of New York's management or the management of the Separate
Account. The Separate Account is also governed by the laws of the State of New
York, ML of New York's state of domicile. ML of New York owns all of the assets
of the Separate Account. These assets are held separate and apart from all of ML
of New York's other assets. ML of New York maintains records of all purchases
and redemptions of Series Fund, Variable Series Funds and Zero Trust shares by
each of the investment divisions.
CHANGES WITHIN THE ACCOUNT
ML of New York may from time to time make additional investment divisions
available to contract owners. These divisions will invest in investment
portfolios ML of New York finds suitable for the Contracts. ML of New York also
has the right to eliminate investment divisions from the Separate Account, to
combine two or more investment divisions, or to substitute a new portfolio for
the portfolio in which an investment division invests. A substitution may become
necessary if, in ML of New York's judgment, a portfolio no longer suits the
purposes of the Contracts. This may happen due to a change in laws or
regulations or in a portfolio's investment objectives or restrictions, or
because the portfolio is no longer available for investment, or for some other
reason. ML of New York would get any required prior approval from the New York
State Insurance Department and the Securities and Exchange Commission before
making such a substitution. It would also get any other required approvals
before making such a substitution.
Subject to any required regulatory approvals, ML of New York reserves the right
to transfer assets of the Separate Account or of any of the investment divisions
to another separate account or investment division.
When permitted by law, ML of New York reserves the right to:
- deregister the Separate Account under the Investment Company Act of 1940;
- operate the Separate Account as a management company under the Investment
Company Act of 1940;
- restrict or eliminate any voting rights of contract owners, or other
persons who have voting rights as to the Separate Account; and
- combine the Separate Account with other separate accounts.
NET RATE OF RETURN FOR AN INVESTMENT DIVISION
Each investment division has a distinct unit value (also referred to as "price"
or "separate account index" in reports furnished to the contract owner by ML of
New York). When payments or other amounts are allocated to an investment
division, a number of units are purchased based on the value of a unit of the
investment division as of the end of the valuation period during which the
allocation is made. When amounts are transferred out of, or deducted from, an
investment division, units are
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redeemed in a similar manner. A valuation period is each business day together
with any non-business days before it. A business day for an investment division
is any day the New York Stock Exchange is open or the SEC requires that the net
asset value of an investment division be determined.
For each investment division, the separate account index was initially set at
$10.00. The separate account index for each subsequent valuation period
fluctuates based upon the net rate of return for that period. ML of New York
determines the net rate of return of an investment division at the end of each
valuation period. The net rate of return reflects the investment performance of
the division for the valuation period and is net of the charges to the Separate
Account described above.
For divisions investing in the Series Fund or the Variable Series Funds, shares
are valued at net asset value and reflect reinvestment of any dividends or
capital gains distributions declared by the Series Fund or the Variable Series
Funds.
For divisions investing in the Zero Trusts, units of each Zero Trust are valued
at the sponsor's repurchase price, as explained in the prospectus for the Zero
Trusts.
THE SERIES FUND AND THE VARIABLE SERIES FUNDS
Buying and Redeeming Shares. The Series Fund and the Variable Series Funds sell
and redeem their shares at net asset value. Any dividend or capital gain
distribution will be reinvested at net asset value in shares of the same
portfolio.
Voting Rights. ML of New York is the legal owner of all Series Fund and
Variable Series Funds shares held in the Separate Account. As the owner, ML of
New York has the right to vote on any matter put to vote at the Series Fund's
and the Variable Series Funds' shareholder meetings. However, ML of New York
will vote all Series Fund and Variable Series Funds shares attributable to
Contracts according to instructions received from contract owners. Shares
attributable to Contracts for which no voting instructions are received will be
voted in the same proportion as shares in the respective investment divisions
for which instructions are received. Shares not attributable to Contracts will
also be voted in the same proportion as shares in the respective divisions for
which instructions are received. If any federal securities laws or regulations,
or their present interpretation, change to permit ML of New York to vote Series
Fund or Variable Series Funds shares in its own right, it may elect to do so.
ML of New York determines the number of shares that contract owners have in an
investment division by dividing their Contract's investment base in that
division by the net asset value of one share of the portfolio. Fractional votes
will be counted. ML of New York will determine the number of shares for which a
contract owner may give voting instructions 90 days or less before each Series
Fund or Variable Series Funds meeting. ML of New York will request voting
instructions by mail at least 14 days before the meeting.
Under certain circumstances, ML of New York may be required by state regulatory
authorities to disregard voting instructions. This may happen if following the
instructions would mean voting to change the sub-classification or investment
objectives of the portfolios, or to approve or disapprove an investment advisory
contract.
ML of New York may also disregard instructions to vote for changes initiated by
a contract owner in the investment policy or the investment adviser if it
disapproves of the proposed changes. ML of New York would disapprove a proposed
change only if it was:
- contrary to state law;
- prohibited by state regulatory authorities; or
- decided by management that the change would result in overly speculative
or unsound investments.
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If ML of New York disregards voting instructions, it will include a summary of
its actions in the next semi-annual report.
Resolving Material Conflicts. Shares of the Series Fund are available for
investment by ML of New York, Merrill Lynch Life Insurance Company (an indirect
wholly owned subsidiary of Merrill Lynch & Co., Inc.) and Monarch Life Insurance
Company (an insurance company not affiliated with ML of New York or Merrill
Lynch & Co., Inc.). Shares of the Variable Series Funds are currently sold only
to separate accounts of ML of New York, Merrill Lynch Life Insurance Company and
Family Life Insurance Company (an insurance company not affiliated with ML of
New York or Merrill Lynch & Co., Inc.) to fund benefits under certain variable
life insurance and variable annuity contracts. The Basic Value Focus Fund, World
Income Focus Fund, Global Utility Focus Fund, International Equity Focus Fund,
International Bond Fund and Developing Capital Markets Focus Fund are only
offered to separate accounts of ML of New York and Merrill Lynch Life Insurance
Company. The Equity Growth Fund is also offered to Family Life Insurance
Company. Shares of each Fund of the Variable Series Funds may be made available
to the separate accounts of other insurance companies in the future.
It is possible that differences might arise between ML of New York's Separate
Account and one or more of the other separate accounts which invest in the
Series Fund or the Variable Series Funds. In some cases, it is possible that the
differences could be considered "material conflicts". Such a "material conflict"
could also arise due to changes in the law (such as state insurance law or
federal tax law) which affect these different variable life insurance and
variable annuity separate accounts. It could also arise by reason of difference
in voting instructions from ML of New York's contract owners and those of the
other insurance companies, or for other reasons. ML of New York will monitor
events to determine how to respond to such conflicts. If a conflict occurs, ML
of New York may be required to eliminate one or more investment divisions of the
Separate Account which invest in the Series Fund or the Variable Series Funds or
substitute a new portfolio for a portfolio in which a division invests. In
responding to any conflict, ML of New York will take the action which it
believes necessary to protect its contract owners, consistent with applicable
legal requirements.
CHARGES TO SERIES FUND ASSETS
The Series Fund incurs operating expenses and pays a monthly advisory fee to
MLAM. This fee equals an annual rate of:
- .50% of the first $250 million of the aggregate average daily net assets
of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
One or more of the insurance companies investing in the Series Fund has agreed
to reimburse the Series Fund so that the ordinary expenses of each portfolio
(which include the monthly advisory fee) do not exceed .50% of the portfolio's
average daily net assets. These companies have also agreed to reimburse MLAM for
any amounts it pays under the investment advisory agreement, as described below.
These reimbursement obligations will remain in effect so long as the advisory
agreement remains in effect and cannot be amended or terminated without Series
Fund approval.
Under its investment advisory agreement, MLAM has agreed that if any portfolio's
aggregate ordinary expenses (excluding interest, taxes, brokerage fees,
commissions and extraordinary charges) exceed the expense limitations for
investment companies in effect under any state securities law or regulation, it
will reduce its fee for that portfolio by the amount of the excess. If required,
it will reimburse the Series Fund for the excess. This reimbursement agreement
will remain in effect so long as the advisory agreement remains in effect and
cannot be amended without Series Fund approval.
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CHARGES TO VARIABLE SERIES FUNDS ASSETS
The Variable Series Funds incurs operating expenses and pays a monthly advisory
fee to MLAM. This fee equals an annual rate of .60% of the average daily net
assets of the Basic Value Focus Fund, World Income Focus Fund and Global Utility
Focus Fund. This fee equals an annual rate of .75%, .60% and 1.00% of the
average daily net assets of the International Equity Focus Fund, the
International Bond Fund and the Developing Capital Markets Focus Fund,
respectively.
Under its investment advisory agreement, MLAM has agreed to reimburse the
Variable Series Funds if and to the extent that in any fiscal year the operating
expenses of any Fund exceeds the most restrictive expense limitations then in
effect under any state securities laws or published regulations thereunder.
Expenses for this purpose include MLAM's fee but exclude interest, taxes,
brokerage fees and commissions and extraordinary charges, such as litigation. No
fee payments will be made to MLAM with respect to any Fund during any fiscal
year which would cause the expenses of such Fund to exceed the pro rata expense
limitation applicable to such Fund at the time of such payment. This
reimbursement agreement will remain in effect so long as the advisory agreement
remains in effect and cannot be amended without Variable Series Funds approval.
MLAM and Merrill Lynch Life Agency, Inc. have entered into two agreements which
limit the operating expenses paid by each Fund in a given year to 1.25% of its
average daily net assets, which is less than the expense limitations imposed by
state securities laws or published regulations thereunder. These reimbursement
agreements provide that any expenses in excess of 1.25% of average daily net
assets will be reimbursed to the Fund by MLAM which, in turn, will be reimbursed
by Merrill Lynch Life Agency, Inc.
THE ZERO TRUSTS
The 19 Zero Trusts:
<TABLE>
<CAPTION>
Targeted Rate of Return to
Maturity as of
Zero Trust Maturity Date April 27, 1995
- ----------- ------------------ --------------------------
<C> <S> <C>
1995 November 15, 1995 4.17%
1996 February 15, 1996 4.70%
1997 February 15, 1997 4.98%
1998 February 15, 1998 5.33%
1999 February 15, 1999 5.49%
2000 February 15, 2000 5.50%
2001 February 15, 2001 5.55%
2002 February 15, 2002 5.70%
2003 August 15, 2003 5.83%
2004 February 15, 2004 5.89%
2005 February 15, 2005 5.85%
2006 February 15, 2006 5.80%
2007 February 15, 2007 5.89%
2008 February 15. 2008 6.14%
2009 February 15, 2009 6.17%
2010 February 15, 2010 6.28%
2011 February 15, 2011 6.29%
2013 February 15, 2013 6.39%
2014 February 15, 2014 6.39%
</TABLE>
Targeted Rate of Return to Maturity
Because the underlying securities in the Zero Trusts will grow to their face
value on the maturity date, it is possible to estimate a compound rate of growth
to maturity for the Zero Trust units.
35
<PAGE> 40
But because the units are held in the Separate Account, the asset charge and the
trust charge (described in "Charges to the Separate Account" on page 17) must be
taken into account in estimating a targeted rate of return for the Separate
Account. The targeted rate of return to maturity for the Separate Account
depends on the compound rate of growth adjusted for these charges. It does not,
however, represent the actual return on a payment ML of New York might receive
under the Contract on that date, since it does not reflect the charges for
contract loading deducted from payments to a Contract, charges for cost of
insurance and rider charges and any net loan cost deducted from a Contract's
investment base.
Since the value of the Zero Trust units will vary daily to reflect the market
value of the underlying securities, the compound rate of growth to maturity for
the Zero Trust units and the targeted rate of return to maturity for the
Separate Account will vary correspondingly.
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, NET CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables on pages 38 through 41 demonstrate the way in which the Contract
works. The tables are based on the following ages, face amounts, payments and
guarantee periods and show values based upon both current and maximum mortality
charges.
1. The illustration on page 38 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$18,009 through contract year 52, an initial face amount of $1 million, an
initial guarantee period of 2.5 years and coverage under death benefit
option 1. It assumes current mortality charges.
2. The illustration on page 39 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$18,009 through contract year 52, an initial face amount of $1 million, an
initial guarantee period of 2.5 years and coverage under death benefit
option 1. It assumes maximum mortality charges.
3. The illustration on page 40 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$55,163 through contract year 43, an initial face amount of $1 million, an
initial guarantee period of 9.5 years and coverage under death benefit
option 2. It assumes current mortality charges.
4. The illustration on page 41 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$55,163 through contract year 43, an initial face amount of $1 million, an
initial guarantee period of 9.5 years and coverage under death benefit
option 2. It assumes maximum mortality charges.
The tables show how the death benefit, investment base and net cash surrender
value may vary over an extended period of time assuming hypothetical rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) equivalent to constant gross annual rates of 0%, 6% and 12%.
The death benefit, investment base and net cash surrender value for a Contract
would be different from those shown if the actual rates of return averaged 0%,
6% and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years.
The amounts shown for the death benefit, investment base and net cash surrender
value as of the end of each contract year take into account the daily asset
charge in the Separate Account equivalent to .90% (annually at the beginning of
the year) of assets attributable to the Contracts at the beginning of the year.
The amounts shown in the tables also assume an additional charge of .490%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1994 expenses (including monthly advisory fees)
for the Series Fund and the Variable Series Funds and
36
<PAGE> 41
the current trust charge. This charge does not reflect expenses incurred by the
Natural Resources Portfolio of the Series Fund and the Developing Capital
Markets Focus Fund of the Variable Series Funds in 1994, which were reimbursed
to the Series Fund and the Variable Series Funds, respectively, by MLAM. The
reimbursements amounted to.09% and .06%, respectively, of the average daily net
assets of these portfolios. (See "Charges to Series Fund Assets" on page 34.)
