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PROSPECTUS
MAY 1, 1998
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 first 14 days following the in force date, the initial payment less
contract loading will be invested only in the division investing in the Money
Reserve Portfolio. After the first 14 days following the in force date, the
contract owner may invest in up to any five of the 37 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 ten mutual fund
portfolios of the Merrill Lynch Series Fund, Inc.; seven mutual fund portfolios
of the Merrill Lynch Variable Series Funds, Inc.; two mutual fund portfolios of
the AIM Variable Insurance Funds, Inc.; one mutual fund portfolio of the
Alliance Variable Products Series Fund, Inc.; two mutual fund portfolios of the
MFS Variable Insurance Trust; and fifteen 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. Subject to certain conditions, 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 IF
TAKEN 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.; THE AIM VARIABLE INSURANCE FUNDS,
INC.; THE ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.; THE MFS VARIABLE
INSURANCE TRUST; 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.................................. 7
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..................................................... 8
Partial Withdrawals....................................... 8
Fees and Charges.......................................... 8
FACTS ABOUT THE SEPARATE ACCOUNT, THE FUNDS, THE ZERO TRUSTS
AND ML OF NEW YORK
The Separate Account...................................... 9
The Series Fund........................................... 9
The Variable Series Funds................................. 10
The AIM V.I. Funds........................................ 11
The Alliance Fund......................................... 12
The MFS Trust............................................. 12
Certain Risks of the Funds................................ 13
The Zero Trusts........................................... 13
ML of New York and MLPF&S................................. 14
FACTS ABOUT THE CONTRACT
Who May be Covered........................................ 14
Purchasing a Contract..................................... 14
Additional Insurance Rider................................ 15
Additional Payments....................................... 16
Effect of Additional Payments............................. 16
Investment Base........................................... 17
Charges Deducted from the Investment Base................. 18
Contract Loading.......................................... 19
Charges to the Separate Account........................... 19
Charges to Fund Assets.................................... 20
Guarantee Period.......................................... 21
Cash Value................................................ 21
Loans..................................................... 22
Partial Withdrawals....................................... 23
Death Benefit Proceeds.................................... 24
Payment of Death Benefit Proceeds......................... 25
Rights to Cancel or Exchange.............................. 25
Reports to Contract Owners................................ 26
MORE ABOUT THE CONTRACT
Using the Contract........................................ 26
Some Administrative Procedures............................ 27
Other Contract Provisions................................. 28
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Income Plans.............................................. 30
Group or Sponsored Arrangements........................... 31
Unisex Legal Considerations for Employers................. 31
Selling the Contracts..................................... 31
Tax Considerations........................................ 32
ML of New York's Income Taxes............................. 35
Reinsurance............................................... 36
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
About the Separate Account................................ 36
Changes Within the Account................................ 36
Net Rate of Return for an Investment Division............. 36
The Funds................................................. 37
The Zero Trusts........................................... 39
ILLUSTRATIONS
Illustrations of Death Benefits, Investment Base, Net Cash
Surrender Values and Accumulated Payments.............. 40
EXAMPLES
Additional Payments....................................... 46
Partial Withdrawals....................................... 46
Changing the Death Benefit Option......................... 47
MORE ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK
Directors and Executive Officers.......................... 48
Services Arrangement...................................... 49
State Regulation.......................................... 50
Year 2000................................................. 50
Legal Proceedings......................................... 50
Experts................................................... 50
Legal Matters............................................. 51
Registration Statements................................... 51
Financial Statements...................................... 51
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 or
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 that 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 at the Service Center.
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 a monthly (for
payments from a CMA account only), quarterly, semi-annual, or annual basis. For
additional payments not being withdrawn from a CMA
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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 first 14 days following the in force date, 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 first 14 days
following the in force date, the contract owner may select up to five of the 37
investment divisions in the Separate Account. (See "Changing the Allocation" on
page 17).
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 Class A shares of designated mutual fund portfolios of the
Merrill Lynch Variable Series Funds, Inc. (the "Variable Series Funds"). Two
investment divisions of the Separate Account invest exclusively in shares of
designated mutual fund portfolios of the AIM Variable Insurance Funds, Inc. (the
"AIM V.I. Funds"). One investment division of the Separate Account invests
exclusively in shares of a designated mutual fund portfolio of the Alliance
Variable Products Series Fund, Inc. (the "Alliance Fund"). Two investment
divisions of the Separate Account invest exclusively in shares of designated
mutual fund portfolios of the MFS Variable Insurance Trust (the "MFS Trust").
Each mutual fund portfolio has a different investment objective. The other
fifteen 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, the AIM V.I. Funds, the Alliance
Fund, or the MFS Trust (each, a "Fund"; collectively, the "Funds"); or in 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 24.)
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
- ---------------
Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
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diversifying their investment in the Contract by allocating the 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 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
19.)
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 26.)
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, partial
withdrawals, collateral assignments, capitalized interest, and complete
surrenders, 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 32.
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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 22.)
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 PAID EACH YEAR, IT IS CAPITALIZED AND ADDED TO THE OUTSTANDING LOAN
AMOUNT. If the Contract is a modified endowment contract, the amount of
capitalized interest will be treated as a taxable distribution. Depending upon
investment performance of the divisions and the amounts borrowed, loans may
cause a Contract to lapse. If the Contract lapses with a loan outstanding,
adverse tax consequences may result. Policy debt is considered part of total
cash value which is used to calculate gain. (See "Tax Considerations -- Tax
Treatment of Loans and Other Distributions" on page 33.)
PARTIAL WITHDRAWALS
Contract owners may make partial withdrawals beginning in contract year sixteen,
subject to certain conditions. (See "Partial Withdrawals" on page 23.)
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 19.)
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 18) and any rider costs (see "Additional Insurance
Rider" on page 15).
- 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 Funds pay monthly advisory fees and other
expenses. (See "Charges to Fund Assets" on page 20.)
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.
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FACTS ABOUT THE SEPARATE ACCOUNT, THE FUNDS,
THE ZERO TRUSTS AND ML OF NEW YORK
THE SEPARATE ACCOUNT
The Separate Account is a separate investment account established by ML of New
York on December 4, 1991. It is registered with the Securities and Exchange
Commission as a unit investment trust pursuant to the Investment Company Act of
1940. This registration does not involve any supervision by the Securities and
Exchange Commission over the investment policies or practices of the Separate
Account. It meets the definition of a separate account under the federal
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 37 investment divisions in the Separate Account. Ten invest
in shares of a specific portfolio of the Series Fund. Seven invest in Class A
shares of a specific portfolio of the Variable Series Funds. Two invest in
shares of a specific portfolio of the AIM V.I. Funds. One invests in shares of a
specific portfolio of the Alliance Fund. Two invest in shares of a specific
portfolio of the MFS Trust. Fifteen invest in units of a specific Zero Trust.
Complete information about the Funds and the Zero Trusts, including the risks
associated with each portfolio (including specific 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 investment objectives and policies of certain of the underlying portfolios
may be similar to the investment objectives and policies of other portfolios
that may be managed by the same investment adviser or manager. The investment
results of the underlying portfolios, however, may be higher or lower than the
results of such other portfolios. There can be no assurance, and no
representation is made, that the investment results of any of the underlying
portfolios will be comparable to the investment results of any other portfolio,
even if the other portfolio has the same investment adviser or manager.
THE SERIES FUND
The Series Fund is registered with the Securities and Exchange Commission as an
open-end management investment company and its investment adviser is Merrill
Lynch Asset Management, L.P. ("MLAM"). All of its ten mutual fund portfolios are
currently available through the Separate Account. The investment objectives and
certain investment policies of the Series Fund portfolios are described below.
There is no guarantee that any portfolio will be able to 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.
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Intermediate Government Bond Portfolio seeks to obtain the highest level of
current income consistent with the protection of capital afforded by investing
in intermediate-term debt securities issued or guaranteed by the U.S. Government
or its agencies. The Portfolio will invest in such securities 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. In
addition, the Portfolio seeks the preservation of capital. In seeking to achieve
these objectives, under normal circumstances the Portfolio invests at least 80%
of the value of its total assets in debt securities that have a rating within
the three highest grades of Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("Standard & Poor's").
High Yield Portfolio primarily seeks as high a level of current income as is
believed to be consistent with prudent management. Secondarily, the Portfolio
seeks 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 (including securities
commonly known as "junk bonds").
Capital Stock Portfolio seeks long-term growth of capital and income, plus
moderate current income. It generally invests in equity securities considered to
be of good or improving quality or considered to be undervalued based on
criteria such as historical price/book value and price/earnings ratios.
Growth Stock Portfolio seeks long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks, of aggressive
growth companies considered to have special investment value.
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.
MLAM 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 20.)
THE VARIABLE SERIES FUNDS
The Variable Series Funds is registered with the Securities and Exchange
Commission as an open-end management investment company and its investment
adviser is MLAM. Seven of its 18 mutual fund portfolios are currently available
through the Separate Account. The investment objectives and certain investment
policies of the seven available Variable Series Funds portfolios are described
below. There is no guarantee that any portfolio will be able to 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. The
Fund seeks special opportunities in securities that are selling at a discount,
either from book value or historical price-earnings ratios, or seem capable of
recovering from temporarily out of favor considerations. Particular emphasis is
placed on securities that provide an above-average dividend return and sell at a
below-average price/earnings ratio.
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Global Bond Focus Fund (formerly the World Income Focus Fund) seeks to provide
high total investment return by investing in a global portfolio of fixed income
securities denominated in various currencies, including multinational currency
units. The Fund will invest in fixed income securities that have a credit rating
of A or better by Standard & Poor's or by Moody's or commercial paper rated A-1
by Standard & Poor's or Prime-1 by Moody's or obligations that MLAM has
determined to be of similar creditworthiness.
Global Utility Focus Fund seeks both capital appreciation and current income
through investment of at least 65% of its total assets in equity and debt
securities issued by domestic and foreign companies which are, in the opinion of
MLAM, primarily engaged in the ownership or operation of facilities used to
generate, transmit or distribute electricity, telecommunications, gas or water.
International Equity Focus Fund seeks capital appreciation and, secondarily,
income by investing in a diversified portfolio of equity securities, of issuers
located in countries other than the United States. Under normal conditions, at
least 65% of the Fund's net assets will be invested in such equity securities
and at least 65% of the Fund's total assets will be invested in the securities
of issuers from at least three different foreign countries.
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.
Special Value Focus Fund (formerly the Equity Growth Fund) seeks long-term
growth of capital by investing in a diversified portfolio of securities,
primarily common stocks, of relatively small companies that management of the
Variable Series Funds believes have special investment value, and of emerging
growth companies regardless of size. Companies are selected by management on the
basis of their long-term potential for expanding their size and profitability or
for gaining increased market recognition for their securities. Current income is
not a factor in the selection of securities.
Index 500 Fund seeks to provide investment results that, before expenses,
correspond to the aggregate price and yield performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index").
The Variable Series Funds, as part of its operating expenses, pays an investment
advisory fee to MLAM. (See "Charges to Fund Assets" on page 20.)
THE AIM V.I. FUNDS
The AIM V.I. Funds is registered with the Securities and Exchange Commission as
an open-end, series, management investment company and its investment adviser is
A I M Advisors, Inc. ("AIM"). Two of its mutual fund portfolios are currently
available through the Separate Account. The investment objectives of the two
available AIM V.I. Funds portfolios are described below. There is no guarantee
that any portfolio will be able to meet its investment objective.
AIM V.I. Capital Appreciation Fund seeks to provide capital appreciation through
investments in common stocks, with emphasis on medium-sized and smaller emerging
growth companies. The portfolio is primarily comprised of securities of two
basic categories of companies: (1) "core" companies, which AIM considers to have
experienced above-average and consistent long-term growth in earnings with
excellent prospects for outstanding future growth, and (2) "earnings
acceleration" companies which AIM believes are currently enjoying a dramatic
increase in profits.
AIM V.I. Value Fund seeks to achieve long-term growth of capital by investing
primarily in equity securities judged by AIM to be undervalued relative to the
current or projected earnings of the companies issuing the securities, or
relative to current market values of assets owned by the companies issuing the
securities or relative to the equity markets generally. Income is a secondary
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objective. The investment division corresponding to this Fund should not be
selected by contract owners who seek income as their primary investment
objective.
