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PROSPECTUS
MAY 1, 1996
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
FLEXIBLE PREMIUM JOINT AND LAST SURVIVOR 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 joint and last survivor 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
34 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., seven
mutual fund portfolios of the Merrill Lynch Variable Series Funds, Inc. and 17
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
lives of two insureds with proceeds payable upon the death of the last surviving
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 younger 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.
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TABLE OF CONTENTS
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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....................................................................... 7
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
Certain Risks of the Series Fund and Variable Series Funds.......................... 11
The Zero Trusts..................................................................... 11
ML of New York and MLPF&S........................................................... 12
FACTS ABOUT THE CONTRACT
Who May be Covered.................................................................. 12
Purchasing a Contract............................................................... 12
Additional Insurance Rider.......................................................... 13
Additional Payments................................................................. 14
Effect of Additional Payments....................................................... 14
Investment Base..................................................................... 15
Charges Deducted from the Investment Base........................................... 16
Contract Loading.................................................................... 16
Charges to the Separate Account..................................................... 17
Guarantee Period.................................................................... 18
Cash Value.......................................................................... 18
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...................................................... 24
Other Contract Provisions........................................................... 25
Income Plans........................................................................ 27
Group or Sponsored Arrangements..................................................... 28
Unisex Legal Considerations for Employers........................................... 28
Selling the Contracts............................................................... 28
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Tax Considerations.................................................................. 29
ML of New York's Income Taxes....................................................... 32
Reinsurance......................................................................... 32
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account.......................................................... 32
Changes Within the Account.......................................................... 33
Net Rate of Return for an Investment Division....................................... 33
The Series Fund and the Variable Series Funds....................................... 34
Charges to Series Fund Assets....................................................... 35
Charges to Variable Series Funds Assets............................................. 35
The Zero Trusts..................................................................... 36
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Net Cash Surrender Values and
Accumulated Payments............................................................. 37
EXAMPLES
Additional Payments................................................................. 43
Partial Withdrawals................................................................. 43
Changing the Death Benefit Option................................................... 44
MORE ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK
Directors and Executive Officers.................................................... 45
Services Arrangement................................................................ 46
State Regulation.................................................................... 47
Legal Proceedings................................................................... 47
Experts............................................................................. 47
Legal Matters....................................................................... 47
Registration Statements............................................................. 47
Financial Statements................................................................ 47
Financial Statements of ML of New York Variable Life Separate Account II............ S-1
Financial Statements of ML Life Insurance Company of New York....................... G-1
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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.
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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, for each insured, 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 younger 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 or 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.
issue date: is the date that the Contract is issued. The contestable and
suicide periods are measured from this date.
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.
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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.
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, for each insured, the insured's age as of his or her birthday
nearest the contract 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 younger insured at his or her
attained age.
SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACT
This flexible premium joint and last survivor 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 insureds
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
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not being withdrawn from a CMA account, ML of New York will send reminder
notices for such amounts beginning in the second contract year.
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 34 investment divisions in the Separate Account. (See
"Changing the Allocation" on page 15).
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"). Seven 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 17 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 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. Contract owners may wish to consider diversifying their investment
in the Contract by allocating investment base to two or more investment
divisions.
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
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Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
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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 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 either 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 29.
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 perform-
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ance 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 29.)
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 16.)
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 13).
- 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" 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
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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 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. New York insurance law provides that the
Separate Account's assets, to the extent of its reserves and liabilities, may
not be charged with liabilities arising out of any other business ML of New York
conducts.
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 34 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Seven invest in shares of
a specific portfolio of the Variable Series Funds. Seventeen 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 Series Fund 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 to obtain the highest level of
current income consistent with the protection of capital afforded 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 to provide as high a level of
current income as is believed to be consistent with prudent investment risk and
secondarily seeks the preservation of capital. In seeking to achieve these
objectives, the Portfolio invests at least 80% of the value of its assets in
debt securities which have a rating within the three highest grades of a major
rating agency.
High Yield Portfolio primarily seeks as high a level of current income as is
believed to be consistent with prudent management, and secondarily capital
appreciation when consistent with its primary objective. The Portfolio seeks to
achieve its investment objective, 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
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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.
Multiple Strategy Portfolio seeks a high total investment return consistent with
prudent risk through a fully managed investment policy utilizing equity
securities, 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"), which is indirectly owned and controlled by Merrill Lynch & Co.,
Inc. and is 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 35.)
THE VARIABLE SERIES FUNDS
The Variable Series Funds is registered with the Securities and Exchange
Commission as an open-end management investment company. Seven of its 18 mutual
fund portfolios are currently available through the Separate Account. The
investment objectives of the seven 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 provide shareholders with 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.
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, and
secondarily, income by investing in a diversified portfolio of equity
securities, of issuers located in countries other than the United States. Under
normal conditions, at least 65% of the Fund's net assets will be invested in
such equity securities.
International Bond Fund seeks a high total investment return by investing in an
international portfolio of non-U.S. debt instruments denominated in various
currencies and multi-national currency units.
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Developing Capital Markets Focus Fund seeks long-term capital appreciation by
investing in securities, principally equities, of issuers in countries having
smaller capital markets. For purposes of its investment objective, the Fund
considers countries having smaller capital markets to be all countries other
than the four countries having the largest equity market capitalizations.
Equity Growth Fund seeks to attain long-term growth of capital by investing in a
diversified portfolio of securities, primarily 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 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.)
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 invests, entails relatively greater risk of loss of
income or principal. In an effort to minimize risk, the High Yield Portfolio
will diversify holdings among many issuers. However, there can be no assurance
that diversification will protect the High Yield Portfolio 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 no
established 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.
THE ZERO TRUSTS
The Zero Trusts 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:
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- 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 1997 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 17.)
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 28.)
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 lives of two insureds provided the relationship among the applicant and the
insureds meets ML of New York's insurable interest requirements and provided
neither insured is over age 85 or under age 20. The insureds' issue ages will be
determined using their ages as of their birthdays nearest the contract date. The
insureds 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.
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 each of the
insureds. 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.
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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 29.
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" below.)
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 joint insureds will have different guarantee periods depending
on the age, sex and underwriting class of each of the insureds. For example,
older joint insureds will have a shorter guarantee period than younger joint
insureds in the same underwriting classes.
The maximum guarantee period is for the whole of life of the younger insured.
ADDITIONAL INSURANCE RIDER
The contract owner may purchase additional insurance coverage payable to the
beneficiary on the death of the last surviving 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 both insureds is provided, and at least
one 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.
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(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 younger 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 both insureds) 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 29.
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 29.) 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 younger 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 the contract owner
reminder notices. 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.
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;
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- reflect the 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 younger 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 43.
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 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 33.) 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.
Initial Investment Allocation and Preallocation. The initial payment less
contract loading will be invested 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 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 34 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 24.)
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
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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 insureds. It is based on the underwriting class, sex and
attained age of each 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
each 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 joint 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 13.
CONTRACT LOADING
Chargeable to each payment is an amount called the contract loading. The
contract loading equals 49.5% of each payment made until cumulative payments
have been made in an amount equal to two base premiums, 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
28. 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.
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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 32.) 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.
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 32.)
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" and "Charges to Variable Series Funds Assets" on page 35.)
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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 younger 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 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 both insureds
are 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 insureds'
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 insureds' attained ages and underwriting classes
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 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 younger insured, the guarantee period will be extended to the
whole of life of the younger 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).
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Cancelling the Contract. A contract owner may cancel the Contract at any time
while either 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 27. 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 either 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.
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.
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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 5.75% and the collateral
earnings on such amounts are 5.0%, 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 29.)
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.
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 43.
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 29.
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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 last surviving insured. Proof of death for both insureds must
be received. There is no death benefit payable at the first death.
If one of the insureds 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 last surviving 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 younger insured at his or her attained age.
The variable insurance amount will never be less than required by federal tax
law.
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 younger insured on the date of calculation. It decreases
daily as the younger 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.
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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 44.
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 insureds are 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 29.
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 last surviving 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 27.
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 last surviving
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 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.
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Exchanging the Contract. Contract owners may exchange their Contract at any
time for a joint and last survivor 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, insureds 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
ages, sexes, and underwriting classes of the insureds. 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 29.
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 33.) 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 one of the insureds, 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 last surviving 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 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.
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Changing the Owner. During either 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 29.)
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 29.
Naming Beneficiaries. ML of New York will pay the primary beneficiary the death
benefit proceeds of the Contract on the last surviving 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 last surviving 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 either 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
younger insured's 100th birthday. On the maturity date, ML of New York will pay
the net cash surrender value to the contract owner, provided either 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.
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.
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<PAGE> 25
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 15.)
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. 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.
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ML of New York will not contest the validity of a Contract after it has been in
effect during the lifetime of either 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 which requires evidence of insurability won't be
contested after the change has been in effect during the lifetime of either
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 either insured for
two years from the date of the change.
At the end of the second contract year, ML of New York will mail the contract
owner a notice requesting that he or she tell ML of New York if either insured
has died. Failure to tell ML of New York of the death of either insured will not
avoid a contest if ML of New York has grounds to do so, even if the Contract is
still in force.
Payment in Case of Suicide. If either 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.
Within 90 days of the death of the first insured, the owner may elect to apply
the amount of the limited benefit to a single life contract on the life of the
surviving insured, subject to the following provisions:
- The new contract's issue date will be the date of death of the deceased
insured.
- The insurance age will be surviving insured's attained age on the new
contract's issue date.