The actual charge under a Contract for Series Fund and Variable Series Funds
expenses and the trust charge will depend on the actual allocation of the
investment base and may be higher or lower depending on how the investment base
is allocated.
Taking into account the .90% asset charge in the Separate Account and the .490%
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of -1.39%, 4.56%, and 10.51%,
respectively. The gross returns are before any deductions and should not be
compared to rates which are after deduction of charges.
The hypothetical returns shown on the tables are without any income tax charges
that may be attributable to the Separate Account in the future, although they do
reflect the charge for federal taxes included in the contract loading. (See
"Contract Loading" on page 17.) In order to produce after tax returns of 0%, 6%
and 12%, the Series Fund and the Variable Series Funds would have to earn a
sufficient amount in excess of 0% or 6% or 12% to cover any tax charges
attributable to the Separate Account.
The second column of the tables shows the amount which would accumulate if an
amount equal to the payments were invested to earn interest (after taxes) at 5%
compounded annually.
ML of New York will furnish upon request a personalized illustration reflecting
the proposed insured's age, face amount and the payment amounts requested. The
illustration will also use current cost of insurance rates and will assume that
the proposed insured is in a standard non-smoker underwriting class.
37
<PAGE> 42
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $18,009 THROUGH CONTRACT YEAR 52
FACE AMOUNT(1): $1 MILLION INITIAL GUARANTEE PERIOD: 2.5 YEARS
DEATH BENEFIT OPTION 1
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)
INTEREST AT ASSUMING HYPOTHETICAL GROSS
5% AS ANNUAL INVESTMENT RETURN OF
OF END OF ------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) YEAR 0% 6% 12%
- --------------------- -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1................... $ 18,009 $ 18,909 $ 1,000,000 $ 1,000,000 $ 1,000,000
2................... 18,009 38,764 1,000,000 1,000,000 1,000,000
3................... 18,009 59,612 1,000,000 1,000,000 1,000,000
4................... 18,009 81,502 1,000,000 1,000,000 1,000,000
5................... 18,009 104,487 1,000,000 1,000,000 1,000,000
6................... 18,009 128,621 1,000,000 1,000,000 1,000,000
7................... 18,009 153,962 1,000,000 1,000,000 1,000,000
8................... 18,009 180,570 1,000,000 1,000,000 1,000,000
9................... 18,009 208,508 1,000,000 1,000,000 1,000,000
10................... 18,009 237,843 1,000,000 1,000,000 1,000,000
15................... 18,009 408,043 1,000,000 1,000,000 1,000,000
20................... 18,009 625,265 1,000,000 1,000,000 1,000,000
30................... 18,009 1,256,330 1,000,000 1,000,000 2,195,570
age 99............... 0 5,097,297 1,000,000 1,893,137 23,462,542
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
-------------------------------------------- --------------------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- --------------------- --------- ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1................... $ 7,642 $ 8,133 $ 8,626 $ 7,642 $ 8,133 $ 8,626
2................... 14,720 16,165 17,671 14,720 16,165 17,671
3................... 29,299 32,633 36,207 29,299 32,633 36,207
4................... 43,409 49,582 56,420 43,409 49,582 56,420
5................... 57,132 67,116 78,576 57,132 67,116 78,576
6................... 70,497 85,292 102,916 70,497 85,292 102,916
7................... 83,527 104,162 129,701 83,527 104,162 129,701
8................... 96,309 123,846 159,287 96,309 123,846 159,287
9................... 108,791 144,333 191,932 108,791 144,333 191,932
10................... 120,868 165,558 227,872 120,868 165,558 227,872
15................... 171,476 280,553 468,472 171,476 280,553 468,472
20................... 204,419 413,848 776,030 204,419 413,848 776,030
30................... 184,738 707,353 2,051,934 184,738 707,353 2,051,934
age 99............... 0 1,893,137 23,462,542 0 1,893,137 23,462,542
</TABLE>
- ------------------------------
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and currently
mortality charges, the guarantee period reaches life of the insured in
contract years 27 and 16, respectively. Once a guarantee of life is reached,
no more payments would be accepted. Values shown at annual rates of return
of 0%, 6% and 12% do not reflect any payments shown after a guarantee of
life is reached.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY ML OF
NEW YORK OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO TRUSTS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
38
<PAGE> 43
MALE ISSUE AGE 45
STANDARD NON SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $18,009 THROUGH CONTRACT YEAR 52
FACE AMOUNT(1): $1 MILLION INITIAL GUARANTEE PERIOD: 2.5 YEARS
DEATH BENEFIT OPTION 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)
INTEREST AT ASSUMING HYPOTHETICAL GROSS
5% AS ANNUAL RATE OF RETURN OF
END OF OF END OF ------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) YEAR 0% 6% 12%
- --------------------- -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1................... $ 18,009 $ 18,909 $ 1,000,000 $ 1,000,000 $ 1,000,000
2................... 18,009 38,764 1,000,000 1,000,000 1,000,000
3................... 18,009 59,612 1,000,000 1,000,000 1,000,000
4................... 18,009 81,502 1,000,000 1,000,000 1,000,000
5................... 18,009 104,487 1,000,000 1,000,000 1,000,000
6................... 18,009 128,621 1,000,000 1,000,000 1,000,000
7................... 18,009 153,962 1,000,000 1,000,000 1,000,000
8................... 18,009 180,570 1,000,000 1,000,000 1,000,000
9................... 18,009 208,508 1,000,000 1,000,000 1,000,000
10................... 18,009 237,843 1,000,000 1,000,000 1,000,000
15................... 18,009 408,043 1,000,000 1,000,000 1,000,000
20................... 18,009 625,265 1,000,000 1,000,000 1,000,000
30................... 18,009 1,256,330 1,000,000 1,000,000 1,812,319
age 99............... 0 5,097,297 1,000,000 1,000,000 18,259,853
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
------------------------------------------ ------------------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- --------------------- --------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1................... $ 5,716 $ 6,136 $ 6,558 $ 5,716 $ 6,136 $ 6,558
2................... 11,110 12,303 13,550 11,110 12,303 13,550
3................... 24,186 26,986 29,990 24,186 26,986 29,990
4................... 36,835 42,093 47,914 36,835 42,093 47,914
5................... 49,033 57,616 67,456 49,033 57,616 67,456
6................... 60,771 73,569 88,791 60,771 73,569 88,791
7................... 72,000 89,920 112,066 72,000 89,920 112,066
8................... 82,670 106,638 137,454 82,670 106,638 137,454
9................... 92,741 123,707 165,162 92,741 123,707 165,162
10................... 102,150 141,084 195,408 102,150 141,084 195,408
15................... 137,666 231,950 395,838 137,666 231,950 395,838
20................... 146,893 326,352 658,808 146,893 326,352 658,808
30................... 0 486,798 1,693,756 0 486,798 1,693,756
age 99............... 0 0 18,259,853 0 0 18,259,853
</TABLE>
- ------------------------------
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At an annual rate of return of 12% and maximum mortality
charges, the guarantee period reaches life of the insured in contract year
17. Once a guarantee of life is reached, no more payments would be accepted.
Values shown at annual rates of return of 0%, 6% and 12% do not reflect any
payments shown after a guarantee of life is reached.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY ML OF
NEW YORK OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO TRUSTS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
39
<PAGE> 44
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $55,163 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $1 MILLION INITIAL GUARANTEE PERIOD: 9.5 YEARS
DEATH BENEFIT OPTION 2
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)
INTEREST AT ASSUMING HYPOTHETICAL GROSS
5% AS ANNUAL RATE OF RETURN OF
OF END OF ------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) YEAR 0% 6% 12%
- --------------------- -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1................... $ 55,163 $ 57,921 $ 1,034,631 $ 1,036,751 $ 1,038,872
2................... 55,163 118,738 1,084,283 1,091,628 1,099,226
3................... 55,163 182,596 1,132,816 1,148,561 1,165,461
4................... 55,163 249,647 1,180,362 1,207,767 1,238,324
5................... 55,163 320,051 1,227,007 1,269,423 1,318,586
6................... 55,163 393,975 1,272,784 1,333,664 1,407,049
7................... 55,163 471,595 1,317,717 1,400,620 1,504,588
8................... 55,163 553,096 1,361,906 1,470,504 1,612,251
9................... 55,163 638,672 1,405,297 1,543,386 1,731,033
10................... 55,163 728,527 1,447,772 1,619,268 1,861,967
15................... 55,163 1,249,857 1,641,983 2,043,318 2,742,694
20................... 55,163 1,915,220 1,803,881 2,551,119 3,975,232
30................... 55,163 3,848,219 1,993,416 3,851,658 8,759,245
age 99............... 0 14,873,906 1,000,000 6,431,908 87,429,602
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
-------------------------------------------- --------------------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- --------------------- --------- ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1................... $ 34,631 $ 36,751 $ 38,872 $ 34,631 $ 36,751 $ 38,872
2................... 84,283 91,628 99,226 84,283 91,628 99,226
3................... 132,816 148,561 165,461 132,816 148,561 165,461
4................... 180,362 207,767 238,324 180,362 207,767 238,324
5................... 227,007 269,423 318,586 227,007 269,423 318,586
6................... 272,784 333,664 407,049 272,784 333,664 407,049
7................... 317,717 400,620 504,588 317,717 400,620 504,588
8................... 361,906 470,504 612,251 361,906 470,504 612,251
9................... 405,297 543,386 731,033 405,297 543,386 731,033
10................... 447,772 619,268 861,967 447,772 619,268 861,967
15................... 641,983 1,043,318 1,742,694 641,983 1,043,318 1,742,694
20................... 803,881 1,551,119 2,975,232 803,881 1,551,119 2,975,232
30................... 993,416 2,851,658 7,759,245 993,416 2,851,658 7,759,245
age 99............... 0 5,431,908 86,429,602 0 5,431,908 86,429,602
</TABLE>
- ------------------------------
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period reaches life of the insured in
contract years 37 and 17, respectively. Once a guarantee of life is reached,
no more payments would be accepted. Values shown at annual rates of return
of 0%, 6% and 12% do not reflect any payments shown after a guarantee of
life is reached.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY ML OF
NEW YORK OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO TRUSTS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
40
<PAGE> 45
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $55,163 THROUGH CONTRACT YEAR 43
FACE AMOUNT: $1 MILLION INITIAL GUARANTEE PERIOD: 9.5 YEARS
DEATH BENEFIT OPTION 2
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)
INTEREST AT ASSUMING HYPOTHETICAL GROSS
5% AS ANNUAL RATE OF RETURN OF
OF END OF ------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) YEAR 0% 6% 12%
- --------------------- -------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1................... $ 55,163 $ 57,921 $ 1,032,691 $ 1,034,739 $ 1,036,789
2................... 55,163 118,738 1,080,642 1,087,731 1,095,066
3................... 55,163 182,596 1,127,640 1,142,842 1,159,162
4................... 55,163 249,647 1,173,680 1,200,150 1,229,667
5................... 55,163 320,051 1,218,734 1,259,713 1,307,213
6................... 55,163 393,975 1,262,798 1,321,615 1,392,517
7................... 55,163 471,595 1,305,814 1,385,889 1,486,323
8................... 55,163 553,096 1,347,729 1,452,574 1,589,449
9................... 55,163 638,672 1,388,499 1,521,716 1,702,812
10................... 55,163 728,527 1,428,049 1,593,336 1,827,393
15................... 55,163 1,249,857 1,605,656 1,990,078 2,661,580
20................... 55,163 1,915,220 1,741,826 2,452,184 3,804,437
30................... 55,163 3,848,219 1,802,106 3,521,688 8,070,223
age 99............... 0 14,873,906 1,000,000 1,000,000 70,564,044
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDER VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
-------------------------------------------- --------------------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- --------------------- --------- ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1................... $ 32,691 $ 34,739 $ 36,789 $ 32,691 $ 34,739 $ 36,789
2................... 80,642 87,731 95,066 80,642 87,731 95,066
3................... 127,640 142,842 159,162 127,640 142,842 159,162
4................... 173,680 200,150 229,667 173,680 200,150 229,667
5................... 218,734 259,713 307,213 218,734 259,713 307,213
6................... 262,798 321,615 392,517 262,798 321,615 392,517
7................... 305,814 385,889 486,323 305,814 385,889 486,323
8................... 347,729 452,574 589,449 347,729 452,574 589,449
9................... 388,499 521,716 702,812 388,499 521,716 702,812
10................... 428,049 593,336 827,393 428,049 593,336 827,393
15................... 605,656 990,078 1,661,580 605,656 990,078 1,661,580
20................... 741,826 1,452,184 2,804,437 741,826 1,452,184 2,804,437
30................... 802,106 2,521,688 7,070,223 802,106 2,521,688 7,070,223
age 99............... 0 0 69,564,044 0 0 69,564,044
</TABLE>
- ------------------------------
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 months after issue,
the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At an annual rate of return of 12% and maximum mortality
charges, the guarantee period reaches life of the insured in contract year
17. Once a guarantee of life is reached, no more payments would be accepted.
Values shown at annual rates of return of 0%, 6% and 12% do not reflect any
payments shown after a guarantee of life is reached.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY ML OF
NEW YORK OR THE SERIES FUND OR THE VARIABLE SERIES FUNDS OR THE ZERO TRUSTS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
41
<PAGE> 46
EXAMPLES
ADDITIONAL PAYMENTS
As of the processing date on or next following receipt and acceptance of an
additional payment, ML of New York will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment is
less than for the whole of life of the insured.
