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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999
REGISTRATION NO. 33-51702
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 8
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------------------
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
(Exact name of trust)
ML LIFE INSURANCE COMPANY OF NEW YORK
(Name of depositor)
100 CHURCH STREET
11TH FLOOR
NEW YORK, NEW YORK 10080-6511
(Complete address of depositor's principal executive offices)
------------------------
BARRY G. SKOLNICK, ESQ.
SENIOR VICE PRESIDENT & GENERAL COUNSEL
ML LIFE INSURANCE COMPANY OF NEW YORK
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Name and complete address of agent for service)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQ.
KIMBERLY J. SMITH, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, NW
WASHINGTON, D.C. 20004-2415
------------------------
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on May 1, 1999 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Units of Interest in Flexible Premium
Variable Life Insurance Contracts.
Check box if it is proposed that the filing will become effective on (date) at
(time) pursuant to Rule 487 / /
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- --------------------------------------------------------------------------------
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PROSPECTUS
May 1, 1999
ML of New York Variable Life Separate Account II
FLEXIBLE PREMIUM VARIABLE 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
SPRINGFIELD, MASSACHUSETTS 01144-1007
PHONE: (800) 354-5333
offered through
Merrill Lynch, Pierce, Fenner & Smith Incorporated
This Prospectus describes contracts which are designed at issue to meet the
7-pay test under federal tax law. Loans taken from such contracts are generally
not subject to current income taxation at the time the loan is taken.
Through the first 14 days following a Contract's in force date, we will invest
your initial payment in the investment division of the ML of New York Variable
Life Separate Account II (the "Separate Account") investing in the Money Reserve
Portfolio. Afterward, you may reallocate your investment base to any five of the
investment divisions of the Separate Account. We then invest each investment
division's assets in corresponding portfolios of the following:
- - MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
- Basic Value Focus Fund
- Global Bond Focus Fund
- Global Utility Focus Fund
- International Equity Focus Fund
- Developing Capital Markets Focus Fund
- Special Value Focus Fund
- Index 500 Fund
- - MERRILL LYNCH SERIES FUND, INC.
- Money Reserve Portfolio
- Intermediate Government Bond Portfolio
- Long-Term Corporate Bond Portfolio
- High Yield Portfolio
- Capital Stock Portfolio
- Growth Stock Portfolio
- Multiple Strategy Portfolio
- Natural Resources Portfolio
- Global Strategy Portfolio
- Balanced Portfolio
- - AIM VARIABLE INSURANCE FUNDS, INC.
- AIM V.I. Capital Appreciation Fund
- AIM V.I. Value Fund
- - ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
- Premier Growth Portfolio
- - MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
- MFS Emerging Growth Series
- MFS Research Series
- - MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES--Fourteen
maturity dates ranging from February 15, 2000--February 15, 2014
Currently, you may change your investment allocation as often as you like.
We guarantee that regardless of investment results, insurance coverage will
continue for the guarantee period. Each payment will extend the guarantee period
until it is for the insured's life. During the guarantee period, we will
terminate the Contract only if any loan debt exceeds certain contract values.
After the guarantee period ends, the Contract will remain in effect as long as
the net cash surrender value is sufficient to cover all charges due. While the
Contract is in effect, the death benefit may vary to reflect the investment
results of the investment divisions chosen, but will never be less than the face
amount.
<PAGE>
The Contract allows planned periodic payments. You may also:
- make additional payments subject to certain conditions
- change the face amount of your Contract subject to certain conditions
- borrow up to the loan value of your Contract
- redeem the Contract for its net cash surrender value
- make partial withdrawals
The net cash surrender value will vary with the investment results of the
investment divisions chosen. We don't guarantee any minimum cash surrender
value.
You may return the Contract or exchange it for a contract with benefits that
don't vary with the investment results of a separate account.
PURCHASING THIS CONTRACT INVOLVES CERTAIN RISKS. INVESTMENT RESULTS CAN VARY
BOTH UP AND DOWN AND CAN EVEN DECREASE THE VALUE OF PREMIUM PAYMENTS. THEREFORE,
YOU COULD LOSE ALL OR PART OF THE MONEY YOU INVEST. EXCEPT FOR THE GUARANTEED
DEATH BENEFIT WE PROVIDE, YOU BEAR ALL INVESTMENT RISKS. WE DO NOT GUARANTEE HOW
ANY OF THE INVESTMENT DIVISIONS OR FUNDS WILL PERFORM.
LIFE INSURANCE IS INTENDED TO BE A LONG TERM INVESTMENT. YOU SHOULD EVALUATE
YOUR INSURANCE NEEDS AND THE CONTRACT'S LONG-TERM INVESTMENT POTENTIAL AND RISKS
BEFORE PURCHASING THE CONTRACT.
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-REGISTERED TRADEMARK-
VARIABLE INSURANCE TRUST-SM-; THE HOTCHKIS AND WILEY VARIABLE TRUST; THE MERCURY
ASSET MANAGEMENT V.I. FUNDS, INC.; AND THE MERRILL LYNCH FUND OF STRIPPED
("ZERO") U.S. TREASURY SECURITIES MUST ACCOMPANY THIS PROSPECTUS. PLEASE READ
THESE DOCUMENTS CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE CONTRACTS OR
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
2
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
IMPORTANT TERMS.................................................................................. 5
SUMMARY OF THE CONTRACT.......................................................................... 6
What the Contract Provides................................................................... 6
Availability and Payments.................................................................... 7
The Investment Base.......................................................................... 7
The Investment Divisions..................................................................... 7
Illustrations ............................................................................... 7
Replacement of Existing Coverage............................................................. 7
Right to Cancel ("Free Look" Period) or Exchange............................................. 8
Distributions From The Contract.............................................................. 8
Fees and Charges............................................................................. 8
Joint Insureds............................................................................... 9
FACTS ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK, MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, THE SEPARATE ACCOUNT, THE FUNDS, AND THE ZERO TRUSTS............................. 9
ML Life Insurance Company of New York ("ML of New York")..................................... 9
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S")................................ 9
The Separate Account......................................................................... 10
Net Rate of Return for an Investment Division................................................ 11
Changes Within the Separate Account.......................................................... 12
THE FUNDS ....................................................................................... 12
The Series Fund.............................................................................. 12
The Variable Series Funds.................................................................... 13
The AIM V.I. Funds........................................................................... 15
The Alliance Fund............................................................................ 15
The MFS Trust................................................................................ 16
The Hotchkis and Wiley Trust................................................................. 16
The Mercury V.I. Funds....................................................................... 17
Special Risks of Certain Funds............................................................... 17
The Operation of the Funds................................................................... 18
The Zero Trusts.............................................................................. 20
FACTS ABOUT THE CONTRACT......................................................................... 21
Who May be Covered........................................................................... 21
Payments .................................................................................... 22
Right to Cancel ("Free Look" Period)......................................................... 23
Making Payments.............................................................................. 23
Changing the Face Amount..................................................................... 26
Investment Base.............................................................................. 28
Charges Deducted from the Investment Base.................................................... 28
Charges to the Separate Account.............................................................. 30
Charges to Fund Assets....................................................................... 30
Guarantee Period............................................................................. 32
Net Cash Surrender Value..................................................................... 32
Partial Withdrawals.......................................................................... 33
Loans ....................................................................................... 34
Death Benefit Proceeds....................................................................... 35
Payment of Death Benefit Proceeds............................................................ 36
Dollar Cost Averaging........................................................................ 37
Right to Exchange Contract................................................................... 37
</TABLE>
3
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<TABLE>
<S> <C>
Income Plans................................................................................. 38
Reports to Contract Owners................................................................... 38
MORE ABOUT THE CONTRACT.......................................................................... 39
Using the Contract........................................................................... 39
Some Administrative Procedures............................................................... 41
Other Contract Provisions.................................................................... 41
Group or Sponsored Arrangements.............................................................. 42
Unisex Legal Considerations.................................................................. 43
Selling the Contracts........................................................................ 43
Tax Considerations........................................................................... 44
Our Income Taxes............................................................................. 47
Reinsurance ................................................................................. 47
ILLUSTRATIONS.................................................................................... 48
JOINT INSUREDS................................................................................... 56
Availability and Payments.................................................................... 56
Who May be Covered........................................................................... 56
Initial Payment.............................................................................. 56
Making Additional Payments................................................................... 56
Changing the Face Amount..................................................................... 57
Charges Deducted from the Investment Base.................................................... 57
Guarantee Period............................................................................. 57
Net Cash Surrender Value..................................................................... 57
Death Benefit Proceeds....................................................................... 57
Payment of Death Benefit Proceeds............................................................ 58
Right to Cancel ("Free Look" Period) or Exchange............................................. 58
Using the Contract........................................................................... 58
Other Contract Provisions.................................................................... 58
Income Plans................................................................................. 59
MORE ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK................................................. 60
Directors and Executive Officers............................................................. 60
Services Arrangement......................................................................... 61
State Regulation............................................................................. 61
Year 2000 ................................................................................... 61
Legal Proceedings............................................................................ 62
Experts ..................................................................................... 62
Legal Matters................................................................................ 62
Registration Statements...................................................................... 62
Financial Statements......................................................................... 62
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
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE HAVE NOT AUTHORIZED ANY PERSON TO
MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS.
4
<PAGE>
IMPORTANT TERMS
ATTAINED AGE: is the issue age of the insured plus the number of full years
since the contract date.
CASH SURRENDER VALUE: is equal to the investment base less the balance of any
deferred contract load we have not yet deducted and, depending on the date it is
calculated, less all or a portion of certain other charges not yet deducted,
plus any loan debt.
CONTRACT ANNIVERSARY: is the same date of each year as the contract date.
CONTRACT DATE: is used to determine processing dates, contract years and
contract anniversaries. It is usually the next business day following the
receipt of the initial payment at the Service Center. It is also referred to as
the policy date.
FACE AMOUNT: is the minimum death benefit as long as the Contract remains in
force. You can change the face amount; it may increase as a result of an
additional payment; or it may decrease as a result of a partial withdrawal.
FIXED BASE: On the contract date, the fixed base equals the cash surrender
value. From then on, the fixed base is calculated like the cash surrender value
except that the "investment base" reflects net premiums at 4% instead of the net
rate of return, and substitutes the guaranteed maximum cost of insurance rates
for the current rates. In addition, the fixed base is calculated without taking
into account loans or repayments. The fixed base is equivalent to the cash
surrender value for a comparable fixed benefit contract with the same face
amount and guarantee period. After the guarantee period, the fixed base is zero.
We use the fixed base to limit the mortality cost deduction and our right to
cancel the Contract during the guarantee period.
GUARANTEE PERIOD: is the time that the Contract is guaranteed to remain in force
regardless of investment experience, unless the loan debt exceeds certain
values. It is the period that a comparable fixed life insurance contract (with
the same face amount, payments made, guaranteed mortality table and loading)
would remain in force if credited with 4% interest per year.
IN FORCE DATE: is the date when the underwriting process is complete, the
initial payment is received and outstanding contract amendments (if any) are
received at the Service Center.
INVESTMENT BASE: is the amount available under a Contract for investment in the
Separate Account at any time.
ISSUE AGE: is the insured's age as of his or her birthday nearest the contract
date.
LOAN DEBT: is the sum of all outstanding loans on a Contract plus accrued
interest.
MONTHIVERSARY: is the same day each month as the contract date.
NET AMOUNT AT RISK: is the excess of the death benefit over the cash surrender
value.
NET CASH SURRENDER VALUE: is equal to cash surrender value less any loan debt.
NET SINGLE PREMIUM FACTOR: is used to determine the amount of death benefit
purchased by $1.00 of cash surrender value. We use this factor in the
calculation of the variable insurance amount to make sure that the Contract
always meets the guidelines of what constitutes a life insurance contract under
the Internal Revenue Code.
5
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PROCESSING DATES: are the contract date and the first day of each contract
quarter thereafter. Processing dates after the contract date are the days when
we deduct charges from the investment base.
PROCESSING PERIOD: is the period between consecutive processing dates.
VARIABLE INSURANCE AMOUNT: is computed daily by multiplying the cash surrender
value by the net single premium factor.
SUMMARY OF THE CONTRACT
-----------------------------------
WHAT THE CONTRACT PROVIDES
The Contract offers a choice of investments and an opportunity for the
Contract's investment base, net cash surrender value and death benefit to grow
based on investment results.
We don't guarantee that contract values will increase. Depending on the
investment results of the investment divisions you select, the investment base,
net cash surrender value and death benefit may go up or down on any day. You
bear the investment risk for any amount allocated to an investment division.
DEATH BENEFIT. The death benefit equals the face amount or variable insurance
amount, whichever is larger. The variable insurance amount increases or
decreases depending on the investment results of the investment divisions you
select. Therefore, the death benefit may go up or down, depending on investment
performance. However, it will never drop below the face amount. We will reduce
any death benefit by any loan debt.
TAX BENEFITS AND TAX CONSIDERATIONS. When issued on the basis of a standard
underwriting class and insuring a single individual, the Contract provides the
minimum death benefit required under federal tax law. However, due to lack of
guidance, there is some uncertainty in this regard with respect to Contracts
issued on a substandard basis and Contracts insuring joint insureds. By
satisfying the minimum death benefit requirement under federal tax law, the
Contract provides two important tax benefits:
1) Its death benefit is not subject to income tax;
2) Any increases in the Contract's cash surrender value are not taxable until
distributed from the Contract. (However, withdrawals from, or a full
surrender of, the Contract may be subject to tax.) Since the Contract is
designed to meet the 7-pay test at issue, loans from the Contract are
generally not taxable at the time they are taken. (However, if the
Contract terminates for any reason before the insured's death, adverse tax
consequences may result if you have loan debt. See "Tax Considerations.")
GUARANTEE PERIOD. Generally, during the guarantee period, we guarantee the
Contract will remain in effect and provide the death benefit regardless of
investment performance unless loan debt exceeds certain values. The face amount
selected and the amount of the initial payment determine the initial guarantee
period. Each subsequent payment will extend the guarantee period. The maximum
guarantee period is for the insured's life.
Choosing a guarantee period for the insured's lifetime provides certainty.
However, the face amount would be lower than for shorter guarantee periods. Your
own individual insurance needs and risk tolerance should determine your choice
in guarantee period length.
You should purchase the Contract for its death benefit. You may use the
Contract's net cash surrender value, as well as its death benefit, to provide
proceeds for various individual and business planning purposes. However, loans
and partial withdrawals will affect the net cash surrender value and death
benefit proceeds, and may cause the Contract to terminate. Because the Contract
is designed to provide benefits on a long-term basis, before purchasing a
Contract in connection with a specialized purpose, you should consider whether
the long-term nature of the Contract, its investment risks, and the potential
impact of any contemplated loans and
6
<PAGE>
partial withdrawals, are consistent with the purposes you may be considering.
Moreover, using a Contract for a specialized purpose may have tax consequences.
(See "Tax Considerations".)
AVAILABILITY AND PAYMENTS
We will issue a Contract for an insured up to age 75 (or up to age 80 for joint
insureds). We will consider issuing Contracts for insureds above age 75 on an
individual basis. Since we designed the Contract to comply with the 7-pay test
under federal tax law, you must elect a periodic payment plan providing for
payments for at least seven years when you apply for the Contract. We will
modify the payment plan, if necessary, to ensure that it does comply with the
7-pay test. The minimum initial payment is $4,000. For a discussion of the 7-pay
test, see "Tax Considerations".
You may prepay periodic payments through a single payment by adding a Single
Premium Immediate Annuity Rider ("SPIAR") to fund the Contract. We do not
allocate the amount applied to purchase the SPIAR to the Separate Account and we
don't consider it a payment to the Contract. (See "Payments Under a Combination
Periodic Payment Plan".) Pledging, assigning or gifting a Contract with a SPIAR
may have tax consequences to the contract owner. (See "Tax Considerations".)
We will not accept an initial payment that provides a guarantee period of less
than one year.
Subject to certain conditions, you may make additional unplanned payments (See
"Making Additional Payments.")
THE INVESTMENT BASE
A Contract's investment base is the amount available for investment at any time.
On the contract date (usually the next business day after our Service Center
receives your initial payment), the investment base is equal to the initial
payment. Afterwards, it varies daily based on the investment performance of your
selected investment divisions. You bear the risk of poor investment performance
and receive the benefit of favorable investment performance. You may wish to
consider diversifying your investment in the Contract by allocating the
investment base to two or more investment divisions.
THE INVESTMENT DIVISIONS
Payments are invested in investment divisions of the Separate Account.
Generally, through the first 14 days following the in force date, the initial
payment will be invested only in the investment division of the Separate Account
investing in the Money Reserve Portfolio. Afterwards, the investment base is
reallocated to up to five of the investment divisions. (See "Changing the
Allocation".)
ILLUSTRATIONS
We base illustrations in this Prospectus and illustrations used in connection
with the purchase of the Contract on hypothetical investment rates of return. We
don't guarantee these rates. They are illustrative only and are not a
representation of past or future performance. Actual rates of return may be more
or less than those shown in the illustrations. Actual values will be different
than those illustrated.
REPLACEMENT OF EXISTING COVERAGE
Generally, it is not advisable to purchase an insurance contract as a
replacement for existing coverage. Before you buy a Contract, ask your Merrill
Lynch Financial Consultant if changing, or adding to, current insurance
7
<PAGE>
coverage would be advantageous. Don't base your decision to replace existing
coverage solely on a comparison of contract illustrations.
RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR EXCHANGE
Once you receive the Contract, review it carefully to make sure it is what you
want. You may return a Contract for a refund within ten days after you receive
it. If you return the Contract during the "free look" period, we will refund the
payment without interest.
You may also exchange your Contract at any time for a contract with benefits
that do not vary with the investment results of a separate account.
DISTRIBUTIONS FROM THE CONTRACT
PARTIAL WITHDRAWALS. Beginning in Contract year 16, within certain limits you
may make withdrawals of your Contract's net cash surrender value. (See "Partial
Withdrawals".)
SURRENDERS. You may surrender your Contract at any time and receive the net cash
surrender value. The net cash surrender value equals the investment base minus:
- The balance of any deferred contract loading not yet deducted; and
- Other contract charges not yet deducted.
LOANS. You may borrow money from us, using your Contract as collateral, subject
to limits. We deduct loan debt from the amount payable on surrender of the
Contract and from any death benefit payable. Loan interest of 6% accrues daily
and, IF IT IS NOT PAID EACH YEAR, IT IS CAPITALIZED AND ADDED TO THE OUTSTANDING
LOAN AMOUNT. Depending upon investment performance of the investment divisions
and the amounts borrowed, loans may cause a Contract to lapse. If the Contract
lapses with loan debt outstanding, adverse tax consequences may result. Loan
debt is considered part of cash value used to calculate taxable gain. (See
"Loans" and "Tax Considerations--Tax Treatment of Loans and Other
Distributions".)
FEES AND CHARGES
INVESTMENT BASE CHARGES. We invest the entire amount of all premium payments in
the Separate Account. We then deduct certain charges from your investment base
on processing dates. These charges are:
- DEFERRED CONTRACT LOAD equal to 9% of each payment. It consists of a
sales load of 5%, a charge for federal taxes of 2% and a state and local
premium tax charge of 2%. For joint insureds the deferred contract load
equals 11% of each payment and consists of a sales load of 7%, a charge
for federal taxes of 2% and a state and local premium tax charge of 2%.
We deduct the deferred contract load in equal installments of .90% (1.1%
for joint insureds) of each payment. We make this deduction on the ten
Contract anniversaries following the date we receive and accept the
payment. However, in determining a Contract's net cash surrender value,
we subtract the balance of the deferred contract load not yet deducted.
- MORTALITY COST--on all quarterly processing dates after the contract
date, we deduct a cost for the life insurance coverage we provide (see
"Mortality Cost"); and
- NET LOAN COST--on each Contract anniversary, if there has been any loan
debt during the prior year, we deduct a net loan cost. It equals a
maximum of 2.0% of the loan debt per year (see "Charges Deducted From
the Investment Base" and "Net Loan Cost").
8
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SEPARATE ACCOUNT CHARGES. We deduct certain charges daily from the investment
results of the investment divisions in the Separate Account. These charges are:
- a MORTALITY AND EXPENSE RISK CHARGE deducted from all investment
divisions. It 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. It is currently equivalent to .34% annually at the
beginning of the year. It will never exceed .50% annually.
ADVISORY FEES AND FUND EXPENSES. The portfolios in the Funds pay monthly
advisory fees and other expenses. (See "Charges to Fund Assets".)
OTHER CHARGES. If you prepay periodic payments by purchasing a SPIAR, we will
deduct 5% of the single payment as a charge for the rider and any applicable
premium taxes. (See "Payments Under a Combination Periodic Payment Plan".)
JOINT INSUREDS
The Contract can provide coverage on the lives of two insureds with a death
benefit payable upon the death of the last surviving insured. Most of the
discussions in this Prospectus referencing a single insured may also be read as
though the single insured were the two insureds under a joint Contract. Those
discussions which are different for joint insureds are noted. (See "Joint
Insureds.")
THIS SUMMARY PROVIDES ONLY A BRIEF OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF
THE CONTRACT. THIS PROSPECTUS AND THE CONTRACT PROVIDE FURTHER DETAIL. YOU
SHOULD RETAIN THE CONTRACT TOGETHER WITH ITS ATTACHED APPLICATIONS, MEDICAL
EXAM(S), AMENDMENTS, RIDERS, AND ENDORSEMENTS. THESE ARE THE ENTIRE AGREEMENT
BETWEEN YOU AND US.
FOR THE DEFINITIONS OF SOME IMPORTANT TERMS USED IN THIS PROSPECTUS, SEE
"IMPORTANT TERMS."
FACTS ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
THE SEPARATE ACCOUNT, THE FUNDS, AND THE ZERO TRUSTS
ML LIFE INSURANCE COMPANY OF NEW YORK ("ML OF NEW YORK")
ML of New York ("we or us") is a stock life insurance company organized under
the laws of the State of New York on November 28, 1973. We are an indirect
wholly owned subsidiary of Merrill Lynch & Co., Inc. We are authorized to sell
life insurance and annuities in 9 states. We are also authorized to sell
variable life insurance and variable annuities in most of those jurisdictions.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S")
MLPF&S provides a world-wide broad range of securities brokerage and investment
banking services. It provides marketing services for us and is the principal
underwriter of the Contracts issued through the Separate Account. We retain
MLPF&S to provide services relating to the Contracts under a distribution
agreement. (See "Selling the Contracts".)
9
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CMA ACCOUNT REPORTING
If you have a Merrill Lynch Cash Management
Account-Registered Trademark-,* you may elect to have your
Contract linked electronically to your CMA account. We call this
the CMA Insurance Service. With this service, you will have
certain Contract information included as part of your regular
monthly CMA account statement. It will list the investment base
allocation, death benefit, net cash surrender value, loan debt and
any CMA account activity affecting the Contract during the month.
*Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
THE SEPARATE ACCOUNT
We established the Separate Account, a separate investment account, on December
4, 1991. It is registered with the Securities and Exchange Commission as a unit
investment trust under 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. The Separate
Account meets the definition of a separate account under the federal securities
laws. We use the Separate Account to support the Contract as well as other
variable life insurance contracts we issue. The Separate Account is also
governed by the laws of the State of New York, our state of domicile.
We own all of the assets in the Separate Account. We keep the Separate Account's
assets apart from our general account and any other separate accounts we 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 we conduct.
Obligations to contract owners and beneficiaries that arise under the Contract
are our obligations. Income, gains, and losses, whether or not realized, from
assets allocated to the Separate Account are, in accordance with the Contracts,
credited to or charged against the Separate Account without regard to our other
income, gains or losses. The assets in the Separate Account will always be at
least equal to the reserves and other liabilities of the Separate Account. If
the Separate Account's assets exceed the required reserves and other Contract
liabilities (which will always be at least equal to the aggregate investment
base allocated to the Separate Account under the Contracts), we may transfer the
excess to our general account.
There are currently 36 investment divisions in the Separate Account.
- Seven invest in Class A shares of a specific portfolio of the Merrill
Lynch Variable Series Funds, Inc. (the "Variable Series Funds").
- Ten invest in shares of a specific portfolio of the Merrill Lynch Series
Fund, Inc. (the "Series Fund").
- Two invest in shares of a specific portfolio of the AIM Variable
Insurance Funds, Inc. (the "AIM V.I. Funds").
- One invests in shares of a specific portfolio of the Alliance Variable
Products Series Fund, Inc. (the "Alliance Fund").
- Two invest in shares of a specific portfolio of the MFS Variable
Insurance Trust (the "MFS Trust").
- Fourteen invest in specific units of The Merrill Lynch Fund of Stripped
("Zero") U.S. Treasury Securities (the "Zero Trusts").
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On or about July 15, 1999, six additional investment divisions become available
in the Separate Account.
- Two invest in Class A shares of a specific portfolio of the Variable
Series Funds.
- One invests in shares of an additional portfolio of the Alliance Fund.
- One invests in shares of a portfolio of the Hotchkis and Wiley Variable
Trust (the "Hotchkis and Wiley Trust").
- One invests in Class A shares of a portfolio of the Mercury Asset
Management V.I. Funds, Inc. (the "Mercury V.I. Funds").
- One invests in units of the Zero Trust maturing on February 15, 2019.
On or about July 15, 1999, two investment divisions previously available under
the Separate Account (the International Equity Focus Fund and the Global Bond
Focus Fund) close to allocations of premiums and contract value.
For more information, see "The Funds" below. You'll find complete information
about the Funds and the Zero Trusts, including the risks associated with each
portfolio in the accompanying prospectuses. They should be read along with this
Prospectus.
Although the investment objectives and policies of certain Funds are similar to
the investment objectives and policies of other portfolios that may be managed
or sponsored by the same investment adviser, manager, or sponsor, we do not
represent or assure that the investment results will be comparable to any other
portfolio, even where the investment advisors or manager is the same.
Differences in portfolio size, actual investments held, fund expenses, and other
factors all contribute to differences in fund performance. For all of these
reasons, you should expect investment results to differ. In particular, certain
Funds available only through the Contract have names similar to funds not
available through the Contract. The performance of any fund not available
through the Contract is not indicative of performance of the similarly named
fund available through the Contract.