- No medical examination or other evidence of insurability will be required
for the new contract.
- The face amount of the new contract will be determined by applying the
limited benefit amount as a single payment under the new contract. The
face amount of the new contract may not exceed the face amount of this
Contract.
- A written request for a new contract must be received at the Service
Center.
- The new contract cannot involve any other life.
- Additional benefits or riders available on this Contract will be
available with the new contract only with ML of New York's consent.
- The new contract will be issued at ML of New York's then current rates
for the surviving insured's attained age, based on the underwriting class
assigned to the surviving insured when this Contract was underwritten.
The underwriting class for the new contract may differ from that of this
Contract.
- If the amount of insurance that would be purchased under the new contract
falls below the minimum insurance amounts currently allowed, this option
will not be available.
If either insured commits suicide within two years of the effective date of a
change in the death benefit option requiring evidence of insurability or of the
effective date of an increase in the 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.
Establishing Survivorship. If ML of New York is unable to determine which of
the insureds was the last survivor on the basis of the proofs of death provided,
it will consider insured No. 1 as designated in the application to be the last
surviving insured.
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
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<PAGE> 27
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.
Policy Split Rider. This rider allows the contract owner to split the Contract
into two new individual contracts upon divorce of the insureds or if certain
federal tax law changes occur. Certain conditions described in the rider,
including evidence of insurability of both insureds, must be met before the
rider's benefit can be exercised. 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. The Service Center can also
provide the contract owner with a prospectus for the individual contract. For a
discussion of the possible tax consequences of splitting the Contract, see "Tax
Considerations" on page 29.
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 either insured. If no plan has
been chosen when the last surviving 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.
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.
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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 VII 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
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 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.
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<PAGE> 29
The amounts paid under the distribution and sales agreements for the Separate
Account for the years ended December 31, 1995, December 31, 1994 and December
31, 1993 were $162,482, $140,551, and $143,207, 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 it is
reasonable to conclude that the Contract will meet the Section 7702 definition
of a life insurance contract, so 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" on page
30).
In the absence of final regulations or other pertinent interpretations of
Section 7702, however, there is necessarily some uncertainty as to whether a
Contract will meet the statutory life insurance contract definition,
particularly if it insures substandard risks. 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 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
29
<PAGE> 30
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 an 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 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 at any time will require retroactive retesting and will
probably 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 at any
time (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.
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<PAGE> 31
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. This rider permits a Contract to be split into
two other individual contracts upon the occurrence of a divorce of joint
insureds or certain changes in federal estate tax law. 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
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 individual contracts would be classified as modified
endowment contracts. (See "Tax Treatment of Loans and Other Distributions" on
page 30.) Before the contract owner exercises rights provided by the policy
split rider, 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
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 insureds 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
31
<PAGE> 32
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, should consult a
tax advisor regarding possible tax consequences associated with a Contract 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 16.)
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 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.
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<PAGE> 33
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 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.
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<PAGE> 34
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, it 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 and 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 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.
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
several insurance companies not affiliated with ML of New York or Merrill Lynch
& Co., Inc. to fund benefits under certain variable life insurance and variable
annuity contracts. Shares of each Fund of the Variable Series Funds may be made
available to the separate accounts of additional 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 and variable annuity
insurance separate accounts. It could also arise by reason of difference in
voting instructions from ML of New York's contract owners
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<PAGE> 35
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 commissions
and extraordinary expenses) 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.
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%, 1.00% and .75% of the
average daily net assets of the International Equity Focus Fund, the
International Bond Fund, the Developing Capital Markets Focus Fund, and the
Equity Growth 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 commissions and extraordinary expenses, 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
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<PAGE> 36
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 17 Zero Trusts:
<TABLE>
<CAPTION>
Targeted Rate of Return to
Maturity as
Zero Trust Maturity Date of April 17, 1996
- ----------- ------------------ --------------------------
<C> <S> <C>
1997 February 15, 1997 3.74%
1998 February 15, 1998 4.58%
1999 February 15, 1999 4.84%
2000 February 15, 2000 4.91%
2001 February 15, 2001 4.97%
2002 February 15, 2002 5.11%
2003 August 15, 2003 5.27%
2004 February 15, 2004 5.35%
2005 February 15, 2005 5.34%
2006 February 15, 2006 5.25%
2007 February 15, 2007 5.36%
2008 February 15. 2008 5.62%
2009 February 15, 2009 5.66%
2010 February 15, 2010 5.77%
2011 February 15, 2011 5.74%
2013 February 15, 2013 5.86%
2014 February 15, 2014 5.95%
</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.
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.
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<PAGE> 37
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, NET CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables on pages 39 through 42 demonstrate the way in which the Contract
works. The tables are based on the following ages, face amounts, payments and
guarantee periods and shows values based upon both current and maximum mortality
charges.
1. The illustration on page 39 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $39,890 through contract year 37, an initial face
amount of $1.5 million, an initial guarantee period of 7.5 years and
coverage under death benefit option 1. It assumes current mortality
charges.
2. The illustration on page 40 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $39,890 through contract year 37, an initial face
amount of $1.5 million, an initial guarantee period of 7.5 years and
coverage under death benefit option 1. It assumes maximum mortality
charges.
3. The illustration on page 41 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $141,410 through contract year 32, an initial face
amount of $1.5 million, an initial guarantee period of 14 years and
coverage under death benefit option 2. It assumes current mortality
charges.
4. The illustration on page 42 is for a Contract issued to a male age
65 and a female age 60 both in the standard non-smoker underwriting class
with annual payments of $141,410 through contract year 32, an initial face
amount of $1.5 million, an initial guarantee period of 14 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 1995 expenses (including monthly advisory fees)
for the Series Fund and the Variable Series Funds and the current trust charge.
This charge does not reflect expenses incurred by the Developing Capital Markets
Focus Fund of the Variable Series Funds in 1995, which were reimbursed to the
Variable Series Funds by MLAM. The reimbursements amounted to .11% of the
average daily net assets of this portfolio. (See "Charges to Variable Series
Funds Assets" on page 35.) 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.
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<PAGE> 38
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 insureds' ages, face amount and the payment amounts requested. The
illustration will also use current cost of insurance rates and will assume that
the proposed insureds are in a standard non-smoker underwriting class.
38
<PAGE> 39
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $39,890 FOR 37 YEARS
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 7.5 YEARS
DEATH BENEFIT OPTION 1
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)(7)
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................... $ 39,890 $ 41,885 $ 1,500,000 $ 1,500,000 $ 1,500,000
2................... 39,890 85,864 1,500,000 1,500,000 1,500,000
3................... 39,890 132,042 1,500,000 1,500,000 1,500,000
4................... 39,890 180,529 1,500,000 1,500,000 1,500,000
5................... 39,890 231,440 1,500,000 1,500,000 1,500,000
6................... 39,890 284,897 1,500,000 1,500,000 1,500,000
7................... 39,890 341,026 1,500,000 1,500,000 1,500,000
8................... 39,890 399,962 1,500,000 1,500,000 1,500,000
9................... 39,890 461,845 1,500,000 1,500,000 1,500,000
10................... 39,890 526,822 1,500,000 1,500,000 1,500,000
15................... 39,890 903,813 1,500,000 1,500,000 1,500,000
20................... 39,890 1,384,957 1,500,000 1,500,000 1,990,333
30................... 39,890 2,782,767 1,500,000 1,729,412 5,270,958
40................... 0 4,927,613 0 0 0
</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 INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
-------------------------------------------- --------------------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- --------------------- --------- ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1................... $ 19,602 $ 20,791 $ 21,980 $ 19,602 $ 20,791 $ 21,980
2................... 38,521 42,105 45,831 38,521 42,105 45,831
3................... 74,827 83,109 91,975 74,827 83,109 91,975
4................... 110,560 125,915 142,903 110,560 125,915 142,903
5................... 145,687 170,567 199,082 145,687 170,567 199,082
6................... 180,200 217,136 261,054 180,200 217,136 261,054
7................... 214,055 265,660 329,389 214,055 265,660 329,389
8................... 247,223 316,199 404,739 247,223 316,199 404,739
9................... 279,649 368,795 487,813 279,649 368,795 487,813
10................... 311,322 423,537 579,448 311,322 423,537 579,448
15................... 450,657 726,909 1,157,073 450,657 726,909 1,157,073
20................... 534,032 1,081,474 1,895,555 534,032 1,081,474 1,895,555
30................... 251,288 1,647,059 5,019,960 251,288 1,647,059 5,019,960
40................... 0 2,533,972 13,432,376 0 2,533,972 13,432,376
</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 younger insured
in contract years 21 and 14, 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.
(7) At contract year 40, on the contract anniversary nearest the younger
insured's 100th birthday, the Contract reaches its maturity date and a death
benefit is no longer provided. On the maturity date, the net cash surrender
value is paid to the contract owner, provided either insured is still
living.