ML of New York will determine the increase in the guarantee period by taking the
immediate increase in the cash value resulting from the additional payment and
adding to that interest at the annual rate of 5% for the period from the date ML
of New York receives and accepts the payment to the contract processing date on
or next following such date. This is the guarantee adjustment amount. The
guarantee adjustment amount is added to the fixed base and the resulting new
fixed base is used to calculate a new guarantee period.
The amount of the increase in the guarantee period will depend on the amount of
the additional payment and the contract year in which it is received and
accepted. If additional payments of different amounts were made at the same time
to equivalent contracts, the contract to which the larger payment is applied
would have a larger increase in the guarantee period.
Example 1 shows the effect on the guarantee period of a $10,000 additional
payment received and accepted at the beginning of contract year five. Example 2
shows the effect of a $20,000 additional payment received and accepted at the
beginning of contract year five. Example 3 shows the effect of a $10,000
additional payment received and accepted at the beginning of contract year six.
All three examples assume that death benefit option 1 has been elected, that
annual payments of $18,009 have been made through the contract year reflected in
the example and that no other contract transactions have been made.
Male Issue Age 45
Initial payment plus annual payments of $18,009
Face Amount: $1 million
Initial Guarantee Period: 2.5 years
Death Benefit Option: 1
Based on Maximum Mortality Charges
<TABLE>
<CAPTION>
EXAMPLE 1
----------------------------------
INCREASE
IN
CONTRACT ADDITIONAL GUARANTEE
YEAR PAYMENT PERIOD
--- -------- ----------
<S> <C> <C>
5 $ 10,000 1.5 years
<CAPTION>
EXAMPLE 2
----------------------------------
INCREASE
IN
CONTRACT ADDITIONAL GUARANTEE
YEAR PAYMENT PERIOD
--- -------- ----------
<S> <C> <C>
5 $ 20,000 3 years
<CAPTION>
EXAMPLE 3
----------------------------------
INCREASE
IN
CONTRACT ADDITIONAL GUARANTEE
YEAR PAYMENT PERIOD
--- -------- ----------
<S> <C> <C>
6 $ 10,000 1.25 years
</TABLE>
PARTIAL WITHDRAWALS
As of the processing date on or next following the effective date of a partial
withdrawal, ML of New York calculates a new guarantee period. This is done by
taking the immediate decrease in cash value resulting from the partial
withdrawal and adding to that amount interest at an annual rate of 5% for the
period from the date of the withdrawal to the contract processing date on or
next following such date. This is the guarantee adjustment amount. The guarantee
adjustment amount is subtracted from the fixed base and the resulting new fixed
base is used to calculate a new guarantee period.
42
<PAGE> 47
The amount of the reduction in the guarantee period will depend on the amount of
the withdrawal, the face amount at the time of the withdrawal and the contract
year in which the withdrawal is made. If made at the same time to equivalent
contracts, a larger withdrawal would result in a greater reduction in the
guarantee period than a smaller withdrawal. The same partial withdrawal made at
the same time from contracts with the same guarantee periods but with different
face amounts would result in a greater reduction in the guarantee period for the
contract with the smaller face amount.
Examples 1 and 2 show the effect on the guarantee period of partial withdrawals
for $10,000 and $20,000 taken at the beginning of contract year sixteen. Example
3 shows the effect on the guarantee period of a $20,000 partial withdrawal taken
at the beginning of contract year eighteen. All three examples assume that death
benefit option 1 has been elected, that annual payments of $18,009 have been
made through the contract year reflected in the example and that no other
contract transactions have been made.
Male Issue Age 45
Initial payment plus annual payments of $18,009
Face Amount: $1 million
Initial Guarantee Period: 2.5 years
Death Benefit Option: 1
Based on Maximum Mortality Charges
<TABLE>
<CAPTION>
EXAMPLE 1
- -----------------------------------
INCREASE
IN
CONTRACT ADDITIONAL GUARANTEE
YEAR PAYMENT PERIOD
- --- -------- ---------
<S> <C> <C>
16 $ 10,000 .5 years
<CAPTION>
EXAMPLE 2
- -----------------------------------
INCREASE
IN
CONTRACT ADDITIONAL GUARANTEE
YEAR PAYMENT PERIOD
- --- -------- ---------
<S> <C> <C>
16 $ 20,000 1 year
<CAPTION>
EXAMPLE 3
- -----------------------------------
INCREASE
IN
CONTRACT ADDITIONAL GUARANTEE
YEAR PAYMENT PERIOD
- --- -------- ---------
<S> <C> <C>
18 $ 20,000 .75 years
</TABLE>
CHANGING THE DEATH BENEFIT OPTION
On each contract anniversary beginning with the fifteenth, the contract owner
may change the death benefit option by switching from option 1 to option 2 or
from option 2 to option 1. ML of New York will change the face amount of the
Contract in order to keep the death benefit constant on the effective date of
the change. Therefore, if the change is from option 1 to option 2, the face
amount of the Contract will be decreased by the cash value on the date of the
change. If the change is from option 2 to option 1, the face amount of the
Contract will be increased by the cash value on the date of the change.
Example 1 shows the effect on the face amount of a change from option 1 to
option 2 and Example 2 shows the effect on the face amount of a change from
option 2 to option 1. The face amount before each change is $1 million.
43
<PAGE> 48
EXAMPLE 1
------------------------------------------------
Before Option Change
Death Benefit under Option 1: $1,000,000
Face Amount: $1,000,000
Cash Value: $80,000
After Option Change
Death Benefit under Option 2: $1,000,000
Face Amount: $920,000
Cash Value: $80,000
EXAMPLE 2
------------------------------------------------
Before Option Change
Death Benefit under Option 2: $1,080,000
Face Amount: $1,000,000
Cash Value: $80,000
After Option Change
Death Benefit under Option 1: $1,080,000
Face Amount: $1,080,000
Cash Value: $80,000
MORE ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK
DIRECTORS AND EXECUTIVE OFFICERS
ML of New York's directors and executive officers and their positions with the
Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY
- ---------------------- --------------------------------------------
<S> <C>
Anthony J. Vespa Chairman of the Board, President, and Chief
Executive Officer
Joseph E. Crowne Director, Senior Vice President, Chief
Financial Officer, Chief Actuary, and
Treasurer
Barry G. Skolnick Director, Senior Vice President, and General
Counsel
David M. Dunford Director, Senior Vice President, and Chief
Investment Officer
John C.R. Hele Director and Senior Vice President
Frederick J.C. Butler Director
Michael P. Cogswell Director, Vice President, and Senior Counsel
Robert L. Israeloff Director
Allen N. Jones Director
Cynthia L. Kahn Director
Robert A. King Director
Irving M. Pollack Director
William A. Wilde Director
Robert J. Boucher Senior Vice President, Variable Life
Administration
</TABLE>
Each director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and shall have qualified. Some
directors have held various executive positions
44
<PAGE> 49
with insurance company subsidiaries of the Company's indirect parent, Merrill
Lynch & Co., Inc. The principal positions of the Company's directors and
executive officers for the past five years are listed below:
Mr. Vespa joined ML of New York in February 1994. Since February 1994, he has
held the position of Senior Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From February 1991 to February 1994, he held the position of
District Director and First Vice President of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. From September 1988 to February 1991, he held the position
of Senior Resident Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
Mr. Crowne joined ML of New York in June 1991. From January 1989 to May 1991, he
was a Principal with Coopers & Lybrand.
Mr. Skolnick joined ML of New York in November 1989. He joined Merrill Lynch,
Pierce Fenner & Smith Incorporated in July 1984. Since May 1992, he has held the
position of Assistant General Counsel of Merrill Lynch & Co., Inc. and First
Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Prior to
May 1992, he held the position of Senior Counsel of Merrill Lynch & Co., Inc.
Mr. Dunford joined ML of New York in July 1990. He joined Merrill Lynch, Pierce,
Fenner & Smith Incorporated in September 1989. Prior to September 1989, he held
the position of President of Travelers Investment Management Co.
Mr. Butler joined ML of New York in April 1991. Since November 1991, he has held
the position of Chairman of Butler, Chapman & Co., Inc. Prior to April 1991, he
served as Managing Director of the Investment Banking Division of Merrill Lynch
& Co., Inc.
Mr. Cogswell has been with ML of New York since November 1990. Prior to November
1990, he was Assistant Counsel at UNUM Life Insurance Company.
Mr. Hele joined ML of New York in September 1990. He joined Merrill Lynch,
Pierce, Fenner & Smith Incorporated in August 1988.
Mr. Israeloff joined ML of New York in April 1991. Since 1964, he has been
Chairman and Executive Partner of Israeloff, Trattner & Co., CPAs, P.C., a
public accounting firm.
Mr. Jones joined ML of New York in June 1992. Since May 1992, he held the
position of Senior Vice President of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. From June 1992 to February 1994, he held the position of Chairman
of the Board, President, and Chief Executive Officer of ML of New York. From
January 1992 to June 1992, he held the position of First Vice President of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From January 1991 to January
1992, he held the position of District Director of Merrill Lynch, Pierce, Fenner
& Smith Incorporated. Prior to January 1991, he held the position of Senior
Resident Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Ms. Kahn joined ML of New York in November 1993. She is a partner at the law
firm of Rogers & Wells. She has been associated with Rogers & Wells since 1984.
Mr. King joined ML of New York in April 1991. Since February 1991, he has been
Vice President for Finance at Marymount College, Tarrytown, New York. From March
1973 until February 1991, he served as Managing Director of Merrill Lynch
Capital Markets.
Mr. Pollack joined ML of New York in April 1991. In 1980, he retired from the
Securities and Exchange Commission after thirty years of service, and having
served as an SEC Commissioner from 1974 to 1980. Since 1980, he has practiced
law and been a private consultant in the securities and capital markets fields.
Mr. Wilde joined ML of New York in March 1991. He joined Merrill Lynch, Pierce,
Fenner & Smith Incorporated in 1976. Since 1985, he has been a Director and
Senior Vice President of Merrill Lynch Life Agency, Inc.
45
<PAGE> 50
Mr. Boucher joined ML of New York in May 1992. Prior to May 1992, he held the
position of Vice President of Monarch Financial Services, Inc. (formerly Monarch
Resources, Inc.).
No shares of ML of New York are owned by any of its officers or directors, as it
is a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc. The officers
and directors of ML of New York, both individually and as a group, own less than
one percent of the outstanding shares of common stock of Merrill Lynch & Co.,
Inc.
SERVICE ARRANGEMENT
ML of New York and its parent, Merrill Lynch Insurance Group ("MLIG"), are
parties to a service agreement pursuant to which MLIG has agreed to provide
certain data processing, legal, actuarial, management, advertising and other
services of ML of New York, including services related to the Separate Account
and the Contracts. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by ML of New York on an allocated cost basis. Charges
billed to ML of New York by MLIG pursuant to the agreement were $4.0 million
during 1994.
STATE REGULATION
ML of New York is subject to the laws of the State of New York and to the
regulations of the New York Insurance Department (the "Department"). A detailed
financial statement in the prescribed form (the "Annual Statement") is filed
with the Department each year covering ML of New York's operations for the
preceding year and its financial condition as of the end of that year.
Regulation by the Department includes periodic examination to determine contract
liabilities and reserves so that the Department may certify that these items are
correct. ML of New York's books and accounts are subject to review by the
Department at all times. A full examination of ML of New York's operations is
conducted periodically by the Department and under the auspices of the National
Association of Insurance Commissioners. ML of New York is also subject to the
insurance laws and regulations of all jurisdictions in which it is licensed to
do business.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. ML of New York and Merrill
Lynch, Pierce, Fenner & Smith Incorporated are engaged in various kinds of
routine litigation that, in the Company's judgment, is not material to ML of New
York's total assets or to Merrill Lynch, Pierce, Fenner & Smith Incorporated.
EXPERTS
The financial statements of ML of New York as of December 31, 1994 and 1993 and
for each of the three years in the period ended December 31, 1994 and of the
Separate Account as of December 31, 1994 and for the periods presented, included
in this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein, and have been so included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing. Deloitte & Touche LLP's principal business address
is Two World Financial Center, New York, New York 10281-1433.
Actuarial matters included in this Prospectus have been examined by Joseph E.
Crowne, F.S.A., Chief Actuary and Chief Financial Officer of ML of New York, as
stated in his opinion filed as an exhibit to the registration statement.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contract, and the
validity of the form of the Contract have been passed upon by Barry G. Skolnick,
ML of New York's Senior Vice President
46
<PAGE> 51
and General Counsel. Sutherland, Asbill & Brennan of Washington, D.C. has
provided advice on certain matters relating to federal securities and tax laws.
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940 that relate to the Contract and its investment options. This Prospectus
does not contain all of the information in the registration statements as
permitted by Securities and Exchange Commission regulations. The omitted
information can be obtained from the Securities and Exchange Commission's
principal office in Washington, D.C., upon payment of a prescribed fee.
FINANCIAL STATEMENTS
The financial statements of ML of New York, included herein, should be
distinguished from the financial statements of the Separate Account and should
be considered only as bearing upon the ability of ML of New York to meet its
obligations under the Contracts.