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 we furnish to you). When we allocate your
payments or investment base to an investment division, we purchase units based
on the value of a unit of the investment division as of the end of the valuation
period during which the allocation occurs. When we transfer or deduct amounts
out of an investment division, we redeem units in a similar manner. A valuation
period is each business day together with any non-business days before it. A
business day is any day the New York Stock Exchange is open or there's enough
trading in portfolio securities to materially affect the net asset value of an
investment division.
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. We determine 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
investment division for the valuation period and the charges to the Separate
Account.
For investment 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 investment divisions investing in the Zero Trusts, units of each Zero Trust
are valued at the sponsor's repurchase price, as explained in the prospectus for
the Zero Trusts.
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<PAGE>
CHANGES WITHIN THE SEPARATE ACCOUNT
We may make available additional investment divisions. We also have 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
our judgment, a portfolio no longer suits the purposes of the Contracts. This
may happen due to a change in laws or regulations, or a change in a portfolio's
investment objectives or restrictions, or because the portfolio is no longer
available for investment, or for some other reason. If necessary, we would get
prior approval from the New York State Insurance Department and the Securities
and Exchange Commission and any other required approvals before making such a
substitution.
Subject to any required regulatory approvals, we reserve 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, we also reserve 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.
THE FUNDS
Below we list the funds in which the investment divisions invest. There is no
guarantee that any fund or portfolio will be able to meet its investment
objective.
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.
MONEY RESERVE PORTFOLIO seeks to preserve capital, maintain liquidity and
achieve the highest possible current income consistent with those objectives by
investing in short-term money market securities.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO seeks to obtain the highest level of
current income consistent with the protection of capital afforded by investing
in 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
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<PAGE>
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 Fund Assets".)
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. Class A shares of seven of its portfolios are currently
available through the Separate Account. Class A shares of two additional
portfolios become available on or about July 15, 1999. The investment objectives
and certain investment policies of these Variable Series Funds portfolios are
described below.
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.
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
13
<PAGE>
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.
The investment division corresponding to this Fund closes to allocations of
premiums and contract value on or about July 15, 1999.
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.
The investment division corresponding to this Fund closes to allocations of
premiums and contract value on or about July 15, 1999.
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").
CAPITAL FOCUS FUND seeks to achieve the highest total investment return
consistent with prudent risk. To do this, management of the Fund uses a flexible
"fully managed" investment policy that shifts the emphasis among equity, debt
(including money market), and convertible securities.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
GLOBAL GROWTH FOCUS FUND seeks long-term growth of capital. The Fund invests in
a diversified portfolio of equity securities of issuers located in various
countries and the United States, placing particular emphasis on companies that
have exhibited above-average growth rates in earnings.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
The Variable Series Funds, as part of its operating expenses, pays an investment
advisory fee to MLAM. (See "Charges to Fund Assets".)
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<PAGE>
THE AIM V.I. FUNDS
The AIM V.I. Funds is registered with the Securities and Exchange Commission as
an open-end 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.
AIM V.I. CAPITAL APPRECIATION FUND seeks growth of capital through investment in
common stocks, with emphasis on medium- and small-sized growth companies. AIM
will be particularly interested in companies that are likely to benefit from new
or innovative products, services or processes, as well as those that have
experienced above average, long-term growth in earnings and have excellent
prospects for future growth. 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 AIM's
appraisal of the current or projected earnings of the companies issuing the
securities, or relative to current market values of assets owned by the
companies issuing the securities or relative to the equity markets generally.
Income is a secondary objective.
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, has served as an
investment adviser since its organization in 1976. Today, AIM together with its
subsidiaries, advises or manages over 110 investment portfolios, including the
Funds, encompassing a broad range of investment objectives. The AIM Variable
Insurance Funds Inc., as part of its operating expenses, pays an investment
advisory fee to AIM. (See "Charges to Fund Assets".)
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. One additional portfolio
becomes available on or about July 15, 1999. The investment objectives of these
Alliance Fund portfolios are described below.
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 is incidental to the objective of
capital growth. Because of the market risks inherent in any investment, the
selection of securities on the basis of their appreciation possibilities cannot
ensure against possible loss in value. This Fund is therefore not intended for
contract owners whose principal objective is assured income and conservation of
capital.
ALLIANCE QUASAR PORTFOLIO seeks growth of capital by pursuing aggressive
investment policies. The Fund invests principally in a diversified portfolio of
equity securities of any company and industry and in any type of security which
is believed to offer possibilities for capital appreciation, and invests only
incidentally for current income. The selection of securities based on the
possibility of appreciation cannot prevent loss in value. Moreover, because the
Fund's investment policies are aggressive, an investment in the Fund is risky
and is not intended for contract owners who want assured income or preservation
of capital.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
15
<PAGE>
Alliance is a Delaware limited partnership with principal offices at 1345 Avenue
of the Americas, New York, New York 10105. 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".)
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.
MFS EMERGING GROWTH SERIES will seek long-term growth of capital. The series
invests, under normal market conditions, at least 65% of its total assets in
common stocks and related securities, such as preferred stocks, convertible
securities and depositary receipts for those securities, of emerging growth
companies. These companies are companies that the series' adviser believes are
either early in their life cycle but have the potential to become major
enterprises or are major enterprises whose rates of earnings growth are expected
to accelerate.
MFS RESEARCH SERIES will seek to provide long-term growth of capital and future
income. The series invests, under normal market conditions, at least 80% of its
total assets in common stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts. The series focuses on companies
that the series' adviser believes have favorable prospects for long-term growth,
attractive valuations based on current and expected earnings or cash flow,
dominant or growing market share and superior management.
MFS, a Delaware corporation, 500 Boylston Street, Boston, Massachusetts 02116,
is a subsidiary of Sun Life of Canada (U.S.) Financial Service Holdings, Inc.,
which, in turn, is an indirect wholly owned subsidiary of Sun Life Assurance
Company of Canada. The MFS Trust, as part of its operating expenses, pays an
investment advisory fee to MFS. (See "Charges to Fund Assets".)
THE HOTCHKIS AND WILEY TRUST
The Hotchkis and Wiley Trust is registered with the Securities and Exchange
Commission as an open-end management investment company, and its adviser is
Hotchkis and Wiley. One of its mutual fund portfolios becomes available through
the Separate Account on or about July 15, 1999. The investment objective of this
Hotchkis and Wiley Trust portfolio is described below.
HOTCHKIS AND WILEY INTERNATIONAL VIP PORTFOLIO seeks to provide current income
and long term growth of income, accompanied by growth of capital. The Fund
invests at least 65% of its total assets in stocks in at least ten foreign
markets. Ordinarily, the Fund invests in stocks of companies located in the
developed foreign markets and invests at least 80% of its total assets in stocks
that pay dividends. It also may invest in stocks that don't pay dividends or
interest, but have growth potential unrecognized by the market or changes in
business or management that indicate growth potential. In investing the Fund,
Hotchkis and Wiley follows a value style. This means that it buys stocks that it
believes are currently undervalued by the market and thus have a lower price
than their true worth. Typical value characteristics include:
- low price-to-earnings ratio relative to the market
- high dividend yield relative to the market
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<PAGE>
- low price-to-book value ratio relative to the market
- financial strength
Stocks may be "undervalued" because they are part of an industry that is out of
favor with investors generally. Even in those industries, though, individual
companies may have high rates of growth of earnings and be financially sound. At
the same time, the price of their common stock may be depressed because
investors associate the companies with their industries. The value discipline
sometimes prevents investments in stocks that are in well-known indexes, like
the S&P 500 or similar foreign indexes.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
Hotchkis and Wiley, 725 S. Figueroa Street, Suite 4000, Los Angeles, California
90017-5400, is a division of MLAM. The Hotchkis and Wiley Trust, as part of its
operating expenses, pays an investment advisory fee to Hotchkis and Wiley. (See
"Charges to Fund Assets".)
THE MERCURY V.I. FUNDS
The Mercury V.I. Funds is registered with the Securities and Exchange Commission
as an open-end management investment company, and its adviser is Mercury Asset
Management International Ltd. Class A shares of one of its mutual fund
portfolios becomes available through the Separate Account on or about July 15,
1999. The investment objective of the Mercury V.I. U.S. Large Cap Fund is
described below.
MERCURY V.I. US. LARGE CAP FUND'S main goal is long-term capital growth. The
Fund invests primarily in a diversified portfolio of equity securities of large
cap companies (which are companies whose market capitalization is at least $5
billion) located in the U.S. that Fund management believes are undervalued or
have good prospects for earnings growth. The Fund may also invest up to 10% of
its assets in stocks of companies located in Canada.
The investment division corresponding to this Fund becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
Mercury Asset Management International Ltd. is located at 33 King William
Street, London EC4R 9AS, England. Its intermediate parent is Mercury Asset
Management Group Ltd. a London-based holding company. The ultimate parent of
Mercury Asset Management Group Ltd. is Merrill Lynch & Co., Inc. The Mercury
V.I. U.S. Large Cap Fund, as part of its operating expenses, pays an investment
advisory fee to Mercury Asset Management International Ltd. (See "Charges to
Fund Assets".)
SPECIAL RISKS OF CERTAIN 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
MLAM'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.
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<PAGE>
Because a substantial portion of the Global Growth Focus Fund's assets may be
invested on an international basis, you should be aware of certain risks, such
as fluctuations in foreign exchange rates, future political and economic
developments, different legal systems, and the possible imposition of exchange
controls or other foreign government laws or restrictions. An investment in the
Fund may be appropriate only for long-term investors who can assume the risk of
loss of principal, and do not seek current income.
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.
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.
For the Hotchkis and Wiley International VIP Portfolio, investing in emerging
market and other foreign securities involves certain risk considerations not
typically associated with investing in securities of U.S. issuers, including
currency devaluations and other currency exchange rate fluctuations, political
uncertainty and instability, more substantial government involvement in the
economy, higher rates of inflation, less government supervision and regulation
of the securities markets and participants in those markets, controls on foreign
investment and limitations on repatriation of invested capital and on the Fund's
ability to exchange local currencies for U.S. dollars, greater price volatility,
substantially less liquidity and significantly smaller capitalization of
securities markets, absence of uniform accounting and auditing standards,
generally higher commission expenses, delay in settlement of securities
transactions, and greater difficulty in enforcing shareholder rights and
remedies.
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 OPERATION OF 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. We are the legal owner of all Fund shares held in the Separate
Account. We have the right to vote on any matter put to vote at the Funds'
shareholder meetings. However, we will vote all Fund shares attributable to
Contracts according to instructions we receive from contract owners. We will
vote shares attributable to Contracts for which we receive no voting
instructions in the same proportion as shares in the respective investment
divisions for which we receive instructions. We will also vote shares not
attributable to Contracts in the same proportion as shares in the respective
divisions for which we received instructions. We
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<PAGE>
may vote Fund shares in our own right if any federal securities laws or
regulations, or their present interpretation, change to permit us to do so.
We determine the number of shares attributable to you by dividing your
Contract's investment base in a division by the net asset value of one share of
the corresponding portfolio. We count fractional votes.
Under certain circumstances, state regulatory authorities may require us 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.
We may also disregard instructions to vote for changes in the investment policy
or the investment adviser if it disapproves of the proposed changes. We 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 we disregard voting instructions, we will include a summary of our actions in
the next semi-annual report.
RESOLVING MATERIAL CONFLICTS. Shares of the Series Fund are available for
investment by us, 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 us or Merrill Lynch & Co., Inc.). Shares
of the Variable Series Funds, the AIM V.I. Funds, the Alliance Fund, the MFS
Trust, and the Hotchkis and Wiley Trust are sold to separate accounts of ours,
Merrill Lynch Life Insurance Company, and insurance companies not affiliated
with us or Merrill Lynch & Co., Inc. to fund benefits under variable life
insurance and variable annuity contracts, and may be sold to certain qualified
plans. Shares of the Mercury V.I. Funds are sold to separate accounts of ours,
Merrill Lynch Life Insurance Company, and may in the future be sold to insurance
companies not affiliated with us 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 our Separate Account and one
or more of the other separate accounts which invest in the Funds. In some cases,
it is possible that the differences could be considered "material conflicts."
Such a "material conflict" could also arise due to changes in the law (such as
state insurance law or federal tax law) which affect these different variable
life insurance and variable annuity separate accounts. It could also arise by
reason of differences in voting instructions from our contract owners and those
of the other insurance companies, or for other reasons. We will monitor events
to determine how to respond to conflicts. If a conflict occurs, we may need 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, we will take the action we believe
necessary to protect you consistent with applicable legal requirements.
ADMINISTRATIVE SERVICE ARRANGEMENTS. AIM has entered into an agreement with us
for administrative services for the AIM V.I. Funds in connection with the
Contracts. Under this agreement, AIM compensates us 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 us for administrative services for the Alliance Fund in
connection with the Contracts. Under this agreement, AFD compensates us in an
amount equal to a percentage of the average net assets of the Alliance Fund
attributable to the Contracts.
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MFS has entered into an agreement with MLIG for 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.
THE ZERO TRUSTS
The Zero Trusts are intended to provide safety of capital and a competitive
yield to maturity. The Zero Trusts purchase at a deep discount U.S.
Government-backed investments which make no periodic interest payments. When
held to maturity the investments should receive approximately a fixed yield. The
value of Zero Trust units before maturity varies more than it would if the Zero
Trusts contained interest-bearing U.S. Treasury securities of comparable
maturities.
The Zero Trust portfolios consist mainly of:
- bearer debt obligations issued by the U.S. Government stripped of their
unmatured interest coupons;
- coupons stripped from U.S. debt obligations; and
- receipts and certificates for such stripped debt obligations and
coupons.
The Zero Trusts currently available are shown below:
<TABLE>
<CAPTION>
TARGETED RATE OF RETURN TO
MATURITY AS
ZERO TRUST MATURITY DATE OF APRIL 9, 1999
- --------------------------------------------------------- ----------------------- ---------------------------
<S> <C> <C>
2000................................................... February 15, 2000 3.15%
2001................................................... February 15, 2001 3.37%
2002................................................... February 15, 2002 3.65%
2003................................................... August 15, 2003 3.71%
2004................................................... February 15, 2004 3.82%
2005................................................... February 15, 2005 3.72%
2006................................................... February 15, 2006 3.55%
2007................................................... February 15, 2007 3.72%
2008................................................... February 15, 2008 4.08%
2009................................................... February 15, 2009 4.14%
2010................................................... February 15, 2010 4.31%
2011................................................... February 15, 2011 4.29%
2013................................................... February 15, 2013 4.45%
2014................................................... February 15, 2014 4.58%
</TABLE>
An additional Zero Trust maturing on February 15, 2019 becomes available for
allocations of premium payments and contract value on or about July 15, 1999.
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 we need to sell them to pay benefits and make
reallocations. We pay the sponsor a fee for these transactions and are
reimbursed through the trust charge assessed to the divisions investing in the
Zero Trusts. (See "Charges to Divisions Investing in the Zero Trusts".)
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 return to maturity for the Zero Trust
20
<PAGE>
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") must be
taken into account in estimating a net rate of return for the Separate Account.
The net rate of return to maturity for the Separate Account depends on the
compound rate of return adjusted for these charges. It does not, however,
represent the actual return on a payment that we might receive under the
Contract on that date, since it does not reflect the charges for deferred
contract load, mortality costs and any net loan cost deducted from a Contract's
investment base (described in "Charges Deducted from the 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 return to maturity for
the Zero Trust units and the net rate of return to maturity for the Separate
Account will vary correspondingly.
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
You may apply for a Contract for an insured up to issue age 75. We will consider
issuing Contracts for insureds above age 75 on an individual basis. The
insured's issue age is his or her age as of the birthday nearest the contract
date. Before we'll issue a Contract, the insured must meet our medical and other
underwriting and insurability requirements.
We use two methods of underwriting:
- simplified underwriting, with no physical exam; and
- para-medical or medical underwriting with a physical exam.
Simplified underwriting is not available for insureds under age 35. The initial
payment plus the planned periodic payments elected and the age and sex of the
insured determine whether we'll do underwriting on a simplified or medical
basis. The maximum initial payment where a periodic payment plan is selected, or
the maximum initial payment plus the SPIAR payment where a combination periodic
plan is selected, that we will underwrite on a simplified basis is set out in
the charts below. (For more information on the SPIAR see "Payments Under a
Combination Periodic Payment Plan" below.)
<TABLE>
<CAPTION>
PERIODIC PLAN COMBINATION PERIODIC PLAN (SPIAR)
- --------------------------------------- --------------------------------------------
MAXIMUM MAXIMUM INITIAL
INITIAL PAYMENT PLUS
AGE PAYMENT AGE SPIAR PAYMENT
- --------------------------- ---------- --------------------------- ---------------
<S> <C> <C> <C>
0-29....................... $ 20,000
35-39...................... $ 4,000 30-39...................... 25,000
40-49...................... 5,000 40-49...................... 35,000
50-59...................... 7,500 50-59...................... 55,000
60-75...................... 10,000 60-75...................... 75,000
</TABLE>
However, if the face amount is above the minimum face amount required for an
initial payment (see "Selecting the Initial Face Amount" below), we will also
take "the net amount at risk" into account in determining the method of
underwriting. The net amount at risk is the death benefit minus the cash
surrender value.
We assign insureds to underwriting classes in calculating mortality cost
deductions. In assigning insureds to underwriting classes, we distinguish
between those insureds underwritten on a simplified basis and those on a
para-medical or medical basis. Under both the simplified and medical
underwriting methods we may issue
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<PAGE>
Contracts either in the standard or non-smoker underwriting class. We may also
issue Contracts on insureds in a "substandard" underwriting class. Individuals
in substandard classes have health or lifestyle factors less favorable than the
average person. For a discussion of the effect of underwriting classification on
mortality cost deductions, see "Mortality Cost".
For joint insureds, see "Joint Insureds".
PAYMENTS
To purchase a Contract you must complete an application and make a payment. You
select a periodic payment plan and the initial face amount at that time. The
amount of the initial payment depends in part on the periodic payment plan
you've selected. We won't, however, accept an initial payment for a specified
face amount that will provide a guarantee period of less than one year. You may
make additional payments. (See "Making Additional Payments".)
COVERAGE. Insurance coverage generally begins on the contract date. This is
usually the next business day following receipt of the initial payment at our
Service Center. We may provide temporary life insurance coverage under a
temporary insurance agreement. Under our underwriting rules, temporary life
insurance coverage may not exceed $250,000 and may not last more than 60 days.
BACKDATING. As provided for under state insurance law, you may backdate the
Contract to preserve the insured's age. However, you can't backdate more than
six months before the date the application was completed. We deduct cost of
insurance charges for the backdated period on the first processing date after
the contract date.
For joint insureds, see "Joint Insureds".
SELECTING A PERIODIC PAYMENT PLAN. When you select a periodic payment plan in
the application, you must specify the amount, duration and frequency of planned
payments. However, the minimum duration is seven contract years, the minimum
amount of planned payments is $4,000 per contract year, the amounts selected
must be level, and, in each contract year under the plan, the amount of planned
payments selected must equal the initial payment. In addition, the plan must
comply with the 7-pay test. We will modify the periodic payment plan selected,
if necessary, to ensure compliance with the 7-pay test. Once we approve the
plan, you may make any planned payment without any additional evidence of
insurability unless the payment increases the face amount. (See "Planned
Payments" below.)
SELECTING THE INITIAL FACE AMOUNT. You can specify the initial face amount,
within limits. The minimum initial face amount is the amount that would satisfy
the 7-pay test or, if greater, the face amount that would provide a guarantee
period for the insured's entire life assuming all planned payments for a
contract year are paid as of the first day of the contract year. (See "Initial
Guarantee Period" below.) IF YOU MAKE PLANNED PAYMENTS FOR A PERIOD SHORTER THAN
THE FIRST NINE CONTRACT YEARS (OR THE FIRST TEN CONTRACT YEARS IF THE ISSUE AGE
OF THE INSURED IS 71 OR OLDER), THE INSURED WILL NOT HAVE A GUARANTEE PERIOD FOR
HIS OR HER ENTIRE LIFE AT THE END OF THE PERIODIC PAYMENT PLAN ASSUMING ALL
PAYMENTS ARE MADE AS PLANNED. The maximum face amount you may specify is the
amount which will provide the minimum guarantee period. In New York, this is one
year. The initial face amount and initial payment determine the initial
guarantee period. If the initial face amount is more than the minimum, the
guarantee period will be shorter.
INITIAL GUARANTEE PERIOD. We determine the initial guarantee period for a
Contract based on the initial payment and face amount. It will not take the
planned payments into account. Instead, the guarantee period will be adjusted as
you make each payment. THE GUARANTEE PERIOD IS THE PERIOD OF TIME WE GUARANTEE
THAT THE CONTRACT WILL REMAIN IN FORCE REGARDLESS OF INVESTMENT EXPERIENCE
UNLESS THE LOAN DEBT EXCEEDS CERTAIN CONTRACT VALUES. We base the guarantee
period on the guaranteed maximum cost of insurance rates in the Contract, the
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<PAGE>
deferred contract load and a 4% interest assumption. This means that for a given
initial payment and face amount different insureds will have different guarantee
periods depending on their age, sex and underwriting class. For example, an
older insured will have a shorter guarantee period than a younger insured of the
same sex and in the same underwriting class.
RIGHT TO CANCEL ("FREE LOOK" PERIOD)
You may cancel your Contract during the "free look" period by returning it for a
refund. The "free look" period ends 10 days after you receive the Contract. To
cancel the Contract during the "free look" period, you must mail or deliver the
Contract to our Service Center or to the Financial Consultant who sold it. We
will refund your payment without interest. We may require you to wait six months
before applying for another contract.
MAKING PAYMENTS
After the end of the "free look" period, you may make payments under a periodic
plan. You may also make unplanned payments.
PAYMENTS UNDER A PERIODIC PLAN. Planned periodic payments are subject to our
rules. Failure to pay planned payments will not necessarily cause a Contract to
lapse. Conversely, unless the guarantee period is in effect, PAYING ALL PLANNED
PAYMENTS ON A TIMELY BASIS WILL NOT NECESSARILY PREVENT A CONTRACT FROM LAPSING.
Failure to make a planned payment will, however, affect the guarantee period. In
addition, if you make a planned payment before the date specified for payment,
you may affect your Contract's compliance with the 7-pay test. (See "Tax
Considerations") After the end of the guarantee period, we may cancel a Contract
if the net cash surrender value on a processing date is negative. (See
"Guarantee Period".)
You may elect another periodic payment plan at a date later than in the
application. The amount and duration of the payments elected, as well as other
factors, such as the face amount specified and the insured's age and sex, will
affect whether we will require additional evidence of insurability. Currently,
we won't allow the later election of a plan where additional evidence of
insurability would put the insured in a different underwriting class with
different guaranteed or higher current cost of insurance rates. Payments under a
periodic payment plan may not be made until after the first contract year.
You may make planned payments annually, semiannually or quarterly. Payments
under a periodic payment plan may not be made until after the first contract
year. You may also make payments on a monthly basis if you authorize us to
deduct the payment from your checking account (pre-authorized checking) or to
withdraw the payment from your CMA account. We reserve the right to change the
procedures or discontinue your ability to make planned payments. If you have the
CMA Insurance Service, planned payments under any of the above frequencies may
be withdrawn automatically from your CMA account and transferred to your
Contract. The withdrawals will continue under the plan specified until you
notify us otherwise. For planned payments not made under pre-authorized checking
or withdrawn from a CMA account, we will send you reminder notices.
You may change the frequency, duration, and the amount of planned payments by
sending a written request to our Service Center. Each contract year you may
request one change in the amount, one change in the duration, and one change in
the frequency of payments. However, before we permit an increase in the duration
or the amount of payments, we may require satisfactory evidence of insurability.
If you change the frequency, duration, or the amount of planned payments, you
may affect your Contract's compliance with the 7-pay test. ("See Tax
Considerations.")
PAYMENTS UNDER A COMBINATION PERIODIC PAYMENT PLAN. You may add a SPIAR to your
Contract. This rider can be used as a convenient means to pre-pay planned
payments through a single deposit. It provides a fixed
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<PAGE>
income for six years or more to fund the Contract. Under this funding plan, a
Contract should receive the favorable tax treatment under the 7-pay test.
The charge for this rider equals 5% of the amount you deposit in the rider. We
deduct the charge directly from the single payment. This charge pays for
distribution, issuance, and administrative expenses related to the rider. This
charge is in addition to the deferred contract loading chargeable to payments
made to the Contract from SPIAR income payments. We also deduct a charge for
state premium taxes directly from the single payment.
We don't allocate the deposit applied to purchase the SPIAR to the Separate
Account and it is not considered a payment to the Contract. Thus, the rider has
no affect on your Contract's loan value. Income payments from the SPIAR applied
to the Contract are, however, considered payments to the Contract when applied.
We hold the reserves for the SPIAR in our general account.
If the insured dies before the income period ends, we will pay the rider value
in a lump sum to the beneficiary under the Contract. For tax purposes, this
payment won't be considered part of the life insurance death benefit under the
Contract.
If you surrender the rider before the end of the income period, we will pay the
rider value over five years or apply it to a lifetime income, as selected.
If you change ownership of the Contract, we will change the owner of the SPIAR
to the new owner of the contract.
If you die before the income period ends, we will pay the remaining income
payments to the new owner.
If the Contract ends:
- because the insured dies (where the contract owner is not the insured),
- because we terminate the Contract, or
- because you surrender the Contract for its net cash surrender value,
we will continue the SPIAR under the same terms. Alternatively, you may choose
one of the options available upon surrender of the rider.
If you pledge, assign, or make a gift of a Contract with the SPIAR, you may have
tax consequences. You should consult your tax advisor before assigning,
pledging, or gifting a Contract with the SPIAR. For a discussion of the tax
issues associated with use of a SPIAR, see "Tax Considerations".
The combination periodic plan is not available under a Contract insuring two
persons.
PAYMENTS NOT UNDER A PERIODIC PLAN. You may make additional payments not under a
periodic payment plan provided the attained age of the insured is not over 80.
You may make additional payments up to four times each contract year, and each
payment must be at least $500. You need to use an Application for Additional
Payment. You may make these unplanned payments whether or not you're making
planned payments. If you make an unplanned payment, you may affect your
Contract's compliance with the 7-pay test (See "Tax Considerations").