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 INVESTMENT 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> 40
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $39,890 FOR 37 YEARS
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 7.5 YEARS
DEATH BENEFIT OPTION 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)(7)
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................... $ 39,890 $ 41,885 $ 1,500,000 $ 1,500,000 $ 1,500,000
2................... 39,890 85,864 1,500,000 1,500,000 1,500,000
3................... 39,890 132,042 1,500,000 1,500,000 1,500,000
4................... 39,890 180,529 1,500,000 1,500,000 1,500,000
5................... 39,890 231,440 1,500,000 1,500,000 1,500,000
6................... 39,890 284,897 1,500,000 1,500,000 1,500,000
7................... 39,890 341,026 1,500,000 1,500,000 1,500,000
8................... 39,890 399,962 1,500,000 1,500,000 1,500,000
9................... 39,890 461,845 1,500,000 1,500,000 1,500,000
10................... 39,890 526,822 1,500,000 1,500,000 1,500,000
15................... 39,890 903,813 1,500,000 1,500,000 1,500,000
20................... 39,890 1,384,957 1,500,000 1,500,000 1,778,775
30................... 39,890 2,782,767 1,500,000 1,500,000 4,,566,460
40................... 0 4,927,613 0 0 0
</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................... $ 19,602 $ 20,791 $ 21,980 $ 19,602 $ 20,791 $ 21,980
2................... 38,351 41,929 45,649 38,351 41,929 45,649
3................... 73,825 82,062 90,884 73,825 82,062 90,884
4................... 107,965 123,168 140,000 107,965 123,168 140,000
5................... 140,625 165,133 193,263 140,625 165,133 193,263
6................... 171,640 207,833 250,971 171,640 207,833 250,971
7................... 200,774 251,072 313,415 200,774 251,072 313,415
8................... 227,923 294,799 381,092 227,923 294,799 381,092
9................... 252,833 338,824 454,467 252,833 338,824 454,467
10................... 275,257 382,986 534,145 275,257 382,986 534,145
15................... 336,899 598,252 1,060,375 336,899 598,252 1,060,375
20................... 248,531 776,622 1,694,072 248,531 776,622 1,694,072
30................... 0 698,812 4,349,010 0 698,812 4,349,010
40................... 0 0 11,446,437 0 0 11,446,437
</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
15. 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.
(7) At contract year 40, on the contract anniversary nearest the younger
insured's 100th birthday, the Contract reaches its maturity date and a death
benefit is no longer provided. On the maturity date, the net cash surrender
value is paid to the contract owner, provided either insured is still
living.
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 INVESTMENT 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> 41
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $141,410 FOR 32 YEARS
FACE AMOUNT (1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 14 YEARS
DEATH BENEFIT OPTION 2
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)(7)
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................... $ 141,410 $ 148,481 $ 1,597,515 $ 1,603,405 $ 1,609,295
2................... 141,410 304,386 1,728,624 1,748,594 1,769,265
3................... 141,410 468,086 1,857,854 1,900,345 1,945,987
4................... 141,410 639,971 1,985,195 2,058,918 2,141,182
5................... 141,410 820,450 2,110,622 2,224,575 2,356,739
6................... 141,410 1,009,953 2,234,137 2,397,610 2,594,771
7................... 141,410 1,208,931 2,355,696 2,578,289 2,857,563
8................... 141,410 1,417,858 2,475,268 2,766,899 3,147,658
9................... 141,410 1,637,231 2,592,789 2,963,706 3,467,826
10................... 141,410 1,867,573 2,708,238 3,169,035 3,821,177
15................... 141,410 3,203,997 3,243,290 4,324,543 6,207,098
20................... 141,410 4,909,650 3,667,443 5,683,732 9,123,194
30................... 141,410 9,864,873 3,820,661 8,149,786 20,938,623
40................... 0 16,518,553 0 0 0
</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................... $ 97,515 $ 103,405 $ 109,295 $ 97,515 $ 103,405 $ 109,295
2................... 228,624 248,594 269,265 228,624 248,594 269,265
3................... 357,854 400,345 445,987 357,854 400,345 445,987
4................... 485,195 558,918 641,182 485,195 558,918 641,182
5................... 610,622 724,575 856,739 610,622 724,575 856,739
6................... 734,137 897,610 1,094,771 734,137 897,610 1,094,771
7................... 855,696 1,078,289 1,357,563 855,696 1,078,289 1,357,563
8................... 975,268 1,266,899 1,647,658 975,268 1,266,899 1,647,658
9................... 1,092,789 1,463,706 1,967,826 1,092,789 1,463,706 1,967,826
10................... 1,208,238 1,669,035 2,321,177 1,208,238 1,669,035 2,321,177
15................... 1,743,290 2,824,543 4,707,098 1,743,290 2,824,543 4,707,098
20................... 2,167,443 4,183,732 7,623,194 2,167,443 4,183,732 7,623,194
30................... 2,320,661 6,649,786 19,438,623 2,320,661 6,649,786 19,438,623
40................... 0 7,194,308 49,035,017 0 7,194,308 49,035,017
</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 younger insured
in contract years 26 and 15, 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.
(7) At contract year 40, on the contract anniversary nearest the younger
insured's 100th birthday, the Contract reaches its maturity date and a death
benefit is no longer provided. On the maturity date, the net cash surrender
value is paid to the contract owner, provided either insured is still
living.
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 INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATE 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> 42
JOINT INSUREDS: FEMALE ISSUE AGE 60/MALE ISSUE AGE 65
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $141,410 FOR 32 YEARS
FACE AMOUNT(1): $1.5 MILLION INITIAL GUARANTEE PERIOD: 14 YEARS
DEATH BENEFIT OPTION 2
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL
PAYMENTS END OF YEAR
MADE PLUS DEATH BENEFIT(3)(7)
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................... $ 141,410 $ 148,481 $ 1,597,515 $ 1,603,405 $ 1,609,295
2................... 141,410 304,386 1,728,450 1,748,413 1,769,078
3................... 141,410 468,086 1,856,805 1,899,245 1,944,837
4................... 141,410 639,971 1,982,429 2,055,974 2,138,054
5................... 141,410 820,450 2,105,134 2,218,633 2,350,318
6................... 141,410 1,009,953 2,224,696 2,387,220 2,583,352
7................... 141,410 1,208,931 2,340,800 2,561,634 2,838,953
8................... 141,410 1,417,858 2,453,267 2,741,907 3,119,255
9................... 141,410 1,637,231 2,561,735 2,927,879 3,426,415
10................... 141,410 1,867,573 2,665,841 3,119,379 3,762,814
15................... 141,410 3,203,997 3,102,595 4,146,829 5,979,061
20................... 141,410 4,909,650 3,325,304 5,220,449 8,695,842
30................... 141,410 9,864,873 2,526,498 6,755,337 18,149,089
40................... 0 16,518,553 0 0 0
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND END OF YEAR
NET CASH SURRENDERED 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................... $ 97,515 $ 103,405 $ 109,295 $ 97,515 $ 103,405 $ 109,295
2................... 228,450 248,413 269,078 228,450 248,413 269,078
3................... 356,805 399,245 444,837 356,805 399,245 444,837
4................... 482,429 555,974 638,054 482,429 555,974 638,054
5................... 605,134 718,633 850,318 605,134 718,633 850,318
6................... 724,696 887,220 1,083,352 724,696 887,220 1,083,352
7................... 840,800 1,061,634 1,338,953 840,800 1,061,634 1,338,953
8................... 953,267 1,241,907 1,619,255 953,267 1,241,907 1,619,255
9................... 1,061,735 1,427,879 1,926,415 1,061,735 1,427,879 1,926,415
10................... 1,165,841 1,619,379 2,262,814 1,165,841 1,619,379 2,262,814
15................... 1,602,595 2,646,829 4,479,061 1,602,595 2,646,829 4,479,061
20................... 1,825,304 3,720,449 7,195,842 1,825,304 3,720,449 7,195,842
30................... 1,026,498 5,255,337 16,649,089 1,026,498 5,255,337 16,649,089
40................... 0 0 34,276,202 0 0 34,276,202
</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 younger insured in
contract year 16. 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.
(7) At contract year 40, on the contract anniversary nearest the younger
insured's 100th birthday, the Contract reaches its maturity date and a death
benefit is no longer provided. On the maturity date, the net cash surrender
value is paid to the contract owner, provided either insured is still
living.
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 INVESTMENT 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.
42
<PAGE> 43
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 younger 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 $39,890 additional
payment received and accepted at the beginning of contract year ten. Example 2
shows the effect of a $79,780 additional payment received and accepted at the
beginning of contract year ten. Example 3 shows the effect of a $39,890
additional payment received and accepted at the beginning of contract year 11.
All three examples assume that death benefit option 1 has been elected, that
annual payments of $39,890 have been made up to the contract year reflected in
the example and that no other contract transactions have been made.
Female Issue Age 60/Male Issue Age 65
Initial payment plus annual payments of $39,890
Face Amount: $1.5 Million
Initial Guarantee Period: 7.5 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>
10 $ 39,890 1 year
<CAPTION>
EXAMPLE 2
- ---------------------------------
INCREASE
IN
CONTRACT ADDITIONAL GUARANTEE
YEAR PAYMENT PERIOD
- --- -------- ---------
<S> <C> <C>
10 $ 79,780 2 years
<CAPTION>
EXAMPLE 3
- ---------------------------------
INCREASE
IN
CONTRACT ADDITIONAL GUARANTEE
YEAR PAYMENT PERIOD
- --- -------- ---------
<S> <C> <C>
11 $ 39,890 .75 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.
43
<PAGE> 44
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 $30,000 and $60,000 taken at the beginning of contract year sixteen. Example
3 shows the effect on the guarantee period of a $60,000 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 $39,890 have been
made up to the contract year reflected in the example and that no other contract
transactions have been made.