47
<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 Life Separate Account II (the
"Account") as of December 31, 1994 and the related
statements of earnings (losses) and changes in net assets
for each of the three years in the period then ended. These
financial statements are the responsibility of the
management of ML Life Insurance Company of New York. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation
of mutual fund securities owned at December 31, 1994, by
correspondence with the funds' transfer agent. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Account
at December 31, 1994 and the results of its operations and
the changes in its net assets for the above periods in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The supplemental schedules included herein are presented for
the purpose of additional analysis and are not a required
part of the basic financial statements. These schedules are
the responsibility of the Company's management. Such
schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects
when considered in relation to the basic financial
statements taken as a whole.
/s/Deloitte & Touche LLP
February 8, 1995
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
ASSETS: Market
Cost Shares Value
================= ================ =================
<S> <C> <C> <C>
Investments in Merrill Lynch Series Fund, Inc. (Note A):
Money Reserve Portfolio $ 1,148,900 1,148,900 $ 1,148,900
Intermediate Government Bond Portfolio 94,178 8,568 88,421
Long-Term Corporate Bond Portfolio 65,518 5,631 60,368
Capital Stock Portfolio 387,942 16,981 367,468
Growth Stock Portfolio 465,592 22,012 422,626
Multiple Strategy Portfolio 1,304,325 75,756 1,228,766
High Yield Portfolio 124,780 13,516 115,290
Natural Resources Portfolio 89,142 11,601 86,197
Global Strategy Portfolio 1,962,203 131,667 1,914,433
Balanced Portfolio 140,383 10,066 133,571
----------------- -----------------
5,782,963 5,566,040
----------------- -----------------
Investment in Merrill Lynch Variable Series Funds, Inc. (Note A):
Global Utility Focus Fund 3,496 355 3,357
International Equity Focus Fund 119,753 10,647 116,050
World Income Focus Fund 1,037 109 1,002
Basic Value Focus Fund 95,315 8,537 94,761
Developing Capital Markets Focus Fund 109,333 10,516 100,004
----------------- -----------------
328,934 315,174
----------------- -----------------
Investment in Unit Investment Trusts (Note A):
Stripped ("Zero") U.S. Treasury Securities, Series A through K:
1995 Trust 3 3 3
1996 Trust 2,834 3,113 2,876
1997 Trust 2,849 3,306 2,830
1998 Trust 7,453 9,289 7,339
1999 Trust 2,784 3,719 2,718
2000 Trust 26,807 38,097 25,860
2005 Trust 8,000 17,032 7,881
2009 Trust 5,303 15,830 5,315
2013 Trust 1,568 5,772 1,396
----------------- -----------------
57,601 56,218
----------------- -----------------
Dividend Receivable 1,171
-----------------
Total Assets $ 6,169,498 5,938,603
================= -----------------
LIABILITIES
Payable to Merrill Lynch Series Fund, Inc. 13,628
Payable to Merrill Lynch Variable Series Fund, Inc. 696
Payable to ML Life Insurance Company of New York 98,514
-----------------
Total Liabilities 112,838
-----------------
Net Assets $ 5,825,765
=================
</TABLE>
See Notes to Financial Statements
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF EARNINGS (LOSSES) AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND THE PERIOD FROM JUNE 30, 1992
(Date of Inception) TO DECEMBER 31, 1992
===============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 268,953 $ 32,519 $ 104
Net Gains (Losses):
Realized (14,386) 3,446 0
Unrealized (356,936) 124,757 112
----------------- ----------------- -----------------
Investment Earnings (Losses) (102,369) 160,722 216
Mortality and Expense Charges (Note C) (39,147) (11,042) (3)
Transaction Charges ( Note D ) (139) (45) 0
----------------- ----------------- -----------------
Net Earnings (Losses) (141,655) 149,635 213
Capital Shares Transactions:
Transfers of Net Premiums 2,992,673 2,646,293 5,882
Transfers of Policy Loading, Net 242,105 203,968 582
Transfers Due to Deaths (4,709) 0 0
Transfers Due to Other Terminations (42,335) (470) 0
Transfers Due to Policy Loans (26,381) (2,977) 0
Transfers of Cost of Insurance (142,930) (53,905) (36)
Transfers of Loan Processing Charges (180) (8) 0
----------------- ----------------- -----------------
Increase in Net Assets 2,876,588 2,942,536 6,641
Net Assets Beginning Balance 2,949,177 6,641 0
----------------- ----------------- -----------------
Net Assets Ending Balance $ 5,825,765 $ 2,949,177 $ 6,641
================= ================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
Note A - ML of New York Variable Life Separate Account II
("Account"), a separate account of ML Life Insurance Company
of New York ("ML of New York") was established by a board of
directors resolution on December 4, 1991 and is governed by
New York State Insurance Law. The Account is registered as a
unit investment trust under the Investment Company Act of
1940 and consists of thirty-five investment divisions
(thirty-six during the year). Ten of the divisions each
invest in the securities of a single mutual fund portfolio
of Merrill Lynch Series Fund, Inc. ("Series Fund"). Six of
the divisions each invest in the securities of a single
mutual fund portfolio of Merrill Lynch Variable Series
Funds, Inc. ("Variable Series Funds"). The portfolios of the
Series Fund and Variable Series Funds have varying
investment objectives relative to growth of capital and
income. The Series Fund receives investment advice from
Merrill Lynch Asset Management, L.P. ("MLAM") for a fee
calculated at an effective annual rate of .50% of the first
$250 million of the aggregate average daily net assets of
the investment divisions investing in the Series Fund with
declining rates to .30% of such assets over $800 million.
The Variable Series Funds receives investment advise from
MLAM for a fee at an effective annual rate of .60% of the
average daily net assets of the Basic Value Focus, World
Income Focus, Global Utility Focus and International Bond
Funds, .75% of such assets of the International Equity Focus
Fund and 1.00% of such assets of the Developing Capital
Markets Fund. Nineteen of the divisions (twenty during the
year) each invest in the securities of a single trust of the
Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities, Series A through K. Each trust of the Series
consists of Stripped Treasury Securities with a fixed
maturity date and a Treasury Note deposited to provide
income to pay expenses of the trust.
The Account was formed by ML of New York, an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill") to
support ML of New York's operations respecting certain
variable life insurance contracts ("Contracts"). The assets
of the Account are the property of ML of New York. The
portion of the Account'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 maintained in the Account provides
the basis for the periodic determination of the amount of
increased or decreased benefits under the Contracts.
The net assets may not be less than the amount required
under New York insurance law to provide for death benefits
(without regard to the minimum death benefit guarantee) and
other Contract benefits.
Note B - The significant accounting policies of the Account
are as follows:
Investments are made in the divisions and are valued at the
net asset values of the respective Portfolios.
Transactions are recorded on the trade date.
Income from dividends is recognized as of the ex-dividend
date. All dividends are automatically reinvested.
Realized gains and losses on the sales of investments are
computed on the first in first out method.
The operations of the Account are included in the Federal
income tax return of ML of New York. Under the provisions of
the Contracts, ML of New York has the right to charge the
Account for any Federal income tax attributable to the
Account. No charge is currently being made against the
Account for income taxes since, under current tax law, ML of
New York pays no tax on investment income and capital gains
reflected in variable life insurance contract reserves.
However, ML of New York retains the right to charge for any
Federal income tax incurred which is attributable to the
Account if the law is changed. Contract loading, however,
includes a charge for a significantly higher Federal income
tax liability of ML of New York (see Note C). Charges for
state and local taxes, if any, attributable to the Account
may also be made.
Note C - ML of New York assumes mortality and expense risks
related to the operations of the Account and deducts a daily
charge from the assets of the Account to cover these risks.
The daily charges are equal to a rate of .90% (on an annual
basis) of the net assets for Contract owners.
ML of New York makes certain deductions from each premium.
For certain Contracts, the deductions are made before the
premium is allocated to the Account. For other Contracts,
the deductions are taken in equal installments on the first
through tenth contract anniversaries. The deductions are for
(1) sales load, (2) Federal taxes, and (3) state and local
premium taxes.
In addition, for certain Contracts, the cost of providing
life insurance coverage for the insureds will be deducted
from the investment base on the contract date and all
subsequent processing dates. For other Contracts, the cost
of providing life insurance coverage will be deducted only
on processing dates. This cost will vary dependent upon the
insured's underwriting class, sex, attained age of each
insured and the Contract's net amount at risk.
Note D - ML of New York pays all transaction charges to
Merrill Lynch, Pierce, Fenner & Smith Inc., sponsor of the
unit investment trusts, on the sale of Series A through K
Unit Investment Trusts units to the Account and deducts a
daily asset charge against the assets of each trust for the
reimbursement of these transaction charges. The asset charge
is equivalent to an effective annual rate of .34% (annually
at the beginning of the year) of net assets for Contract
owners.
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 41,342 $ 4,966 $ 5,571 $ 22,713
Net Gains (Losses):
Realized 0 (1,373) (2,463) (193)
Unrealized 0 (5,684) (5,516) (36,308)
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 41,342 (2,091) (2,408) (13,788)
Mortality and Expense Charges (Note C) (7,682) (579) (500) (2,624)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 33,660 (2,670) (2,908) (16,412)
Capital Shares Transactions:
Transfers of Net Premiums 2,182,917 16,259 14,303 87,258
Transfers of Policy Loading, Net 204,854 838 297 3,860
Transfers Due to Deaths (4,709) 0 0 0
Transfers Due to Other Terminations (19,061) (47) (34) (3,606)
Transfers Due to Policy Loans (3,291) 0 (8,090) 0
Transfers of Cost of Insurance (11,687) (1,890) (1,766) (12,541)
Transfers of Loan Processing Charges (61) (2) (1) (9)
Transfers Among Investment Divisions (2,135,609) 57,882 15,300 114,987
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 247,013 70,370 17,101 173,537
Net Assets Beginning Balance 791,336 18,031 43,240 193,851
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,038,349 $ 88,401 $ 60,341 $ 367,388
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 44,060 $ 91,638 $ 10,086 $ 881
Net Gains (Losses):
Realized (4,489) (8,962) (113) (1,133)
Unrealized (53,393) (122,822) (11,295) (1,787)
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) (13,822) (40,146) (1,322) (2,039)
Mortality and Expense Charges (Note C) (3,093) (8,738) (858) (515)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) (16,915) (48,884) (2,180) (2,554)
Capital Shares Transactions:
Transfers of Net Premiums 72,918 141,921 19,063 15,585
Transfers of Policy Loading, Net 2,341 6,369 899 459
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (5,552) (694) (62) (76)
Transfers Due to Policy Loans 0 (7,343) 0 0
Transfers of Cost of Insurance (11,943) (30,302) (2,517) (1,820)
Transfers of Loan Processing Charges (11) (30) (3) (2)
Transfers Among Investment Divisions 115,653 557,800 31,203 35,939
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 156,491 618,837 46,403 47,531
Net Assets Beginning Balance 266,027 609,686 68,844 38,630
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 422,518 $ 1,228,523 $ 115,247 $ 86,161
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
Global International
Global Utility Equity
Strategy Balanced Focus Focus
Portfolio Portfolio Fund Fund
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 40,661 $ 6,867 $ 48 $ 36
Net Gains (Losses):
Realized 6,797 (2,182) 1 25
Unrealized (96,994) (8,078) (139) (3,703)
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) (49,536) (3,393) (90) (3,642)
Mortality and Expense Charges (Note C) (12,743) (945) (9) (178)
Transaction Charges (Note D) 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) (62,279) (4,338) (99) (3,820)
Capital Shares Transactions:
Transfers of Net Premiums 322,623 52,080 1,574 17,941
Transfers of Policy Loading, Net 16,489 2,418 63 954
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (6,534) (5,452) (1) (452)
Transfers Due to Policy Loans (7,657) 0 0 0
Transfers of Cost of Insurance (55,334) (6,317) (141) (1,772)
Transfers of Loan Processing Charges (47) (4) 0 (3)
Transfers Among Investment Divisions 978,339 (64,303) 1,959 103,175
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 1,185,600 (25,916) 3,355 116,023
Net Assets Beginning Balance 728,468 159,454 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,914,068 $ 133,538 $ 3,355 $ 116,023
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
World Basic Developing
Income Value Capital Markets
Focus Focus Focus 1995
Fund Fund Fund Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 37 $ 47 $ 0 $ 0
Net Gains (Losses):
Realized 0 (15) 15 30
Unrealized (34) (555) (9,329) (11)
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 3 (523) (9,314) 19
Mortality and Expense Charges (Note C) (2) (144) (170) (12)
Transaction Charges (Note D) 0 0 0 (5)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 1 (667) (9,484) 2
Capital Shares Transactions:
Transfers of Net Premiums 955 9,863 18,358 0
Transfers of Policy Loading, Net 43 584 891 (8)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 0 (47) (685) 0
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (20) (679) (1,570) (61)
Transfers of Loan Processing Charges 0 (3) (3) 0
Transfers Among Investment Divisions 2 85,671 92,475 (1,638)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 981 94,722 99,982 (1,705)
Net Assets Beginning Balance 0 0 0 1,728
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 981 $ 94,722 $ 99,982 $ 23
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
1996 1997 1998 1999
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 12 (6) (5) (2)
Unrealized 13 (24) (124) (71)
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 25 (30) (129) (73)
Mortality and Expense Charges (Note C) (19) (18) (45) (18)
Transaction Charges (Note D) (7) (7) (17) (7)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) (1) (55) (191) (98)
Capital Shares Transactions:
Transfers of Net Premiums 1,466 1,448 3,740 1,414
Transfers of Policy Loading, Net 62 61 158 60
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (1) (1) (4) (1)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (182) (181) (328) (178)
Transfers of Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions (491) (469) 1,037 487
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 853 803 4,412 1,684
Net Assets Beginning Balance 2,017 2,021 2,922 1,029
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,870 $ 2,824 $ 7,334 $ 2,713
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=====================================================
2000 2005 2009
Trust Trust Trust
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0
Net Gains (Losses):
Realized (317) (18) (9)
Unrealized (812) (150) 12
----------------- ----------------- -----------------
Investment Earnings (Losses) (1,129) (168) 3
Mortality and Expense Charges (Note C) (190) (36) (19)