We may require satisfactory evidence of insurability before we accept a payment:
- if the payment immediately increases the net amount at risk under the
Contract, or
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<PAGE>
- if the contract owner is already making planned payments, or
- if the guarantee period at the time of the payment is one year or less.
Currently, we won't accept an additional payment which is not under a periodic
plan where the evidence of insurability would put the insured in a different
underwriting class with different guaranteed or higher current cost of insurance
rates.
If an additional payment requires evidence of insurability, we will invest that
payment in the division investing in the Money Reserve Portfolio on the business
day after we receive it. Once we complete the underwriting and accept the
payment, we will credit the payment to your Contract and allocate the payment
either according to instructions or, if we don't get instructions,
proportionately to the investment base in the Contract's investment divisions.
EFFECT OF ADDITIONAL PAYMENTS. We will generally accept any additional payment
not requiring evidence of insurability the day we receive it. However, if
accepting the payment would affect your Contract's compliance with the 7-pay
test, to the extent feasible, we will not accept that payment until you confirm
your intent to make that payment under those circumstances. If we hold the
payment pending receipt of instructions, we will deposit the payment in our
general account and credit it with interest until we return or accept the
payment. In addition, planned payments received on the day before a due date
will be credited on the due date to facilitate compliance with the 7-pay test;
however, we will return to you planned payments received more than one day
before a due date with instructions for timing planned payments to facilitate
compliance with the 7-pay test.
On the date we accept an additional payment we will:
- increase the Contract's investment base by the amount of the payment;
- increase the deferred contract load (see "Deferred Contract Load");
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount"); and
- increase the fixed base by the amount of the payment less the deferred
contract load applicable to the payment.
If an additional payment requires evidence of insurability, once we complete
underwriting and accept the payment, the additional payment will be reflected in
contract values as described above.
As of the processing date on or next following receipt and acceptance of an
additional payment, we will increase either the guarantee period or face amount
or both. If the guarantee period before acceptance of an additional payment is
less than for life, we will first use payments to extend the guarantee period.
Any amount greater than that required to extend the guarantee period to the
insured's lifetime or any subsequent additional payment will be used to increase
the Contract's face amount.
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<PAGE>
The Examples below show the effect of additional payments.
If the guarantee period is for the insured's entire life at the time we receive
and accept an additional payment (which means that planned periodic payments
have been made through contract year 9), as of the processing date on or next
following the date of the additional payment, we will increase the face amount
to the amount that the Contract's fixed base, as of such processing date, would
support for the life of the insured.
Under these circumstances the amount of the increase in face amount will depend
on the amount of the additional payment and the contract year in which we
receive and accept it. If you make additional payments of different amounts at
the same time to equivalent Contracts, the Contract to which the larger payment
is applied would have a proportionately larger increase in face amount. And if
you make additional payments of the same amounts in earlier and later years,
those made in the later years would result in smaller increases to the face
amount.
Example 1 shows the effect on face amount of a $2,000 additional payment
received and accepted at the beginning of contract year ten. Example 2 shows the
effect of a $4,000 additional payment received and accepted at the beginning of
contract year ten. Example 3 shows the effect of a $2,000 additional payment
received and accepted at the beginning of contract year eleven. All three
examples assume that the guarantee period at the time of the additional payment
is for life and assume no other contract transactions have been made.
MALE ISSUE AGE: 55
PAYMENTS: INITIAL PAYMENT PLUS 8 PERIODIC PAYMENTS OF $7,500
FACE AMOUNT: $107,682
<TABLE>
<CAPTION>
EXAMPLE 1
- ----------------------------------------------------------------------------------------------
ADDITIONAL CHANGE IN NEW FACE
CONTRACT YEAR PAYMENT FACE AMOUNT AMOUNT
- ------------------------------------------------------ ----------- ------------- ----------
<S> <C> <C> <C>
10.................................................... $ 2,000 $ 3,087 $ 110,769
<CAPTION>
EXAMPLE 2
- ----------------------------------------------------------------------------------------------
ADDITIONAL CHANGE IN NEW FACE
CONTRACT YEAR PAYMENT FACE AMOUNT AMOUNT
- ------------------------------------------------------ ----------- ------------- ----------
<S> <C> <C> <C>
10.................................................... $ 4,000 $ 6,176 $ 113,858
<CAPTION>
EXAMPLE 3
- ----------------------------------------------------------------------------------------------
ADDITIONAL CHANGE IN NEW FACE
CONTRACT YEAR PAYMENT FACE AMOUNT AMOUNT
- ------------------------------------------------------ ----------- ------------- ----------
<S> <C> <C> <C>
11.................................................... $ 2,000 $ 3,016 $ 110,698
</TABLE>
Unless you specify otherwise, if there is any loan debt, we will apply any
unplanned payment made as a loan repayment and we will return any excess amount
to you. (See "Loans".)
For joint insureds, see "Joint Insureds".
CHANGING THE FACE AMOUNT
After the first contract year, if the insured is in a standard or non-smoker
underwriting class, you may request a change in the face amount of your Contract
without making an additional payment or taking a partial withdrawal, subject to
the rules and conditions discussed below. We won't permit a change in face
amount if the
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<PAGE>
insured's attained age is over 80. The minimum change in face amount is $10,000,
and only one change may be made each contract year. A change in face amount may
affect the mortality cost deduction. (See "Mortality Cost".)
The effective date of the change will be the next processing date following the
receipt and acceptance of a written request, provided our Service Center
receives it at least seven days before the processing date.
INCREASING THE FACE AMOUNT. To increase the face amount of a Contract, we may
require satisfactory evidence of insurability. When the face amount is
increased, the guarantee period is decreased. The maximum increase in face
amount is the amount that provides the minimum guarantee period for which we
issue a Contract at the time of the request based on the insured's attained age.
Currently, we won't permit an increase in face amount where evidence of
insurability, if required, would put the insured in a different underwriting
class with different guaranteed or higher current cost of insurance rates.
DECREASING THE FACE AMOUNT. When you decrease the face amount of a Contract, we
increase the guarantee period. The maximum decrease in face amount is that
decrease which would provide the minimum face amount for which we'd issue a
Contract at the time of the request based on the insured's attained age, sex and
underwriting class. We won't permit a decrease in face amount below the amount
required to keep the Contract qualified as life insurance under federal income
tax laws.
DETERMINING THE NEW GUARANTEE PERIOD. As of the effective date of any change in
face amount, we use the fixed base on that date and, based on the attained age
and sex of the insured and the new face amount, we redetermine the guarantee
period. We use a 4% interest assumption and the guaranteed maximum cost of
insurance rates in these calculations. The examples below show the effect of
changing the face amount. Examples 1 and 2 show the effect on the guarantee
period of an increase in face amount of $10,000 and $20,000 made at the
beginning of contract year eight. Example 3 shows the effect on the guarantee
period of an increase in face amount of $10,000 made at the beginning of
contract year ten. All three examples assume no other contract transactions have
been made.
MALE ISSUE AGE: 55
PAYMENTS: INITIAL PAYMENT PLUS 6 PERIODIC PAYMENTS OF $7,500
FACE AMOUNT: $107,682
<TABLE>
<CAPTION>
EXAMPLE 1
- ---------------------------------------------------------------------------------------------
DECREASE IN
INCREASE IN GUARANTEE
CONTRACT YEAR FACE AMOUNT PERIOD
- ----------------------------------------------------------------- ----------- -------------
<S> <C> <C>
8................................................................ $ 10,000 2.00 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 2
- ---------------------------------------------------------------------------------------------
DECREASE IN
INCREASE IN GUARANTEE
CONTRACT YEAR FACE AMOUNT PERIOD
- ----------------------------------------------------------------- ----------- -------------
<S> <C> <C>
8................................................................ $ 20,000 3.50 years
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 3
- ---------------------------------------------------------------------------------------------
DECREASE IN
INCREASE IN GUARANTEE
CONTRACT YEAR FACE AMOUNT PERIOD
- ----------------------------------------------------------------- ----------- -------------
<S> <C> <C>
10............................................................... $ 10,000 1.75 years
</TABLE>
For joint insureds, see "Joint Insureds".
27
<PAGE>
INVESTMENT BASE
A Contract's investment base is the sum of the amounts invested in each of the
investment divisions. On the contract date, the investment base equals the
initial payment. We adjust the investment base daily to reflect the investment
performance of the investment divisions you've selected. (See "Net Rate of
Return for an Investment Division".) The investment performance reflects the
deduction of Separate Account charges. (See "Charges to the Separate Account".)
Deductions for deferred contract load, mortality cost, and net loan cost, and
partial withdrawals and loans, decrease the investment base. (See "Charges
Deducted from the Investment Base", "Partial Withdrawals", and "Loans".) Loan
repayments and additional payments increase it. You may elect from which
investment divisions loans and partial withdrawals are taken and to which
investment divisions repayments and additional payments are added. If you don't
make an election, we will allocate increases and decreases proportionately to
your investment base in the investment divisions selected. (For special rules on
allocation of additional payments which require evidence of insurability, see
"Payments Not Under a Periodic Plan".)
INITIAL INVESTMENT ALLOCATION AND PREALLOCATION. Generally, during the first 14
days following the in force date, the initial payment will remain in the
division investing in the Money Reserve Portfolio. Afterward, we'll reallocate
the investment base to the investment divisions you've selected. You may invest
in up to five of the investment divisions.
CHANGING THE ALLOCATION. Currently, you may change investment allocations as
often as you wish. However, we may limit the number of changes permitted but not
to less than five each contract year. We'll notify you if we impose any
limitations. To change your investment base allocation, call or write our
Service Center. (See "Some Administrative Procedures".) If the "free look"
period has expired, we will make the change as soon as we receive your request.
You may give allocation requests during the "free look" period and the
allocation will be made immediately following the end of the "free look" period.
A dollar cost averaging feature may also be available. (See "Dollar Cost
Averaging".)
ZERO TRUST ALLOCATIONS. If your investment base is in any of the Zero Trusts,
we'll notify you 30 days before that Trust matures. Tell us in writing at least
seven days before the maturity date how to reinvest the proceeds. If you don't
tell us, we'll move the proceeds to the investment division investing in the
Money Reserve Portfolio. When we receive a request for allocation, units of a
specific Zero Trust may no longer be available. Should this occur, we'll attempt
to notify you immediately so that you can change the request.
ALLOCATION TO THE DIVISION INVESTING IN THE NATURAL RESOURCES PORTFOLIO. We
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
We deduct the charges described below to cover costs and expenses, services
provided, and risks assumed under the Contracts. The amount of a charge may not
necessarily correspond to the costs associated with providing the services or
benefits indicated by the designation of the charge or associated with the
particular Contract. For example, the deferred contract load may not fully cover
all of the sales and distribution expenses we actually incur. We may use
proceeds from other charges, including the mortality and expense risk charge, in
part to cover such expenses.
We deduct these charges pro-rata from the investment base on processing dates.
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<PAGE>
DEFERRED CONTRACT LOAD. We assess a deferred contract load charge of 9% of each
payment. This charge consists of a sales load, a charge for federal taxes and a
state and local premium tax charge.
The sales load is equal to 5% of each payment. We may reduce the sales load if
cumulative payments are sufficiently high to reach certain breakpoints (2% of
payments in excess of $1.5 million and 0% of payments in excess of $4 million)
and in certain group or sponsored arrangements.
The charge for federal taxes is equal to 2% of each payment.
The state and local premium tax charge is equal to 2% of each payment.
Although chargeable to each payment, we advance the amount of the deferred
contract load to the investment divisions as part of your investment base. We
then take back these funds in equal installments of .90% on the ten contract
anniversaries following the date we receive and accept a payment. However, in
determining the cash surrender value, we subtract from the investment base the
balance of the deferred contract load chargeable to any payment made that has
not yet been deducted.
For joint insureds, see "Joint Insureds".
MORTALITY COST (COST OF INSURANCE). We deduct a mortality cost from the
investment base on each processing date after the contract date. This charge
compensates us for the cost of providing life insurance coverage on the insured.
It is based on the insured's underwriting class, sex and attained age, and the
Contract's net amount at risk.
To determine the mortality cost, we multiply the current cost of insurance rate
by the Contract's net amount at risk. The net amount at risk is the difference,
as of the previous processing date, between the death benefit and the cash
surrender value adjusted for interest at 4%.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates. For all insureds, current cost of insurance rates
distinguish between insureds in the simplified underwriting class and medical
underwriting class. For insureds age 20 and over, current cost of insurance
rates also distinguish between insureds in a smoker (standard) underwriting
class and insureds in a non-smoker underwriting class. For Contracts issued on
insureds under the same underwriting method, current cost of insurance rates are
lower for non-smokers than for smokers. Also, current cost of insurance rates
are lower for an insured in a medical underwriting class than for a similarly
situated insured in a simplified underwriting class. The simplified current cost
of insurance rates are higher because we perform less underwriting and therefore
we incur more risk.
We guarantee that the current cost of insurance rates will never exceed the
maximum guaranteed rates shown in the Contract. The maximum guaranteed rates for
Contracts (except those issued on a substandard basis) do not exceed the rates
based on the 1980 Commissioners Standard Ordinary Mortality Table (1980 CSO
Table). We may use rates that are equal to or less than these rates, but never
greater. The maximum rates for Contracts issued on a substandard basis are based
on a multiple of the 1980 CSO Table. Any change in the cost of insurance rates
will apply to all insureds of the same age, sex and underwriting class whose
Contracts have been in force for the same length of time.
During the period between processing dates, the cash surrender value takes the
mortality cost into account on a pro-rated basis. Thus, we deduct a pro-rata
portion of the mortality cost in determining the amount payable on surrender of
the Contract if the date of surrender is not a processing date.
29
<PAGE>
For joint insureds, see "Joint Insureds".
MAXIMUM MORTALITY COST. During the guarantee period, we limit the deduction for
mortality cost if investment results are unfavorable. This is done by
substituting the fixed base for the cash surrender value in determining the net
amount at risk and multiplying this amount by the guaranteed cost of insurance
rate. We will deduct this alternate amount from the investment base when it is
less than the mortality cost that would normally have been deducted.
NET LOAN COST. The net loan cost is explained under "Loans".
CHARGES TO THE SEPARATE ACCOUNT
Each day we deduct a mortality and expense risk charge from each division of the
Separate Account. The total amount of this charge is .90% annually at the
beginning of the year. Of this amount, .75% is for
- the risk we assume that insureds as a group will live for a shorter time
than actuarial tables predict. As a result, we would be paying more in
death benefits than planned; and
- the risk we assume that it will cost us more to issue and administer the
Contracts than expected.
The remaining amount, .15%, is for
- the risks we assume for potentially unfavorable investment results. One
risk is that the Contract's cash surrender value cannot cover the
charges due during the guarantee period. The other risk is that we may
have to limit the deduction for mortality cost (see "Maximum Mortality
Cost" above).
If the mortality and expense risk charge is not enough to cover the actual
expenses of mortality, maintenance, and administration, we will bear the loss.
If the charge exceeds the actual expenses, the excess will be added to our
profit and may be used to finance distribution expenses. We cannot increase the
total charge.
CHARGES TO DIVISIONS INVESTING IN THE ZERO TRUSTS. We assess a daily trust
charge against the assets of each division investing in the Zero Trusts. This
charge reimburses us 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. We may increase it, but it won't exceed
.50% annually at the beginning of the year. The charge is based on cost with no
expected profit.
TAX CHARGES. We have the right under the Contract to impose a charge against
Separate Account assets for its taxes, if any. We don't currently impose such a
charge, but we may in the future. Also, see above for a discussion of tax
charges included in deferred contract load.
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.
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<PAGE>
We have 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. We 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 at an annual rate of
the average daily net assets of each portfolio. The fee for each is shown as
follows:
<TABLE>
<CAPTION>
PORTFOLIO NAME ADVISORY FEE
- ---------------------------------------------------------------------------------------------- ---------------
<S> <C>
Basic Value Focus Fund........................................................................ .60%
Global Bond Focus Fund........................................................................ .60%
Global Utility Focus Fund..................................................................... .60%
Index 500 Fund................................................................................ .30%
International Equity Focus Fund............................................................... .75%
Develop Capital Markets Focus Fund............................................................ 1.00%
Special Value Focus Fund...................................................................... .75%
Capital Focus Fund............................................................................ .60%
Global Growth Focus Fund...................................................................... .75%
</TABLE>
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
greater than 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 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 at an annual rate of 1.00% of each of
the Alliance Premier Growth Portfolio's and the Alliance Quasar Portfolio's
average daily net assets.
CHARGES TO MFS TRUST ASSETS. The MFS Trust incurs operating expenses and pays a
monthly advisory fee to MFS at an annual rate of .75% of the average daily net
assets of each of the MFS Emerging Growth Series and MFS Research Series.
CHARGES TO HOTCHKIS AND WILEY TRUST ASSETS. The Hotchkis and Wiley Trust incurs
operating expenses and pays a monthly advisory fee to Hotchkis and Wiley at an
annual rate of .75% of the average daily net assets of the Hotchkis and Wiley
International VIP Portfolio.
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<PAGE>
CHARGES TO MERCURY V.I. FUNDS ASSETS. The Mercury V.I. Funds incurs operating
expenses and pays a monthly advisory fee to Mercury Asset Management
International Ltd. at an annual rate of .65% of the average daily net assets of
the Mercury V.I. U.S. Large Cap Fund.
Mercury Asset Management International Ltd. has agreed to limit the operating
expenses paid by the Mercury V.I. U.S. Large Cap Fund for one year to 1.25% of
its average daily net assets.
GUARANTEE PERIOD
Subject to certain conditions, we guarantee that regardless of investment
performance the Contract will stay in effect for the guarantee period. Each
payment made will extend the guarantee period until it is for the insured's
lifetime. The guarantee period will be affected by a requested change in the
face amount and may also be affected by additional payments. A partial
withdrawal may affect the guarantee period in certain circumstances. We won't
cancel the Contract during the guarantee period unless any loan debt exceeds
certain contract values. We hold a reserve in our general account to support
this guarantee.
WHEN THE GUARANTEE PERIOD IS LESS THAN FOR LIFE. After the end of the guarantee
period, we will cancel the Contract if the net cash surrender value on a
processing date is negative. We will consider this negative cash surrender value
an overdue charge. (See "Charges Deducted from the Investment Base".)
We will notify you before canceling the Contract. You will then have 61 days to
pay these overdue charges. If we haven't received the required payment by the
end of this grace period, we'll cancel the Contract.
If we cancel a Contract, it may be reinstated while the insured is still living
if:
- You request the reinstatement within three years after the end of the
grace period;
- We receive satisfactory evidence of insurability; and
- You pay the reinstatement payment. The reinstatement payment is the
minimum payment for which we would then issue a Contract for the minimum
guarantee period with the same face amount as the original Contract,
based on the insured's attained age and underwriting class as of the
effective date of the reinstated Contract.
The effective date of a reinstated contract is the processing date on or next
following the date the reinstatement application is approved. Thus, if the
insured dies before the effective date of the reinstated Contract, we won't pay
a death benefit.
For joint insureds, see "Joint Insureds".
NET CASH SURRENDER VALUE
Because investment results vary daily, we don't guarantee any minimum net cash
surrender value. On a processing date the net cash surrender value equals:
- the Contract's investment base on that date;
- minus the balance of the 9% deferred contract load which has not yet
been deducted from the investment base (see "Deferred Contract
Loading").
If the date of calculation is not a processing date, we also subtract a pro-rata
portion of the mortality cost which would otherwise be deducted on the next
processing date. If the date of calculation is not a contract
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<PAGE>
anniversary and if there is loan debt, we will subtract a pro rata portion of
the net loan cost which would otherwise be deducted on the next contract
anniversary.
CANCELING TO RECEIVE NET CASH SURRENDER VALUE. A contract owner may cancel the
Contract at any time while the insured is living and receive the net cash
surrender value in a lump sum or under an income plan. You must make the request
in writing in a form satisfactory to us. All rights to death benefits will end
on the date you send the written request to us.
For joint insureds, see "Joint Insureds".
PARTIAL WITHDRAWALS
Currently, beginning in the sixteenth Contract year, you may make partial
withdrawals of amounts by submitting a request in a form satisfactory to us.
You may make one partial withdrawal each contract year. The minimum amount for
each partial withdrawal is $500. The maximum amount of partial withdrawals is
set forth below.
<TABLE>
<CAPTION>
CONTRACT YEAR MAXIMUM
- -------------------------------------------------------- ---------------------------------
<S> <C>
16...................................................... 25% of payments made
17...................................................... 50%
18...................................................... 75%
19+..................................................... 100%
</TABLE>
The amount of any partial withdrawal may not exceed the loan value less any loan
debt. The total amount of partial withdrawals may not exceed the amount of the
initial payment plus any additional payments made under the Contract. A partial
withdrawal may not be repaid.
The effective date of the withdrawal is the valuation date our Service Center
receives a withdrawal request. You may make one partial withdrawal each contract
year.
EFFECT ON INVESTMENT BASE, FIXED BASE, AND VARIABLE INSURANCE AMOUNT. As of the
effective date of the withdrawal, we reduce the investment base and fixed base
by the amount of the partial withdrawal. Unless you tell us differently, we
allocate this reduction proportionately to the investment base in your
investment divisions. In addition, we reduce the variable insurance amount on a
proportional basis to the amount of the withdrawal. This means the reduction in
the variable insurance amount will always be greater than the amount of the
withdrawal.
EFFECT ON GUARANTEED BENEFITS. As of the processing date on or next following a
partial withdrawal, we reduce the Contract's face amount. We do this by taking
the fixed base as of that processing date and determining what face amount that
fixed base would support for the Contract's guarantee period. If this produces a
face amount below the minimum face amount for the Contract, we will reduce the
face amount to that minimum, and then reduce the guarantee period, based on the
reduced face amount, the fixed base and the insured's sex, attained age and
underwriting class. The minimum face amount for a Contract is the greater of the
minimum face amount for which we would then issue the Contract, based on the
insured's sex, attained age, and underwriting class, and the minimum amount
required to keep the Contract qualified as life insurance under applicable tax
law.
The examples below show the effect of partial withdrawals. The amount of the
reduction in the face amount will depend on the amount of the partial
withdrawal, the guarantee period at the time of the withdrawal and
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<PAGE>
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 face amount than a smaller withdrawal. The same partial withdrawal made at
the same time from Contracts with the same face amounts but with different
guarantee periods would result in a greater reduction in the face amount for the
Contract with the longer guarantee period. A partial withdrawal made in a later
contract year would result in a smaller decrease in the face amount than if the
same amount was withdrawn in an earlier year.
Examples 1 and 2 show the effect on the face amount of partial withdrawals for
$5,000 and $10,000 taken at the beginning of contract year sixteen. Example 3
shows the effect on the face amount of a $10,000 partial withdrawal taken at the
beginning of contract year eighteen. All three examples assume no other contract
transactions have been made.
MALE ISSUE AGE: 55
PAYMENTS: INITIAL PAYMENT PLUS 6 PERIODIC PAYMENTS OF $7,500
FACE AMOUNT: $107,682
<TABLE>
<CAPTION>
EXAMPLE 1
- ---------------------------------------------------------------------------------------------
PARTIAL
CONTRACT YEAR WITHDRAWAL FACE AMOUNT
- ------------------------------------------------------------------ ----------- ------------
<S> <C> <C>
16................................................................ $ 5,000 $ 97,828
<CAPTION>
EXAMPLE 2
- ---------------------------------------------------------------------------------------------
PARTIAL
CONTRACT YEAR WITHDRAWAL FACE AMOUNT
- ------------------------------------------------------------------ ----------- ------------
<S> <C> <C>
16................................................................ $ 10,000 $ 86,906
<CAPTION>
EXAMPLE 3
- ---------------------------------------------------------------------------------------------
PARTIAL
CONTRACT YEAR WITHDRAWAL FACE AMOUNT
- ------------------------------------------------------------------ ----------- ------------
<S> <C> <C>
18................................................................ $ 10,000 $ 86,601
</TABLE>
If the reduction in face amount would be below the minimum face amount for a
Contract, we will reduce the face amount to the minimum face amount, and then
reduce the guarantee period by taking the Contract's fixed base as of the
processing date and determining how long that fixed base would support the
reduced face amount.
A PARTIAL WITHDRAWAL MAY AFFECT COMPLIANCE WITH THE 7-PAY TEST (SEE "TAX
CONSIDERATIONS").
LOANS
You may use the Contract as collateral to borrow funds from us. The minimum loan
is $200 unless you are borrowing to make a payment on another of our variable
life insurance contracts. In that case, you may borrow the exact amount required
even if it's less than $200.
TARGET LOAN AMOUNT. The target loan amount is equal to the investment base at
the time you take a loan, plus prior loans not repaid, plus prior withdrawals
made, less the initial and any additional payments you've made. We process loans
first from the target loan amount, if any, and then from amounts above the
target loan amount.
LOAN MECHANICS. When you take a loan, we transfer from your investment base the
amount of the loan and hold it as collateral in our general account. You may
repay all or part of the loan any time during the insured's lifetime. Each
repayment must be for at least $1,000 or the amount of the loan debt, if less.
We will allocate loan repayments first to loans above the target loan amount,
and then to loans from the target loan amount.
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<PAGE>
When you repay a loan, we transfer the amount of the repayment from the general
account to the investment divisions. You may select the divisions you want to
borrow from, and the divisions you want to repay (including interest payments).
If you don't specify, we'll take the borrowed amounts proportionately from and
make repayments proportionately to your investment base as then allocated to the
investment divisions. If you have the CMA Insurance Service, you can transfer
loans and loan repayments to and from your CMA account.
EFFECT ON DEATH BENEFIT AND CASH SURRENDER VALUE. Whether or not you repay a
loan, taking a loan will have a permanent effect on a Contract's cash surrender
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
surrender value will be higher as a result of the loan, as may be the death
benefit. Conversely, if the amount credited is less, the cash surrender value
will be lower, as may be the death benefit. In that case, the lower cash
surrender 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 surrender value.
The sum of all outstanding loan amounts plus accrued interest is called loan
debt. The maximum amount that can be borrowed at any time is the difference
between the loan value and the loan debt. The cash surrender value is the net
cash surrender value plus any loan debt.