Female Issue Age 60/Male Issue Age 65
Initial payment plus annual payments of $39,890
Face Amount: $1.5 Million
Initial Guarantee Period: 7.5 years
Death Benefit Option: 1
Based on Maximum Mortality Charges
<TABLE>
<CAPTION>
EXAMPLE 1
------------------------------------
DECREASE
IN
CONTRACT PARTIAL GUARANTEE
YEAR WITHDRAWAL PERIOD
--- -------- ---------
<S> <C> <C>
16 $ 30,000 .25 years
<CAPTION>
EXAMPLE 2
------------------------------------
DECREASE
IN
CONTRACT PARTIAL GUARANTEE
YEAR WITHDRAWAL PERIOD
--- -------- ---------
<S> <C> <C>
16 $ 60,000 .75 years
<CAPTION>
EXAMPLE 3
------------------------------------
DECREASE
IN
CONTRACT PARTIAL GUARANTEE
YEAR WITHDRAWAL PERIOD
--- -------- ---------
<S> <C> <C>
18 $ 60,000 .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.
44
<PAGE> 45
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 ML of
New York 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, Jr. Director, Senior Vice President, Chief
Financial Officer, Chief Actuary, and
Treasurer
Barry G. Skolnick Director, Senior Vice President, General
Counsel, and Secretary
David M. Dunford Director, Senior Vice President, and Chief
Investment Officer
Gail R. Farkas Director and Senior Vice President
Michael P. Cogswell Director, Vice President, and Senior Counsel
Francis X. Ervin, Jr. Director, Vice President, and Controller
Frederick J.C. Butler Director
Robert L. Israeloff Director
Cynthia L. Kahn Director
Robert A. King Director
Irving M. Pollack Director
William A. Wilde, III 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
45
<PAGE> 46
with insurance company subsidiaries of ML of New York's indirect parent, Merrill
Lynch & Co., Inc. The principal positions of ML of New York'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 MLPF&S. From February 1991 to
February 1994, he held the position of District Director and First Vice
President of MLPF&S. Prior to February 1991, he held the position of Senior
Resident Vice President of MLPF&S.
Mr. Crowne joined ML of New York in June 1991. Prior to June 1991, he was a
Principal with Coopers & Lybrand.
Mr. Skolnick joined ML of New York in November 1989. Since May 1992, he has held
the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and First
Vice President of MLPF&S. 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.
Ms. Farkas joined ML of New York in August 1995. Prior to August 1995, she held
the position of Director of Market Planning of MLPF&S.
Mr. Cogswell has been with ML of New York since November 1990.
Mr. Ervin joined ML of New York in June 1994. He joined Merrill Lynch & Co.,
Inc. in February 1992. Prior to February 1992, he held the position of Audit
Manager of Coopers & Lybrand.
Mr. Butler joined ML of New York in April 1991. Prior to April 1991, he served
as Managing Director of the Investment Banking Division of Merrill Lynch & Co.,
Inc.
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.
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. Prior to
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. Since 1985, he has been a
Director and Senior Vice President of Merrill Lynch Life Agency, Inc.
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 MLIG. 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.
SERVICES ARRANGEMENT
ML of New York and 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 to 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 $4.4 million during 1995.
46
<PAGE> 47
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 MLPF&S
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 MLPF&S.
EXPERTS
The financial statements of ML of New York as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995 and of the
Separate Account as of December 31, 1995 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, Jr., 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 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> 48
<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, 1995 and the related
statements of operations 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 and unit investment trust securities owned at
December 31, 1995, by correspondence with their respective
custodians. 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, 1995 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, 1996
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment in Merrill Lynch Series Fund, Inc. (Note 1):
Money Reserve Portfolio $ 1,800,308 1,800,308 $ 1,800,308
Intermediate Government Bond Portfolio 167,738 15,254 174,044
Long-Term Corporate Bond Portfolio 87,176 7,753 93,191
Capital Stock Portfolio 664,863 30,089 718,514
Growth Stock Portfolio 929,684 44,136 1,061,920
Multiple Strategy Portfolio 1,739,149 103,805 1,789,604
High Yield Portfolio 178,144 19,733 177,396
Natural Resources Portfolio 122,109 15,710 128,351
Global Strategy Portfolio 2,644,772 177,959 2,713,875
Balanced Portfolio 313,980 22,684 337,083
----------------- -----------------
8,647,923 8,994,286
----------------- -----------------
Investment in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Global Utility Focus Fund 14,868 1,403 15,848
International Equity Focus Fund 325,523 30,551 337,890
World Income Focus Fund 5,436 565 5,536
Basic Value Focus Fund 695,074 57,095 747,946
International Bond Fund 7,294 733 7,706
Developing Capital Markets Focus Fund 324,849 35,258 328,604
----------------- -----------------
1,373,044 1,443,530
----------------- -----------------
Investment in Unit Investment Trusts (Note 1):
Stripped ("Zero") U.S. Treasury Securities, Series A through K:
1996 Trust 4,153 4,460 4,437
1997 Trust 4,166 4,730 4,485
1998 Trust 29,540 34,475 30,984
1999 Trust 4,100 5,334 4,541
2000 Trust 62,320 84,036 67,887
2003 Trust 32,059 58,324 38,546
2004 Trust 19,999 34,491 22,067
2005 Trust 19,310 39,305 23,881
2009 Trust 6,177 16,093 7,580
2010 Trust 18,638 57,022 24,955
2013 Trust 2,575 9,199 3,312
----------------- -----------------
203,037 232,675
----------------- -----------------
Total Assets $ 10,224,004 10,670,491
================= -----------------
LIABILITIES
Payable to Merrill Lynch Series Fund, Inc. 10,100
Payable to Merrill Lynch Variable Series Funds, Inc. 3,670
Payable to ML Life Insurance Company of New York 418,772
-----------------
Total Liabilities 432,542
-----------------
Net Assets $ 10,237,949
=================
</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 OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 423,802 $ 268,953 $ 32,519
Mortality and Expense Charges (Note 3) (69,677) (39,147) (11,042)
Transaction Charges (Note 4) (512) (139) (45)
----------------- ----------------- -----------------
Net Investment Income 353,613 229,667 21,432
----------------- ----------------- -----------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (31,049) (14,386) 3,446
Net Unrealized Gains (Losses) 678,554 (356,936) 124,757
----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 647,505 (371,322) 128,203
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,001,118 (141,655) 149,635
----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 3,597,850 2,992,673 2,646,293
Transfers of Policy Loading, Net (Note 3) 259,576 242,105 203,968
Transfers Due to Deaths (4,554) (4,709) 0
Transfers Due to Other Terminations (238,972) (42,335) (470)
Transfers Due to Policy Loans (38,631) (26,381) (2,977)
Transfers of Cost of Insurance (163,287) (142,930) (53,905)
Transfers of Loan Processing Charges (916) (180) (8)
----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Principal Transactions 3,411,066 3,018,243 2,792,901
----------------- ----------------- -----------------
Increase in Net Assets 4,412,184 2,876,588 2,942,536
Net Assets Beginning Balance 5,825,765 2,949,177 6,641
----------------- ----------------- -----------------
Net Assets Ending Balance $ 10,237,949 $ 5,825,765 $ 2,949,177
================= ================= =================
</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 1 - 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
to support the operations with respect to certain
variable life insurance contracts ("Contracts"). The
Account is governed by New York State Insurance Law. ML
of New York is an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("Merrill"). The Account is
registered as a unit investment trust under the
Investment Company Act of 1940 and consists of thirty-
four investment divisions (thirty-five 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"), an indirect subsidiary of Merrill, 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. Eighteen of the divisions (nineteen 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 ("Zero
Trusts"). Each trust of the Zero Trusts 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 assets of the Account are registered in the name 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 accumulated in the Account
provides the basis for the periodic determination of
the amount of increased or decreased benefits under the
Contracts.
The net assets may not be less than the amount required
under New York State insurance law to provide for death
benefits (without regard to the minimum death benefit
guarantee) and other Contract benefits.
To facilitate comparisons with the current year,
certain amounts in the prior years have been
reclassified.
Note 2 - The following is a summary of significant
accounting policies of the Account:
Investments in the divisions are included in the
statement of net assets at the net asset value of the
respective Series Fund, Variable Series Funds and Zero
Trusts shares held.
Dividend income 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 such tax 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 3). Charges for state and local taxes, if any,
attributable to the Account may also be made.