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, is a wholly owned
subsidiary of A I M Management Group Inc., a holding company engaged in the
financial services business and an indirect wholly owned subsidiary of AMVESCAP
PLC. AIM is a registered adviser under the Investment Advisers Act of 1940. AIM
was organized in 1976, and, together with its subsidiaries, manages or advises
over 50 investment company portfolios (including the AIM V.I. Funds)
encompassing a broad range of investment objectives. The AIM V.I. Funds, as part
of its operating expenses, pays an investment advisory fee to AIM. (See "Charges
to Fund Assets" on page 20.)
THE ALLIANCE FUND
The Alliance Fund is registered with the Securities and Exchange Commission as
an open-end management investment company and its investment adviser is Alliance
Capital Management L.P. ("Alliance"). One of its mutual fund portfolios is
currently available through the Separate Account. The investment objective of
the available Alliance Fund portfolio is described below. There is no guarantee
that this portfolio will be able to meet its investment objective.
Premier Growth Portfolio seeks growth of capital by pursuing aggressive
investment policies. Since investments will be made based upon their potential
for capital appreciation, current income will be incidental to the objective of
capital growth. Because of the market risks inherent in any investment, the
selection of securities on the basis of their appreciation possibilities cannot
ensure against possible loss in value.
Alliance, a Delaware limited partnership with principal offices at 1345 Avenue
of the Americas, New York, New York 10105, is a registered adviser under the
Investment Advisers Act of 1940. Alliance Capital Management Corporation
("ACMC"), the sole general partner of Alliance, is an indirect wholly-owned
subsidiary of The Equitable Life Assurance Society of the United States, which
is in turn a wholly-owned subsidiary of the Equitable Companies Incorporated, a
holding company which is controlled by AXA, a French insurance holding company.
The Alliance Fund, as part of its operating expenses, pays an investment
advisory fee to Alliance. (See "Charges to Fund Assets" on page 20.)
THE MFS TRUST
The MFS Trust is registered with the Securities and Exchange Commission as an
open-end management investment company and its investment adviser is
Massachusetts Financial Services Company ("MFS"). Two of its mutual fund
portfolios are currently available through the Separate Account. The investment
objectives of the available MFS Trust portfolios are described below. There is
no guarantee that any portfolio will be able to meet its investment objective.
MFS Emerging Growth Series seeks to provide long-term growth of capital by
investing primarily (i.e., at least 80% of its assets under normal
circumstances) in common stocks of emerging growth companies. Emerging growth
companies include companies that MFS believes are early in their life cycle but
which have the potential to become major enterprises. Dividend and interest
income from portfolio securities, if any, is incidental to the Fund's objective
of long-term growth of capital.
MFS Research Series seeks to provide long-term growth of capital and future
income. The portfolio securities of the MFS Research Series are selected by a
committee of investment research analysts. This committee includes investment
analysts employed not only by the Adviser but also by MFS International (U.K.)
Limited, a wholly-owned subsidiary of MFS. The Series' assets are allocated
among industries by the analysts acting together as a group. Individual analysts
are then responsible for selecting what they view as the securities best suited
to meet the Series' investment objective within their assigned industry
responsibility.
MFS, a Delaware corporation, 500 Boylston Street, Boston, Massachusetts 02116,
is a subsidiary of Sun Life of Canada (U.S.), which, in turn, is a wholly-owned
subsidiary of Sun Life Assurance
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Company of Canada, and is a registered adviser under the Investment Advisers Act
of 1940. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. The MFS Trust, as part of its operating expenses, pays an
investment advisory fee to MFS. (See "Charges to Fund Assets" on page 20.)
CERTAIN RISKS OF THE FUNDS
Investment in lower-rated debt securities, such as those in which the High Yield
Portfolio of the Series Fund, and the Developing Capital Markets Focus and
International Equity Focus Funds of the Variable Series Funds, expect to invest,
entails relatively greater risk of loss of income or principal. 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 risk, these portfolios will
diversify holdings among many issuers. However, there can be no assurance that
diversification will protect these portfolios 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 the Contracts' federal tax status
will not be adversely affected as a result.
In selecting investments for the AIM V.I. Capital Appreciation Fund, AIM is
particularly interested in companies that are likely to benefit from new or
innovative products, services or processes that should enhance such companies'
prospects for future growth in earnings. As a result of this policy, the market
prices of many of the securities purchased and held by this portfolio may
fluctuate widely. Any income received from securities held by the portfolio will
be incidental, and a contract owner should not consider a purchase of shares of
the portfolio as equivalent to a complete investment program.
For the MFS Emerging Growth Series, the nature of investing in emerging growth
companies involves greater risk than is customarily associated with investments
in more established companies. Emerging growth companies often have limited
product lines, markets or financial resources, and they may be dependent on
one-person management. In addition, there may be less research available on many
promising small and medium sized emerging growth companies, making it more
difficult to find and analyze these companies. The securities of emerging growth
companies may have limited marketability and may be subject to abrupt or erratic
market movements than securities of larger, more established growth companies or
the market averages in general. Shares of the MFS Emerging Growth Series,
therefore, are subject to greater fluctuation in value than shares of a
conservative equity fund or of a growth fund which invests entirely in proven
growth stocks.
Investment in these portfolios entails relatively greater risk of loss of income
or principal. In addition, as described in the accompanying prospectus for the
portfolios, many portfolios should be considered a long-term investment and a
vehicle for diversification, and not as a balanced investment program. It may
not be appropriate to allocate all payments and investment base to a single
investment division.
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.
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The Zero Trust portfolios consist mainly of:
- bearer debt obligations issued by the U.S. Government stripped of their
unmatured interest coupons;
- coupons stripped from U.S. debt obligations; and
- receipts and certificates for such stripped debt obligations and coupons.
The Zero Trusts currently available have maturity dates in years 1999 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 19.)
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 31.)
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 18.
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" on page 15.)
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 32.
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 18.) 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 32.
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 32.) 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 a monthly (for payments from a CMA account only), quarterly,
semi-annual or annual 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.
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On the date ML of New York receives and accepts an additional payment, ML of New
York will:
- increase the Contract's investment base by the amount of the payment less
contract loading applicable to the payment;
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount" on page 24); 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 21).
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 46.
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 19). 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 22.)
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 36.) The investment performance reflects the
deduction of Separate Account charges. (See "Charges to the Separate Account" on
page 19.)
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 18, "Partial Withdrawals" on page 23 and "Loans" on
page 22.) 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. Through the first 14 days
following the in force date, the initial payment less contract loading will
remain in the Money Reserve Portfolio. 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 37
investment divisions in the Separate Account.
Changing the Allocation. After the first 14 days following the in force date, 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 27.)
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Zero Trust Allocations. ML of New York will notify contract owners 30 days
before a Zero Trust in which they have invested matures. Contract owners must
notify ML of New York by calling or writing at least seven days before the
maturity date how to reinvest their funds in the division investing in that Zero
Trust. If ML of New York is not notified, it will move the contract owner's
investment base in that division to the investment division investing in the
Money Reserve Portfolio.
Units of a specific Zero Trust may no longer be available when a request for
allocation is received. Should this occur, ML of New York will attempt to notify
the contract owner immediately so that the request can be changed.
Allocation to the Division Investing in the Natural Resources Portfolio. ML of
New York and the Separate Account reserve the right to suspend the sale of units
of the investment division investing in the Natural Resources Portfolio in
response to conditions in the securities markets or otherwise.
CHARGES DEDUCTED FROM THE INVESTMENT BASE
ML of New York deducts the charges described below to cover costs and expenses,
services provided, and risks assumed under the Contracts. The amount of a charge
may not necessarily correspond to the costs associated with providing the
services or benefits indicated by the designation of the charge or associated
with the particular Contract. For example, the contract loading may not fully
cover all of the sales and distribution expenses actually incurred by ML of New
York, and proceeds from other charges, including the mortality and expense risk
charge, may be used in part to cover such expenses.
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 22.
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 15.
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CONTRACT LOADING
Chargeable to each payment is an amount called the contract loading. The
contract loading equals 49.5% of each payment 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
31.
The charge for federal taxes is equal to 1.25% of each payment.
The state and local premium tax charge is equal to 2% of each payment.
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.
If the asset charge is inadequate to cover the actual expenses of mortality,
maintenance, and administration, ML of New York will bear the loss. If the
charge exceeds the actual expenses, the excess will be added to ML of New York's
profit and may be used to finance distribution expenses. The total asset charge
may not be increased.
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.
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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 35.)
CHARGES TO FUND ASSETS
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.
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, Global Bond Focus Fund and Global Utility Focus Fund. This fee equals an
annual rate of .30%, .75%, 1.00% and .75% of the average daily net assets of the
Index 500 Fund, the International Equity Focus Fund, the Developing Capital
Markets Focus Fund, and the Special Value Focus Fund, respectively.
MLAM and Merrill Lynch Life Agency, Inc. have entered into agreements which
limit the operating expenses, exclusive of any distribution fees imposed on
Class B shares, paid by each fund in a given year to 1.25% of its average daily
net assets. These reimbursement agreements provide that any such 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.
Charges to AIM V.I. Funds Assets. The AIM V.I. Funds incurs operating expenses
and pays a monthly advisory fee to AIM, which serves as the investment adviser
to each fund of the AIM V.I. Funds. As the investment adviser, AIM receives from
the AIM V.I. Capital Appreciation Fund and the AIM V.I. Value Fund an advisory
fee at an annual rate of .65% of the first $250 million of each fund's average
daily net assets and .60% of each fund's average daily net assets in excess of
$250 million.
Effective May 1, 1998, the AIM V.I. Funds reimburse AIM in an amount up to 0.25%
of the average net asset value of each fund, for expenses incurred in providing,
or assuring that participating insurance companies provide, certain
administrative services. Currently the fee only applies to the average net asset
value of each fund in excess of the net asset value of each fund as calculated
on April 30, 1998.
Charges to Alliance Fund Assets. The Alliance Fund incurs operating expenses
and pays a monthly advisory fee to Alliance, which serves as the investment
adviser to each fund of the Alliance Fund. As the investment adviser, Alliance
receives from the Alliance Premier Growth Portfolio an advisory fee at an annual
rate of 1.00% of the fund's average daily net assets.
Charges to MFS Trust Assets. The MFS Trust incurs operating expenses and pays a
monthly advisory fee to MFS, which serves as the investment adviser to each of
the funds of MFS Trust. As the investment adviser, MFS receives from the MFS
Emerging Growth Series and MFS Research Series an
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advisory fee, computed and paid monthly, at an annual rate of .75% of the
average daily net assets of the respective fund.
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
22.) 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 18 and
"Contract Loading -- Excess Sales Load" on page 19.)
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
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equals the total investment base plus debt plus unearned charges for cost of
insurance and rider costs less any accrued net loan cost since the last contract
anniversary (or since the contract date during the first contract year).
Cancelling the Contract. A contract owner may cancel the Contract at any time
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 30. 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 19.)
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 5.75%
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 generally is not 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 5.0%.
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ML of New York may change the interest rates currently charged on loans and the
rates of interest earned on the loan collateral amounts. Any such changes will
be effective on the contract anniversary following the date such rates are
declared.
Net Loan Cost. On each contract anniversary, ML of New York reduces the
investment base by the net loan cost (the difference between the interest
charged and the earnings on the amount held as collateral in the general
account) and adds that amount to the amount held in the general account as
collateral for the loan. Since the interest charged is 5.75% 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 19.) 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 -- Tax Treatment of Loans and Other
Distributions" on page 33.)
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 will receive the withdrawal
amount in a single payment.
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 46.
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
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modified endowment contract. For a discussion of the tax issues associated with
a partial withdrawal, see "Tax Considerations" on page 32.
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. When ML of
New York is first provided reliable notification of the last surviving insured's
death by a representative of the owner or the insured, investment base may be
transferred to the division investing in the Money Reserve Portfolio, pending
payment of death benefit proceeds.
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 28 and "Payment in Case of
Suicide" on page 29.)
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 21.)
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 47.
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 32.
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 30.
Payment may be delayed if the Contract is being contested or under the
circumstances described in "Using the Contract" on page 26 and "Other Contract
Provisions" on page 28. 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 32.