INTEREST. While a loan remains unpaid, we charge interest of 6% annually.
Interest accrues each day and payments are due at the end of each contract year.
If you don't pay the interest when due, we add it to the unpaid loan amount.
Loan debt is considered part of cash value used to calculate gain. Interest paid
on a loan generally is not tax deductible (See "Tax Treatment of Loans and Other
Distributions").
The amount held in our general account as collateral for a loan earns interest
at a minimum rate of 4% annually. The amount held in our general account as
collateral for loans taken up to the target loan amount currently earns interest
at 6% annually.
NET LOAN COST. In addition to the loan interest we charge, on each contract
anniversary we reduce 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 add that amount to the amount held in the general
account as collateral for the loan. Since the interest charged and the
collateral earnings on the target loan amount currently are both 6% annually,
there is no net loan cost on loaned amounts up to the target loan amount. Since
the interest charged on amounts above the target loan amount is 6% and the
collateral earnings on such amounts are 4%, the net loan cost on such loaned
amounts is 2%. We take the net loan cost 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 LOAN DEBT. If the loan debt exceeds the larger of the
cash surrender value and the fixed base on a processing date, including a
processing date during the guarantee period, we will cancel the Contract 61 days
after we mail a notice of intent to terminate the Contract to you unless we have
received at least the minimum repayment amount specified in the notice.
DEATH BENEFIT PROCEEDS
We will pay the death benefit proceeds to the beneficiary when we receive all
information needed to process the payment, including due proof of the insured's
death. When we first receive reliable notification of the insured's death by a
representative of the owner or the insured, we may transfer the investment base
to the division investing in the Money Reserve Portfolio, pending payment of
death benefit proceeds.
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<PAGE>
AMOUNT OF DEATH BENEFIT PROCEEDS. The death benefit proceeds are the larger of
the face amount and the variable insurance amount, less any loan debt.
The values used in calculating the death benefit proceeds are as of the date of
death. If the insured dies during the grace period, the death benefit proceeds
equal the death benefit proceeds in effect immediately before the grace period
minus any overdue charges. (See "When the Guarantee Period is Less Than for
Life".)
VARIABLE INSURANCE AMOUNT. We determine the variable insurance amount daily by
multiplying the cash surrender value by the net single premium factor.
NET SINGLE PREMIUM FACTOR
We use the net single premium factor to determine the amount of
death benefit purchased by $1.00 of cash surrender value. It is
based on the insured's sex, underwriting class, and attained
age on the date of calculation. It decreases daily as the
insured's age increases. As a result, the variable insurance
amount as a multiple of the cash surrender value will decrease
over time. Also, net single premium factors may be higher for a
woman than for a man of the same age. Your contract contains a
table of net single premium factors as of each anniversary.
TABLE OF ILLUSTRATIVE NET SINGLE PREMIUM FACTORS
ON ANNIVERSARIES
STANDARD UNDERWRITING CLASS
<TABLE>
<CAPTION>
ATTAINED AGE MALE FEMALE
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
5................................................................... 10.26609 12.37715
15................................................................... 7.41160 8.96255
25................................................................... 5.50386 6.47763
35................................................................... 3.97199 4.64820
45................................................................... 2.87751 3.36402
55................................................................... 2.14059 2.48932
65................................................................... 1.65787 1.87555
75................................................................... 1.35396 1.45951
85................................................................... 1.18028 1.21264
</TABLE>
For joint insureds, see "Joint Insureds".
PAYMENT OF DEATH BENEFIT PROCEEDS
We will generally pay the death benefit proceeds to the beneficiary within seven
days after our Service Center receives all the information needed to process the
payment. We may delay payment, however, if we are contesting the Contract or
under the circumstances described in "Using the Contract" and "Other Contract
Provisions".
We will add interest from the date of the insured's death to the date of payment
at an annual rate of at least 4%. The beneficiary may elect to receive the
proceeds either in a single payment or under one or more income plans described
below.
For joint insureds, see "Joint Insureds".
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<PAGE>
DOLLAR COST AVERAGING
WHAT IS IT? Once the feature is approved and is available in your state, the
Contract will offer an optional transfer feature called Dollar Cost Averaging
("DCA"). Contact the Service Center about availability. This feature allows you
to make automatic monthly transfers from the Money Reserve Portfolio to up to
four other investment divisions depending on your current allocation of
investment base. The DCA program will terminate and no transfers will be made if
transfers under DCA would cause you to be invested in more than 5 divisions.
The DCA feature is intended to reduce the effect of short-term price
fluctuations on investment cost. Since the same dollar amount is transferred to
selected divisions each month, more units of a division are purchased when their
value is low and fewer units are purchased when their value is high. Therefore,
over the long haul a DCA program may let you buy units at a lower average cost.
However, a DCA program does not assure a profit or protect against a loss in
declining markets.
Once available, you can choose the DCA feature any time. Once you start using
it, you must continue it for at least three months. You can select a duration in
months for the DCA program. If you do not choose a duration we will make
reallocations at monthly intervals until the balance in the Money Reserve
Portfolio is zero. While the DCA program is in place any amount in the Money
Reserve Portfolio is available for transfer.
MINIMUM AMOUNTS. To elect DCA, you need to have a minimum amount in the Money
Reserve Portfolio. We determine the amount required by multiplying the specified
length of your DCA program in months by your specified monthly transfer amount.
If you do not select a duration we determine the minimum amount required by
multiplying your monthly transfer amount by 3 months. You must specify at least
$100 for transfer each month. Allocations may be made in specific whole dollar
amounts or in percentage increments of 1%. We reserve the right to change these
minimums.
Should the amount in your Money Reserve Portfolio be less than the selected
monthly transfer amount, we'll notify you that you need to put more money in the
Money Reserve Portfolio to continue DCA. If you do not specify a duration or the
specified duration has not been reached and the amount in the Money Reserve
Portfolio is less than the monthly transfer amount, the entire amount will be
transferred. Transfers are made based on your selected DCA percentage
allocations or are made pro-rata based on your specified DCA transfer amounts.
WHEN DO WE MAKE DCA TRANSFERS? We'll make the first DCA transfer on the first
monthiversary date after the later of the date our Service Center receives your
election or fourteen days after the in force date. We'll make additional DCA
transfers on each subsequent monthiversary. We don't charge for DCA transfers.
These transfers are in addition to reallocations permitted under the Contract.
RIGHT TO EXCHANGE CONTRACT
At any time, you may exchange your Contract for a contract with benefits that do
not vary with the investment results of a separate account. Your request must be
in writing. Also, you must return the original Contract to our Service Center.
The new contract will have the same owner, insured, and beneficiary as those of
the original Contract on the date of the exchange. It will also have the same
issue age, issue date, face amount, cash surrender value, benefit riders and
underwriting class as the original Contract on the date of the exchange. Any
loan debt will be carried over to the new contract.
We won't require evidence of insurability to exchange for a new "fixed"
contract.
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<PAGE>
For joint insureds, see "Joint Insureds".
INCOME PLANS
We offer several income plans to provide for payment of the death benefit
proceeds to the beneficiary. Payments under these plans do not depend on the
investment results of a separate account. You may choose one or more income
plans at any time during the insured's lifetime. If you haven't selected a plan
when the insured dies, the beneficiary has one year to apply the death benefit
proceeds either paid or payable to one or more of the plans. In addition, if you
cancel the Contract for its net cash surrender value, you may also choose one or
more income plans for payment of the proceeds.
We need to approve any plan where any income payment would be less than $100.
For joint insureds, see "Joint Insureds".
Income plans include:
- ANNUITY PLAN. An amount can be used to purchase a single premium
immediate annuity. (Annuity purchase rates will be enhanced by 3%.)
- INTEREST PAYMENT. You can leave amounts with us 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. We make payments in equal installments for up
to a fixed number of years.
- INCOME FOR LIFE. We make payments in equal monthly installments until
the death of a named person or the 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. We make payments in equal installments until
proceeds applied under this option and interest on the unpaid balance at
not less than 3% per year are exhausted.
- JOINT LIFE INCOME. We make payments 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.
UNDER THE INCOME FOR LIFE AND JOINT LIFE INCOME OPTIONS, OUR CONTRACTUAL
OBLIGATION MAY BE SATISFIED WITH ONLY ONE PAYMENT IF AFTERWARD THE NAMED PERSON
OR PERSONS DIES. IN ADDITION, ONCE IN EFFECT, SOME OF THE INCOME PLANS MAY NOT
PROVIDE ANY SURRENDER RIGHTS.
REPORTS TO CONTRACT OWNERS
After the end of each processing period, we will send you a statement showing
the allocation of your investment base, death benefit, cash surrender value, any
loan debt and, if there has been a change, new face amount and guarantee period.
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 your state.
You will receive confirmation of all financial transactions. These confirmations
will show the price per unit of each of your investment divisions, the number of
units you have 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".)
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<PAGE>
We will also send you 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.
MORE ABOUT THE CONTRACT
USING THE CONTRACT
OWNERSHIP. The contract owner is the insured, unless someone other than the
insured has been named as the owner in the application. The contract owner has
all rights and options described in the Contract.
If you are not the insured, you may want to name a contingent owner. If you die
before the insured, the contingent owner will own your interest in the contract
and have all your rights. If you don't name a contingent owner and you die
before the insured, your estate will then own your interest in the Contract.
If there is more than one contract owner, we will treat the owners as joint
tenants with rights of survivorship unless the ownership designation provides
otherwise. We may require completion of additional forms. The owners must
exercise their rights and options jointly, except that any one of the owners may
reallocate the Contract's investment base by phone if the owner provides the
personal identification number as well as the Contract number. One contract
owner must be designated, in writing, to receive all notices, correspondence and
tax reporting to which contract owners are entitled under the Contract.
CHANGING THE OWNER. During the insured's lifetime, you have the right to
transfer ownership of the Contract. However, if you've named an irrevocable
beneficiary, that person will need to consent. The new owner will have all
rights and options described in the Contract. The change will be effective as of
the date the notice is signed, but will not affect any payment we've made or
action we've taken before our Service Center receives the notice of the change.
Changing the owner may have tax consequences. (See "Tax Considerations".)
ASSIGNING THE CONTRACT AS COLLATERAL. You may assign the Contract as collateral
security for a loan or other obligation. This does not change the ownership.
However, your rights and any beneficiary's rights are subject to the terms of
the assignment. You must give satisfactory written notice at our Service Center
in order to make or release an assignment. We are not responsible for the
validity of any assignment. For a discussion of the tax issues associated with a
collateral assignment, see "Tax Considerations".
NAMING BENEFICIARIES. We will pay the primary beneficiary the death benefit
proceeds of the Contract on the insured's death. If the primary beneficiary has
died before the insured, we will pay the contingent beneficiary. If no
contingent beneficiary is living, we will pay the insured's estate.
You may name more than one person as primary or contingent beneficiaries. We
will pay proceeds in equal shares to the surviving beneficiaries unless the
beneficiary designation provides differently.
You have the right to change beneficiaries during the insured's lifetime.
However, if your primary beneficiary designation is irrevocable, the primary
beneficiary must consent when certain contract rights and options are exercised.
If you change the beneficiary, the change will take effect as of the date the
notice is signed, but will not affect any payment we've made or action we've
taken before our Service Center receives the notice of the change.
CHANGING THE INSURED. If permitted by state regulation, and subject to certain
requirements, you may request a change of insured once each contract year. We
must receive a written request signed by you and the proposed new insured.
Neither the original nor the new insured can have attained ages as of the
effective date of the change of less than 21 or more than 75. The new insured
must have been alive at the time the Contract was
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<PAGE>
issued. We will also require evidence of insurability for the proposed new
insured. The proposed new insured must qualify for a standard or better
underwriting classification. Outstanding loan debt must first be repaid and the
Contract cannot be under a collateral assignment. If we approve the request for
change, insurance coverage on the new insured will take effect on the processing
date on or next following the date of approval, provided the new insured is
still living at that time and the Contract is still in force.
We will change the Contract as follows on the effective date:
- the issue age will be the new insured's issue age (the new insured's age
as of the birthday nearest the contract date);
- the guaranteed maximum cost of insurance rates will be those in effect
on the contract date for the new insured's issue age, sex and
underwriting class;
- we will deduct a charge for changing the insured from the Contract's
investment base on the effective date. This charge will also then be
reflected in the Contract's fixed base. The charge will equal $1.50 per
$1,000 of face amount with a minimum charge of $200 and a maximum of
$1,500. This charge may be reduced in certain group or sponsored
arrangements;
- the variable insurance amount will reflect the change of insured; and
- the Contract's issue date will be the effective date of the change.
We may also change the face amount or guarantee period on the effective date
depending on the new insured's age, sex and underwriting class. The new
guarantee period cannot be less than the minimum guarantee period for which we
would then issue a Contract based on the new insured's attained age as of the
effective date of the change.
This option is not generally available for joint insureds.
For a discussion of the tax issues associated with changing the insured, see
"Tax Considerations".
MATURITY PROCEEDS. The maturity date is the contract anniversary nearest the
insured's 100th birthday. On the maturity date, we will pay you the net cash
surrender value, provided the insured is still living at that time and the
Contract is in effect at that time.
WHEN WE MAKE PAYMENTS. We generally pay death benefit proceeds, partial
withdrawals, loans and net cash surrender value within seven days after our
Service Center receives all the information needed to process the payment.
However, we may delay payment if it isn't practical for us to value or dispose
of Zero 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; or
- the Securities and Exchange Commission by order so permits for the
protection of contract owners.
For joint insureds, see "Joint Insureds".
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SOME ADMINISTRATIVE PROCEDURES
We reserve the right to modify or eliminate the procedures described below. For
administrative and tax purposes, we may from time to time require that specific
forms be completed for certain transactions. These include reallocations, loans
and partial withdrawals.
PERSONAL IDENTIFICATION NUMBER. We will send you a four-digit personal
identification number ("PIN") shortly after the Contract is placed in force and
before the end of the "free look" period. You must give this number when you
call the Service Center to get information about the Contract, to make a loan
(if an authorization is on file), or to make other requests.
REALLOCATING THE INVESTMENT BASE. Contract owners can reallocate their
investment base either in writing or by telephone. If you request the
reallocation by telephone, you must give your PIN as well as your Contract
number. We will give a confirmation number over the telephone and then follow up
in writing.
REQUESTING A LOAN. You may request a loan in writing or, if all required
authorization forms are on file, by telephone. Once our Service Center receives
the authorization, you can call the Service Center, give your Contract number,
name and PIN, and tell us the loan amount and the divisions from which the loan
should be taken.
Upon request, we will wire the funds to the account at the financial institution
named on your authorization. We will generally wire the funds within two working
days of receipt of the request. If you have the CMA Insurance Service, funds may
be transferred directly to that CMA account.
REQUESTING PARTIAL WITHDRAWALS. Beginning in the sixteenth contract year, you
may request partial withdrawals in writing or by telephone if all required
telephone authorization forms are on file. Once our Service Center receives the
authorization, you can call the Service Center, give your Contract number, name
and PIN, and tell us how much to withdraw and from which investment divisions.
Upon request, we will wire the funds to the account at the financial institution
named on your authorization. We will usually wire the funds within two working
days of receipt of the request. If you have the CMA Insurance Service, funds can
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. We reserve the right to change procedures or discontinue ability
to make telephone transfers.
We 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. We will not be liable for following
telephone instructions that we reasonably believe to be genuine.
OTHER CONTRACT PROVISIONS
IN CASE OF ERRORS IN THE APPLICATION. If an age or sex stated in the application
is wrong, it could mean that the face amount or any other Contract benefit is
wrong. We will pay the correct benefits for the true age or sex.
INCONTESTABILITY. We will rely on statements made in the applications. We can
contest the validity of a Contract if any material misstatements are made in the
application. We can also contest the validity of any change in face
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amount requested if any material misstatements are made in any application
required for that change. In addition, we can contest any amount of death
benefit attributable to an additional payment if any material misstatements are
made in the application required with the additional payment.
We won't contest the validity of a Contract after it has been in effect during
the insured's lifetime for two years from the date of issue. We won't contest
any change in face amount after the change has been in effect during the
insured's lifetime for two years from the date of the change. Nor will we
contest any amount of death benefit attributable to an additional payment after
the death benefit has been in effect during the insured's lifetime for two years
from the date the payment was received and accepted.
PAYMENT IN CASE OF SUICIDE. If the insured commits suicide within two years from
the Contract's issue date, we will pay only a limited death benefit. The benefit
will be equal to the amount of the payments made.
If the insured commits suicide within two years of the effective date of any
increase in face amount requested, any amount of death benefit attributable to
the increase in the face amount will be limited to the amount of mortality cost
deductions made for the increase.
If the insured commits suicide within two years of any date an additional
payment is received and accepted, any amount of death benefit attributable to
the additional payment will be limited to the amount of the payment.
The death benefit will be reduced by any loan debt.
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. To maintain this qualification to the maximum
extent of the law, we reserve the right to return any additional payments that
would cause the Contract to fail to qualify as life insurance under applicable
federal tax law as we may interpret it. Further, we reserve the right to make
changes in the Contract or its riders or to make distributions from the Contract
to the extent necessary to continue to qualify the Contract as life insurance.
Any changes will apply uniformly to all Contracts that are affected and you will
be given advance written notice of such changes.
For joint insureds, see "Joint Insureds".
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the deferred 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 us 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. We take 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.
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We make any reductions according to rules in effect when an application for a
Contract or additional payment is approved. We may change these rules from time
to time. However, reductions in charges will not discriminate unfairly against
any person.
UNISEX LEGAL CONSIDERATIONS
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.
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
ROLE OF MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED. MLPF&S is the
principal underwriter of the Contract. It was organized in 1958 under the laws
of the state of Delaware and is registered as a broker-dealer under the
Securities Exchange Act of 1934. It is a member of the National Association of
Securities Dealers, Inc. ("NASD"). The principal business address of MLPF&S is
World Financial Center, 250 Vesey Street, New York, New York 10281. MLPF&S also
acts as principal underwriter of other variable life insurance and variable
annuity contracts we issue, as well as variable life insurance and variable
annuity contracts issued by Merrill Lynch Life Insurance Company, an affiliate
of ours. MLPF&S also acts as principal underwriter of certain mutual funds
managed by Merrill Lynch Asset Management, the investment adviser for the Series
Fund and the Variable Series Funds.
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 Financial Consultants.
ROLE OF MERRILL LYNCH LIFE AGENCY, INC. Contracts are sold by registered
representatives of MLPF&S who are also licensed through Merrill Lynch Life
Agency, Inc. as insurance agent for us. We have entered into a distribution
agreement with MLPF&S and companion sales agreements with Merrill Lynch Life
Agency, Inc. through which 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 amounts paid under the distribution and sales agreements for the
Separate Account for the years ended December 31, 1998, December 31, 1997, and
December 31, 1996 were $366,803, $400,483, and 263,503, respectively.
COMMISSIONS. The maximum commission we will pay to Financial Consultants is 3.2%
of each premium. Additional annual compensation of no more than 0.13% of the
investment base may also be paid to your Financial Consultant. Commissions may
be paid in the form of non-cash compensation.
The maximum commission we will pay to the applicable insurance agency to be used
to pay commissions to Financial Consultants is 9.5% of each premium.
For sales of Contracts to Merrill Lynch employees Financial Consultants receive
reduced commissions.
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If you have also purchased the single premium immediate annuity rider (SPIAR) to
fund the Contract, the maximum commission we will pay the financial consultant
is 2.3% of each SPIAR premium. The maximum commission we will pay to the
applicable insurance agency to be used to pay SPIAR commissions to financial
consultants is 3.5% of each SPIAR premium.
TAX CONSIDERATIONS
INTRODUCTION. The following summary discussion is based on our understanding of
current Federal income tax law as the Internal Revenue Service (IRS) now
interprets it. We can't guarantee that the law or the IRS's interpretation won't
change. It does not purport to be complete or to cover all tax situations. This
discussion is not intended as tax advice. Counsel or other tax advisors should
be consulted for further information.
We haven't considered any applicable state or other tax laws. Of course, your
own tax status or that of your beneficiary can affect the tax consequences of
ownership or receipt of distributions.
TAX STATUS OF THE CONTRACT. In order to qualify as a life insurance contract for
Federal income tax purposes and to receive the tax treatment normally accorded
life insurance contracts under Federal tax law, a Contact must satisfy certain
requirements which are set forth in the Internal Revenue Code (IRC). Guidance as
to how these requirements are to be applied to certain features of the Contracts
is limited. Nevertheless, we believe that a Contact issued on the basis of a
standard risk class and insuring a just one individual should satisfy the
applicable requirements. There is less guidance with respect to Contracts issued
on a substandard basis (i.e., a premium class involving a higher than standard
mortality risk) and Contracts insuring joint insureds, and it is not clear
whether such Contacts would satisfy the applicable requirements. If it is
subsequently determined that Contact does not satisfy the applicable
requirements, we may take appropriate steps to bring the Contact into compliance
with such requirements and reserve the right to restrict Contact transactions in
order to do so.
DIVERSIFICATION REQUIREMENTS. IRC section 817(h) and the regulations under it
provide that separate account investments underlying a Contract must be
"adequately diversified": for it to qualify as a life insurance contract under
IRC section 7702. The separate account intends to comply with the
diversification requirements of the regulations under section 817(h). This will
affect how we make investments.
In certain circumstances, owners of variable life contracts have been considered
for Federal income tax purposes to be the owners of the assets of the separate
account supporting their contracts due to their ability to exercise investment
control over those assets. Where this is the case, the contract owners have been
currently taxed on income and gains attributable to the separate account assets.
There is little guidance in this area, and some features such as the flexibility
of an owner to allocate premium payments and transfer contract accumulation
values have not been explicitly addressed in published rulings. While we believe
that the contracts do not give owners investment control over variable account
assets, we reserve the right to modify the Contracts as necessary to prevent an
owner from being treated as the owner of the variable account assets supporting
the Contract.
The following discussion assumes that the Contract will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF CONTRACT BENEFITS IN GENERAL. We believe that the death benefit
under a Contract should be excludible from the gross income of the beneficiary.
Federal, state and local gift, estate, inheritance, transfer and other tax
consequences of ownership of receipt of Contract proceeds depend on the
circumstances of each owner or beneficiary. A tax advisor should be consulted on
these consequences.
Generally, the owner will not be deemed to be in constructive receipt of the
contract value until there is a distribution. When distributions from a Contract
occur, or when loans are taken out from or secured by a
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Contract, the tax consequences depend on whether the Contract is classified as a
"Modified Endowment Contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life
insurance contracts are classified as "Modified Endowment Contracts," with less
favorable tax treatment than other life insurance contracts. The rules are too
complex to be summarized here, but generally depend on the amount of premiums
paid during the first seven Contract years. Certain changes in a Contract after
it is issued could also cause it to be classified as a Modified Endowment
Contract. In the case of a Contract with joint insureds, reducing the death
benefit at any time below the lowest death benefit provided by the Contract
during the first seven years will probably cause the Contract to be classified
as a Modified Endowment Contract.
Although the Contract is specifically designed not to be classified as a
Modified Endowment Contract, and we will modify the payment plan selected, if
necessary, to ensure that it is not so classified, certain actions by the owner
will affect our ability to provide such a plan. Following the payment plan as
originally established will ensure that the Contract will not be classified as a
Modified Endowment Contract. However, making payments in addition to the the
planned periodic payments established at the onset of the Contract (including
payments made in connection with an increase in face amount), accelerating the
payment schedules or reducing the benefits during the first seven contract years
for a Contract with a single insured or at any time for a Contract with joint
insureds, may cause the Contract to be classified as a Modified Endowment
Contract, or, at a minimum, reduce the amount that may be paid in the future
without causing the Contract to be so classified. In short, a current or
prospective owner should consult with a competent adviser to determine whether a
Contract transaction will cause the Contract to be classified as a Modified
Endowment Contract.
DISTRIBUTIONS (OTHER THAN DEATH BENEFITS) FROM MODIFIED ENDOWMENT CONTRACTS.
Contracts classified as Modified Endowment Contracts are subject to the
following tax rules:
(1) All distributions other than death benefits, including distributions upon
surrender and withdrawals, from a Modified Endowment Contract will be
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the owner's investment in the Contract only after all
gain has been distributed.
(2) Loans taken from or secured by a Contract classified as a Modified
Endowment Contract (including collateral assignments) are treated as
distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the owner has
attained age 59 1/2 or is disabled, or where the distribution is part of a
series of substantially equal periodic payments for the life (or life
expectancy) of the owner or the joint lives (or joint life expectancies)
of the owner and the owner's beneficiary or designated beneficiary.
DISTRIBUTIONS (OTHER THAN DEATH BENEFITS) FROM CONTRACTS THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS. Distributions (other than death benefits) from a Contract
that is not classified as a Modified Endowment Contract are generally treated
first as a recovery of the owner's investment in the Contract and only after the
recovery of all investment in the Contract as taxable income. However, certain
distributions which must be made in order to enable the Contract to continue to
qualify as a life insurance contract for Federal income tax purposes if Contract
benefits are reduced during the first 15 Contract years may be treated in whole
or in part as ordinary income subject to tax.
Loans from or secured by a Contract that is not a Modified Endowment Contract
are generally not treated as distributions.
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Finally, neither distributions from nor loans from or secured by a Contract that
is not a Modified Endowment Contract are subject to the 10 percent additional
income tax.
INVESTMENT IN THE CONTRACT. Your investment in the Contract is generally your
aggregate Premiums. When a distribution is taken from the Contract, your
investment in the Contract is reduced by the amount of the distribution that is
tax-free.
MULTIPLE CONTRACTS. All Modified Endowment Contracts that are issued by us (or
our affiliates) to the same owner during any calendar year are treated as one
Modified Endowment Contract for purposes of determining the amount includible in
the owner's income when a taxable distribution occurs.
CONTRACT LOANS. If a Contract loan is outstanding when a Policy is cancelled or
lapses, or when benefits are paid at a Policy's maturity date, the amount of the
outstanding indebtedness will be added to the amount distributed and will be
taxed accordingly. In general, interest on a Contract loan will not be
deductible. Before taking out a Contract loan, you should consult a tax adviser
as to the tax consequences.