Transaction Charges (Note D) (72) (13) (7)
----------------- ----------------- -----------------
Net Earnings (Losses) (1,391) (217) (23)
Capital Shares Transactions:
Transfers of Net Premiums 9,351 1,275 0
Transfers of Policy Loading, Net 347 54 0
Transfers Due to Deaths 0 0 0
Transfers Due to Other Terminations (16) (4) (3)
Transfers Due to Policy Loans 0 0 0
Transfers of Cost of Insurance (1,369) (193) (75)
Transfers of Loan Processing Charges (1) 0 0
Transfers Among Investment Divisions (202) 5,464 5,405
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 6,719 6,379 5,304
Net Assets Beginning Balance 19,122 1,486 0
----------------- ----------------- -----------------
Net Assets Ending Balance $ 25,841 $ 7,865 $ 5,304
================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
===================================
2013
Trust Total
================= =================
<S> <C> <C>
Reinvested Dividends $ 0 $ 268,953
Net Gains (Losses):
Realized 15 (14,386)
Unrealized (132) (356,936)
----------------- -----------------
Investment Earnings (Losses) (117) (102,369)
Mortality and Expense Charges (Note C) (10) (39,147)
Transaction Charges (Note D) (4) (139)
----------------- -----------------
Net Earnings (Losses) (131) (141,655)
Capital Shares Transactions:
Transfers of Net Premiums 361 2,992,673
Transfers of Policy Loading, Net 12 242,105
Transfers Due to Deaths 0 (4,709)
Transfers Due to Other Terminations (2) (42,335)
Transfers Due to Policy Loans 0 (26,381)
Transfers of Cost of Insurance (64) (142,930)
Transfers of Loan Processing Charges 0 (180)
Transfers Among Investment Divisions (66) (0)
----------------- -----------------
Increase (Decrease) in Net Assets 110 2,876,588
Net Assets Beginning Balance 1,285 2,949,177
----------------- -----------------
Net Assets Ending Balance $ 1,395 $ 5,825,765
================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 17,196 $ 504 $ 1,936 $ 387
Net Gains (Losses):
Realized 0 8 45 295
Unrealized 0 (73) 366 15,835
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 17,196 439 2,347 16,517
Mortality and Expense Charges (Note C) (3,568) (79) (275) (638)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 13,628 360 2,072 15,879
Capital Shares Transactions:
Transfers of Policy Loading, Net 2,584,685 0 0 1,537
Transfers Due to Deaths 200,287 6 14 (58)
Transfers Due to Other Terminations (362) (6) (15) 185
Transfers Due to Policy Loans (2,977) 0 0 0
Transfers of Cost of Insurance (18,610) (362) (384) (3,323)
Transfers of Loan Processing Charges (8) 0 0 0
Transfers Among Investment Divisions (1,985,375) 18,033 41,553 179,631
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 791,268 18,031 43,240 193,851
Net Assets Beginning Balance 68 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 791,336 $ 18,031 $ 43,240 $ 193,851
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
Growth Multiple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 430 $ 4,342 $ 3,007 $ 167
Net Gains (Losses):
Realized 99 352 77 46
Unrealized 10,427 47,151 1,804 (1,158)
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 10,956 51,845 4,888 (945)
Mortality and Expense Charges (Note C) (527) (2,200) (311) (158)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 10,429 49,645 4,577 (1,103)
Capital Shares Transactions:
Transfers of Policy Loading, Net 0 5,882 0 0
Transfers Due to Deaths 84 715 22 12
Transfers Due to Other Terminations 160 (150) (13) (12)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (3,354) (10,483) (975) (527)
Transfers of Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions 258,708 557,504 65,233 40,260
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 266,027 603,113 68,844 38,630
Net Assets Beginning Balance 0 6,573 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 266,027 $ 609,686 $ 68,844 $ 38,630
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
Global
Strategy Balanced 1993 1995
Portfolio Portfolio Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 4,382 $ 168 $ 0 $ 0
Net Gains (Losses):
Realized 1,775 85 38 0
Unrealized 49,225 1,266 0 9
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 55,382 1,519 38 9
Mortality and Expense Charges (Note C) (2,690) (475) (9) (1)
Transaction Charges (Note D) 0 0 (4) 0
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 52,692 1,044 25 8
Capital Shares Transactions:
Transfers of Policy Loading, Net 1,643 0 4,775 1,671
Transfers Due to Deaths 348 50 225 79
Transfers Due to Other Terminations (206) (50) 0 (1)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (11,482) (3,140) (98) (30)
Transfers of Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions 685,473 161,550 (4,927) 1
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 728,468 159,454 0 1,728
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 728,468 $ 159,454 $ 0 $ 1,728
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
1996 1997 1998 1999
Trust Trust Trust Trust
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Net Gains (Losses):
Realized 1 97 21 47
Unrealized 29 5 10 5
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 30 102 31 52
Mortality and Expense Charges (Note C) (6) (8) (8) (6)
Transaction Charges (Note D) (2) (3) (3) (2)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 22 91 20 44
Capital Shares Transactions:
Transfers of Policy Loading, Net 1,433 5,348 3,820 2,388
Transfers Due to Deaths 68 253 181 113
Transfers Due to Other Terminations 11 (1) (1) 0
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (55) (55) (97) (50)
Transfers of Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions 538 (3,615) (1,001) (1,466)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 2,017 2,021 2,922 1,029
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,017 $ 2,021 $ 2,922 $ 1,029
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS (LOSSES) AND CHANGES IN NET
ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=======================================================================
2000 2005 2013
Trust Trust Trust Total
================= ================= ================= =================
<S> <C> <C> <C> <C>
Reinvested Dividends $ 0 $ 0 $ 0 $ 32,519
Net Gains (Losses):
Realized 458 2 0 3,446
Unrealized (135) 31 (40) 124,757
----------------- ----------------- ----------------- -----------------
Investment Earnings (Losses) 323 33 (40) 160,722
Mortality and Expense Charges (Note C) (74) (6) (3) (11,042)
Transaction Charges (Note D) (28) (2) (1) (45)
----------------- ----------------- ----------------- -----------------
Net Earnings (Losses) 221 25 (44) 149,635
Capital Shares Transactions:
Transfers of Policy Loading, Net 33,111 0 0 2,646,293
Transfers Due to Deaths 1,569 0 0 203,968
Transfers Due to Other Terminations (9) 0 0 (470)
Transfers Due to Policy Loans 0 0 0 (2,977)
Transfers of Cost of Insurance (814) (41) (25) (53,905)
Transfers of Loan Processing Charges 0 0 0 (8)
Transfers Among Investment Divisions (14,956) 1,502 1,354 0
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 19,122 1,486 1,285 2,942,536
0 0 0
Net Assets Beginning Balance 0 0 0 6,641
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 19,122 $ 1,486 $ 1,285 $ 2,949,177
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF EARNINGS AND CHANGES IN NET ASSETS
FOR THE PERIOD FROM JUNE 30, 1992 (Date of Inception) TO DECEMBER 31, 1992
===============================================================================
<TABLE>
<CAPTION>
Divisions Investing In
=====================================================
Money Multiple
Reserve Strategy
Portfolio Portfolio Total
================= ================= =================
<S> <C> <C> <C>
Reinvested Dividends $ 104 $ 0 $ 104
Net Unrealized Gains 0 112 112
----------------- ----------------- -----------------
Investment Earnings 104 112 216
Mortality and Expense Charges (Note C) (1) (2) (3)
----------------- ----------------- -----------------
Net Earnings 103 110 213
Capital Shares Transactions:
Transfers of Net Premiums 5,882 0 5,882
Transfers of Policy Loading, Net 582 0 582
Transfers of Cost of Insurance (32) (4) (36)
Transfers Among Investment Divisions (6,467) 6,467 0
----------------- ----------------- -----------------
Increase in Net Assets 68 6,573 6,641
Net Assets Beginning Balance 0 0 0
----------------- ----------------- -----------------
Net Assets Ending Balance $ 68 $ 6,573 $ 6,641
================= ================= =================
</TABLE>
<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, 1994 and 1993 and the related statements of earnings,
stockholder's equity and cash flows for each of the three years
in the period ended December 31, 1994. 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, 1994 and 1993 and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the
Company changed its method of accounting for certain investments
in debt and equity securities to conform with Statement of
Accounting Standards No. 115.
/s/Deloitte & Touche, LLP
February 27, 1995
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
ASSETS 1994 1993
----------- -----------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair value
(amortized cost: 1994 - $297,551; 1993 - $442,008) $ 286,078 $ 458,916
Equity securities available for sale, at estimated fair value
(cost: 1994 - $3,987; 1993 - $8,387) 4,301 7,195
Mortgage loans on real estate 7,941 17,627
Policy loans on insurance contracts 77,827 73,380
----------- -----------
Total Investments 376,147 557,118
CASH AND CASH EQUIVALENTS 20,915 27,464
ACCRUED INVESTMENT INCOME 7,354 10,164
DEFERRED POLICY ACQUISITION COSTS 31,031 24,036
FEDERAL INCOME TAXES - DEFERRED 9,749 10,468
REINSURANCE RECEIVABLES 605 1,685
OTHER ASSETS 3,265 3,765
SEPARATE ACCOUNTS ASSETS 471,656 410,613
----------- -----------
TOTAL ASSETS $ 920,722 $1,045,313
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
==============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993
----------- -----------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 340,882 $ 523,382
Claims and claims settlement expenses 4,314 5,614
----------- -----------
Total policy liabilities and accruals 345,196 528,996
OTHER POLICYHOLDER FUNDS 1,532 1,200
OTHER LIABILITIES 2,113 5,641
FEDERAL INCOME TAXES - CURRENT 170 864
PAYABLE TO AFFILIATES - NET 4,242 5,223
SEPARATE ACCOUNTS LIABILITIES 471,656 410,613
----------- -----------
Total Liabilities 824,909 952,537
----------- -----------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 220,000 shares
authorized, issued and outstanding 2,200 2,200
Additional paid-in capital 83,006 83,006
Retained earnings 13,970 8,497
Net unrealized investment loss (3,363) (927)
----------- -----------
Total Stockholder's Equity 95,813 92,776
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 920,722 $1,045,313
=========== ===========
</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, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 32,679 $ 50,661 $ 65,378
Net realized investment gains (losses) (2,218) 6,131 (434)
Policy charge revenue 10,339 8,387 7,683
------------ ------------ ------------
Total Revenues 40,800 65,179 72,627
------------ ------------ ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account
balances 22,691 44,425 57,812
Market value adjustment expense 132 642 25
Policy benefits (net of reinsurance recoveries: 1994 - $715
1993 - $2,192; 1992 - $953) 1,620 1,729 594
Reinsurance premium ceded 1,240 1,182 1,070
Amortization of deferred policy acquisition costs 4,141 9,523 8,219
Insurance expenses and taxes 3,685 5,278 4,539
------------ ------------ ------------
Total Benefits and Expenses 33,509 62,779 72,259
------------ ------------ ------------
Earnings Before Federal Income
Tax Provision 7,291 2,400 368
------------ ------------ ------------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current (213) 2,842 2,373
Deferred 2,031 (2,250) (2,196)
------------ ------------ ------------
Total Federal Income Tax Provision 1,818 592 177
------------ ------------ ------------
NET EARNINGS $ 5,473 $ 1,808 $ 191
============ ============ ============
</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, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
Net
Additional unrealized Total
Common paid-in Retained investment stockholder's
stock capital earnings gain (loss) equity
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 $ 2,200 $ 83,006 $ 6,498 $ (1,073) $ 90,631
Net earnings 191 191
Net unrealized investment gain 1,425 1,425
----------- ----------- ----------- ----------- -------------
BALANCE, DECEMBER 31, 1992 2,200 83,006 6,689 352 92,247
Net earnings 1,808 1,808
Net unrealized investment loss (1,279) (1,279)
----------- ----------- ----------- ----------- -------------
BALANCE, DECEMBER 31, 1993 2,200 83,006 8,497 ( 927) 92,776
Net earnings 5,473 5,473
Net unrealized investment loss (2,436) (2,436)
----------- ----------- ----------- ----------- -------------
BALANCE, DECEMBER 31, 1994 $ 2,200 $ 83,006 $ 13,970 $ (3,363) $ 95,813
=========== =========== =========== =========== =============
</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, 1994, 1993 AND 1992
(Dollars in Thousands)
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 5,473 $ 1,808 $ 191
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 4,142 9,523 8,219
Capitalization of policy acquisition costs (7,142) (7,252) (2,539)
Amortization of fixed maturity securities (312) 918 366
Net realized investment (gains) losses 2,218 (6,131) 434
Interest credited to policyholders' account balances 22,691 44,425 57,812
Provision (benefit) for deferred Federal
income tax 2,031 (2,250) (2,196)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 2,810 3,857 (27)
Policy liabilities and accruals (1,300) 2,273 448
Federal income taxes - current (694) 173 873
Other policyholder funds 332 1,129 63
Payable to affiliates - net (981) (1,923) 10,149
Policy loans (4,447) (7,343) (12,342)
Other, net (1,947) 2,644 (2,501)
------------ ------------ ------------
by operating activities 22,874 41,851 58,950
------------ ------------ ------------
INVESTING ACTIVITIES:
Fixed maturity securities sold 123,518 166,033 177,835
Fixed maturity securities matured 92,499 280,484 195,691
Fixed maturity securities purchased (73,016) (251,522) (323,172)
Equity securities available for sale purchased (29) (109) (665)
Equity securities available for sale sold 4,665 2,885 11,886
Mortgage loans on real estate principal payments received 8,998 4,425 1,000
Mortgage loans on real estate acquired 0 0 (124)
------------ ------------ ------------
Net cash and cash equivalents provided by
investing activities 156,635 202,196 62,451
------------ ------------ ------------
</TABLE>
(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, 1994, 1993 AND 1992
(Concluded) (Dollars In Thousands)
==============================================================================
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits $ 56,297 $ 33,953 $ 5,985
Withdrawals (net of transfers to/from Separate Accounts) (242,355) (291,658) (105,082)
------------ ------------ ------------
Net cash and cash equivalents used
by financing activities (186,058) (257,705) (99,097)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (6,549) (13,658) 22,304
CASH AND CASH EQUIVALENTS:
Beginning of year 27,464 41,122 18,818
------------ ------------ ------------
End of year $ 20,915 $ 27,464 $ 41,122
============ ============ ============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 482 $ 2,668 $ 1,500
Intercompany interest $ 352 $ 397 $ 801
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
=================================================================
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: ML Life Insurance Company of New York (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells non-participating life insurance and annuity
products which comprise one business segment. The primary
products that the Company currently markets are immediate
annuities, market value adjusted annuities, variable life
insurance and variable 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, Inc. ("MLPF&S"), a
wholly owned subsidiary of Merrill Lynch & Co..