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 36.) 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 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 all of 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 telephone if the owner provides the personal identification number as well as
the Contract number. One contract owner must be designated, in writing, to
receive all notices, correspondence and tax reporting to which contract owners
are entitled under the Contract.
Changing the Owner. During 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
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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 32.)
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 32.
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 and the Contract is in effect 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 or Fund 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> 28
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. Unless the contract owner has preallocated the Contract's
investment base, the personal identification number 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 17.)
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
telephone. If the reallocation is requested by telephone, 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 telephone 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
telephone. 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 telephone if all
required telephone 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.
ML of New York will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures may include, but are not
limited to, possible recording of telephone calls and obtaining appropriate
identification before effecting any telephone transactions. ML of New York will
not be liable for following telephone instructions that it reasonably believes
to be genuine.
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
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York can also contest any amount of any death benefit which wouldn't be payable
except for the fact that an increase in the additional insurance rider face
amount which requires evidence of insurability was requested if any material
misstatements are made in any application required for the increase.
ML of New York will not contest the validity of a Contract after it has been in
effect during the lifetime of 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.
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Contract Changes -- Applicable Federal Tax Law. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. Therefore, to maintain this qualification to the
maximum extent of the law, ML of New York reserves the right to return any
additional payments that would cause the Contract to fail to qualify as life
insurance under applicable tax law as interpreted by ML of New York. Further, ML
of New York reserves the right to make changes in the Contract or its riders or
to make distributions from the Contract to the extent it is necessary to
continue to qualify the Contract as life insurance. Any changes will apply
uniformly to all Contracts that are affected and contract owners will be given
advance written notice of such changes.
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 32.
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. 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. Other designated
periods and payment schedules may be available on request.
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. Other payment schedules may
be available on request. While both are living, full payments are made. If
one dies, payments of at least 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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The amounts paid under the distribution and sales agreements for the Separate
Account for the years ended December 31, 1997, December 31, 1996, and December
31, 1995 were $400,483, $263,503, and $162,482, 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
33).
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 contract.
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 30.)
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 Funds, intends to comply
with these requirements. Each Fund is obligated to comply with the
diversification requirements prescribed by the Treasury Department.
In connection with the issuance of the diversification regulations, the Treasury
Department stated that it anticipates the issuance of regulations or rulings
prescribing the circumstances in which an owner's control of the investments of
a separate account may cause the owner, rather than the insurance company, to be
treated as the owner of the assets in the account. If the contract owner is
considered the owner of the assets of the Separate Account, income and gains
from the account would be included in the owner's gross income.
The ownership rights under the Contract offered in this Prospectus are similar
to, but different in certain respects from, those described by the Internal
Revenue Service in rulings in which it determined that the owners were not
owners of separate account assets. For example, the owner of the Contract has
additional flexibility in allocating payments and cash values. These differences
could result in the owner being treated as the owner of the assets of the
Separate Account. In addition, ML of New York does not know what standards will
be set forth in the regulations or rulings which the Treasury has stated it
expects to be issued. ML of New York therefore reserves the
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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, collateral assignments,
capitalized interest, and complete surrenders) 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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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 generally is not tax deductible.
Aggregation of Modified Endowment Contracts. In the case of a pre-death
distribution (including a loan, partial withdrawal, capitalized interest,
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 33.) 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 tax
consequences if there is no debt and no cash or other property is received,
according to Section 1035(a)(1) of the Code. In addition, exchanging this
Contract for more than one contract, or exchanging this Contract and one or more
other contracts for a single contract, in certain circumstances, may be treated
as an exchange under Section 1035, as long as all such contracts involve the
same insured(s). Any new contract would have to satisfy the 7-pay test
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from the date of the exchange to avoid characterization as a modified endowment
contract. An exchange for a new contract or contracts may, however, result in a
loss of grandfathering status for statutory changes made after the old contract
or contracts were issued. Changing the insured under this Contract may not be
treated as an exchange under Section 1035, but rather as a taxable exchange. A
tax advisor should be consulted before effecting any exchange, since even if an
exchange is within Section 1035(a), the exchange may have tax consequences other
than immediate recognition of income.
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. In recent years, moreover, Congress has
adopted new rules relating to life insurance owned by businesses. Any 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.
Possible Changes in Taxation. Although the likelihood of legislative change is
uncertain, there is always the possibility that the tax treatment of the
Contracts could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted, would
adversely modify the federal taxation of the Contracts. It is also possible that
any change could be retroactive (that is, effective prior to the date of the
change). A tax advisor should be consulted with respect to legislative
developments and their effect on the Contract.
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 19.)
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.
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REINSURANCE
ML of New York intends to reinsure some of the risks assumed under the
Contracts.
MORE ABOUT THE SEPARATE ACCOUNT AND ITS DIVISIONS
ABOUT THE SEPARATE ACCOUNT
The Separate Account is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 as a unit investment trust. This
registration does not involve any supervision by the Securities and Exchange
Commission of ML of New York's management or the management of the Separate
Account. The Separate Account is also governed by the laws of the State of New
York, ML of New York's state of domicile.
ML of New York owns all of the assets of the Separate Account. These assets are
held separate and apart from all of ML of New York's other assets. ML of New
York maintains records of all purchases and redemptions of shares of the Funds
and units of the Zero Trusts 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
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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 Funds, shares are valued at net asset value and
reflect reinvestment of any dividends or capital gains distributions declared by
the Funds.
For divisions investing in the Zero Trusts, units of each Zero Trust are valued
at the sponsor's repurchase price, as explained in the prospectus for the Zero
Trusts.
THE FUNDS
Buying and Redeeming Shares. The 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 Fund shares held in the
Separate Account. As the owner, it has the right to vote on any matter put to
vote at the Funds' shareholder meetings. However, ML of New York will vote all
Fund shares attributable to Contracts according to instructions received from
contract owners. Shares attributable to Contracts for which no voting
instructions are received will be voted in the same proportion as shares in the
respective 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 Fund 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 Fund
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
37
<PAGE> 38
ML of New York or Merrill Lynch & Co., Inc.). Shares of the Variable Series
Funds, the AIM V.I. Funds, the Alliance Fund, and the MFS Trust are sold to
separate accounts of ML of New York, Merrill Lynch Life Insurance Company and
insurance companies not affiliated with ML of New York or Merrill Lynch & Co.,
Inc. to fund benefits under variable life insurance and variable annuity
contracts, and may be sold to certain qualified plans.
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 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 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.
Administration Services Agreements. AIM V.I. Funds has entered into an
Administrative Services Agreement with AIM, pursuant to which AIM has agreed to
provide certain accounting and other administrative services to the AIM V.I.
Funds, including the services of a principal financial officer and related
staff. As compensation to AIM for its services under the Administrative Services
Agreement, the AIM V.I. Funds reimburse AIM for expenses incurred by AIM or its
affiliates in connection with such services. AIM has entered into an agreement
with ML of New York with respect to administrative services for the AIM V.I.
Funds in connection with the Contracts. Under this agreement, AIM pays
compensation to ML of New York in an amount equal to a percentage of the average
net assets of the AIM V.I. Funds attributable to the Contracts.
Alliance Fund Distributors, Inc. ("AFD"), an affiliate of Alliance, has entered
into an agreement with ML of New York with respect to administrative services
for the Alliance Fund in connection with the Contracts. Under this agreement,
AFD pays compensation to ML of New York in an amount equal to a percentage of
the average net assets of the Alliance Fund attributable to the Contracts.
MFS has entered into an agreement with MLIG with respect to administrative
services for the MFS Trust in connection with the Contracts and certain
contracts issued by Merrill Lynch Life Insurance Company. Under this agreement,
MFS pays compensation to MLIG in an amount equal to a percentage of the average
net assets of the MFS Trust attributable to such contracts.
38
<PAGE> 39
THE ZERO TRUSTS
The 15 Zero Trusts:
<TABLE>
<CAPTION>
Targeted Rate of Return to
Maturity as
Zero Trust Maturity Date of April 17, 1998
- ---------- ----------------- --------------------------
<C> <S> <C>
1999 February 15, 1999 4.06%
2000 February 15, 2000 4.12%
2001 February 15, 2001 4.10%
2002 February 15, 2002 4.25%
2003 August 15, 2003 4.30%
2004 February 15, 2004 4.38%
2005 February 15, 2005 4.26%
2006 February 15, 2006 4.08%
2007 February 15, 2007 4.19%
2008 February 15. 2008 4.47%
2009 February 15, 2009 4.51%
2010 February 15, 2010 4.63%
2011 February 15, 2011 4.57%
2013 February 15, 2013 4.66%
2014 February 15, 2014 4.75%
</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 19) 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.
39
<PAGE> 40
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, NET CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables on pages 42 through 45 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 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 $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 43 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 44 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 45 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 .52%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1997 expenses (including monthly advisory fees)
for the Funds and the current trust charge. This charge also reflects expense
reimbursements made in 1997 to certain portfolios by the investment adviser to
the respective portfolio. These reimbursements amounted to .17% and .09% of the
average daily net assets of the Developing Capital Markets Focus Fund and the
Natural Resources Portfolio, respectively. (See "Charges to Fund Assets" on page
20.) The actual charge under a Contract for Fund 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 .52%
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of -1.42%, 4.53%, and 10.48%,
respectively. The gross returns are before any deductions and should not be
compared to rates which are after deduction of charges.
The hypothetical returns shown on the tables are without any income tax charges
that may be attributable to the Separate Account in the future, although they do
reflect the charge for federal
40
<PAGE> 41
taxes included in the contract loading. (See "Contract Loading" on page 19.) In
order to produce after tax returns of 0%, 6% and 12%, the 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.
41
<PAGE> 42
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>
END OF YEAR
TOTAL DEATH BENEFIT(3)(7)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL INVESTMENT RETURN OF
INTEREST AT 5% AS ------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF 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 1,982,197
30.................... 39,890 2,782,767 1,500,000 1,715,182 5,235,178
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.................... $ 19,596 $ 20,785 $ 21,974 $ 19,596 $ 20,785 $ 21,974
2.................... 38,503 42,086 45,811 38,503 42,086 45,811
3.................... 74,786 83,065 91,928 74,786 83,065 91,928
4.................... 110,486 125,834 142,813 110,486 125,834 142,813
5.................... 145,570 170,433 198,928 145,570 170,433 198,928
6.................... 180,030 216,932 260,813 180,030 216,932 260,813
7.................... 213,821 265,370 329,032 213,821 265,370 329,032
8.................... 246,916 315,806 404,235 246,916 315,806 404,235
9.................... 279,261 368,277 487,112 279,261 368,277 487,122
10.................... 310,845 422,873 578,526 310,845 422,873 578,526
15.................... 449,604 725,112 1,154,006 449,604 725,112 1,154,006
20.................... 532,188 1,077,538 1,887,807 532,188 1,077,538 1,887,807
30.................... 246,439 1,633,507 4,985,884 246,439 1,633,507 4,985,884
40.................... 0 2,505,920 13,305,023 0 2,505,920 13,305,023
</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
period 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 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
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>
END OF YEAR
TOTAL DEATH BENEFIT(3)(7)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF 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 1,770,207
30.................... 39,890 2,782,767 1,500,000 1,500,000 4,532,143
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.................... $ 19,596 $ 20,785 $ 21,974 $ 19,596 $ 20,785 $ 21,974
2.................... 38,333 41,910 45,630 38,333 41,910 45,630
3.................... 73,784 82,019 90,838 73,784 82,019 90,838
4.................... 107,892 123,087 139,911 107,892 123,087 139,911
5.................... 140,510 165,000 193,111 140,510 165,000 193,111
6.................... 171,473 207,633 250,734 171,473 207,633 260,734
7.................... 200,547 250,790 313,065 200,547 250,790 313,065
8.................... 227,627 294,416 380,600 227,627 294,416 380,600
9.................... 252,461 338,322 453,794 252,461 338,322 453,794
10.................... 274,801 382,346 533,248 274,801 382,346 533,248
15.................... 335,924 596,523 1,057,326 335,924 596,523 1,057,326
20.................... 246,864 772,661 1,685,912 246,864 772,661 1,685,912
30.................... 0 669,684 4,316,326 0 669,684 4,316,326
40.................... 0 0 11,329,612 0 0 11,329,612
</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 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 period 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 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.