TAXATION OF SINGLE PREMIUM IMMEDIATE ANNUITY RIDER. If a SPIAR is used to make
the payments on the Contract, a portion of each payment from the annuity will be
includible in income for federal tax purposes when distributed. The amount of
taxable income consists of the excess of the payment amount over the exclusion
amount. The exclusion amount is defined as the payment amount multiplied by the
ratio of the investment in the annuity rider to the total amount we expect to
pay under the annuity.
If payments cease because of death before the investment in the annuity rider
has been fully recovered, a deduction is allowed for the unrecovered amount.
Moreover, if the payments continue beyond the time at which the investment in
the annuity rider has been fully recovered, the full amount of each payment will
be includible in income. If the SPIAR is surrendered before all of the scheduled
payments have been made by us, the remaining income in the annuity rider will be
taxed just as in the case of life insurance contracts.
Payments under an immediate annuity rider are not subject to the 10% penalty tax
that is generally applicable to distributions from annuities made before the
recipient attains age 59 1/2.
Other than the tax consequences described above, and assuming that the SPIAR is
not subjected to an assignment, gift or pledge, no income will be recognized to
the owner or beneficiary.
The SPIAR does not exist independently of a Contract. Accordingly, there are tax
consequences if a contract with a SPIAR is assigned, transferred by gift, or
pledged. An owner of a Contract with a SPIAR is advised to consult a tax advisor
prior to effecting an assignment, gift or pledge of the Contract.
TRANSFERS. The transfer of the Contract or 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 a
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 owner may have generation skipping transfer tax consequences under federal
tax law. The individual situation of each owner or beneficiary will determine
the extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of Contract proceeds will be
treated for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
CONTRACTS USED FOR BUSINESS PURPOSES. The Contract can be used in various
arrangements, including nonqualified deferred compensation or salary continuance
plans, split dollar insurance plans, executive bonus plans, tax
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exempt and nonexempt welfare benefit plans, retiree medical benefit plans and
others. The tax consequences of such arrangements may vary depending on the
particular facts and circumstances. If you are purchasing the Contract for any
arrangement the value of which depends in part on its tax consequences, you
should consult a qualified tax adviser. In recent years, moreover, Congress has
adopted new rules relating to life insurance owned by businesses. Any business
contemplating the purchase of a new Policy or a change in an existing Policy
should consult a tax adviser.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or otherwise. It is possible that any
legislative change could be retroactive (that is, effective prior to the date of
the change). Consult a tax advisor with respect to legislative developments and
their effect on the Contract.
WE DON'T 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 YOU SHOULD
CONSULT A COMPETENT TAX ADVISER. ALTHOUGH THIS TAX DISCUSSION IS BASED ON OUR
UNDERSTANDING OF FEDERAL INCOME TAX LAWS AS THEY ARE CURRENTLY INTERPRETED, WE
CAN'T GUARANTEE THAT THOSE LAWS OR INTERPRETATIONS WILL REMAIN UNCHANGED.
OUR 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 will result in a significantly higher corporate
income tax liability for us in early contract years. We make a charge, included
in the Contract's deferred contract load, to compensate us for the anticipated
higher corporate income taxes that result from the sale of a Contract. (See
"Deferred Contract Load".)
We currently make no other charges to the Separate Account for any federal,
state or local taxes that we incur that may be attributable to the Separate
Account or to the Contracts. We reserve the right, however, to make a charge for
any tax or other economic burden resulting from the application of tax laws that
we determine to be properly attributable to the Separate Account or to the
Contracts.
REINSURANCE
We intend to reinsure some of the risks assumed under the Contracts.
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ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables below demonstrate the way in which the Contract works. The tables are
based on the following ages, face amounts, payments and guarantee periods and
assume maximum mortality charges.
1. The illustration on page 50 is for a Contract issued to a male age 5 in
the medical underwriting class with a single payment of $4,000, a face amount of
$288,080 and an initial guarantee period of 15.50 years with planned periodic
payments of $4,000 for six contract years.
2. The illustration on page 51 is for a Contract issued to a male age 35 in
the medical underwriting class with an initial payment of $4,500, a face amount
of $124,611 and an initial guarantee period of 12.75 years with planned periodic
payments of $4,500 for six contract years.
3. The illustration on page 52 is for a Contract issued to a female age 45
in the medical underwriting class with an initial payment of $5,000, a face
amount of $116,558 and an initial guarantee period of 10 years with planned
periodic payments of $5,000 for six contract years.
4. The illustration on page 53 is for a Contract issued to a male age 55 in
the standard-simplified underwriting class with an initial payment of $7,500, a
face amount of $107,682 and an initial guarantee period of 5.50 years with
planned periodic payments of $7,500 for six contract years.
5. The illustration on page 54 is for a Contract issued to a male age 65 in
the standard-simplified underwriting class with an initial payment of $10,000, a
face amount of $103,905 and an initial guarantee period of 3.25 years with
planned periodic payments of $10,000 for six contract years.
6. The illustration on page 55 is for a Contract issued to a male age 55
and a female age 55 in the medical underwriting class with an initial payment of
$10,000, a face amount of $205,820 and an initial guarantee period of $3.25
years with planned periodic payments of $10,000 for six contract years.
The tables show how the death benefit, investment base and 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 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 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 .58%. This
charge assumes that investment base is allocated equally among all investment
divisions and is based on the 1998 expenses (including monthly advisory fees and
operating expenses) for the Funds, and the current trust charge. This charge
also reflects expense reimbursements made in 1998 to certain portfolios by the
investment adviser to the respective portfolio. These reimbursements, amounted
to .17%, .13%, .35%, and .03% of the average daily net assets of the Developing
Capital Markets Focus Fund, the Natural Resources Portfolio, The Alliance Quasar
Portfolio and the Alliance Premier Growth Portfolio, respectively. (See "Charges
to Fund Assets".) The actual
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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 .58%
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of--1.47%, 4.47%, and 10.42%,
respectively. The gross returns are before any deductions and should not be
compared to rates which reflect 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 income taxes included in the deferred contract
loading, see "Deferred Contract Load"). 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.
We will furnish upon request a personalized illustration reflecting the proposed
insureds age, face amount and the payment amounts requested. The illustration
will also use current cost of insurance rates and will assume that the proposed
insured is in a standard underwriting class.
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 5
$4,000 INITIAL PAYMENT FOR MEDICAL UNDERWRITING CLASS
FACE AMOUNT: $288,080 INITIAL GUARANTEE PERIOD(1): 15.50 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL END OF YEAR
PAYMENTS DEATH BENEFIT(3)
MADE PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% ANNUAL INVESTMENT RETURN OF
AS ---------------------------------
CONTRACT YEAR PAYMENTS(2) OF END OF YEAR 0% 6% 12%
- ------------------------------------------------------------- ----------- ---------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
1............................................................ $ 4,000 $ 4,200 $ 288,080 $ 288,080 $ 288,080
2............................................................ 4,000 8,610 288,080 288,080 288,080
3............................................................ 4,000 13,241 288,080 288,080 288,080
4............................................................ 4,000 18,103 288,080 288,080 288,080
5............................................................ 4,000 23,208 288,080 288,080 288,080
6............................................................ 4,000 28,568 288,080 288,080 288,080
7............................................................ 4,000 34,196 288,080 288,080 306,015
8............................................................ 0 35,906 288,080 288,080 326,168
9............................................................ 0 37,702 288,080 288,080 347,330
10........................................................... 0 39,587 288,080 288,080 369,579
15........................................................... 0 50,524 288,080 288,080 500,623
20 (age 25).................................................. 0 64,482 288,080 288,080 675,848
30 (age 35).................................................. 0 105,035 288,080 288,080 1,231,147
60 (age 65).................................................. 0 453,956 288,080 299,490 7,453,665
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE(3) CASH SURRENDER VALUE(3)
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................................................. $3,643 $ 3,875 $ 4,108 $3,319 $ 3,551 $ 3,784
2................................................. 7,212 7,903 8,623 6,600 7,291 8,011
3................................................. 10,717 12,101 13,599 9,853 11,237 12,735
4................................................. 14,148 16,465 19,074 13,068 15,385 17,994
5................................................. 17,496 20,991 25,087 16,236 19,731 23,827
6................................................. 20,773 25,698 31,706 19,369 24,294 30,302
7................................................. 23,958 30,573 38,969 22,446 29,061 37,457
8................................................. 23,134 31,466 42,536 21,874 30,206 41,276
9................................................. 22,283 32,358 46,411 21,275 31,350 45,403
10................................................ 21,404 33,249 50,621 20,648 32,493 49,865
15................................................ 17,144 38,276 78,369 17,108 38,240 78,333
20 (age 25)....................................... 13,590 44,986 122,795 13,590 44,986 122,795
30 (age 35)....................................... 7,668 64,429 309,957 7,668 64,429 309,957
60 (age 65)....................................... 0 171,467 4,495,929 0 171,467 4,495,929
</TABLE>
- --------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 72.25 years at
the end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN 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
SURRENDER 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 US 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.
50
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 35
$4,500 INITIAL PAYMENT FOR MEDICAL UNDERWRITING CLASS
FACE AMOUNT: $124,611 INITIAL GUARANTEE PERIOD(1): 12.75 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
DEATH BENEFIT(3)
TOTAL ASSUMING HYPOTHETICAL GROSS
PAYMENTS ANNUAL INVESTMENT RETURN OF
MADE PLUS -------------------------------
END OF CONTRACT YEAR PAYMENTS(2) INTEREST AT 5% 0% 6% 12%
- --------------------------------------------------------------- ----------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1.............................................................. $ 4,500 $ 4,725 $ 124,611 $ 124,611 $ 124,611
2.............................................................. 4,500 9,686 124,611 124,611 124,611
3.............................................................. 4,500 14,896 124,611 124,611 124,611
4.............................................................. 4,500 20,365 124,611 124,611 124,611
5.............................................................. 4,500 26,109 124,611 124,611 124,611
6.............................................................. 4,500 32,139 124,611 124,611 124,611
7.............................................................. 4,500 38,471 124,611 124,611 132,611
8.............................................................. 0 40,395 124,611 124,611 141,351
9.............................................................. 0 42,414 124,611 124,611 150,527
10............................................................. 0 44,535 124,611 124,611 160,174
15............................................................. 0 56,839 124,611 124,611 216,961
20............................................................. 0 72,543 124,611 124,611 292,923
30 (age 65).................................................... 0 118,165 124,611 124,611 534,159
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE(3) CASH SURRENDER VALUE(3)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
----------------------------------- -------------------------------
END OF CONTRACT YEAR 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------ --------- --------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1........................................................... $ 4,138 $ 4,400 $ 4,662 $ 3,773 $ 4,035 4,297
2........................................................... 8,169 8,950 9,764 7,480 8,262 9,076
3........................................................... 12,091 13,655 15,351 11,119 12,683 14,379
4........................................................... 15,904 18,519 21,471 14,689 17,304 20,256
5........................................................... 19,612 23,552 28,184 18,194 22,135 26,766
6........................................................... 23,214 28,759 35,552 21,634 27,180 33,973
7........................................................... 26,715 34,152 43,641 25,014 32,451 41,940
8........................................................... 25,707 35,063 47,562 24,290 33,645 46,144
9........................................................... 24,689 35,989 51,841 23,555 34,855 50,707
10.......................................................... 23,660 36,932 56,515 22,809 36,081 55,664
15.......................................................... 18,897 42,520 87,796 18,856 42,480 87,755
20.......................................................... 14,247 49,349 136,842 14,247 49,349 136,842
30 (age 65)................................................. 606 63,150 322,196 606 63,150 322,196
</TABLE>
- --------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 44.75 years at
the end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN 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
SURRENDER 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 US 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.
51
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
FEMALE ISSUE AGE 45
$5,000 INITIAL PAYMENT FOR MEDICAL UNDERWRITING CLASS
FACE AMOUNT (1): $116,558 INITIAL GUARANTEE PERIOD(1): 10 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL END OF YEAR
PAYMENTS DEATH BENEFIT(3)
MADE PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% ANNUAL INVESTMENT RETURN OF
AS -------------------------------
CONTRACT YEAR PAYMENTS(2) OF END OF YEAR 0% 6% 12%
- --------------------------------------------------------------- ----------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1.............................................................. $ 5,000 $ 5,250 $ 116,558 $ 116,558 $ 116,558
2.............................................................. 5,000 10,763 116,558 116,558 116,558
3.............................................................. 5,000 16,551 116,558 116,558 116,558
4.............................................................. 5,000 22,628 116,558 116,558 116,558
5.............................................................. 5,000 29,010 116,558 116,558 116,558
6.............................................................. 5,000 35,710 116,558 116,558 116,558
7.............................................................. 5,000 42,746 116,558 116,558 123,723
8.............................................................. 0 44,883 116,558 116,558 131,894
9.............................................................. 0 47,127 116,558 116,558 140,472
10............................................................. 0 49,483 116,558 116,558 149,487
15............................................................. 0 63,155 116,558 116,558 202,535
20 (age 65).................................................... 0 80,603 116,558 116,558 273,484
30............................................................. 0 131,294 116,558 116,558 498,708
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
CASH INVESTMENT BASE(3) SURRENDER VALUE(3)
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........................................................... $ 4,483 $ 4,771 $ 5,060 $ 4,078 $ 4,366 $ 4,655
2........................................................... 8,844 9,700 10,593 8,079 8,935 9,828
3........................................................... 13,084 14,794 16,650 12,004 13,714 15,570
4........................................................... 17,209 20,062 23,290 15,859 18,712 21,940
5........................................................... 21,223 25,517 30,581 19,648 23,942 29,006
6........................................................... 25,129 31,168 38,595 23,374 29,413 36,840
7........................................................... 28,929 37,024 47,401 27,039 35,134 45,511
8........................................................... 27,718 37,892 51,550 26,143 36,317 49,975
9........................................................... 26,494 38,770 56,071 25,234 37,510 54,811
10.......................................................... 25,255 39,657 60,996 24,310 38,712 60,051
15.......................................................... 19,542 44,999 93,941 19,497 44,954 93,896
20 (age 65)................................................. 14,111 51,701 145,805 14,111 51,701 145,805
30.......................................................... 0 64,120 341,696 0 64,120 341,696
</TABLE>
- --------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 40.25 years at
the end of the contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN 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
SURRENDER 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 US 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.
52
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 55
$7,500 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $107,682 INITIAL GUARANTEE PERIOD(1): 5.50 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL END OF YEAR
PAYMENTS DEATH BENEFIT(3)
MADE PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% ANNUAL INVESTMENT RETURN OF
AS -------------------------------
CONTRACT YEAR PAYMENTS(2) OF END OF YEAR 0% 6% 12%
- --------------------------------------------------------------- ----------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1.............................................................. $ 7,500 $ 7,875 $ 107,682 $ 107,682 $ 107,682
2.............................................................. 7,500 16,144 107,682 107,682 107,682
3.............................................................. 7,500 24,826 107,682 107,682 107,682
4.............................................................. 7,500 33,942 107,682 107,682 107,682
5.............................................................. 7,500 43,514 107,682 107,682 107,682
6.............................................................. 7,500 53,565 107,682 107,682 107,682
7.............................................................. 7,500 64,118 107,682 107,682 114,047
8.............................................................. 0 67,324 107,682 107,682 121,622
9.............................................................. 0 70,690 107,682 107,682 129,571
10 (age 65).................................................... 0 74,225 107,682 107,682 137,923
15............................................................. 0 94,732 107,682 107,682 187,026
20............................................................. 0 120,905 107,682 107,682 252,698
30............................................................. 0 196,941 0 107,682 461,621
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE(3) CASH SURRENDER VALUE(3)
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............................................................... $ 6,259 $ 6,681 $ 7,106 $ 5,651 $ 6,074 $ 6,498
2............................................................... 12,323 13,580 14,857 11,176 12,412 13,709
3............................................................... 18,212 20,661 23,344 16,592 19,041 21,724
4............................................................... 23,937 28,005 32,668 21,912 25,980 30,643
5............................................................... 29,514 35,619 42,942 27,151 33,256 40,579
6............................................................... 34,957 43,529 54,300 32,324 40,896 51,668
7............................................................... 40,282 51,765 66,862 37,447 48,930 64,027
8............................................................... 38,050 52,453 72,334 35,688 50,090 69,971
9............................................................... 35,750 53,083 78,240 33,860 51,193 76,350
10 (age 65)..................................................... 33,372 53,644 84,610 31,955 52,227 83,193
15.............................................................. 20,917 56,056 125,802 20,850 55,986 125,734
20.............................................................. 4,885 55,591 186,637 4,885 55,591 186,637
30.............................................................. 0 0 391,111 0 0 391,111
</TABLE>
- --------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 27 years at
the end of the contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN 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
SURRENDER 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 US 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.
53
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 65
$10,000 INITIAL PAYMENT FOR STANDARD-SIMPLIFIED UNDERWRITING CLASS
FACE AMOUNT: $103,905 INITIAL GUARANTEE PERIOD(1): 3.25 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL END OF YEAR
PAYMENTS DEATH BENEFIT(3)
MADE PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% ANNUAL INVESTMENT RETURN OF
AS -------------------------------
CONTRACT YEAR PAYMENT(2) OF END OF YEAR 0% 6% 12%
- --------------------------------------------------------------- ----------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1.............................................................. $ 10,000 $ 10,500 $ 103,905 $ 103,905 $ 103,905
2.............................................................. 10,000 21,525 103,905 103,905 103,905
3.............................................................. 10,000 33,101 103,905 103,905 103,905
4.............................................................. 10,000 45,256 103,905 103,905 103,905
5.............................................................. 10,000 58,019 103,905 103,905 103,905
6.............................................................. 10,000 71,420 103,905 103,905 103,905
7.............................................................. 10,000 85,491 103,905 103,905 109,986
8.............................................................. 0 89,766 103,905 103,905 117,355
9.............................................................. 0 94,254 103,905 103,905 125,085
10............................................................. 0 98,967 103,905 103,905 133,199
15............................................................. 0 126,309 103,905 103,905 180,806
20............................................................. 0 161,206 0 103,905 244,414
30............................................................. 0 262,588 0 0 446,768
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE(3) CASH SURRENDER VALUE(3)
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............................................................... $ 7,295 $ 7,835 $ 8,382 $ 6,485 $ 7,025 $ 7,572
2............................................................... 14,352 15,893 17,531 12,822 14,363 16,001
3............................................................... 21,205 24,217 27,585 19,045 22,057 25,425
4............................................................... 27,894 32,862 38,712 25,194 30,162 36,012
5............................................................... 34,460 41,885 51,115 31,310 38,735 47,965
6............................................................... 40,947 51,354 65,041 37,437 47,844 61,531
7............................................................... 47,413 61,354 80,719 43,633 57,574 76,939
8............................................................... 43,705 61,165 86,811 40,555 58,015 83,681
9............................................................... 39,776 60,737 93,321 37,256 58,217 90,801
10.............................................................. 35,576 60,020 100,267 33,686 58,130 98,377
15.............................................................. 9,434 51,071 144,126 9,344 50,981 144,036
20.............................................................. 0 16,806 207,081 0 16,806 207,081
30.............................................................. 0 0 416,323 0 0 416,323
</TABLE>
- --------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 19.50 years at
the end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH
SURRENDER 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 US 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.
54
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
JOINT INSUREDS: FEMALE ISSUE AGE 55/MALE ISSUE AGE 55
$10,000 INITIAL PAYMENT FOR MEDICAL UNDERWRITING CLASS
FACE AMOUNT: $205,820 INITIAL GUARANTEE PERIOD(1): 17 YEARS
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
TOTAL END OF YEAR
PAYMENTS DEATH BENEFIT(3)
MADE PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% ANNUAL INVESTMENT RETURN OF
AS -------------------------------
CONTRACT YEAR PAYMENT(2) OF END OF YEAR 0% 6% 12%
- --------------------------------------------------------------- ----------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1.............................................................. $ 10,000 $ 10,500 $ 205,820 $ 205,820 $ 205,820
2.............................................................. 10,000 21,525 205,820 205,820 205,820
3.............................................................. 10,000 33,101 205,820 205,820 205,820
4.............................................................. 10,000 45,256 205,820 205,820 205,820
5.............................................................. 10,000 58,019 205,820 205,820 205,820
6.............................................................. 10,000 71,420 205,820 205,820 208,370
7.............................................................. 10,000 85,491 205,820 205,820 222,017
8.............................................................. 0 89,766 205,820 205,820 236,790
9.............................................................. 0 94,254 205,820 205,820 252,269
10............................................................. 0 98,967 205,820 205,820 268,510
15............................................................. 0 126,309 205,820 205,820 363,815
20............................................................. 0 161,206 205,820 205,820 491,169
30............................................................. 0 262,588 205,820 205,820 896,236
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT BASE(3) CASH SURRENDER VALUE(3)
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............................................................... $ 9,728 $ 10,322 $ 10,917 $ 8,738 $ 9,332 $ 9,927
2............................................................... 19,171 20,964 22,828 17,301 19,094 20,958
3............................................................... 28,332 31,938 35,836 25,692 29,298 33,196
4............................................................... 37,211 43,256 50,055 33,911 39,956 46,755
5............................................................... 45,813 54,933 65,612 41,963 51,083 61,762
6............................................................... 54,141 66,985 82,651 49,851 62,695 78,361
7............................................................... 62,198 79,429 101,318 57,578 74,809 96,698
8............................................................... 60,225 81,924 110,817 56,375 78,074 106,967
9............................................................... 58,210 84,463 121,215 55,130 81,383 118,135
10.............................................................. 56,142 87,035 132,584 53,832 84,725 130,274
15.............................................................. 46,198 101,799 208,771 46,088 101,689 208,661
20.............................................................. 34,501 118,184 326,620 34,501 118,184 326,620
30.............................................................. 0 130,332 737,479 0 130,332 737,479
</TABLE>
- --------
(1) The initial guarantee period will increase with each additional payment
and, assuming all planned periodic payments are made, will be 33.75 at the
end of contract year 7.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes no loan has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH
SURRENDER 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 US 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.
55
<PAGE>
JOINT INSUREDS
The Contract can insure two lives. Some of the discussions in this Prospectus
applicable to the Contract apply only to a Contract on a single insured. Set out
below are the modifications to the designated sections of this Prospectus for
joint insureds. Except in the sections noted below, the discussions in this
Prospectus referencing a single insured can be read as applying to two insureds.
AVAILABILITY AND PAYMENTS
We will not accept an initial payment that will provide a guarantee period of
less than the minimum guarantee period for which we would then issue a Contract
based on the age of the younger insured. This minimum will range from 10 to 40
years depending on the age of the younger insured.
WHO MAY BE COVERED
We will issue a Contract on the lives of two insureds provided the relationship
among the applicant and the insureds meets our insurable interest requirements
and provided neither insured is over age 80 and no more than one insured is
under age 20. We will determine the insureds' issue ages using their ages as of
their birthdays nearest the contract date.
The initial payment, plus the planned periodic payments elected, and the average
age of the insureds determine whether underwriting will be done on a simplified
or medical basis. The maximum amount underwritten on a simplified basis for
joint insureds depends on our administrative rules in effect at the time of
underwriting.
Under both simplified and medical underwriting methods, Contracts may be issued
on joint insureds in a standard underwriting class only.
INITIAL PAYMENT
We will not accept an initial payment for a specified face amount that will
provide a guarantee period of less than the minimum guarantee period for which
we would then issue a Contract based on the age of the younger insured. The
minimum will range from 10 to 40 years depending on the age of the younger
insured.
MAKING ADDITIONAL PAYMENTS
PAYMENTS NOT UNDER A PERIODIC PLAN (REFERENCE PAGE 24). You may make additional
payments which are not under a periodic payment plan only if both insureds are
living and the attained ages of both insureds are not over 80.
PAYMENTS UNDER A PERIODIC PLAN (REFERENCE PAGE 23). You may change the frequency
and the amount of planned payments provided both insureds are living. Planned
payments must be received while at least one insured is living and not more than
30 days before or 30 days after the date specified for payment. A combination
periodic plan is not available for joint insureds.
EFFECT OF ADDITIONAL PAYMENTS (REFERENCE PAGE 25). If the guarantee period prior
to receipt and acceptance of an additional payment is less than for the life of
the last surviving insured, the payment will first be used to extend the
guarantee period to the whole of life of the younger insured.
56
<PAGE>
CHANGING THE FACE AMOUNT
INCREASING THE FACE AMOUNT (REFERENCE PAGE 27). You may increase the face amount
of your Contract only if both insureds are living. A change in face amount is
not permitted if the attained age of either insured is over 80.
DECREASING THE FACE AMOUNT (REFERENCE PAGE 27). You may decrease the face amount
of your Contract if either insured is living. Any reduction in death benefit
under a contract insuring two persons will likely result in a failure to satisfy
the 7-pay test (See Tax Considerations").
CHARGES DEDUCTED FROM THE INVESTMENT BASE
DEFERRED CONTRACT LOAD (REFERENCE PAGE 29). The deferred contract load equals
11.0% of each payment. This charge consists of a sales load, a charge for
federal income taxes measured by premiums and a state and local premium tax
charge.
The sales load, equal to 6.5% of each payment, compensates us for sales
expenses. The sales load may be reduced if cumulative payments are sufficiently
high to reach certain breakpoints (4% of payments in excess of $1.5 million and
2% of payments in excess of $4 million). The charge for federal taxes is equal
to 2% of each payment. The state and local premium tax charge, equal to 2.5% of
payments, compensates us for state and local premium taxes that must be paid
when a payment is accepted.
We deduct an amount equal to 1.1% of each payment from the investment base on
each of the ten contract anniversaries following payment.
MORTALITY COST (COST OF INSURANCE) (REFERENCE PAGE 29). For Contracts issued on
joint insureds, current cost of insurance rates are equal to the guaranteed
maximum cost of insurance rates set forth in the Contract. Those rates are based
on the 1980 Commissioners Aggregate Mortality Table and do not distinguish
between insureds in a smoker underwriting class and insureds in a non-smoker
underwriting class. The cost of insurance rates are based on an aggregate class
which is made up of a blend of smokers and non-smokers.
GUARANTEE PERIOD
WHEN THE GUARANTEE PERIOD IS LESS THAN FOR LIFE (REFERENCE PAGE 32). If we
cancel a Contract, you may reinstate it only if neither insured has died between
the date the Contract was terminated and the effective date of the reinstatement
and you meet the other requirements.