Note 3 - 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, the cost of providing life insurance
coverage for the insureds will be deducted on the dates
specified by the Contract. 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 4 - ML of New York pays all transaction charges to
Merrill Lynch, Pierce, Fenner & Smith Inc., a
subsidiary of Merrill and sponsor of the unit
investment trusts, on the sale of Series A through K
Unit Investment Trusts units to the Account. ML of New
York 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 OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 423,802 $ 75,573 $ 6,717 $ 5,678
Mortality and Expense Charges (69,677) (10,765) (882) (711)
Transaction Charges (512) 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 353,613 64,808 5,835 4,967
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) (31,049) 0 (3,021) (1,867)
Net Unrealized Gains 678,554 0 12,060 11,165
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 647,505 0 9,039 9,298
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 1,001,118 64,808 14,874 14,265
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 3,597,850 2,459,374 23,606 17,779
Transfers of Policy Loading, Net 259,576 232,646 727 264
Transfers Due to Deaths (4,554) 0 0 0
Transfers Due to Other Terminations (238,972) (34,843) (2,594) (2,669)
Transfers Due to Policy Loans (38,631) (3,399) 0 0
Transfers of Cost of Insurance (163,287) (21,503) (1,898) (2,082)
Transfers of Loan Processing Charges (916) (67) (6) (132)
Transfers Among Investment Divisions 0 (2,365,548) 50,888 5,396
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 3,411,066 266,660 70,723 18,556
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 4,412,184 331,468 85,597 32,821
Net Assets Beginning Balance 5,825,765 1,038,349 88,400 60,341
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 10,237,949 $ 1,369,817 $ 173,997 $ 93,162
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 32,978 $ 31,715 $ 121,523 $ 15,804
Mortality and Expense Charges (4,909) (6,139) (13,244) (1,394)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 28,069 25,576 108,279 14,410
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) (5,071) (5,479) (15,281) (1,905)
Net Unrealized Gains 74,124 175,202 126,014 8,743
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 69,053 169,723 110,733 6,838
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 97,122 195,299 219,012 21,248
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 114,670 118,193 159,175 25,566
Transfers of Policy Loading, Net 3,765 3,650 (2,509) 501
Transfers Due to Deaths 0 0 (2,252) 0
Transfers Due to Other Terminations (10,645) (3,826) (68,092) (7,461)
Transfers Due to Policy Loans (3,841) (5,879) (15,000) 0
Transfers of Cost of Insurance (12,143) (12,609) (29,367) (2,333)
Transfers of Loan Processing Charges (52) (161) (119) (6)
Transfers Among Investment Divisions 162,101 344,527 299,844 24,577
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 253,855 443,895 341,680 40,844
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 350,977 639,194 560,692 62,092
Net Assets Beginning Balance 367,388 422,518 1,228,523 115,247
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 718,365 $ 1,061,712 $ 1,789,215 $ 177,339
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Global
Natural Global Utility
Resources Strategy Balanced Focus
Portfolio Portfolio Portfolio Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 1,883 $ 105,576 $ 12,771 $ 819
Mortality and Expense Charges (967) (20,960) (2,089) (139)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 916 84,616 10,682 680
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) 287 10,745 (1,046) 1,225
Net Unrealized Gains 9,187 116,873 29,915 1,119
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 9,474 127,618 28,869 2,344
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 10,390 212,234 39,551 3,024
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 22,453 420,392 64,595 1,973
Transfers of Policy Loading, Net 545 9,765 2,652 23
Transfers Due to Deaths 0 (2,302) 0 0
Transfers Due to Other Terminations (23) (95,638) (6,177) 25
Transfers Due to Policy Loans (2,534) (7,978) 0 0
Transfers of Cost of Insurance (1,508) (52,742) (6,217) (255)
Transfers of Loan Processing Charges (19) (251) (13) (1)
Transfers Among Investment Divisions 12,859 315,736 109,076 7,691
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 31,773 586,982 163,916 9,456
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 42,163 799,216 203,467 12,480
Net Assets Beginning Balance 86,161 1,914,068 133,538 3,355
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 128,324 $ 2,713,284 $ 337,005 $ 15,835
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
International World Basic
Equity Income Value International
Focus Focus Focus Bond
Fund Fund Fund Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 4,480 $ 250 $ 6,840 $ 290
Mortality and Expense Charges (1,684) (23) (2,668) (33)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 2,796 227 4,172 257
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) (3,036) 0 997 16
Net Unrealized Gains 16,069 135 53,427 412
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 13,033 135 54,424 428
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 15,829 362 58,596 685
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 49,049 4,080 44,182 0
Transfers of Policy Loading, Net 2,391 176 2,304 (18)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (4,854) (2) (379) (4)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (5,887) (90) (5,950) (214)
Transfers of Loan Processing Charges (14) 0 (34) 0
Transfers Among Investment Divisions 165,264 14 554,331 7,252
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 205,949 4,178 594,454 7,016
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 221,778 4,540 653,050 7,701
Net Assets Beginning Balance 116,023 981 94,722 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 337,801 $ 5,521 $ 747,772 $ 7,701
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Developing
Capital
Markets Focus 1995 1996 1997
Fund Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 905 $ 0 $ 0 $ 0
Mortality and Expense Charges (1,720) 0 (32) (32)
Transaction Charges 0 0 (12) (12)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (815) 0 (44) (44)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) (9,973) 0 9 5
Net Unrealized Gains 13,085 0 242 339
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 3,112 0 251 344
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 2,297 0 207 300
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 38,689 0 1,432 1,432
Transfers of Policy Loading, Net 898 0 54 54
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (1,784) (2) (1) (1)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (4,791) 0 (137) (137)
Transfers of Loan Processing Charges (32) 0 0 0
Transfers Among Investment Divisions 193,264 (21) 23 4
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 226,244 (23) 1,371 1,352
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 228,541 (23) 1,578 1,652
Net Assets Beginning Balance 99,982 23 2,870 2,824
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 328,523 $ 0 $ 4,448 $ 4,476
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1998 1999 2000 2003
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (122) (32) (365) (255)
Transaction Charges (47) (12) (138) (97)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (169) (44) (503) (352)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) 21 4 27 140
Net Unrealized Gains 1,559 507 6,514 6,488
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 1,580 511 6,541 6,628
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 1,411 467 6,038 6,276
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,366 1,430 11,494 3,472
Transfers of Policy Loading, Net 76 54 402 40
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (13) (1) (21) (18)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (338) (136) (1,032) (514)
Transfers of Loan Processing Charges (1) 0 (3) (2)
Transfers Among Investment Divisions 20,133 5 25,134 29,265
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 22,223 1,352 35,974 32,243
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 23,634 1,819 42,012 38,519
Net Assets Beginning Balance 7,334 2,713 25,841 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 30,968 $ 4,532 $ 67,853 $ 38,519
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
2004 2005 2009 2010
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (84) (180) (61) (167)
Transaction Charges (32) (68) (23) (63)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (116) (248) (84) (230)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) 8 959 1,105 82
Net Unrealized Gains 2,067 4,690 1,392 6,317
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains 2,075 5,649 2,497 6,399
----------------- ----------------- ----------------- -----------------
Increase in Net Assets
Resulting from Operations 1,959 5,401 2,413 6,169
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 6,368 5,039 0
Transfers of Policy Loading, Net 54 495 502 25
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (11) (7) (1) 71
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (161) (823) (159) (213)
Transfers of Loan Processing Charges (1) (1) 0 (1)
Transfers Among Investment Divisions 20,220 4,564 (5,499) 18,898
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 20,101 10,596 (118) 18,780
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 22,060 15,997 2,295 24,949
Net Assets Beginning Balance 0 7,865 5,304 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 22,060 $ 23,862 $ 7,599 $ 24,949
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Divisions Investing In
----------------------
2013
Trust
-----------------
<S> <C>
Investment Income (Loss):
Reinvested Dividends $ 0
Mortality and Expense Charges (20)
Transaction Charges (8)
-----------------
Net Investment Income (Loss) (28)
-----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) 0
Net Unrealized Gains 909
-----------------
Net Realized and Unrealized Gains 909
-----------------
Increase in Net Assets
Resulting from Operations 881
-----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,041
Transfers of Policy Loading, Net 40
Transfers Due to Deaths 0
Transfers Due to Other Terminations (1)
Transfers Due to Policy Loans 0
Transfers of Cost of Insurance (48)
Transfers of Loan Processing Charges 0
Transfers Among Investment Divisions 2
-----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,034
-----------------
Increase (Decrease) in Net Assets 1,915
Net Assets Beginning Balance 1,395
-----------------
Net Assets Ending Balance $ 3,310
=================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 268,953 $ 41,342 $ 4,966 $ 5,571
Mortality and Expense Charges (39,147) (7,682) (579) (500)
Transaction Charges (139) 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 229,667 33,660 4,387 5,071
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) (14,386) 0 (1,374) (2,463)
Net Unrealized Gains (Losses) (356,936) 0 (5,684) (5,516)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (371,322) 0 (7,058) (7,979)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (141,655) 33,660 (2,671) (2,908)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,992,673 2,182,917 16,259 14,303
Transfers of Policy Loading, Net 242,105 204,854 838 297
Transfers Due to Deaths (4,709) (4,709) 0 0
Transfers Due to Other Terminations (42,335) (19,061) (47) (34)
Transfers Due to Policy Loans (26,381) (3,291) 0 (8,090)
Transfers of Cost of Insurance (142,930) (11,687) (1,890) (1,766)
Transfers of Loan Processing Charges (180) (61) (2) (1)
Transfers Among Investment Divisions 0 (2,135,609) 57,882 15,300
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 3,018,243 213,353 73,040 20,009
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 2,876,588 247,013 70,369 17,101
Net Assets Beginning Balance 2,949,177 791,336 18,031 43,240
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 5,825,765 $ 1,038,349 $ 88,400 $ 60,341
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 22,713 $ 44,060 $ 91,638 $ 10,086
Mortality and Expense Charges (2,624) (3,093) (8,738) (858)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 20,089 40,967 82,900 9,228
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) (193) (4,489) (8,962) (113)
Net Unrealized Gains (Losses) (36,308) (53,393) (122,822) (11,295)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (36,501) (57,882) (131,784) (11,408)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (16,412) (16,915) (48,884) (2,180)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 87,258 72,918 141,921 19,063
Transfers of Policy Loading, Net 3,860 2,341 6,369 899
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (3,606) (5,552) (694) (62)
Transfers Due to Policy Loans 0 0 (7,343) 0
Transfers of Cost of Insurance (12,541) (11,943) (30,302) (2,517)
Transfers of Loan Processing Charges (9) (11) (30) (3)
Transfers Among Investment Divisions 114,987 115,653 557,800 31,203
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 189,949 173,406 667,721 48,583
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 173,537 156,491 618,837 46,403