43
<PAGE> 44
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>
END OF YEAR
TOTAL DEATH BENEFIT(3)(7)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1.................... $141,410 $ 148,481 $1,597,485 $1,603,375 $ 1,609,265
2.................... 141,410 304,386 1,728,525 1,748,491 1,769,159
3.................... 141,410 468,086 1,857,647 1,900,122 1,945,748
4.................... 141,410 639,971 1,984,843 2,058,525 2,140,744
5.................... 141,410 820,450 2,110,090 2,223,956 2,356,023
6.................... 141,410 1,009,953 2,233,388 2,396,706 2,593,682
7.................... 141,410 1,208,931 2,354,697 2,577,034 2,855,991
8.................... 141,410 1,417,858 2,473,987 2,765,223 3,145,474
9.................... 141,410 1,637,231 2,591,193 2,961,534 3,464,878
10.................... 141,410 1,867,573 2,706,298 3,166,286 3,817,290
15.................... 141,410 3,203,997 3,239,204 4,317,457 6,194,735
20.................... 141,410 4,909,650 3,660,651 5,669,216 9,092,397
30.................... 141,410 9,864,873 3,807,921 8,268,664 20,800,267
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.................... $ 97,485 $ 103,375 $ 109,265 $ 97,485 $ 103,375 $ 109,265
2.................... 228,525 248,491 269,159 228,525 248,491 269,159
3.................... 357,647 400,122 445,748 357,647 400,122 445,748
4.................... 484,843 558,525 640,744 484,843 558,525 640,744
5.................... 610,090 723,956 856,023 610,090 723,956 856,023
6.................... 733,388 896,706 1,093,682 733,388 896,706 1,093,682
7.................... 854,697 1,077,034 1,355,991 854,697 1,077,034 1,355,991
8.................... 973,987 1,265,223 1,645,474 973,987 1,265,223 1,645,474
9.................... 1,091,193 1,461,534 1,964,878 1,091,193 1,461,534 1,964,878
10.................... 1,206,298 1,666,286 2,317,290 1,206,298 1,666,286 2,317,290
15.................... 1,739,204 2,817,457 4,694,735 1,739,204 2,817,457 4,694,735
20.................... 2,160,651 4,169,216 7,592,397 2,160,651 4,169,216 7,592,397
30.................... 2,307,921 6,768,664 19,300,267 2,307,921 6,768,664 19,300,267
40.................... 0 7,355,893 48,517,437 0 7,355,893 48,517,437
</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 annual rates of return of 6% and 12% and current
mortality charges, the guarantee period reaches life of the younger insured
in contract years 27 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
period 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 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.
44
<PAGE> 45
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>
END OF YEAR
TOTAL DEATH BENEFIT(3)(7)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ------------------------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1.................... $141,410 $ 148,481 $1,597,485 $1,603,375 $ 1,609,265
2.................... 141,410 304,386 1,728,351 1,748,310 1,768,472
3.................... 141,410 468,086 1,856,598 1,899,023 1,944,599
4.................... 141,410 639,971 1,982,078 2,055,582 2,137,617
5.................... 141,410 820,450 2,104,603 2,218,016 2,349,604
6.................... 141,410 1,009,953 2,223,952 2,386,321 2,582,269
7.................... 141,410 1,208,931 2,336,810 2,560,388 2,837,392
8.................... 141,410 1,417,858 2,452,000 2,740,247 3,117,090
9.................... 141,410 1,637,231 2,560,162 2,925,733 3,423,498
10.................... 141,410 1,867,573 2,663,933 3,116,670 3,758,976
15.................... 141,410 3,203,997 3,098,669 4,139,959 5,966,993
20.................... 141,410 4,909,650 3,319,005 5,206,681 8,665,907
30.................... 141,410 9,864,873 2,516,327 6,717,029 18,018,025
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.................... $ 97,485 $ 103,375 $ 109,265 $ 97,485 $ 103,375 $ 109,265
2.................... 228,351 248,310 268,972 228,351 248,310 268,972
3.................... 356,598 399,023 444,599 356,598 399,023 444,599
4.................... 482,078 555,582 637,617 482,078 555,582 637,617
5.................... 604,603 718,016 849,604 604,603 718,016 849,604
6.................... 723,952 886,321 1,082,269 723,952 886,321 1,082,269
7.................... 839,810 1,060,388 1,337,392 839,810 1,060,388 1,337,392
8.................... 952,000 1,240,247 1,617,090 952,000 1,240,247 1,617,090
9.................... 1,060,162 1,425,733 1,923,498 1,060,162 1,425,733 1,923,498
10.................... 1,163,933 1,616,670 2,258,976 1,163,933 1,616,670 2,258,976
15.................... 1,598,669 2,639,959 4,466,993 1,598,669 2,639,959 4,466,993
20.................... 1,819,005 3,706,681 7,165,907 1,819,005 3,706,681 7,165,907
30.................... 1,016,327 5,217,029 16,518,025 1,016,327 5,217,029 16,518,026
40.................... 0 0 33,796,363 0 0 33,796,363
</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 period 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 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.
45
<PAGE> 46
EXAMPLES
ADDITIONAL PAYMENTS
As of the processing date on or next following receipt and acceptance of an
additional payment, ML of New York will increase the guarantee period if the
guarantee period prior to receipt and acceptance of an additional payment is
less than for the whole of life of the 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
----------------------------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
10 $39,890 1 year
EXAMPLE 2
----------------------------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
--------------------- ---------- ----------------
10 $79,780 2 years
EXAMPLE 3
----------------------------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
--------------------- ---------- ----------------
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.
46
<PAGE> 47
The amount of the reduction in the guarantee period will depend on the amount of
the withdrawal, the face amount at the time of the withdrawal and the contract
year in which the withdrawal is made. If made at the same time to equivalent
contracts, a larger withdrawal would result in a greater reduction in the
guarantee period than a smaller withdrawal. The same partial withdrawal made at
the same time from contracts with the same guarantee periods but with different
face amounts would result in a greater reduction in the guarantee period for the
contract with the smaller face amount.
Examples 1 and 2 show the effect on the guarantee period of partial withdrawals
for $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
---------------------------------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
-------- ---------- ----------------
<S> <C> <C>
16 $30,000 .25 years
EXAMPLE 2
---------------------------------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
--------------------- ---------- ----------------
16 $60,000 .75 years
EXAMPLE 3
---------------------------------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
--------------------- ---------- ----------------
18 $60,000 .5 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.
47
<PAGE> 48
EXAMPLE 1
------------------------------------------------
Before Option Change
Death Benefit under Option 1: $1,000,000
Face Amount: $1,000,000
Cash Value: $80,000
After Option Change
Death Benefit under Option 2: $1,000,000
Face Amount: $920,000
Cash Value: $80,000
EXAMPLE 2
------------------------------------------------
Before Option Change
Death Benefit under Option 2: $1,080,000
Face Amount: $1,000,000
Cash Value: $80,000
After Option Change
Death Benefit under Option 1: $1,080,000
Face Amount: $1,080,000
Cash Value: $80,000
MORE ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK
DIRECTORS AND EXECUTIVE OFFICERS
ML of New York's directors and executive officers and their positions with 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
Frederick J.C. Butler Director
Robert L. Israeloff Director
Allen N. Jones Director
Cynthia L. Kahn Director
Robert A. King Director
Stanley C. Peterson Director
Irving M. Pollack Director
Robert J. Boucher Senior Vice President, Variable Life
Administration
Chi N. Hum Vice President, Administrative Manager, and
Assistant Secretary
</TABLE>
48
<PAGE> 49
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 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.
Mr. Crowne joined ML of New York in June 1991.
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 and Assistant General Counsel of MLPF&S.
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. Butler joined ML of New York in April 1991.
Mr. Israeloff joined ML of New York in April 1991. Since 1964, he has been
Chairman and Executive Partner of Israeloff, Trattner & Co., CPAs, P.C., a
public accounting firm.
Mr. Jones joined ML of New York in June 1996. Since May 1992, he has been Senior
Vice President of MLPF&S. From June 1992 to May 1995, he served as a director of
ML of New York. From June 1992 to February 1994, he held the position of
Chairman of the Board, President, and Chief Executive Officer of ML of New York.
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. In May 1996, he retired from the
position of Vice President for Finance at Marymount College, Tarrytown, New
York, which he had held since February 1991.
Mr. Peterson joined ML of New York in December 1997. Since November 1997, he has
been National Sales Director for MLLA. Prior to November 1997, he held various
positions with MLLA.
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. Boucher joined ML of New York in May 1992.
Mr. Hum joined ML of New York in August 1997. Prior to August 1997, he was an
Assistant Vice President with Smith Barney 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
49
<PAGE> 50
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 $4.3 million during 1997.
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.
YEAR 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Separate Account could be adversely
affected if the computer systems used by ML of New York or the other service
providers do not properly address this problem prior to January 1, 2000. Merrill
Lynch & Co., Inc. has established a dedicated group to analyze these issues and
to implement any systems modifications necessary to prepare for the Year 2000.
The resources that are being devoted to this effort are substantial. It is
difficult to predict with precision whether the amount of resources ultimately
devoted, or the outcome of these efforts, will have any negative impact on ML of
New York. Currently, ML of New York does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Contracts at current levels. In addition, ML of New York has sought
assurances from the other service providers that they are taking all necessary
steps to ensure that their computer systems will accurately reflect the Year
2000, and ML of New York will continue to monitor the situation. At this time,
however, no assurance can be given that the other service providers have
anticipated every step necessary to avoid any adverse effect on the Separate
Account attributable to the Year 2000 Problem.
LEGAL PROCEEDINGS
There are no legal proceedings to which the 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, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 and of the
Separate Account as of December 31, 1997 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.
50
<PAGE> 51
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 LLP 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.
51
<PAGE> 52
<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, 1997 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, 1997. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Account
at December 31, 1997 and the results of its operations and
the changes in its net assets for the above periods in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The supplemental schedules included herein are 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.