NET CASH SURRENDER VALUE
CANCELING TO RECEIVE NET CASH SURRENDER VALUE (REFERENCE PAGE 33). You may
cancel your Contracts at any time while either insured is living.
DEATH BENEFIT PROCEEDS (REFERENCE PAGE 35)
We will pay the death benefit proceeds to the beneficiary when our Service
Center receives all information needed to process the payment, including due
proof of the last surviving insured's death. We must receive proof of death for
both insureds. There is no death benefit payable at the first death. When we are
first provided reliable notification of the last surviving insured's death by a
representative of the owner or the insured, we may transfer the investment base
to the division investing in the Money Reserve Portfolio, pending payment of
death benefit proceeds.
57
<PAGE>
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 increase in face amount
requested or within two years from the date an additional payment was received
and accepted, proof of the insured's death should be sent promptly to our
Service Center since we may only pay a limited benefit or contest the Contract.
(See "Incontestability" and "Payment in Case of Suicide".)
NET SINGLE PREMIUM FACTOR (REFERENCE PAGE 36). The net single premium factors
are based on the insureds' sexes and underwriting classes and the attained ages
on the date of calculation.
PAYMENT OF DEATH BENEFIT PROCEEDS (REFERENCE PAGE 36)
If payment is delayed, we 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%.
RIGHT TO EXCHANGE CONTRACT (REFERENCE PAGE 37)
You may exchange your Contract for a joint and last survivor Contract with
benefits that don't vary with the investment results of a separate account.
USING THE CONTRACT
OWNERSHIP (REFERENCE PAGE 39). The contract owner is one of the insureds, unless
another owner has been named in the application.
The contract owner may want to name a contingent owner in the event the contract
owner dies before the last surviving insured. The contingent owner would then
own the contract owner's interest in the Contract and have all the contract
owner's rights.
NAMING BENEFICIARIES (REFERENCE PAGE 39). We pay the primary beneficiary the
proceeds of this Contract upon the last surviving insured's death. If no
contingent beneficiary is living, we pay the last surviving insured's estate.
CHANGING THE INSURED (REFERENCE PAGE 39). Not available for joint insureds.
MATURITY PROCEEDS (REFERENCE PAGE 40). The maturity date is the contract
anniversary nearest the younger insured's 100th birthday. On the maturity date,
we will pay the net cash surrender value to you, provided either insured is
living.
OTHER CONTRACT PROVISIONS
INCONTESTABILITY (REFERENCE PAGE 41). We won't contest the validity of a
Contract after it has been in effect during the lifetimes of both insureds for
two years from the issue date. We won't contest any change in face amount
requested after the change has been in effect during the lifetimes of both
insureds for two years from the date of the change. Nor will we contest any
amount of death benefit attributable to an additional payment after the death
benefit has been in effect during the lifetime of either insured for two years
from the date the payment has been received and accepted.
PAYMENT IN CASE OF SUICIDE (REFERENCE PAGE 42). If either insured commits
suicide within two years from the issue date, we will pay only a limited benefit
and terminate the Contract. The benefit will be equal to the payments made
reduced by any debt.
58
<PAGE>
If either insured commits suicide within two years of the effective date of any
increase in face amount requested, the coverage attributable to the increase
will be terminated and a limited benefit will be paid. The benefit will be
limited to the amount of mortality cost deductions made for the increase.
If either insured commits suicide within two years of any date an additional
payment is received and accepted, the coverage attributable to the payment will
be terminated and only a limited benefit will be paid. The benefit will be equal
to the payment less any debt attributable to amounts borrowed during the two
years from the date the payment was received and accepted.
ESTABLISHING SURVIVORSHIP (ONLY APPLICABLE TO JOINT INSUREDS). If we are unable
to determine which of the insureds was the last survivor on the basis of the
proofs of death provided, we will consider insured No. 1 as designated in the
application to be the last surviving insured.
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 the 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 premium 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 our consent;
- The new contract will be issued at our 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; and
- If the minimum 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.
INCOME PLANS (REFERENCE PAGE 38)
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 him
or her to one or more of the income plans.
59
<PAGE>
MORE ABOUT ML LIFE INSURANCE COMPANY OF NEW YORK
DIRECTOR AND EXECUTIVE OFFICERS
Our directors and executive officers and their positions with us 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
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
</TABLE>
Each director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and shall have qualified. Some
directors have held various executive positions 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.
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 of 1990.
Mr. Butler joined ML of New York in April 1991. Since 1991, he has been chairman
of Butler, Chapman & Co., Inc., an investment banking firm.
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.
60
<PAGE>
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 has 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
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.
None of our shares are owned by any of our officers or directors, as we are a
wholly owned subsidiary of MLIG. Our officers and directors, 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
We and MLIG are parties to a service agreement pursuant to which MLIG has agreed
to provide certain accounting, data processing, legal, actuarial, management,
advertising and other services to us, including services related to the Separate
Account and the Contracts. We reimburse expenses incurred by MLIG under this
service agreement on an allocated cost basis. Charges billed to us by MLIG under
the agreement were $4.8 million for the year ended December 31, 1998.
STATE REGULATION
We are subject to the laws of the State of New York and to the regulations of
the New York Insurance Department (the "Insurance Department"). We file a
detailed financial statement in the prescribed form (the "Annual Statement")
with the Insurance Department each year covering our operations for the
preceding year and our financial condition as of the end of that year.
Regulation by the Insurance Department includes periodic examination to
determine contract liabilities and reserves so that the Insurance Department may
certify that these items are correct. Our books and accounts are subject to
review by the Insurance Department at all times. A full examination of our
operations is conducted periodically by the Insurance Department and under the
auspices of the National Association of Insurance Commissioners. We are 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 we or the other service providers use do not
properly address this problem before January 1, 2000. Merrill Lynch & Co., Inc.
has established a dedicated group to analyze these issues and to implement any
systems modifications necessary to prepare for the Year 2000. Substantial
resources are being devoted to this effort. It is difficult to predict whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact on us. Currently, we don't anticipate that the
transition to the 21st century will have any material impact on our ability to
continue to service the Contracts at current
61
<PAGE>
levels. In addition, we have sought assurances from the other service providers
that they are taking all necessary steps to ensure that their computer systems
will accurately reflect the Year 2000. We will continue to monitor the
situation. At this time, however, we cannot give assurance 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. We and MLPF&S are engaged
in various kinds of routine litigation that, in our judgment, is not material to
our total assets or to MLPF&S.
EXPERTS
Our financial statements as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998 and of the Separate Account as
of December 31, 1998 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., our Chief Actuary and Chief Financial Officer, as stated in
his opinion filed as an exhibit to the registration statement.
LEGAL MATTERS
Our organization, our authority to issue the Contract, and the validity of the
form of the Contract have been passed upon by Barry G. Skolnick, our Senior Vice
President and General Counsel. Sutherland Asbill & Brennan LLP of Washington,
D.C. has provided advice on certain matters relating to federal securities laws.
REGISTRATION STATEMENTS
Registration statements 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
Our financial statements, included herein, should be distinguished from the
financial statements of the Separate Account and should be considered only as
bearing upon our ability to meet our obligations under the Contracts.
62
<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, 1998 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 (the "Company"). Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation
of mutual fund and unit investment trust securities owned at
December 31, 1998. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Account
at December 31, 1998 and the results of its operations and
the changes in its net assets for each of the three years in
the period then ended in conformity with generally accepted
accounting principles.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The supplemental schedules included herein are presented for
the purpose of additional analysis and are not a required
part of the basic financial statements. These schedules are
the responsibility of the Company's management. Such
schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects
when considered in relation to the basic financial
statements taken as a whole.
February 4, 1999
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS: Cost Shares Market Value
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investments in Merrill Lynch Series Fund, Inc. (Note 1):
Money Reserve Portfolio $ 6,977,362 6,977,362 $ 6,977,362
Intermediate Government Bond Portfolio 1,111,060 100,127 1,133,437
Long-Term Corporate Bond Portfolio 412,749 35,610 424,116
Capital Stock Portfolio 2,525,605 109,586 2,962,113
Growth Stock Portfolio 3,649,142 137,221 5,036,017
Multiple Strategy Portfolio 2,698,844 165,844 3,013,380
High Yield Portfolio 1,192,992 134,215 1,060,302
Natural Resources Portfolio 177,064 21,169 145,222
Global Strategy Portfolio 4,717,518 308,808 4,940,927
Balanced Portfolio 919,641 62,924 1,018,118
--------------------- ---------------------
24,381,977 26,710,994
--------------------- ---------------------
Investments in Merrill Lynch Variable Series Funds, Inc. (Note 1):
Global Utility Focus Fund 159,400 12,788 218,423
International Equity Focus Fund 1,049,170 92,510 988,007
Global Bond Focus Fund 67,685 7,156 70,844
Basic Value Focus Fund 3,884,539 275,737 4,045,055
Developing Capital Markets Focus Fund 580,039 59,428 382,124
Special Value Focus Fund 505,658 23,415 467,131
Index 500 Fund 570,337 41,354 671,148
--------------------- ---------------------
6,816,828 6,842,732
--------------------- ---------------------
Investments in Alliance
Variable Products Series Fund, Inc. (Note 1):
Premier Growth Portfolio 2,085,496 89,508 2,777,443
--------------------- ---------------------
2,085,496 2,777,443
--------------------- ---------------------
Investments in MFS Variable Insurance Trust (Note 1):
MFS Emerging Growth Series 1,054,829 60,413 1,297,072
MFS Research Series 1,299,163 79,341 1,511,446
--------------------- ---------------------
2,353,992 2,808,518
--------------------- ---------------------
Investments in AIM Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund 1,915,436 86,612 2,273,566
AIM V.I. Capital Appreciation Fund 675,571 31,013 781,537
--------------------- ---------------------
2,591,007 3,055,103
--------------------- ---------------------
</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, 1998 (continued)
<TABLE>
<CAPTION>
Cost Units Market Value
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through K (Note 1):
1999 Trust 7,974 9,496 9,453
2000 Trust 80,482 103,767 98,901
2003 Trust 26,869 45,370 36,797
2004 Trust 18,245 31,466 24,836
2005 Trust 26,888 46,147 34,950
2007 Trust 7,158 14,867 10,332
2009 Trust 14 26 16
2010 Trust 141,243 272,041 154,470
2013 Trust 6,310 19,035 9,036
2014 Trust 191,667 465,797 205,701
--------------------- ---------------------
1,250,787 1,370,158
--------------------- ---------------------
TOTAL ASSETS $ 39,480,087 43,564,948
===================== ---------------------
LIABILITIES:
Payable to ML Life Insurance Company of New York 841,162
---------------------
TOTAL LIABILITIES 841,162
---------------------
NET ASSETS $ 42,723,786
=====================
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Investment Income:
Reinvested Dividends $ 3,467,332 $ 1,499,965 $ 772,097
Mortality and Expense Charges (Note 3) (329,187) (224,107) (121,660)
Transaction Charges (Note 3) (3,303) (1,249) (992)
--------------------- --------------------- ---------------------
Net Investment Income 3,134,842 1,274,609 649,445
--------------------- --------------------- ---------------------
Realized and Unrealized Gains on Investments:
Net Realized Gains 445,145 268,415 1,598
Net Change in Unrealized Gains 1,342,464 1,363,855 932,056
--------------------- --------------------- ---------------------
Net Gain on Investments 1,787,609 1,632,270 933,654
--------------------- --------------------- ---------------------
Increase in Net Assets
Resulting from Operations 4,922,451 2,906,879 1,583,099
--------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 8,140,227 9,507,778 6,351,113
Transfers of Policy Loading, Net (Note 3) 532,658 756,862 495,055
Transfers Due to Deaths (53,962) (21,714) (25,307)
Transfers Due to Other Terminations (304,785) (524,168) (212,277)
Transfers Due to Policy Loans (199,868) (179,901) (118,069)
Transfers of Cost of Insurance (488,612) (350,569) (219,552)
Transfers of Loan Processing Charges (5,389) (4,307) (1,805)
--------------------- --------------------- ---------------------
Increase in Net Assets
Resulting from Principal Transactions 7,620,269 9,183,981 6,269,158
--------------------- --------------------- ---------------------
Increase in Net Assets 12,542,720 12,090,860 7,852,257
Net Assets Beginning Balance 30,181,066 18,090,206 10,237,949
--------------------- --------------------- ---------------------
Net Assets Ending Balance $ 42,723,786 $ 30,181,066 $ 18,090,206
===================== ===================== =====================
</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. ORGANIZATION
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 ML of New York's 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 Lynch & Co."). The
Account is registered as a unit investment trust under
the Investment Company Act of 1940 and consists of
thirty - seven investment divisions (thirty-eight) during
the year). At any point in time, the Account may or may
not be invested in all available divisions. The investment
divisions are as follows:
Merrill Lynch Series Fund, Inc. : Ten of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the Merrill Lynch Series Fund,
Inc. ("Merrill Series Fund"). The investment advisor to
the funds of the Merrill Series Fund is Merrill Lynch
Asset Management L.P. ("MLAM"), an indirect subsidiary
of Merrill Lynch & Co.
Merrill Lynch Variable Series Funds, Inc.: Seven of the
investment divisions each invest in the securities of a
single mutual fund portfolio of the Merrill Lynch
Variable Series Fund, Inc. ("Merrill Variable Funds").
The investment advisor to the funds of the Merrill
Variable Funds is MLAM.
Alliance Variable Products Series Fund, Inc.: One of
the investment divisions invests in the securities of a
single mutual fund portfolio of the Alliance Variable
Products Series Fund, Inc. ("Alliance Variable Fund").
The investment advisor to the fund of the Alliance
Variable Fund is Alliance Capital Management L.P.
MFS Variable Insurance Trust: Two of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the MFS Variable Insurance
Trust ("MFS Variable Trust"). The investment advisor of
the funds of the MFS Variable Trust is Massachusetts
Financial Services Company.
AIM Variable Insurance Funds : Two of the investment
divisions each invest in the securities of a single
mutual fund portfolio of the AIM Variable Insurance
funds, Inc. (" AIM Variable Funds "). The investment
advisor to the funds of the AIM Variable Funds is AIM
Advisors, Inc.
The Merrill Lynch Fund of Stripped (" Zero ") U.S.
Treasury Securities, Series A through K: Fifteen of
the investment divisions (sixteen 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 ("Merrill Zero Trusts").
Each trust of the Merrill 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 . Merrill Zero Trusts are
sponsored by Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), a wholly-owned subsidiary of Merrill Lynch
& Co.
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. SIGNIFICANT ACCOUNTING POLICIES
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.
Investment transactions are recorded on the trade date.
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 that 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. CHARGES AND FEES
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 is 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.
ML of New York pays all transaction charges to MLPF&S 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.
4. OTHER
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, 1998
<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 $ 3,467,332 $ 312,740 $ 52,001 $ 24,551
Mortality and Expense Charges (329,187) (50,021) (7,708) (3,466)
Transaction Charges (3,303) 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 3,134,842 262,719 44,293 21,085
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 445,145 0 277 1,179
Net Change in Unrealized Gains (Losses) 1,342,464 0 18,214 5,822
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 1,787,609 0 18,491 7,001
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 4,922,451 262,719 62,784 28,086
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 8,140,227 6,545,949 10,281 9,793
Transfers of Policy Loading, Net 532,658 600,227 (5,752) (2,873)
Transfers Due to Deaths (53,962) (44,786) 0 0
Transfers Due to Other Terminations (304,785) (34,715) (134) (3,856)
Transfers Due to Policy Loans (199,868) (125,328) 47 (7,763)
Transfers of Cost of Insurance (488,612) (74,182) (10,222) (4,326)
Transfers of Loan Processing Charges (5,389) (61) (120) (485)
Transfers Among Investment Divisions 0 (6,272,679) 647,468 71,569
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 7,620,269 594,425 641,568 62,059
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 12,542,720 857,144 704,352 90,145
Net Assets Beginning Balance 30,181,066 5,290,770 428,696 333,806
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 42,723,786 $ 6,147,914 $ 1,133,048 $ 423,951
===================== ===================== ===================== =====================
</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, 1998
<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 $ 309,963 $ 642,604 $ 373,113 $ 84,332
Mortality and Expense Charges (24,802) (36,422) (26,394) (7,943)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 285,161 606,182 346,719 76,389
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 47,161 119,014 14,423 (3,829)
Net Change in Unrealized Gains (Losses) 50,282 579,190 (84,257) (137,652)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 97,443 698,204 (69,834) (141,481)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 382,604 1,304,386 276,885 (65,092)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 137,838 224,053 169,944 21,919
Transfers of Policy Loading, Net (8,357) (7,516) (5,022) (4,655)
Transfers Due to Deaths 0 (1,836) 0 0
Transfers Due to Other Terminations (51,103) (38,213) (21,880) (2,219)
Transfers Due to Policy Loans (20,401) 3,141 1,728 0
Transfers of Cost of Insurance (30,929) (51,414) (43,387) (11,818)
Transfers of Loan Processing Charges (210) (951) (493) (501)
Transfers Among Investment Divisions 115,772 262,021 (110,274) 366,942
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 142,610 389,285 (9,384) 369,668
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 525,214 1,693,671 267,501 304,576
Net Assets Beginning Balance 2,436,020 3,341,076 2,744,940 755,311
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 2,961,234 $ 5,034,747 $ 3,012,441 $ 1,059,887
===================== ===================== ===================== =====================
</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, 1998
<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 $ 3,542 $ 757,500 $ 73,682 $ 11,424
Mortality and Expense Charges (1,420) (44,627) (7,954) (1,552)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 2,122 712,873 65,728 9,872
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (180) 14,219 5,645 1,532
Net Change in Unrealized Gains (Losses) (25,628) (325,362) 29,673 27,939
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (25,808) (311,143) 35,318 29,471
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (23,686) 401,730 101,046 39,343
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 13,971 363,313 42,034 2,646
Transfers of Policy Loading, Net (130) (2,665) (2,482) (1,026)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (6) (41,224) (4,553) (1,733)
Transfers Due to Policy Loans 0 (14,213) (17) 0
Transfers of Cost of Insurance (1,566) (65,998) (10,770) (1,756)
Transfers of Loan Processing Charges (23) (1,033) (50) (2)
Transfers Among Investment Divisions (6) (350,343) 129,092 32,777
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 12,240 (112,163) 153,254 30,906
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (11,446) 289,567 254,300 70,249
Net Assets Beginning Balance 156,606 4,649,718 763,499 148,097
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 145,160 $ 4,939,285 $ 1,017,799 $ 218,346
===================== ===================== ===================== =====================
</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, 1998
<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 $ 84,657 $ 4,221 $ 522,632 $ 7,411
Mortality and Expense Charges (9,873) (653) (35,712) (4,388)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 74,784 3,568 486,920 3,023
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (9,447) (358) 38,834 (25,207)
Net Change in Unrealized Gains (Losses) 20,303 4,728 (247,020) (145,403)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 10,856 4,370 (208,186) (170,610)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 85,640 7,938 278,734 (167,587)
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 63,619 5,901 192,353 29,803
Transfers of Policy Loading, Net (2,588) 171 (10,732) (1,239)
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations (25,860) (21) (49,339) (15,819)
Transfers Due to Policy Loans (36) 0 (704) 0
Transfers of Cost of Insurance (13,148) (860) (50,384) (6,980)
Transfers of Loan Processing Charges 10 1 (403) (32)
Transfers Among Investment Divisions (129,527) (15,716) 323,334 (53,655)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (107,530) (10,524) 404,125 (47,922)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets (21,890) (2,586) 682,859 (215,509)
Net Assets Beginning Balance 1,009,532 73,387 3,360,844 597,431
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 987,642 $ 70,801 $ 4,043,703 $ 381,922
===================== ===================== ===================== =====================
</TABLE>
<PAGE>
ML OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT II
ML LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<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 $ 40,140 $ 11,129 $ 1,849 $ 5,515
Mortality and Expense Charges (2,549) (3,758) (17,123) (7,034)
Transaction Charges 0 0 0 0
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 37,591 7,371 (15,274) (1,519)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (11,937) 3,464 137,204 37,875
Net Change in Unrealized Gains (Losses) (48,599) 96,527 616,210 219,075
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (60,536) 99,991 753,414 256,950
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations (22,945) 107,362 738,140 255,431
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 14,805 23,283 72,170 43,787
Transfers of Policy Loading, Net (506) (166) (5,473) (1,764)
Transfers Due to Deaths 0 0 (1,835) (1,844)
Transfers Due to Other Terminations (3,015) (9,408) 432 (694)
Transfers Due to Policy Loans 0 (25,574) 0 (9,936)
Transfers of Cost of Insurance (5,389) (5,790) (32,467) (12,791)
Transfers of Loan Processing Charges (184) (305) (207) (96)
Transfers Among Investment Divisions 309,855 400,841 1,005,545 606,207
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 315,566 382,881 1,038,165 622,869
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 292,621 490,243 1,776,305 878,300
Net Assets Beginning Balance 174,312 180,706 1,000,412 418,405
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 466,933 $ 670,949 $ 2,776,717 $ 1,296,705
===================== ===================== ===================== =====================
</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, 1998
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
AIM V.I.
MFS AIM V.I. Capital
Research Value Appreciation 1998
Series Fund Fund Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 19,736 $ 103,781 $ 20,809 $ 0
Mortality and Expense Charges (9,495) (12,578) (4,934) (38)
Transaction Charges 0 0 0 (13)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) 10,241 91,203 15,875 (51)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 9,454 9,476 2,048 4,767
Net Change in Unrealized Gains (Losses) 199,851 337,503 109,560 (4,557)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 209,305 346,979 111,608 210
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 219,546 438,182 127,483 159
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 53,104 42,943 25,633 0
Transfers of Policy Loading, Net (2,383) (5,069) (1,566) 0
Transfers Due to Deaths (1,832) 0 (1,829) 0
Transfers Due to Other Terminations (627) (26) (419) (24)
Transfers Due to Policy Loans 0 (812) 0 0
Transfers of Cost of Insurance (14,423) (20,064) (10,051) 38
Transfers of Loan Processing Charges (89) (71) (23) 3
Transfers Among Investment Divisions 623,548 916,777 308,257 (35,507)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 657,298 933,678 320,002 (35,490)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 876,844 1,371,860 447,485 (35,331)
Net Assets Beginning Balance 634,150 901,039 333,817 35,331
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 1,510,994 $ 2,272,899 $ 781,302 $ 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, 1998
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------------------------------------------------------
1999 2000 2001 2003
Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (76) (845) (4,611) (340)
Transaction Charges (29) (316) (1,738) (128)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (105) (1,161) (6,349) (468)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 37 343 295 3,616
Net Change in Unrealized Gains (Losses) 444 6,001 41,729 135
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 481 6,344 42,024 3,751
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 376 5,183 35,675 3,283
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 1,441 6,126 0 3,323
Transfers of Policy Loading, Net 34 (168) 2,000 127
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 1 11 (230) 7
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (132) (1,078) (5,184) (346)
Transfers of Loan Processing Charges 0 0 (55) 1
Transfers Among Investment Divisions 2 (9) 753,076 (12,023)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,346 4,882 749,607 (8,911)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Net Assets Beginning Balance 1,722 10,065 785,282 (5,628)
7,711 88,784 0 42,411
Net Assets Ending Balance --------------------- --------------------- --------------------- ---------------------
$ 9,433 $ 98,849 $ 785,282 $ 36,783
===================== ===================== ===================== =====================
</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, 1998
<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 (215) (329) (88) (40)
Transaction Charges (81) (123) (34) (15)
--------------------- --------------------- --------------------- ---------------------
Net Investment Income (Loss) (296) (452) (122) (55)
--------------------- --------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 160 3,843 96 2,669
Net Change in Unrealized Gains (Losses) 2,474 460 1,262 (2,196)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 2,634 4,303 1,358 473
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 2,338 3,851 1,236 418
--------------------- --------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 2,599 0 1,505
Transfers of Policy Loading, Net (158) (72) (69) 89
Transfers Due to Deaths 0 0 0 0
Transfers Due to Other Terminations 3 (41) 1 (27)
Transfers Due to Policy Loans 0 0 0 0
Transfers of Cost of Insurance (274) (441) (179) (6)
Transfers of Loan Processing Charges 0 1 0 1
Transfers Among Investment Divisions (7) (10,909) (1) (12,155)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions (436) (8,863) (248) (10,593)
--------------------- --------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 1,902 (5,012) 988 (10,175)
Net Assets Beginning Balance 22,910 39,931 9,332 10,191
--------------------- --------------------- --------------------- ---------------------
Net Assets Ending Balance $ 24,812 $ 34,919 $ 10,320 $ 16
===================== ===================== ===================== =====================
</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, 1998
<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 (459) (68) (1,672)
Transaction Charges (173) (25) (628)
--------------------- --------------------- ---------------------
Net Investment Income (Loss) (632) (93) (2,300)
--------------------- --------------------- ---------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) 450 0 38,022
Net Change in Unrealized Gains (Losses) 4,470 1,097 (9,811)
--------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 4,920 1,097 28,211
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Operations 4,288 1,004 25,911
--------------------- --------------------- ---------------------
Changes from Principal Transactions:
Transfers of Net Premiums 0 1,766 14,325
Transfers of Policy Loading, Net (174) 60 2,555
Transfers Due to Deaths 0 0 0
Transfers Due to Other Terminations (35) 0 (19)
Transfers Due to Policy Loans 0 0 0
Transfers of Cost of Insurance (729) (49) (1,517)
Transfers of Loan Processing Charges (9) 0 (3)
Transfers Among Investment Divisions 124,698 4 5,026
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets
Resulting from Principal Transactions 123,751 1,781 20,367
--------------------- --------------------- ---------------------
Increase (Decrease) in Net Assets 128,039 2,785 46,278
Net Assets Beginning Balance 26,342 6,246 159,303
--------------------- --------------------- ---------------------
Net Assets Ending Balance $ 154,381 $ 9,031 $ 205,581
===================== ===================== =====================
</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
-----------------------------------------------------------------
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)
on Investments:
Net Realized Gains (Losses) 268,415 0 (651) 1,243
Net Change in Unrealized Gains (Losses) 1,363,855 0 7,989 3,474
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 25,490 46,789 6,871 1,894
Net Change in Unrealized Gains (Losses) 282,878 467,467 274,786 (1,895)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 8,173 41,397 7,222 398
Net Change in Unrealized Gains (Losses) (28,160) 142,225 27,744 24,474
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (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)
on Investments:
Net Realized Gains (Losses) 6,007 (336) 81,810 20,697
Net Change in Unrealized Gains (Losses) (115,583) (2,293) 183,337 (86,273)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (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)
on Investments:
Net Realized Gains (Losses) 1,681 8,329 1,998 219
Net Change in Unrealized Gains (Losses) 9,035 4,284 75,737 23,169
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 1,377 1,016 224 596
Net Change in Unrealized Gains (Losses) 12,432 20,627 (3,594) (565)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 149 26 664 304
Net Change in Unrealized Gains (Losses) 1,737 377 4,828 3,536
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 78 240 49 33
Net Change in Unrealized Gains (Losses) 2,105 3,826 1,069 1,324
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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 7,213
--------------------- --------------------- --------------------- ---------------------
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)
on Investments:
Net Realized Gains (Losses) 168 0 4,260
Net Change in Unrealized Gains (Losses) 3,498 984 19,276
--------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 1,598 0 1,580 3
Net Change in Unrealized Gains (Losses) 932,056 0 (10,136) (3,943)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) (5,485) 3,715 (35,912) (671)
Net Change in Unrealized Gains (Losses) 49,697 207,982 73,553 7,603
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 1,875 15,132 366 87
Net Change in Unrealized Gains (Losses) 15,704 337,443 17,957 5,630
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 85 5 14,743 417
Net Change in Unrealized Gains (Losses) 21,751 624 171,327 (412)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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
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)
on Investments:
Net Realized Gains (Losses) (222) 1 308 16
Net Change in Unrealized Gains (Losses) 30,006 1,037 (284) 246
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 106 17 453 364
Net Change in Unrealized Gains (Losses) 1,376 216 2,025 (231)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments 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)
on Investments:
Net Realized Gains (Losses) 35 694 18 315
Net Change in Unrealized Gains (Losses) (55) (793) 843 (529)
--------------------- --------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (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)
on Investments:
Net Realized Gains (Losses) 135 0 3,418
Net Change in Unrealized Gains (Losses) (1,059) (91) 4,569
--------------------- --------------------- ---------------------
Net Gain (Loss) on Investments (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>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
ML Life Insurance Company of New York:
We have audited the accompanying balance sheets of ML Life
Insurance Company of New York (the "Company"), a wholly-owned
subsidiary of Merrill Lynch Insurance Group, Inc., as of December
31, 1998 and 1997, and the related statements of earnings,
comprehensive income, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles.