Net Assets Beginning Balance 193,851 266,027 609,686 68,844
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 367,388 $ 422,518 $ 1,228,523 $ 115,247
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Global
Natural Global Utility
Resources Strategy Balanced Focus
Portfolio Portfolio Portfolio Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 881 $ 40,661 $ 6,867 $ 48
Mortality and Expense Charges (515) (12,743) (945) (9)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 366 27,918 5,922 39
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) (1,133) 6,797 (2,182) 1
Net Unrealized Gains (Losses) (1,787) (96,994) (8,078) (139)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (2,920) (90,197) (10,260) (138)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (2,554) (62,279) (4,338) (99)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 15,585 322,623 52,080 1,574
Transfers of Policy Loading, Net 459 16,489 2,418 63
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (76) (6,534) (5,452) (1)
Transfers Due to Policy Loans 0 (7,657) 0 0
Transfers of Cost of Insurance (1,820) (55,334) (6,317) (141)
Transfers of Loan Processing Charges (2) (47) (4) 0
Transfers Among Investment Divisions 35,939 978,339 (64,303) 1,959
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 50,085 1,247,879 (21,578) 3,454
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 47,531 1,185,600 (25,916) 3,355
Net Assets Beginning Balance 38,630 728,468 159,454 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 86,161 $ 1,914,068 $ 133,538 $ 3,355
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
International World Basic Developing
Equity Income Value Capital Markets
Focus Focus Focus Focus
Fund Fund Fund Fund
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 36 $ 37 $ 47 $ 0
Mortality and Expense Charges (178) (2) (144) (170)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (142) 35 (97) (170)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) 25 0 (15) 15
Net Unrealized Gains (Losses) (3,703) (34) (555) (9,329)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (3,678) (34) (570) (9,314)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (3,820) 1 (667) (9,484)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 17,941 955 9,863 18,358
Transfers of Policy Loading, Net 954 43 584 891
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (452) 0 (47) (685)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (1,772) (20) (679) (1,570)
Transfers of Loan Processing Charges (3) 0 (3) (3)
Transfers Among Investment Divisions 103,175 2 85,671 92,475
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 119,843 980 95,389 109,466
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 116,023 981 94,722 99,982
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 116,023 $ 981 $ 94,722 $ 99,982
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1995 1996 1997 1998
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (12) (19) (18) (45)
Transaction Charges (5) (7) (7) (17)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (17) (26) (25) (62)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) 30 12 (6) (5)
Net Unrealized Gains (Losses) (11) 13 (24) (124)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 19 25 (30) (129)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 2 (1) (55) (191)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 1,466 1,448 3,740
Transfers of Policy Loading, Net (8) 62 61 158
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 0 (1) (1) (4)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (61) (182) (181) (328)
Transfers of Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions (1,638) (491) (469) 1,037
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,707) 854 858 4,603
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets (1,705) 853 803 4,412
Net Assets Beginning Balance 1,728 2,017 2,021 2,922
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 23 $ 2,870 $ 2,824 $ 7,334
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1999 2000 2005 2009
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (18) (190) (36) (19)
Transaction Charges (7) (72) (13) (7)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (25) (262) (49) (26)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) (2) (317) (18) (9)
Net Unrealized Gains (Losses) (71) (812) (150) 12
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (73) (1,129) (168) 3
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (98) (1,391) (217) (23)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,414 9,351 1,275 0
Transfers of Policy Loading, Net 60 347 54 0
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (1) (16) (4) (3)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (178) (1,369) (193) (75)
Transfers of Loan Processing Charges 0 (1) 0 0
Transfers Among Investment Divisions 487 (202) 5,464 5,405
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,782 8,110 6,596 5,327
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets 1,684 6,719 6,379 5,304
Net Assets Beginning Balance 1,029 19,122 1,486 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,713 $ 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 OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------
2013
Trust
-----------------
<S> <C>
Investment Income (Loss):
Reinvested Dividends $ 0
Mortality and Expense Charges (10)
Transaction Charges (4)
-----------------
Net Investment Income (Loss) (14)
-----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains (Losses) 15
Net Unrealized Gains (Losses) (132)
-----------------
Net Realized and Unrealized Gains (Losses) (117)
-----------------
Increase (Decrease) in Net Assets
Resulting from Operations (131)
-----------------
Changes from Principal Transactions:
Transfers of Net Premiums 361
Transfers of Policy Loading, Net 12
Transfers Due to Deaths 0
Transfers Due to Other Terminations (2)
Transfers Due to Policy Loans 0
Transfers of Cost of Insurance (64)
Transfers of Loan Processing Charges 0
Transfers Among Investment Divisions (66)
-----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 241
-----------------
Increase (Decrease) in Net Assets 110
Net Assets Beginning Balance 1,285
-----------------
Net Assets Ending Balance $ 1,395
=================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------
Intermediate Long-Term
Total Money Government Corporate
Separate Reserve Bond Bond
Account Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 32,519 $ 17,196 $ 504 $ 1,936
Mortality and Expense Charges (11,042) (3,568) (79) (275)
Transaction Charges (45) 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 21,432 13,628 425 1,661
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains 3,446 0 8 45
Net Unrealized Gains (Losses) 124,757 0 (73) 366
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 128,203 0 (65) 411
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 149,635 13,628 360 2,072
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,646,293 2,584,685 0 0
Transfers of Policy Loading, Net 203,968 200,287 6 14
Transfers Due to Other Terminations (470) (362) (6) (15)
Transfers Due to Policy Loans (2,977) (2,977) 0 0
Transfers of Cost of Insurance (53,905) (18,610) (362) (384)
Transfers of Loan Processing Charges (8) (8) 0 0
Transfers Among Investment Divisions 0 (1,985,375) 18,033 41,553
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 2,792,901 777,640 17,671 41,168
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 2,942,536 791,268 18,031 43,240
Net Assets Beginning Balance 6,641 68 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 2,949,177 $ 791,336 $ 18,031 $ 43,240
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Capital Growth Multiple High
Stock Stock Strategy Yield
Portfolio Portfolio Portfolio Portfolio
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 387 $ 430 $ 4,342 $ 3,007
Mortality and Expense Charges (638) (527) (2,200) (311)
Transaction Charges 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (251) (97) 2,142 2,696
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains 295 99 352 77
Net Unrealized Gains (Losses) 15,835 10,427 47,151 1,804
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 16,130 10,526 47,503 1,881
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 15,879 10,429 49,645 4,577
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,537 0 5,882 0
Transfers of Policy Loading, Net (58) 84 715 22
Transfers Due to Other Terminations 185 160 (150) (13)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (3,323) (3,354) (10,483) (975)
Transfers of Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions 179,631 258,708 557,504 65,233
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 177,972 255,598 553,468 64,267
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 193,851 266,027 603,113 68,844
Net Assets Beginning Balance 0 0 6,573 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 193,851 $ 266,027 $ 609,686 $ 68,844
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
Natural Global
Resources Strategy Balanced 1993
Portfolio Portfolio Portfolio Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 167 $ 4,382 $ 168 $ 0
Mortality and Expense Charges (158) (2,690) (475) (9)
Transaction Charges 0 0 0 (4)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) 9 1,692 (307) (13)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains 46 1,775 85 38
Net Unrealized Gains (Losses) (1,158) 49,225 1,266 0
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) (1,112) 51,000 1,351 38
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations (1,103) 52,692 1,044 25
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 1,643 0 4,775
Transfers of Policy Loading, Net 12 348 50 225
Transfers Due to Other Terminations (12) (206) (50) 0
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (527) (11,482) (3,140) (98)
Transfers of Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions 40,260 685,473 161,550 (4,927)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 39,733 675,776 158,410 (25)
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 38,630 728,468 159,454 0
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 38,630 $ 728,468 $ 159,454 $ 0
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1995 1996 1997 1998
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (1) (6) (8) (8)
Transaction Charges 0 (2) (3) (3)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (1) (8) (11) (11)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains 0 1 97 21
Net Unrealized Gains (Losses) 9 29 5 10
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 9 30 102 31
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 8 22 91 20
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,671 1,433 5,348 3,820
Transfers of Policy Loading, Net 79 68 253 181
Transfers Due to Other Terminations (1) 11 (1) (1)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (30) (55) (55) (97)
Transfers of Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions 1 538 (3,615) (1,001)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,720 1,995 1,930 2,902
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 1,728 2,017 2,021 2,922
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,728 $ 2,017 $ 2,021 $ 2,922
================= ================= ================= =================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------
1999 2000 2005 2013
Trust Trust Trust Trust
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (6) (74) (6) (3)
Transaction Charges (2) (28) (2) (1)
----------------- ----------------- ----------------- -----------------
Net Investment Income (Loss) (8) (102) (8) (4)
----------------- ----------------- ----------------- -----------------
Realized and Unrealized Gain (Losses):
Net Realized Gains 47 458 2 0
Net Unrealized Gains (Losses) 5 (135) 31 (40)
----------------- ----------------- ----------------- -----------------
Net Realized and Unrealized Gains (Losses) 52 323 33 (40)
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Operations 44 221 25 (44)
----------------- ----------------- ----------------- -----------------
Changes from Principal Transactions:
Transfers of Net Premiums 2,388 33,111 0 0
Transfers of Policy Loading, Net 113 1,569 0 0
Transfers Due to Other Terminations 0 (9) 0 0
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (50) (814) (41) (25)
Transfers of Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions (1,466) (14,956) 1,502 1,354
----------------- ----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 985 18,901 1,461 1,329
----------------- ----------------- ----------------- -----------------
Increase in Net Assets 1,029 19,122 1,486 1,285
Net Assets Beginning Balance 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net Assets Ending Balance $ 1,029 $ 19,122 $ 1,486 $ 1,285
================= ================= ================= =================
</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, 1995 and 1994 and the related statements of earnings,
stockholder's equity and cash flows for each of the three years
in the period ended December 31, 1995. 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, 1995 and 1994 and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted
accounting principles.