January 30, 1998
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS: Cost Shares Market Value
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investments in Merrill Lynch Series Fund, Inc. (Note 1):
Money Reserve Portfolio $ 6,118,095 6,118,095 $ 6,118,095
Intermediate Government Bond Portfolio 424,662 38,703 428,826
Long-Term Corporate Bond Portfolio 328,371 28,491 333,916
Capital Stock Portfolio 2,050,432 90,954 2,436,658
Growth Stock Portfolio 2,534,179 101,824 3,341,864
Multiple Strategy Portfolio 2,346,875 144,737 2,745,669
High Yield Portfolio 750,583 82,214 755,545
Natural Resources Portfolio 162,882 19,294 156,668
Global Strategy Portfolio 4,102,221 266,685 4,650,993
Balanced Portfolio 694,912 48,398 763,716
--------------------- ---------------------
19,513,212 21,731,950
--------------------- ---------------------
Investments in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Global Utility Focus Fund 117,060 9,983 148,144
International Equity Focus Fund 1,091,314 93,504 1,009,848
Global Bond Focus Fund 74,998 7,879 73,430
Basic Value Focus Fund 2,954,226 212,232 3,361,762
Developing Capital Markets Focus Fund 650,143 64,819 597,632
Special Value Focus Fund 164,307 6,284 174,378
Index 500 Fund 176,481 13,412 180,765
--------------------- ---------------------
5,228,529 5,545,959
--------------------- ---------------------
Investments in Alliance Variable Products Series Funds, Inc. (Note 1):
Premier Growth Portfolio 924,986 47,676 1,000,723
--------------------- ---------------------
924,986 1,000,723
--------------------- ---------------------
Investments in MFS Variable Insurance Trust (Note 1):
MFS Emerging Growth Series 395,370 25,932 418,538
MFS Research Series 621,927 40,175 634,359
--------------------- ---------------------
1,017,297 1,052,897
--------------------- ---------------------
Investments in AIM Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund 880,708 43,271 901,335
AIM V.I. Capital Appreciation Fund 337,525 15,353 333,930
--------------------- ---------------------
1,218,233 1,235,265
--------------------- ---------------------
</TABLE>
(continued)
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Units
-------------------
<S> <C> <C> <C>
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through K (Note 1):
1998 Trust 30,794 35,538 35,350
1999 Trust 6,694 8,218 7,727
2000 Trust 76,411 99,779 88,830
2003 Trust 32,653 58,224 42,446
2004 Trust 18,816 32,451 22,934
2005 Trust 32,358 59,396 39,961
2007 Trust 7,432 15,435 9,344
2009 Trust 7,998 19,402 10,197
2010 Trust 17,595 53,831 26,352
2013 Trust 4,621 15,224 6,250
2014 Trust 135,524 416,129 159,369
--------------------- ---------------------
370,896 448,760
--------------------- ---------------------
TOTAL ASSETS $ 28,273,153 31,015,554
===================== ---------------------
LIABILITIES:
Payable to ML Life Insurance Company of New York 834,488
---------------------
TOTAL LIABILITIES 834,488
---------------------
NET ASSETS $ 30,181,066
=====================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 1,499,965 $ 772,097 $ 423,802
Mortality and Expense Charges (Note 3) (224,107) (121,660) (69,677)
Transaction Charges (Note 4) (1,249) (992) (512)
--------------------- --------------------- ---------------------
Net Investment Income 1,274,609 649,445 353,613
--------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 268,415 1,598 (31,049)
Net Unrealized Gains 1,363,855 932,056 678,554
--------------------- --------------------- ---------------------
Net Realized and Unrealized Gains 1,632,270 933,654 647,505
--------------------- --------------------- ---------------------
Increase in Net Assets
Resulting from Operations 2,906,879 1,583,099 1,001,118
--------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 9,507,778 6,351,113 3,597,850
Transfers of Policy Loading, Net (Note 3) 756,862 495,055 259,576
Transfers Due to Deaths (21,714) (25,307) (4,554)
Transfers Due to Other Terminations (524,168) (212,277) (238,972)
Transfers Due to Policy Loans (179,901) (118,069) (38,631)
Transfers of Cost of Insurance (350,569) (219,552) (163,287)
Transfers of Loan Processing Charges (4,307) (1,805) (916)
--------------------- --------------------- ---------------------
Increase in Net Assets
Resulting from Principal Transactions 9,183,981 6,269,158 3,411,066
--------------------- --------------------- ---------------------
Increase in Net Assets 12,090,860 7,852,257 4,412,184
Net Assets Beginning Balance 18,090,206 10,237,949 5,825,765
--------------------- --------------------- ---------------------
Net Assets Ending Balance $ 30,181,066 $ 18,090,206 $ 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
Notes to Financial Statements
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-eight investment divisions
(thirty-nine during the year). At any point in time, the
Account may or may not be invested in all available
divisions. Ten of the investment divisions each invest in
the securities of a single mutual fund portfolio of the
Merrill Lynch Series Fund, Inc. Seven of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the Merrill Lynch Variable
Series Funds, Inc. One of the investment divisions
invests in the securities of a single mutual fund
portfolio of the Alliance Variable Products Series Fund,
Inc. Two of the investments divisions each invest in the
securities of a single mutual fund portfolio of the MFS
Variable Insurance Trust. Two of the investment divisions
each invest in the securities of a single mutual fund
portfolio of the AIM Variable Insurance Funds, Inc.
Sixteen of the investment divisions (seventeen 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.
The financial statements included herein have been
prepared in accordance with generally accepted accounting
principles for variable life separate accounts registered
as unit investment trusts. The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
2. The following is a summary of significant accounting
policies of the Account:
Investments in the divisions are included in the
statement of net assets at the net asset value of the
shares and units held.
Dividend income is recognized on the ex-dividend date.
All dividends are automatically reinvested.
Realized gains and losses on the sales of investments are
computed on the first in first out method.
The operations of 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.
3. ML of New York assumes mortality and expense risks
related to Contracts investing in the Account and deducts
daily charges at a rate of .9% (on an annual basis) of
the net assets of the Account to cover these risks.
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 income
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.
4. ML of New York pays all transaction charges to Merrill
Lynch, Pierce, Fenner & Smith Inc., a subsidiary of
Merrill and sponsor of the Zero Trusts, on the sale of
Zero Trust 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.
5. Effective following the close of business on August 15,
1997, the Equity Growth Fund was renamed the Special
Value Focus Fund. The Fund's investment objective was not
modified.
Effective following the close of business on December 6,
1996, the International Bond Fund was merged with and
into the former World Income Focus Fund; the World Income
Focus Fund was renamed the Global Bond Focus Fund; and
the Fund's investment objective was modified.
<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, 1997
<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 $ 1,499,965 $ 279,359 $ 21,344 $ 14,264
Mortality and Expense Charges (224,107) (40,444) (2,978) (2,023)
Transaction Charges (1,249) 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 1,274,609 238,915 18,366 12,241
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 268,415 0 (651) 1,243
Net Unrealized Gains (Losses) 1,363,855 0 7,989 3,474
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 1,632,270 0 7,338 4,717
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,906,879 238,915 25,704 16,958
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 9,507,778 8,133,534 10,516 12,995
Transfers of Policy Loading, Net 756,862 790,188 (1,836) (852)
Transfers Due to Deaths (21,714) 11,133 0 0
Transfers Due to Other Terminations (524,168) (49,609) (20,617) (13,253)
Transfers Due to Policy Loans (179,901) 0 (6,280) 0
Transfers of Cost of Insurance (350,569) (74,432) (3,883) (3,262)
Transfers of Loan Processing Charges (4,307) (362) (30) (337)
Transfers Among Investment Divisions 0 (6,833,504) 182,352 184,118
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 9,183,981 1,976,948 160,222 179,409
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 12,090,860 2,215,863 185,926 196,367
Net Assets Beginning Balance 18,090,206 3,074,907 242,770 137,439
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 30,181,066 $ 5,290,770 $ 428,696 $ 333,806
===================== ===================== ===================== =====================
</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, 1997
<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 $ 97,129 $ 224,008 $ 161,656 $ 55,464
Mortality and Expense Charges (19,265) (24,548) (23,414) (5,336)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 77,864 199,460 138,242 50,128
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 25,490 46,789 6,871 1,894
Net Unrealized Gains (Losses) 282,878 467,467 274,786 (1,895)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 308,368 514,256 281,657 (1)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 386,232 713,716 419,899 50,127
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 163,234 203,999 161,055 22,858
Transfers of Policy Loading, Net (4,081) (1,107) (8,208) (2,364)
Transfers Due to Deaths (18,929) 0 (7,104) 0
Transfers Due to Other Terminations (59,409) (16,098) (123,025) (13,962)
Transfers Due to Policy Loans 11,057 (33,989) (7,767) (35,726)
Transfers of Cost of Insurance (24,863) (33,709) (40,974) (7,676)
Transfers of Loan Processing Charges (225) (462) (626) (214)
Transfers Among Investment Divisions 330,931 604,944 41,522 329,017
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 397,715 723,578 14,873 291,933
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 783,947 1,437,294 434,772 342,060
Net Assets Beginning Balance 1,652,073 1,903,782 2,310,168 413,251
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 2,436,020 $ 3,341,076 $ 2,744,940 $ 755,311
===================== ===================== ===================== =====================
</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, 1997
<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 $ 1,344 $ 273,426 $ 75,660 $ 3,642
Mortality and Expense Charges (1,683) (40,923) (6,330) (1,010)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (339) 232,503 69,330 2,632
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 8,173 41,397 7,222 398
Net Unrealized Gains (Losses) (28,160) 142,225 27,744 24,474
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (19,987) 183,622 34,966 24,872
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (20,326) 416,125 104,296 27,504
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 15,476 368,829 41,998 2,213
Transfers of Policy Loading, Net (243) (4,111) (4,909) (560)
Transfers Due to Deaths 0 (6,814) 0 0
Transfers Due to Other Terminations (3,492) (138,667) (62,436) (17)
Transfers Due to Policy Loans (2,744) (76,360) 0 0
Transfers of Cost of Insurance (1,884) (66,388) (9,170) (1,195)
Transfers of Loan Processing Charges (70) (883) (55) (4)
Transfers Among Investment Divisions (7,320) 263,384 67,685 36,539
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (277) 338,990 33,113 36,976
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (20,603) 755,115 137,409 64,480
Net Assets Beginning Balance 177,209 3,894,603 626,090 83,617
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 156,606 $ 4,649,718 $ 763,499 $ 148,097
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
International Global Basic Developing
Equity Bond Value Capital
Focus Focus Focus Markets Focus
Fund Fund Fund Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 16,894 $ 4,409 $ 222,076 $ 9,256
Mortality and Expense Charges (8,361) (620) (25,422) (5,823)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 8,533 3,789 196,654 3,433
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 6,007 (336) 81,810 20,697
Net Unrealized Gains (Losses) (115,583) (2,293) 183,337 (86,273)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (109,576) (2,629) 265,147 (65,576)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (101,043) 1,160 461,801 (62,143)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 85,615 3,666 166,176 70,038
Transfers of Policy Loading, Net 2,014 (226) (1,877) 1,364
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (816) (50) (5,572) (3,261)
Transfers Due to Policy Loans 953 0 (11,113) (2,404)
Transfers of Cost of Insurance (12,743) (890) (34,875) (9,153)
Transfers of Loan Processing Charges (74) (2) (232) (106)
Transfers Among Investment Divisions 407,571 8,642 776,064 106,794
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 482,520 11,140 888,571 163,272
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 381,477 12,300 1,350,372 101,129
Net Assets Beginning Balance 628,055 61,087 2,010,472 496,302
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 1,009,532 $ 73,387 $ 3,360,844 $ 597,431
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
Special MFS
Value Index Premier Emerging
Focus 500 Growth Growth
Fund Fund Portfolio Series
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 3,010 $ 0 $ 385 $ 0
Mortality and Expense Charges (1,213) (497) (3,584) (1,196)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 1,797 (497) (3,199) (1,196)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,681 8,329 1,998 219
Net Unrealized Gains (Losses) 9,035 4,284 75,737 23,169
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 10,716 12,613 77,735 23,388
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 12,513 12,116 74,536 22,192
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 3,481 4,104 4,739 3,068
Transfers of Policy Loading, Net (431) (168) (2,225) (281)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (48) (71) (5,847) (106)
Transfers Due to Policy Loans (10,805) (4,723) 0 0
Transfers of Cost of Insurance (2,095) (859) (5,667) (2,201)
Transfers of Loan Processing Charges (21) (192) (75) (91)
Transfers Among Investment Divisions 113,825 170,499 934,951 395,824
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 103,906 168,590 925,876 396,213
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 116,419 180,706 1,000,412 418,405
Net Assets Beginning Balance 57,893 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 174,312 $ 180,706 $ 1,000,412 $ 418,405
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
AIM V.I.