February 22, 1999
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- -------- ------------- -------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1998 - $197,588; 1997 - $250,695) $ 200,681 $ 255,958
Equity securities, at estimated fair value
(cost: 1998 - $14,684; 1997 - $5,830) 13,718 5,029
Policy loans on insurance contracts 88,083 88,163
------------- -------------
Total Investments 302,482 349,150
CASH AND CASH EQUIVALENTS 18,707 10,063
ACCRUED INVESTMENT INCOME 4,968 5,416
DEFERRED POLICY ACQUISITION COSTS 29,742 30,406
REINSURANCE RECEIVABLES 652 429
OTHER ASSETS 4,261 3,405
SEPARATE ACCOUNTS ASSETS 887,170 739,712
------------- -------------
TOTAL ASSETS $ 1,247,982 $ 1,138,581
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES:
POLICY LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 269,246 $ 307,333
Claims and claims settlement expenses 2,986 2,007
------------- -------------
Total policy liabilities and accruals 272,232 309,340
OTHER POLICYHOLDER FUNDS 1,783 1,941
FEDERAL INCOME TAXES - DEFERRED 119 1,905
FEDERAL INCOME TAXES - CURRENT 1,347 2,255
AFFILIATED PAYABLES - NET 1,253 3,492
OTHER LIABILITIES 2,124 2,155
SEPARATE ACCOUNTS LIABILITIES 887,170 739,712
------------- -------------
Total Liabilities 1,166,028 1,060,800
------------- -------------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value - 220,000 shares
authorized, issued and outstanding 2,200 2,200
Additional paid-in capital 66,259 66,259
Retained earnings 14,462 9,692
Accumulated other comprehensive loss (967) (370)
------------- -------------
Total Stockholder's Equity 81,954 77,781
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,247,982 $ 1,138,581
============= =============
</TABLE>
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 21,549 $ 25,465 $ 27,520
Net realized investment gains (losses) (1,998) 1,947 2,169
Policy charge revenue 15,484 13,064 11,959
------------- ------------- -------------
Total Revenues 35,035 40,476 41,648
------------- ------------- -------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 13,832 14,532 16,586
Market value adjustment expense 567 232 301
Policy benefits (net of reinsurance recoveries: 1998 - $1,191
1997 - $690; 1996 - $1,584) 1,630 781 1,311
Reinsurance premium ceded 1,705 1,584 1,262
Amortization of deferred policy acquisition costs 5,759 4,119 3,784
Insurance expenses and taxes 4,900 4,563 4,595
------------- ------------- -------------
Total Benefits and Expenses 28,393 25,811 27,839
------------- ------------- -------------
Earnings Before Federal Income Tax Provision 6,642 14,665 13,809
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 3,337 2,905 102
Deferred (1,465) 2,068 4,488
------------- ------------- -------------
Total Federal Income Tax Provision 1,872 4,973 4,590
------------- ------------- -------------
NET EARNINGS $ 4,770 $ 9,692 $ 9,219
============= ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
NET EARNINGS $ 4,770 $ 9,692 $ 9,219
------------- ------------ -------------
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Net unrealized gains (losses) on investment securities:
Net unrealized holding losses arising during the period (4,329) (413) (4,206)
Reclassification adjustment for (gains) losses included
in net earnings 1,994 (1,771) (1,858)
------------- ------------ -------------
Net unrealized losses on investment securities (2,335) (2,184) (6,064)
Adjustments for:
Policyholder liabilities 1,417 (70) 5,380
Income tax benefit related to items of
other comprehensive loss 321 789 240
------------- ------------ -------------
Other comprehensive loss, net of tax (597) (1,465) (444)
------------- ------------ -------------
COMPREHENSIVE INCOME $ 4,173 $ 8,227 $ 8,775
============= ============ =============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive Stockholder's
stock Capital earnings income (loss) equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 2,200 $ 83,006 $ 24,034 $ 1,539 $ 110,779
Dividend to Parent (10,966) (24,034) (35,000)
Net earnings 9,219 9,219
Other comprehensive loss, net of tax (444) (444)
----------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 2,200 72,040 9,219 1,095 84,554
Dividend to Parent (5,781) (9,219) (15,000)
Net earnings 9,692 9,692
Other comprehensive loss, net of tax (1,465) (1,465)
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 2,200 66,259 9,692 (370) 77,781
Net earnings 4,770 4,770
Other comprehensive loss, net of tax (597) (597)
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 $ 2,200 $ 66,259 $ 14,462 $ (967) $ 81,954
=========== ============ ============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 4,770 $ 9,692 $ 9,219
Adjustments to reconcile net earnings to net cash and
cash equivalents provided (used) by operating activities:
Amortization of deferred policy acquisition costs 5,759 4,119 3,784
Capitalization of policy acquisition costs (5,095) (5,253) (2,134)
Amortization (accretion) of investments (262) (239) 1
Net realized investment (gains) losses 1,998 (1,947) (2,169)
Interest credited to policyholders' account balances 13,832 14,532 16,586
Provision (benefit) for deferred Federal income tax (1,465) 2,068 4,488
Changes in operating assets and liabilities:
Accrued investment income 448 536 651
Claims and claims settlement expenses 979 (565) (329)
Federal income taxes - current (908) 156 1,914
Other policyholder funds (158) 781 421
Affiliated payables - net (2,239) (1,534) 964
Policy loans on insurance contracts 80 (2,615) (3,475)
Other, net (1,110) 2,306 (3,951)
------------ ------------ ------------
Net cash and cash equivalents provided by operating activites 16,629 22,037 25,970
------------ ------------ ------------
INVESTING ACTIVITIES:
Sales of available-for-sale securities 102,967 88,882 155,645
Maturities of available-for-sale securities 59,161 51,060 34,455
Purchases of available-for-sale securities (119,611) (120,965) (162,828)
Mortgage loans principal payments received - 2,057 1,975
------------ ------------ ------------
Net cash and cash equivalents provided by investing activities 42,517 21,034 29,247
------------ ------------ ------------
</TABLE>
See notes to financial statements.
(Continued)
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly-owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Continued) (Dollars In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid to parent $ - $ (15,000) $ (35,000)
Policyholders' account balances:
Deposits 94,226 106,983 32,158
Withdrawals (including transfers to/from Separate Accounts) (144,728) (132,819) (61,934)
------------- ------------- -------------
Net cash and cash equivalents used by financing activites (50,502) (40,836) (64,776)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,644 2,235 (9,559)
CASH AND CASH EQUIVALENTS:
Beginning of year 10,063 7,828 17,387
------------- ------------- -------------
End of year $ 18,707 $ 10,063 $ 7,828
============= ============= =============
Supplementary Disclosure of Cash Flow Information:
Cash paid to (received from) affiliates for:
Federal income taxes $ 4,245 $ 2,749 $ (1,812)
Interest 148 494 440
</TABLE>
See notes to financial statements.
<PAGE>
ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Merrill Lynch Insurance Group,Inc.)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: ML Life Insurance Company of New York
(the "Company") is a wholly-owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells non-participating life insurance and annuity
products primarily variable life insurance, variable annuities,
market value adjusted annuities and immediate annuities. The
Company is licensed to sell insurance in nine states; however,
it currently limits its marketing activities to the State of
New York. The Company markets its products solely through the
retail network of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated ("MLPF&S"), a wholly-owned broker-dealer
subsidiary of Merrill Lynch & Co.
Basis of Reporting: The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles and prevailing industry practices, both of which
require management to make estimates that affect the reported
amounts and disclosure of contingencies in the financial
statements. Actual results could differ from those estimates.
For the purpose of reporting cash flows, cash and cash
equivalents include cash on hand and on deposit and short-term
investments with original maturities of three months or less.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for the
mortality risk and cost of insurance, deferred sales charges,
policy administration charges and/or withdrawal charges assessed
against policyholders' account balances during the period.
Investments: The Company's investments in fixed maturity and
equity securities are classified as available-for-sale and are
carried at estimated fair value with unrealized gains and
losses included in stockholder's equity as a component of
accumulated other comprehensive loss, net of tax. If a decline
in value of a security is determined by management to be other-
than-temporary, the carrying value is adjusted to the estimated
fair value at the date of this determination and recorded as
net realized investment gains (losses).
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted to
the maturity date, and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of specific identification.
Certain fixed maturity securities are considered non-investment
grade. The Company defines non-investment grade fixed maturity
securities as unsecured debt obligations that do not have a rating
equivalent to Standard and Poor's (or similar rating agency)
BBB- or higher.
<PAGE>
All outstanding mortgage loans were repaid during 1997. The
Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may have been
different from the accrual interest rate of the loan for
certain mortgage loans. The Company recognized a realized gain
at the date of the satisfaction of the loan at contractual
terms for loans where there was a difference between the cash
payment interest rate and the accrual interest rate. For all
loans, the Company stopped accruing income when an interest
payment default either occurred or was probable. Impairments
of mortgage loans were established as valuation allowances and
recorded to net realized investment gains or losses.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Deferred Policy Acquisition Costs: Policy acquisition costs for
life and annuity contracts are deferred and amortized based on
the estimated future gross profits for each group of contracts.
These future gross profit estimates are subject to periodic
evaluation by the Company, with necessary revisions applied
against amortization to date. It is reasonably possible that
estimates of future gross profits could be reduced in the
future, resulting in a material reduction in the carrying
amount of deferred policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance that are primarily
related to and vary with the production of new business.
Certain costs and expenses reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed. The deferred costs are amortized in
proportion to the estimated future gross profits over the
anticipated life of the acquired insurance contracts utilizing
an interest methodology.
The Company has entered into an assumption reinsurance
agreement with an unaffiliated insurer. The acquisition costs
relating to this agreement are being amortized over a twenty-
year period using an effective interest rate of 7.5%. This
reinsurance agreement provides for payment of contingent ceding
commissions based upon the persistency and mortality experience
of the insurance contracts assumed. Any payments made for the
contingent ceding commissions will be capitalized and amortized
using an identical methodology as that used for the initial
acquisition costs. The following is a reconciliation of the
acquisition costs related to the reinsurance agreement for the
years ended December 31:
1998 1997 1996
------------ ------------ ------------
Beginning balance $ 16,550 $ 17,151 $ 17,654
Capitalized amounts 691 577 577
Interest accrued 1,241 1,651 1,566
Amortization (5,698) (2,829) (2,646)
------------ ------------ ------------
Ending balance $ 12,784 $ 16,550 $ 17,151
============ ============ ============
<PAGE>
The following table presents the expected amortization, net of
interest accrued, of these deferred acquisition costs over the
next five years. The amortization may be adjusted based on
periodic evaluation of the expected gross profits on the
reinsured policies.
1999 $905
2000 $785
2001 $747
2002 $712
2003 $700
Separate Accounts: Separate Accounts are established in
conformity with New York State Insurance Law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to general claims of
the Company only to the extent the value of such assets exceeds
Separate Accounts liabilities.
Net investment income and net realized and unrealized gains
(losses) attributable to Separate Accounts assets accrue
directly to the policyholder and are not reported as revenue in
the Company's Statement of Earnings.
Assets and liabilities of Separate Accounts, representing net
deposits and accumulated net investment earnings less fees,
held primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest-crediting rates for the
Company's fixed-rate products are as follows:
Interest-sensitive life products 4.00% - 5.00%
Interest-sensitive deferred annuities 3.70% - 8.23%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Claims and Claims Settlement Expenses: For life insurance
products, the liability equals the death benefit for claims
that have been reported to the Company and an estimate based
upon prior experience for unreported claims. For annuity
products, the liability equals the guaranteed minimum death
benefit reserve.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current federal tax liability.
<PAGE>
The Company uses the asset and liability method in providing
income taxes on all transactions that have been recognized in
the financial statements. The asset and liability method
requires that deferred taxes be adjusted to reflect the tax
rates at which future taxable amounts will be settled or
realized. The effects of tax rate changes on future deferred
tax liabilities and deferred tax assets, as well as other
changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums
and in substantially all states are exempt from state income
taxes.
Accounting Pronouncements: During 1998, the Company adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This pronouncement requires a Company to
present disaggregated information based on the internal
segments used in managing its business. Adoption did not impact
the Company's financial position or results of operations, but
it did affect the presentation of the Company's disclosures
(See note 9).
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and for Hedging Activities". This
pronouncement will be effective for annual periods beginning
after June 15, 1999. Adoption of this pronouncement is not
expected to have a material impact on the Company's financial
position or results of operations.
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial
instruments as of December 31 were:
1998 1997
------------ ------------
Assets:
Fixed maturity securities (1) $ 200,681 $ 255,958
Equity securities (1) 13,718 5,029
Policy loans on insurance contracts (2) 88,083 88,163
Cash and cash equivalents (3) 18,707 10,063
Separate Accounts assets (4) 887,170 739,712
------------ ------------
Total financial instruments $ 1,208,359 $ 1,098,925
============ ============
(1) For publicly traded securities, the estimated fair value
is determined using quoted market prices. For securities
without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted
cash flow model, including provision for credit risk,
based upon the assumption that such securities will be
held to maturity. Such estimated fair values do not
necessarily represent the values for which these
securities could have been sold at the dates of the
balance sheets. At December 31, 1998 and 1997, securities
without a readily ascertainable market value, having an
amortized cost of $33,427 and $47,064, had an estimated
fair value of $33,879 and $48,188, respectively.
<PAGE>
(2) The Company estimates the fair value of policy loans as
equal to the book value of the loans. Policy loans are
fully collateralized by the account value of the
associated insurance contracts, and the spread between the
policy loan interest rate and the interest rate credited
to the account value held as collateral is fixed.
(3) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(4) Assets held in Separate Accounts are carried at quoted
market values.
NOTE 3: INVESTMENTS
The amortized cost and estimated fair value of investments in
fixed maturity and equity securities as of December 31 were:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 159,421 $ 3,404 $ 1,224 $ 161,601
Mortgage-backed securities 13,258 443 54 13,646
U.S. government and agencies 22,912 869 48 23,734
Foreign governments 1,997 - 297 1,700
------------ ------------ ------------ ------------
Total fixed maturity securities $ 197,588 $ 4,716 $ 1,623 $ 200,681
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 13,361 $ 58 $ 257 $ 13,162
Common stocks 1,323 - 767 556
------------ ------------ ------------ ------------
Total equity securities $ 14,684 $ 58 $ 1,024 $ 13,718
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
Cost / Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 198,266 $ 4,595 $ 777 $ 202,084
Mortgage-backed securities 34,726 1,135 5 35,856
U.S. government and agencies 13,593 268 11 13,850
Municipals 2,090 90 - 2,180
Foreign governments 2,020 - 32 1,988
------------ ------------ ------------ ------------
Total fixed maturity securities $ 250,695 $ 6,088 $ 825 $ 255,958
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 4,507 $ - $ 34 $ 4,473
Common stocks 1,323 - 767 556
------------ ------------ ------------ ------------
Total equity securities $ 5,830 $ - $ 801 $ 5,029
============ ============ ============ ============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
----------- -----------
Fixed maturity securities:
Due in one year or less $ 30,410 $ 29,997
Due after one year through five years 79,961 81,584
Due after five years through ten years 47,930 48,689
Due after ten years 26,029 26,765
----------- -----------
184,330 187,035
Mortgage-backed securities 13,258 13,646
----------- -----------
Total fixed maturity securities $ 197,588 $ 200,681
=========== ===========
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penelties.
<PAGE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1998 by rating agency equivalent were:
Estimated
Amortized Fair
Cost Value
----------- -----------
AAA $ 53,959 $ 55,431
AA 5,484 5,515
A 53,720 54,593
BBB 74,577 76,069
Non-investment grade 9,848 9,073
----------- -----------
Total fixed maturity securities $ 197,588 $ 200,681
=========== ===========
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
conjunction with investments classified as available-for-sale.
The Company adjusts those assets and liabilities as if the
unrealized investment gains or losses from available-for-sale
investments had actually been realized, with corresponding
credits or charges reported in stockholder's equity as a
component of accumulated other comprehensive loss, net of
taxes. The following reconciles net unrealized investment gains
(losses) on available-for-sale investments as of December 31:
1998 1997
----------- -----------
Assets:
Fixed maturity securities $ 3,093 $ 5,263
Equity securities (966) (801)
----------- -----------
2,127 4,462
----------- -----------
Liabilities:
Policyholders' account balances 3,615 5,032
Federal income taxes - deferred (521) (200)
----------- -----------
3,094 4,832
----------- -----------
Stockholder's equity:
Accumulated other comprehensive loss $ (967) $ (370)
=========== ===========
<PAGE>
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1998 1997 1996
----------- ----------- -----------
Proceeds $ 102,967 $ 88,882 $ 155,645
Gross realized investment gains 2,096 4,077 2,677
Gross realized investment losses 4,094 2,130 508
The company owned investment securities of $1,104 and $1,076
that were deposited with insurance regulatory authorities at
December 31, 1998 and 1997, respectively.
Net investment income arose from the following sources for the
years ended December 31:
1998 1997 1996
----------- ----------- -----------
Fixed maturity securities $ 16,244 $ 19,815 $ 22,153
Equity securities 734 761 183
Mortgage loans - 81 388
Policy loans on insurance contracts 4,316 4,333 4,133
Cash and cash equivalents 761 1,293 1,559
Other 29 65 -
----------- ----------- -----------
Gross investment income 22,084 26,348 28,416
Less investment expenses (535) (883) (896)
----------- ----------- -----------
Net investment income $ 21,549 $ 25,465 $ 27,520
=========== =========== ===========
Net realized investment gains (losses), including changes in
valuation allowances, for the years ended December 31:
1998 1997 1996
----------- ----------- -----------
Fixed maturity securities $ (1,944) $ (1,268) $ 657
Equity securities (54) 3,215 1,512
----------- ----------- -----------
Net realized investment gains (losses) $ (1,998) $ 1,947 $ 2,169
=========== =========== ===========
<PAGE>
NOTE 4: FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income
taxes based on earnings before federal income taxes, computed
using the Federal statutory tax rate, with the provision for
income taxes for the years ended December 31:
1998 1997 1996
----------- ----------- -----------
Provision for income taxes computed at
Federal statutory rate $ 2,325 $ 5,133 $ 4,833
State corporate income taxes - - (10)
Decrease in income taxes resulting from:
Dividend received deduction (300) (160) (235)
Foreign tax credit (153) - -
Other - - 2
----------- ----------- -----------
Federal income tax provision $ 1,872 $ 4,973 $ 4,590
=========== =========== ===========
The Federal statutory rate for each of the three years in the
period ended December 31, 1998 was 35%.
The Company provides for deferred income taxes resulting from
temporary differences that arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Deferred policy acquisition costs $ (158) $ 315 $ (259)
Policyholders' account balances (659) (140) 4,053
Liability for guaranty fund assessments - (50) 50
Investment adjustments (629) 1,943 642
Other (19) - 2
----------- ----------- -----------
Deferred Federal income tax provision (benefit) $ (1,465) $ 2,068 $ 4,488
=========== =========== ===========
</TABLE>
<PAGE>
Deferred tax assets and liabilities as of December 31 are
determined as follows:
1998 1997
----------- -----------
Deferred tax assets:
Policyholders' account balances $ 5,023 $ 4,364
Investment adjustments 625 (4)
Net unrealized investment loss 521 200
Other 19 -
----------- -----------
Total deferred tax assets 6,188 4,560
----------- -----------
Deferred tax liabilities:
Deferred policy acquisition costs 6,307 6,465
----------- -----------
Net deferred tax liability $ 119 $ 1,905
=========== ===========
The Company anticipates that all deferred tax assets will be
realized, therefore no valuation allowance has been provided.
NOTE 5: REINSURANCE
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. The maximum amount of mortality risk retained by
the Company is approximately $500 on a single life.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers to
honor their obligations could result in losses to the Company.
The Company regularly evaluates the financial condition of its
reinsurers so as to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under
reinsurance agreements in the form of letters of credit and
funds withheld totaling $154 that can be drawn upon for
delinquent reinsurance recoverables.
<PAGE>
As of December 31, 1998, the Company had the following life
insurance in-force:
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Life insurance
in force $ 900,964 $ 159,582 $ 1,116,951 $ 1,858,333 60%
</TABLE>
NOTE 6: RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain accounting, data processing,
legal, actuarial, management, advertising and other services to
the Company. Expenses incurred by MLIG, in relation to this
service agreement, are reimbursed by the Company on an
allocated cost basis. Charges billed to the Company by MLIG
pursuant to the agreement were $4,767, $4,305 and $4,258 for
1998, 1997 and 1996 respectively. The Company is allocated
interest expense on its accounts payable to MLIG that
approximates the daily Federal funds rate. Total intercompany
interest paid was $69, $64 and $74 for 1998, 1997 and 1996,
respectively.
The Company and Merrill Lynch Asset Management, LP ("MLAM") are
parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were $157,
$159 and $186 for 1998, 1997 and 1996, respectively.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S, who are the Company's licensed insurance agents,
solicit applications for contracts to be issued by the Company.
MLLA is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were $3,798, $4,130 and $1,334 for
1998, 1997 and 1996, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisitions
costs and are being amortized in accordance with the policy
discussed in Note 1.
<PAGE>
In connection with the acquisition of a block of variable life
insurance business from Monarch Life Insurance Company
("Monarch Life"), the Company borrowed funds from Merrill Lynch
& Co. to partially finance the transaction. As of December 31,
1998 and 1997, the outstanding loan balance was $434 and
$1,156, respectively. Repayments made on this loan during 1998
and 1997 were $722 and $1,919, respectively. There were no
repayments made during 1996. Loan interest was calculated at
LIBOR plus 150 basis points. Intercompany interest paid during
1998, 1997 and 1996 was $79, $359 and $366, respectively.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
NOTE 7: STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
Notice of intention to declare a dividend must be filed with
the New York Superintendent of Insurance who may disallow the
payment. During 1998, no dividend request was filed. During
1997 and 1996, the Company paid dividends of $15,000 and
$35,000, respectively, to MLIG. Statutory capital and surplus
at December 31, 1998 and 1997, was $55,851 and $51,080,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices primarily
differ from the principals utilized in these financial
statements by charging policy acquisition costs to expense as
incurred, establishing future policy benefit reserves using
different actuarial assumptions, not providing for deferred
income taxes and valuing securities on a different basis. The
Company's statutory net income for 1998, 1997 and 1996 was
$5,405, $9,888 and $12,884, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital that
a life insurance company should have based upon that company's
risk profile. As of December 31, 1998, and 1997, based on the
RBC formula, the Company's total adjusted capital level was
761% and 649%, respectively, of the minimum amount of capital
required to avoid regulatory action.
In March 1998, the NAIC adopted the Codification of Statutory
Accounting Principles ("Codification"). The Codification,
which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be
effective January 1, 2001. However, statutory accounting
principles will continue to be established by individual state
laws and permitted practices and it is uncertain when, or if,
the state of New York will require adoption of Codification for
the preparation of statutory financial statements.
Codification is not expected to have a material impact on the
Company's capital requirements or statutory financial
statements.
<PAGE>
NOTE 8: COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). Based upon the public information available at this
time, management believes the Company has no material financial
obligations to state guaranty associations.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
NOTE 9. SEGMENT INFORMATION
In reporting to management, the Company's operating results are
categorized into two business segments: Life Insurance and
Annuities. The Company's Life Insurance segment consists of
variable life insurance products and interest-sensitive life
insurance products. The Company's Annuity segment consists of
variable annuities and interest-sensitive annuities.