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles for
stock life insurance companies.
Revenue Recognition: Revenues for the Company's interest
sensitive life, interest sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy
administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest crediting rates for
the Company's fixed rate products are as follows:
Interest sensitive life products 4.00% - 5.10%
Interest sensitive deferred annuities 4.00% - 8.39%
Immediate annuities 4.00% - 10.0%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for those claims which are
unreported as of the valuation date.
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
<PAGE>
insolvencies. The Company
holds collateral under reinsurance agreements in the form of
letters of credit and amounts withheld totaling $236 that can
be drawn upon for delinquent reinsurance recoverables.
As of December 31, 1994, the Company had life insurance in-
force which was ceded to other life insurance companies of
$152,508.
Deferred Policy Acquisition Costs: Policy acquisition costs
for life and annuity contracts are deferred and amortized based
on the estimated future gross profits for each group of
contracts. These future gross profit estimates are subject to
periodic evaluation by the Company, with necessary revisions
applied against amortization to date.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, which are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed.
Included in deferred policy acquisition costs are those costs
related to the acquisition by assumption reinsurance of
insurance contracts from unaffiliated insurers. The deferred
costs are amortized in proportion to the future gross profits
over the anticipated life of the acquired insurance contracts
utilizing an interest methodology.
In December 1990, the Company entered into an assumption
reinsurance agreement with an unaffiliated insurer. The
acquisition costs relating to this agreement are being
amortized over a twenty-year period using an effective interest
rate of 9.01%. This reinsurance agreement provides for payment
of contingent ceding commissions based upon the persistency and
mortality experience of the insurance contracts assumed. Any
payments made for the contingent ceding commissions will be
capitalized and amortized using an identical methodology as
that used for the initial acquisition costs. The following is
a reconciliation of the acquisition costs for the reinsurance
transaction for the years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance $ 15,614 $ 16,925 $ 18,193
Capitalized amounts 1,447 843 533
Interest accrued 1,407 1,478 1,865
Amortization (3,545) (3,632) (3,666)
---------- ---------- ----------
Ending balance $ 14,923 $ 15,614 $ 16,925
========== ========== ==========
</TABLE>
The following table presents the expected amortization of these
deferred acquisition costs over the next five years. The
amortization may be adjusted based on periodic evaluation of
the expected gross profits on the reinsured policies.
1995 $2,160
1996 1,944
1997 1,512
1998 1,075
1999 1,017
Investments: Effective December 31, 1993, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). In compliance with SFAS No. 115,
the Company classified its investments in fixed maturity
securities and equity securities in the available for sale
category. These securities may be sold for the Company's
general liquidity needs, asset/liability management strategy,
credit dispositions and investment opportunities. These
securities are carried at estimated fair value with unrealized
gains and losses included in stockholder's equity. If
<PAGE>
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).
SFAS No. 115 permits fixed maturity securities to be carried at
amortized cost if the Company has both the ability and positive
intent to hold these securities to maturity. The Company has
determined that it can not guarantee that it will not have the
need or opportunity to sell any particular security in its
investment holdings. As such, the Company did not utilize this
classification as of December 31, 1994 or 1993. Additionally,
SFAS No. 115 requires that securities held for short-term sale
are to be carried at fair value with the change in fair value
being recorded as a component of earnings. The Company had no
securities at December 31, 1994 and 1993 that were held for this
purpose.
In compliance with a Securities and Exchange Commissions
("SEC") staff announcement, the Company has recorded certain
adjustments to deferred policy acquisition costs and
policyholders' account balances in conjunction with its
adoption of SFAS No. 115. The SEC requires that companies
adjust those assets and liabilities that would have been
adjusted had the unrealized investment gains or losses from
securities classified as available for sale actually been
realized with corresponding credits or charges reported
directly to shareholder's equity. The following reconciles the
net unrealized investment loss as of December 31,:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale $(11,473) $ 16,908
Equity securities available for sale 314 (1,192)
Deferred policy acquisition costs 3,177 (818)
Federal income taxes - deferred 1,812 502
---------- ----------
(6,170) 15,400
---------- ----------
Liabilities:
Policyholders' account balances 2,807 (16,327)
---------- ----------
Stockholder's equity:
Net unrealized investment loss $ (3,363) $ (927)
========== ==========
</TABLE>
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accrued to
the maturity date and interest income is accrued daily. 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 identified cost.
Fixed maturity securities may contain securities which are
considered high yield. The Company defines high yield fixed
maturity securities as unsecured corporate debt obligations
which do not have a rating equivalent to Standard and Poor's
(or similar rating agency) BBB or higher, and are not
guaranteed by an agency of the federal government. Probable
losses are recognized in the period that a decline in value is
determined to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal
balances net of valuation allowances. Such valuation
allowances are based on the decline in value expected by
management to be realized on in-substance foreclosures of
mortgage loans and on mortgage loans which management believes
may not be collectible in full. In establishing valuation
allowances management considers, among other things, the
estimated fair value of the underlying collateral.
The Company recognizes income from mortgage loans on real
estate based on the cash payment interest rate of the loan,
which may be different from the accrual interest rate of the
loan for certain outstanding mortgage loans. The Company will
recognize a realized gain at the date of the satisfaction of
the loan at contractual terms
<PAGE>
for loans where there is a
difference between the cash payment interest rate and the
accrual interest rate. For all loans the Company stops accruing
income when an interest payment default either occurs or is
probable.
The Company has previously made commercial mortgage loans
collateralized by real estate. The return on and the ultimate
recovery of these loans and investments are generally dependent
on the successful operation, sale or refinancing of the real
estate. In many parts of the country, current real estate
markets are characterized by vacancy rates in excess of
historical averages, a lack of ready sources or credit for real
estate financing, reduced or declining real estate values, and
similar factors.
The Company employs a system to monitor the effects of current
and expected market conditions and other factors when assessing
the collectability of mortgage loans. When, in management's
judgment, these assets are impaired, appropriate losses are
recorded. Such estimates necessarily include assumptions,
which may include anticipated improvements in selected market
conditions for real estate, which may or may not occur. The
more significant assumptions management considers involve
estimates of the following: lease, absorption and sales rates;
real estate values and rates of return; operating expenses;
inflation; and sufficiency of any collateral independent of the
real estate. Management believes that the carrying value
approximates the fair value of these investments.
During 1993 the Financial Accounting Standards Board issued
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114") which was amended during 1994 by SFAS No. 118
"Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". SFAS No. 114, as amended,
requires that for impaired loans, the impairment shall be
measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or the
fair value of the collateral. Impairments of mortgage loans on
real estate are established as valuation allowances and
recorded to net realized investment gains or losses. SFAS No.
114, as amended, must be adopted for fiscal years beginning
after December 15, 1994. The Company has decided not to early
adopt this statement. The Company estimates that the impact on
both financial position and earnings from adopting SFAS No.
114, as amended, would be immaterial.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Federal Income Taxes: The Company accounts for Federal income
taxes in compliance with SFAS No. 109 "Accounting for Income
Taxes" ("SFAS No. 109") which requires an asset and liability
method in recording income taxes on all transactions that have
been recognized in the financial statements. SFAS No. 109
provides that deferred taxes be adjusted to reflect tax rates
at which future tax liabilities or assets are expected to be
settled or realized.
Separate Accounts: The Separate Accounts are established in
conformity with New York 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 Account
claims only to the extent the value of such assets exceeds the
Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing
net deposits and accumulated net investment earnings less fees,
held for the benefit of policyholders, are shown as separate
captions in the balance sheets.
Postretirement Benefits Other Than Pensions: The Company
accounts for postretirement benefits in compliance with SFAS
No. 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106"). SFAS No. 106 requires
the accrual of postretirement benefits (such as health care
benefits) during the years an employee provides service.
Statements of Cash Flows: For the purpose of reporting cash
flows, cash and cash equivalents include cash on hand and on
deposit and short-term investments with original maturities of
three months or less.
Reclassifications: To facilitate comparisons with the current
year, certain amounts in the prior years have been
reclassified.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments which approximates
the estimated fair value of these financial instruments as of
December 31, are:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale (1) $ 286,078 $ 458,916
Equity securities available for sale (1) 4,301 7,195
Mortgage loans on real estate (2) 7,941 17,627
Policy loans on insurance contracts (3) 77,827 73,380
Cash and cash equivalents (4) 20,915 27,464
Separate accounts assets (6) 471,656 410,613
---------- ----------
Total financial instruments recorded as assets $ 868,718 $ 995,195
========== ==========
Liabilities:
Payable to affiliates - net (5) $ 4,242 $ 5,223
---------- ----------
Total financial instruments recorded as liabilities $ 4,242 $ 5,223
========== ==========
</TABLE>
(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 approach, including provision for credit risk,
based upon the assumption that such securities will be
held to maturity. Such estimated fair values do not
necessarily represent the values for which these
securities could have been sold at the dates of the
balance sheets. At December 31, 1994 and 1993,
respectively, securities without a readily ascertainable
market value, having an amortized cost of approximately
$81,899 and $125,783, had an estimated fair value of
approximately $82,470 and $131,917, respectively.
(2) The estimated fair value of mortgage loans on real estate
approximates the carrying value. See Note 1 for a
discussion of the Company's valuation process.
(3) The Company estimates the fair market value of policy
loans as equal to the book value of the loans. Policy
loans are fully collateralized by the account value of the
associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited
to the account value held as collateral is fixed.
(4) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(5) The fair value of the Company's payables to affiliates is
estimated at carrying value. These borrowings are payable
on demand and bear a variable interest rate based on
LIBOR.
(6) Assets held in the Separate Accounts are carried at quoted
market values.
<PAGE>
NOTE 3: INVESTMENTS
The amortized cost (cost for equity securities) and estimated
fair value of investments in fixed maturity securities and
equity securities as of December 31 are:
<TABLE>
<CAPTION>
1994
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 213,488 $ 1,764 $ 9,393 $ 205,859
Mortgage-backed securities 79,911 588 4,184 76,315
U.S. government and agencies 4,152 177 425 3,904
----------- ----------- ----------- -----------
Total fixed maturity securities
available for sale $ 297,551 $ 2,529 $ 14,002 $ 286,078
=========== =========== =========== ===========
Equity securities available for sale:
Common stocks $ 2,281 $ 72 $ 1,165 $ 1,188
Non-redeemable preferred stocks 1,706 1,782 375 3,113
----------- ----------- ----------- -----------
Total equity securities available for sale $ 3,987 $ 1,854 $ 1,540 $ 4,301
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1993
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate securities $ 284,710 $ 13,726 $ 3,204 $ 295,232
Mortgage-backed securities 149,834 6,209 216 155,827
U.S. government and agencies 3,964 349 24 4,289
Municipals 3,500 68 0 3,568
----------- ----------- ----------- -----------
Total fixed maturity securities
available for sale $ 442,008 $ 20,352 $ 3,444 $ 458,916
=========== =========== =========== ===========
Equity securities available for sale:
Common stocks $ 2,392 $ 106 $ 438 $ 2,060
Non-redeemable preferred stocks 5,995 1,002 1,862 5,135
----------- ----------- ----------- -----------
Total equity securities available for sale $ 8,387 $ 1,108 $ 2,300 $ 7,195
=========== =========== =========== ===========
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1994 by
contractual maturity are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 15,738 $ 15,891
Due after one year through five years 93,527 92,558
Due after five years through ten years 82,820 76,448
Due after ten years 25,555 24,866
----------- -----------
217,640 209,763
Mortgage-backed securities 79,911 76,315
----------- -----------
Total fixed maturity securities available
for sale $ 297,551 $ 286,078
=========== ===========
</TABLE>
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1994 by rating
agency equivalent are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---------- ----------
<S> <C> <C>
AAA $ 65,797 $ 62,068
AA 57,337 57,000
A 37,430 34,682
BBB 105,549 101,820
Non-investment grade 31,438 30,508
---------- ----------
$ 297,551 $ 286,078
========== ==========
</TABLE>
Proceeds, gains and losses from the sale or maturity of fixed
maturity securities available for sale and held to maturity for
the years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds $ 216,017 $ 446,517 $ 373,526
Realized investment gains 6,793 4,546 7,275
Realized investment losses 8,560 438 3,206
</TABLE>
The Company had investment securities of $982 and $1,118 held
on deposit with insurance regulatory authorities at December
31, 1994 and 1993, respectively.