MFS AIM V.I. Capital
Research Value Appreciation 1997
Series Fund Fund Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 32,286 $ 4,353 $ 0
Mortality and Expense Charges (1,943) (3,404) (787) (7)
Transaction Charges 0 0 0 (1)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (1,943) 28,882 3,566 (8)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,377 1,016 224 596
Net Unrealized Gains (Losses) 12,432 20,627 (3,594) (565)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 13,809 21,643 (3,370) 31
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 11,866 50,525 196 23
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 3,915 2,024 1,507 0
Transfers of Policy Loading, Net (1,895) (1,493) (233) 0
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (6,959) (775) (1) (42)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (3,457) (5,768) (1,419) (20)
Transfers of Loan Processing Charges (135) (72) (28) 0
Transfers Among Investment Divisions 630,815 856,598 333,795 (5,988)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 622,284 850,514 333,621 (6,050)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 634,150 901,039 333,817 (6,027)
Net Assets Beginning Balance 0 0 0 6,027
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 634,150 $ 901,039 $ 333,817 $ 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, 1997
<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 (307) (61) (744) (366)
Transaction Charges (116) (24) (281) (138)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (423) (85) (1,025) (504)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 149 26 664 304
Net Unrealized Gains (Losses) 1,737 377 4,828 3,536
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 1,886 403 5,492 3,840
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,463 318 4,467 3,336
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums
Transfers of Policy Loading, Net 1,432 1,441 9,564 0
Transfers Due to Deaths (138) 41 34 (253)
Transfers Due to Other Terminations 0 0 0 0
Transfers Due to Policy Loans 0 0 (1) 1
Transfers of Cost of Insurance 0 0 0 0
Transfers of Loan Processing Charges (365) (135) (1,031) (460)
Transfers Among Investment Divisions (1) 0 (2) 0
0 2 (2,825) (3)
Increase (Decrease) in Net Assets --------------------- --------------------- --------------------- ---------------------
Resulting from Principal Transactions
928 1,349 5,739 (715)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Net Assets Beginning Balance 2,391 1,667 10,206 2,621
32,940 6,044 78,578 39,790
Net Assets Ending Balance --------------------- --------------------- --------------------- ---------------------
$ 35,331 $ 7,711 $ 88,784 $ 42,411
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
2004 2005 2007 2009
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (197) (327) (78) (78)
Transaction Charges (74) (124) (30) (30)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (271) (451) (108) (108)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 78 240 49 33
Net Unrealized Gains (Losses) 2,105 3,826 1,069 1,324
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 2,183 4,066 1,118 1,357
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,912 3,615 1,010 1,249
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 2,785 0 1,657
Transfers of Policy Loading, Net (164) 20 (69) 121
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 1 0 0 (1)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (238) (459) (154) (54)
Transfers of Loan Processing Charges 0 (1) 0 0
Transfers Among Investment Divisions (1) 3 (2) 6
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (402) 2,348 (225) 1,729
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 1,510 5,963 785 2,978
Net Assets Beginning Balance 21,400 33,968 8,547
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 22,910 $ 39,931 $ 9,332 $ 10,191
===================== ===================== ===================== =====================
</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, 1997
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------
2010 2013 2014
Trust Trust Trust
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0
Mortality and Expense Charges (215) (45) (878)
Transaction Charges (81) (17) (333)
--------------------- --------------------- ---------------------
Net Investment Income (Loss) (296) (62) (1,211)
--------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 168 0 4,260
Net Unrealized Gains (Losses) 3,498 984 19,276
--------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 3,666 984 23,536
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 3,370 922 22,325
--------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 1,084 4,775
Transfers of Policy Loading, Net (156) 35 925
Transfers Due to Deaths 0 0 0
Transfers Due to Other Terminations 1 0 (36)
Transfers Due to Policy Loans 0 0 0
Transfers of Cost of Insurance (221) (43) (826)
Transfers of Loan Processing Charges 0 0 (7)
Transfers Among Investment Divisions (3) 1 73,764
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (379) 1,077 78,595
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 2,991 1,999 100,920
Net Assets Beginning Balance 23,351 4,247 58,383
--------------------- --------------------- ---------------------
Net Assets Ending Balance $ 26,342 $ 6,246 $ 159,303
===================== ===================== =====================
</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, 1996
<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 $ 772,097 $ 103,078 $ 14,639 $ 8,048
Mortality and Expense Charges (121,660) (15,163) (1,968) (1,080)
Transaction Charges (992) 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 649,445 87,915 12,671 6,968
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,598 0 1,580 3
Net Unrealized Gains (Losses) 932,056 0 (10,136) (3,943)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 933,654 0 (8,556) (3,940)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,583,099 87,915 4,115 3,028
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 6,351,113 5,165,749 15,298 11,677
Transfers of Policy Loading, Net 495,055 490,996 (349) (248)
Transfers Due to Deaths (25,307) (19,967) 0 0
Transfers Due to Other Terminations (212,277) (25,965) 5 15
Transfers Due to Policy Loans (118,069) (699) 0 (8,026)
Transfers of Cost of Insurance (219,552) (31,592) (2,802) (1,898)
Transfers of Loan Processing Charges (1,805) (187) (8) (175)
Transfers Among Investment Divisions 0 (3,961,160) 52,514 39,904
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 6,269,158 1,617,175 64,658 41,249
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 7,852,257 1,705,090 68,773 44,277
Net Assets Beginning Balance 10,237,949 1,369,817 173,997 93,162
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 18,090,206 $ 3,074,907 $ 242,770 $ 137,439
===================== ===================== ===================== =====================
</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, 1996
<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 $ 143,386 $ 38,471 $ 245,513 $ 25,506
Mortality and Expense Charges (10,355) (12,913) (18,686) (2,495)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 133,031 25,558 226,827 23,011
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (5,485) 3,715 (35,912) (671)
Net Unrealized Gains (Losses) 49,697 207,982 73,553 7,603
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 44,212 211,697 37,641 6,932
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 177,243 237,255 264,468 29,943
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 124,131 150,718 152,418 25,998
Transfers of Policy Loading, Net 225 1,026 (3,197) 176
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (10,371) (11,821) (48,576) (1,649)
Transfers Due to Policy Loans (13,963) (15,882) (25,612) (5,809)
Transfers of Cost of Insurance (17,647) (19,858) (36,610) (4,025)
Transfers of Loan Processing Charges (153) (417) (311) (18)
Transfers Among Investment Divisions 674,243 501,049 218,373 191,296
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 756,465 604,815 256,485 205,969
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 933,708 842,070 520,953 235,912
Net Assets Beginning Balance 718,365 1,061,712 1,789,215 177,339
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 1,652,073 $ 1,903,782 $ 2,310,168 $ 413,251
===================== ===================== ===================== =====================
</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, 1996
<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 $ 2,772 $ 89,681 $ 20,809 $ 1,982
Mortality and Expense Charges (1,387) (29,889) (3,785) (440)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 1,385 59,792 17,024 1,542
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 1,875 15,132 366 87
Net Unrealized Gains (Losses) 15,704 337,443 17,957 5,630
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 17,579 352,575 18,323 5,717
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 18,964 412,367 35,347 7,259
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 18,865 400,696 50,509 2,090
Transfers of Policy Loading, Net 70 5,875 749 (2)
Transfers Due to Deaths 0 0 (5,340) 0
Transfers Due to Other Terminations (967) (81,661) (1,255) (29)
Transfers Due to Policy Loans 0 (27,472) (4,040) 0
Transfers of Cost of Insurance (1,908) (57,689) (7,096) (690)
Transfers of Loan Processing Charges (57) (252) (31) (4)
Transfers Among Investment Divisions 13,918 529,455 220,242 59,158
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 29,921 768,952 253,738 60,523
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 48,885 1,181,319 289,085 67,782
Net Assets Beginning Balance 128,324 2,713,284 337,005 15,835
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 177,209 $ 3,894,603 $ 626,090 $ 83,617
===================== ===================== ===================== =====================
</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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
International Global Basic
Equity Bond Value International
Focus Focus Focus Bond
Fund Fund Fund Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 4,697 $ 1,034 $ 62,330 $ 1,938
Mortality and Expense Charges (4,415) (152) (11,926) (240)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 282 882 50,404 1,698
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 85 5 14,743 417
Net Unrealized Gains (Losses) 21,751 624 171,327 (412)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 21,836 629 186,070 5
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 22,118 1,511 236,474 1,703
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 58,953 2,504 92,817 0
Transfers of Policy Loading, Net 981 63 (1,345) (203)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (11,361) (27) (6,645) 8
Transfers Due to Policy Loans (2,972) 0 (7,488) 0
Transfers of Cost of Insurance (7,163) (328) (19,752) (358)
Transfers of Loan Processing Charges (36) (4) (83) 0
Transfers Among Investment Divisions 229,734 10,123 968,722 32,873
Transfer of Merged Funds 0 41,724 0 (41,724)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 268,136 54,055 1,026,226 (9,404)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 290,254 55,566 1,262,700 (7,701)
Net Assets Beginning Balance 337,801 5,521 747,772 7,701
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 628,055 $ 61,087 $ 2,010,472 $ 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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
Developing Special
Capital Value
Markets Focus Focus 1996 1997
Fund Fund Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 8,213 $ 0 $ 0 $ 0
Mortality and Expense Charges (4,047) (81) (5) (47)
Transaction Charges 0 0 (1) (18)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 4,166 (81) (6) (65)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) (222) 1 308 16
Net Unrealized Gains (Losses) 30,006 1,037 (284) 246
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 29,784 1,038 24 262
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 33,950 957 18 197
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 42,742 0 0 1,438
Transfers of Policy Loading, Net (1,156) 1 0 47
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (11,879) (28) (45) 0
Transfers Due to Policy Loans (6,106) 0 0 0
Transfers of Cost of Insurance (5,962) (146) (20) (133)
Transfers of Loan Processing Charges (57) (4) 0 0
Transfers Among Investment Divisions 116,247 57,113 (4,401) 2
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 133,829 56,936 (4,466) 1,354
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 167,779 57,893 (4,448) 1,551
Net Assets Beginning Balance 328,523 0 4,448 4,476
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 496,302 $ 57,893 $ 0 $ 6,027
===================== ===================== ===================== =====================
</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, 1996
<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 (288) (47) (649) (337)
Transaction Charges (108) (18) (244) (127)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (396) (65) (893) (464)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 106 17 453 364
Net Unrealized Gains (Losses) 1,376 216 2,025 (231)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) 1,482 233 2,478 133
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 1,086 168 1,585 (331)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,434 1,429 13,023 2,137
Transfers of Policy Loading, Net (153) 47 205 (42)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 2 0 0 3
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (380) (133) (1,073) (479)
Transfers of Loan Processing Charges 0 0 (1) (1)
Transfers Among Investment Divisions (17) 1 (3,014) (16)
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 886 1,344 9,140 1,602
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 1,972 1,512 10,725 1,271
Net Assets Beginning Balance 30,968 4,532 67,853 38,519
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 32,940 $ 6,044 $ 78,578 $ 39,790
===================== ===================== ===================== =====================
</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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
2004 2005 2007 2009
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (191) (290) (42) (64)
Transaction Charges (72) (109) (16) (24)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (263) (399) (58) (88)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 35 694 18 315
Net Unrealized Gains (Losses) (55) (793) 843 (529)
--------------------- --------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (20) (99) 861 (214)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (283) (498) 803 (302)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 12,896 0 2,511
Transfers of Policy Loading, Net (156) 1,046 (73) 232
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 2 (4) (4) 0
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (208) (708) (90) (64)
Transfers of Loan Processing Charges 0 (1) (1) 0
Transfers Among Investment Divisions (15) (2,625) 7,912 (2,763)
Transfer of Merged Funds 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (377) 10,604 7,744 (84)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (660) 10,106 8,547 (386)
Net Assets Beginning Balance 22,060 23,862 0 7,599
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 21,400 $ 33,968 $ 8,547 $ 7,213
===================== ===================== ===================== =====================
</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, 1996
<TABLE>
<CAPTION>
Divisions Investing In
------------------------------------------------------------------
2010 2013 2014
Trust Trust Trust
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0
Mortality and Expense Charges (205) (32) (441)
Transaction Charges (77) (12) (166)
--------------------- --------------------- ---------------------
Net Investment Income (Loss) (282) (44) (607)
--------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses):
Net Realized Gains (Losses) 135 0 3,418
Net Unrealized Gains (Losses) (1,059) (91) 4,569
--------------------- --------------------- ---------------------