/s/Deloitte & Touche LLP
February 26, 1996
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
=======================================================================
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities available for sale, at estimated fair
value
(amortized cost: 1995 - $295,403; 1994 - $297,551) $ 307,596 $ 286,078
Equity securities available for sale, at estimated fair value
(cost: 1995 - $3,017; 1994 - $3,987) 3,534 4,301
Mortgage loans on real estate 4,032 7,941
Policy loans on insurance contracts 82,073 77,827
------------ ------------
Total Investments 397,235 376,147
CASH AND CASH EQUIVALENTS 17,387 20,915
ACCRUED INVESTMENT INCOME 6,603 7,354
DEFERRED POLICY ACQUISITION COSTS 30,922 31,031
FEDERAL INCOME TAXES - DEFERRED 3,622 9,749
REINSURANCE RECEIVABLES 493 605
OTHER ASSETS 2,653 3,265
SEPARATE ACCOUNTS ASSETS 544,432 471,656
------------ ------------
TOTAL ASSETS $ 1,003,347 $ 920,722
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
=======================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1994
------------ ------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 337,137 $ 340,882
Claims and claims settlement expenses 2,901 4,314
------------ ------------
Total policy liabilities and accruals 340,038 345,196
OTHER POLICYHOLDER FUNDS 739 1,532
OTHER LIABILITIES 3,112 2,113
FEDERAL INCOME TAXES - CURRENT 185 170
PAYABLE TO AFFILIATES - NET 4,062 4,242
SEPARATE ACCOUNTS LIABILITIES 544,432 471,656
------------ ------------
Total Liabilities 892,568 824,909
------------ ------------
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 24,034 13,970
Net unrealized investment gain (loss) 1,539 (3,363)
------------ ------------
Total Stockholder's Equity 110,779 95,813
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,003,347 $ 920,722
============ ============
</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, 1995, 1994 AND 1993
(Dollars in Thousands)
=======================================================================
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 29,819 $ 32,679 $ 50,661
Net realized investment gains (losses) (265) (2,218) 6,131
Policy charge revenue 10,864 10,339 8,387
--------- --------- ---------
Total Revenues 40,418 40,800 65,179
--------- --------- ---------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account
balances 17,375 22,691 44,425
Market value adjustment expense 238 132 642
Policy benefits (net of reinsurance recoveries: 1995 - $917
1994 - $715; 1993 - $2,192) 528 1,620 1,729
Reinsurance premium ceded 1,227 1,240 1,182
Amortization of deferred policy acquisition costs 1,300 4,141 9,523
Insurance expenses and taxes 4,508 3,685 5,278
--------- --------- ---------
Total Benefits and Expenses 25,176 33,509 62,779
--------- --------- ---------
Earnings Before Federal Income
Tax Provision 15,242 7,291 2,400
--------- --------- ---------
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 1,692 (213) 2,842
Deferred 3,486 2,031 (2,250)
--------- --------- ---------
Total Federal Income Tax Provision 5,178 1,818 592
--------- --------- ---------
NET EARNINGS $ 10,064 $ 5,473 $ 1,808
========= ========= =========
</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, 1995, 1994 AND 1993
(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, 1993 $ 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
Net earnings 10,064 10,064
Net unrealized investment gain 4,902 4,902
--------- ------------ ----------- --------------- -----------------
BALANCE, DECEMBER 31, 1995 $ 2,200 $ 83,006 $ 24,034 $ 1,539 $ 110,779
========= ============ =========== =============== =================
</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, 1995, 1994 AND 1993
(Dollars in Thousands)
=======================================================================
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 10,064 $ 5,473 $ 1,808
Adjustments to reconcile net earnings to net
cash and cash equivalents provided (used)
by operating activities:
Amortization of deferred policy acquisition
costs 1,300 4,142 9,523
Capitalization of policy acquisition costs (4,368) (7,142) (7,252)
Amortization and accretion of investments (434) (312) 918
Net realized investment (gains) losses 265 2,218 (6,131)
Interest credited to policyholders' account balances 17,375 22,691 44,425
Provision (benefit) for deferred Federal
income tax 3,486 2,031 (2,250)
Cash and cash equivalents provided (used) by
changes in operating assets and liabilities:
Accrued investment income 751 2,810 3,857
Claims and claims settlement expenses (1,413) (1,300) 2,273
Federal income taxes - current 15 (694) 173
Other policyholder funds (793) 332 1,129
Payable to affiliates - net (180) (981) (1,923)
Policy loans (4,246) (4,447) (7,343)
Other, net 1,723 (1,947) 2,644
------------ ------------ ------------
Net cash and cash equivalents provided
by operating activities 23,545 22,874 41,851
------------ ------------ ------------
INVESTING ACTIVITIES:
Fixed maturity securities sold 68,382 123,518 166,033
Fixed maturity securities matured 38,420 92,499 280,484
Fixed maturity securities purchased (103,268) (73,016) (251,522)
Equity securities available for sale purchased (300) (29) (109)
Equity securities available for sale sold 354 4,665 2,885
Mortgage loans on real estate principal payments received 0 8,998 4,425
Mortgage loans on real estate sold 3,608 0 0
------------ ------------ ------------
Net cash and cash equivalents provided by
investing activities 7,196 156,635 202,196
------------ ------------ ------------
</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, 1995, 1994 AND 1993
(Concluded) (Dollars In Thousands)
=======================================================================
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits $ 43,191 $ 56,297 $ 33,953
Withdrawals (net of transfers to/from Separate Accounts) (77,460) (242,355) (291,658)
------------ ------------ ------------
Net cash and cash equivalents used
by financing activities (34,269) (186,058) (257,705)
------------ ------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (3,528) (6,549) (13,658)
CASH AND CASH EQUIVALENTS:
Beginning of year 20,915 27,464 41,122
------------ ------------ ------------
End of year $ 17,387 $ 20,915 $ 27,464
============ ============ ============
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 1,677 $ 482 $ 2,668
Intercompany interest 447 352 397
</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, Incorporated ("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. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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% - 5.50%
Interest sensitive deferred annuities 3.80% - 8.23%
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.
<PAGE>
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the
Company. The Company regularly evaluates the financial
condition of its reinsurers so as to minimize its exposure to
significant losses from reinsurer insolvencies. The Company
holds collateral under reinsurance agreements in the form of
letters of credit and funds withheld totaling $179 that can be
drawn upon for delinquent reinsurance recoverables.
As of December 31, 1995, the Company had life insurance in-
force which was ceded to other life insurance companies of
$151,317.
Deferred Policy Acquisition Costs: Policy acquisition costs
for life and annuity contracts are deferred and amortized based
on the estimated future gross profits for each group of
contracts. These future gross profit estimates are subject to
periodic evaluation by the Company, with necessary revisions
applied against amortization to date. It is reasonably possible
that estimates of future gross profits could be reduced in the
future, resulting in a material reduction in the carrying
amount of deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance, 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 estimated future gross
profits over the anticipated life of the acquired insurance
contracts utilizing an interest methodology.
<PAGE>
The Company has entered into an assumption reinsurance
agreement with an unaffiliated insurer. The acquisition costs
relating to this agreement are being amortized over a twenty-
year period using an effective interest rate of 9.01%. This
reinsurance agreement provides for payment of contingent ceding
commissions based upon the persistency and mortality experience
of the insurance contracts assumed. Any payments made for the
contingent ceding commissions will be capitalized and amortized
using an identical methodology as that used for the initial
acquisition costs. The following is a reconciliation of the
acquisition costs related to the reinsurance agreement for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
Beginning balance $ 14,923 $ 15,614 $ 16,925
Capitalized amounts 1,553 1,447 843
Interest accrued 2,138 1,407 1,478
Amortization (960) (3,545) (3,632)
--------- ---------- ---------
Ending balance $ 17,654 $ 14,923 $ 15,614
========= ========== =========
</TABLE>
The following table presents the expected amortization, net of
interest accrued, of these deferred acquisition costs over the
next five years. The amortization may be adjusted based on
periodic evaluation of the expected gross profits on the
reinsured policies.
1996 $2,110
1997 1,615
1998 1,080
1999 944
2000 852
<PAGE>
Investments: In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115"), the
Company classifies its investments in fixed maturity securities
and equity securities as available for sale securities. 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 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 in the net realized
investment gains (losses) caption of the statement of earnings.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted to
the maturity date and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of identified cost.
<PAGE>
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 to be
realized on those mortgage loans which 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 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.
During 1995 the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114") and SFAS
No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures", which was an amendment to
SFAS No. 114. 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. There was no impact on
either financial position or earnings as a result of adopting
SFAS No. 114.
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. The Company employs a system to monitor the effects of
current and expected real estate 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; required capital improvements; inflation;
and sufficiency of any collateral independent of the real
estate. Management believes that the carrying value
approximates the fair value of these investments.