The Company's investment in mortgage loans on real estate
consists principally of loans collateralized by commercial real
estate. At December 31, 1994, the Company's investment in
commercial real estate mortgage loans as measured by the
outstanding principal balance are for properties located in
California ($7,477 or 78.9%) and Pennsylvania ($2,000 or
21.1%).
<PAGE>
The carrying value and established valuation allowances of
impaired mortgage loans on real estate as of December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Carrying value $ 3,939 $ 4,626
Valuation allowance 1,536 848
</TABLE>
Net investment income arose from the following sources for the
years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Fixed maturity securities $ 28,255 $ 45,523 $ 59,036
Equity securities available for sale 0 113 499
Mortgage loans on real estate 975 1,924 2,309
Policy loans 3,680 3,487 3,029
Cash equivalents 659 476 1,034
Other 0 0 1,310
--------- --------- ---------
Gross investment income 33,569 51,523 67,217
Less expenses (890) (862) (1,839)
--------- --------- ---------
Net investment income $ 32,679 $ 50,661 $ 65,378
========= ========= =========
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances, for the years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities $ (1,767) $ 4,108 $ 4,069
Equity securities available for sale 237 2,081 (2,710)
Mortgage loans on real estate (688) (58) (1,793)
---------- ---------- ----------
Net realized investment gains (losses) $ (2,218) $ 6,131 $ (434)
========== ========== ==========
</TABLE>
The following is a reconciliation of the change in valuation
allowances which have been established to reflect other than
temporary declines in estimated fair value of the following
classifications of investments for the years ended December 31,:
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning Charged to End
of Year Operations of Year
---------- ---------- ----------
<S> <C> <C> <C>
Mortgage loans on real estate
1994 $ 848 $ 688 $ 1,536
1993 790 58 848
1992 0 790 790
</TABLE>
The Company held investments at December 31, 1994 of $4,600
which have been non-income producing for the preceding twelve
months.
<PAGE>
The Company has restructured the terms of certain of its
investments in mortgage loans on real estate during 1993.
During 1994, the Company did not restructure any investments.
The following table provides the amortized cost less valuation
allowances immediately prior to restructuring, gross interest
income that would have been earned had the loans been current
per their original terms ("Expected Income") and gross interest
income recorded during the year ("Actual Income") and equity
interests which are received in the restructuring:
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Mortgage loans on real estate:
Amortized cost less valuation allowance $ 5,475
Expected income 442
Actual Income 411
</TABLE>
NOTE 4: FEDERAL INCOME TAXES
The Company is taxed as a life insurance company according to
the Federal Income Tax Reform Act of 1986, as amended. The
Company's tax return is not consolidated with any other entity.
The following is a reconciliation of the provision for income
taxes based on income before taxes, computed using the Federal
statutory tax rate, with the provision for income taxes for the
years ended December 31,:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 2,552 $ 840 $ 125
Increase (decrease) in income taxes resulting from:
Federal tax rate increase 0 (227) 0
Dividend received deduction (670) 0 0
Other (64) (21) 52
---------- ---------- ----------
Federal income tax provision $ 1,818 $ 592 $ 177
========== ========== ==========
</TABLE>
The Federal statutory rate for 1994, 1993 and 1992 was 35%, 35%
and 34%, respectively.
The Company provides for deferred income taxes resulting from
temporary differences which arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 887 $ (1,184) $ (2,094)
Policyholders' account balances 833 (969) 1,700
Investment adjustments 1,117 (100) (1,093)
Other (806) 3 (709)
--------- ---------- ----------
Deferred Federal income tax
provision (benefit) $ 2,031 $ (2,250) $ (2,196)
========= ========== ==========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 9,015 $ 9,848
Net unrealized investment gain (loss) 1,812 500
Investment adjustments 4,026 5,143
---------- ----------
Total deferred tax asset 14,853 15,491
---------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs 5,170 4,283
Other (66) 740
---------- ----------
Total deferred tax liability 5,104 5,023
---------- ----------
Net deferred tax asset $ 9,749 $ 10,468
========== ==========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
NOTE 5: RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain data processing, legal,
actuarial, management, advertising and other services to the
Company. Expenses incurred by MLIG in relation to this service
agreement are reimbursed by the Company on an allocated cost
basis. Charges billed to the Company by MLIG pursuant to the
agreement were $4,025, $5,688 and $5,403 for the years ended
December 31, 1994, 1993 and 1992 respectively. The Company is
allocated interest expense on its accounts payable to MLIG which
approximates the daily Federal funds rate. Total intercompany
interest paid was $50, $69 and $122 for 1994, 1993 and 1992,
respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM") are
parties to a service agreement whereby MLAM has agreed to provide
certain invested asset management to the Company. The Company
pays a fee to MLAM for these services through the MLIG service
agreement. Charges attributable to this agreement and allocable
to the company by MLIG were $203, $265 and $339 for the years
ended December 31, 1994, 1993 and 1992, 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 approximately $5,329, $4,927, and
$1,469 for 1994, 1993 and 1992, respectively. Substantially all
of these fees were capitalized as deferred policy acquisition
costs and are being amortized in accordance with the policy
discussed in Note 1.
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company ("Monarch
Life"), the Company borrowed funds from Merrill Lynch & Co. to
partially finance the transaction. As of December 31, 1994 and
1993, the outstanding balance of these loans was approximately
$4,336 and $5,550, respectively. Approximately $1,214, $1,650
and $4,600 was repaid on these loans during 1994, 1993 and 1992,
respectively. Interest was calculated on these loans at LIBOR
plus 150 basis points. Intercompany interest paid on these loans
during 1994, 1993 and 1992 was approximately $302, $328 and $679,
respectively.
During 1994, 1993 and 1992, the Company assumption reinsured
certain policies previously indemnity reinsured by the Company's
affiliate, Merrill Lynch Life Insurance Company ("MLLIC"), and
directly written by Family Life Insurance Company ("Family
Life"), a former affiliate. These transactions resulted in the
transfer of approximately $11,860 and $2,000 of policy reserves
during 1993 and 1992, respectively. During 1994 certain
<PAGE>
adjustments to the 1993 assumption reinsurance transactions
resulted in a transfer of $9,129 of policy reserves from the
Company to MLLIC.
NOTE 6: STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
At December 31, 1994 and 1993, $42,612 and $30,125, respectively,
of stockholder's equity was available for distribution to MLIG.
Notice of intention to declare a dividend must be filed with the
New York Superintendent of Insurance who may disallow the
payment. No dividends were declared or paid during 1994, 1993 and
1992. Statutory capital and surplus at December 31, 1994 and
1993, was $64,913 and $57,333, respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principles utilized in these financial statements
by charging policy acquisition costs to expense as incurred,
establishing future policy benefit reserves using different
actuarial assumptions, not providing for deferred income taxes
and valuing securities on a different basis. The Company's
statutory net income for the years ended December 31, 1994, 1993
and 1992 was $3,816, $6,515 and $10,167, respectively.
The National Association of Insurance Commissioners ("NAIC") has
developed and implemented, effective December 31, 1993, the Risk
Based Capital ("RBC") adequacy monitoring system. The RBC
calculates the amount of adjusted capital which a life insurance
company should have based upon that company's risk profile. The
NAIC has established four different levels of regulatory action
with respect to the RBC adequacy monitoring system. Each of these
levels may be triggered if an insurer's total adjusted capital is
less than a corresponding level of RBC. These levels are as
follows:
For companies with capital levels which are below 100% of
the basic RBC level (company action level) calculated for
that company, the company must submit to the domiciliary
insurance commissioner, and implement, an approved plan to
increase adjusted capital to at least 100% of the basic
RBC.
For companies with capital levels which are below 75% of
the basic RBC level calculated for that company, an
examination of the company will be conducted by the
domiciliary insurance department and as a result of the
findings of the examination, corrective orders may be
issued.
For companies with capital levels which are below 50% of
the basic RBC level (authorized control level) calculated
for that company, the domiciliary insurance commissioner
will have the authority to place the company into
conservatorship or liquidation.
For companies with capital levels which are below 35% of
the basic RBC level calculated for that company, the
domiciliary insurance commissioner will be required to
place the company into conservatorship or liquidation.
As of December 31, 1994 and 1993, based on the RBC formula, the
Company's total adjusted capital level was 344% and 245%,
respectively, of the basic RBC level.
NOTE 7: COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers who
are licensed to transact business within a state become members
of the state's life insurance guaranty association. These
associations have been established for the protection of
policyholders from loss (within specified limits) as a result of
the insolvency of an insurer. At the time an insolvency occurs,
the guaranty association assesses the remaining members of the
association an amount sufficient to satisfy the insolvent
insurer's policyholder obligations (within specified limits).
Based upon the public information available at this time,
management believes the Company has no material financial
obligations to state guaranty associations.
<PAGE>
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
<PAGE> 52
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
ML Life Insurance Company of New York's By-Laws provide, in Article VII,
Section 7.1 as follows:
Indemnification of Directors, Officers, Employees and Incorporators. To
the extent permitted by the law of the State of New York and subject to all
applicable requirements thereof:
a) any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator, or intestate, is or was a director, officer, employee or
incorporator of the Company shall be indemnified by the Company;
b) any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate serves or served any other organization in any
capacity at the request of the Company may be indemnified by the Company;
and
c) the related expenses of any such person in any other of said
categories may be advanced by the Company.
Any persons serving as an officer, director or trustee of a corporation,
trust, or other enterprise, including the Registrant, at the request of Merrill
Lynch are entitled to indemnification from Merrill Lynch, to the fullest extent
authorized or permitted by law, for liabilities with respect to actions taken or
omitted by such persons in any capacity in which such persons serve Merrill
Lynch or such other corporation, trust, or other enterprise. Any action
initiated by any such person for which indemnification is provided shall be
approved by the Board of Directors of Merrill Lynch prior to such initiation.
DIRECTORS' AND OFFICERS' INSURANCE
Merrill Lynch has purchased from Corporate Officers' and Directors'
Assurance Company directors' and officers' liability insurance policies which
cover, in addition to the Indemnification described above, liabilities for which
indemnification is not provided under the By-Laws. The Company will pay an
allocable portion of the insurance premium paid by Merrill Lynch with respect to
such insurance policies.
NEW YORK BUSINESS CORPORATION LAW
In addition, Sections 722, 723, and 724 of the New York Business
Corporation Law generally provide that a corporation has the power (and in some
instances the obligation) to indemnify a director or officer of the corporation,
or a person serving at the request of the corporation as a director or officer
of another corporation or other enterprise against any judgments, amounts paid
in settlement, and reasonably incurred expenses in a civil or criminal action or
proceeding if the director or officer acted in good faith in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation (or, in the case of a criminal action or proceeding, if he or she in
addition had no reasonable cause to believe that his or her conduct was
unlawful).
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") 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
II-1
<PAGE> 53
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.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company
Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the policies described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk and guaranteed
benefits risk charge is within the range of industry practice for
comparable flexible or scheduled contracts.
(3) Registrant has concluded that there is a reasonable likelihood
that the distribution financing arrangement of the Separate Account will
benefit the separate account and policyowners and will keep and make
available to the Commission on request a memorandum setting forth the basis
for this representation.
(4) The Separate Account will invest only in management investment
companies which have undertaken to have a board of directors, a majority of
whom are not interested persons of the company, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2)
above is based on an analysis of the mortality and expense risk and guaranteed
benefits risk charge contained in other variable life insurance contracts.
Registrant undertakes to keep and make available to the Commission on request
the documents used to support the representation in paragraph (2) above.
II-2
<PAGE> 54
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 81 pages.
Undertaking to file reports.
Rule 484 Undertaking.
Representations Pursuant to Rule 6e-3(T).
The signatures.
Written Consents of the Following Persons:
(a) Barry G. Skolnick, Esq.
(b) Joseph E. Crowne, F.S.A.