Net Realized and Unrealized Gains (Losses) (924) (91) 7,987
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (1,206) (135) 7,380
--------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 1,080 0
Transfers of Policy Loading, Net (180) 37 383
Transfers Due to Deaths 0 0 0
Transfers Due to Other Terminations 1 0 (26)
Transfers Due to Policy Loans 0 0 0
Transfers of Cost of Insurance (201) (46) (493)
Transfers of Loan Processing Charges 0 0 (4)
Transfers Among Investment Divisions (12) 1 51,143
Transfer of Merged Funds 0 0 0
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (392) 1,072 51,003
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (1,598) 937 58,383
Net Assets Beginning Balance 24,949 3,310 0
--------------------- --------------------- ---------------------
Net Assets Ending Balance $ 23,351 $ 4,247 $ 58,383
===================== ===================== =====================
</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
-----------------------------------------------------------------
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 Gains (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 Gains (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 Gains (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 Global Basic
Equity Bond 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 Gains (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 Gains (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 Gains (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 Gains (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 Gains (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>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
ML Life Insurance Company of New York:
We have audited the accompanying balance sheets of ML Life
Insurance Company of New York (the "Company"), a wholly-owned
subsidiary of Merrill Lynch Insurance Group, Inc., as of
December 31, 1997 and 1996, and the related statements of
earnings, comprehensive income, stockholder's equity, and cash
flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Company at
December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
February 23, 1998
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group,
Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
- ------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1997 - $250,695; 1996 - $264,341) $ 255,958 $ 269,103
Equity securities, at estimated fair value
(cost: 1997 - $5,830; 1996 - $8,975) 5,029 10,859
Mortgage loans - 2,057
Policy loans on insurance contracts 88,163 85,548
-------------- --------------
Total Investments 349,150 367,567
-------------- --------------
CASH AND CASH EQUIVALENTS 10,063 7,828
ACCRUED INVESTMENT INCOME 5,416 5,952
DEFERRED POLICY ACQUISITION COSTS 30,406 29,272
REINSURANCE RECEIVABLES 429 1,065
OTHER ASSETS 3,405 4,569
SEPARATE ACCOUNTS ASSETS 739,712 591,814
-------------- --------------
TOTAL ASSETS $ 1,138,581 $ 1,008,067
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 307,333 $ 318,567
Claims and claims settlement expenses 2,007 2,572
-------------- --------------
Total policy liabilities and accruals 309,340 321,139
OTHER POLICYHOLDER FUNDS 1,941 1,160
FEDERAL INCOME TAXES - DEFERRED 1,905 626
FEDERAL INCOME TAXES - CURRENT 2,255 2,099
AFFILIATED PAYABLES - NET 3,492 5,026
OTHER LIABILITIES 2,155 1,649
SEPARATE ACCOUNTS LIABILITIES 739,712 591,814
-------------- --------------
Total Liabilities 1,060,800 923,513
-------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 220,000 shares
authorized, issued and outstanding 2,200 2,200
Additional paid-in capital 66,259 72,040
Retained earnings 9,692 9,219
Accumulated other comprehensive income (370) 1,095
-------------- --------------
Total Stockholder's Equity 77,781 84,554
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,138,581 $ 1,008,067
============== ==============
</TABLE>
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 25,465 $ 27,520 $ 29,819
Net realized investment gains (losses) 1,947 2,169 (265)
Policy charge revenue 13,064 11,959 10,864
-------------- -------------- --------------
Total Revenues 40,476 41,648 40,418
-------------- -------------- --------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 14,532 16,586 17,375
Market value adjustment expense 232 301 238
Policy benefits (net of reinsurance recoveries: 1997 - $690
1996 - $1,584; 1995 - $917) 781 1,311 528
Reinsurance premium ceded 1,584 1,262 1,227
Amortization of deferred policy acquisition costs 4,119 3,784 1,300
Insurance expenses and taxes 4,563 4,595 4,508
-------------- -------------- --------------
Total Benefits and Expenses 25,811 27,839 25,176
-------------- -------------- --------------
Earnings Before Federal Income Tax Provision 14,665 13,809 15,242
-------------- -------------- --------------
FEDERAL INCOME TAX PROVISION:
Current 2,905 102 1,692
Deferred 2,068 4,488 3,486
-------------- -------------- --------------
Total Federal Income Tax Provision 4,973 4,590 5,178
-------------- -------------- --------------
NET EARNINGS $ 9,692 $ 9,219 $ 10,064
============== ============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
NET EARNINGS $ 9,692 $ 9,219 $ 10,064
-------------- -------------- --------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the period (413) (4,206) 23,575
Reclassification adjustment for gains included in net earnings (1,771) (1,858) 294
-------------- -------------- --------------
Net unrealized gains (losses) on investment securities (2,184) (6,064) 23,869
Adjustments for:
Policyholder liabilities (70) 5,380 (13,149)
Deferred policy acquisition costs - - (3,177)
Income tax (expense) benefit related to items of
other comprehensive income 789 240 (2,641)
-------------- -------------- --------------
Other comprehensive income, net of tax (1,465) (444) 4,902
-------------- -------------- --------------
COMPREHENSIVE INCOME $ 8,227 $ 8,775 $ 14,966
============== ============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common paid-in Retained Comprehensive stockholder's
stock capital earnings Income equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,200 $ 83,006 $ 13,970 $ (3,363) $ 95,813
Net earnings 10,064 10,064
Other comprehensive income, net of tax 4,902 4,902
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1995 2,200 83,006 24,034 1,539 110,779
Dividend to Parent (10,966) (24,034) (35,000)
Net earnings 9,219 9,219
Other comprehensive income, net of tax (444) (444)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 2,200 72,040 9,219 1,095 84,554
Dividend to Parent (5,781) (9,219) (15,000)
Net earnings 9,692 9,692
Other comprehensive income, net of tax (1,465) (1,465)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,200 $ 66,259 $ 9,692 $ (370) $ 77,781
============= ============= ============= ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 9,692 $ 9,219 $ 10,064
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 4,119 3,784 1,300
Capitalization of policy acquisition costs (5,253) (2,134) (4,368)
Amortization, (accretion) and depreciation of investments (239) 1 (434)
Net realized investment (gains) losses (1,947) (2,169) 265
Interest credited to policyholders' account balances 14,532 16,586 17,375
Provision for deferred Federal income tax 2,068 4,488 3,486
Changes in operating assets and liabilities:
Accrued investment income 536 651 751
Claims and claims settlement expenses (565) (329) (1,413)
Federal income taxes - current 156 1,914 15
Other policyholder funds 781 421 (793)
Affiliated payable - net (1,534) 964 (180)
Policy loans on insurance contracts (2,615) (3,475) (4,246)
Other, net 2,306 (3,951) 1,723
-------------- -------------- --------------
Net cash and cash equivalents provided
by operating activities 22,037 25,970 23,545
-------------- -------------- --------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 88,882 155,645 68,736
Maturities of available-for-sale securities 51,060 34,455 38,420
Purchases of available-for-sale securities (120,965) (162,828) (103,568)
Mortgage loans principal payments received 2,057 1,975 -
Sales of mortgage loans - - 3,608
-------------- -------------- --------------
Net cash and cash equivalents provided
by investing activities 21,034 29,247 7,196
-------------- -------------- --------------
</TABLE>
See notes to financial statements. (Continued)
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Continued) (Dollars In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ (15,000) $ (35,000) $ -
Policyholders' account balances:
Deposits 106,983 32,158 43,191
Withdrawals (including transfers to/from Separate Accounts) (132,819) (61,934) (77,460)
-------------- -------------- --------------
Net cash and cash equivalents used
by financing activities (40,836) (64,776) (34,269)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,235 (9,559) (3,528)
CASH AND CASH EQUIVALENTS:
Beginning of year 7,828 17,387 20,915
-------------- -------------- --------------
End of year $ 10,063 $ 7,828 $ 17,387
============== ============== ==============
Supplementary Disclosure of Cash Flow Information:
Cash paid to (received from) affiliates for:
Federal income taxes $ 2,749 $ (1,812) $ 1,677
Interest 494 440 447
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance
Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting: ML Life Insurance Company of New York (the
"Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells non-participating life insurance and annuity
products which comprise one business segment. The primary
products that the Company currently markets are variable life
insurance, variable annuities, market value adjusted annuities,
and immediate annuities. The Company is licensed to sell
insurance in nine states; however, it currently limits its
marketing activities to the State of New York. The Company
markets its products solely through the retail network of
Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("MLPF&S"),
a wholly-owned broker-dealer subsidiary of Merrill Lynch & Co.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles and
prevailing industry practices, both of which require
management to make estimates that affect the reported amounts and
disclosure of contingencies in the financial statements. Actual
results could differ from those estimates.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for the
cost of insurance, deferred sales charges, policy administration
charges and/or withdrawal charges assessed against policyholders'
account balances during the period.
Policyholders' Account Balances: Liabilities for the
Company's universal life type contracts, including its life insurance
and annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency reserves
for certain products. Interest-crediting rates for the Company's
fixed-rate products are as follows:
Interest-sensitive life products 4.00% - 5.30%
Interest-sensitive deferred annuities 3.65% - 8.23%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company, subject
to minimum guarantees, after initial guaranteed rates expire.
Liabilities for unpaid claims equal the death benefit for those
claims which have been reported to the Company and an estimate
based upon prior experience for claims unreported.
Reinsurance: In the normal course of business, the Company seeks
to limit its exposure to loss on any single insured life and to
recover a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance agreements.
The maximum amount of mortality risk retained by the Company is
approximately $500 on a single life.
Indemnity reinsurance agreements do not relieve the Company from
its obligations to policyholders. Failure of reinsurers to honor
their obligations could result in losses to the Company. The
Company regularly evaluates the financial condition of its
reinsurers so as to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under
reinsurance agreements in the form of letters of credit and funds
withheld totaling $202 that can be drawn upon for delinquent
reinsurance recoverables.
As of December 31, 1997, the Company had life insurance inforce
that was ceded to other life insurance companies of $154,754.
Deferred Policy Acquisition Costs: Policy acquisition costs for
life and annuity contracts are deferred and amortized based on
the estimated future gross profits for each group of contracts.
These future gross profit estimates are subject to periodic
evaluation by the Company, with necessary revisions applied
against amortization to date. It is reasonably possible that
estimates of future gross profits could be reduced in the future,
resulting in a material reduction in the carrying amount of
deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy acquisition,
underwriting and issuance, that are primarily related to and vary
with the production of new business. Certain costs and expenses
reported in the statements of earnings are net of amounts deferred.
Policy acquisition costs can also arise from the acquisition or
reinsurance of existing in-force policies from other insurers.
These costs include ceding commissions and professional fees
related to the reinsurance assumed. The deferred costs are
amortized in proportion to the estimated future gross profits over
the anticipated life of the acquired insurance contracts utilizing
an interest methodology.
The Company has entered into an assumption reinsurance agreement
with an unaffiliated insurer. The acquisition costs relating to
this agreement are being amortized over a twenty-year period using
an effective interest rate of 9.01%. This reinsurance agreement
provides for payment of contingent ceding commissions based upon
the persistency and mortality experience of the insurance contracts
assumed. Any payments made for the contingent ceding commissions
will be capitalized and amortized using an identical methodology
as that used for the initial acquisition costs. The following is a
reconciliation of the acquisition costs related to the reinsurance
agreement for the years ended December 31:
<PAGE>
1997 1996 1995
----------- ----------- -----------
Beginning balance $ 17,151 $ 17,654 $ 14,923
Capitalized amounts 577 577 1,553
Interest accrued 1,651 1,566 2,138
Amortization (2,829) (2,646) (960)
----------- ----------- -----------
Ending balance $ 16,550 $ 17,151 $ 17,654
=========== =========== ===========
The following table presents the expected amortization, net of interest
accrued, of these deferred acquisition costs over the next five years.
The amortization may be adjusted based on periodic evaluation of the
expected gross profits on the reinsured policies.
1998 1,228
1999 1,105
2000 994
2001 895
2002 805
Investments: The Company's investments in fixed maturity and equity
securities are classified as available-for-sale securities, which are
carried at estimated fair value with unrealized gains and losses
included in stockholder's equity, net of tax. If a decline in value
of a security is determined by management to be other-than-temporary,
the carrying value is adjusted to the estimated fair value at the date
of this determination and recorded as net realized investment gains
(losses).
For fixed maturity securities, premiums are amortized to the earlier of
the call or maturity date, discounts are accreted to the maturity date,
and interest income is accrued daily. For equity securities, dividends
are recognized on the ex-dividend date. Realized gains and losses on
the sale or maturity of the investments are determined on the basis of
specific identification.
Certain fixed maturity securities are considered non-investment grade.
The Company defines non-investment grade fixed maturity securities as
unsecured debt obligations that do not have a rating equivalent to
Standard and Poor's (or similar rating agency) BBB- or higher.
As of December 31, 1997, the Company has no mortgage loans
outstanding. Mortgage loans were stated at unpaid principal
balances, net of valuation allowances. Such valuation allowances
were based on the decline in value expected to be realized on
mortgage loans that may not be collectible in full. In establishing
valuation allowances, management considered, among other things, the
estimated fair value of the underlying collateral.
The Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may be different from the
accrual interest rate of the loan for certain outstanding mortgage
loans. The Company recognized a realized gain at the date of the
satisfaction of the loan at contractual terms for loans where there
was a difference between the cash payment interest rate and the
accrual interest rate. For all loans, the Company stopped accruing
income when an interest payment default either occurred or was
probable. Impairments of mortgage loans were established as
valuation allowances and recorded to net realized investment gains
or losses.
Policy loans on insurance contracts are stated at unpaid principal
balances.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of Merrill
Lynch & Co. The Company has entered into a tax-sharing agreement with
Merrill Lynch & Co. whereby the Company will calculate its current
tax provision based on its operations. Under the agreement, the
Company periodically remits to Merrill Lynch & Co. its current federal
tax liability.
The Company uses the asset and liability method in providing income
taxes on all transactions that have been recognized in the financial
statements. The asset and liability method requires that deferred
taxes be adjusted to reflect the tax rates at which future taxable
amounts will be settled or realized. The effects of tax rate changes
on future deferred tax liabilities and deferred tax assets, as well
as other changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums and in
substantially all states are exempt from state income taxes.
Separate Accounts: Separate Accounts are established in conformity with
New York State Insurance Law, the Company's domiciliary state, and are
generally not chargeable with liabilities that arise from any other
business of the Company. Separate Accounts assets may be subject to
general claims of the Company only to the extent the value of such
assets exceeds Separate Accounts liabilities.
Assets and liabilities of Separate Accounts, representing net deposits
and accumulated net investment earnings less fees, held primarily for
the benefit of policyholders, are shown as separate captions in the
balance sheets.
Statements of Comprehensive Income: During 1997, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS
No. 130 defines comprehensive income as all non-owner changes in equity
during a period. Comprehensive income is reported in the Statements of
Comprehensive Income included in the financial statements for the years
ended December 31, 1997, 1996 and 1995.
Statements of Cash Flows: For the purpose of reporting cash flows, cash
and cash equivalents include cash on hand and on deposit and short-term
investments with original maturities of three months or less.
Reclassifications: To facilitate comparisons with the current year,
certain amounts in the prior years have been reclassified.
<PAGE>
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial instruments
as of December 31 were:
1997 1996
-------------- --------------
Assets:
Fixed maturity securities (1) $ 255,958 $ 269,103
Equity securities (1) 5,029 10,859
Mortgage loans (2) - 2,057
Policy loans on insurance contracts (3) 88,163 85,548
Cash and cash equivalents (4) 10,063 7,828
Separate Accounts assets (5) 739,712 591,814
-------------- --------------
Total financial instruments recorded as assets $ 1,098,925 $ 967,209
============== ==============
(1) For publicly traded securities, the estimated fair value
is determined using quoted market prices. For securities
without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted
cash flow model, including provision for credit risk, based
upon the assumption that such securities will be held to
maturity. Such estimated fair values do not necessarily
represent the values for which these securities could have
been sold at the dates of the balance sheets. At December
31, 1997 and 1996, securities without a readily ascertainable
market value, having an amortized cost of $47,064 and $55,323,
had an estimated fair value of $48,188 and $57,018, respectively.
(2) The estimated fair value of mortgage loans approximates
the carrying value.
(3) The Company estimates the fair value of policy loans as equal to
the book value of the loans. Policy loans are fully collateralized
by the account value of the associated insurance contracts, and
the spread between the policy loan interest rate and the interest
rate credited to the account value held as collateral is fixed.
(4) The estimated fair value of cash and cash equivalents approximates
the carrying value.
(5) Assets held in Separate Accounts are carried at quoted market values.
<PAGE>
NOTE 3: INVESTMENTS
The amortized cost and estimated fair value of investments in fixed maturity
and equity securities as of December 31 were:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 198,266 $ 4,595 $ 777 $ 202,084
Mortgage-backed securities 34,726 1,135 5 35,856
U.S. government and agencies 13,593 268 11 13,850
Municipals 2,090 90 - 2,180
Foreign governments 2,020 - 32 1,988
------------- ------------- ------------- -------------
Total fixed maturity securities $ 250,695 $ 6,088 $ 825 $ 255,958
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 4,507 $ - $ 34 $ 4,473
Common stocks 1,323 - 767 556
------------- ------------- ------------- -------------
Total equity securities $ 5,830 $ - $ 801 $ 5,029
============= ============= ============= =============
1996
-------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Fixed maturity securities:
Corporate debt securities $ 212,290 $ 4,743 $ 556 $ 216,477
Mortgage-backed securities 46,204 827 383 46,648
U.S. government and agencies 830 230 - 1,060
Foreign governments 5,017 10 109 4,918
------------- ------------- ------------- -------------
Total fixed maturity securities $ 264,341 $ 5,810 $ 1,048 $ 269,103
============= ============= ============= =============
Equity securities:
Non-redeemable preferred stocks $ 7,237 $ 2,429 $ 38 $ 9,628
Common stocks 1,738 260 767 1,231
------------- ------------- ------------- -------------
Total equity securities $ 8,975 $ 2,689 $ 805 $ 10,859
============= ============= ============= =============
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
----------- -----------
Fixed maturity securities:
Due in one year or less $ 33,356 $ 33,722
Due after one year through five years 113,217 115,861
Due after five years through ten years 51,746 52,536
Due after ten years 17,650 17,983
----------- -----------
215,969 220,102
Mortgage-backed securities 34,726 35,856
----------- -----------
Total fixed maturity securities $ 250,695 $ 255,958
=========== ===========
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1997 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
----------- -----------
AAA $ 76,429 $ 78,021
AA 18,804 19,191
A 74,572 75,612
BBB 70,762 73,204
Non-investment grade 10,128 9,930
----------- -----------
Total fixed maturity securities $ 250,695 $ 255,958
=========== ===========
<PAGE>
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
conjunction with investments classified as available-for-sale. The
Company adjusts those assets and liabilities as if the unrealized
investment gains or losses from securities classified as available-
for-sale had actually been realized, with corresponding credits or
charges reported directly to shareholder's equity. The following
reconciles the net unrealized investment gain (loss) on investment
securities classified as available-for-sale as of December 31:
1997 1996
----------- -----------
Assets:
Fixed maturity securities $ 5,263 $ 4,762
Equity securities (801) 1,884
----------- -----------
4,462 6,646
----------- -----------
Liabilities:
Policyholders' account balances 5,032 4,962
Federal income taxes - deferred (200) 589
----------- -----------
4,832 5,551
----------- -----------
Stockholder's equity:
Net unrealized investment gain (loss) on
investment securities $ (370) $ 1,095
=========== ==========
Proceeds and gross realized investment gains and losses from the sale of
available-for-sale securities for the years ended December 31 were:
1997 1996 1995
----------- ----------- -----------
Proceeds $ 88,882 $ 155,645 $ 68,736
Gross realized investment gains 4,077 2,677 1,709
Gross realized investment losses 2,130 508 1,640
The Company owned investment securities of $1,076 and $1,060 that were
deposited with insurance regulatory authorities at December 31, 1997 and
1996, respectively.
<PAGE>
Net investment income arose from the following sources for the
years ended December 31:
1997 1996 1995
----------- ----------- -----------
Fixed maturity securities $ 19,815 $ 22,153 $ 25,046
Equity securities 761 183 -
Mortgage loans 81 388 686
Policy loans on insurance contracts 4,333 4,133 3,903
Cash and cash equivalents 1,293 1,559 1,103
Other 65 - -
----------- ----------- ------------
Gross investment income 26,348 28,416 30,738
Less investment expenses (883) (896) (919)
----------- ----------- ------------
Net investment income $ 25,465 $ 27,520 $ 29,819
=========== =========== ============
Net realized investment gains (losses), including changes in valuation
allowances, for the years ended December 31:
1997 1996 1995
----------- ----------- ------------
Fixed maturity securities $ (1,268) $ 657 $ 985
Equity securities 3,215 1,512 (916)
Mortgage loans - - (334)
----------- ----------- ------------
Net realized investment gains
(losses) $ 1,947 $ 2,169 $ (265)
=========== =========== ============
The following is a reconciliation of the change in valuation
allowances which have been recorded to reflect other-than-temporary
declines in estimated fair value of mortgage loans for the years ended
December 31, 1995. During 1997 and 1996, there were no valuation
allowances recorded:
Balance at Additions Balance at
Beginning Charged to Write - End
of Year Operations Downs of Year
------------ ------------ ------------ ------------
1995 1,536 - 1,536 -
The Company held no investments at December 31, 1997 which have been
non-income producing for the preceding twelve months.
<PAGE>
NOTE 4: FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income taxes
based on earnings before federal income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes for
the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Provision for income taxes computed at Federal statutory rate $ 5,133 $ 4,833 $ 5,334
State corporate income taxes - (10) (91)
Decrease in income taxes resulting from:
Dividend received deduction (160) (235) (31)
Other - 2 (34)
--------- --------- ----------
Federal income tax provision $ 4,973 $ 4,590 $ 5,178
========= ========= ==========
</TABLE>
The Federal statutory rate for each of the three years in the period
ended December 31, 1997 was 35%.
The Company provides for deferred income taxes resulting from temporary
differences that arise from recording certain transactions in different
years for income tax reporting purposes than for financial reporting
purposes. The sources of these differences and the tax effect of each
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 315 $ (259) $ 1,239
Policyholders' account balances (140) 4,053 738
Liability for guaranty fund assessments (50) 50 -
Investment adjustments 1,943 642 1,445
Other - 2 64
--------- --------- ---------
Deferred Federal income tax provision $ 2,068 $ 4,488 $ 3,486
========= ========= =========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholders' account balances $ 4,364 $ 4,224
Investment adjustments (4) 1,939
Net unrealized investment loss 200 -
--------- ---------
Total deferred tax assets 4,560 6,163
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 6,465 6,150
Liability for guaranty fund assessments - 50
Net unrealized investment gain - 589
--------- ---------
Total deferred tax liabilities 6,465 6,789
--------- ---------
Net deferred tax liability $ 1,905 $ 626
========= =========
</TABLE>
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
<PAGE>
NOTE 5: RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain accounting, data processing,
legal, actuarial, management, advertising and other services to
the Company. Expenses incurred by MLIG in relation to this
service agreement are reimbursed by the Company on an allocated
cost basis. Charges billed to the Company by MLIG pursuant to
the agreement were $4,305, $4,258 and $3,968 for 1997, 1996 and
1995 respectively. The Company is allocated interest expense on
its accounts payable to MLIG which approximates the daily
Federal funds rate. Total intercompany interest paid was $64,
$74 and $88 for 1997, 1996 and 1995, respectively.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were $159,
$186 and $206 for 1997, 1996 and 1995, respectively.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S, who are the Company's licensed insurance agents,
solicit applications for contracts to be issued by the Company.
MLLA is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were $4,130, $1,334 and $2,424 for
1997, 1996 and 1995, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition
costs and are being amortized in accordance with the policy
discussed in Note 1.
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company
("Monarch Life"), the Company borrowed funds from Merrill Lynch
& Co. to partially finance the transaction. As of December 31,
1997 and 1996, the outstanding balance of these loans were
$1,156 and $3,075, respectively. Repayments made on these loans
during 1997, 1996, and 1995 were $1,919, $0 and $1,261,
respectively. Interest was calculated on these loans at LIBOR
plus 150 basis points. Intercompany interest paid on these
loans during 1997, 1996 and 1995 was $359, $366 and $359,
respectively.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
NOTE 6: STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
Notice of intention to declare a dividend must be filed with
the New York Superintendent of Insurance who may disallow the
payment. During 1997 and 1996, the Company paid dividends of
$15,000 and $35,000, respectively, to MLIG. No dividends were
declared or paid during 1995. Statutory capital and surplus at
December 31, 1997 and 1996, was $51,080 and $52,895,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principals utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
income taxes and valuing securities on a different basis. The
Company's statutory net income for 1997, 1996 and 1995 was
$9,888, $12,884 and $3,080, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital which
a life insurance company should have based upon that company's
risk profile. As of December 31, 1997, and 1996, based on the
RBC formula, the Company's total adjusted capital level was
649% and 626%, respectively, of the minimum amount of capital
required to avoid regulatory action.
NOTE 7: COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). Based upon the public information available at this
time, management believes the Company has no material financial
obligations to state guaranty associations.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
<PAGE>