<PAGE>
Policy loans on insurance contracts are stated at unpaid
principal balances.
Federal Income Taxes: The results of operations of the Company
are included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current federal tax liability.
The Company 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 State insurance law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to General 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 primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
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.
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 were:
<TABLE>
<CAPTION>
1995 1994
<S> ---------- ----------
<C> <C>
Assets:
Fixed maturity securities available for sale (1) $ 307,596 $ 286,078
Equity securities available for sale (1) 3,534 4,301
Mortgage loans on real estate (2) 4,032 7,941
Policy loans on insurance contracts (3) 82,073 77,827
Cash and cash equivalents (4) 17,387 20,915
Separate Accounts assets (5) 544,432 471,656
---------- ----------
Total financial instruments recorded as assets $ 959,054 $ 868,718
========== ==========
</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, 1995 and 1994 securities
without a readily ascertainable market value, having an
amortized cost of $63,071 and $81,899, had an estimated
fair value of $66,367 and $82,470, respectively.
<PAGE>
(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 value of policy loans as
equal to the book value of the loans. Policy loans are
fully collateralized by the account value of the
associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited
to the account value held as collateral is fixed.
(4) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(5) Assets held in the Separate Accounts are carried at quoted
market values.
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 were:
<TABLE>
<CAPTION>
1995
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities available for sale:
Corporate debt $ 225,859 $ 10,251 $ 493 $ 235,617
Mortgage-backed securities 64,347 2,126 75 66,398
U.S. government and agencies 5,197 384 0 5,581
---------- ------------ ------------ ------------
Total fixed maturity securities
available for sale $ 295,403 $ 12,761 $ 568 $ 307,596
========== ============ ============ ============
Equity securities available for sale:
Common stocks $ 1,766 $ 135 $ 767 $ 1,134
Non-redeemable preferred stocks 1,251 1,149 0 2,400
---------- ------------ ------------ ------------
Total equity securities available for sale $ 3,017 $ 1,284 $ 767 $ 3,534
========== ============ ============ ============
</TABLE>
<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 debt $ 215,593 $ 1,766 $ 9,393 $ 207,966
Mortgage-backed securities 77,806 586 4,184 74,208
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>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1995 by
contractual maturity were:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---------- -----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 23,816 $ 23,917
Due after one year through five years 117,787 122,853
Due after five years through ten years 76,228 80,204
Due after ten years 13,225 14,224
---------- -----------
231,056 241,198
Mortgage-backed securities 64,347 66,398
---------- -----------
Total fixed maturity securities
available for sale $ 295,403 $ 307,596
========= ===========
</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 may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities available for sale at December 31, 1995 by rating
agency equivalent were:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---------- ------------
<S> <C> <C>
AAA $ 58,094 $ 60,123
AA 35,316 36,807
A 67,228 69,893
BBB 122,776 128,606
Non-investment grade 11,989 12,167
---------- -----------
Total fixed maturity securities
available for sale $ 295,403 $ 307,596
========== ===========
</TABLE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
conjunction with adjustments required by SFAS No. 115. The
Company adjusts 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 gain or (loss) as of December 31:
<PAGE>
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Assets:
Fixed maturity securities available for sale $ 12,193 $ (11,473)
Equity securities available for sale 517 314
Deferred policy acquisition costs 0 3,177
Federal income taxes - deferred (829) 1,812
---------- ----------
11,881 (6,170)
---------- ----------
Liabilities:
Policyholders' account balances 10,342 (2,807)
---------- ----------
Stockholder's equity:
Net unrealized investment gain (loss) $ 1,539 $ (3,363)
========== ==========
</TABLE>
Proceeds and gross realized investment gains and losses from
the sale of fixed maturity securities available for sale and
held to maturity for the years ended December 31 were:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Proceeds $ 68,352 $ 123,518 $ 166,033
Gross realized investment gains 1,605 6,793 4,546
Gross realized investment losses 620 8,560 438
</TABLE>
The Company had investment securities of $1,130 and $982 held
on deposit with insurance regulatory authorities at December
31, 1995 and 1994, respectively.
The Company's investment in mortgage loans on real estate are
principally collateralized by commercial real estate. The
Company's investment in commercial real estate mortgage loans
at December 31, 1995, as measured by the outstanding principal
balance, are for properties located in California ($2,032 or
50.4%) and Pennsylvania ($2,000 or 49.6%).
The carrying value and established valuation allowances of
impaired mortgage loans on real estate as of December 31, 1994
were $3,939 and $1,536, respectively. The Company had no
impaired mortgage loans on real estate as of December 31, 1995.
Additional information on impaired loans for the years ended
December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Average investment in impaired loans $ 3,650 $ 5,475 $ 5,475
Investment income recognized (cash basis) 233 275 333
</TABLE>
<PAGE>
Net investment income arose from the following sources for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Fixed maturity securities $ 25,046 $ 28,255 $ 45,523
Equity securities available for sale 0 0 113
Mortgage loans on real estate 686 975 1,924
Policy loans 3,903 3,680 3,487
Cash equivalents 1,103 659 476
--------- ---------- ----------
Gross investment income 30,738 33,569 51,523
Less investment expenses (919) (890) (862)
--------- ---------- ----------
Net investment income $ 29,819 $ 32,679 $ 50,661
========= ========== ==========
</TABLE>
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Fixed maturity securities $ 985 $ (1,767) $ 4,108
Equity securities available for sale (916) 237 2,081
Mortgage loans on real estate (334) (688) (58)
-------- --------- --------
Net realized investment gains (losses) $ (265) $ (2,218) $ 6,131
======== ========= ========
</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 Write - End
of Year Operations Downs of Year
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Mortgage loans on real estate
1995 $ 1,536 $ 0 $ 1,536 $ 0
1994 848 688 0 1,536
1993 790 58 0 848
</TABLE>
The Company held no investments at December 31, 1995 which have
been non-income producing for the preceding twelve months.
<PAGE>
NOTE 4: FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income
taxes based on income before taxes, computed using the Federal
statutory tax rate, with the provision for income taxes for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate $ 5,334 $ 2,552 $ 840
State corporate income taxes (91) 0 0
Decrease in income taxes resulting from:
Federal tax rate increase 0 0 (227)
Dividend received deduction (31) (670) 0
Other (34) (64) (21)
-------- -------- --------
Federal income tax provision $ 5,178 $ 1,818 $ 592
======== ======== ========
</TABLE>
The Federal statutory rate for each of the three years in the
period ended December 31, 1995 was 35%.
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>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Deferred policy acquisition cost $ 1,239 $ 887 $ (1,184)
Policyholders' account balances 738 833 (969)
Investment adjustments 1,445 1,117 (100)
Other 64 (806) 3
--------- --------- ---------
Deferred Federal income tax
provision (benefit) $ 3,486 $ 2,031 $ (2,250)
========= ========= =========
</TABLE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 8,277 $ 9,015
Net unrealized investment loss 0 1,812
Investment adjustments 2,581 4,026
Other 2 66
--------- ---------
Total deferred tax assets 10,860 14,919
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 6,409 5,170
Net unrealized investment gain 829 0
--------- ---------
Total deferred tax liabilities 7,238 5,170
--------- ---------
Net deferred tax asset $ 3,622 $ 9,749
========= =========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
<PAGE>
NOTE 5: RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain 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 $4,415, $4,025 and $5,688 for 1995, 1994 and 1993
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 $88, $50 and $69
for 1995, 1994 and 1993, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM") are
parties to a service agreement whereby MLAM has agreed to provide
certain invested asset management services to the Company. The
Company pays a fee to MLAM for these services through the MLIG
service agreement. Charges attributable to this agreement and
allocated to the Company by MLIG were $206, $203 and $265 for
1995, 1994 and 1993, 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 $2,424, $5,329 and $4,927 for 1995,
1994 and 1993, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition costs
and are being amortized in accordance with the policy discussed
in Note 1.
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company ("Monarch
Life"), the Company borrowed funds from Merrill Lynch & Co. to
partially finance the transaction. As of December 31, 1995 and
1994, the outstanding balance of these loans was $3,075 and
$4,336, respectively. Repayments made on these loans during
1995, 1994, and 1993 were $1,261, $1,214 and $1,650,
respectively. Interest was calculated on these loans at LIBOR
plus 150 basis points. Intercompany interest paid on these loans
during 1995, 1994 and 1993 was $359, $302 and $328, respectively.
NOTE 6: STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
At December 31, 1995 and 1994, $58,790 and $42,612, 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 1995, 1994 and
1993. Statutory capital and surplus at December 31, 1995 and
1994, was $72,113 and $64,913, respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principals utilized in theses 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 1995, 1994 and 1993 was
$3,080, $3,816 and $6,515, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilized the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which a
life insurance company should have based upon that company's risk
profile. As of December 31, 1995, and 1994, based on the RBC
formula, the Company's total adjusted capital level was 709% and
344%, respectively, of the minimum amount of capital required to
avoid regulatory action.
NOTE 7: COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers who
are licensed to transact business within a state become members
of the state's life insurance guaranty association. These
associations have been established for the protection of
policyholders from loss (within specified limits) as a result of
the insolvency of an insurer. At the time an insolvency occurs,
<PAGE>
the guaranty association assesses the remaining members of the
association an amount sufficient to satisfy the insolvent
insurer's policyholder obligations (within specified limits).
Based upon the public information available at this time,
management believes the Company has no material financial
obligations to state guaranty associations.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
* * * * * *