(c) Sutherland, Asbill & Brennan
(d) Deloitte & Touche LLP, Independent Auditors
The following exhibits:
<TABLE>
<S> <C> <C>
1.A. (1) Resolution of the Board of Directors of ML Life Insurance Company of New
York establishing the Separate Account (Incorporated by Reference to
Registrant's Form S-6 Registration No. 33-51702 Filed September 4, 1992)
(2) Not applicable
(3) (a) Distribution Agreement between ML Life Insurance Company of New York and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by
Reference to Registrant's Form S-6 Registration No. 33-61672 Filed April
26, 1993)
(b) Amended Sales Agreement between ML Life Insurance Company of New York and
Merrill Lynch Life Agency Inc. (Incorporated by Reference to Registrant's
Form S-6 Registration No. 33-61672 Filed April 26, 1993)
(c) Schedules of Sales Commissions (Incorporated by Reference to Registrant's
Form S-6 Registration No. 33-61672 Filed April 26, 1993)
(4) Undertaking of ML Life Insurance Company of New York pursuant to Rule
27d-2
(5) (a) (1) Flexible Premium Variable Universal Life Insurance Policy (Incorporated
by Reference to Registrant's Form S-6 Registration No. 33-61672 Filed
April 26, 1993)
(b) (1) Backdating Endorsement (Incorporated by Reference to Registrant's Form
S-6 Registration No. 33-61672 Filed April 26, 1993)
(2)(a) Additional Insurance Rider for Flexible Premium Variable Universal Life
Insurance Policy (Incorporated by Reference to Registrant's Form S-6
Registration No. 33-61672 Filed April 26, 1993)
(6) (a) Charter of ML Life Insurance Company of New York (Incorporated by
Reference to Registrant's Form S-6 Registration No. 33-51702 Filed
September 4, 1992)
(b) By-Laws of ML Life Insurance Company of New York (Incorporated by
Reference to Registrant's Form S-6 Registration No. 33-51702 Filed
September 4, 1992)
(7) Not applicable
(8) (a) Agreement between ML Life Insurance Company of New York and Merrill Lynch
Funds Distributor, Inc. (Incorporated by Reference to Registrant's Form
S-6 Registration No. 33-61672 Filed April 26, 1993)
(b) Agreement between ML Life Insurance Company of New York and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by Reference to
Registrant's Form S-6 Registration No. 33-61672 Filed April 26, 1993)
(c) Participation Agreement among Merrill Lynch Life Insurance Company, ML
Life Insurance Company of New York and Monarch Life Insurance Company
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 3
to Form S-6 Registration No. 33-61670 Filed April 27, 1994)
(d) Management Agreement between Royal Tandem Life Insurance Company and
Merrill Lynch Asset Management, Inc. (Incorporated by Reference to
Registrant's Form S-6 Registration No. 33-61672 Filed April 26, 1993)
</TABLE>
II-3
<PAGE> 55
<TABLE>
<S> <C>
(9) (a) Service Agreement between Tandem Financial Group, Inc. and Royal Tandem
Life Insurance Company (Incorporated by Reference to Registrant's Form
S-6 Registration No. 33-51702 Filed September 4, 1992)
(b) Service Agreement between ML Life Insurance Company of New York and
Merrill Lynch Life Insurance Company (Incorporated by Reference to
Registrant's Form S-6 Registration No. 33-61672 Filed April 26, 1993)
(10) (a) Variable Life Insurance Application (Incorporated by Reference to
Registrant's Form S-6 Registration No. 33-61672 Filed April 26, 1993)
(b) Application for Reinstatement (Incorporated by Reference to Registrant's
Form S-6 Registration No. 33-61672 Filed April 26, 1993)
(11) Memorandum describing ML Life Insurance Company of New York's Issuance,
Transfer and Redemption Procedures (Incorporated by Reference to
Registrant's Post- Effective Amendment No. 2 to Form S-6 Registration No.
33-61672 Filed March 1, 1994)
</TABLE>
2. See Exhibit 1.A.(5)
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the legality of
the securities being registered
4. Not applicable
5. Not applicable
6. Opinion and Consent of Joseph E. Crowne, F.S.A. as to actuarial
matters pertaining to the securities being registered
<TABLE>
<S> <C>
7. (a) Power of Attorney of Frederick J.C. Butler (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(b) Power of Attorney of Michael P. Cogswell
(c) Power of Attorney of Sandra K. Cox (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(d) Power of Attorney of Joseph E. Crowne (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(e) Power of Attorney of David E. Dunford (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(f) Power of Attorney of John C.R. Hele (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(g) Power of Attorney of Robert L. Israeloff (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(h) Power of Attorney of Allen N. Jones (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(i) Power of Attorney of Cynthia L. Kahn
(j) Power of Attorney of Robert A. King (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(k) Power of Attorney of Irving M. Pollack (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(l) Power of Attorney of Barry G. Skolnick (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
</TABLE>
II-4
<PAGE> 56
<TABLE>
<S> <C> <C>
(m) Power of Attorney of Anthony J. Vespa (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(n) Power of Attorney of William A. Wilde (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
8. (a) Written Consent of Barry G. Skolnick, Esq. (See Exhibit 3)
(b) Written Consent of Joseph E. Crowne, F.S.A. (See Exhibit 6)
(c) Written Consent of Sutherland, Asbill & Brennan
(d) Written Consent of Deloitte & Touche LLP, Independent Auditors
</TABLE>
II-5
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
ML of New York Variable Life Separate Account II, hereby certifies that this
Post-Effective Amendment No. 4 meets all of the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, and has
duly caused this Post-Effective Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Plainsboro and the
State of New Jersey, on the 25th day of April 1995.
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
(Registrant)
By: ML LIFE INSURANCE COMPANY OF NEW YORK
(Depositor)
<TABLE>
<S> <C> <C> <C>
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
------------------------------------ ------------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to the Registration Statement has been signed
below by the following persons in the capacities indicated on April 25, 1995.
<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
Joseph E. Crowne Treasurer
* Director, Senior Vice President, and
- ---------------------------------------- Chief Investment Officer
David M. Dunford
* Director and Senior Vice President
- ----------------------------------------
John C.R. Hele
* Director, Vice President and Senior
- ---------------------------------------- Counsel
Michael P. Cogswell
* Director
- ----------------------------------------
Frederick J.C. Butler
</TABLE>
II-6
<PAGE> 58
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ----------------------------------------
<S> <C>
* Director
- ----------------------------------------
Robert L. Israeloff
* Director
- ----------------------------------------
Allen N. Jones
* Director
- ----------------------------------------
Cynthia L. Kahn
* Director
- ----------------------------------------
Robert A. King
* Director
- ----------------------------------------
Irving M. Pollack
* Director
- ----------------------------------------
William A. Wilde
*By: /s/ BARRY G. SKOLNICK In his own capacity as Director, Senior
- ---------------------------------------- Vice President, and General Counsel and
Barry G. Skolnick as Attorney-In-Fact
</TABLE>
II-7
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<S> <C>
1.A. (4) Undertaking of ML Life Insurance Company of New York pursuant to Rule
27d-2
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the legality of the securities
being registered
6. Opinion and Consent of Joseph E. Crowne, F.S.A. as to actuarial matters pertaining to
the securities being registered
8. (c) Written Consent of Sutherland, Asbill & Brennan
(d) Written Consent of Deloitte & Touche LLP, Independent Auditors
</TABLE>
II-8
<PAGE> 1
UNDERTAKING OF ML LIFE INSURANCE COMPANY OF NEW YORK
PURSUANT TO RULE 27D-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 27d-2 and Rule 6e-3(T)(b)(13)(vi) under the Investment Company
Act of 1940, as amended, ML Life Insurance Company of New York makes the
following undertaking in connection with the Registration Statement on Form S-6
(File No. 33-61672) for certain flexible premium variable life insurance
contracts issued by ML Life Insurance Company of New York:
ML Life Insurance Company of New York undertakes to guarantee
the performance of all obligations of Merrill Lynch, Pierce,
Fenner and Smith Incorporated imposed by Section 27(d) or
Section 27(f) of the Investment Company Act of 1940, as amended
(the "1940 Act"), or Rule 27d-2 thereunder, to make refunds of
charges to owners of Contracts that are required by Section
27(d) or Section 27(f) of the 1940 Act or the condition of any
exemptions therefrom.
ML LIFE INSURANCE COMPANY OF NEW YORK
By: /s/ BARRY G. SKOLNICK
------------------------------------
Barry G. Skolnick
Senior Vice President and
General Counsel
<PAGE> 1
April 25, 1995
Board of Directors
ML Life Insurance Company of New York
100 Church Street, 11th Floor
New York, NY 10080-6511
To the Board of Directors:
In my capacity as General Counsel of ML Life Insurance Company of New York (the
"Company"), I have supervised the establishment of the ML of New York Variable
Life Separate Account II (the "Account"), by the Board of Directors of the
Company as a separate account for assets applicable to certain flexible premium
variable life insurance contracts (the "Contracts") issued by the Company
pursuant to the provisions of Section 4240 of the Insurance Laws of the State of
New York. Moreover, I have supervised the preparation of Post-Effective
Amendment No. 4 to the Registration Statement on Form S-6 (the "Registration
Statement") (File No. 33-61672) filed by the Company and the Account with the
Securities and Exchange Commission under the Securities Act of 1933, for the
registration of the Contracts to be issued with respect to the Account.
I have made such examination of the law and examined such corporate records and
such other documents as in my judgment are necessary and appropriate to enable
me to render the following opinion that:
1. The Company has been duly organized under the laws of the State of New
York and is a validly existing corporation.
2. The Contracts, when issued in accordance with the prospectus contained
in the aforesaid registration statement and upon compliance with applicable
local law, will be legal and binding obligations of the Company in
accordance with their terms.
3. The Account is duly created and validly existing as a separate account
pursuant to the aforesaid provisions of New York law.
4. The assets held in the Account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business the Company may conduct.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the caption "Legal Matters" in the
Prospectus contained in the Registration Statement.
Very truly yours,
/s/ BARRY G. SKOLNICK
Barry G. Skolnick
Senior Vice President and General
Counsel
<PAGE> 1
April 25, 1995
Board of Directors
ML Life Insurance Company of New York
100 Church Street, 11th Floor
New York, NY 10080-6511
Re: ML of New York Variable Life Separate Account II
To the Board of Directors:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 4 to the Registration Statement filed on Form S-6 (File No.
33-61672) which covers premiums received under certain flexible premium variable
life insurance contracts ("Contracts" or "Contract") issued by ML Life Insurance
Company of New York (the "Company").
The Prospectus included in the Registration Statement describes Contracts which
are issued by the Company. The Contract forms were reviewed under my direction,
and I am familiar with the Registration Statement and exhibits thereto. In my
opinion:
1. The "sales load," as defined in paragraph (c)(4) of Rule 6(e)-3(T) under
the Investment Company Act of 1940, will not exceed 9% of the sum of the
guideline annual premiums that would be paid during the period equal to the
lesser of 20 years or the anticipated joint life expectancy of the named
insured based on the 1980 Commissioners Standard Ordinary Smoker/ Nonsmoker
Mortality Table (or the 1980 Commissioners Standard Ordinary Aggregate
Mortality Table for ages 0-19). The sales load payments made in excess of
such sum will not exceed 9%. Sales load in excess of (1) 30% of payments
made which are less than or equal to one guideline annual premium; plus (2)
10% of payments greater than one but no greater than two guideline annual
premiums; plus (3) 9% of payments in excess of two guideline annual
premiums, will be refunded if the Contract is surrendered during the first
24 months after issue, added to the cash value so as to continue the
Contract in effect if debt exceeds the larger of the cash value and the
fixed base during the first 24 months after issue, and added to the cash
value in determining the variable insurance amount during the first 24
months after issue.
2. The illustrations of death benefits, investment base, net cash surrender
values, and cash values and accumulated premiums included in the
Registration Statement for the Contract and based on the assumptions stated
in the illustrations, are consistent with the provisions of the Contract.
The rate structure of the Contract has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustrations,
appear more favorable to a prospective purchaser of a Contract for the ages
and sexes shown, than to prospective purchasers of a Contract for other
ages and sex.
3. The table of illustrative cash value corridor factors included in the
"Death Benefit Proceeds" section is consistent with the provisions of the
Contract.
4. The information with respect to the Contract contained in (i) the
illustrations of the increase in guarantee period included in the
"Additional Payments" section of the Examples, (ii) the illustrations of a
decrease in guarantee period included in the "Partial Withdrawals" section
of the Examples and (iii) the illustrations of the changes in face amount
included in the "Changing the Death Benefit Option" section of the
Examples, based on the assumptions specified, are consistent with the
provisions of the Contract.
5. The charge for federal taxes that is imposed under the Contracts is
reasonable in relation to the Company's increased tax burden under Section
848 of the Internal Revenue Code of 1986, as amended, resulting from the
Company's receipt of such premiums. The cost to the Company of capital used
to satisfy its increased federal tax burden under Section 848 is, in
essence, the Company's targeted rate of return. The targeted rate of return
that is used in calculating the level
<PAGE> 2
of such charge is reasonable, and the factors taken into account by the
Company in determining such targeted rate of return are the appropriate
factors to consider in determining such targeted rate of return.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of my name relating to actuarial matters under the
heading "Experts" in the Prospectus.
Very truly yours,
/s/ JOSEPH E. CROWNE
Joseph E. Crowne, FSA
Senior Vice President and
Chief Financial Officer
2
<PAGE> 1
[Letterhead]
CONSENT OF SUTHERLAND, ASBILL & BRENNAN
We consent to the reference to our firm under the heading "Legal Matters" in the
prospectus included in Post-Effective Amendment No. 4 to the Registration
Statement on Form S-6 for certain variable universal life insurance contracts
issued through ML of New York Variable Life Separate Account II of ML Life
Insurance Company of New York (File No. 33-61672). In giving this consent, we do
not admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
/s/ Sutherland, Asbill & Brennan
SUTHERLAND, ASBILL & BRENNAN
Washington, D.C.
April 25, 1995
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 4 to Registration
Statement No. 33-61672 of ML of New York Variable Life Separate Account II on
Form S-6 of our reports on (i) ML Life Insurance Company of New York dated
February 27, 1995, and (ii) ML of New York Variable Life Separate Account II
dated February 8, 1995, appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 25, 1995