The Company's organization is structured in accordance with its
two business segments. Each segment has its own administrative
service center that provides product support to the Company and
customer service support to the Company's policyholders.
Additionally, the marketing and sales management functions,
within MLIG, are organized according to these two business
segments.
The accounting policies of the business segments are the same
as those described in the summary of significant accounting
policies. All revenue and expense transactions are recorded at
the product level and accumulated at the business segment level
for review by management.
The "Other" category, presented in the following segment
financial information, represents assets and related earnings
that do not support policyholder liabilities.
<PAGE>
The following table summarizes each business segment's
contribution to the consolidated amounts:
<TABLE>
<CAPTION>
Life
1998 Insurance Annuities Other Total
- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 789 $ 3,876 $ 3,052 $ 7,717
Other revenues 8,472 5,377 (363) 13,486
----------- ----------- ----------- -----------
Net revenues 9,261 9,253 2,689 21,203
----------- ----------- ----------- -----------
Policy benefits 1,570 60 - 1,630
Reinsurance premium ceded 1,705 - - 1,705
DAC amortization 3,571 2,188 - 5,759
Other non-interest expenses 1,973 3,494 - 5,467
----------- ----------- ----------- -----------
Total non-interest expenses 8,819 5,742 - 14,561
----------- ----------- ----------- -----------
Net earnings before Federal income
tax provision (benefit) 442 3,511 2,689 6,642
Income tax expense (benefit) (7) 938 941 1,872
----------- ----------- ----------- -----------
Net earnings $ 449 $ 2,573 $ 1,748 $ 4,770
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 481,305 $ 720,478 $ 46,182 $1,247,965
Deferred policy acquisition costs $ 15,325 $ 14,417 $ - $ 29,742
Policy liabilities and accruals $ 103,926 $ 168,306 $ - $ 272,232
Other policyholder funds $ 1,319 $ - $ 464 $ 1,783
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
1997 Insurance Annuities Other Total
- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 1,399 $ 6,060 $ 3,474 $ 10,933
Other revenues 7,759 7,172 80 15,011
----------- ----------- ----------- -----------
Net revenues 9,158 13,232 3,554 25,944
----------- ----------- ----------- -----------
Policy benefits 781 - - 781
Reinsurance premium ceded 1,584 - - 1,584
DAC amortization 1,992 2,127 - 4,119
Other non-interest expenses 1,747 3,048 - 4,795
----------- ----------- ----------- -----------
Total non-interest expenses 6,104 5,175 - 11,279
----------- ----------- ----------- -----------
Net earnings before Federal income
tax provision 3,054 8,057 3,554 14,665
Income tax expense 987 2,742 1,244 4,973
----------- ----------- ----------- -----------
Net earnings $ 2,067 $ 5,315 $ 2,310 $ 9,692
=========== =========== =========== ===========
Balance Sheet Information:
Total assets $ 456,240 $ 635,673 $ 46,668 $1,138,581
Deferred policy acquisition costs $ 17,506 $ 12,900 $ - $ 30,406
Policy liabilities and accruals $ 103,677 $ 205,663 $ - $ 309,340
Other policyholder funds $ 974 $ - $ 967 $ 1,941
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
1996 Insurance Annuities Other Total
- -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 1,400 $ 5,721 $ 3,813 $ 10,934
Other revenues 7,680 6,431 17 14,128
----------- ----------- ----------- ------------
Net revenues 9,080 12,152 3,830 25,062
----------- ----------- ----------- ------------
Policy benefits 1,311 - - 1,311
Reinsurance premium ceded 1,262 - - 1,262
DAC amortization 1,736 2,048 - 3,784
Other non-interest expenses 1,755 3,141 - 4,896
----------- ----------- ----------- ------------
Total non-interest expenses 6,064 5,189 - 11,253
----------- ----------- ----------- ------------
Net earnings before Federal income
tax provision 3,016 6,963 3,830 13,809
Income tax expense 923 2,335 1,332 4,590
----------- ----------- ----------- ------------
Net earnings $ 2,093 $ 4,628 $ 2,498 $ 9,219
=========== =========== =========== ============
Balance Sheet Information:
Total assets $ 429,330 $ 534,376 $ 44,361 $ 1,008,067
Deferred policy acquisition costs $ 18,213 $ 11,059 $ - $ 29,272
Policy liabilities and accruals $ 101,689 $ 219,450 $ - $ 321,139
Other policyholder funds $ 994 $ - $ 166 $ 1,160
</TABLE>
(a) Management considers investment income net of interest
credited to policyholders' account balances in evaluating
results.
The table below summarizes the Company's net revenues by
product for 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Life Insurance
Variable Life $ 9,045 $ 8,828 $ 8,790
Interest-sensitive whole life 216 330 290
----------- ----------- ----------
Total Life Insurance 9,261 9,158 9,080
----------- ----------- ----------
Annuities
Variable annuities 6,240 4,673 3,602
Interest-sensitive annuities 3,013 8,559 8,550
----------- ----------- ----------
Total Annuities 9,253 13,232 12,152
----------- ----------- ----------
Other 2,689 3,554 3,830
----------- ----------- ----------
Total $ 21,203 $ 25,944 $ 25,062
=========== =========== ==========
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
ML Life Insurance Company of New York's By-Laws provide, in Article VII,
Section 7.1 as follows:
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND INCORPORATORS. To the
extent permitted by the law of the State of New York and subject to all
applicable requirements thereof:
a) any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator, or intestate, is or was a director, officer, employee or
incorporator of the Company shall be indemnified by the Company;
b) any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate serves or served any other organization in any
capacity at the request of the Company may be indemnified by the Company;
and
c) the related expenses of any such person in any other of said
categories may be advanced by the Company.
Any persons serving as an officer, director or trustee of a corporation,
trust or other enterprise, including the Registrant, at the request of Merrill
Lynch are entitled to indemnification from Merrill Lynch, to the fullest extent
authorized or permitted by law, for liabilities with respect to actions taken or
omitted by such persons in any capacity in which such persons serve Merrill
Lynch or such other corporation, trust or other enterprise. Any action initiated
by any such person for which indemnification is provided shall be approved by
the Board of Directors of Merrill Lynch prior to such initiation.
DIRECTORS' AND OFFICERS' INSURANCE
Merrill Lynch has purchased from Corporate Officers' and Directors'
Assurance Company directors' and officers' liability insurance policies which
cover, in addition to the indemnification described above, liabilities for which
indemnification is not provided under the By-Laws. The Company will pay an
allocable portion of the insurance premium paid by Merrill Lynch with respect to
such insurance policies.
NEW YORK BUSINESS CORPORATION LAW
In addition, Sections 722, 723 and 724 of the New York Business Corporation
Law generally provide that a corporation has the power (and in some instances
the obligation) to indemnify a director or officer of the corporation, or a
person serving at the request of the corporation as a director or officer of
another corporation or other enterprise against any judgments, amounts paid in
settlement, and reasonably incurred expenses in a civil or criminal action or
proceeding if the director or officer acted in good faith in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation (or, in the case of a criminal action or proceeding, if he or she in
addition had no reasonable cause to believe that his or her conduct was
unlawful).
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
II-1
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)
ML Life Insurance Company of New York hereby represents that the fees and
charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by ML Life Insurance Company of New York.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
OFFICERS AND DIRECTORS
AS OF DECEMBER 3, 1998
DIRECTORS
Herbert M. Allison, Jr.
George A. Schieren
John L. Steffens
OFFICERS
Herbert M. Allison, Jr.
John L. Steffens
George A. Schieren
Theresa Lang
Andrea L. Dulberg
President and
Chief Executive Officer
Vice Chairman of the Board
General Counsel
Treasurer
Secretary
EXECUTIVE VICE PRESIDENTS
Thomas W. Davis
Barry S. Friedberg
Edward L. Goldberg
Jerome P. Kenney
E. Stanley O'Neal
Thomas H. Patrick
Winthrop H. Smith, Jr.
Roger M. Vasey
II-2
<PAGE>
SENIOR VICE PRESIDENTS
Harry P. Allex
Rosemary T. Berkery
Daniel H. Bayly
Michael J. Castellano
Peter Clarke
Michael R. Cowan
Richard A. Dunn
Richard M. Fuscone
Donald N. Gershuny
J. Michael Giles
Mark B. Goldfus
Allen N. Jones
John G. Heimann
Theresa Lang
Michael J.P. Marks
G. Kelly Martin
Andrew J. Melnick
Robert J. McCann
Athanassios N. Michas
Joseph H. Moglia
Carlos M. Morales
Hisashi Moriya
Thomas O. Muller III
Daniel T. Napoli
John Qua
Christopher R. Reeves
George A. Schieren
Howard A. Shallcross
Edward E. Sheridan
Robert D. Sherman
James F. Shoaf
Howard P. Sorgen
G. Stephen Thoma
Arthur L. Thomas
J. Arthur Urciuoli
Anthony J. Vespa
Conrad P. Volstad
Kevan V. Watts
Seth H. Waugh
Madeline A. Weinstein
Joseph T. Willett
Robert W. Williamson
FIRST VICE PRESIDENTS
Robert E. Aherne
Charles P. Borkowski, Jr.
Matthias B. Bowman
John R. Cummings
Richard M. Drew
Alan R. Eckert
Harry J. Ferguson
Richard K. Gordon
Brian C. Henderson
Michael Koeneke
Jack Levy
Frank M. Macioce, Jr.
Donald N. Malawsky
Barry J. Mandel
Orestes J. Mihaly
G. Peter O'Brien
VICE PRESIDENTS
Leonard E. Accardo
Rudley B. Anthony
Joseph A. Boccuzzi
Robert G. Dieckmann
Freddy Enriquez
Edward J. Gallagher, Jr.
Scott C. Harrison
Peter C. Lee
Richard D. Lilleston
Daniel R. Mayo
Avadhesh K. Nigam
David D. Northrop
George A. Ruth
John M. Sabatino
Michael S. Schreier
John P. Smith
Robert H. Werthman
Clarence O. Peterson, III
Lawrence W. Roberts
Eric M. Rosenberg
Stanley Schaefer
Barry G. Skolnick
Thomas W. Smith
Arthur H. Sobel
Kenneth S. Spirer
John B. Sprung
Paul A. Stein
Nathan C. Thorne
Edward J. Toohey
James R. Vallone
O. Ray Vass
Frank T. Vayda
David N. Webb
ASSISTANT VICE PRESIDENTS
Gregory R. Krolikowski
Edward A. Mallaney
ASSISTANT SECRETARIES
Darryl W. Colletti
Lawrence M. Egan, Jr.
Andrea Lowenthal
Margaret E. Nelson
II-3
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 104 pages.
Undertaking to File Reports.
Rule 484 Undertaking.
Representation Pursuant to Section 26(e).
Merrill Lynch, Pierce, Fenner & Smith Incorporated Officers and Directors
The signatures.
Written Consents of the Following Persons:
(a) Barry G. Skolnick, Esq.
(b) Joseph E. Crowne, Jr., F.S.A.
(c) Sutherland Asbill & Brennan LLP
(d) Deloitte & Touche LLP, Independent Auditors
The following Exhibits:
<TABLE>
<S> <C> <C> <C>
1.A. (1) Resolution of the Board of Directors of ML Life Insurance Company of New
York establishing the Separate Account (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form S-6 Registration No.
33-61672 Filed April 29, 1997)
(2) Not applicable
(3)(a) Distribution Agreement between ML Life Insurance Company of New York and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to Form S-6
Registration No. 33-61672 Filed April 29, 1997)
(b) Amended Sales Agreement between ML Life Insurance Company of New York and
Merrill Lynch Life Agency Inc. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form S-6 Registration No. 33-61672
Filed April 29, 1997)
(c) Schedules of Sales Commissions. See Exhibit A(3)(b)
(4) Not applicable
(5)(a) (1) Modified Flexible Premium Variable Life Insurance Policy (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 6 to Form S-6
Registration No. 33-51702 Filed April 29, 1997)
(2) Modified Flexible Premium Joint and Last Survivor Variable Life Insurance
Policy (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 6 to Form S-6 Registration No. 33-51702 Filed April 29,
1997)
(b) (1) Backdating Endorsement (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 6 to Form S-6 Registration No. 33-51702
Filed April 29, 1997)
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
(2) Guarantee of Insurability Rider (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6 Registration No.
33-51702 Filed April 29, 1997)
(3) Single Premium Immediate Annuity Rider (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6 Registration No.
33-51702 Filed April 29, 1997)
(4) Flexible Premium Joint and Last Survivor Partial Withdrawal Rider for use
with Modified Flexible Premium Joint and Last Survivor Variable Life
Insurance Policy (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 6 to Form S-6 Registration No. 33-51702
Filed April 29, 1997)
(5) Flexible Premium Partial Withdrawal Rider for use with Modified Flexible
Premium Variable Life Insurance Policy (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6 Registration No.
33-51702 Filed April 29, 1997)
(6) Change of Insured Rider for use with Flexible Premium Variable Life
Insurance Policy (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 6 to Form S-6 Registration No. 33-51702
Filed April 29, 1997)
(6)(a) Charter of ML Life Insurance Company of New York (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to Form S-6
Registration No. 33-61672 Filed April 29, 1997)
(b) By-Laws of ML Life Insurance Company of New York (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to Form S-6
Registration No. 33-61672 Filed April 29, 1997)
(7) Not applicable
(8)(a) Agreement between ML Life Insurance Company of New York and Merrill Lynch
Funds Distributor, Inc. (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form S-6 Registration No. 33-61672
Filed April 29, 1997)
(b) Agreement between ML Life Insurance Company of New York and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form S-6 Registration No.
33-61672 Filed April 29, 1997)
(c) Participation Agreement among Merrill Lynch Life Insurance Company, ML
Life Insurance Company of New York and Monarch Life Insurance Company
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 3
to Form S-6 Registration No. 33-61670 Filed April 27, 1994)
(d) Management Agreement between Royal Tandem Life Insurance Company and
Merrill Lynch Asset Management, Inc. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form S-6 Registration No.
33-61672 Filed April 29, 1997)
(e) Form of Participation Agreement among Merrill Lynch Life Insurance
Company, ML Life Insurance Company of New York and Family Life Insurance
Company (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 3 to Form S-6 Registration No. 33-55472 Filed April 27,
1994)
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C> <C>
(f) Form of Participation Agreement Among ML Life Insurance Company of New
York, Alliance Capital Management L.P., and Alliance Fund Distributors,
Inc. (Incorporated by Reference to ML Life of New York Variable Annuity
Separate Account A's Post-Effective Amendment No. 10 to Form N-4
Registration No. 33-43654 Filed December 9, 1996)
(g) Form of Participation Agreement Among MFS Variable Insurance Trust, ML
Life Insurance Company of New York, and Massachusetts Financial Services
Company (Incorporated by Reference to ML Life of New York Variable
Annuity Separate Account A's Post-Effective Amendment No. 10 to Form N-4
Registration No. 33-43654 Filed December 9, 1996)
(h) Participation Agreement By and Among AIM Variable Insurance Funds, Inc.,
AIM Distributors, Inc., and ML Life Insurance Company of New York
(Incorporated by Reference to ML Life of New York Variable Annuity
Separate Account A's Post-Effective Amendment No. 11 to Form N-4
Registration No. 33-43654 Filed April 24, 1997)
(i) Form of Participation Agreement among ML Life Insurance Company of New
York, Hotchkis and Wiley Variable Trust, and Hotchkis and Wiley
(Incorporated by reference to ML of New York Variable Annuity Separate
Account A's Post-Effective Amendment No. 12 to Form N-4 Registration No.
33-43654 Filed May 1, 1998)
(j) Form of Participation Agreement between ML Life Insurance Company of New
York and Mercury Asset Management V.I. Funds, Inc. (Incorporated by
reference to ML of New York Variable Annuity Separate Account A's
Post-Effective Amendment No. 14 to Form N-4 Registration No. 33-43654
Filed April 16, 1999)
(9)(a) Service Agreement between Tandem Financial Group, Inc. and Royal Tandem
Life Insurance Company (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 8 to Form S-6 Registration No. 33-61672
Filed April 29, 1997)
(b) Service Agreement between ML Life Insurance Company of New York and
Merrill Lynch Life Insurance Company (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 8 to Form S-6 Registration No.
33-61672 Filed April 29, 1997)
(10)(a) Variable Life Insurance Application (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 6 to Form S-6 Registration No.
33-51702 Filed April 29, 1997)
(b) Variable Life Insurance Supplemental Application 1 (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 6 to Form S-6
Registration No. 33-51702 Filed April 29, 1997)
(c) Application for Additional Payment for Variable Life Insurance
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 6
to Form S-6 Registration No. 33-51702 Filed April 29, 1997)
(d) Application for Reinstatement (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 6 to Form S-6 Registration No. 33-51702
Filed April 29, 1997)
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C> <C>
(e) Modified Flexible Premium Variable Life Insurance Policy (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 6 to Form S-6
Registration No. 33-51702 Filed April 29, 1997) (Form No. MFP87(NY)
(7/94)) (Incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 to Form S-6 Registration No. 33-51702 Filed April 28,
1995)
(f) Single Premium Immediate Annuity Certain Rider (Incorporated by Reference
to Registrant's Post-Effective Amendment No. 6 to Form S-6 Registration
No. 33-51702 Filed April 29, 1997) (Form No. MSPIAC86-S(NY) (7/94))
(Incorporated by Reference to Registrant's Post-Effective Amendment No. 4
to Form S-6 Registration No. 33-51702 Filed April 28, 1995)
(g) Modified Flexible Premium Joint and Last Survivor Variable Life Insurance
Policy (Form No. MFPLS87(NY) (7/94)) (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 4 to Form S-6 Registration No.
33-51702 Filed April 28, 1995)
(11)(a) Memorandum describing ML Life Insurance Company of New York's Issuance,
Transfer and Redemption Procedures (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-51702 Filed March 1, 1994)
(b) Supplement to Memorandum describing ML Life Insurance Company of New
York's Issuance, Transfer and Redemption Procedures (Incorporated by
Reference to Registrant's Post-Effective Amendment No. 8 to Form S-6
Registration No. 33-61672 Filed April 29, 1997)
2. See Exhibit 1.A.(5)
3. Opinion and Consent of Barry G. Skolnick, Esq. as to the legality of the
securities being registered (Incorporated by Reference to Registrant's
Post-Effective Amendment No. 5 to Form S-6 Registration No. 33-51702
Filed April 25, 1996)
4. Not applicable
5. Not applicable
6. Opinion and Consent of Joseph E. Crowne, Jr., F.S.A. as to actuarial
matters pertaining to the securities being registered
7. (a) Power of Attorney of Frederick J.C. Butler (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(b) Power of Attorney of Michael P. Cogswell (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(c) Power of Attorney of Sandra K. Cox (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(d) Power of Attorney of Joseph E. Crowne, Jr. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(e) Power of Attorney of David E. Dunford (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
</TABLE>
II-7
<PAGE>
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<S> <C> <C> <C>
(f) Power of Attorney of Francis X. Ervin, Jr. (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 7 to Form S-6 Registration No.
33-61672 Filed April 25, 1996)
(g) Power of Attorney of Gail R. Farkas (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 7 to Form S-6 Registration No.
33-61672 Filed April 25, 1996)
(h) Power of Attorney of John C.R. Hele (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(i) Power of Attorney of Robert L. Israeloff (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(j) Power of Attorney of Allen N. Jones (Incorporated by Reference to ML Life
of New York Variable Annuity Separate Account A's Post-Effective
Amendment No. 11 to Form N-4 Registration No. 33-43654 Filed April 24,
1997)
(k) Power of Attorney of Cynthia L. Kahn (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(l) Power of Attorney of Robert A. King (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(m) Power of Attorney of Stanley C. Peterson (Incorporated by Reference to ML
Life Insurance Company of New York's Registration Statement on Form S-1
Registration No. 333-48983 Filed March 31, 1998)
(n) Power of Attorney of Irving M. Pollack (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(o) Power of Attorney of Barry G. Skolnick (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
(p) Power of Attorney of Anthony J. Vespa (Incorporated by Reference to
Registrant's Post-Effective Amendment No. 2 to Form S-6 Registration No.
33-61670 Filed March 1, 1994)
8. (a) Written Consent of Barry G. Skolnick, Esq.
(b) Written Consent of Joseph E. Crowne, Jr., F.S.A. (See Exhibit 6)
(c) Written Consent of Sutherland Asbill & Brennan LLP
(d) Written Consent of Deloitte & Touche LLP, Independent Auditors
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
ML of New York Variable Life Separate Account II, hereby certifies that this
Post-Effective Amendment No. 8 meets all of the requirements for effectiveness
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933, and has
duly caused this Post-Effective Amendment No. 8 to the Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Plainsboro and the
State of New Jersey, on the 26th day of April, 1999.
ML of New York Variable Life Separate Account II
(Registrant)
By: ML Life Insurance Company of New York
(Depositor)
<TABLE>
<S> <C> <C> <C>
Attest: /s/ EDWARD W. DIFFIN, JR. By: /s/ BARRY G. SKOLNICK
-------------------------------- --------------------------------
Edward W. Diffin, Jr. Barry G. Skolnick
Vice President Senior Vice President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 8 to the Registration Statement has been signed
below by the following persons in the capacities indicated on April 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
* Chairman of the Board,
- ------------------------------ President, and Chief
Anthony J. Vespa Executive Officer
Director, Senior Vice
* President, Chief
- ------------------------------ Financial Officer, Chief
Joseph E. Crowne, Jr. Actuary, and Treasurer
* Director, Senior Vice
- ------------------------------ President, and Chief
David M. Dunford Investment Officer
*
- ------------------------------ Director and Senior Vice
Gail R. Farkas President
*
- ------------------------------ Director, Vice President,
Michael P. Cogswell and Senior Counsel
*
- ------------------------------ Director
Frederick J.C. Butler
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Director
Robert L. Israeloff
*
- ------------------------------ Director
Allen N. Jones
*
- ------------------------------ Director
Cynthia L. Kahn
*
- ------------------------------ Director
Robert A. King
*
- ------------------------------ Director
Stanley C. Peterson
*
- ------------------------------ Director
Irving M. Pollack
</TABLE>
<TABLE>
<S> <C> <C>
In his own capacity as
*By: /s/ BARRY G. SKOLNICK Director, Senior Vice
------------------------- President, General
Barry G. Skolnick Counsel, Secretary and
as Attorney-In-Fact
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
6. Opinion and Consent of Joseph E. Crowne, Jr., F.S.A. as to actuarial
matters pertaining to the securities being registered
8.(a) Written Consent of Barry G. Skolnick, Esq.
8.(c) Written Consent of Sutherland Asbill & Brennan LLP
8.(d) Written Consent of Deloitte & Touche LLP, Independent Auditors
</TABLE>
II-11
<PAGE>
EXHIBIT 6
ML LIFE INSURANCE COMPANY OF NEW YORK
April 26, 1999
Board of Directors
ML Life Insurance Company of New York
100 Church Street, 11th Floor
New York, NY 10080-6511
To The Board of Directors:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 8 to the Registration Statement on Form S-6 (the "Registration
Statement") (File No. 33-51702) which covers premiums received under certain
flexible premium variable life insurance contracts ("Contracts" or "Contract")
issued by ML Life Insurance Company of New York (the "Company").
The Prospectus included in the Registration Statement describes Contracts which
are issued by the Company. The Contract forms were reviewed under my direction,
and I am familiar with the Registration Statement and Exhibits thereto. In my
opinion:
1. The illustrations of death benefits, investment base, cash surrender values
and accumulated premiums included in the Registration Statement for the Contract
and based on the assumptions stated in the illustrations, are consistent with
the provision of the Contract. The rate structure of the Contract has not been
designed so as to make the relationship between premiums and benefits, as shown
in the illustrations, appear more favorable to a prospective purchaser of a
Contract for the ages and sexes shown, than to prospective purchasers of a
Contract for other ages and sex.
2. The table of illustrative net single premium factors included in the "Death
Benefit Proceeds" section is consistent with the provision of the Contract.
3. The information with respect to the Contract contained in (i) the
illustrations of the change in face amount included in the "Additional Payments"
sections of the Examples, (ii) the illustrations of a change in Guarantee Period
included in the "Changing the Face Amount" section of the Examples and (iii) the
illustrations of the changes in face amount included in the "Partial
Withdrawals" section of the Examples, based on the assumptions specified, are
consistent with the provisions of the Contract.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of my name relating to actuarial matters under the
heading "Experts" in the Prospectus.
<TABLE>
<S> <C>
Very truly yours,
/s/ JOSEPH E. CROWNE
---------------------------------------------
Joseph E. Crowne, FSA
Senior Vice President & Chief Financial Officer
</TABLE>
<PAGE>
EXHIBIT 8(a)
[ML LIFE INSURANCE COMPANY OF NEW YORK]
CONSENT
I hereby consent to the reference to my name under the heading "Legal
Matters" in the prospectus included in Post-Effective Amendment No. 8 to the
Registration Statement on Form S-6 for certain variable life insurance contracts
issued through ML of New York Variable Life Separate Account II of ML Life
Insurance Company of New York (File No. 33-51702).
<TABLE>
<S> <C>
/s/ BARRY G. SKOLNICK
------------------------------------------------
Barry G. Skolnick, Esq.
Senior Vice President and General Counsel
</TABLE>
April 26, 1999
<PAGE>
EXHIBIT 8(c)
[SUTHERLAND ASBILL & BRENNAN LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm under the heading "Legal Matters" in
the prospectus included in Post-Effective Amendment No. 8 to the Registration
Statement on Form S-6 for certain variable life insurance contracts issued
through ML of New York Variable Life Separate Account II of ML Life Insurance
Company of New York (File No. 33-51702). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
<TABLE>
<S> <C>
/s/ SUTHERLAND ASBILL & BRENNAN LLP
------------------------------------------------
SUTHERLAND ASBILL & BRENNAN LLP
</TABLE>
Washington, D.C.
April 26, 1999
<PAGE>
EXHIBIT 8(d)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 8 to the
Registration Statement No. 33-51702 of ML of New York Variable Life Separate
Account II on Form S-6 of our reports on (i) ML Life Insurance Company of New
York dated February 22, 1999, and (ii) ML of New York Variable Life Separate
Account II dated February 4, 1999, appearing in the Prospectus, which is a part
of such Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 27, 1999
